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Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments

Summary for agile leaders

Develops the concept that executives in fast-moving environments overcorrect the inevitable drift to efficiency and bureaucracy (structure and constraints). They increase flexibility using: heuristics; deliberate simplification (following periods of enhancement); injecting flexibility (temporary projects, alliances, prototypes).

Explores nuances of operating in dynamic environments, that firms may operate in multiple environments (of varying volatility), and each dynamic situation has unique combinations of ambiguity and unpredictability. Suggests that rather than balancing efficiency and flexibility (per ambidexterity theory), executives use their experience and single mechanisms of higher-order cognition: abstractions (heuristics); cognitive variety (new thinking); interruptions (reflective learning).

 

Reviewed: 01 Jan 2023 by Russ Lewis
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Authors: 
Kathleen M. Eisenhardt, Nathan R. Furr, Christopher B. Bingham
Publication date: 
2010
DOI: 
10.1287/orsc.1100.0564

My classifications

Abstract

Our purpose is to clarify the microfoundations of performance in dynamic environments. A key premise is that the microfoundational link from organization, strategy, and dynamic capabilities to performance centers on how leaders manage the fundamental tension between efficiency and flexibility. We develop several insights. First, regarding structure, we highlight that organizations often drift toward efficiency, and so balancing efficiency and flexibility comes, counterintuitively, through unbalancing to favor flexibility. Second, we argue that environmental dynamism, rather than being simply stable or dynamic, is a multidimensional construct with dimensions that uniquely influence the importance and ease of balancing efficiency and flexibility. Third, we outline how executives balance efficiency and flexibility through cognitively sophisticated, single solutions rather than by simply holding contradictions. Overall, we go beyond the caricature of new organizational forms as obsessed with fluidity and the simplistic view of routines as the microfoundation of performance. Rather, we contribute a more accurate view of how leaders effectively balance between efficiency and flexibility by emphasizing heuristics-based "strategies of simple rules," multiple environmental realities, and higher-order "expert" cognition. Together, these insights seek to add needed precision to the microfoundations of performance in dynamic environments.

Cite as (Harvard referencing)

Eisenhardt, K.M., Furr, N.R., Bingham, C.B., 2010. Microfoundations of Performance: Balancing Efficiency and Flexibility in Dynamic Environments. Organization Science 21, 1263–1273
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