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A multidimensional conceptualization of environmental velocity

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A multidimensional conceptualization of environmental velocity
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  A MULTIDIMENSIONAL CONCEPTUALIZATIONOF ENVIRONMENTAL VELOCITY IAN P. M C CARTHYTHOMAS B. LAWRENCEBRIAN WIXTEDBRIAN R. GORDONSimon Fraser University Environmental velocity has emerged as an important concept but remains theoreti-cally underdeveloped, particularly with respect to its multidimensionality. In re-sponse, we develop a framework that examines the variations in velocity acrossmultiple dimensions of the environment (homology) and the causal linkages betweenthose velocities (coupling). We then propose four velocity regimes based on differentpatterns of homology and coupling and argue that the conditions of each regime haveimportant implications for organizations. Environmental velocity 1 has become an im-portant concept for characterizing the conditionsof organizational environments. Bourgeois andEisenhardt (1988) introduced this concept to themanagement literature in their study of strate-gic decision making in the microcomputer in-dustry. They described this industry as a “high-velocity environment”—one characterized by“rapid and discontinuous change in demand,competitors, technology and/or regulation, suchthat information is often inaccurate, unavail-able, or obsolete” (Bourgeois & Eisenhardt, 1988:816). From the perspective that the environmentis a source of information that managers use tomaintain or modify their organizations (Aldrich,1979, Scott, 1981), velocity has important impli-cations for organizations. Studies have found,for example, that success in high-velocity indus-tries is related to fast, formal strategic decision-making processes (Eisenhardt, 1989; Judge &Miller, 1991); high levels of team and processintegration (Smith et al., 1994); rapid organiza-tional adaptation and fast product innovation(Eisenhardt & Tabrizi, 1995); and the use of heu-ristic reasoning processes (Oliver & Roos, 2005).More generally, research on velocity has shownthat it affects how managers interpret their en-vironments (Nadkarni & Barr, 2008; Nadkarni &Narayanan, 2007a), further highlighting the ef-fects of environmental dynamism on key orga-nizational members (Dess & Beard, 1984).A common feature of the treatment of environ-mental velocity in the literature has been theuse of singular categorical descriptors to char-acterize industries—most typically as “low,”“moderate,” or “high” velocity (e.g., Bourgeois &Eisenhardt, 1988; Eisenhardt, 1989; Eisenhardt& Tabrizi, 1995; Judge & Miller, 1991; Nadkarni &Narayanan, 2007a,b). Although Bourgeois andEisenhardt (1988) defined environmental veloc-ity in terms of change (rate and direction) inmultiple dimensions (demand, competitors,technology, and regulation), research on veloc-ity has tended to overlook its multidimensional-ity, instead assuming that a single velocity canbe determined by aggregating the paces ofchange across all the dimensions of an organi-zation’s environment. This assumption over-looks the fact that environmental velocity is avector quantity jointly defined by two attributes(the rate and the direction of change) and thatorganizational environments are composed ofmultiple dimensions, each of which may be as-sociated with a distinct rate and direction ofchange. We are grateful to associate editor Mason Carpenter andthree anonymous reviewers for their helpful and construc-tivecomments.Thedevelopmentofthispaperalsobenefitedfrom comments from Joel Baum, Danny Breznitz, SebastianFixson, Mark Freel, Rick Iverson, Danny Miller, DaveThomas, Andrew von Nordenflycht, Mark Wexler, CarstenZimmermann, and seminar participants at Simon FraserUniversity and the 2008 INFORMS Organization Science Pa-per Development Workshop. We are also grateful to theCanadian Social Sciences and Humanities Research Coun-cil for funding that supported this research. 1 To increase the paper’s readability, we use the terms environmental velocity and velocity interchangeably. ஽ Academy of Management Review 2010, Vol. 35, No. 4, 604–626. 604 Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyrightholder’s express written permission. Users may print, download, or email articles for individual use only.  In this paper we aim to advance understand-ing of environmental velocity by developing atheoretical framework that articulates its multi-dimensionality and by exploring the implica-tions of this framework for understanding theorganization-environment relationship. We ar-gue that while there may be cases in whichorganizational environments can be accuratelyspecified by a single descriptor (e.g., high veloc-ity), a multidimensional conceptualizationopens up a number of opportunities. First, itprovides a basis for more fine-grained descrip-tions of the patterns of change that occur inorganizational environments. An understandingof a firm’s environmental velocity as composedof multiple, distinct rates and directions ofchange across multiple dimensions allows us tomove beyond characterizations of industries ashigh or low velocity and the assumption that alldimensions change at similar rates and in sim-ilar directions (Bourgeois & Eisenhardt, 1988;Eisenhardt, 1989; Judge & Miller, 1991; Smith etal., 1994). Perhaps most important in this regard,a multidimensional conceptualization allowsfor an examination of the relationships amongthe dimensions of velocity, which we argue canhave a profound impact on organizations.Second, a multidimensional conceptualiza-tion of velocity offers a foundation for more con-sistent operationalizations of the construct,which would help improve the reliability andvalidity of research that employs it. Our reviewof the environmental velocity literature indi-cates a reliance on singular descriptors of ve-locity, which has led to inconsistent operation-alizations of the construct. Thus, while it hassometimes been claimed that people can recog-nize a high-velocity environment when they seeone (Judge & Miller, 1991), the different ways thatthe velocity of the same industry has been cat-egorized by different researchers would seem toindicateotherwise.Suchinconsistenciesmaybedue to focusing on one or two particularly sa-lient velocity dimensions or to combining datafor multiple velocity dimensions without consid-ering the aggregation errors that can occur if thedimensions do not perfectly covary.Finally, by understanding that the environ-ments of organizations have multiple, distinctvelocities, it is possible to identify different pat-terns of environmental velocity whose condi-tions affect organizations in ways that go be-yond the insights that have emerged fromstudies characterizing velocity as simply high orlow. Specifically, we explain how the multidi-mensionality of velocity can affect the degree towhich an organization’s activities will be en-trained and adjusted over time. We then high-light how these implications apply to two pro-cesses that have been central to prior researchon velocity: strategic decision making and newproduct development.Our exclusive focus on environmental velocitydiffers from prior research that has sought tocharacterize organizational environments interms of a set of core properties—most com-monly some variation of complexity, dynamism,and munificence (Aldrich, 1979; Dess & Beard,1984; Scott, 1981). In pursuing this aim, we rec-ognizethetrade-offsamonggeneralizability,ac-curacy, and simplicity (Blalock, 1982) inherent inexamining one aspect of the environment indepth while bracketing other important environ-mental dimensions. Research focused on thegeneral organizational environment has strivedfor “high levels of simplicity and generalizabil-ity, with a corresponding sacrifice of accuracy”(Dess & Rasheed, 1991: 703). This approach hasbeen characterized as “collapsing” the hetero-geneity of the environment into a more parsimo-nious set of properties (Keats & Hitt, 1988). Incontrast, we focus on a single specific aspect ofenvironmental dynamism—velocity—and ex-plore in detail its dimensions, how the velocitiesof these dimensions vary and interact, and theconsequences of those differences and interac-tions. Our approach follows other studies thathave examined specific environmental con-structs, such as uncertainty (Milliken, 1987) andmunificence (Castrogiovanni, 1991). An impor-tant consequence of focusing on a single aspectof the environment is that any normative or pre-dictive claims we make must be made with ce-teris paribus restrictions placed on them. This,of course, complicates the application of suchclaims in research or practice but also allows adeeper examination of specific phenomena (Pi-etroski & Rey, 1995).We present our arguments as follows. First,we review the concept of environmental velocityas it has been developed in management re-search, focusing on the opportunities that thiswork presents for developing a multidimen-sional conceptualization. Second, we presentour framework by defining several fundamentaldimensions of the organizational environment 2010 605  McCarthy, Lawrence, Wixted, and Gordon  and defining the key aspects of velocity—therate and direction of change—for each dimen-sion. Third, we examine the potential relation-ships among velocity dimensions (such as prod-ucts and technology) by introducing threeconcepts: (1) “velocity homology,” which is thedegree to which velocity dimensions have sim-ilar rates and directions of change at a point intime; (2) “velocity coupling,” which is the degreeto which the velocities of different dimensionsaffect one another over time; and (3) “velocityregimes,” which represent patterns of velocityhomology and velocity coupling. Fourth, we ex-plore the implications of our framework for or-ganization-environment relationships and forstrategic decision making and new productdevelopment. ENVIRONMENTAL VELOCITY INMANAGEMENT RESEARCH In physics, velocity refers to the rate of dis-placement or movement of a body in a particulardirection. Thus, it is a vector quantity jointlydefined by two distinct attributes: the rate ofchange and the direction of change. The defini-tion of high-velocity environments articulatedby Bourgeois and Eisenhardt (1988) capturedthese two attributes, referring to rapid and dis-continuous change in multiple dimensions ofthe environment, such as demand, competitors,technology, and regulation. The notion of highvelocity provided an evocative way to charac-terize the fast-moving, high-technology industrythat was the context of their studies, and it com-plemented a number of similar but conceptuallydistinct environmental constructs, including dy-namism (Baum & Wally, 2003; Dess & Beard,1984; Lawrence & Lorsch, 1967), turbulence (Em-ery & Trist, 1965; Terreberry, 1968), and hypertur-bulence (McCann & Selsky, 1984). More recently,environmental velocity has been used in con-junction with or as a synonym for other relatedenvironmental constructs, such as “clockspeed”(i.e., the speed of change in an industry; Fine,1998; Nadkarni & Narayanan, 2007a,b) and hy-percompetition (Bogner & Barr, 2000; D’Aveni,1994).Table 1 lists some of the major studies in stra-tegic management and organization theory inwhich the concept of environmental velocityplays a central role. For each study the tabledelineates the phenomenon of interest, the in-dustry context, the level (high, moderate, or low)of velocity considered, and the measures em-ployed (if any). Looking across these studies, weidentify three themes that characterize much ofthe existing research in the area and provide themotivation for the theoretical framework that wedevelop.First, existing studies have predominantly fo-cused on high-velocity environments, with lim-ited attention to other potential patterns of ve-locity. Consequently, we know relatively little,for instance, about the velocity-related chal-lenges faced by firms operating in low-velocityenvironments, where the slow pace of changemay be associated with protracted developmentlead times, long decision horizons, and rela-tively infrequent feedback. Also, and more gen-erally, the focus on high-velocity environmentsmay be a significant factor in the treatment ofvelocity in terms of singular categorical descrip-tors; the term high-velocity environment itselfseems to imply that multiple dimensions of theenvironment (e.g., products, markets, technol-ogy) combine nonproblematically to produce asingle, cumulative, high level of velocity. Whilethis may be true in some cases, it is not clearthat it applies broadly across firms andindustries.Second, high-velocity environments are oftenpresented as synonymous with high-technologyindustries, perhaps because Bourgeois andEisenhardt’s initial study focused on the earlymicrocomputer industry. Industries have beencategorized as high velocity simply becausethey are technology intensive (Smith et al., 1994)or are built around an evolving scientific base(Eisenhardt & Tabrizi, 1995), regardless ofwhether other environmental dimensions ex-hibit low or modest rates of change or relativelycontinuous directions. Judge and Miller (1991),for instance, identified the biotechnology indus-try as high velocity, despite its relatively longproduct development lead times and productlife cycles (both ten to twenty years).Finally, existing research tends to lack an ex-plicit measurement model or justification for thecategorization of specific organizational con-texts or industries. Instead, researchers declarethat they are studying high-velocity environ-ments and reiterate Bourgeois and Eisenhardt’s(1988) srcinal definition without significant ex-planation or direct evidence (the studies byJudge and Miller [1991] and Nadkarni and Barr 606 October  Academy of Management Review  [2008] representing notable exceptions). Thisvariation in the extent to which velocity hasbeen operationalized has resulted in some coun-terintuitive and inconsistent categorizations ofindustry velocity. Studies of health care, for in-stance, have labeled those environments asboth high velocity (Stepanovich & Uhrig, 1999)and moderate velocity (Judge & Miller, 1991).Furthermore, our understanding of velocity andits effects across industry contexts has largelyfocused on only one attribute of velocity—therate of change—since prior research has tendedto use measures associated with the clockspeedof an industry (e.g., Nadkarni & Narayanan,2007a; Oliver & Roos, 2005; Smith et al., 1994) orhas equated velocity with the speed at whichnew opportunities emerge (Davis, Eisenhardt, &Bingham, 2009).Looking across these themes, we see that re-search on environmental velocity has providedinteresting and influential insights, particularlyinto the nature of organizational processes op-erating in fast-changing, high-technology in-dustries. We suggest, however, that the con-struct itself requires a more fine-grainedexamination, since existing research tends toassume that it can be adequately representedby an aggregation of the rates of change acrossdifferent environmental dimensions or by a fo-cus on change in only one dimension of the TABLE 1Environmental Velocity in Management Research Example StudiesManagement/OrganizationPhenomenaLevel of Velocity(Industry Context) Conceptualization of VelocityVelocity MeasuresUsed Bourgeois &Eisenhardt (1988)Pace and style of strategicdecision makingHigh (microcomputerindustry)Uniform change in the rate anddirection of demand,competition, technology, andregulationIllustrative statisticsand examplesEisenhardt &Bourgeois (1988)Politics of strategic decisionmakingHigh (microcomputerindustry)As per Bourgeois & Eisenhardt(1988)Illustrative statisticsand examplesEisenhardt (1989) Rapid strategic decision making High (microcomputerindustry)As per Bourgeois & Eisenhardt(1988)Illustrative statisticsand examplesJudge & Miller(1991)Antecedents and outcomes ofdecision speedHigh (biotechnology),medium (hospital),and low (textile)Aggregation of industry growthand perceived pace oftechnological, regulatory,and competitive changeIndustry data andsurvey data fromfirmsSmith et al. (1994) The effect of team demographyand team processHigh (informational,electrical,biomedical,environmental)Rate of change in product,demand, and competitionIllustrative statisticsEisenhardt &Tabrizi (1995)Rapid organizational adaptationand fast product innovationHigh (computer) As per Bourgeois & Eisenhardt(1988)Illustrative statisticsand examplesBrown &Eisenhardt (1997)Continuous organization change High (computer) As per Bourgeois & Eisenhardt(1988)Illustrative statisticsand examplesStepanovich &Uhrig (1999)Strategic decision-makingpracticesHigh (health care) Rate of change in demand,competition, technology, andregulationsAn illustrativeexampleBogner & Barr(2000)Cognitive and sensemakingabilitiesHigh (IT) A form of hypercompetition NoneOliver & Roos(2005)Team-based decision making High (toys and ITtools)Rate of change and the timeavailable to make decisionsNoneBrauer & Schmidt(2006)Temporal development of afirm’s strategyimplementationHigh and low(industries notspecified)A form of dynamism andvolatilityIndustry marketreturns dataDavis & Shirato(2007)A firm’s propensity to launchWorld Trade OrganizationactionsHigh (computer),medium (auto), andlow (steel)The number of product linesand the rate of productturnoverR&D expenditure/ total revenueNadkarni &Narayanan(2007a)How cognitive construction byfirms drives industry velocityHigh (computers,toys) and low(aircraft, steel)Rate of change (clockspeed) forproduct, process, and organi-zational dimensionsIndustry clockspeedsNadkarni &Narayanan(2007b)Relationship between strategicschemas and strategicflexibilityHigh (computers,toys) and low(aircraft, steel)The rate of industry change(clockspeed)Industry clockspeedsNadkarni & Barr(2008)How velocity affects managerialcognition, which in turnaffects the relationshipbetween industry context andstrategic actionHigh (semiconductor,cosmetic) and low(aircraft,petrochemical)As per Bourgeois & Eisenhardt(1988)A review of existingliterature andmatching usingindustry attributesDavis, Eisenhardt,& Bingham(2009)The performance and structuralimplications of velocityHigh and low(conceptualsimulation model)The speed or rate at which newopportunities emerge in theenvironmentA Poissondistribution of newopportunities 2010 607  McCarthy, Lawrence, Wixted, and Gordon  environment to the exclusion of others. In con-trast, we believe that a multidimensional con-ceptualization of velocity would provide astronger foundation for clarifying and opera-tionalizing its characteristics and for betterunderstanding its diversity and impacts onorganizations. ENVIRONMENTAL VELOCITY AS AMULTIDIMENSIONAL CONCEPT The core understanding of environmental ve-locity that we propose is that organizational en-vironments are composed of multiple dimen-sions, each of which is associated with its ownrate and direction of change. This simple notion,we argue, has profound effects on how we un-derstand and research velocity and on the or-ganizational reactions to velocity we expect andprescribe. In this section we begin to constructour theoretical framework, first by defining thebasic concepts of rate of change and direction ofchange as they apply to the organizational en-vironment in general, and then by describinghow these basic concepts apply to some primarydimensions of the organizational environment. The Rate and Direction of Change Environmental velocity is a vector quantitydefined by the rate and direction of change ex-hibited by one or more dimensions of the orga-nizational environment over a specified period.The rate of change is the amount of change in adimension of the environment over a specifiedperiod of time, synonymous with such conceptsas pace, speed, clock rate, or frequency ofchange. The direction of change, while oftenmentioned in studies citing Bourgeois andEisenhardt’s (1988) definition, has attracted rel-atively little attention beyond that. One possiblereason for this is the relative difficulty of de-scribing the direction of environmental change.Whereas the velocity of a physical object can bedescribed simply as moving eastward at 50 km/ hr, similarly straightforward descriptions of thedirection of change of an organizational envi-ronment are not so obvious. This is particularlythe case when we consider the direction ofchange across different industry dimensions,such as products, technology, and regulation,the direction of each of which could be de-scribed in numerous distinct ways.In order to describe the direction of change ina way that allows comparison across industrydimensions, we follow Bourgeois and Eisen-hardt (1988), who suggest that the direction ofchange varies in terms of its degree of continu-ity-discontinuity. They argue that continuouschange represents an extension of past devel-opment (e.g., continuously faster computer tech-nology), whereas discontinuous change repre-sents a shift in direction (the move from film todigital photography, or the shifts that occur infashion industries). Discontinuities, therefore,can be represented by inflection points in thetrajectories that describe change in a dimensionover time (e.g., technology price-performancecurves or demand curves for specific products).To more fully articulate a continuum of con-tinuous-discontinuous change, we draw onWholey and Brittain’s (1989) three-part concep-tualization of environmental variation, arguingthat the direction of change is discontinuous tothe extent that shifts in the trajectory of changeare more recurrent, with greater amplitude andwith greater unpredictability over a period oftime. This approach helps us distinguish be-tween relatively regular, predictable (e.g., sea-sonal) variations in environmental velocity andirregular types of change that are more difficultto predict and, consequently, more challengingin terms of organizational responses (Milliken,1987). We suggest that such variations in thecontinuity-discontinuity of a velocity dimen-sion’s trajectory allow for the use of structuralequation modeling (Kline, 2004) and differencescores(Edwards,1994)toproducegrowthmodelsthat measure transitions in change over time(Bliese, Chan, & Ployhart, 2007; Singer & Willett,2003).Furthermore, to operationalize the rate anddirection of change of each velocity dimension,we suggest that the measures will require scaleuniformity to allow the relative differences be-tween the dimensions to be compared and cor-related (Downey, Hellriegel, & Slocum, 1975; Mil-liken, 1987). To achieve this, we suggest that therate and direction of change will be some formof scalar measure (e.g., change/time). Therefore,even though what is changing will vary for eachof the dimensions, their relative rates and direc-tions of change can be determined and com-pared by using the same period of time for thedifferent dimensions (i.e., new products per year and changes in product direction per year ). 608 October  Academy of Management Review
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