The questions of how shifts occur between inertia and change and why only some organizations make strategic changes have received significant attention from scholars in strategy and organization theory. Here the horizontal and vertical dimensions of organizational power structures’ influence on the dynamics of corporate strategy are examined.The horizontal dimension of institutionalization of subunit power causes inertia, while the vertical dimension of power differences in the top management team causes strategic change. These effects hold for the simple magnitude of strategic changes, changes that break organizational momentum and changes following performance decline. Analysis of changes in the diversification of Japanese shipbuilding and robotics firms supports the theory.
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