* Academy of Monogemeni Review

1998. Vol. 23. No. 1, U5-132.

ORGANIZATIONAL DECLINE AND

INNOVATION: A CONTINGENCY FRAMEWORK
MARK A. MONE
University oi Wisconsin at Milwaukee

WILLIAM MCKINLEY
Southern Illinois University at Carbondale

VINCENT L. BARKER III

University of Wisconsin at Milwaukee

An examination of the diverse literature on organizational decline shows that there is

disagreement regarding the effects of decline on innovation. Some research streams
suggest that organizational decline interferes with an organization's capacity to
innovate, whereas other research implies just the opposite: organizational decline
stimulates innovation. In this article we integrate the inconsistent perspectives and
findings in these research streams by developing a contingency model. The model
identifies variables at the environmental, organizational, and individual levels of
analysis that determine whether organizational decline inhibits or stimulates inno-
vation. We summarize the moderating efiects of these variables with empirically
testable propositions and discuBS implications of the framework for future research
and management practice.

Scholarship on organizational decline has scarcity (e.g., Castrogiovanni, 1991; McKinley,

grown considerably in recent years. While some
decline researchers have focused on the concep-
tual problem of defining organizational decline
{e.g., Cameron, Kim, & Whetten, 1987; Green-
halgh, 1983), others have developed large-scale
theoretical models describing the environmen-
tal changes responsible for organizational de-
cline or delineating the impact of decline on
organizational structure (e.g., Sutton, 1990;
Zammuto & Cameron, 1985). Several, in their
empirical studies, also have examined the con-
sequences of actual or perceived organizational
decline (e.g.. Freeman & Hannan, 1975; McKin-
ley, Ponemon, & Schick, 1996}.
As organizational decline research h a s
boomed, parallel research streams also have
grown rapidly. For example, extensive literature
exists on organizational responses to resource
An earlier version of this article was presented at the 13th
Annual International Conierence of the Strategic Manage-
ment Society, Chicago. September 1993. The authors are
grateful to the conierence participants, several anonymous
AMR reviewers, and Andrew H. Van de Ven ior their helptul
comments on previous drafts. This article has also benefited
from insightful comments by Douglas Baker. Donald Fedor.
Reed Nelson, and Paul Nystrom. All three coauthors contrib-
uted equally to this paper.
llS
Cheng, & Schick, 1986). Given the increasing
frequency and legitimacy of layoffs, practitioner
and scholarly writing on layoffs and layoff sur-
vivors has expanded as well (e.g., Brockner,
1992a; Leana & Feldman, 1992). Simultaneously,
scholarly literature on organizational downsiz-
ing is evolving out of practitioner roots (Bruton,
Keels, & Shook, 1996; Cameron, Freeman, &
Mishra, 1991; Cascio, 1993), and bankruptcy re-
search has moved beyond its origins in finance
to become an issue of concern to organizational
scholars (e.g.. Daily 8E Dalton, 1994; D'Aveni,
1989a, 1990; Sutton & Callahan, 1987). Organiza-
tional researchers have even begun to study the
social and psychological processes that unfold
during organizational death (Harris & Sutton,
1986; Sutton, 1987). Finally, cases in which organi-
zations have been able to engineer turnarounds
from decline or bankruptcy have been the subject
of intense scrutiny by researchers (e.g.. Barker &
Duhaime, 1997; Robbins & Pearce, 1992).
An important issue scholars thread through
much of the diverse literature cited above is the
question of whetherand howorganizations
adapt to organizational decline. Different theo-
retical frameworks and empirical studies have
implied different answers to this question, and
116 Academy of Management Review
researchers note repeatedly the inconsistency
between these views (e.g., Boeker & Goodstein,
1991; McKinley, 1993; Ocasio, 1995; Singh, 1986).
On the one hand, if organizational decline rep-
resents a gap between performance and aspira-
tions, organizational learning theorists suggest
that decline stimulates adaptation, search pro-
cesses, and organizational change (Cyert &
March, 1963; Kiesler & Sproull, 1982). On the
other hand, threat-rigidity theorists suggest that
decline inhibits cognitive processes, restricts
decision making, and limits the number of op-
tions considered by managers, thereby reducing
organizational change and adaptation (Staw,
Sandelands, & Dutton, 1981). An important di-
mension of adaptation is organizational innova-
tion (Brown & Eisenhardt, 1995; Eisenhardt &
Tabrizi, 1995), and the debate described above
revolves, at least partly, around inconsistent po-
sitions about the influence of organizational de-
cline on innovation.
These inconsistent positions become evident
when one surveys the organizational decline lit-
erature, but, thus far, there has been relatively
little effort devoted to adjudicating between
them. In this article we attempt to fill that gap by
identifying variables moderating the effect of
organizational decline on innovation. Although
the proposed variables are not the only possible
moderators, we suggest that the following rep-
resent variables that operate at different levels
of analysis to account for substantial differ-
ences in the organizational decline-innovation
relationship. First, at the environmental level is
the degree to which an organization's mission is
institutionalizedviewed as expectations by
those outside the organization. Next, at the or-
ganizational level is the degree to which power
is diffused throughout the organization as well
as the quantity of uncommitted resources avail-
able to the organization. Finally, at the individ-
ual level are the types of causal attributions
made by managers to explain decline. We argue
that these variables specify conditions under
which decline may either inhibit or stimulate
innovation, depending on the level of the mod-
erator variable. In our argument the moderator
variables can be viewed as continua so that the
decline-innovation relationship changes as the
level of the moderator varies.
We advance, in this article, organizational de-
cline scholarship by making several contribu-
tions to the rapidly evolving literature on organ-
January
izational decline. First, we seek to bring some
order to the decline literature by providing a
point of integration for the disparate perspec-
tives on adaptation to organizational decline.
Indeed, the theoretical arguments we advance
here can partially explain the inconsistent im-
plications of different research streams regard-
ing the consequences of decline. Second, we
provide a set of propositions that can serve as a
stimulus for future empirical research. Within
the general theoretical framework provided by
this paper, researchers could study a variety of
different types of innovation and determine
whether organizational decline affects them in
the way we predict. This could be the focus for
an organized research program that would ex-
tend our knowledge of the organizational de-
cline process. Collectively, these contributions
may increase our understanding and predictive
capabilities concerning why organizations re-
spond differently to decline under different
conditions.
First, we provide a brief review of literature
supporting a negative effect of organizational
decline on innovation and contrast it with liter-
ature suggesting that organizational decline
stimulates innovation. We then describe the
moderators listed above and develop theoretical
arguments that explain how they influence the
relationship between organizational decline
and innovation. We summarize these arguments
with propositions suitable for empirical testing.
Finally, we discuss implications of our frame-
work for future empirical investigation, as well
as implications for management practice. Com-
pared with the work of such researchers as Ford
(1985), Ford and Baucus (1987), and Ocasio (1995),
our framework makes a unique contribution by
putting a stronger emphasis on objective, exter-
nal moderators of organizational responses to
decline. For example. Ford (1985) theorizes that
organizational responses to performance down-
turns depend on decision makers' causal attri-
butions. Ford and Baucus (1987) maintain that
adaptive responses are a function of decision
makers' interpretations of their environments,
and Ocasio (1995) suggests that the direction of
organizational change in the face of adversity
varies according to socially constructed mental
models. Our article builds upon this work by
examining decision makers' perceptionsnota-
bly, causal attribution dimensionsbut we also
include more objective environmental and organ-
1998 Mone, McKinley. and Barter
izationai factors that may influence the degree
of innovation in response to decline. These mod-
erators constitute some of the constraints within
which organizations must operate in attempting
to react to organizational decline.
ORGANIZATIONAL DECLINE: INHIBITOR OR
STIMULUS OF INNOVATION?
In this article we define "organizational de-
cline" by adopting Cameron, Kim, and Whet-
ten's (1987) definition: a decrease in an organi-
zation's resource base. In this sense we view
organizational decline as a measurable threat
to an organization's viability. Specific examples
include protracted reductions in market share,
financial losses, reduced enrollments, or sub-
stantially reduced product demand and sales.
Following Meyer (1988), this definition suggests
that, although there may be different causes of
decline (e.g., declining industry, impoverished
niche, outmoded strategies), the effect remains
constant: organizations are substantially, mate-
rially impacted and may face short-term conse-
quences, such as negative net cash flow, and
long-term outcomes, such as bankruptcy or or-
ganizational death. Our definition distinguishes
organizational decline from such closely related
constructs as "environmental decline," which
has been defined as declining industry demand
or the erosion, contraction, dissolution, or col-
lapse of a population's environmental niche
(Zammuto & Cameron, 1985). The definition of
organizational decline we use here also differ-
entiates decline from "downsizing," which is
generally defined as intended reductions in per-
sonnel (e,g.. Freeman & Cameron, 1993; Mone,
1998).
Consistent with extant literature (e.g.. Daft,
1982; Damanpour, 1987, 1991; Pierce & Delbecq,
1977), we define "innovation" rather broadly to
encompass any action that either puts the organ-
ization into new strategic domains or signifi-
cantly alters the way the organization attempts
to serve existing customers or constituents. As
such, innovation in response to decline pushes
the organization beyond its currently estab-
lished routines for serving customers or stake-
holders. Examples of organizational innovation
include the development or adoption of a new
product or service, a new manufacturing process
or technology, or a revised strategic orientation
(Cheng & Van de Ven, 1996). Generally, organi-
117
zational innovation is intended to improve effec-
tiveness as organizations attempt to respond to
changes in their internal or external environ-
ments (Damanpour, 1991). However, not all inno-
vations succeed in improving organizational
performance (Abrahamson, 1991), so innovation
in reaction to decline is not synonymous with a
turnaround in performance.
Innovation is relatively rare in organizations,
compared to normal administrative routines, be-
cause the act of implementing an innovation is
controversial, creates uncertainty, and requires
coordination across organizational subunits
(Kanter, 1988). For example, managers may re-
sist innovations because they cannot accurately
predict their costs and benefits, in contrast to
existing policies and procedures. Innovations
also compete with alternative courses of action,
including maintaining the status quo, which
means that adopting them likely will cause con-
troversy. Finally, because innovations cross the
boundaries of organizational subunits, their im-
plementation may be resisted by some subunits
as they lose power and resources, or if they must
change their own internal processes (Kanter,
1988). Therefore, since innovations are poten-
tially adaptive, yet occur relatively infrequently
in organizations, understanding the variables
that determine whether organizational decline
impedes or promotes innovation is an important
theoretical issue.
Necessity Is the Mother of Rigidity
Much of the scholarly literature on organiza-
tional decline and resource scarcity concludes
that organizational decline inhibits innovation.
This school of thought might be termed "neces-
sity is the mother of rigidity." For example, Staw
et al. (1981) present a theoretical model in which
external threat, such as might be represented by
organizational decline, causes organizations to
restrict information processing and to conserve
resources. These outcomes have a conservative
influence on the organization, leading to reli-
ance on well-learned routines and lack of inno-
vation. Empirical and theoretical support for
parts of Staw and his coauthors' (1981) model
has appeared in the organizational decline lit-
erature (e.g.. Barker & Mone, 1998; D'Aunno &
Sutton, 1992; Ocasio, 1995; Sutton & D'Aunno,
1989). We can find additional confirmation of the
model's general implication that organizational
118 Academy of Management Review
decline increases rigidity in a wide variety of
studies, particularly those focusing on public
sector organizations and universities. Research-
ers have suggested that organizational decline
leads to an efficiency orientation (Cameron,
1983; D'Aveni, 1989b), an internal focus (Whetten,
1981), restricted domain definition (Bozeman &
Slusher, 1979), reduced innovativeness (Cam-
eron, Whetten, & Kim, 1987), and increased work-
force homogeneity (Greenhalgh, 1983). Scholars
argue that these outcomes increase rigidity and
reduce an organization's capacity to innovate in
response to organizational decline.
A second and related stream of work that sup-
ports the position that organizational decline
inhibits innovation is the extensive literature on
organizational crisis (e.g., Billings, Milburn, &
Schaalman, 1980; Hermann, 1963; Nystrom &
Starbuck, 1984). These researchers often model
crisis as the outcome of organizational decline
and emphasize the cognitive effects of crisis on
individual decision makers and the dynamics of
decision-making groups. Their conclusions are
similar to those of authors of the decline litera-
ture, as summarized in the previous paragraph:
crisis leads to restricted information processing,
consideration of fewer decision alternatives, an
internal focus on implementing existing proce-
dures, and rigidity. This suggests a strong con-
nection between crisis and lack of innovation, so
if managers construct organizational decline as
a crisis, innovation in response to decline may
be inhibited.
A third set of studies consistent with the per-
spective that organizational decline inhibits in-
novation is the literature on escalating commit-
ment to a failing course of action (e.g., Bowen,
1987; Brockner, 1992b; Ross & Staw, 1986, 1993;
Whyte, 1986). As Staw (1976) suggests, escalating
commitment to a failing course of action vio-
lates a major assumption about learning: indi-
viduals will change behaviors that they believe
lead to failure. Instead, the escalation phenom-
enon involves increased investment in projects
or decisions that have led to negative conse-
quences. Escalating commitment to failing
courses of action may provide an explanation
for the rigidity that decision makers and their
organizations sometimes exhibit during organi-
zational decline. For example, Weitzel and
Jonsson (1991) describe how W.T. Grant in-
creased commitment to its policy of store expan-
sion, despite repeated feedback that sales per
January
square foot were declining. The retail chain's
rigid adherence to the costly expansion program
was a major contributor to its financial deterio-
ration and eventual bankruptcy. Hence, to the
extent that escalating commitment to failing
courses of action is part of organizational de-
cline, organizations may be inhibited from inno-
vating during decline.
Necessity Is the Mother of Invention
As persuasive as the evidence presented
above may be, there is also compelling evidence
for the opposite perspective; organizational de-
cline is a stimulus for innovation. This might be
called the "necessity is the mother of invention"
school. A prominent example of innovation in
response to external threat and declining de-
mand is the behavior of the Big Six tobacco
companies over the last three decades. Miles
and Cameron (1982) and Cameron (1983) de-
scribe how these companies implemented inno-
vative strategies of domain defense, domain of-
fense, and domain creation when the legitimacy
of their product was questionecl.
In a study building on Miles and Cameron's
(1982) work, McKinley (1984) has found that plant
sales declines were associated with product
modifications and patent applications at the
plant level. McKinley (1984) interprets these re-
sults as evidence of innovation by management
in response to the shrinkage in the plant's
market niche. Consistent with these findings,
Hundley, Jacobson, and Park (1996) present some
evidence of increased R&D intensity in firms
experiencing low profits. At the same time,
Manns and March (1978), Koberg (1987), and
Zajac and Kraatz (1993) have concluded that re-
source scarcity and financial distress gave rise
to curriculum, process, and strategic restructur-
ing in a university, a sample of public schools,
and a population of liberal arts colleges, respec-
tively. Similarly, Haveman (1993) reports that
savings and loan (S&L) performance was nega-
tively related to expansion into risky markets.
Poorly performing S&Ls appeared more willing
to take risks than those that were performing
well. Finally, Burgers, Hill, and Kim (1993) have
found that poor performance was associated
with the formation of more alliance agreements
with competitors, whereas Miller and Chen
(1994) and Boeker (1997) have reported that poor
periormance was related to tactical and strate-
1998 Mone, McKinley. and Baikei
gic adjustments in airlines and semiconductor
firms, respectively.
The organizational learning or evolution liter-
ature provides one theoretical basis for expect-
ing decline to stimulate innovation (cf., Cyert &
March, 1963; Lant & Mezias, 1992; Lant, Milliken,
& Batra, 1992). According to this literature, poor
performance creates a gap between an organi-
zation's actual results and those desired by
managers and external constituencies. In at-
tempting to bring results up to the level of their
aspirations and those of external constituencies,
managers will initiate search routines to find
solutions to organizational problems. When tra-
ditional organizational programs and proce-
dures fail to increase results, learning theorists
suggest that innovative changes will occur as
the organization's search routines increasingly
deviate from solutions tried in the past. This
may explain some of the radical changes cur-
rently sweeping through the corporate sector
(e.g., reengineering) as top managers seek to
enhance the ability of their organizations to
meet rising stakeholder expectations.
Another theoretical basis for the argument
that organizational decline stimulates innova-
tion can be found in prospect theory (Kahneman
& Tversky, 1979; Tversky & Kahneman, 1981).
Prospect theorists state that decision makers
facing losses will tend to be risk seeking,
whereas decision makers who have achieved
gains will tend to be risk averse. Upon applying
this principle to the losses incurred through or-
ganizational decline, we can infer that manag-
ers of declining organizations will be more
likely to take risks than managers of stable or
growing organizations; we can find empirical
support for this inference in research suggesting
risk seeking by troubled firms (Bowman, 1982)
and a negative association between return and
risk (Fiegenbaum & Thomas, 1988; Jegers, 1991;
Miller & Leiblein, 1996). Other researchers have
demonstrated a positive efiect of low perfor-
mance on risk taking by firms (Bromiley, 1991;
Singh, 1986; Wiseman & Bromiley, 1996) and a
willingness by low performing organizations to
engage in risky structural innovations (Bolton,
1993; Burgers et al., 1993). If one assumes that
risk taking is positively correlated with inno-
vation (Wiseman & Bromiley, 1996), this litera-
ture furnishes additional support for the argu-
ment that organizational decline stimulates
innovation.
119
A CONTINGENCY FRAMEWORK
How can we adjudicate between the inconsis-
tent theoretical positions and research streams
reviewed above? Is there any way to determine
when organizational decline is an inhibitor of
innovation and when decline stimulates innova-
tion? In this section we address these questions
by identifying variables that, we argue, moder-
ate the relationship between organizational de-
cline and innovation. We present these moder-
ators as a contingency framework. Our use of
moderators follows Cohen and Cohen's (1983),
where the slope of the relationship between or-
ganizational decline and innovation will vary
across levels of the moderator variable.
We suggest that organizations experiencing de-
cline will try to rectify the problems they face as
managers respond to the pressure generated by
poor performance (Ginsberg, 1988; Huff, Huff, &
Thomas, 1992). Managers may respond to decline
by developing innovative strategies, such as at-
tempting to enter new market niches through the
introduction of new products or by developing
new technologies to compete better in existing
markets. However, managers may also respond
noninnovatively, attempting to implement their
organizations' existing strategy more effectively
through such tactics as increased controls and
retrenchment. We argue that whether decline
leads to innovation will depend on a series of
environmental-, organizational-, and individual-
level factors that influence an organization's re-
sponse to decline, as shown in Figure 1.
At the environmental level of analysis, we
expect a highly institutionalized, organizational
mission to restrict efforts to produce innovations
when an organization experiences decline. Con-
versely, a low level of mission institutionaliza-
tion relaxes expectational constraints on the na-
ture of an organization's activities, facilitating
innovation when the organization encounters
decline. At the organizational level of analysis,
we argue that a diffused power structure and a
low stock of uncommitted resources limit the
degrees of freedom that managers can take
advantage of in trying to pursue a strategy of
innovation under conditions of decline. A con-
centrated power structure and a high level of
uncommitted resources remove those con-
straints, partly by providing leverage and slack
that can be used to overcome resistance to
change. Finally, at the top strategic decision-
120 Academy of Management Review
FIGURE 1
Moderators of the Organizational Decline-Innovation Relationship*^
Environmental moderator
More (less)
institutionalized
organizational
Attribution that
decline is
uncontrollable
(controllable)
Decision-maker moderators
The signs indicate the direction of the proposed moderating efiects.
maker level, attributions about the causes of
decline create cognitive frames that constrain or
facilitate the response to decline. When decision
makers ascribe organizational decline to tempo-
rary or uncontrollable causes, the resulting at-
tributional framework constrains innovation be-
cause the necessity and even the possibility of
proactive response are unclear. In contrast,
when decline is attributed to permanent or con-
trollable causes, decision makers' schemas em-
phasize the necessity and the potential for effec-
tive action, thus providing greater incentive to
innovate. In the sections below we provide full
details of how each of these variables condi-
tions the organizational decline-innovation re-
lationship, followed by propositions that specify
the moderating effect in each case.
Institutionalized Missions and Responses
to Decline
Institutional theorists (e.g., DiMaggio & Powell,
1983; Meyer & Rowan, 1977; Oliver, 1991; Suchman,
1995) point out that organizations are subject to
institutionalized expectations about what behav-
iors they can pursue legitimately. These expecta-
tions reside in the organization's environmentor
lanuary
Organizational moderators
Diffused (concentfatsd)
power structure hew (many)
uncommitted
resources
Attribution that
decline is
temporary
(permanent)
"field"and, more specifically, in the taken-for-
granted assumptions of external stakeholders
(Zucker, 1987). Conformity to institutionalized ex-
pectations or "rules" increases organizational le-
gitimacy (Meyer & Rowan, 1977) and reduces the
risk of death (Singh, Tucker, & House, 1986). For
example, D'Aunno, Sutton, and Price (1991) find
that mental health organizations that align them-
selves with institutionalized treatment norms en-
joy support from a larger number of funding
sources and realize greater financial and resource
support from both internal and external constitu-
ents. Also, McKinley, Sanchez, and Schick (1995)
argue that downsizing is an institutionalized
expectation that is attaining lawlike status in con-
temporary organizational environments. McKinley
et al. (1995) suggest that downsizing is now ex-
pected of most organizations and is being used
increasingly to signal organizational legitimacy.
Whereas some institutional rules apply uni-
formly to all organizations, others vary in the
extent to which they apply across different or-
ganizational types or fields. One institutional-
ized expectation that varies across different
kinds of organizations concerns the flexibility of
the organization's mission. For some organiza-
tions the set of activities that is permissible as
1998 Mone. McKinley, and Barter
part of the mission is defined quite narrowly
and rigidly. Deviance from this institutionalized
mission threatens legitimacy and raises ques-
tions about whether continued support from the
environment is warranted. For example, univer-
sities have institutionalized missions in the
sense referred to here: any departure from the
customary role of teaching students and doing
research tends to be questioned by environmen-
tal constituents. City governments have even
less flexibility; attempts to expand their domain
most likely would be rejected by constituents,
especially given the recent push for privatiza-
tion of the services provided by city govern-
ments (Schine, 1994).
Although corporations generally have less in-
stitutionalized missions than do universities or
government agencies, there is considerable
variance in the for-profit sector. Firms in some
industries face legal and quasi-legal con-
straints (e.g., regulations) that can curtail the
strategic choices available to managers (Ham-
brick & Finkelstein, 1987). For example, electric
utility companies cannot easily alter their do-
mains and offer other products because of rules
established by regulatory bodies. Similarly,
commercial airlines are constrained, by various
safety and other regulations, in how they can
produce their services. Violation of regulations
tends to evoke negative reactions from the insti-
tutional environment, as shown by the public
response to the unfortunate Valujet disaster. In
summary, on average, corporations may have
less institutionalized missions than universities
or public agencies, but they are not entirely free
from institutionally based constraints, and
they exhibit variations in their level of mission
institutionalization.
We maintain that the lack of flexibility that
comes with increasing institutionalization of an
organization's mission will inhibit the organiza-
tion's ability to innovate in response to organi-
zational decline. Conversely, organizations with
less institutionalized missions will find it easier
to innovate in response to decline. For example,
if an organization with a highly institutionalized
mission experiences a declining demand for its
products or services and a resulting decline in
its resource base, it has a limited set of legiti-
mate innovation choices. Any activity outside
the range of legitimate products or services
is suspect, as are new competitive methods
without cognitive or sociopolitical legitimacy
121
(Aldrich & Fiol, 1994). Given the restrictions im-
posed by a highly institutionalized mission, or-
ganizations with such missions are apt to turn
inward during decline and become candidates
for the threat-rigidity and escalating commit-
ment phenomena we described in our literature
review. These phenomena will, in turn, suppress
innovation. A highly institutionalized mission,
therefore, creates a context in which innovation-
suppressing dynamics are more likely to flour-
ish during organizational decline. To illustrate,
a public university system may face greater
scrutiny and more resistance to change from
multiple stakeholders than a private university,
limiting the public university's ability to re-
spond innovatively to enrollment declines and
corresponding tuition and budget reductions.
Organizations whose missions are less insti-
tutionalized have a wider range of possibilities
for innovating during decline, since they can
legitimately diversify out ot niches afflicted by
shrinking demand and into other markets with
higher demand. These diversification possibili-
ties increase the likelihood that the organization
will react to organizational decline with innova-
tion, rather than threat rigidity or escalating
commitment to a failing course of action. The
tobacco companies studied by Miles and Cam-
eron (1982) illustrate the process of innovation
through diversification. In the last 30 years these
companies gradually have increased their in-
vestments in industries outside the declining
U.S. market for tobacco, such as brewing and
food processing (Miles & Cameron, 1982). This
discussion suggests the following proposition:
Proposifion 1: The less institutional-
ized an organization's mission is, the
more positive the effect of organiza-
tional decline on innovafion will be.
Diffusion of Power and Responses to Decline
A second variable that, we argue, moderates
the effect of organizational decline on innova-
tion is the degree to which power is diffused
throughout an organization. In the organization
theory literature the study of patterns of power
has a long history. For example, Rubin (1979)
argues that loose vertical hierarchies, in which
power is widely diffused, inhibit attempts to co-
ordinate responses to stress in universities. Both
Pfeffer (1981) and Mintzberg (1983) discuss the
122 Academy of Management Review
inertia-inducing effects of diffused power struc-
tures. Finally, there is a stream of literature ar-
guing that the higher and more centrally located
a person is in the organizational hierarchy, the
greater both the power of that person and the
likelihood that his or her power can be trans-
lated into innovation (e.g.. Brass, 1984; Burkhardt
& Brass, 1990; Ibarra, 1993; Krackhardt, 1990). For
example, Howell and Higgins (1990) report that
innovation champions initiated more influence
attempts than nonchampions, which is consis-
tent with the notion that organizational mem-
bers who can assert and obtain power are more
innovative than those who cannot.
We define "diffusion of power" as the degree
to which power is evenly distributed through the
organizationin both vertical and horizontal di-
rections. This distinguishes the construct from
centralization/decentralization (e.g., Baack &
Cullen, 1994), which typically refers to vertical
distribution of decision-making authority. In an
organization where power is highly diffused,
such as a differentiated network (Ghoshal &
Bartlett, 1990) of manufacturing or service cen-
ters, there are multiple centers of jurisdiction
over decisions. No single center has complete
control over organizational policy, and the coop-
eration of different coalitions is required to in-
stitute change. In contrast, organizations with
concentrated power tend to invest a single
group or team of managers with final decision-
making responsibility. Although it seeks the co-
operation of various interest groups in the organ-
ization, the managerial team has power to
initiate major, and sometimes controversial, pol-
icy changes. These policy changes can reallo-
cate resources quickly within the organization,
without extensive bargaining between organi-
zational coalitions.
In declining organizations characterized by
widely diffused power bases, several mecha-
nisms operate to constrain innovation. Since
implementing innovations usually requires
changes in the policies and practices of organi-
zational subunits (Kanter, 1988), an organiza-
tion's need to gain cooperation among diverse
interest groups means that compromise must
take placeand that some subunits will bear
the burden of change more heavily than others.
Achieving such compromise in the absence of a
single source of power requires much time and
administrative effort. This provides a window of
opportunity for innovation-inhibiting psycholog-
January
ical dynamics, such as those represented by the
threat-rigidity syndrome, to develop during an
episode of organizational decline. Additionally,
because a greater number of individuals and
subunits are accustomed to possessing influ-
ence in power-diffused organizations, such or-
ganizations have greater potential to resist
change, which will substantially slow any inno-
vative response to decline and perhaps even
deter managers from seeking innovative solu-
tions entirely.
Politicking between coalitions will further ex-
acerbate the difficulties of coordinating innova-
tion in a power-diffused structure facing de-
cline. Organizational decline increases the level
of political behavior within organizations as in-
dividuals and subunits attempt to maintain
their own share of a shrinking resource base
(Gray & Ariss, 1985; Hall, 1984). In a power-
diffused organization it is more difficult to form
and build the consensus necessary to overcome
such politicking successfully. Thus, multiple co-
alitions, each with its own perspectives, alle-
giances, and power bases, create inertial forces
that constrain innovative solutions to decline
(e.g., Thurow, 1980).
However, we argue that, in declining organi-
zations, a concentration of power facilitates in-
novation. Having a single management team
with power over organizational policy lessens
the need for compromise and bargaining:
tradeoffs required to accomplish innovation can
be mandated, at least in part. Our arguments
should be applicable particularly in the case of
innovation in response to organizational de-
cline, because such innovation often involves
the reallocation of shrinking resources and,
therefore, significant losses of resources for
some organizational subunits. Unless a concen-
trated power base exists to allocate resource
losses to coalitions, decision making is likely to
end in gridlock or incremental status quo solu-
tions (Thurow, 1980). In organizations with con-
centrated power, a powerful top manager or top
management team can play the role of loss al-
locator, opening up the possibility of more inno-
vative solutions to decline. These theoretical ar-
guments suggest the following proposition:
Proposifion 2: The less widely diffused
power is, the more positive the effect
of organizational decline on innova-
tion will be.
1998 Mone, McKinley, and Barker
Level of Uncommitted Resources and
Responses to Decline
We propose that the level of uncommitted re-
sources is a third variable that moderates the
organizational decline-innovation relationship.
The following discussion draws from the litera-
ture on organizational slack (e.g.. Bourgeois,
1981; Singh, 1986). These authors have identified
different types of slack: absorbed versus unab-
sorbed (Singh, 1986; Smith, Grimm, Gannon, &
Chen, 1991); available, recoverable, and poten-
tial (Cheng & Kesner, 1997; Wiseman & Bromiley,
1996); and low and high discretion (Sharfman,
Wolf, Chase, & Tansik, 1988). One dimension
that appears to underlie all these slack typolo-
gies is the degree to which organizational re-
sources are committed. For the sake of parsi-
mony, and because of its potential role in
conditioning the causal linkage between organ-
izational decline and innovation, we isolate this
dimension for theoretical analysis here. We con-
ceptualize uncommitted resources, at one end of
the continuum, as similar to unabsorbed, avail-
able, or high discretion slackfor example, the
excess of cash and marketable securities over
short-term liabilities (Smith et al., 1991). Uncom-
mitted resources are immediately available in
the short run to fund organizational initiatives.
At the other end of the continuum, we conceptu-
alize committed resources as equivalent to ab-
sorbed, recoverable, or low discretion slackfor
example, selling, general, and administrative
costs relative to sales (Smith et al., 1991). These
resources represent a commitment, embedded
in the organization's cost structure, that cannot
be undone quickly.
Our distinction between organizational de-
cline and the degree of resource commitment
parallels the distinction made by Hambrick and
D'Aveni between organizational performance
and slack (1988: 5). Organizational decline con-
stitutes the erosion of an organization's resource
base, whereas resource commitment refers to
the media in which resources reside at any
given point in time, as well as the liquidity of
those media. Our argument is consistent with
Meyer's (1988) thesis that, at least initially, de-
cline can generate uncommitted resources with
which organizations can choose to be adaptive.
The application of uncommitted resources thus
becomes a potentially critical facilitator for re-
sponding to organizational decline.
123
Several researchers have argued that uncom-
mitted resources allow organizations to experi-
ment and take risks (e.g.. Bourgeois, 1981; Cyert
& March, 1963; Singh, 1986). Extending this argu-
ment, we propose that uncommitted resources
facilitate innovation in response to organiza-
tional decline. If uncommitted resources are
high at the beginning of a decline period, the
organization has liquid assets that can be used
to pay the costs of innovation. This will encour-
age managers to take on new initiatives, such
as production process improvements or new
product development. For example. Barker and
Duhaime (1997) report that firms turning around
from decline are able to initiate more changes in
strategy (e.g., acquisitions, new product intro-
ductions, and so forth) when they have unab-
sorbed slack, as compared to firms not having
unabsorbed slack. The existence of uncommit-
ted resources also gives managers a pool that
can be used to buy compliance from coalitions
in organizations where power structure is dif-
fused (Cyert & March, 1963; Rubin, 1980).
However, if uncommitted resources are low,
managers have fewer liquid assets with which
to fund the costs of innovation under conditions
of decline. The absence of uncommitted re-
sources will encourage a conservative reaction
to decline and create a context that is more
conducive to threat rigidity or escalating com-
mitment than a context in which uncommitted
resources are abundant. Without uncommitted
resources to pay for innovation, declining organ-
izations may resort to cost-cutting and bottom-
line efficiency orientations. Although scholars
often represent these approaches as an effort to
generate uncommitted resources from commit-
ted resources through downsizing and budget
reductions, the efficacy of such attempts is de-
batable (e.g., Cascio, 1993; D'Aveni, 1989a;
Dougherty & Bowman, 1995). Thus, we think it
unlikely that committed resources can be con-
verted easily into uncommitted resources in a
manner that spurs organizational innovation
during decline. These arguments suggest the
following proposition;
Proposition 3: The higher the level of
uncommitted resources is in an organ-
ization at the beginning of a decline
period, the more positive the effect of
organizationai decline on innovation
will be.
124 Academy cf Management Review
Causal Attributions and Responses to Decline
Institutionalization of an organization's mis-
sion, diffusion of power, and the level of uncom-
mitted resources are attributes that reside at
environmental and organizational levels of
analysis. An additional variable that, we argue,
influences the organizational decline-innova-
tion relationship is a characteristic of top man-
agers' cognitions: their causal attributions for
decline. Several authors have used attributional
approaches to explain organizational responses
to dwindling resources or decline (e.g.. Ford,
1985; Ford & Baucus, 1987; Nottenburg & Fedor,
1983). Their work has established a foundation
for understanding how managerial perceptions
of events can influence subsequent organiza-
tional actions. However, these past analyses
have not examined the specific moderating ef-
fect of causal attributions on the organizational
decline-innovation linkage.
A central premise of attribution theory
(Augoustinos & Walker, 1995) is that individuals'
perceptions of causes or events, rather than the
actual causes, influence subsequent responses
and behaviors. Attribution theorists also main-
tain that attributional search processes are en-
gaged to a greater degree when outcomes are
unexpected, important, or involve failing to
reach desired goals (Weiner, 1986). Because or-
ganizational decline is often unexpected, usu-
ally important, and involves failing to reach
desired goals, managers of declining organiza-
tions likely will engage frequently in causal
searches. When engaged in such searches, de-
cision makers respond to their own subjective
perceptions or interpretations of the causes of
decline (Barr, Stimpert, & Huff, 1992; Kiesler &
Sproull, 1982). Hence, different managers often
perceive different causes as responsible for the
same objective condition of decline in the same
organization, which suggests that it is critical
for us to understand how causal attributions
work if we are to get a complete picture of inno-
vation-producing or inhibiting dynamics in re-
sponse to organizational decline.
The authors of much of the organizational
causal attribution literature have drawn from
Weiner's (1986) typology of causal attribution
dimensions. Two dimensions that Weiner
identifiedstability and controllabilityare
especially important for conditioning the or-
ganizational decline-innovation relationship.
lanuary
We define "stability" as the degree of perma-
nence that managers associate with a given
perceived cause of decline. For example,
something that might be perceived as a stable
cause of decline is the deregulation of an in-
dustry (e.g., airlines, railroads, banking, or ca-
ble television). In contrast, the pricing behav-
ior of a competitor could be seen as less
stable. If organizational decline occurs and is
ascribed to permanent causes, it is probable
that management will consider necessary
more severe, innovative responses. However,
if organizational decline occurs and is attrib-
uted to temporary or unstable causes, manag-
ers may think it less likely that these causes
will reoccur and be less inclined to respond
with innovation. In short, causes of decline
that managers perceive to be temporary can
be ignored or deflected more easily. Such
"ephemeral" causes may be viewed as rela-
tively benign and, accordingly, may lead to
conservative responses or to no response at
all. Such an argument is consistent with the
behavior of the big three U.S. automobile man-
ufacturers during the petroleum shortages and
energy crises of the 1970s (Zammuto, 1985). Ex-
ecutives in at least two of the companies (Ford
and Chrysler) "believed that the rising gaso-
line prices and the associated sales slumps
were aberrations, not symptoms of a funda-
mental change in the industry environment"
(Zammuto, 1985: 78). Such attributions led to
passive responses relative to competitors (e.g.,
less research and development), thereby al-
lowing other automobile manufacturers to
gain market share.
As the foregoing example suggests, manage-
ment's tendency to implement innovations under
conditions of organizational decline will vary with
the stability of the causes to which decline is at-
tributed. This leads to the following proposition:
Proposifion 4: The more stable the
causes are to which decline is attrib-
uted, the more positive the effect of
organizational decline on innovation
will be.
The second causal attribution dimension hav-
ing the potential to condition the organizational
decline-innovation relationship is the perceived
controllability of the cause of decline. We can
differentiate the controllability construct from
Rotter's locus of control, which is more of a per-
1998 Mone, McKinley, and Barker
sonality trait having to do with generalized ex-
pectancies of control (Rotter, 1966, 1990). In con-
trast, following Weiner and colleagues (Weiner,
Nierenberg, & Goldstein, 1976), we define the
controllability dimension as judgments individ-
uals make regarding whether the causes for
specific events are controllable. Causes of de-
cline perceived as controllable by managers
might include an outdated product line, poor
customer service, or the organization's overall
strategy. Causes managers perceive as less
controllable might be such factors as competi-
tors' actions, new government regulations, nat-
ural disasters, or shifts in consumer preferences.
We should note that, for Weiner (1986), the con-
trollability and stability dimensions were or-
thogonalfor example, people can view causes
as permanent but still perceive them as rela-
tively uncontrollable (e.g., ability) or controlla-
ble (e.g., effort).
Several arguments suggest that attributions
toward controllable causes of decline will be
associated with a more positive organizational
decline-innovation relationship. Perceptions of
controllability give managers some degree of
confidence in their organization's or subunit's
ability to respond to decline successfully. A
considerable body of self-efficacy literature sug-
gests that when self-confidence is high, aspira-
tions, persistence, and goal achievement typi-
cally follow (e.g., Bandura, 1986, 1997; Gist, 1987;
Mone, Baker, & Jeffries, 1995). Researchers of
self-efficacy also have examined the role of
causal attributions and have found that when
self-confidence is high and controllable attribu-
tions are present, higher goals, greater goal
commitment, and more ambitious performance
objectives are realized (Mone & Baker, 1992). In
the context of declining organizations, this im-
plies that managers who believe the causes of
decline are controllable are more likely to com-
mit resources to strategic reorientation. Higher
levels of resource commitment and strategy
development will, in turn, be more likely to
generate innovation, as compared to low levels
of resource commitment or lack of strategic
reorientation.
Another reason why attributions of controlla-
bility may foster innovation in organizations
facing decline is that top managers are more
likely to see an opportunity to assert them-
selves. There is evidence that individuals, par-
ticularly top managers, have a desire to be in
125
control of their environments (Langer, 1975;
Thompson, 1967). A combination of felt respon-
sibility and opportunity to exhibit mastery over
a threat or crisis should lead managers to exert
a greater effort to thwart the crisis. An example
of the possible response scenarios to organiza-
tional decline by defense industry firms illus-
trates this argument. As the federal defense
budget has declined, so, too, have the revenues
and economic health of many defense-related
firms (e.g., Morrocco, 1991; Scott, 1991). To the
extent that top managers of a firm in this indus-
try view the cause(s) of decline as controllable,
they are more likely to increase lobbying efforts
at local, state, and federal levels; to expand
funding for product development and technolog-
ical innovation; to strategically develop or ex-
pand new markets; and to increase acquisitions
oi competitors. The recent competitive and col-
laborative efforts among aircraft manufacturers
(e.g., Boeing, Lockheed, Grumman, General Dy-
namics, and McDonnell-Douglas) to develop the
twenty-first-century fighter aircraft for all U.S.
armed forces, while by no means new, suggest
that these manufacturers believe the decline to
which they are subject is remediable (Bond,
1991; Velocci, 1996). We do not intend this illus-
tration to suggest that causal attributions to-
ward controllable causes are the only factor
explaining technology investments under condi-
tions of decline. However, we do propose that
the more top managers perceive the causes of
decline as controllable, the more likely they will
be to aggressively and proactively respond to
decline.
In contrast, perceptions that the causes of or-
ganizational decline are uncontrollable may
smother innovation. When managers make such
attributions, the organization tends to fall prey
to learned helplessness (Abramson, Garber, &
Seligman, 1980; Seligman, 1975). Learned help-
lessness inclines managers toward a pessimis-
tic view of their subunit's or organization's
chances for overcoming decline. Such pessi-
mism can stymie individuals' confidence, re-
duce desires to respond innovatively, and lead
to expectations of future inadequacy, none of
which is likely to stimulate innovation in re-
sponse to decline. Additionally, when managers
ascribe decline to uncontrollable causes, threat-
rigidity efiects are more probable, and individ-
uals with the greatest confidence and capabili-
ties are the most likely to leave (Greenhalgh,
126 Academy of Management Review
Lawrence, & Sutton, 1988; Mone, 1994). Finally,
attributions of uncontroUability impact the ba-
sic issue of risk-return tradeoffs (Kahneman &
Tversky, 1979). When management identifies un-
controllable causes of decline, the degree of cer-
tainty associated with any future outcomes can
drop sufficiently to become inestimable. It then
becomes difficult to predict that any response to
organizational decline will be an appropriate
one, and managers may retreat to the status quo
or make only incremental changes. These argu-
ments support the following proposition:
Proposition 5: The more controllable
the causes are to which decline is at-
tributed, the more positive the effect of
organizational decline on innovation
will be.
DISCUSSION AND CONCLUSION
In this article we have attempted to adjudicate
between inconsistent perspectives about the ef-
fect of organizational decline on innovation. We
have developed a contingency framework that
identifies variables moderating the organiza-
tional decline-innovation relationship. These vari-
ables represent conditions that help determine
whether organizational decline inhibits or stimu-
lates innovation. Thus, in traditional contingency
theory fashion, the appropriate answer to the cen-
tral question of this article"Does organizational
decline suppress or induce innovation?"is "It all
depends." This suggests a reorientation of cunent
organizational decline research. Rather than try-
ing to determine if decline leads to innovative or
conservative organizational responses, research-
ers should focus on isolating the factors that cause
organizations to respond either innovatively or
conservatively to decline.
To summarize briefly our moderating vari-
ables, we argue that the presence of highly in-
stitutionalized missions, widely diffused power
structures, and high levels of resource commit-
ment negatively affect organizational innova-
tion in response to decline. These conditions act
as constraints on an organization's capacity to
innovate when decline occurs. In contrast, we
propose that less institutionalized missions,
more concentrated power, and a higher level of
uncommitted resources positively affect innova-
tion in response to decline. These conditions
relax the constraints we just referred to and.
January
therefore, function as catalysts for innovation
when organizational decline occurs. Further, we
suggest that attributions made toward tempo-
rary or uncontrollable causes of decline will
lead to less innovation in response to decline.
Conversely, attributions toward permanent or
controllable causes will lead to more innovation
under the same objective conditions.
We believe that our theoretical framework can
help integrate the organizational decline litera-
ture, which is becoming overwhelming in bulk
and scope. Each of the moderator variables we
discuss in this article represents a partial expla-
nation for why different organizations facing com-
parable conditions of decline frequently respond
in different ways. This should provide the begin-
ning of a synthesis of the divergent perspectives
noted in past research (e.g., Boeker & Goodstein,
1991; McKinley, 1993; Ocasio, 1995; Singh, 1986;
Whetten, 1980) and should help explain the simul-
taneous existence of the "necessity is the mother
of rigidity" and the "necessity is the mother of
invention" literature streams.
The moderators we describe in this article are
evident in much of the "necessity is the mother
of rigidity" literature. For example, Staw et al.'s
(1981) well-known threat-rigidity model draws
heavily from many social science studies on
how people respond to natural disasters and
other crises. Because natural disasters are
large, uncontrollable events with negative con-
sequences, our attribution moderators would
predict that people will respond conservatively,
relying on well-learned coping routines, if
they think there is little they can do to directly
control the disaster. This is consistent with the
type of reaction Staw and his colleagues (1981)
hypothesize.
Highlighting the role of other moderators in
past research, many of the key organizational
studies supporting the "necessity is the mother
oi rigidity" school have examined the responses
of universities, city governments, and social ser-
vice agencies to organizational decline (e.g.,
Cameron, 1983; Cameron, Whetten, & Kim, 1987;
D'Aunno & Sutton, 1992; Glassberg, 1978; Rubin,
1979; Whetten, 1981). Such organizations may
have more difficulty responding to decline with
innovation because of their highly institutional-
ized missions. In addition, universities and city
governments have diffused power structures
that make implementing innovations more diffi-
cult. Therefore, it should not be surprising that
1998 Mone, McKinley, and Barker
studies of universities, government agencies,
and social service organizations play such a
prominent role in the evidence supporting the
thesis that decline leads to lack of innovation.
Finally, in studies that have found noninnova-
tive responses to decline at for-profit firms, causal
attributions and lack of uncommitted resources
may have been important moderators. In a series
of studies on firms that were sliding toward a
financial crisis, Hedberg, Nystrom, and Starbuck
found that firms often responded noninnovatively
to decline because their managers believed the
causes of the decline were temporary and uncon-
tiollable (Hedberg, Nystrom, & Starbuck. 197B; Ny-
strom & Starbuck, 1984). These causal attributions
may have created schema that constrained the
managers away from innovation. Interestingly,
these same researchers found that when causal
attributions were changed, often through top man-
agement replacement, innovation was more
likely, unless the firm had exhausted its resources
(Hedberg et al., 1976; Nystrom & Starbuck, 1984).
Authors of several other studies of for-profit firms
have also found evidence of lack of strategic
change when a declining firm has exhausted most
of its financial resources and, therefore, has few
uncommitted resources available for innovation
(Barker & Mone, 1998; D'Aveni, 1989b).
In sum, much of the theory and empirical base
underlying the "necessity is the mother of rigid-
ity" school may have been influenced by the
presence of particular scores on the moderator
variables we have identified. We believe that
these moderators can explain why in the collec-
tive body of organizational decline research
there is evidence of both threat rigidity and
decline-induced innovation. Therefore, future
scholarly work on decline needs to recognize the
role of moderators in study designs so that the
factors that increase or decrease innovation in
response to decline can be better understood.
Our theoretical framework also helps explain
several of the radical changes taking place in
the corporate sector today, and it sheds light on
why change may be more discontinuous in cor-
porations than in other settings. Compared to
such organizations as universities or govern-
ment agencies, corporations have loosely insti-
tutionalized missions and concentrated power.
Many also have high levels of uncommitted re-
sources (e.g., big pools of cash) and fewer com-
mitted resources (e.g., administrative overhead)
than in the past. In other words, corporations
127
today have most of the objective attributes that,
we argue, promote innovation in response to
organizational decline. Current trends seem to
be strengthening some of these attributes: for
example, the robust profitability of many corpo-
rations in the late 1990s is bolstering the stock of
uncommitted resources on which they can draw.
In a parallel development the deregulation of
many industries (e.g., utilities and telecommu-
nications) promises to deinstitutionalize corpo-
rate missions in those industries relative to their
past state of institutional and legal constraint.
The reengineering common in corporations to-
day is consistent with these trends. Although re-
engineering corporations are often not in decline,
they do seem to be experiencing increased pres-
sures for periormance (Hammer & Champy, 1993).
In fact, in the first chapter of their 1993 bestseller.
Hammer and Champy (1993) frame these perfor-
mance pressures as "the crisis that will not go
away." This perception oi crisis or adversity (Oca-
sio, 1995) is leading to much innovation and radi-
cal change (e.g., reengineering the form of the
corporation's business processes). The capacity to
implement this radical change is enhanced by
corporations' loosely institutionalized or deinstitu-
tionalized missions, their concentrated power, and
their uncommitted resources (to pay for layoffs
and restructuring). Meanwhile, in universities and
government agencies, where the moderators we
have discussed are not at such favorable levels for
radical responses to crisis or adversity, one sees
more incremental responses, such as budget re-
ductions or downsizing by attrition.
When considering empirical examination of
the relationships proposed in this paper, we see
at least three issues with implications for future
research. First, there may be important individ-
ual differences that influence some oi the pro-
posed moderator variables. For example, in our
discussion of causal attribution dimensions, we
distinguished the controllability dimension
from Rotter's (1966) locus of control concept.
However, Miller and his colleagues provided ev-
idence to suggest that locus oi control may be an
important antecedent to managers' perceptions
and sense-making interpretations (Miller, 1983;
Miller, Kets de Vries, & Toulouse, 1982; Miller &
Toulouse, 1986). Other individual diiferences
likely to influence our proposed moderators,
especially the perceptual moderators, include
individuals' self-efficacy or seli-coniidence
(Bandura, 1986, 1997; Mone & Baker, 1992), ex-
128 Academy of Management Review
ternal feedback propensity (Fedor, Rensvold,
& Adams, 1992), feedback-seeking behaviors
(Ashiord & Cummings, 1985), and self-serving
or ego-protective attributional biases (Brad-
ley, 1978; Zuckerman, 1979). Future work could
develop theory and employ research designs
that consider the effects of these individual
diiierences on the proposed moderator vari-
ables.
Second, for the sake of clarity, we have often
presented relatively extreme cases (i.e., a strong
presence or an absence) of each oi the modera-
tor variables. Yet, it is important to reemphasize
that the moderators are conceptualized as con-
tinua, with a number of intermediate scores pos-
sible between the poles oi each dimension.
Thus, the appropriate analytical technique for
testing the propositions in this paper is moder-
ated regression analysis (Cohen & Cohen, 1983)
rather than subgroup analysis or some other
procedure that requires subdivision of the mod-
erator variable into distinct categories.
Finally, since the moderators may operate si-
multaneously on the organizational decline-in-
novation relationship, multivariate research de-
signs examining multiple moderators within a
single sampling irame are desirable. Also, a
recent study (Barker & Patterson, 1996) has
shown that top managers' attributions for the
causes oi decline can be measured reliably with
field instruments; thus, management attribu-
tions about the stability and controllability oi
the causes of decline also could be ascertained.
Such research designs would allow the simulta-
neous testing of many of our propositions, and
an added benefit would come irom being able to
analyze higher order interactions between the
moderators, such as the possible interaction be-
tween attributions oi controllability and the level
of uncommitted resources as determinants of how
organizational decline aifects innovation.
In conclusion, our framework can serve as a
focal point for future theoretical and empirical
research on how organizations innovate^or fail
to innovatein response to organizational de-
cline. We offer five propositions ior empirical
testing that are well grounded theoretically. Re-
search based on these propositions will contrib-
ute to our knowledge oi organizational decline
processes and may eventually suggest practical
approaches to dealing with the pervasive prob-
lem of decline.
January
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Mark A. Mone is an associate professor of management at the University of Wisconsin

at Milwaukee. He received his Ph.D. in organizational behavior and organization
theory from Washington State University. His research interests include organiza-
tional decline and downsizing, self-regulatory processes, and research methods.
William McKinley is an associate professor of management at Southern Illinois
University at Carbondate. He received his Ph.D. in organizational sociology from
Columbia University. His current research interests are organizational decline, organ-
izational downsizing and restructuring, organizational innovation, and the philoso-
phy and sociology of organization science.
Vincent L. Barker III is an associate professor of organizations and strategic manage-
ment at the University of Wisconsin at Milwaukee. He received his Ph.D. in strategic
management from the University of Illinois. His research examines corporate turn-
around attempts and top management and strategic change processes.