The paradox at the centre of fast growth

Hannan and Freeman’s foundational 1984 paper on structural inertia established something that most business culture actively obscures: the properties that make organisations successful during growth — reliability, consistency, predictable processes, clear accountability — are the same properties that make them difficult to change when the environment shifts. The rigidity is not a failure that crept in while nobody was watching. It is the success metric of the growth phase, now acting as a liability in the adaptation phase.

The ecological logic is precise. Organisations are selected for reliability. Customers, investors, and employees reward predictability — they come back, they invest more, they stay longer. The organisation that builds the most reliable systems, the most consistent processes, the most efficient routines is the one that grows fastest. And then the environment changes, and all of that reliability becomes structural inertia — the tendency to remain in the current configuration long after the configuration has ceased to be optimal.

Fast-growing companies become rigid at exactly the wrong time not because leadership failed but because the selection environment had been systematically rewarding rigidity while conditions were stable.

The two-component structure of inertia

Gilbert’s 2005 Academy of Management Journal paper unbundles organisational inertia into two distinct components that behave differently under pressure. Resource rigidity is the failure to change investment patterns — where the money goes. Routine rigidity is the failure to change the processes through which resources are used — how the organisation operates.

The critical finding is that threat perception affects these two components asymmetrically. When a company perceives a genuine competitive or environmental threat, that perception helps overcome resource rigidity — money can be redirected, headcount reallocated, priorities shifted. But the same threat perception simultaneously amplifies routine rigidity — the way the organisation actually operates becomes more entrenched, not less, because threat triggers the psychological conservatism that makes people cling to established ways of working.

This is why companies that appear to be responding to disruption often aren’t. The newspaper organisations in Gilbert’s field study recognised the digital threat clearly and mobilised resources toward digital products. But the routines — the editorial cycle, the commercial logic, the relationship with the audience — were built for print over decades and selected for by decades of market success. Resource deployment without routine change is motion without adaptation. The company looks like it’s responding because money is moving. The operating logic remains unchanged.

Why success generates the specific blindness that defeats adaptation

Levinthal and March’s 1993 paper on the myopia of learning identifies the cognitive mechanism that converts fast growth into wrong-time rigidity. Organisations develop three forms of myopia as they accumulate competence: they overlook distant times, distant places, and failures.

The third myopia is the most consequential. An organisation’s self-confidence is systematically inflated by success because the learning dataset it has accumulated is success-skewed. Decades of market dominance produced a profoundly narrow learning record — one that systematically underweighted failure signals and overweighted confirmation of existing strategy. When Kodak’s engineers invented the digital camera in 1975, the competency trap ensured that invention could not compete with the film-market habit that the organisation’s entire learning history had been built around. The company wasn’t blind to digital — it invented digital. It was blind to its own rigidity.

The mechanism that makes this specifically a problem at exactly the wrong time is the competency trap. Organisations become increasingly committed to and skilled at current practices precisely as those practices begin to produce diminishing future returns. A fast-growing company’s growth rate is the loudest possible confirmation signal that its current competencies are working — and the loudest confirmation signal produces the deepest competency trap. Maximum growth rate and maximum cognitive rigidity are not in tension. They are the same thing.

Why complexity makes the problem worse as scale increases

A fast-growing company is, by definition, increasing in complexity and opacity at precisely the rate of its growth. A company that doubles in headcount in eighteen months has roughly doubled the number of interdependencies that any structural change must cascade through — and doubled the number of teams, functions, and subcultures whose local operating logics are invisible to central decision-makers.

The cost of changing anything in such a company grows faster than the company itself. The moment of maximum growth is structurally the moment of maximum change-cost. When Uber, WeWork, and Peloton faced environmental shifts — regulatory, pandemic, competitive — the scale of their growth had created precisely the structural inertia that made adaptation most costly. The growth built the rigidity. The rigidity amplified the vulnerability.

The psychological layer that compounds the structural one

Staw, Sandelands and Dutton’s threat rigidity research established the individual psychological mechanism that stacks on top of structural inertia. When people and groups experience threat, they narrow their information processing, restrict their behavioural repertoire, and increase their reliance on established responses — the precise cognitive state least suited to an environment demanding novel adaptation.

Structural rigidity and psychological rigidity compound each other. The organisation is structurally predisposed to resist change. The people within it are psychologically predisposed to resist change under exactly the conditions — competitive threat, market disruption — when change is most urgently required. Neither is a character failure. Both are predictable outputs of systems that were working well until they weren’t.

A book worth reading alongside this

The Innovator’s Dilemma by Clayton Christensen is the most widely read applied treatment of how the competency trap and structural inertia combine to make successful companies systematically unable to respond to disruption. His framework is the accessible expression of the Hannan, Freeman, Levinthal and March mechanisms — translated into cases that are concrete enough to recognise in a company you are building. For any entrepreneur who wants to understand how the thing they are building right now is also building the rigidity that will constrain it later, it is the most direct starting point available.

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This article is for educational and informational purposes only. Sources: Hannan, M.T. & Freeman, J. (1984), American Sociological Review, 49. Gilbert, C.G. (2005), Academy of Management Journal, 48. Levinthal, D.A. & March, J.G. (1993), Strategic Management Journal, 14. Staw, B.M., Sandelands, L.E. & Dutton, J.E. (1981), Administrative Science Quarterly.