How to Respond to Competing Rationales in Organizational Change

Drawing on the differences in organizational forms and practices between shareholder-oriented firms (e.g., Sony and Nissan) and internally-coordinated firms (e.g., Toyota and Canon) in Japan, this paper examines the antecedents and consequences of the coexistence of contrasting rationales in a firm’s governance system. In contrast to the decoupling or institutional approach, the paper investigates the functional roles of shareholder-oriented and internally-coordinated governance mechanisms within a theoretical framework that distinguishes the rationale for resource allocation from that of resource acquisition. The results indicate that the adoption of shareholder-oriented organizational forms and practices in a firm is related to the principles of capital markets for resource acquisition, whereas the continuation with internal coordination mechanisms is influenced by the Japanese coordination rationale for resource allocation. This suggests that firms should show separate responses to contrasting rationales in corporate governance and that the functional fit in each dimension improves performance.