PUNCTUATED EQUILIBRIUM MODEL OF ORGANIZATIONAL TRANSFORMATION: SOURCES AND CONSEQUENCES IN THE BANKING INDUSTRY

The punctuated equilibrium model (PEM) is an influential model of organizational change that can both advance theory and guide managerial action. However, with the exception of Romanelli and Tushman’s (1994) study of minicomputer firms, the core assertion of the PEM – that fundamental organizational change would occur through brief, discontinuous, and simultaneous changes in all domains of organizational activity and not through incremental and asynchronous changes – has not been tested in longitudinal, large-sample research. We examined the event histories of 50 bank holding companies in the U.S. between 1975 and 1995, replicating Romanelli and Tushman’s test of the PEM in a less turbulent industry environment. Additionally, we examined the consequences of organizational transformation on subsequent firm performance, an aspect of the PEM that has seldom been studied. We found that both revolutionary and non-revolutionary change patterns were common means to accomplish organizational transformation. We also found that the installation of a new top executive not previously affiliated with the company and major shifts in the regulatory environment increased the likelihood of revolutionary transformation. Whereas severe performance declines before transformation decreased the likelihood of organizational transformation, the occurrence of revolutionary transformation did not significantly influence subsequent organizational performance.