The paradox of cost minimization and the survival of organizations

Organizations that operate in a dynamic environment must take steps to adapt to their changing circumstances; otherwise, they may collapse entirely. Yet, managers may postpone necessary change to minimize costs, while ignoring the risk that this myopic approach entails to the survival of their organizations. This paper proposes a model that considers failure as a stage-wise process of decline, in which the organization’s portfolio of products and the technological processes that it uses to produce them become increasingly misaligned with market conditions. Eventually, if management fails to adapt to the market in time, the gap between the organization and its environment expands to a point of no return, after which organizational collapse is inevitable. The model enables us to run computerized simulations to predict the lifespan of organizations.