Dynamic Inertia: How organizations avoid adapting to changes in the environment

What prevents organizations from adapting to substantial environmental changes? Research from a performative perspective has challenged traditional accounts of cognitive and structural inertia by highlighting how organizational actors dynamically enact routines in a manner that engenders change or stability. However, a puzzle remains: When responding to substantial changes in the environment, how do organizational actors generate inertia? We investigate this question by conducting an inductive, historical study of the credit rating routine of Moody’s, an organization that failed to adapt to substantial changes in its environment in the run up to the financial crisis of 2008. Our analysis of the actions associated with the re- designing of central artifacts and the enactment of the routine reveals six mechanisms by which organizational actors generate inertia. First, when re-designing artifacts, actors generate inertia through bounded retheorizing of the model, the sedimentation of assumptions, and mythical modeling of the unknown. Second, when enacting routines, organizational actors generate inertia by justifying their response to environmental changes through maintaining comprehensibility, appeasing prevailing stakeholders, and exercising professional discretion. Our historical case study contributes to our understanding of organizational inertia, routine dynamics, and the financial crisis of 2008.