Organizations that can adapt have a distinct advantage in a changing world. But their ability to adapt is not based solely on contemporary responses to circumstances - it may in fact be affected by conditions at their founding.

According to the research by Christopher Marquis and Zhi Huang, the "imprinting" of external pressures on an organization at its founding could affect its ability to meet new challenges even when the founding conditions have long disappeared.

The authors focus on the U.S. banking industry, which was deregulated in 1978 to allow banks to expand business beyond their headquartered states to engage in interstate acquisitions. Before 1978, banks were limited to doing business in their own state. Some states allowed banks to set up branches within the state, others restricted them to one unit, and still others allowed a hybrid. The branching regulation thus constituted an important founding condition for banks. The effect of the branching regulation was further modified by other founding conditions, i.e., the degree of modernization - manifested in transport infrastructure and urbanization - and the political culture which in some places featured a strong resistant to large organizations.

The authors explain how these founding environmental conditions subsequently affected a bank's capabilities and in turn its likelihood of acquiring other banks after deregulation, drawing on the biological concept of "exaptation".

"Exaptation is a process in which features adapted for a particular purpose in a particular environment are used for another purpose in a subsequent environment. We find imprinted capabilities originally developed for bank branch management became useful for a new purpose - bank acquisition management and integration - after an environmental shift," they say.

About 25,000 banks that existed between 1978 and 2001 were included in the study and more than 200,000 observations were made. Banks founded in a state that previously allowed statewide branching were more than 43 per cent more likely to engage in acquisitions of other banks after deregulation, having already developed processes and skills that were useful for managing acquired banks.

"For example, Bank of America, a San Francisco bank, established an early set of branches in Los Angeles and developed corresponding infrastructure and processes to manage them including a network of auditors and systematic reporting functions, common collections procedures, check routing and sorting mechanisms, and standardized management processes. These constituted the bank's capabilities for centrally managing dispersed banks."

"Such capabilities, initially developed in response to the branching law in a particular state at the time of the bank's founding, became part of the bank's repertoire of knowledge. To the extent that these capabilities persisted, they likely provided contemporary strategic advantages for pursuing growth through acquisitions after the 1978 deregulation," the authors say.

However, certain conditions moderated this effect. Banks founded in states with weaker than average transportation infrastructure (in particular roadways) and less urbanization were less likely to engage in acquisition after 1978.

And banks founded in states where the political culture was resistant to large organizations also had less acquisition activity. Three components were associated with resistance - agrarian presence as measured by the number of farms per capita, membership of the agrarian activist organization, the Grange, and political support for Progressive candidates in political elections who targeted large banks and financial interests.

Overall the results offer evidence that organizational behavior is shaped by both past and present institutional pressures and both influences operate through intra-organizational processes.

"Organizations may show contemporary behaviors and outcomes different from what they did at founding, yet are still the result of some deep and unobservable intra-organizational capabilities established when the organizations adapted to founding environmental conditions."

"Specifically, we find banks founded in states where branching was possible developed multiunit management capabilities that subsequently enabled them to acquire other firms in an environment favoring acquisitions," the authors conclude.