Managerial discretion and internal alignment under regulatory constraints and change

Abstract

This paper investigates the effects of regulatory constraints and their relaxation on managerial discretion and internal fit in the context of the U.S. airline industry. Our results suggest that when managers' discretion is limited in one realm of choice, they compensate by using their greater level of discretion in some other arena to achieve internal fit. We show that the pursuit offitmatters, in the sense of having measurable efficiency consequences, and thatfittrumps ‘best practice,’ at least in this context. In this respect, our findings provide a validation of the contingency perspective on internal fit. The ability to achievefitunder changing conditions may express a dynamic managerial capability necessary for adaptive organizational change. Copyright © 2007 John Wiley & Sons, Ltd.