Organizations Evolving

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Howard E. Aldrich & Martin Ruef

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    List of Tables and Figures

    1.1 Size of firms by industry: United States, 2000 9

    1.2 European Union: employment share by member state and employment size, 2003, selected nations 10

    2.1 Evolutionary processes 17

    3.1 Six perspectives on organizations: relation to evolutionary theory 36

    4.1 Four competing interpretations of the term ‘entrepreneurship’ 63

    4.2 Modes of organizational memory and knowledge 77

    4.3 Employment size of firms started in 1992 84

    4.4 Starting capital requirements by size of firm, 1992 85

    4.5 Sources of borrowed capital by sex of owner, 1992 87

    5.1 The Janus principle: two models of organizational coherence 94

    5.2 Ideal-types of organizational membership models 107

    5.3 Bases on which job rewards can be given: two dimensions 109

    6.1 Theoretical approaches to defining organizational forms 115

    6.2 Organizational knowledge and member schemata 119

    6.3 Organizational culture: three threads of interpretation 123

    7.1 Organizational transformation: three dimensions 134

    7.2 Transformations: evolutionary explanations at the organizational level 139

    7.3 Case studies of transformation processes 143

    8.1 Historical models of organizational change 161

    8.2 Three components of an evolutionary-historical framework for understanding organizational change 164

    9.1 Strategies facilitating the growth of new populations 185

    9.2 Examples of new populations that encountered collective action and legitimacy problems 205

    10.1 Population dynamics: basic definitions 212

    10.2 Political processes and events affecting population reproduction 232

    11.1 Eight possible relations between organizational populations 244

    11.2 The commercial community of biotechnology 256

    A.1 Research designs employed in research illustrations 268

    A.2 Strengths and weaknesses of design features 269

    Figures

    4.1 Organizational emergence: from conception to adolescence 66

    8.1 History and organizational transformation: age, period, and cohort 165

    10.1 Growth pattern of a population of organizations, assuming fixed organizational size and limited resources 213

    10.2 Carroll's model of resource partitioning between generalist and specialist forms 224

    11.1 Two hypothetical patterns of ecological nestedness 257

    Preface to the Second Edition

    The first edition of this book had one author; now, there are two of us. When Sage asked Howard to consider updating the first edition of this book, he realized that so much had happened in the intervening five years that he could no longer tackle this task alone. Fortunately, he needed to look no further than around the corner of his office to find another scholar who had deep interest in evolutionary theory and organizational analysis. Martin joined the faculty at the University of North Carolina, Chapel Hill, in 1999, the year the first edition was published. He had just completed his Ph.D. in sociology at Stanford University, an institution that some see as the crucible for many of the perspectives we discuss in this book. Working with Dick Scott gave him a deep appreciation of the institutional approach, while doing a post-doctoral fellowship in the Stanford Graduate School of Business fostered his interest in ecological analysis. Collaboration on the book was complicated by Martin's move back to Stanford's Graduate School of Business in 2002 and his subsequent move to Princeton University. Being back on the East Coast, in the same time zone, and in a Department of Sociology seemed to speed things up a bit. Whatever the cause, we have found that this has been a remarkably agreeable and productive project.

    Why a second edition? First, young organizational researchers continue to produce robust empirical generalizations that strengthen the case for an evolutionary approach. We felt enough new material had accumulated that we could justify discarding some of the material in the first edition and replacing it with work published in the last five years. Second, sympathy for the evolutionary approach has grown, as evidenced in dynamic research designs that have generated insights into change processes. Reviews of the book's first edition were remarkably positive, and many reviewers commented on the ability of an evolutionary understanding to bring unity to the growing field of organization studies. The book was well received in both the sociology and management research communities, as it won the Max Weber award for Best Book from the American Sociological Association's Section on Organizations, Occupations and Work in 2000, and the George R. Terry Award from the Academy of Management for the best management book published in 1999. Third, we have seen signs of an emerging synthesis of the ecological and institutional perspectives, as well as a decidedly historical turn in many empirical projects. As we argue in the book, period and place are now central features of any sophisticated organizational analysis.

    What is new in this edition? First, in addition to providing citations to the most recent work in the field, we have added new sections on organizational forms, community evolution, and methods for studying organizations at multiple levels. We added a short methodological appendix that reviews research methods in terms of units of analysis, mode of data collection, and observation plan. Second, we found that the book is used as a text in many upper division undergraduate classes as well as graduate seminars, and so we have added review questions and exercises at the end of each chapter. Third, in many chapters, we have added a lengthy research case, illustrating the chapter's concepts. The rich descriptions add life to the concepts and principles and show how they can be applied to real historical examples.

    As in the first edition, the book contains about 1,000 references. Their publication dates reveal something about our own intellectual predilections, as well as the “evolution” of the evolutionary approach to organizational analysis. In many respects, the 1970s and 1980s were watershed years for the development of organizational theory, in general, and the evolutionary approach, in particular. Articles, chapters, and monographs from these decades represent roughly 30 percent of our references. The 1990s were a period of fervent empirical refinement of many organizational perspectives and this is paralleled in our References, which devotes nearly half of its listings to this decade. The years since the publication of the first edition have involved further empirical refinement of many organizational perspectives, as well as increased attention to processes that are central to an evolutionary perspective, such as entrepreneurship and organizational emergence. We cannot aspire to a complete survey of the recent literature because it would involve nearly every article from specialized journals such Administrative Science Quarterly and every third or fourth from general-purpose journals, such as the American Journal of Sociology and American Sociological Review. Even a selective approach to this recent literature yields over 150 references to publications from 2000 through 2005, as reflected in our References section.

    Acknowledgments

    Our task was made immeasurably easier because of the friends and colleagues who helped us with advice. Many of the same people who were involved with the first edition helped, in numerous ways, with the second edition. Because we already thanked them in the preface to the first edition, which follows this preface, here we will single out only those people who truly served double duty for us. Two people who read the first edition from cover to cover did the same for this edition: Ted Baker and Linda Renzulli. Steve Lippmann celebrated the completion of his dissertation at the University of North Carolina by also reading the entire book draft. Perhaps having Howard and Martin on his dissertation committee added urgency to his task! Valery Yakubovich also read the entire draft and provided comments. Phil Kim's work with Howard and Martin on entrepreneurial teams contributed insights to Chapter 4, and Linda Putnam and Joel Iverson read Chapters 5 and 6 and provided extensive comments as well as new references for us. Geoffrey Hodgson and Thorbjørn Knudsen have kept us apprised of the latest developments in evolutionary economics. Klye Longest updated all the domestic and international statistics, proofed the references, and suggested new interpretations of data and concepts.

    In the preface to the first edition, Howard noted that he had not been cooped up, hermit-like, as he was writing. His good fortune continued as he worked on this edition. In addition to visiting many of the same institutes and universities as before – AILUN in Sardinia, the Aarhus School of Business, and the University of British Columbia in beautiful Vancouver, among others – his Scandinavian connection strengthened when the Swedish Foundation for Small Business Research (FSF) gave him an ‘entrepreneurship researcher of the year’ award in 2000, allowing him to return repeatedly to Denmark, Norway, and Sweden over the past five years. When he became chairman of the sociology department in 2003, his travel slowed a bit, but his colleagues have always been understanding about receiving emails from places with alien keyboards that add strange symbols to his messages. In the first edition, Howard commented on the contributions his family had made. Now that he has been made a grandfather, three times over, he hopes that Gavriel Tzvi, Jackson, and Yaakov will carry on the family's love of travel. (All three already have their own passports and two have their own frequent flyer cards.)

    Martin has benefited from the collective knowledge of colleagues and students at the University of North Carolina, Stanford, and Princeton University. His approach to organization studies has benefited in particular from the example set by Dick Scott, a generous mentor and one of the most prolific scholars in the field. A number of ideas in this second edition were ‘trial’ tested on Martin's students in both advanced undergraduate and graduate courses and we thank them for their honest and constructive feedback. Finally, Martin would like to thank his family for their support during the writing of this book (and beyond). In 2003, he returned to North Carolina to marry Jennifer, a social worker and true-blue Tarheel. As work on this book was nearing completion in 2005, Jennifer gave birth to their first child, Edison. He has yet to learn about formal organizations, but already has a great deal to teach about life.

    Preface to the First Edition

    In 1979, in the preface to my book, Organizations and Environments, I wrote:

    In trying to write a book on organizational sociology for both students and colleagues, I decided there was no point in either reviewing all of the ‘perspectives’ advanced by theorists in the past two decades, or in re-creating the seemingly endless debates over measurement and method that have plagued the field. Rather, I have attempted to present a perspective that integrates concepts and research findings from all social science disciplines studying organizations, while retaining the gains made by historically and politically sensitive investigators in the United States and abroad. With a slight shift of emphasis from an original investigator's intentions, I found that a great deal of the literature in economic history, industrial economics, the social-psychology of organizations, organizational sociology, and political sociology could be integrated into an encompassing framework.

    Twenty years later, in 1999, my intentions remain the same: I seek an overarching framework that organizes an inquiry into the issues surrounding organizational change. As I will explain in Chapters 1 and 2, I use an evolutionary approach because it is a generic framework for understanding social change. The approach is applicable at multiple levels of analysis and directs our attention to the processes of variation, selection, retention, and struggle that jointly produce patterned change in evolving systems. I first use the evolutionary approach to explain how new organizations are constructed, and in later chapters I explore the historical context in which populations and communities emerge.

    How to Use This Book

    This book was written to be read in chapter order. Concepts are defined when they first appear and arguments in subsequent chapters build on those that have come before. However, I have provided an extensive index for people who wish to skip around. I have tried to make it easy for users to see other applications of a concept, and so I have listed most of the relevant pages on which the concept appears. The index also indicates where to find international examples, as I have noted the pages on which examples from nations other than the United States are mentioned.

    Given the substantial changes in the field over the past two decades, there is very little overlap with the literature reviewed in my 1979 book. Of the roughly 1,000 references, a little more than 50 percent are from the 1990s and about one-third are from the 1980s. The Administrative Science Quarterly is the most cited reference, with about 7 percent of the citations. Together the two Academy of Management journals received about 6 percent of the citations, and the three major American sociology journals account for another 10 percent. The remaining 77 percent of the references are selected from a wide range of journals and books, representing a variety of disciplines and approaches.

    I maintain a Web page for the book on my Web site at http://www.unc.edu/~healdric/. The page shows examples of course syllabi that use the book and also provides space for comments and discussion. Please visit the site.

    Intellectual Origins

    In the past, I have used a number of different terms to describe my perspective, but I now prefer the label ‘evolutionary.’ I admit to a certain inconsistency over the last several decades in labeling the research stream to which I was contributing. In the early 1970s, I argued that an ‘organization-environment’ perspective would correct a common problem with traditional approaches which were ‘using single organizations instead of populations of organizations as the frame of reference’ (Aldrich, 1971: 280). I argued that organizational properties had been ‘investigated without regard to their contributions to fitness in varying or diverse organizational environments’ (Aldrich, 1971: 281–282). Then, in 1975, building on Pfeffer's (1972) several papers on ‘organizational interdependence,’ and Yuchtman and Seashore's (1967) ‘system resource approach,’ I used the terms ‘resource dependence’ and ‘resource dependence perspective’ (Aldrich, 1976a, 1976b; Mindlin and Aldrich, 1975: 382). However, in retrospect, I probably should have built more explicitly on my earlier observations regarding the need to study populations.

    Then, given the opportunity to collaborate with Pfeffer on a review article concerning ‘environments of organizations,’ I chose the term ‘natural selection model’ to contrast my way of thinking with Pfeffer's, which we labeled the ‘resource dependence model’ (Aldrich and Pfeffer, 1976). Many of the themes I developed with Pfeffer in that review article were elaborated upon in my 1979 book, where I referred to the approach as ‘population ecology’ interchangeably with ‘natural selection model.’ Bill McKelvey convinced me that the term ‘population ecology’ was too narrow for what we were doing, and so in 1983 we chose the phrase ‘population perspective’ (McKelvey and Aldrich, 1983).

    Now, I am convinced that it is best to use the terms ‘evolutionary perspective,’ ‘evolutionary approach,’ or ‘evolutionary theory,’ because evolutionary thinking in the social sciences has matured and shed some of its earlier unwarranted connotations. For further discussion of this issue, see my discussion of the excess baggage carried by the term ‘evolution’ (Aldrich, 1979: 51–54). Baum and Singh (1994a), for example, managed to recruit a large group of scholars to a conference expressly focused on using evolutionary theory to study organizations, a feat unimaginable back in the 1970s. Subsequently, Baum and McKelvey (1999) had no difficulty finding scholars willing to contribute to a conference explicitly focusing on evolutionary issues. I hope my book encourages others to begin thinking in evolutionary terms.

    Acknowledgments

    I enjoyed writing this book, although it took years longer than I expected. When Sue Jones and I had a celebratory signing dinner in Las Vegas in 1992, she thought I would be delivering a manuscript to Sage Publications in a few years. When she turned over the editorship to Rosemary Nixon in 1996, we realized that ‘book years’ rather than ‘book months’ had become the metric of choice. Sue provided wonderful encouragement in the early years, and Rosemary never wavered in supporting the project, no matter how many self-imposed deadlines I missed.

    Along the way, many friends and colleagues became implicated in my efforts, and to prevent them from disclaiming any responsibility for the results, I've decided to give them due credit. First, many of the book's ideas were initially developed in collaborative writing with my doctoral students and other colleagues. Udo Staber initially worked with me at Cornell University on a study of trade associations and subsequently on studies of social networks. Jane Salk joined that effort while a doctoral student at North Carolina, along with Jack Beggs. Ellen Auster also worked with me at Cornell and went on to conduct research on interorganizational strategies. At the University of North Carolina, Amanda Brickman Elam, Pat Ray Reese, Linda Renzulli, and Cathy Zimmer were involved in research on entrepreneurship and social networks, with Paola Dubini collaborating on an Italian replication of that work. Arent Greve and Bengt Johanisson carried out the Scandinavian part of that research. Ted Baker opened my eyes to strategic human resource issues involved in entrepreneurial activities and has been an invaluable co-author on numerous projects. Also at the University of North Carolina, Courtney Sheldon Hunt sparked my curiosity about the possibility of empirical research on electronic commerce, and Amy Kenworthy showed me that Don Campbell still had much to teach me. Jane Weiss's influence lives on to the extent that an historical and comparative flavor informs my writing. Her vibrant presence is sorely missed.

    Bill McKelvey and I, as fellow admirers of Donald Campbell's contributions, made a pilgrimage to visit Don in Syracuse. We subsequently wrote a series of papers together. Marlene Fiol rekindled my passion for the social psychology of organizations, reminding me of the lessons Dan Katz and others at Michigan had taught me but which I had suppressed. Mary Ann Von Glinow stirred my interest in human resource issues confronting new firms, and Gabriele Wiedenmayer co-authored several papers with me on the ecological analysis of organizational foundings. Peter Marsden not only recruited me to Chapel Hill but also joined me in several efforts to review the state of the art in organizational sociology. Nancy Langton and Jennifer Cliff gave me a Canadian perspective on human resource management in small and medium sized enterprises. In Japan, Toshihiro Sasaki worked with me on a study of research and development consortia, Tomoaki Sakano and I studied entrepreneurial networks, and Tamiki Kishida tried to persuade me of contingency theory's value.

    Second, many people read at least part of the book and made written comments on it. At the top of the list are five truly self-sacrificing souls who read the entire book at least twice, not only providing critical comments but also proposing new text that substantially improved my arguments: Ted Baker, Heather Haveman, Anne Miner, Linda Renzulli, and Pat Thornton. Their advice and encouragement reaffirmed for me the value of strong ties and the joy of supportive colleagues. Others read specific chapters or passages and provided incredibly helpful criticism: Kristina Ahlen, Linda Argote, Joel Baum, Nicole Biggart, Bill Gartner, Mary Ann Glynn, Lisa Keister, Jonathan Levie, Benyamin Lichtenstein, Leann Mischel, Mark Mizruchi, Jim Moody, Donnie Parker, Jeremy Reynolds, Paul Reynolds, Huggy Rao, Soodi Sharifi, Toby Stuart, Mark Suchman, Jim Wade, and Theresa Welbourne.

    Third, undergraduate and graduate students in my organizational sociology and entrepreneurship courses at the University of North Carolina patiently endured multiple drafts of the book and provided constructive feedback. There are too many of them to list, but their contributions live on in the concrete examples and valuable references they contributed. Fourth, my colleagues in Chapel Hill provided a supportive environment in which to discuss not only organizational theory but also my other great passion, the teaching of sociology. In particular, I want to thank Arne Kalleberg, Rachel Rosenfeld, Glen Elder, Lisa Keister, Sherryl Kleinman, and Judith Blau. My office staff did a superb job in putting the book together. Deborah Tilley began the effort, Erica Dawson and Leslie Whitley kept it going, and Jennifer Carpenter masterfully put the final pieces together.

    Over the past decade, while this book was taking shape, I did not sit cooped up in a dark garret or seaside cabin, as so many other authors seem to claim. Instead, I enjoyed the hospitality of many institutes and universities around the world. Several times, I spent the late spring and early summer months teaching at SDA-Bocconi, in Milan, and at Keio Business School, in Yokohama. Because of the generosity of the University of British Columbia's College of Commerce and Administration, my wife and I spent several summers in Vancouver. I have enjoyed yearly visits to Vienna, teaching in Josef Mugler's Institute for Small and Medium Enterprises at the University of Economics, and also to Sardinia, teaching in Giulio Bolacchi's AILUN program. Mike Useem introduced me to Professor Bolacchi, and Woody Powell and Paul Hirsch have joined me in sustaining an American sociological spirit in AILUN. My ‘Scandinavian connection’ has proved particularly fruitful, with frequent seminars in Uppsala, Stockholm, Linköping, Jönkoping, Bergen, and a current part-time visiting appointment at the Norwegian School of Business in Oslo. In particular, I thank Maja Arnestad, Magnus Aronsson, Gunn Birkelund, Per Davidsson, Arent Greve, Sølvi Lillejord, Leif Melin, Torger Reve, and Olav Spilling. Many other overseas colleagues have welcomed me for short visits that have broadened my outlook and showed me alternative ‘ways of seeing.’

    Traditionally, authors conclude their acknowledgments with a painful reference to the sacrifices of their families and an apology for lost time. Those who know my family, however, would not find that claim credible. Our two sons matured magnificently during the 1990s, in part due to study as Morehead Scholars at the University of North Carolina. Steven gave up a career in physics for several years in investment banking and then returned to college for his MBA at Stanford. After graduation, he married Allison and founded an Internet commerce firm. Daniel pursued his interest in Japan with study overseas and an MA in Asian Studies at Berkeley. After marrying Yael and spending a year in Israel, he entered a Ph.D. program in Political Science at Harvard. My wife's inclination for adventure, noted in my 1979 book, continued. Penny spent time swimming with Dolphins in Mexico, teaching on a Navajo reservation in Arizona, snorkeling with the Manatee in Florida, following Orcas off the coast of Vancouver Island, and reading stacks of books in the off-season. Even though my involvement in many of my family's pursuits probably doubled the time it took to finish this book, I could not have asked for a better and more selective environment.

  • Appendix: Research Design and Evolutionary Analysis

    Overview of Research Illustrations

    We purposefully chose the case studies in this book to illustrate the diversity of research designs employed in organizational analysis. In Table A.1, we characterize this diversity along three dimensions: (1) unit of analysis; (2) mode of data collection; and (3) observation plan. Although the research designs are clearly not exhaustive – for instance, laboratory experiments are noticeably absent – they do include many of the most common approaches. We highlight the advantages and disadvantages of each.

    As we argued in Chapter 2, scholars take different positions on the appropriate unit of analysis in evolutionary organizational studies. In many respects, organizations as a whole constitute a natural choice, insofar as they are boundary-maintaining entities with activities directed toward their own perpetuation. However, when scholarly interest centers on the emergence of new organizations or variation within existing ones, researchers must disaggregate the units further. Social groups in organizations (e.g. work groups, departments, divisions) and social routines represent two viable alternatives, as illustrated in the studies by Ruef and colleagues (2003) and Pentland (1992; Pentland and Rueter, 1994), respectively. Methodological individualists argue for further disaggregation, focusing on individual persons as carriers of routines, competencies, and status characteristics. This emphasis is especially useful when evolutionary processes affect the life histories of individuals, as noted in Li and Walder's (2001) study of institutional change in Maoist and post-Maoist China.

    For other studies of organizational evolution, the timescale of variation, selection, and retention processes may transcend the lifespan of individuals and organizations. Studies at this scale benefit from a focus on organizational populations or even communities as units of analysis (e.g. Ingram and Rao, 2004). For this purpose, researchers commonly use the single population census, which emphasizes complete historical coverage of an organizational population, the observation of all major vital events (such as foundings and disbandings), and careful measurement of institutional and material context (Carroll and Hannan, 2000). Given growing interest in the evolution of organizational communities, some scholars have also deployed a multi-population census, which tracks a number of interdependent populations simultaneously. Resource limitations may require limited temporal coverage and less precise measurement of vital events (Ruef, 2000).

    Table A.1 Research designs employed in research illustrations

    The mode of data collection is largely orthogonal to the unit of analysis. In circumstances with limited direct access to the participants involved in an evolutionary process, analysts tend to rely on archival databases, such as those represented in directories, newspaper accounts, organizational records, diaries, and the like. For example, historical analyses of organizations usually rely on data archives. When direct access to participants can only be arranged for a limited period, researchers often employ interviews or mailed surveys. For units of analysis beyond the individual or small group, researchers may apply these instruments to multiple respondents within an organization or population, raising the question of inter-respondent reliability (Marsden, 2005). Finally, if researchers desire prolonged access to participants, they can use ethnographic methods to track evolutionary processes through field observation and varying levels of personal participation.

    The type of observation plan, the third dimension of the research designs reviewed in Table A.1, addresses whether data are collected only at one time point (cross-sectionally) or at multiple time points (longitudinally). It also considers whether data will be collected after an evolutionary process has occurred (retrospectively) or while it is occurring (prospectively). As seen in the Table, we have omitted the first distinction since all research designs intended to address evolutionary processes entail some longitudinal component. Researchers tend to collect such data retrospectively when their interest centers on an extended period or process of historical interest. They are more apt to use prospective designs when their interest centers on activities that may be completed over a brief period.

    Table A.2 Strengths and weaknesses of design features

    Strengths and Weaknesses of Non-Experimental Research Designs

    As we summarize in Table A.2, all research designs confront analysts with a mix of strengths and weaknesses. With respect to choosing a unit of analysis, for instance, studies of small units (examining individuals, social groups, or routines) afford investigators unique opportunities to observe organizational processes at a fine-grained level, often with some insight into the subjective dispositions of entrepreneurs or organizational members. This subjective dimension sometimes gets lost or reified in designs studying larger units, as investigators address structural and cultural characteristics in a more holistic fashion. Conversely, investigators who emphasize organizations, populations, and communities as their units of analysis are better positioned to observe emergent properties that may be missed in research designs for smaller units.

    The strengths and weaknesses of different modes of data collection follow directly from the degree of access to informants they require. In archival research, investigators need not have any access to informants, but the measures collected will be limited to those present in existing archives. Typically, information in official archives has been collected for administrative purposes, making it very difficult to use for research purposes. Interviews or surveys allow investigators to tailor their measures to their specific evolutionary perspective. However, with the exception of respondent-driven instruments and open-ended questions, investigators must specify in advance both the sampling frame of informants and the operationalization of measures. Direct observation requires the most extensive access to participants in an evolutionary process, while allowing informants and measures to ‘emerge’ during the study period, along the lines advocated by proponents of grounded theory (Golden-Biddle and Locke, 1997; Strauss, 1978). Nevertheless, such observations must still be structured afterwards for the sake of interpretation.

    The problem of success bias, noted in Chapter 2, is intimately tied to the choice of retrospective versus prospective research designs in evolutionary analysis. Retrospective designs suffer the greatest risk of success bias, because they often sample from units that have survived until analysts have collected data from them. Even in the absence of such obvious instances of success bias, the problem may appear in more subtle ways. The retrospective reliance on archival data in organizational ecology, for instance, is predicated on the assumption that such archives exist and, consequently, that organizational populations have attained some level of success that makes them amenable to analysis. Similarly, retrospective interviews with successful and unsuccessful managers are subject to different recall biases, as these informants try to make sense of past experiences (Weick, 1995). Prospective research designs not only mitigate these concerns, but also impose considerable demands on the time of investigators. Moreover, attrition – the loss of cases from prospective designs over time due to non-response or selection mechanisms – can whittle away even large samples, leaving investigators with limited ability to draw inferences.

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    Author Index