Why the frog does not jump out of the boiling water: A multi-level exploration of the limited responses of the Canadian banks to disruptive changes in the Canadian Residential Mortgage industry

This dissertation explores the research question: why do organizations fail to strategically reorient when facing disruptive change? Disruptive change is defined as shifts in the macro-environment and for competitive environment that eventually threaten the underlying business model of the industry or organization. Using exploratory, qualitative research the limited responses of the six large Canadian banks to disruptions in the Canadian Residential Mortgage industry from 1995 to 2007 was studied. The first phase of the research examined the Canadian Residential Mortgage industry using archival and interview data to establish the existence of disruptive change. In the second phase of the research, long interviews with 27 top executives exploring the limited responses to this disruptive change of the six large Canadian banks were conducted.;This dissertation contributes to the literature in several ways. It provides a rich description of discontinuous changes in an industry that contradicts the punctuated equilibrium theory and supports complexity theory. It also demonstrates how not seeing because of cognitive traps and missing dynamic capabilities prevents organizations from creating the readiness to change that is necessary for survival. Implications for extant theory, research and practice are discussed, as well as opportunities for future research.;Findings reveal that change in the residential mortgage industry occurred over three decades as the value chain fragmented into half a dozen separate industries, each of which progressed through experimentation and growth phases ultimately converging with other economic factors to produce a massive financial bubble and the largest financial meltdown in history. The complexity of these industry changes made it impossible to predict this outcome. Second, like the frog, Canadian banks did not "see" the changes occurring---they did not identify the anomalies, study them to distinguish the patterns and make inferences about the implications to themselves and their industry. While "seeing" the need to change is necessary, it is not sufficient. To respond before a crisis, the organization must also be "ready to change.".