A theoretical analysis of embedded organizations (parts of a larger organization) is developed and eight propositions relative to the use of modifying responses by such organizational units are offered. Research was conducted on the responses of two colleges within a university to their respective growing/declining resource environments over an 8-year period. Both had experienced substantial environmental shifts in enrollment and finances. Students who enrolled as majors were viewed as an element of the external environment (external to the parent organization), while financial resources for instruction came primarily from the internal environment (internal to the parent but external to the embedded unit). Adaptive responses used in the study included budgetary adjustments, programmatic adjustments, and technical (operational) adjustments. The finding that adaptive responses were used much more frequently than modifying ones led to the theoretical development of variables that might affect the ways in which embedded organizations react to environmental shifts. For embedded organizations, the internal environment, the constraints of the top administration of the parent organization, and the expectation that the parent organization would cope with the external environment outweighed modifying response to the external environment. (SW)