Jumping Ship: The Diffusion of Strategy Abandonment

Abstract

This paper is part of my doctoral dissertation at Stanford University. I am grateful for the advice of James G. March, William P. Barnett, and Joel Podolny, the comments of Michael T. Hannan, Pamela Haunschild, Christine Oliver, David Strang, Nancy Brandon Tuma, and anonymous reviewers for ASQ, and the editorial assistance of Linda Pike. Financial support from the Stanford Center of Organizations Research, the Norwegian School of Economics and Business Administration, the Richard D. Irwin Foundation, and the Spencer Foundation is gratefully acknowledged. This paper focuses on organizations' abandonment of strategy, which may be driven jointly by contagion qnd competition from other organizations. This paper treats both explanations but emphasizes contagion. I argue that strategy abandonment is contagious because the future performance of current and alternative strategies is highly uncertain, causing decision makers to examine the actions of other organizations in the industry for clues to the correct action. Contagion from organizations easily observed by the focal organization is stronger than contagion from other organizations, causing corporate links across markets to become important routes for the contagion of strategy abandonment. This theory is tested on a sample of radio stations abandoning a strategy and is supported by evidence that contagion of abandonment occurs through the influence of an organization's social reference groups.'