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Organizational Environments and Industry Exit: The Effects of Uncertainty, Munificence and Complexity

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  • Anderson, Philip
  • Tushman, Michael L
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    Abstract

    Economists and organization theorists have asked which factors are linked to the rate at which firms exit an industry. Yet little research has linked exit rates to changes over time in the key dimensions which characterize an industry's environment. This study examines linkages between exit rates and changing levels of uncertainty, munificence and complexity in an industry. A longitudinal study of the American cement (1888-1980) and minicomputer (1958-82) industries reveals that uncertainty is the key environmental dimension associated with organizational mortality. Controlling for ecological and macroeconomic conditions, exit rates are associated with uncertainty, but not complexity or munificence. The greater the uncertainty, the higher the exit rates. Two kinds of uncertainty create hazardous environmental conditions: unpredictable changes in demand and eras of ferment bounded by technological discontinuities and dominant designs. Our results indicate that while organizations can deal with different levels of economic munificence and complexity, uncertainty is a significantly more lethal characteristic of organizational environments. The results support Schumpeterian perspectives linking industry turnover to "waves of creative destruction", but suggest more broadly that an organization's ability to cope with uncertainty is a key determinant of its life chances. Copyright 2001 by Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Industrial & Corporate Change.

    Volume (Year): 10 (2001)
    Issue (Month): 3 (September)
    Pages: 675-711

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    Handle: RePEc:oup:indcch:v:10:y:2001:i:3:p:675-711

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    1. repec:ltr:wpaper:2006.02 is not listed on IDEAS
    2. Sahaym, Arvin & Treviño, Len J. & Steensma, H. Kevin, 2012. "The influence of managerial discretion, innovation and uncertainty on export intensity: A real options perspective," International Business Review, Elsevier, vol. 21(6), pages 1131-1147.
    3. de Jong, Gjalt & Phan, T. Binh & van Ees, Hans, 2011. "Does the meta-environment determine firm performance? Theory and evidence from European multinational enterprises," International Business Review, Elsevier, vol. 20(4), pages 454-465, August.
    4. Meijer, Ineke S.M. & Hekkert, Marko P. & Koppenjan, Joop F.M., 2007. "The influence of perceived uncertainty on entrepreneurial action in emerging renewable energy technology; biomass gasification projects in the Netherlands," Energy Policy, Elsevier, vol. 35(11), pages 5836-5854, November.
    5. Prentice, David, 2008. "The origins of American industrial success: Evidence from the US portland cement industry," MPRA Paper 13409, University Library of Munich, Germany.
    6. Dolata, Ulrich, 2011. "The music industry and the internet: A decade of disruptive and uncontrolled sectoral change," Research Contributions to Organizational Sociology and Innovation Studies, SOI Discussion Papers 2011-02, University of Stuttgart, Institute for Social Sciences, Department of Organizational Sociology and Innovation Studies.
    7. Wiltbank, Robert & Read, Stuart & Dew, Nicholas & Sarasvathy, Saras D., 2009. "Prediction and control under uncertainty: Outcomes in angel investing," Journal of Business Venturing, Elsevier, vol. 24(2), pages 116-133, March.
    8. Sung, Sun Young & Choi, Jin Nam, 2012. "Effects of team knowledge management on the creativity and financial performance of organizational teams," Organizational Behavior and Human Decision Processes, Elsevier, vol. 118(1), pages 4-13.
    9. Yamakawa, Yasuhiro & Yang, Haibin & Lin, Zhiang (John), 2011. "Exploration versus exploitation in alliance portfolio: Performance implications of organizational, strategic, and environmental fit," Research Policy, Elsevier, vol. 40(2), pages 287-296, March.
    10. Wang, Heli & Chen, Wei-Ru, 2010. "Is firm-specific innovation associated with greater value appropriation? The roles of environmental dynamism and technological diversity," Research Policy, Elsevier, vol. 39(1), pages 141-154, February.
    11. David Prentice, 2006. "A re-examination of the origins of American industrial success," Working Papers 2006.02, School of Economics, La Trobe University.

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