Jumping ship: the diffusion of strategy abandonment

Administrative Science Quarterly,  Sept, 1995  by Henrich R. Greve

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Why are organizational practices abandoned? Since abandonment is a form of organizational change, various theoretical perspectives that have been used to explain organizational change may also explain abandonment. March (1981) extracted six theoretical perspectives from the literature on organizational change: rule following, problem solving, learning, conflict, contagion, and regeneration. Of these, a theory of abandonment as a result of problem-solving activities has intuitive appeal, as it naturally follows from the suggestion that organizations initiate search processes when they encounter problems (Cyert and March, 1963). But when studied empirically, problems and abandonments often match imperfectly, leading to explanations drawn from theories of learning (Burgelman, 1994), conflict (Ocasio, 1994), regeneration (Starbuck and Hedberg, 1977), or contagion (Burns and Wholey, 1993), either alone or as supplementary explanations. The emphasis on problem-solving activities as a cause of abandonment needs to be supplemented, and perhaps supplanted, by a focus on alternative causes of abandonment.

Oliver (1992) suggested that abandonment may result from a variety of causal forces. This paper emphasizes behavioral contagion among organizations as a cause of abandonment. Contagion is frequently used to explain the adoption of new practices and is found in theories of the diffusion of innovations (Coleman, Katz, and Menzel, 1966; Rogers, 1983) and in neoinstitutional organization theory (Meyer and Rowan, 1977; DiMaggio and Powell, 1983; Baron, Dobbin, and Jennings, 1986; Edelman, 1990). It is linked to theories of social comparison (Festinger, 1954) and social learning (Bandura, 1977). Contagion is sometimes used to explain abandonment as well (Abrahamson, 1991). While previous attempts to confirm empirically that abandonment is contagious have not been successful (Knoke, 1982; Burns and Wholey, 1993), if it could be proven, it could become an important part of organizational theory. Contagion of abandonment can be one mechanism that weakens organizational inertia (Hannan and Freeman, 1984) and overcomes decision makers' commitment to failing strategies (Staw, Sandelands, and Dutton, 1981), but it also has the potential of causing faddish abandonment of sound practices (Abrahamson, 1991).

Abandonment is observed as the cessation of some activity or structural feature of the organization. This act is the result of decision-making activities in the organization that may be less bounded in time than the abandonment event. While direct study of these decision-making processes is difficult, theory on organizational decision making can inform the study of abandonment. This paper uses the behavioral theory of the firm (Cyert and March, 1963; Cohen, March, and Olsen, 1972) to outline some of the behaviors that may lead to abandonment. Contagion is viewed as a form of interorganizational learning that occurs because uncertainty causes decision makers to use social comparison to evaluate the practices of their organization.

I apply the theory of contagious abandonment to the abandonment of an organizational product-market strategy - in this study, a radio format. While such strategies are concrete and visible practices, strategy abandonment is an act that poses special challenges to a theory of contagious abandonment. Because strategy abandonment is usually a replacement event, in which a new strategy is brought in to replace the old, theories emphasizing the availability of alternatives challenge a theory of abandonment as a contagious act. Abandonment is highly consequential for the organization, and theories of abandonment as a response to competitive conditions are plausible alternatives to theories of contagion. These two challenges are both met in this paper. Competition is treated as a supplementary explanation and controlled for by including variables describing the level of competition in the local market, thus giving equal weight to the influence of the competitive ecology of organizations and the social contagion among organizations. I examine the replacement decisions of the abandoning organizations for evidence that the contagion of an alternative might be important in the abandonment decision.

DECIDING TO ABANDON

Theoretical Problems

The abandonment of an organizational strategy is sometimes observed as a discrete event, but it may be preceded by a number of different decision-making processes. Unlike the abandonment of some organizational practices, strategy abandonment occurs as part of a replacement decision in which one strategy is abandoned and another adopted. Strategy abandonment can be viewed as a result of the initiation and successful completion of a search for a decision (Cyert and March, 1963) in which the two main steps are initiating search processes when the old strategy becomes problematic and successfully completing a search for a replacement strategy. One major problem in doing research on strategy abandonment is that abandonment and the adoption of a new strategy are interrelated.