Organizational Obsolescence, Drifting Tastes, and Age Dependence in Organizational Life Chances

Abstract

V arious patterns of age dependence in hazards of organizational failure have been documented: liabilities of newness, adolescence, and obsolescence. Prior efforts at providing a unified theory that can accommodate these patterns as special cases have not dealt properly with obsolescence. We tackle this problem by proposing a new model that builds on the most recent unification attempt while integrating the core intuition behind obsolescence: organizations have trouble adapting to drifting environments, which leads to declining performance and, in turn, to decreasing viability. In doing so, we develop a comprehensive representational framework to precisely characterize obsolescence. Our perspective builds on recent theory and research that treats categories as constructions by audiences. We characterize environmental drift as changing audience tastes in a multidimensional feature space and organizational inertia as a decreasing ability for producers to move quickly in that space. This combination creates obsolescence with aging. We then integrate this perspective with prior theory to make novel predictions regarding the age dependence in life chances over the life courses of organizations. We also show how the predictions of our theory can be tested empirically by adapting Levinthal's random walk model [Levinthal DA (1991) Random walks and organizational mortality. Admin. Sci. Quart. 36(3):397-420] to incorporate the possibility of organizational obsolescence.

Age-Related Structural Inertia: A Distance-Based Approach

“…This implication bears on an argument delineated by Le Mens et al (2014), which explains the increase in failure hazard for old organizations as a consequence of drift in audience tastes. Given such drift, there is a point in time after which the producer cannot move as fast as the audience tastes in offer space.…”

“…This encompasses at least two (nonexclusive) sets of situations. The first set concerns drift in audience tastes (see Le Mens et al 2014 for a formal definition of drifting tastes). Tastes tend to drift when there are broad cultural evolutions (such as an increased tendency for individualism) that drive the dynamics of particular tastes.…”

“…A simple example of such distance is the Jaccard distance, but other distance choices might be possible depending on how the analysts chooses to represent offers and offer portfolios. When information about the distance or similarity of individual offers is available, it is possible to use some generalization of the Jaccard distance (Kovács and Hannan 2013), the Hausdorff distance (Burago et al 2001, Le Mens et al 2014, or a modified Hausdorff distance (Dubuisson and Jain 1994).…”

“…To derive the implications for organizational performance-specifically, resource accumulation or organizational survival-architectural features and processes must be tied to resource accumulation. In the theoretical program on which we build (Le Mens et al 2011Mens et al , 2014, organizations accumulate resources when their offers match the relevant audience's tastes. Structural inertia will thus affect the flow of resource accumulation to the extent that its architecture constrains what an organization can do in terms of offers.…”

“…Considerations of organizational learning (as in the competency-trap story) and stability of organizational routines Freeman 1984, Barnett andCarroll 1995) suggest that performance is degraded when organizations change their structures or their memberships. The formulation on which this paper builds (Le Mens et al 2011, 2014 ties the quality/ quantity of engagement to organizational age, not to the duration of the pairs of structural arrangements and members. This part of the argument does not allow performance to degrade with change.…”