Jumping Ship: The Diffusion of Strategy Abandonment

Abstract

This paper focuses on organizations' abandonment of strategy, which may be driven jointly by contagion and 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.