Market Segment, Organizational Form, and Information Technology Fit

Abstract

Several literatures in strategy propose models of the displacement of incumbent firms by newer firms that adopt newer technologies. While that pattern likely plays out often, it is also often the case in industries where incumbents adopt new technologies less intensively than the entrants are not displaced and the new and old firms coexist. We propose one explanation built on the fundamental notion in strategy of the importance of fit between activity system components. We combine three existing models from strategy to show that our novel predictions are the result of questions of fit. One model predicts that market segment choice is a function of order of entry. A second suggests that organizational form must fit with market segment choice, and a third suggests that information technology adoption returns depend on organizational form. Jointly, these models produce a chain of logic explaining why early entrants might be less likely to adopt information technology. The combined model also yields a novel prediction about when we expect this pattern to emerge. We find patterns consistent with our predictions using rich employer-employee linked administrative data from Portugal.

Keywords: Strategy, Market segment, Organizational hierarchy, Technology adoption

JEL Classification: L22, O33