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. Although that pattern likely plays out often, it is also often the case that incumbents adopt new technologies less intensively than entrants and yet, are not displaced; 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 in a way that allows us to generate novel predictions. When corroborated, these predictions suggest that the patterns we observe are likely the result of issues of multidimensional fit and cannot be explained by a simpler model. One model predicts that market segment choice is a function of the 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. Specifically, in settings without a sufficiently large scope for product customization or the possibility of variation in organizational form, we predict that the relationship between entry order and technology adoption is attenuated. We find patterns consistent with our predictions using rich employer-employee linked administrative data from Portugal. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0071 .