Change and Stability in Industry Architectures: Firm Actions and Performance Effects

Abstract

This study analyzes performance effects of firm efforts to shape the structure of an industry. We view industry structure through the conceptual lens of industry architectures and posit that firms shape these architectures by carrying out a single or multiple of change- and stability-oriented actions over time. We hypothesize that both types of actions differently affect firm performance and that this relationship is moderated by the predictability, segment conformity, and simplicity of firms’ competitive behavior. To test our hypotheses, we created a unique dataset of airline actions that fostered either stability or change in the flight-ticket distribution architecture and assessed, as a proxy for firm performance, the change these actions cause in investors’ expectations of future firm performance once an action is announced. Our findings reveal that change-oriented actions negatively affect firm performance and that this effect is further exacerbated by simplicity in firms’ competitive behavior, but that stability-oriented actions have an inconclusive effect. Our findings challenge the literature’s overwhelming focus on firm-driven change and its associated benefits and makes an initial effort at identifying the factors that both facilitate firm efforts to shape architecture and influence firm performance.