Divergence in Firms: How Technology Convergence Relate to Organizational Boundaries

Abstract

Research in industrial organization and organizational theory has long studied the dynamics of industry and organizational evolution. Yet, we do not know how organizational boundaries of competing firms co-evolve when previously distinct technologies converge, bringing standards, products/services, markets and industries together. Drawing on the Transaction Cost Theory and the larger framework of Market Failure (Williamson, 1975; 2010), we explain how various types of convergence attend differently to the rearrangement of organizational boundaries in firms with different positions in value-chains and in markets. Based on a new convergence taxonomy and a sequential hierarchy that accounts for related contingencies, we develop a theoretical model that explains where and how organizational boundaries change as convergence proceeds. We also argue that the direction of convergence, towards either higher or lower market failure potential, is also a significant variable in understanding boundary dynamics during convergence. In conclusion, we discuss how different types of convergence can be accounted for, while making boundary decisions in different organizations, together with theoretical implications and potential further research.