Organizational Structure and Performance Feedback: Situated Decision Making and Persistence in Product Phase-out

This study examines the effects of organizational structure on product phase-out. Using quarterly product-level data on the top five mobile handset manufacturers for the period 2004–2009, we analyze how the elevation of phase-out decision to higher levels in the firm—and how the extent of consultation at that level—influence persistence in phase-out decisions. Results show that elevation speeds phase-out whereas consultation slows phase-out. However, structure also moderates the effect of persistence following positive and negative feedback. These results suggest that elevation can increase the inertia and bias in phase-out decisions but only when the firm is well above (or well below) aspirations. Our findings suggest also that the bargaining prevalent in consultative environments facilitates phase-out when performance is below aspirations, but may induce persistence when above. A broader contribution is to offer a theory of situated selection according to which organizational structure affects phase-out through information processing and the way managers attend and respond to performance feedback.