Continuous Adaptation in a High-Velocity Environment: A Study of the Dot-Com Experience

In this study, we examine the phenomenon of the decline in valuation of dot-com organizations and propose that dot-com organizations that have continuously altered their business model in response to the environment have been rewarded by superior valuations in the market place. We first present the dominant perspectives in organizational adaptation research, and discuss their relevance to the current study. Using the concept of business models, we investigate the strategic adaptation paths of 22 dot-com organizations in the period from 1998 through 2001 and correlate them against the performance of their share prices over the same period. 1 RESEARCH OBJECTIVES In the eight years since Internet-based start-ups, or dot-coms, first appeared, perceptions about their potential as viable businesses has fluctuated dramatically. Using the perspective of business models, this study seeks to answer the following research question: Why have some dot-coms survived while others have failed? We believe the reason that many dot-coms failed was their inability to move rapidly in a hyper-competitive environment which they had themselves created. The reasons for this lack of adaptability, we speculate, relate to two specific characteristics of dotcoms: venture funding and founder/entrepreneurial driven. Both can lead to inertia either due to specific investor expectations or due to a strong original vision for the company. In this study, we specifically examine the following: • Business model changes undertaken by selected sample of 22 publicly-listed dot-coms over a three-year period • The relationship between the extent and nature of business model changes and the market value of firms 2 THEORETICAL FOUNDATIONS Conceptually, this study is related to research on organizational adaptation, defined as a period of gradual, long-continued and incremental change in response to environmental conditions (Tushman 1985). Related to this are the concepts of strategic change (Boeker 1991) and organizational change (Kraatz 1996 ). Sethi et al./Continuous Adaption in a High-Velocity Environment 83