Modes And Effects Of Change : Evidence From Telecommunications Firms

This paper compares incentives to undertake internal and external changes and, in turn, examines the success of the changes. We use a routine-based conceptual perspective that draws from several institutional views of strategy, including the resource-based view, evolutionary theory, transaction cost economics, and institutional theory. We argue that the incentives to undertake internal and external modes vary with the extent of the capability gap that the firm faces, as well as the extent of external and internal market failures that the firm would incur in its attempt to change. In turn, we argue that the success of a change will reflect the alignment of the change mode and the incentives. Our argument develops several novel aspects of the concepts of external and internal market failures. The empirical analysis draws on a detailed survey of 160 telecommunications firms operating in Europe, North America, Latin America, the Middle East, or Asia in 2000-2001. The analysis offers one of the few large-scale analyses of change mode choices. The results provide general support for the predictions, with a few unexpected results that provide intriguing insights into the factors that underlie successful and failed change.