Dynamic Fit In An Era Of Ferment: Product Design Realignment And The Survival-Enhancing Role Of Alliances And Acquisitions

We propose that in an era of ferment, when a firm's product design does not possess the features of the evolving dominant design, it faces a feature implementation gap defined as 'the number of features of the evolving product dominant design that are absent from a firm's product design'. Employing the performance feedback perspective of the behavioral theory of the firm, we conceptualize a feature implementation gap as a manifestation of an aspiration-performance gap that negatively affects a firm's likelihood of product market survival due to a product market 'lock-out'. To dynamically improve the alignment of their product designs with the evolving dominant design and increase their likelihood of product market survival, we suggest that firms engage in problematic search using alliances and acquisitions to decrease the feature implementation gap. We found strong support for our predictions using a longitudinally dynamic mediation model with data from an era of ferment in the digital camera product market between 1997-2004. Our study extends the behavioral theory of the firm to a novel context - eras of ferment. It demonstrates that in this context, problemistic search involved dual search modes- short-run search at the individual feature level and long-run search at the design level. It also shows the utility of adopting a demand-side (i.e. product market or customer based) perspective to explain how firms improve their likelihood of product market survival during eras of ferment. In this, it complements recent research that has examined how firms’ internal actions affect product design realignment processes and firm outcomes in eras of ferment.