Organizational Obsolescence, Drifting Tastes, and Age Dependence in Organizational Life Chances

Various patterns of age dependence in hazards of organizational failure have been documented: liabilities of newness, adolescence and obsolescence. Prior efforts at providing a unified theory that can accommodate these patterns as special cases have not dealt properly with obsolescence. We tackle this problem by proposing a new model that builds on the most recent unification attempt while integrating the core intuition behind obsolescence: organizations have trouble adapting to drifting environments, which leads to declining performance and, in turn, to decreasing viability. In doing so, we develop a comprehensive representational framework to precisely characterize obsolescence. Our perspective builds on recent theory and research that treats categories as constructions by audiences. We characterize environmental drift as changing audience tastes in a multi-dimensional feature space and organizational inertia as a decreasing ability for producers to move quickly in that space. This combination creates obsolescence with aging. We then integrate this perspective with prior theory in order to make novel predictions regarding the age-dependence in life chances over the life course of organizations. We also show how the predictions of our theory can be tested empirically by adapting Levinthal’s random walk model to incorporate the possibility of organizational obsolescence.