From Scooters to Choppers: Product Portfolio Change and Organizational Failure. Evidence from the UK Motorcycle Industry 1895 to 1993

Abstract

This article explores the conditions under which organizational change increases the risk of organizational failure. To reach this goal, we examine the pros and cons of flexibility and inertia arguments. Empirically, we measure the survival consequences of product portfolio expansion in the British motorcycle industry during the period from 1895 to 1993. A key finding is that the correlation of product portfolio expansion with increased risk of business failure is moderated by the organization's portfolio width, which we interpret as a proxy of the firm's capabilities. Whilst narrow portfolio organizations face an increased risk of failure after a portfolio expansion, their broad portfolio counterparts enhance their survival chances by engaging in further expansions. We conclude that although organizational change is risky, it may provide long-term rewards, especially for broad-portfolio organizations leveraging their developed capabilities. Managerial insights include considerations of the point when portfolio expansion moves from being too risky to becoming an advantageous strategy for a firm. © 2005 Elsevier Ltd. All rights reserved.