Organizational identities and the hazard of change

Abstract

We examine how the life chances and financial performance of nascent hightechnology firms were affected by two kinds of organizational changes: altering founders' blueprints for the employment relation and replacing a founder-chief executive officer (CEO) by an outsider. We argue that both events destabilize organizations but that changes in employment blueprints are tied more tightly to the organization's identity and thus are more destabilizing. We analyze three dimensions of organizational performance among a sample of young hightechnology companies in California's Silicon Valley: survival versus failure, launching an initial public offering (IPO), and changes in financial valuations among organizations that underwent an IPO. As predicted, changing the employment blueprint increased the hazard of failure and diminished growth in market value. Appointing an outsider as CEO did not affect the hazard of failure appreciably but did depress the rate of growth in market capitalization. The implications of these results for ecological and institutional perspectives on organizations are discussed.