Why Do Software Firms Fail? Capabilities, Competitive Actions, and Firm Survival in the Software Industry from 1995 to 2007
Authors: Li, Shanling; Shang, Jennifer; Slaughter, Sandra A.
Journal: Information Systems Research (2010)
<jats:p>This study examines why firms fail or survive in the volatile software industry. We provide a novel perspective by considering how software firms' capabilities and their competitive actions affect their ultimate survival. Drawing on the resource-based view (RBV), we conceptualize capabilities as a firm's ability to efficiently transform input resources into outputs, relative to its peers. We define three critical capabilities of software-producing firms—research and development (RD), marketing (MK), and operations (OP)—and hypothesize that in the dynamic, high-technology software industry, RD and MK capabilities are most important for firm survival. We then draw on the competitive dynamics literature to theorize that competitive actions distinguished by a greater emphasis on innovation-related moves will increase firm survival more than actions emphasizing resource-related moves. Finally, we postulate that firms' capabilities will complement their competitive actions in affecting firm survival. Our empirical evaluation examines a cross-sectional, time series panel of 5,827 observations on 870 software companies from 1995 to 2007. We use a stochastic frontier production fun…