Stepping stones to firm growth: Evidence from the deregulated U.S. railroad industry

This paper examines and identifies alternative patterns and sequencing of growth and capability development strategies pursued by rival firms in a post-deregulation environment, and empirically tests performance consequences of competing strategic trajectories. In developing our theoretical framework, we draw from the classic works of Ansoff (1957, 1965), Chandler (1962, 1977) and Penrose (1959, 1995). We test our theory by examining alternative patterns and sequencing of scale and scope decisions made by the U.S. railroad companies during the period of 1980-2003 and how these strategic decisions impacted their financial performance. The results indicate heterogeneity in the scale and scope-related choices made by firms after the deregulation, and demonstrate that all of the surviving firms followed a particular pathway similar to the theoretical prescriptions of Penrose, Chandler, and Ansoff.