When is more better? The impact of business scale and scope on long-term business survival, while controlling for profitability

Janet Bercovitz, Will Mitchell

Research output: Contribution to journalArticlepeer-review

Abstract

Empirical research shows that larger businesses tend to survive longer than smaller companies. Little research, though, shows whether size confers survival advantages in addition to the survival benefits of baseline profitability. Moreover, no prior research attempts to disentangle the benefits of organizational capital that accrue from greater scale from those that arise from greater business scope. Thus, we lack a conceptual understanding of the underlying benefits of business size for long-term survival. We expect business scale and business scope to reflect organizational capital that offers survival benefits, where we conceptualize scale in terms of annual sales revenue and scope in terms of product line breadth and sub-sector participation within a related business context. We first argue that greater business scale and business scope each enhance long-term survival, independent of baseline profitability, owing to greater availability of financial resources, organizational routines, and external ties. We then argue that the benefits of scale are greatest for multi-product businesses, stemming from positive interactive effects of breadth and depth. We find support for these hypotheses with data from 618 firms that operated in the U.S. medical sector between 1978 and 1995.

Original languageEnglish (US)
Pages (from-to)61-79
Number of pages19
JournalStrategic Management Journal
Volume28
Issue number1
DOIs
StatePublished - Jan 2007

Keywords

  • Long-term business survival
  • Scale
  • Scope

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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