A window on the world: how firm structure shapes the evolution of U.S. telecommunications firms, 1984-1998

This paper explores how organizational structure shapes the evolution and adaptation of firms. Specifically, we examine how structure influences the way firms process information from the environment and between separate units of the firm. We argue that a firm's division structure shapes how the information from the environment is shared and transmitted through the company. Thus we predict that firms are more likely to enter markets that match the information characteristics of its operating units. In addition, we predict that horizontal links between operating units that match a market will make a firm more likely to enter that market. We operationalize and test our hypotheses using a sample of U.S. local telephone companies. The dataset is composed of structure and service information from the 8 largest local telephone service providers in the U.S. from 1984 to 1998. The results confirm the role that division structure plays in shaping the evolution of firms. For linkages between units, the results suggest that these coordination structures embed units in both information and influence networks, and thus linkages play a more complex role in shaping the actions of organizations than we hypothesize.