Two faces of decomposability in organizational search: Evidence from singles versus albums in the music industry 1995–2015

Abstract

Research Summary: This study proposes that decomposability may generate a trade-off in search. This study compares a decomposed search (i.e., producing and evaluating a decomposed module) and an integrated search (i.e., producing and evaluating a full-scale product). While the former can allow firms to experiment with more alternatives than can the latter, it may be more vulnerable to imperfect evaluation because a larger number of promising alternatives could be omitted after the initial evaluation. The reason for this is that not only do more alternatives face an unlucky draw in their initial evaluation but also a decomposed search may lead firms to set a higher performance target for giving a second-chance opportunity. I test this theory and mechanisms by comparing singles (i.e., decomposed modules) and albums (i.e., full-scale products) in the music industry. Managerial Summary: This study highlights a hidden cost of experimentation-oriented practices: an increased chance of terminating investment in promising business options (e.g., resources, technologies, and new business projects) after initial small-scale experimentation. A growing number of technological innovations (e.g., software development kits, cloud computing, and e-commerce platforms) have enabled firms to experiment with new business options by producing modules rather than full-scale products. These innovations benefit management practices for experimentation, such as lean start-up or design thinking, and have thus gained popularity among practitioners. This study suggests that while producing and evaluating a module enables firms to experiment with more options, it may increase the chance of terminating investment in promising business options because firms may set a higher performance target for subsequent investment after initial small-scale experimentation.