Publication Type
Journal Article
Version
publishedVersion
Publication Date
6-2020
Abstract
We examine whether firms learn from digital technology failures in the form of data breach events, based on the effectiveness of their failure responses. We argue that firms experiencing such technological failures interpret them broadly as organizational problems, and undertake unrelated divestitures and top management turnover to achieve better standardization and to remove dysfunctional routines. We test our hypotheses on unrelated subsidiary divestitures and chief technology officer (CTO) turnovers undertaken by 8,760 publicly traded U.S. firms that were at risk of experiencing data breaches in- volving the loss of personally identifiable information during the period 2005–2016. We find that data breaches significantly increase the hazard of unrelated divestitures and CTO turnover, and that these failure responses are sensitive to firms’ aspiration-performance feedback. However, whereas unrelated divestitures reduce the reoccurrence of data breaches, CTO turnover has no significant effect. Our findings suggest a corrective role of unrelated divestitures for failure learning, and the symbolic nature of CTO turnover as a failure response. Our study unpacks failure learning that hitherto has been inferred from a firm’s own failure experience and industry-wide failures, and highlights the interplay between the digital and nondigital components of a firm in the understudied context of data breaches.
Keywords
digitalization, organizational routines, failure learning, aspiration-performance feedback, cybersecurity, data breach, divestitures, top management turnover
Discipline
Digital Communications and Networking | Strategic Management Policy
Research Areas
Strategy and Organisation
Publication
Strategy Science
Volume
5
Issue
2
First Page
117
Last Page
142
ISSN
2333-2050
Identifier
10.1287/stsc.2020.0106
Publisher
Institute for Operations Research and the Management Sciences
Citation
SAY, Gui-deng and VASUDEVA, Gurneeta.
Learning from digital failures? The effectiveness of firms’ divestiture and management turnover responses to data breaches. (2020). Strategy Science. 5, (2), 117-142.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6578
Copyright Owner and License
Publisher
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1287/stsc.2020.0106