Adaptation and survival in small- and medium-sized firms

Abstract

This article considers the causal connection between adaptability and survival in populations of small and medium-sized firms (SMEs). Some literatures have downplayed adaptability by focusing on statics and equilibria (parts of mainstream economics). Others have argued that it is very difficult to make individual firms more adaptable and the focus should be on selection forces in the population as a whole (early organizational ecology). By contrast, writers on strategy devote much attention to improvements in adaptability. Here we outline an approach to the measure of adaptability that focuses on organizational dispositions and routines, and is usable within large samples of firms. This approach was field tested on 909 firms in 2008 in the East of England. A follow-up survey during the severe recession and shake-out in 2009 provided an opportunity to assess the relationship between adaptability and survival. The results were then replicated and interpreted using a computer simulation. While preliminary, our overall findings suggest that adaptability can have a small but important effect in some circumstances. But our evidence is also consistent with a decline in adaptability in individual firms through time, and the strong overall effect of selection forces. Our interpretative methodology may signpost a route toward the reconciliation of ‘selectionist’ and ‘adaptationist’ views in the literature.