Corporate Proximity and Product Market Reentry: The Role of Corporate Headquarters in Business Unit Response to Product Failure

Understanding how organizations respond to failure is important to management research, yet prior studies have offered contrasting findings for whether, in a multiunit hierarchical organization, a corporate office improves business unit search following product failure. To better understand how a corporate office affects business unit search, we focus on the role of corporate proximity (hierarchical, geographic, and cognitive) between the corporate office and constituent units. We argue that corporate proximity improves a business unit's local search process through two mechanisms—vertical linkages and corporate attention—that positively condition the likelihood of persisting, that is, re-entering a product market after having experienced a prior product failure in that market. We find support for our theory using data on reentry in the U.S. medical device industry following exit from the market due to product failure. We also explore how age of the product market and characteristics of the failure—cause and severity—further moderate corporate proximity's role in business unit reentry. Overall, our study offers a better understanding of how complex organizations respond to failure, thereby contributing to literatures on search, corporate headquarters, and product entry.