Organizational Learning and Path Dependence

1. Organizational Learning and Path Dependence Bruno Cirillo & Jining Xie 8th,Nov., 2010

2. Content • Proposition • Key concepts • Perspectives - Experience - Routine - Path-dependent learning - Social perspective 1

3. Proposition Proposition 1: Learning increases the path dependence of firm strategy trajectory – for instance it suggests that early entry to an industry and higher market share confer significant strategic advantages since they help a firm move further down the learning curve compared to its rivals. 2

4. Key concepts (1/2) • Learning • Learning is a function of past experience of success and failure (Levitt and March, 1988; Radner, 1975). It is referred to as activity that removes redundant process and find economies of scale in order to increase efficiency (Sampson, 2005). • Types of learning: • Learning-by-doing • Learning-by-hiring (Song et al., 2003) • learning-by-replication and adoption (Williams, 2007) • Learning content: • Manufacturing; alliance and acquisition; R&D 3

5. Key concepts (2/2) • The number of direct labor hours required to produce decreased significantly as experience was gained in production. • Learning curve demonstrates that the more a firm engage in activities, the better it manages them. • Exploitation • Learning curve (Argote, 1999) 4

6. Perspectives: experience Learn through interpretation of past experience (Levitt and March, 1988) People in organizations form interpretations of events and come to classify outcomes as good or bad (Thompson, 1967,). Performance feedback theory (Greve, 2003): - Good performance : reinforce and follow the trajectory of strategy - Bad performance: consider about strategic change, BUT with conservative form (Greve, 2003) Evolutionary theory: Evolutionary economics proposes that the search for new knowledge is often localized or path dependent. It is influenced by firm’s experience (Nelson and Winter, 1982). 5

7. Perspectives: Routines (1/2) • Learning occurs at different level of analysis • Individual and organizational • Organizations accumulate knowledge learning from their members. Such knowledge is stored in firms' procedures, norms, rules, forms (March, 1991), i.e., routines (Levitt and March, 1988) • Organizational learning (e.g., Levitt and March, 1988) • Routine-based • Search routines • History dependent • Routines adapt incrementally to experience • Target oriented • Search behaviors depend on aspiration levels 6 7

8. Perspectives: Routines (2/2) • Organizational knowledge is tacit and ambiguous (Kogut and Zander, 1992) • Replication and adaptation of organizational routines in new contexts (Winter and Szulanski, 2002; Williams, 2007) • Pro: facing causal ambiguity • Cons: learning builds knowledge upon existing knowledge. A firms knowledge base constrains learning in new contexts. 7

9. Path-breaking learning (1/2) • Mutual learning of an organization and individuals in it (March, 1991). • Individual socialization fosters reciprocal learning. • Reciprocal learning reduces heterogeneity in individual knowledge. Individual knowledge search behaviors converge in organizational knowledge, i.e. routines. • Knowledge search proceeds on established trajectories 8

10. Path-breaking learning (2/2) • Learning from acquisitions, mergers and alliances (e.g., Sampson, 2005) • Constrained by firm's absorptive capacity • Organizations explore new trajectories by hiring newcomer, i.e., engineers, managers, CEOs (e.g., Song et al., 2003). • Constrained by newcomer socialization • Individual vs organizational path dependency 9

11. Social perspective Learning processes are social and collective phenomena (Teece et al., 1994). • Learning means acquiring knowledge and also acquiring identity. Learning involves acquiring the ability to act in the world in socially recognized ways. (Brown and Duguid, 2001). • Individuals learn always and inevitably reflects the social context in which they learn it and in which they put it into practice. 10

12. Thank you!