Stanford University
Graduate School of Business
June, 1997
For information, contact Janet Zich, [email protected], or
415/723-9193
Corporations Learn from Each Other
STANFORD - We're all supposed to learn from the success and failures of
others. It's far less painful than making our own mistakes. But do
corporations really learn from the experiences of other firms? Stanford
Business School's Pamela Haunschild finds that they do.
Much research has been focused on relatively simple theories of learning.
One is "frequency learning," such as when a company doesn't know what it
should be doing and merely copies strategies that everyone else in its
industry is using. Another theory is tagged "trait learning": A company
purposely assimilates features of another firm because that firm has been
generally successful. However, Haunschild finds that corporate learning
involves a far more complex pattern of accepting and rejecting ideas.
Haunschild, an assistant professor of organizational behavior at the
Business School, considers a third type of learning, called "outcome
learning," in a recent study. She set out to see whether a company would
adopt a practice based on whether other firms had experienced positive or
negative outcomes with that practice. Working with associate professor
Anne Miner of the University of Wisconsin-Madison's business school, Haunschild
looked at corporations that were shopping for an investment banker to
execute an acquisition. The researchers wanted to see if the companies
studied other firms' experiences with banks and then either put the same
banks to use or rejected them.
They examined 539 acquisitions between 1988 and 1993, looking at the
premiums associated with bank deals to see if prospective clients would
select banks with the lowest premiums. They found that firms did learn
from the track records of others, but only when the results were extremely
clear. For example, the study showed that banks that were associated with
low-premium deals-typically seen as a good outcome-were more frequently
selected.
Haunschild and Miner also found that the banks associated with
high-premium deals were still selected some of the time, which Haunschild attributes to
the fact that the banks that were chosen were well- known, successful
institutions.
In addition to finding that companies were capable of learning from the
outcomes of others, Haunschild discovered that the uncertainty swirling
around the acquisition deal itself-such as difficulty in pinpointing the
value of the target company or determining whether the investment banker
was highly skilled-weakened a company's ability to learn from the outcomes
of other firms. Haunschild also found that uncertainty tended to make
frequency learning and social factors, such as the sheer number of other
firms using a particular investment banker, more important. Technical
influences, such as premium levels, were relatively less important.
Haunschild believes different types of learning-trait, frequency, and
outcome-occur simultaneously and are affected in different ways by such
factors as uncertainty. "You can predict behavior, but not from a single
factor," says Haunschild. "There are learning patterns that are complex
but still predictable."
By Barbara Buell
RSS