We trace the evolution of research on organizational learning. As organizations acquire experience, their performance typically improves at a decreasing rate. Although this learning-curve pattern is found in many industries, organizations vary in the rate at which they learn. In order to understand this variation, we separate organizational learning into four processes: search, knowledge creation, knowledge retention, and knowledge transfer. Within each process, we present research on how dimensions of experience and of the organizational context affect learning processes and outcomes. Our goals are to describe major findings and to identify opportunities for future research. The article concludes with a discussion of research directions that are likely to be productive in the future. These directions include investigating how new technological and organizational developments are likely to affect organizational learning. This paper was accepted by David Simchi-Levi, finance.

The existing literature has highlighted the role of individuals in exploration and exploitation, yet our understanding of what shapes those activities at the individual level remains limited. We integrate the literatures on exploration/exploitation and incentives to examine how incentives impact individual behavior to explore new ideas or exploit existing ideas. Using novel microdata on the commercial projects of sales employees at a South Korean e-commerce firm, we find that individuals engage in relatively more exploration when performance-based incentives are weakened; yet, interestingly, this increase in exploration is driven mainly by high-performing individuals in our setting. Weakening performance-based incentives also lead to higher exploration performance via experiential learning, especially for individuals who work in complex task environments. Overall, this study contributes to the literature on exploration/exploitation by examining how individual exploration and exploitation behavior and performance is shaped by incentives. We also contribute to the incentives literature by investigating the implications of incentives in an important domain, namely, that of knowledge exploration behavior. This study also provides insights into important individual-level microfoundations of firm capabilities and performance by highlighting the important role of individuals in exploration/exploitation activities and how this role is contextualized by the incentives a firm deploys.

Research Summary The acquisition literature has highlighted that both firm‐level and manager‐level factors shape acquisition outcomes, yet little is known about their relative contribution. We conduct a variance decomposition analysis to explore the contribution of CEO‐level versus firm‐level factors to acquisition behavior and performance. We also extend the methodology of variance decomposition in strategic management research by employing Poisson multi‐level models, and deriving the percentage of variance attributable to each level in a four‐level model. Although CEO and firm effects both explain a substantial share of the variance in acquisition behavior, the CEO‐effect is notably larger. CEO‐level factors also drive a large portion of the variance in acquisition performance. Overall, our study contributes to the literatures on acquisitions and variance decomposition, and has implications for dynamic capabilities. Managerial Summary How much do firm‐level factors and CEO‐level factors matter for explaining acquisition behavior and acquisition performance? This question is not only relevant for researchers but also for practitioners who seek to better understand what drives acquisitions and their outcomes. To help answer this question, our study conducts a variance decomposition analysis of acquisition behavior and acquisition performance. We find that both CEO‐level factors and firm‐level factors explain a substantial portion of the variance in acquisition behavior, but that CEO‐level factors matter relatively more. We also find that CEO‐level factors also explain a substantial portion of the variance in acquisition performance.

This research proposes that individual-level exploration can be promoted by reconfiguring the spatial proximity between organizational members’ workspaces. To test this idea, I exploit a natural experiment in an e-commerce company where the spatial distances between organizational members’ workspaces were reconfigured. Consistent with the theory I develop on learning, results suggest that individuals whose workspaces were moved closer to those of previously separated peers engaged in more individual-level exploration. This pattern was stronger for individuals who had higher prior organizational experience and those who did not have ties with previously separated peers. Finally, I found that the relocated individuals also achieved higher financial performance. Overall, this study highlights the importance of an underexamined organization design element—spatial design—and its implications for organizational learning, individual-level exploration, and firm performance. The online appendix is available at https://doi.org/10.1287/orsc.2019.1291 .

In this study, we examine how the prior experiences of decision makers systematically influence their assessment of and responses to negative performance feedback. We posit that, although greater and more specialized experiences enable managers to build relevant knowledge and expertise in specific domains, they also make them overconfident in their abilities and strategies. Such experience-induced overconfidence further leads to distortions in the performance assessment process, hindering a firm’s ability to recognize and respond to poor performance. We empirically test these arguments in the context of U.S. mutual fund managers making investment decisions in response to fund performance below aspirations. As hypothesized, we find that more experienced and more specialized fund managers change their investment decisions less when faced with negative performance feedback than managers who are less experienced and less specialized. In additional analyses, we further show that the lower responsiveness of more experienced (specialized) managers is associated with the fund’s lower future performance, supporting our proposed theoretical mechanism (overconfidence). This study augments existing performance feedback research by showing how decision makers’ prior experience can impede problem-solving behavior in organizations. It also contributes to the literature on human capital and organizational learning by documenting an unintended consequence of accumulated human capital on firm adaptive behavior.