A model of adaptive organizational search

Levinthal, Daniel A.; March, James G.

doi:10.1016/0167-2681(81)90012-3

Cited by 1,034 publications

(698 citation statements)

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“…The extent to which a firm can learn may be influenced by the complexity of the local environment in which the firm conducts its business. When a high level of uncertainty characterizes the entered host market, managers do not necessarily have a clear idea about the linkage between organizational action and environmental responses (Levinthal and March, 1981). The difficulty in interpreting the results of managerial decisions will, in turn, make it difficult for the managers to draw inferences and lessons from experience in the local market.…”

Section: International Expansion and The Penrose Effectmentioning

confidence: 99%

The dynamics of Japanese firm growth in U.S. Industries: The Penrose effect

Tan

Mahoney

2007

MANAGE. INT. REV.

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This research paper explores the conditions under which a firm is more/less likely to incur the Penrose Effect when expanding in a foreign market. We posit that multinational firms that can accelerate the development of new managerial resources in their foreign operations have greater organizational capabilities to adjust their managerial resources timely in the process of expansion, and thus will be less vulnerable to a severe managerial constraint on the rate of growth. In contrast, factors that impede the development of new managerial resources in foreign operations will prevent multinational firms from growing fast in consecutive time periods. Based on a longitudinal sample of Japanese manufacturing entries in the United States, our empirical results indicate that Japanese firms were able to achieve growth in consecutive time periods when these firms sent more expatriates to the foreign operations at the time of entry, and when these Japanese firms had greater home experience prior to their entry into the U.S. market. On the other hand, Japanese firms were found to be less able to achieve growth in consecutive time periods when a high level of uncertainty characterized the U.S. markets that these Japanese firms entered. AbstractThis research paper explores the conditions under which a firm is more/less likely to incur the Penrose Effect when expanding in a foreign market. We posit that multinational firms that can accelerate the development of new managerial resources in their foreign operations have greater organizational capabilities to adjust their managerial resources timely in the process of expansion, and thus will be less vulnerable to a severe managerial constraint on the rate of growth. In contrast, factors that impede the development of new managerial resources in foreign operations will prevent multinational firms from growing fast in consecutive time periods. Based on a longitudinal sample of Japanese manufacturing entries in the United States, our empirical results indicate that Japanese firms were able to achieve growth in consecutive time periods when these firms sent more expatriates to the foreign operations at the time of entry, and when these Japanese firms had greater home experience prior to their entry into the U.S. market. On the other hand, Japanese firms were found to be less able to achieve growth in consecutive time periods when a high level of uncertainty characterized the U.S. markets that these Japanese firms entered.

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Section: International Expansion and The Penrose Effectmentioning

confidence: 99%

The dynamics of Japanese firm growth in U.S. Industries: The Penrose effect

Tan

Mahoney

2007

MANAGE. INT. REV.

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“…Finally, the balance of exploration and exploitation has been approached with theories of evolutionary and adaptive organizations (Hannan and Freeman 1977, Levinthal and March 1981, Lewin et al 1999. The motivation for this approach is that a wide diversity of organizational structures can be observed in reality.…”

Section: Inspiration From Existing Economic and Evolutionary Modelsmentioning

confidence: 99%

Optimal diversity: Increasing returns versus recombinant innovation

Bergh

2008

Journal of Economic Behavior & Organization

133

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Choices regarding diversity play an important role in economics and innovation management, but often remain implicit. Once made explicit, the objectives of efficiency and diversity are usually posed as in conflict, as efficiency relates positively and diversity negatively to various increasing returns to scale in markets. Such a perspective, however, neglects the benefits of diversity in terms of realizing system improvements through recombinant innovation or spillovers. The latter implies a contribution of diversity to long-term efficiency. Dominant economic approaches that address diversity, such as option value and real options theories, regard benefits of diversity as exogenous. This paper proposes a simple model of variable, endogenous diversity to analyze the optimal balance between increasing returns to scale and recombinant innovation. It is discussed under which conditions one of four solutions is optimal: complete specialization regardless of which option, complete specialization in one specific option, symmetric diversity (perfect balance), and asymmetric diversity. The results give rise to a number of policy insights.

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“…The present article extends the effects considered in the standard references for aspiration level research (Herriott et al 1985, Levinthal and March 1981, March 1988, March and Shapira 1987and 1992. In particular, March's (1988) model, in which a decision maker's risk preference is a function of current resources relative to an aspiration level, serves as a baseline model and is referred to as the standard model.…”

Section: The Standard Modelmentioning

confidence: 75%

Reference groups and variable risk strategies

Knudsen

2008

Journal of Economic Behavior & Organization

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NutzungsbedingungenThis is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.Page 1 AbstractThe present article examines two important effects that have been given scant attention in prior studies of variable risk strategies. The first effect, reference group sensitivity, is the degree to which decision makers' aspirations are sensitive to their reference group. In this paper we compare the performances of decision makers with alternative levels of reference group sensitivity. Second, we introduce the novel concept of community effect. This relates to mobility among multiple segregated reference groups. The performance of decision makers residing in a world with one single population is compared with that of decision makers who have the possibility, which is more or less costly, to switch between multiple populations. The results support the findings from previous studies that variable risk strategies are preferred over fixed risk. The study of a community of populations provides additional insights that both support and complement previous research.

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A model of adaptive organizational search

Cited by 1,034 publications

References 10 publications

The dynamics of Japanese firm growth in U.S. Industries: The Penrose effect

The dynamics of Japanese firm growth in U.S. Industries: The Penrose effect

Optimal diversity: Increasing returns versus recombinant innovation

Reference groups and variable risk strategies

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