Network Learning: The Effects of Partners' Heterogeneity of Experience on Corporate Acquisitions

Abstract

and three anonymous reviewers for their helpful comments and suggestions. 1A typical poison pill allows shareholders to purchase shares in the firm at a deeply discounted rate if a takeover attempt occurs without board approval. Science Quarterly, 47 (2002): 92-124 Network Learning heterogeneous experiences will be in a better position to benefit from these experiences than firms in networks composed of partners with homogeneous experiences and will therefore make better decisions. 92/Administrative NETWORK INFLUENCE AND LEARNINGThe experiences to which a firm is exposed through its associations with its network partners affect its decisions. The interlock network, for example, has been shown to affect firms' decisions because directors bring their experiences with similar decisions in other companies to bear on the current decision (Davis, 1996). Researchers have found support for this idea in interviews conducted with chief executive officers (CEOs), who noted that sitting on other firms' boards provides valuable first-hand information that executives then use in their own firms' decisions (Useem, 1984; Lorsch and Maclver (1989: 27). Evidence showing that networks other than board interlocks influence firms' decisions suggests this is a general network phenomenon (e.g., Galaskiewicz and Wasserman, 1989; Mizruchi, 1992; Davis and Greve, 1997) and is not limited to the interlock context. In general, networks enable forums for discussion, direct attention to new practices, and facilitate the transmission of information and normative pressures for firms to engage in certain activities.Networks are considered a potential source of learning (e.g., Levitt and March, 1988;Powell, 1990;Uzzi, 1996), facilitating learning by promoting efficient skill transfer among firms (Hamel, 1991) or by producing novel syntheses of existing information (Powell, Koput, and Smith-Doerr, 1996; Stuart and Podolny, 1997). Other positive effects of networks come from studies documenting the power of networks to affect outcomes like survival (Uzzi, 1996), growth (Podolny, Stuart, and Hannan, 1996), the likelihood of being taken over by another firm (Palmer et al., 1995), and the time it takes a division to get a product to market (Hansen, 1999). Thus, networks have been shown to affect firms' decisions, but it is unclear if they affect the quality of these decisions. Depending on the variety of information available, firms in some network structures may make better decisions than firms in other network structures.One important attribute of network structure that can affect decision quality is partners' heterogeneity. Firms in networks composed of partners with heterogeneous experiences should be in a better position to benefit from the variety of partners' experiences, and this benefit should be reflected in higher-quality decisions. Network partners' heterogeneity provides firms with more diverse samples of experience from which to learn. For example, if a firm is trying to determine what strategies work well in a given situation, it might...

Licensing Exchange - Insights from the Biopharmaceutical Industry

“…While prior research has examined both drivers of board interlocks such as personal career motives versus coordination motives (e.g., Zajac, 1988) and diverse consequences such as increased inter-firm coordination and control (e.g., Ornstein, 1980), our interest primarily goes to the informational benefits of board interlocks. More precisely, a firm's degree centrality in the board interlock network (i.e., the number of board interlock ties to different other firms) is a form of social capital that provides access to information that flows through the network (Beckman & Haunschild, 2002;Davis, 1991). A central position in this social network allows for a better dissemination of information on the motives, capabilities, and developments of the firm (Gulati & Westphal, 1999).…”

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“…The literature suggests that a centrally located actor in a network will also receive more diverse information which promotes knowledge exchange and innovation (Freeman 1991;Lundval 1988). Diversity of input may refer not only to differences in the knowledge base (Beckman and Haunschild 2002;Gilsing et al 2008), but also to different competencies (Phelps 2010;Reagans and McEvily 2003;Rodan and Galunic 2004). …”

“…Positioning in a network of relevant firms is increasingly seen as an important strategic option for firms (Belderbos et al 2004;Ozcan & Eisenhardt 2009 Ties are channels for information and resource flows (Beckman and Haunschild 2002;Tsai and Ghosal 1998). Social networks are not only relevant for identifying problems and opportunities, but, maybe even more importantly, allow for the identification of potentially valuable innovative technologies and solutions (Ozcan & Eisenhardt 2009;Gulati and Higgins 2003;Kijkuit and van den Ende, 2007;Oh et al 2006).…”

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“…Disaster preparation calls for a different form of learning in which organizations draw on not only their own experiences but also those of other organizations. Such network effects exist for a variety of learning processes (for example, Argote et al , 1990 ;Baum and Ingram, 1998 ;Beckman and Haunschild, 2002 ).…”