Daniel A. Levinthal

University of Pennsylvania | UP · Management Department

We introduce two dimensions that help situate the approach to strategy as an exercise of theory building and experimentation. First, we consider whether a given experiment is repeatable or nonrepeatable: the extent to which the very undertaking of a given experiment will change how the world-consumers, competitors, ecosystem partners-will react to...

Underlying the macrophenomenon of organizational search lie two central mechanisms: belief updating and explicit strategies of exploration/exploitation. We find that slow learning with respect to belief updating, in conjunction with a strategy of exploration/exploitation heavily tilted toward exploitation, leads to an effective process of organizat...

Shifting economic circumstances may suggest some degree of resource redeployment of capacity-constrained capabilities. However, a separate question remains as to how corporate actors operate within the space of this economic logic. While prior literature on diversification has tended to highlight the fungibility of resources as a basis for their re...

The discussions of organizational politics and processes of organizational adaptation have developed as largely independent streams of work. However, we suggest that organizational politics—in particular, the power dynamics of the dominant coalition—can be a driver for patterns of both “continuity and change” within organizations. Continuity is mai...

The discussions of organizational politics and processes of organizational adaptation have developed as largely independent streams of work. However, we suggest that organizational politics-in particular, the power dynamics of the dominant coalition-can be a driver for both patterns of "continuity and change" within organizations. Continuity is mai...

Strategic decision making in uncertain settings requires relying on conjectures – hypothesizing as to what might constitute desired actions based on one’s theories of these settings; and then revising these theories based on the observed outcomes of the actions taken. In this paper, we consider what is distinct about firms’ theorizing about their s...

The majority of decision research portrays decision-makers as largely decontextualized, separate from the institutional and social factors that influence their choosing. On the occasions when context is considered, it is rarely organizational, despite the prominence of organizations in people's lives. By contrast, the Carnegie perspective on decisi...

Organizations increasingly need to adapt to challenges in which search and coordination cannot be decoupled. In response, many have experimented with “agile” and “flat” designs that dismantle traditional forms of hierarchy to harness the distributed knowledge of specialized individuals. Despite the popularity of such practices, there is considerabl...

Learning from experience is a central mechanism underlying organizational capabilities. However, in examining how organizations learn from past experiences, much of the literature has focused on situations in which actors are facing a repeated event. We direct attention to a relatively underexamined question: when an organization experiences a larg...

A “Mendelian” executive is proposed as an image of strategy-making that lies intermediate between the grand strategist suggested by rational choice approaches and a Darwinian process of random variation and market-based differential selection. The Mendelian executive is capable of intentional design efforts in order to explore possible adjacent str...

A “Mendelian” executive is proposed as an image of strategy-making that lies intermediate between the grand strategist suggested by rational choice approaches and a Darwinian process of random variation and market-based differential selection. The Mendelian executive is capable of intentional design efforts in order to explore possible adjacent str...

While traditionally processes of exploration and exploitation have been understood with respect to the novelty of the associated behavior and the a priori beliefs of the promise of these behaviors, the perspective developed here highlights the possible contestation regarding the merit and promise of a given action or initiative. An action may be vi...

There has been recent interest in an important mechanism of intentional, designed learning efforts: random controlled trials. We situate this mechanism within an evolutionary framework and then consider some modest propositions for our Mendelian executive. RCTs tend to suffer from a lack of consideration of context dependence, and in that regard po...

Strategists are encouraged to identify sustained competitive advantages. This volume takes a different tact and provides a perspective on how organizations adapt over time to changing circumstances. This process is characterized as not driven by the inspired wisdom of a grand strategist, but by an ecology of initiatives within the organization. A c...

The pace of change is a central question regarding evolutionary dynamics. Some management theorists have pointed to processes of punctuated change; however, it is argued here that such accounts have generally under-attended to the multi-level nature of these processes and in particular to the critical role of speciation. By recognizing the multi-le...

The chapter examines the relationship among processes of choice, selection, and learning. The notions of choice and selection differ with respect to the degree of intentionality that they suggest. However, if “choice” is viewed as the identification of preferential action over some set of latent alternatives, then processes of choice and selection...

The intertemporal linkages that both constrain and enable an organization are central to its adaptive properties. The most narrow expression of path-dependence is the process of state-dependence—having a particular asset stock at one point in time impacts the distribution of asset stocks that can be reached at a subsequent period. Development, how...

Firms receive profits and losses, while individuals and initiatives generally only receive awards as mediated by an organization’s accounting system and reward structure. In that sense, a firm can be considered to be a credit assignment mechanism. Three basic challenges are considered: the problem of diversity of selection criteria, the challenge o...

The literature on the exploration-exploitation tradeoff has anchored on the n-armed bandit problem as its canonical formal representation. This structure, however, omits a fundamental property of evolutionary dynamics. Contrary to a bandit formulation, foregoing an opportunity may negate the possibility of engaging in that opportunity in the future...

In the Carnegie School tradition of experiential learning, learning processes are driven by the encoding of performance outcomes as a success or failure relative to a goal. We expand this line of inquiry by highlighting how conflicting and thus ambiguous outcomes across multiple goals make interpretation a critical aspect of organizational learning...

In November 2016, James G. March was awarded the Progress Medal and, during the ceremony held in Fontainebleau, he gave a synthetic account of his long and fascinating intellectual journey in one of his last public speeches. He began his speech by stating very clearly the overall aim of such a journey: “my work”—he said—“can be seen as reflecting a...

The lean start-up approach has garnered tremendous amount of interest in recent years and has become mainstream among entrepreneurs. However, this practitioners' conversation has been largely decoupled from the broader academic literature in management and technology strategy. This article attempts to fill this gap. We situate the construct of lean...

The strategy field has historically addressed the problem of strategy as a problem of ex-ante economic calculation of pay-offs associated with alternative choices. Given the inherent intractability of such problems, at least with respect to identifying an optimum, behavioralism is in some form inevitable. However, behavioralism need not imply a lac...

This entry discusses the process of learning and adaptation whereby organizations and agents adapt their behaviour within an ever-changing business environment. These processes are based on a mechanism of reinforcement learning, but the basis for reinforcement may vary from one’s own outcome performance, the performance of other entities or the org...

Organizations, as is true with social systems more generally, tend to be nearly, not fully, decomposable. However, analyses of nearly decomposable systems have tended to be at a single level of analysis and have generally neglected the vertical element of nearly decomposable systems. Critical to the notion of nearly decomposable systems is the prop...

A “Mendelian” executive is proposed as an image of strategy making that lies intermediate between the godlike powers of intentional design of rational choice approaches and a Darwinian process of random variation and market-based differential selection. The Mendelian executive is capable of intentional design efforts in order to explore possible ad...

In a modern economy, much of the allocation of financial and non-financial resources are mediated by organizations. This essay points to three general features of this mediating role of organizations in the resource allocation process. One line of argument relates to the distinct opportunities and opportunity costs that an organization faces. The s...

Research summary: While the economic advantages of scale are well understood, implications of the rate of firm growth are arguably less appreciated. Since firms' growth rate influences employees' promotion opportunities, the growth rate can have significant implications for the incentives employees face. Rapid growth, by creating more promotion opp...

I've been asked to address the question of imprinting in the context of a book on the emergence of capabilities. This may strike some as an oxymoron. This perception has some truth, but only a partial truth. I suggest that we consider two interpretations of imprinting — a strong form that precludes ideas of adaptation and change and a weak form tha...

A fundamental premise of the strategy field is the existence of persistent firm-level differences in resources and capabilities. This property of heterogeneity should express itself in a variety of empirical “signatures,” such as firm performance and arguably systematic and persistent differences in firm-level growth rates, with low cost firms outp...

This entry discusses the process of learning and adaptation whereby organizations and agents adapt their behaviour within an ever-changing business environment. These processes are based on a mechanism of reinforcement learning, but the basis for reinforcement may vary from one’s own outcome performance, the performance of other entities or the org...

The article discusses the usefulness of simulation models in business strategy research and reviews the relatively small but fast-growing literature applying simulation models (especially in the form of agent-based simulation models) to the study of organizational forms, to problems of design of organizations and technologies and to industry dynami...

In order to make quality strategic decisions, managers need a deep understanding of industry dynamics and enterprise capabilities. In this book, we present a conceptual framework that will help executives lead their organizations in highly competitive global markets. For some, it will change frames of reference and accepted priorities in terms of w...

Research summary : Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect how managers search for profitable strategies as well as the quality of strategies they discover. To study how mental representation and search interact, we formally model the dual search over...

When considering the adaptive dynamics of organizations, it is important to account for the full set of adaptive mechanisms, including not only the possibility of learning and adaptation of a given behavior but also the internal selection over some population of routines and behaviors. In developing such a conceptual framework, it is necessary to d...

We develop a formal model that links the design of a firm’s incentive structure to the firm’s rate of growth. Motivated by the prospect of promotion, employees exert effort over and above their formal job requirements to improve processes and make the firm more efficient. Firms that are growing faster, in turn, have more promotion opportunities whi...

The multi-authority form is a type of organization where subordinates report to multiple superiors and superiors share authority over their subordinates. While those forms are quite common among modern organizations, research on such forms offers conflicting findings. These conflicting findings, in turn, suggest the need for greater understanding o...

While much is understood about the general pattern of industry dynamics, a critical element underlying these dynamics, the rate of the expansion of individual firms, has been largely overlooked. We argue that the rate at which firms can reliably increase their scale of operations is a critical factor in understanding the structure of industries. Fu...

http://deepblue.lib.umich.edu/bitstream/2027.42/108073/1/smj2159.pdf

We consider how the literatures on organizational mindfulness and mindful organizing are relevant to research on organizational change and learning. We start with the tension between mindful and less mindful approaches, such as those that emphasize organizational routines, to change and learning. We posit that organizational routines are essential...

Recurring patterns of action are essential in our efforts to explain central properties of business firms and other organizations. However, the development of systematic theory has been hampered by the difficulty of adequately specifying foundational assumptions. We address this problem by defining a concept of collective performance, which brings...

Economics is often defined as the science of how societies allocate scarce resources, but, in a modern economy much of that resource allocation occurs within firms. While financial economists have a lot to say about allocative efficiency across investment assets, the allocation of resources, financial and non-financial, within firms is clearly the...

Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representation must affect how managers search for profitable strategies and the quality of the strategies that they discover. Yet, the strategy literature has been mostly silent about how mental representation and search interact. Th...

Learning from experience is a central theme in the management literature. While in general experiential learning is viewed as efficacious, the literature increasingly points to the difficulties inherent in the learning process — many of which stem from a deficit of information about the merits of alternative solutions. It seems plausible that large...

A long-standing interest in the technology strategy domain has been the question of the failure of incumbent firms in the face of radical technical change. We add to these prior contributions by highlighting the role a firm’s existing set of complementary assets have in influencing its investment in alternative technological trajectories. We develo...

The Behavioral Theory of the Firm has had an enormous influence on organizational theory, strategic management, and neighboring fields of socio-scientific inquiry. Its central concepts have become foundational to any theoretical and empirical work focussed on organizational phenomena. Unlike past reviews of this work, we start by focusing less on r...

A common justification for organizational change is that the circumstances in which the organization finds itself have changed, thereby eroding the value of utilizing existing knowledge. On the surface, the claim that organizations should adapt by generating new knowledge seems obvious and compelling. However, this standard wisdom overlooks the pos...

The strategy field has generally been viewed as somewhat fragmented with the primary ‘fault line’ stemming from the divide between economic and behavioral approaches. It is argued here that this is a false divide as any but the most trivial problems require a behavioral act of representation prior to invoking a deductive, ‘rational’ approach. In th...

Details on Models of Collective Performance Referenced in Journal Publication

The resource-based view on firm diversification, subsequent to Penrose (1959), has focused primarily on the fungibility of resources across domains. We make a clear analytical distinction between scale free capabilities and those that are subject to opportunity costs and must be allocated to one use or another, thereby shifting the discourse back t...

The classic trade-off between exploration and exploitation reflects the tension between gaining new information about alternatives to improve future returns and using the information currently available to improve present returns. By considering these issues in the context of a multistage, as opposed to a repeated, problem environment, we show that...

This paper explores the trade-offs inherent in the pursuit and fulfillment of multiple performance goals in complex organizations. We examine two related research questions: (1) What are the organizational implications of pursuing multiple performance goals? (2) Are local and myopic (as opposed to global) goal prioritization strategies effective in...

Strategists have tended to explain sustained performance differences across firms in terms of two types of interactions among choices: cross-sectional interactions and longitudinal ones. We explore the interplay between these two sorts of forces first in a qualitative manner drawing on case of the case of the Vanguard Mutual Fund. We then develop a...

In his thoughtful commentary on our 2005 paper (Gavetti, Levinthal, and Rivkin, 2005), Farjoun offers three critiques and extensions. First, he suggests our approach should have explicitly considered a constructionist logic. Second, Farjoun argues that we have neglected the full array of modes of cognition between rational choice and feedback-based...

What makes competitive advantage enduring and prevents its imitation is a central question in strategy research. In this paper, we investigate how and why complexity deters imitation efforts. We argue that design complexity captures the ease of making localized changes without affecting the whole organization. Based on this idea of complexity we id...

The classic tradeoff between exploration and exploitation reflects the tension between gaining new information about alternatives to improve future returns and using the information currently available to improve present returns (March, 1991). By considering these issues in the context of a multi-stage, as opposed to a repeated, problem environment...

The challenge of organizational adaptation is often presented in terms of the tension between the exploration of new possibilities and the exploitation of existing accomplishments. Whether framed in the language of invention versus refi nement or local search versus long jumps, the spirit of the argument is of an explicit trade-off that resource-co...

No abstract available.

The literature in entrepreneurship, along with the literature in technology evolution, organizational sociology, and business strategy, has been greatly infl uenced and informed by the analysis of the network of relationships among actors. Network structures and actors setting within them matter. Within entrepreneurship, they have been shown to mat...

yert and March's (1963) A Behavioral Theory of the Firm and the broader Carnegie School form critical theoretical underpinnings for modern organization studies. Despite its impact, however, we suggest that researchers who rely on the Carnegie School have progressively lost touch with its defining commitment to a decision-centered view of organizati...

This paper develops and tests a model of the effectiveness of selection processes in eliminating less fit organizations from a population when organizations are undergoing adaptive change. Stable organizational traits, such as a search strategy or routine, do not imply that an organization's performance will remain stable over time or that cross-se...

Organization innovation, from an evolutionary perspective, involves at least three distinct challenges: problems of competence, problems of variety, and problems of selection. Both capabilities and selection are inherently organizational phenomena. However, while the field has developed a deep commitment to the first of these two propositions (Nels...

At its core, a behavioral theory of choice has two fundamental attributes that distinguish it from traditional economic models of decision making. One attribute is that choice sets are not available ex ante to actors, but must be constructed. This notion is well established in our models of learning and adaptation. The second fundamental postulate...

An important new stream of organizational research has emerged in recent years that draws on the notion of mindfulness. At the same time, there is a long-standing body of work in the organizations literature that emphasizes the role of routine-driven, or less-mindful, behavior. We attempt to connect these two seemingly disparate literatures arguing...

We examine how firms discover effective competitive positions in worlds that are both novel and complex. In such settings, neither rational deduction nor local search is likely to lead a firm to a successful array of choices. Analogical reasoning, however, may be helpful, allowing managers to transfer useful wisdom from similar settings they have e...

We argue that the greater the extent to which choice sets evolve as a consequence of firms' exploration activities, the less structured the firms' abandonment decisions become and, in turn, the less distinguishable a real option is from more generic notions of path dependence - a sequential stream of investment in and of itself does not constitute...

It is a pleasure and honor to have the opportunity to comment on this impressive body of work. As a graduate student in the early 1980s, I vividly recall my first reading of the resource allocation process (RAP). Here was a work that tackled one of the principle tasks of a firm: allocating scarce financial capital. The problem had been nominally so...

We employ a computational model of organizational adaptation to answer three research questions: (1) How does the architecture or structure of complexity affect the feasibility and usefulness of boundedly rational design efforts? (2) Do efforts to adapt organizational forms complicate or complement the effectiveness of first-order change efforts? a...

We reflect on the evolution of the strategy field as seen through the window of Management Science. Reflecting the diverse disciplinary roots of strategy research, we identify a broad-ranging body of work that varies with respect to the assumptions made regarding individual rationality and the level of analysis at which the research is carried out....

Many organizational actions need not have any immediate or direct payoff consequence but set the stage for subsequent actions that bring the organization toward some actual payoff. Learning in such settings poses the challenge of credit assignment (Minsky 1961), that is, how to assign credit for the overall outcome of a sequence of actions to each...

The problem of designing, coordinating, and managing complex systems has been central to the management and organizations literature. Recent writings have tended to offer modularity as, at least, a partial solution to this design problem. However, little attention has been paid to the problem of identifying what constitutes an appropriate modulariz...