Stanford News

6/26/97

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Corporate behavior: Corporations can learn from each other

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 University'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 Graduate School of Business, 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 Wisconsin­Madison'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."

"Modes of Interorganizational Imitation: The Effects of Outcome Salience and Uncertainty," Pamela Haunschild and Anne S. Miner, GSB Research Paper #1403, November 1996.

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By Barbara Buell