Confident or Competent? How to Avoid Superstitious Learning in Alliance Portfolios

Long Range Planning

Volumn 43, Issue 1, 2010, Pages 57-84

  Heimeriks, Koen H ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

CAUSE-AND-EFFECT RELATIONSHIPS; LEARNING MECHANISM; PORTFOLIO MANAGEMENTS; PRIOR EXPERIENCE; STRATEGIC ALLIANCE;

INVESTMENTS;

FINANCIAL DATA PROCESSING;

CORPORATE STRATEGY; INDUSTRIAL PRACTICE; LEARNING; MANAGEMENT;

EID: 73949108069     PISSN: 00246301     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.lrp.2009.10.004     Document Type: Article

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75. While Zollo and Singh (2004) posits that codification efforts foster clarification of causally ambiguous relationships, this study posits that a) institutionalising mechanisms exploit existing insights by embedding behaviour in routines (potentially fostering overconfidence), and b) integrating mechanisms increase variation in the templates (potentially increasing competence).
76. The logic underlying these measures is the following: we assume bounded rationality and that neither all alternatives nor consequences of any one alternative can be known (March and Simon, 1958). While there is neither an established test for verifying superstitious learning nor any way to control for alternative explanations, measuring the use of institutionalising practices reflects routinisation and the degree to which a firm uses feedback relative to feed-forward processes i.e. prescribes preferred practices (Crossan et al., 1999). With increases in experience, the likelihood of systematic suboptimal choices increases due to a bias against risky and new alternatives (Denrell and March, 2001). We argue that institutionalising mechanisms increase the chance of overconfidence as they increase the likelihood of repeating suboptimal behaviour derived from prior alliances. Alternatively, the use of integrating mechanisms is likely to stimulate experimentation which helps to optimise practices to detail their contents (e.g. Stinchcombe, 1990). Hence, we argue that inappropriate generalisation is more likely with institutionalising mechanisms, since such mechanisms may for example exert authority over less experienced personnel and therefore resist (risky) alternatives (thereby more likely sticking to espoused practice). In other words, as Simon (1947) stressed, firm behaviour is influenced by the channelling of information; and imposing such institutionalising mechanisms can compromise decision-making (Walsh, 1995). This logic is in line with the findings of prior studies. For instance, Haas and Hansen (2007) find that sharing codified knowledge in electronic format saves task execution time (but does not improve work quality), while sharing personal advice improves work quality, signaling competence (but not saving time). Similarly, Reuer et al. (2002) find that the relevance of prior alliance experience hinges on the characteristics of subsequent deals, indicating heterogeneity is needed to manage complexity in strategic alliances. Extrapolating from the results to the measures of this study, this implies that integrating mechanisms are more likely to generate variation in practice (i.e. mirror competence), but also that institutionalising mechanisms nurture a false belief of competence (i.e. superstitious learning). See footnotes 12, 24
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84. Please note that the results did not change in case analyses were repeated in which individual items of the two factors were deleted, suggesting the findings to be insensitive to changes in the two main independent variables: integrating and institutionalising mechanisms.
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