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The Red Queen, Success Bias, and Organizational Inertia

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  • Barnett, William P.

    (Stanford U)

  • Pontikes, Elizabeth G.
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    Abstract

    Why do successful organizations often move in new directions and then fail? We propose that this pattern is especially likely among organizations that have survived a history of competition. Such experience adapts organizations to their environment, through so-called "Red Queen" evolution, but being well-adapted for one context makes moving into new contexts more hazardous. Meanwhile, managers in such organizations infer from their histories of competitive success a biased assessment of their organization's dynamic capabilities. Consequently, although surviving competition makes organizational change especially hazardous, managers in surviving organizations are especially inclined to such initiatives. We develop these ideas in an empirically testable model, and find supportive evidence in estimates of the model using data from the history of the U.S. computer industry.

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    Bibliographic Info

    Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1936.

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    Date of creation: Jun 2006
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    Handle: RePEc:ecl:stabus:1936

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    1. Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
    2. Cynthia A. Montgomery & Birger Wernerfelt, 1988. "Diversification, Ricardian Rents, and Tobin's q," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 623-632, Winter.
    3. Theresa K. Lant, 1992. "Aspiration Level Adaptation: An Empirical Exploration," Management Science, INFORMS, vol. 38(5), pages 623-644, May.
    4. William P. Barnett & Olav Sorenson, 2002. "The Red Queen in organizational creation and development," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 289-325.
    5. Daniel A. Levinthal, 1997. "Adaptation on Rugged Landscapes," Management Science, INFORMS, vol. 43(7), pages 934-950, July.
    6. James G. March & Zur Shapira, 1987. "Managerial Perspectives on Risk and Risk Taking," Management Science, INFORMS, vol. 33(11), pages 1404-1418, November.
    7. Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
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