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The Red Queen, Success Bias, and Organizational Inertia

  • William P. Barnett

    ()

    (Graduate School of Business, Stanford University, Stanford, California 94305)

  • Elizabeth G. Pontikes

    ()

    (Graduate School of Business, University of Chicago, Chicago, Illinois 60637)

Registered author(s):

    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 ability to change. 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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    File URL: http://dx.doi.org/10.1287/mnsc.1070.0808
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 54 (2008)
    Issue (Month): 7 (July)
    Pages: 1237-1251

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    Handle: RePEc:inm:ormnsc:v:54:y:2008:i:7:p:1237-1251
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    1. Ouchi, William, 1981. "Theory Z: How American business can meet the Japanese challenge," Business Horizons, Elsevier, vol. 24(6), pages 82-83.
    2. Herriott, Scott R & Levinthal, Daniel & March, James G, 1985. "Learning from Experience in Organizations," American Economic Review, American Economic Association, vol. 75(2), pages 298-302, May.
    3. 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.
    4. Theresa K. Lant, 1992. "Aspiration Level Adaptation: An Empirical Exploration," Management Science, INFORMS, vol. 38(5), pages 623-644, May.
    5. 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.
    6. William P. Barnett & Aimee-Noelle Swanson & Olav Sorenson, 2003. "Asymmetric selection among organizations," Industrial and Corporate Change, Oxford University Press, vol. 12(4), pages 673-695, August.
    7. James G. March & Zur Shapira, 1987. "Managerial Perspectives on Risk and Risk Taking," Management Science, INFORMS, vol. 33(11), pages 1404-1418, November.
    8. 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.
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