Value‐enhancing Learning from Industry‐wide Diversification Experience
| DOI | http://doi.org/10.1111/1467-8551.12151 |
| Published date | 01 April 2016 |
| Author | Thang Nguyen,Charlie X. Cai |
| Date | 01 April 2016 |
British Journal of Management, Vol. 27, 323–337 (2016)
DOI: 10.1111/1467-8551.12151
Value-enhancing Learning from
Industry-wide Diversification Experience
Thang Nguyen and Charlie X. Cai1
Economics and Finance Group, Portsmouth Business School, University of Portsmouth, Portsmouth, PO1
3DE, UK, and 1Accounting and Finance, Leeds University Business School, Leeds, LS2 9JT, UK
Corresponding author email: busxc@leeds.ac.uk
Diversification is an important strategic decision and a rare event. By definition, when
undertaking a new diversification, a firm will not have direct internal experience of the
venture. In this regard, externalexperience of similar diversifications provides a valuable
lesson pool for the focal manager. While there are many studies of internal learning in
organizational learning literature, research on externallear ning is still scarce.This paper
proposes a theoretical framework for external experiential learning and applies it to a
study of the eect of industry experience on diversification value. It reports the novel
finding of a cubic relationship between external learning from industry experience and
diversification value. This indicates that industry experience matters to the outcomes of
strategic decisions, but that the eect of this external experienceon lear ning is conditional
upon certain characteristics of the experience: namely, specificity and heterogeneity.
Introduction
Organizational learning is defined as a change in
an organization’s knowledge that occurs as a func-
tion of experience (Argote and Miron-Spektor,
2011; Huber, 1991). Fundamentally, knowledge
can be acquired in two ways: internally, from a
firm’s own experience; and/or externally, from the
experience of other firms (Bapuji and Crossan,
2004). It is widely shown that learning from ex-
perience has a significant impact on strategic
activity performance (e.g. acquisition, strategic
alliance, diversification). Empirical evidence on
this impact, however, relates mainly to internal
learning in the context of acquisition (see e.g.
Finkelstein and Haleblian, 2002; Haleblian and
Finkelstein, 1999; Hayward, 2002).1
The value of diversification has for a long time
been the subject of intense discussion among re-
searchers (see surveys by Palich, Cardinal and
Miller, 2000; Martin and Sayrak, 2003). While
1See Barkema and Schijven (2008) and Argote and
Miron-Spektor (2011) for comprehensive reviews of the
literature.
most of the debate in the literature hinges on the
mean value of diversification, Stein (2003) sug-
gests that research should pay more attention to
cross-sectional variation; that is, identifying spe-
cific circumstances in which diversification may be
a value-creating or value-destroying strategy. Our
study aims to provide an interdisciplinary investi-
gation of whether and how organizational learn-
ing from industry diversification experienceaects
diversification value.
The importance of learning for diversifica-
tion decisions can be better understood in the
wider context of capability development. Learn-
ing is an integral part of dynamic capability
development. Zollo and Winter (2002) link the
learning mechanism to the evolution of dynamic
capability. Salge and Vera(2013) conceptualiz e in-
cremental learning as a dynamic capability and
vital driver of organizational adaptation. Firms
may also build their capacity at a strategic level by
learning from the experience of others. Almazan
et al. (2010) and Guill´
en (2002) suggest that, under
uncertainty,economic agents learn most eectively
from the experience of their peers and neighbours
in guiding their decision-making. Such vicarious
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