Learning from Heterogenous Experience

Research By Christopher Bingham

WHEN IT COMES TO DEVELOPING STRATEGIC ORGANIZATIONAL PROCESSES, EXPERIENCE MAY NOT BE THE BEST TEACHER. THOUGH MUCH RESEARCH IN THE FIELD FOCUSES ON THE WAY FIRMS LEARN THROUGH EXPERIENCE, RECENT RESEARCH BY CHRISTOPHER BINGHAM, ASSISTANT PROFESSOR OF MANAGEMENT AND ORGANIZATION, SUGGESTS THAT THIS VIEW MAY NOT ADEQUATELY DESCRIBE WHAT AND HOW FIRMS LEARN FROM HETEROGENEOUS EXPERIENCES SUCH AS ACQUISITIONS, PRODUCT DEVELOPMENT, PARTNERING, AND INTERNATIONALIZATION.

Bingham studied six technology-based entrepreneurial firms with headquarters in Finland, the U.S., and Singapore as they went through the process of internationalization. The firms represented a variety of technology industries: hardware devices, medical solutions, enterprise software, and security services. The study was funded in part by the National Science Foundation.

Bingham examined the heuristics used by each firm. Heuristics are informal rules of thumb that guide and shape learning—in this case, rules that entrepreneurial organizations use as they expanded globally. Bingham identified several categories of heuristics used by all of the organizations. While the actual heuristics were unique to each organization and its situation, all firms in Bingham’s sample developed similar types of rules.

Each firm developed a few simple, specific rules for choosing opportunities (boundary rules) and a few rules for executing them (how-to rules). Boundary and how-to rules helped organizations as they pursued a global strategy, even though the rules themselves were often flawed. “A heuristic initiates action; it lets you get the ball rolling,” says Bingham.

Boundary and how-to rules provide important guidelines for young entrepreneurial firms choosing between available opportunities. “Without filters it is very easy to engage in opportunistic behavior and jump on the first thing that comes your way, whether or not that fits with the longer-term mission of your organization,” says Bingham. “Entrepreneurs have very limited resources; if you’ve placed your bet in a wrong area it can be very detrimental to your organization’s future.” Boundary and how-to rules give executives the confidence to act even in new and unfamiliar situations.

Organizations also developed rules about timing which Bingham calls “temporal heuristics.” These included rules about synchronization (deciding when to enter a country according to some external timing); destination (which country or countries the firms was targeting); sequence (the order of countries that the firm needed to enter in order to accumulate experience correctly); and pacing (internal timing). Organizational processes also continued to develop through elaboration, as managers added and embellished already-existing rules for choosing which opportunities to pursue.

Rules about timing turned out to be important for successful globalization. “If you were going to make a soufflé, you would want certain ingredients added before others. Yet there seems to be an assumption in the academic literature that if you accumulate more experience, that’s all you need. It takes a more discerning mindset to understand which experiences ought to come first, and which should come later” says Bingham. He cites a Singaporean organization which wanted to enter the Japanese market. Despite the fact that Japan was closer geographically, leaders chose to enter the U.S. first. Doing so gave the firm U.S. reference customers, which was very important to signal the legitimacy and credibility needed for entering one of Asia’s largest markets.

As the firms continued to develop their globalization strategies, their heuristics became more abstract, with fewer details. This allowed for more freedom on the part of workers within the new country markets to act and make decisions. This is a counter-intuitive insight of Bingham’s research: while early learning involves less abstract thinking as leaders develop specific boundary and how-to rules, later learning involves more abstract thinking, as leaders improve their understanding of how simple rules encourage effective improvisation. More abstract heuristics provide coherence, so managers aren’t reinventing the wheel, but at the same time permits for flexibility and creativity.

“Firms start with very specific boundary and how-to rules, but over time these rules become more abstract,” says Bingham. “When we look at improvisation we think that people are just winging it, but there is actually a deep foundational knowledge and cognitive sophistication which allows managers to understand how their heuristics can be improvised in different ways in different countries.”

Changing levels of abstraction keeps managers from operating on auto-pilot, simply following set rules. Managers are forced into a more conscious engagement, making calculated choices that are most appropriate for a firm’s current situation, rather than just repeating set-in-stone solutions that worked in the past but might not be appropriate for the current situation.

Bingham’s study suggests that learning a strategic process from experience is about developing expertise, not honing a routine as most research suggest. “Unveiling the Creation and Content of Strategic Processes: How and What Firms Learn from Heterogenous Experience,” authored by Christopher B. Bingham and Kathleen M. Eisenhardt, professor of management science and engineering, Stanford University, received the Best Paper Award from the 2005 Atlanta Competitive Advantage Conference.