Growth and renewal: how does organizational experience affect diversification in early and mature organizations Public Deposited

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  • March 20, 2019
  • Xie, Xuanli
    • Affiliation: Kenan-Flagler Business School
  • This dissertation presents a theory on how organizational experience affects decisions by organizations to enter new product-markets. Facing the choice of new product-markets, a firm might decide to introduce a related product, which leverages existing firm knowledge and capabilities, or to experiment with a less related product, which requires new knowledge and capabilities. Learning and evolutionary theory suggests firms tend to diversify into related knowledge areas. Consistent with this view of local search, the first question examined in this study is how a firm's technology and market experience affect its product-market entry choice. While local search is considered dominant, it might not be a homogenous process across all types of organizations. Organizations at different stages differ in organizational size, structure, and cognitive styles. These factors interact with the process of experiential learning, leading to divergent learning results. The second question in this study examined how experience affects organizations at different stages. Finally, I propose that organizational knowledge diversity and organizational access to innovative knowledge are concrete examples of dynamic capabilities that might weaken the path-dependency of existing technology or market experience, leading to distant product-market entries. The product-market entry choices were examined using a model that integrates organizational characteristics with organizational learning. The data are on new drug introductions in the generic pharmaceutical industry. This dataset covers the whole population of generic pharmaceutical firms in the US from 1984-2004, including firms at a variety of ages and stages. The analyses showed clear support for the relationship between experience and related product-market entries. And strong evidence was found for the heterogeneity of this relationship across organizations. The most interesting results are the heterogeneous diversification behavior between new ventures and established firms. Compared to established firms (older firms), new ventures (younger firms) are more likely to enter related product-markets, and less likely to enter product-markets with many competitors. The two organizational features, knowledge diversity and access to innovative knowledge, were also found to moderate the relationship between experience and product-market entries. Firms with diverse knowledge and access to innovative knowledge are less likely to enter related product markets.
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  • O'Neill, Hugh
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