Falling Down or Bouncing Back: A Two-Stage, Dual-Path Organizational Learning Process After Failure

Abstract

Research demonstrates that experiences of failure can have positive and negative effects on a firm’s subsequent behavior and performance. This contradictory finding necessitates in-depth exploration on the mechanisms behind failure-related performance change. The purpose of this study is to fill this gap by disaggregating the postfailure learning process into “falling down” and “bouncing back” paths and addressing their relative effects on organizational performance in an integrated framework. We test our arguments in the context of a computer-based strategic business simulation. We repeatedly collect survey data from 144 teams in an executive education program during 2016-2018. Our study contributes to the literature on organizational learning from failure in three dimensions. First, we develop a comprehensive model by integrating macro and micro perspectives. Specifically, we advance our understanding of a firm’s subsequent reactions to failure through its micro-foundation rooted in top management team (TMT) dynamics. Second, our findings indicate that organizational learning from failure involves two stages, namely chaos stage and reassembly stages. Finally, we reveal that the severity of failure amplifies both falling down and bouncing back effects on organizational performance change. From our findings, we draw implications for organizations to facilitate effective learning from failure.