Organizational Learning and Diversification

Abstract

Employing concepts of lateral and longitudinal learning, we examined the dissolution of 462 expansions of Dutch firms, both acquisitions and new ventures. We interpreted the endurance of an expansion as reflecting success. Results show that expansions were more persistent when related to a firm's core skills, fully owned, and the result of acquisition rather than internal development. Expansions were also likely to last longer if a firm's prior diversification activity level was high. This article presents an empirical study on organizational learning and corporate diversification. The primary research question links these concepts and explores whether expansion decisions are better if they are anchored in organizational know-how. Are expansion projects more successful if they are proximate to firms' core skills, and do diversifying firms gain from experiences with earlier diversification moves? Diversification decisions are among the most important a firm's managers make. Diversification extends a firm's domain but entails risk and uncertainty. Firms seek to bridge the distance between their current stock of know-how and that which they aspire to hold. Internal development, including innovation, amounts to the bridging of that distance into the future (Pennings & Harianto, 1992), and acquisitive activities can be viewed as lateral bridging, linking proprietary know-how and the expertise of target firms (cf. Pitts, 1977). Expansions extend a firm's products, markets, technologies, and other resources. Learning is pertinent in that expansion projects vary in their closeness to current organizational cognitions and experiences. Their degrees of prox