The origins of time compression diseconomies

Abstract

AbstractResearch SummaryThat capability development is subject to time compression diseconomies (TCD) is well‐known in the strategy literature. However, so far, there is limited attention paid to its origins, that is, why it exists, and demonstrating it empirically. In the context of fertility clinics in the United Kingdom, we show that faster experience accumulation is associated with lower success rates; that is, time compression in experience accumulation results in shallower learning curves. We also show that TCD is exacerbated for clinics that mainly treat complex cases and is mitigated for clinics that employ an integrator to coordinate across the different specialist functions involved in the treatment process. We propose differential learning rates as the mechanism that underlies TCD, and develop implications for firm capabilities and sources of competitive advantage.Managerial SummaryAs firms pursue new opportunities, it is intuitive to grow fast. Rapid growth has many advantages, including a quicker payback on investment as well as garner first mover advantages. However, there can also be a dark side to such high paced growth. By analyzing data on in‐vitro fertilization clinics in the United Kingdom, we show that clinics that grew the fastest were slower in improving their treatment success rates, while slower growing clinics improved more with increasing experience. This penalty of rapid growth is more severe for clinics that treat more complex cases, but it can be ameliorated by better coordination between specialist activities. Our research serves as a warning that faster is not always better.