Under Pressure: External Monitor, Managerial Attention and Organizational Learning from Major Errors

Abstract

Research on organizational learning from serious errors has uncovered several influences related to a firm’s own experiences and those of its peers. While the learning literature therefore acknowledges that the external environment affects organizational learning, research has largely overlooked the possibility that organizations other than competitors might also shape learning by the focal firm. We explore this proposition by studying the collective influence of an essential monitor (financial analysts) on repeat incidences of a serious organizational error (major oil spills). Specifically, we theorize that monitors apply pressure by setting expectations in the immediate aftermath of an error (encouraging learning from that error by directing managerial attention toward safety), but that these effects are counteracted by subsequent pressure to meet a different expectation (encouraging forgetting by diverting managerial attention away from safety and toward profit). We also theorize that analysts further shape organizational learning from errors by conditioning what we know about both experiential and vicarious learning. We test this theory by studying the effects of evolving analyst pressures on major oil spills in the U.S. by firms in the oil and gas industry, from 1980 to 2016. By showing that analysts apply differential pressures to firms following a serious error (immediately and, then, subsequently), this study highlights the role of external monitors in encouraging both organizational learning and forgetting due to socially set expectations that shift the attention of managers among competing foci in ways that affect the likelihood of repeat serious errors.