Daniel Levinthal is the Reginald H. Jones Professor of Corporate Strategy at the Wharton School, University of Pennsylvania. Levinthal has published extensively on questions of organizational adaptation and industry evolution, particularly in the context of technological change with 70 articles and book chapters that have received over 20,000 citations. He is a Fellow of both the Strategic Management Society, the Academy of Management, and the Academy of International Business. In addition, he is a past winner of the Strategic Management Society’s Best Paper prize and has received the Distinguished Scholar from the Organization and Management Theory Division of the Academy, as well as the Outstanding Educator Award from the Business Policy Division of the Academy. He currently serves as Editor-in-Chief of Strategy Science and has previously served as Editor-in-chief of Organization Science. He has received honorary doctorates from the London Business School, University of Southern Denmark, Tilburg University, and the University of Warwick and has held visiting professorships at the Harvard Business School (Bower Fellow), the Sant’Anna School of Advanced Studies, University of Pisa (Philip Morris Visiting Professor), and the University of New South Wales (Michael Crouch Visiting Professor).
Jaeho Choi and Daniel A Levinthal (2022), Wisdom in the wild: Generalization and adaptive dynamics, Organization Science.
Abstract: Learning from experience is a central mechanism underlying organizational capabilities. However, in examining how organizations learn from past experiences, much of the literature has focused on situations in which actors are facing a repeated event. We direct attention to a relatively under-examined question: when an organization experiences a largely idiosyncratic series of events, at what level of granularity should these events, and the associated actions and outcomes, be encoded? How does generalizing from experience impact the wisdom of future choices and what are the boundary conditions, or factors that might mitigate the degree of desired generalization? To address these questions, we develop a computational model that incorporates how characteristics of opportunities (cf., acquisition candidates, new investments, product development) might be encoded so that experiential learning is possible even when the organization’s experience is a series of unique events. Our results highlight the power of learning through generalization in a world of novelty, as well as the features of the problem environment that reduce this “power.”
Daniel A Levinthal (2021), From Arms to Trees: Opportunity Costs and Path-Dependence and the Exploration-Exploitation Tradeoff, Strategy Science, 6 (4), pp. 331-337.
Abstract: The literature on the exploration-exploitation tradeoff has anchored on the n-armed bandit problem as its canonical formal representation. This structure, however, omits a fundamental property of evolutionary dynamics. Contrary to a bandit formulation, foregoing an opportunity may negate the possibility of engaging in that opportunity in the future --- not just modifying the beliefs about the attractiveness of engaging in that opportunity. Thus, the bandit structure only incorporates path-dependence with respect to beliefs, and not with regard to capabilities as our usual conceptions of dynamics of learning and capabilities would suggest. Further, the consideration of opportunity cost is rather static and does not address the dynamic unfolding of opportunity structures. The nature of path-dependence and opportunity costs are used to frame many of our existing conceptualizations of search processes and firm dynamics, including bandit models, real options, pivoting, the “secretary problem”, and “island” models of firm diversification. The discussion points to the need to develop canonical models of what evolutionary biologists’ term phylogenetic trees and opens up a set of new questions, such as what is the degree of parallelism of trajectories that is possible within an organization, what is the fecundity of different trajectories in terms of likelihood of branching possibilities arising, how are these latent branching opportunities accessed?
Daniel A Levinthal (2021), Evolutionary Processes and Organizational Adaptation: A Mendelian Perspective on Strategic Management, Oxford University Press.
Abstract: Strategists are encouraged to identify sustained competitive advantages. This volume takes a different tact and provides a perspective on how organizations adapt over time to changing circumstances. This process is characterized as not driven by the inspired wisdom of a grand strategist, but by an ecology of initiatives within the organization. A central role of the organization is to mediate between the market forces in which it operates and the culling and amplification of these initiatives within the organization. In this spirit, a useful touchstone is that of Mendel, who sits intermediate between the blind watchmaker of a purely Darwinian process and a “chess master” strategist as suggested by stylized rational choice approaches. The “Mendelian executive” operates with intentionality, but this intentionality is with respect to the design of the experimental process rather than the identification of specific pathways forward. The two core conceptual pillars of the work are that of path-dependence, what are the adjacent “spaces” to which an organization might move, and “artificial selection,” how the organization mediates aggregate immediate outcomes and the allocation of resources and rewards to the various initiatives and actors within the organization. Entities that have a sustained lifespan are not static, but engage in processes of renewal, whether cells in the human body or lines of business within a firm. A conceptual framework is provided to illuminate some of the fundamental mechanisms underlying this process.
Daniel A Levinthal and C. Rerup (2021), The Plural of Goal: Learning in a World of Ambiguity, Organization Science, 32 (3), pp. 527-543.
Abstract: In the Carnegie School tradition of experiential learning, learning processes are driven by the encoding of performance outcomes as a success or failure relative to a goal. We expand this line of inquiry by highlighting how conflicting and thus ambiguous outcomes across multiple goals make interpretation a critical aspect of organizational learning processes. In early work in the Carnegie tradition, interpretation played a role in the demarcation between what constituted success or failure on a given outcome metric. However, in March’s latter writings, learning and decision making produce an arena or even an opportunity for generating interpretations and broader meanings regarding roles, values, and identities. We explore how the two interpretive approaches in March’s work play out across three modes of responses to ambiguity. First, the process of self-enhancement whereby participants interpret conflictual outcomes so that they, the participants, appear in a positive light. Second, an explicit political process regarding the contestation of how to interpret conflicting outcomes. Third, from the perspective of the organizations’ literature on wisdom, participants may embrace ambiguity either to enhance learning or simply to enrich individuals’ interpretation of their experiences. Although these three modes of response do not offer a complete set of responses for learning in a world of ambiguity, they constitute valuable touchstones for the perspective we wish to put forward and, collectively, help enrich our understanding of the role of learning, ambiguity and interpretation within the Carnegie School.
Daniel A Levinthal and Andrea Contigiani (2018), Situating the Construct of Lean Startup: Adjacent “Conversations” and Possible Future Directions, Industrial and Corporate Change.
Daniel A Levinthal (2017), Mendel in the C-Suite: Design and the evolution of strategies, Strategy Science, 2 (4), pp. 282-287.
Abstract: A “Mendelian” executive is proposed as an image of strategy making that lies intermediate between the godlike powers of intentional design of rational choice approaches and a Darwinian process of random variation and market-based differential selection. The Mendelian executive is capable of intentional design efforts in order to explore possible adjacent strategic spaces. Furthermore, the argument developed here highlights the role of intentionality with respect to the selection and culling of strategic initiatives. The firm is viewed as operating an “artificial selection” environment in contrast to selection as the direct consequence of the outcome of competitive processes. Examining the nature of the processes generating these experimental variants and the bases of internal selection, and how these selection criteria may themselves change, is argued to be central to the formation of strategy in dynamic competitive environments.
Abstract: In a modern economy, much of the allocation of financial and nonfinancial resources is mediated by organizations. This essay points to three general features of this mediating role of organizations in the resource allocation process. One line of argument relates to the distinct opportunities and opportunity costs that an organization faces. The set of investment opportunities for organizations differs as a result of their privileged access to different investment opportunities. The second line of argument considers the impact of differential beliefs and perspectives on the resource allocation process. The diversity of independent budgetary entities, both internal to and external to the organization, is argued to importantly influence the heterogeneity of the bases of selection among alternative investment opportunities. Lastly, this mediation of resource allocation by the firm plays a particularly important role with respect to the allocation of resources over time on a given initiative. Organizations do not simply buffer initiatives from selection but potentially provide different bases for interim selection processes.
Victor Bennett and Daniel A Levinthal (2017), Firm lifecycles: Linking employee incentives and firm growth dynamics, Strategic Management Journal, 38 (10), pp. 2005-2018.
Abstract: While the economic advantages of scale are well understood, implications of the rate of firm growth are arguably less appreciated. Since firms' growth rate influences employees' promotion opportunities, the growth rate can have significant implications for the incentives employees face. Rapid growth, by creating more promotion opportunities, motivates employees to engage in extra-role behaviors that might result in promotion should an opportunity arise. Building on this argument, we develop a formal model linking the design of firms' incentive structure to their rate of growth. The associated dynamics lead to three distinct epochs of firms' lifecycle: rapid growth and high-powered incentives driven by frequent promotion opportunities; moderate growth with infrequent promotion opportunities, but large salary increases contingent on promotion; and finally, stagnant firms with low-powered incentives.
Thorbjorn Knudsen, Daniel A Levinthal, Sidney G Winter (2017), Systematic differences and random rates: Reconciling Gibrat’s Law with firm differences, Strategy Science, 2 (2), pp. 111-120.
Abstract: A fundamental premise of the strategy field is the existence of persistent firm-level differences in resources and capabilities. This property of heterogeneity should express itself in a variety of empirical “signatures,” such as firm performance and arguably systematic and persistent differences in firm-level growth rates, with low cost firms outpacing high cost firms. While this property of performance differences is a robust regularity, the empirical evidence on firm growth and Gibrat’s law does not support the later conjecture. Gibrat’s law, or the “law of proportionate effect,” states that, across a population of firms and over time, firm growth at any point is, on average, proportionate to size of the firm. We develop a theoretical argument that provides a reconciliation of this apparent paradox. The model implies that in early stages of an industry history. firm growth may have a systematic component, but for much of an industry’s and firm’s history should have a random pattern consistent with the Gibrat property. The intuition is as follows. In a Cournot equilibrium, firms of better “type” (i.e., lower cost) realize a larger market share, but act with some restraint on their choice of quantity in the face of a downward sloping demand curve and recognition of their impact on the market price. If firms are subject to random firm-specific shocks, then in this equilibrium setting a population of such firms would generate a pattern of growth consistent with Gibrat’s law. However, if broader evolutionary dynamics of firm entry, and the subsequent consolidation of market share and industry shake-out is considered, then during early epochs of industry evolution, one would tend to observe systematic differences in growth rates associated with firm’s competitive fitness. Thus, it is only in these settings far from industry equilibrium that we should see systematic deviations from Gibrat’s law.
Felipe Csaszar and Daniel A Levinthal (2016), Mental representation and the discovery of new strategies, Strategic Management Journal, 37, pp. 2013-2049.
Abstract: Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect how managers search for profitable strategies as well as the quality of strategies they discover. To study how mental representation and search interact, we formally model the dual search over possible representations and over policy choices of a strategy “landscape.” We analyze when it is preferable to emphasize searching for the best policies rather than the best mental representation, and vice versa. We show that, in the long run, a balance between the two search modes not only results in better expected performance, but also reduces the variation in performance. Additionally, the article describes conditions under which increased accuracy of mental representations can actually worsen firm performance.
This course is about managing large enterprises that face the strategic challenge of being the incumbent in the market and the organizational challenge of needing to balance the forces of inertia and change. The firms of interest in this course tend to operate in a wide range of markets and segments, frequently on a global basis, and need to constantly deploy their resources to fend off challenges from new entrants and technologies that threaten their established positions. The class is organized around three distinct but related topics that managers of established firms must consider: strategy, human and social capital, and global strategy.
People are the most valuable asset of any business, but they are also the most unpredictable, and the most difficult, asset to manage. And although managing people well is critical to the health of any organization, most managers don't get the training they need to make good management decisions. Now, award-winning authors and renowned management Professors Mike Useem and Peter Cappelli of the Wharton School have designed this course to introduce you to the key elements of managing people. Based on their popular course at Wharton, this course will teach you how to motivate individual performance and design reward systems, how to design jobs and organize work for high performance, how to make good and timely management decisions, and how to design and change the your organization's architecture. By the end of this course, you'll have developed the skills you need to start motivating, organizing, and rewarding people in your organization so that you can thrive as a business and as a social organization. This course can also only be applied towards unrestricted electives at the undergraduate level.
This course examines some of the central questions in management with economic approaches as a starting point, but with an eye to links to behavioral perspectives on these same questions. Economics concerns itself with goal directed behavior of individuals interacting in a competitive context. We adopt that general orientation but recognize that goal directed action need not take the form of maximizing behavior, particularly for organizations comprised of individuals with possibly divergent interests and distinct sub-goals. Further, we treat competitive processes as playing out over meaningful periods of calendar time and, in general, not equilibrating instantaneously. A central property of firms, as with any organization, is the interdependent nature of activity within them. Thus, understanding firms as "systems" is quite important, a perspective which has important implications for understanding processes of organizational adaptation. Among the sorts of questions we explore are the following: What underlies a firm's capabilities? How does individual knowledge aggregate to form collective capabilities? What do these perspectives on firms say about the scope of a firm's activities, both horizontally (diversification) and vertically (buy-supply relationships)? As a "foundations" course, readings will cover key conceptual foundations, but also provide an arc to current work --- an "arc" that will be developed more fully in our in-class discussions.
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