Daniel A Levinthal

Daniel A Levinthal
  • Reginald H. Jones Professor of Corporate Strategy

Contact Information

  • office Address:

    3209 SH-DH
    3620 Locust Walk
    Philadelphia, PA 19104

Research Interests: industry evolution, organizational learning, technological competition

Links: CV, Google Scholar

Overview

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 some 20,000 citations. He is a Fellow of both the Strategic Management Society and the Academy of Management. 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 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).

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Research

  • Daniel A Levinthal and Andrea Contigiani (2018), Situating the Construct of Lean Startup: Adjacent "Conversations" and Possible Future Directions, Industrial and Corporate Change, Forthcoming.

  • 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.

  • Daniel A Levinthal (2017), Resource allocation and firm boundaries, Journal of Management, 43 (8), pp. 2580-2587.

    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.

  • Daniel A Levinthal and Alessandro Marino (2015), Three facets of organizational adaptation: Selection, variety, and plasticity, Organization Science, 26 (3), pp. 743-755.

    Abstract: When considering the adaptive dynamics of organizations, it is important to account for the full set of adaptive mechanisms, including not only the possibility of learning and adaptation of a given behavior but also the internal selection over some population of routines and behaviors. In developing such a conceptual framework, it is necessary to distinguish between the underlying stable roots of behavior and the possibly adaptive expression of those underlying templates. Selection occurs over expressed behavior. As a result, plasticity, the capacity to adapt behavior, poses a trade-off as it offers the possibility of adaptive learning but at the same time mitigates the effectiveness of selection processes to identify more or less superior underlying roots of behavior. In addition, plasticity may mitigate the reliability with which practices are enacted. These issues are explored in the context of a computational model, which examines the interrelationship among processes of variation, selection, and plasticity.

  • Daniel A Levinthal and Maciej Workiewicz (Working), Nearly decomposable systems and organizational structure: The adaptive properties of the multi-authority form.

  • Daniel A Levinthal and Claus Rerup (Working), Grey zones and the variegated quality of success and failure: Deconstructing the interpretation of experience in the process of organizational learning.

  • Michael D. Cohen, Daniel A Levinthal, Massimo Warglieny (2014), Collective performance: Modeling the interaction of habit-based actions, Industrial and Corporate Change, 23, pp. 329-360.

    Abstract: Recurring patterns of action are essential in our efforts to explain central properties of business firms and other organizations. However, the development of systematic theory has been hampered by the difficulty of adequately specifying foundational assumptions. We address this problem by defining a concept of collective performance, which brings together a range of recurring organizational action patterns that have been studied under labels such as “routine,” “practice,” standard operating procedure, or “genre of action.” All these forms of organizational action are based on human habit to a significant degree. We propose a conceptual framework for such habit-based organizational action patterns. The framework is a set of core principles and desirable model properties that can serve as a guide in the development of formal models of collective performance. It provides micro-foundations for the modeling of collective performance that are aligned with contemporary developments in psychology. Finally, we present a series of examples, developed in Supplementary Materials, that shows how our framework leads to new classes of formal models that can aid the analysis of collective performance.

Teaching

Current Courses

  • MGMT900 - Sem Strat Mgmt

    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. It is not a substitute for a traditional microeconomics course. 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 and that competitive processes do not typically equilibrate instantaneously. The substantive focus is on the firm as a productive entity. Among the sorts of questions we explore are the following: What underlies a firms capabilities? How does individual knowledge aggregate to form collective capabilities? What do these perspectives on firms say about the scope of a firms activities, both horizontally (diversification) and vertically (buy-supply relationships)? We also explore what our understanding of firms says about market dynamics and industry evolution, particularly in the context of technological change. 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 Among the issues we explore in this regard are the following. Organizational "systems" have internal structure, in particular elements of hierarchy and modularity. Even putting aside the question of individual goals and objectives and how they may aggregate, the question of organizational goal is non-trivial. To say that a firms objective is to maximize profits is not terribly opera tional. How does such an overarching objective get decomposed to link to the actual operating activities of individual subunits, including individuals themselves. This issue of goals has links to some interesting recent work that links the valuation process of financial markets to firm behavior. Financial markets are not only a reflection of firm value, but may guide firms initiatives in systematic ways.

    MGMT900001

Past Courses

  • MGMT223 - BUSINESS STRATEGY

    This course encourages students to analyze the problems of managing the total enterprise in the domestic and international setting. The focus is on the competitive strategy of the firm, examining issues central to its long- and short-term competitive position. Students act in the roles of key decision-makers or their advisors and solve problems related to the development or maintenance of the competitive advantage of the firm in a given market. The first module of the course develops an understanding of key strategic frameworks using theoretical readings and case-based discussions. Students will learn concepts and tools for analyzing the competitive environment, strategic position and firm-specific capabilities in order to understand the sources of a firm's competitive advantage. In addition, students will address corporate strategy issues such as the economic logic and administrative challenges associated with diversification choices about horizontal and vertical integration. The second module will be conducted as a multi-session, computer-based simulation in which students will have the opportunity to apply the concepts and tools from module 1 to make strategic decisions. The goal of the course is for students to develop an analytical tool kit for understanding strategic issues and to enrich their appreciation for the thought processes essential to incisive strategic analysis. This course offers students the opportunity to develop a general management perspective by combining their knowledge of specific functional areas with an appreciation for the requirements posed by the need to integrate all functions into a coherent whole. Students will develop skills in structuring and solving complex business problems.

  • MGMT611 - MANAGING EST ENTERPRISE

    The management of large, established enterprises creates a range of multi-facet challenges for the general manager. A general manager needs to understand the internal workings of a firm, how to assess and create a strategy, and how to take into account increasing, globalization. While these issues are distinct, they are very much intertwined. As a result, this course will provide you with an integrated view of these challenges and show you that effective of an established enterprise requires a combination of insights drawn from economics, sociology, psychology and political economy.

  • MGMT900 - SEM STRAT MGMT

    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. It is not a substitute for a traditional microeconomics course. 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 and that competitive processes do not typically equilibrate instantaneously. The substantive focus is on the firm as a productive entity. Among the sorts of questions we explore are the following: What underlies a firms capabilities? How does individual knowledge aggregate to form collective capabilities? What do these perspectives on firms say about the scope of a firms activities, both horizontally (diversification) and vertically (buy-supply relationships)? We also explore what our understanding of firms says about market dynamics and industry evolution, particularly in the context of technological change. 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 Among the issues we explore in this regard are the following. Organizational "systems" have internal structure, in particular elements of hierarchy and modularity. Even putting aside the question of individual goals and objectives and how they may aggregate, the question of organizational goal is non-trivial. To say that a firms objective is to maximize profits is not terribly opera tional. How does such an overarching objective get decomposed to link to the actual operating activities of individual subunits, including individuals themselves. This issue of goals has links to some interesting recent work that links the valuation process of financial markets to firm behavior. Financial markets are not only a reflection of firm value, but may guide firms initiatives in systematic ways.

  • MGMT932 - PROSEM IN MGMT

    Innovation is currently a hot topic. The popular stereotype holds that firms that are not innovating, or that are not at least saying that they are innovating, are backward at best and at risk of extinction at worst. Behind the hype ismore than half a century of theory and research on organizational and managerial innovation, and the seminar will focus on this domain. A useful overview of the domain is available in Fariborz Damanpour "Organizational Innovation" in Oxford Rsearch Encyclopedia on Business and Management Oxford University Press 2018. We will examine a number of theoretical and empirical approaches to understanding the phenomenon that have emerged during this period and identify key questions explored, principal contributions to the literature, and remaining questions and areas for future research. At the same time, we will embard on a journey in the sociology of knowledge, to encourange you to understand how the evolution of these approaches is linked to changes in the larger world. The seminar is also designed to allow you to pursue an angle on the subject matter that is of particular interest to you, and the deliverables are intended to allow you to investigate a topic that you wish to explore in some depth. Both will be discussed at the beginning of the course and will be fleshed out in subsequent discussions together.

  • MGMT953 - SEM RES METHODS

    This is an introductory doctoral seminar on research methods in management. We examine basic issues involved in conducting empirical research for publication in scholarly management journals. We start by discussing the framing of research questions, theory development, the initial choices involved in research design, and basic concerns in empirical testing. We then consider these issues in the context of different modes of empirical research (including experimental, survey, qualitative, archival, and simulation). We discuss readings that address the underlying fundamentals of these modes as well studies that illustrate how management scholars have used them in their work, separately and in combination.

Awards and Honors

  • Honorary Doctorate, Warwick University, 2017
  • Irwin Award as Distinguished Educator, Business Policy Division of the Academy of Management, 2015
  • Fellow of the Institute for Advanced Studies, HKUST, 2015
  • Honorary Doctorate, Tilburg University, 2014
  • Fellow of the Strategic Management Society, 2011
  • Fellow of the Academy of Management, 2010
  • Distinguished Scholar Award, Organizational and Management Theory, Academy of Management, 2010
  • Honorary Doctorate, University of Southern Denmark, 2010

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Latest Research

Daniel A Levinthal and Andrea Contigiani (2018), Situating the Construct of Lean Startup: Adjacent "Conversations" and Possible Future Directions, Industrial and Corporate Change, Forthcoming.
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In order to avoid a decline in growth, Twitter needs to find new and better ways to leverage its strengths, including speed, timeliness and a treasure trove of consumer data, Wharton experts say.

Knowledge @ Wharton - 2016/02/17
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Awards and Honors

Honorary Doctorate, Warwick University 2017
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