Myopia Of Selection: Does Organizational Adaptation Limit The Efficacy Of Population Selection? Hart...

Myopia Of Selection: Does Organizational Adaptation Limit The Efficacy Of Population Selection?

Hart E. Posen – University of Michigan

Daniel Levinthal – University of Pennsylvania

INFORMS - 2006

© 2006 Hart E. Posen

2

Evolutionary Theory: The classic debate.... Significant attention to evolutionary perspectives

Built on the work of Campbell (1965); Nelson & Winter (1982) and Hannan & Freeman (1977)

Organizational Adaptation versus Population Selection Which process best explains average population level performance

advancement (i.e. population adaptation)?

Organizational adaptation modeled as search resulting in learning Big literature on the benefits and pitfalls of adaptation as

organizational learning

Population selection modeled as disproportionate removal of less fit organizations Literature premised on organizational inertia


3

What factors that generate superior learning performance? (cf. Argote 1999)

Time

Per

form

ance

Significant heterogeneity in learning rates (e.g. Dutton & Thomas 1984)


4

How Effective is Selection as a Mechanism of Population Change?

Time

Per

form

ance

Selection forces

Can selectionidentify ofsuperior learning

curves???


5

Central Premise Selection is systematically error prone

Removing organizations at intermediate points in time that would, had they survived, gone on to do well.

Error in selection is endogenous to organizations’ search strategies that guide the learning process

Focus on intertemporal reliability Selection error greatest over learning curves that

exhibit lower intertemporal reliability


6

Examples of Reliability in Learning Curves

Short-Wave Reliability Long-Wave Reliability

Performance

Time (t) T

Performance

Time (t) T

Selection is more error prone when organizations’ search strategies lead to learning curves that exhibit lower intertemporal reliability.


7

Relation to Prior Literature - 1 Campbell’s arguments about the need for

blind variation for effective selection “if discovery or expansions of knowledge are (to

be) achieved, blind variation is requisite”, where blind implies that “specific correct trials are no more likely to occur…than specific incorrect trials” (Campbell, 1982: 86) Efficacy of selection endogenous to nature of

organizational variation over time. Simon dissents: Variation in not blind.


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Relation to Prior Literature - 2-Population Ecology

Selection over inert organizations Organizational inertia (Hannan & Freeman 1977, 1984) Stable quasi-genetic traits organizational traits

Such as routines (Nelson & Winter 1982)

Highlights role of reliability – as it relates to survival prospects of individual organizations.


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Selection if Fundamentally Myopic Cross-Sectional Challenge

(Easy) Don’t remove superior organizations

at a point in time.

Longitudinal Challenge (Difficult) Problem is that selection is

fundamentally myopic Don’t remove organizations that, had

they survived, would have gone on to do well.

TimeP

erfo

rman

ce

Selection forces

Under what conditions does myopic selection demonstrate the possibility of

prospective intelligence?


10

Important Questions in Organization Theory Why do inferior organizations (or technologies)

sometimes come to dominate the set of survivors? Outcome is a function of political and social competition as it is

technical competition on the merits of alternatives (Anderson, and Tushman, 1990)

Asset stocks act as buffers to stave off failure (Levinthal, 1991; Barnett, Greve, and Park, 1994; Barron, et al., 1994)

Path dependence arises from positive externalities (David, 1985; Arthur, 1989)

What is a superior learning strategy? Long run performance, survival, performance conditional on survival? e.g. explore versus exploit

Exploration is inherently less reliable, but might lead to superior long run performance


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The Experiment….

Computational Model NK (Kauffman 1993, Levinthal 1997, Rivkin 2000)

Organizations engage in search and learning Task environment is nearly decomposable. Learning curve heterogeneity is driven by different search

strategies

Multiple experiments In each experiment, hold search strategies constant, alter the

type and strength of selection.

Selection occurs throughout learning


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Differences in Learning Curves that Result from Heterogeneity in Search Strategies

Mode of Evaluation of Alternatives

Blind (On-line)

Non-Blind (Off-line)

No

Str

uctu

re

(Int

egra

ted)

Q1 Baseline Strategy

Q2 Integrated Strategy

Org

aniz

atio

nal

Str

uct

ure

Str

uctu

re

(Fun

ctio

nal)

()

Q4a

Q4b

Q3a Parallel Strategy

Q3b Sequential Strategy

Parallel

Sequential Tem

pora

l A

lloc

atio

n of

S

earc

h E

ffor

t

Content Risk(implementation of good alternatives)

Process Risk(presence of embedded structures)

Strategy Element 1Mode of Evaluation of Alternatives

Str

ateg

y E

lem

ent 2

Impl

emen

tatio

n of

Str

uctu

re


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Figure 4a -- Fitness Across Search Strategies

0.50

0.55

0.60

0.65

0.70

0.75

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96

Period

Fit

ness

Baseline

Integrated

Parallel

Sequential

Adaptation (Learning Curves) in the Absence of Selection

Experimental control:All search strategiesgenerate the same average long-run fitness.


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Intertemporal ReliabilityFigure 4c -- Short Wave Reliability

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Period

Co

rrel

atio

n (

t,t-

1) in

Fit

nes

s

Baseline

Integrated

Parrallel

Sequential

Figure 7 -- Long Wave ReliabilityInformation Content in Contemporanious Performance

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96

Period

co

rre

lati

on

(t,

t_a

sm

)

Baseline

Integrated

Parrallel

Sequential

Lowest Short-Wave Reliability

Lowest Long-Wave Reliability


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Selection Error RatesFigure 6 -- Selection Error Rate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Weak Selection Strong Selection

Selection Regime

Err

or

Rat

e (%

)

Baseline Integrated Parallel Sequential

Lowest long-wave reliability

Lowest short-wave reliability

Error rates a function of reliability

Error rates increase with selection intensity


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Figure 5b -- Fitness Improvement Under Strong Selection (Normailized by Baseline Search)

-50

0

50

100

150

200

250

300

1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97

Periods

Per

cen

t Im

pro

vem

ent

rela

tive

to

Bas

elin

e B

lin

d

Sea

rch

Integrated

Parallel

Sequential

Figure 4b -- Fitness Improvement Under Strong Selection(Normailized by Baseline Blind Search)

-20

-15

-10

-5

0

5

10

15

20

1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97

Periods

Integrated

Parallel

Sequential

Fitness Improvement Generated by Selection

Search strategies that generate the most reliable

learning curves lead toselection that is moreeffective at improvingaverage population

Performance.

Most Reliable Search

Least Reliable Search

PerformanceImprovement

Percent


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Figure 8 -- Selection Error Rate with History

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%


Selection Regime

Err

or

Rat

e (%

)


-2.35%

-1.22%

7.99%

6.68%

4.05%

8.53%

6.35%

4.44%

Figure 9 -- Discrete Selection Error Rate

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Selection Regime

Err

or

Rat

e (%

)


15.1%

12.2% 6.7%

15.1%

33.1%

16.7% 17.0%

30.0%

Error Rate UnderAlternative

Selection Regimes(History, Discrete)

Prior history increases selectionerror rate (reduces efficiency of Selection) with the exception of on-line search

Error exacerbated by discrete selection


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Figure 10 -- Competitive Outcomes - Demographics(versus Baseline Search Strategy)

0%

10%

20%

30%

40%

50%

60%

70%


Selection Regime

Sh

are

of

Su

rviv

ing

Po

pu

lati

on

Integrated Parallel Sequential

Competitive Consequences of Differential Reliability

Search strategies that generate the most reliablelearning curves lead are more likely to dominate the

Population of surviving firms


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Conclusion - 1 Selection is systematically error prone. Efficacy of selection is endogenous to the dynamics

of organizational adaptation. Question: Under what conditions can myopic

selection demonstrate the possibility of prospective intelligence? Selection is more effective across organizations pursuing

strategies that exhibit higher levels of intertemporal reliability.

This recognizes the fundamental interrelationship between adaptation and selection. They are not separate processes


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Conclusion - 2 Tragedy of selection

Why do inferior organizations sometimes dominate the set of survivors?

Organization choices that may enhance individual performance may in fact reduce the efficacy of selection and decrease average performance of surviving organizations. Exploration that increases average long run performance, but

also decreases reliability. Search strategy that is on average superior also provides the

least useful information to intermediate selection. Post selection, firms of this type appear to be, on average,

inferior! Selection is less effective across such strategies.


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