Organizational learning and the evolution of firms’ competitive advantage

Abstract

How do firms manage timing and transitions when changes occur in the level of their competitive advantage? This study explores the relationship between firms’ organizational learning and the evolution of their competitive advantage to ascertain when a firm should switch between exploitation and exploration learning as its competitive advantage changes. This study utilizes a sample of Tech 100 in Taiwan from 2000 to 2013 to test our arguments. The findings suggest that firms invest more resources in exploitation to build and sustain their competitive advantage. Conversely, they invest more resources in exploration when their competitive advantage faces erosion. The results indicate that firms adopt a punctuated equilibrium learning pattern, which balances the transition between exploration and exploitation over time to enable the adaptation to highly competitive environments. Furthermore, firms must take precautions to not fall into the success trap caused by excessive exploitation but should rather strengthen their abilities to conduct effective exploration in organizational learning. These findings offer important advances to our understanding of the competitive advantage evolution of firms’ organizational learning.