An Evolutionary Model of Organizational Performance

Organizations vary in how well they perform. This can be due to differences in their strategic positions and to differences in their competitive abilities. We propose an evolutionary model in which there is a trade off between these two sources of advantage. In a naive evolutionary model, competition triggers both selectionand learning — leaving organizations with the capabilities to perform better. However, managers often buffer their organizations form the disciplining forces of selection by seeking out positional advantages in the market. We argue that when this is done using multi-unit structures, market position improves but organizational learning is retarded. Consistent with this view, we find that after controlling for selection, single-unit organizations benefit today from being exposed historically to competition — evidence of learning — while large, ,ulti-unit organiztions do not. Multi-unit organizations instead benefit form mutual forbearance, a positional advantage. The findings come from a dynamic analysis of takeovers and performance among retail banks in Illinois. Implications for the study of strategic evoultion are discussed.