And Now, Marchionne, Don't Yield to Superstition

Sergio Marchionne has already turned the fate of an auto makers like Fiat upside down, an ability which would seem to legitimate trying the same thing with Chrysler and even Opel and Saab, since experience is an important source of learning. But in the case of rare and complex company events, such as turnarounds, acquisitions, reorganizations, partnerships or entering new markets, trusting previous experience can turn out to be not only inefficient, but actually damaging if it allows a process of "superstitious learning," says Maurizio Zollo in Superstitious Learning in Rare Strategic Events: Theory and Evidence from Corporate Acquisitions, in a working paper from Università Bocconi's CROMA, Center for Research in Organization and Management dell'Università Bocconi, to be published in Organization Science.

During particularly complex company events, a large degree of uncertainty on the cause and effect between managerial actions and results can occur, explains Zollo. In these situations, it is easy for managers to imagine arbitrary relationships between cause and effect, positively evaluating their behavior even when it did not actually have influence and they mechanically present the same behavior again in situations that are apparently similar. Management literature calls this process "superstitious learning."

Using questionnaires given to operations managers, Zollo analyzed 167 completed acquisitions of US commercial banks, comparing the actual perniciousness of superstitious learning: the better the verdict managers give their behavior during past operations, the worse the result of subsequent behaviors. And what's more, this effect worsens as the number of previous operations increases. Those who have accumulated more experience are therefore more exposed to the danger of superstitious learning. In addition, the problem is more severe in large companies.

The good news is that superstitious learning can be avoided or limited by a variety (compared to a simple quantity) of previous experiences and by the formalization of learning processes.

A wide variety of previous experiences, suggests Zollo, corresponds with less procedureroutinization. The company takes less for granted and begins a more rigorous problem solving process. In addition, the formalization of learning processes is helpful because it contributes to defining situations more clearly, lessening the degree of uncertainty inherent in these kinds of strategic decisions.