Effect of Delays on Complexity of Organizational Learning

Abstract

We examine how delays between actions and their consequent payoffs affect the process of organizational adaptation. Formal conceptions of organizational learning typically include the assumption that payoffs immediately follow their antecedent actions, making the search for better strategies relatively straightforward. However, previous actions influence current organizational performance through their effects on organizational resources and capabilities. These resources and capabilities cannot be modified instantly, so delays—from actions to changes in resources and capabilities to altered organizational performance—are inevitable. Our computational experiments show that delays increase learning complexity and performance heterogeneity through two mechanisms. First, complexity of state-space and, therefore, of learning grows exponentially with delay length. Second, the time required to experience the benefits of long-term strategies means the intermediate steps of those strategies are initially undervalued, prompting premature abandonment of potentially fruitful regions of the strategy space. We find that these mechanisms often cause organizations to converge to suboptimal, routine-like cycles of actions, based on organizations' continually updated cognitive maps of how actions influence payoffs. Furthermore, the evolution of these cognitive maps exhibits path dependence, leading to heterogeneity across organizations. Implications for overcoming temporal complexity and the impact of initial cognitive maps are discussed.