Learning Something New... Without Forgetting the Old

Kristin Wilson and Scott Rockart have published an intriguing paper titled, "Learning in Cycles."  In this article, the scholars examine how firms learn and adapt over the course of business cycles.  They examine a critical challenge that organizations face as they encounter cycles.  Firms must learn and apply new lessons and skills at different points in a business cycle, but they must not forget old lessons and capabilities... as they may need them again in the future as the cycle changes once more.   In a feature on Duke's Fuqua Insights web page, Rockart explains some of their findings:  

“What people learn, and what people need to do well, differs at different points of a cycle,” Rockart said. “Imagine you’re a waiter, and during the week you are working with families, taking time over a meal, whereas on the weekends your customers are college kids looking to party. In order to be a good waiter during the week, you introduce yourself, you take time to talk, but on the weekends you are moving fast and not spending as much time with each customer. The waiter knows they need to act differently in those different settings. They’re constantly being reminded because the cycle is so fast.”

But at firms, Rockart said, these cycles can last years.   “So it’s very easy for individuals to forget what they used to know, and even more importantly, to lose confidence in the importance of what they used to know,” he said. “If you’re a manufacturer, when things are booming, you need to make sure you can get supplies, hire workers, and expand a factory. During a downturn you may have to do very different things: make sure your customers won’t fail on credit; that your inventories are lean and your costs are controlled; and reduce your workforce.”

I think the finding is particularly important because we often hear that managers must "unlearn" old behaviors and ideas as they learn and adapt to new competitive realities.  Yet, this research shows that can't discard our learning completely.  Some of those lessons, skills, and capabilities will be useful again as business cycles change. How can we learn without completely forgetting? It's a fascinating challenge for many leaders. This work reminds me of a memorable quote from F. Scott Fitzgerald, who once said, "The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function."

Adaptation in Global Strategy

We've been discussing different types of globalization strategy with my students here in France.  We read Pankaj Ghemawat's classic article in which he discusses three different types of global strategy: adaptation, aggregation, and arbitrage.  Adaptation is when firms modify their strategies and products/services as they move to different markets around the world.   Aggregation is when firms standardize their products/services, striving to exploit global economies of scale.  Arbitrage is when firms try to take advantage of factor market differences across nations, so that they can achieve cost efficiencies (e.g., outsourcing to low cost labor nations).   Ghemawat argues that firms must choose which of these strategies will be their priority.  He also argues that it's difficult to pursue all three strategies with equal emphasis, as these distinct strategies require quite different organizational structures and processes.  

We compared two interesting case studies this week in class.  On Wednesday we examined L'Oreal, a French company that has expanded successfully across the world.  L'Oreal has pursued an aggregation strategy, selling a product developed in one nation across many markets around the world... while marketing it often quite explicitly with the home nation branding and positioning. For instance, L'Oreal acquired the Maybelline brand and sold it through an "American beauty" positioning in markets around the world.  Likewise, the sold the L'Oreal brand with a positioning of "Parisian or French beauty" across the world.  By contrast, Thursday's case focused on a firm that has emphasized adaptation in its global strategy.  We analyzed how Canadian-based hotel firm Four Seasons came to Paris.  They had to adapt in order to succeed in the French market. 

I see two lessons from this interesting comparison between L'Oreal and Four Seasons.  First, Four Seasons did indeed adapt, yet they were quite explicit about the core practices and values that would remain constant.  That enabled them to protect their brand and their organizational culture.  Before firms embark on global adaptation strategies, I believe that it's quite useful to outline explicitly what the "non-negotiables" are... i.e., what are the core standards and values that will be applied globally.  That helps protect the brand, and it minimizes conflict between the home office and the local country managers, since everyone understands what the core beliefs are.  

Second, I think the L'Oreal case illustrates that certain products are more conducive to an aggregation strategy.  In other words, some products don't need to be adapted substantially when sold around the world.  In fact, global consumers don't want the product to be adapted.   For instance, consumers around the world want to buy French luxury goods, Heineken beer, etc.    The country of origin conveys a premium image that enables the firm to sell their goods globally at a premium price.  Some other goods and services simply are not conducive to such global expansion.  They require adaptation; firms have no choice.  Many food categories, for instance, fall into this category.