The Origins of Firm Strategy: Learning by Economic Experimentation and Strategic Pivots in the Early Automobile Industry

Strategic Management Journal, Forthcoming

Bocconi University Management Research Paper

44 Pages Posted: 11 Nov 2019

See all articles by Sandeep Pillai

Sandeep Pillai

Bocconi University - Department of Management and Technology

Brent D. Goldfarb

University of Maryland - Robert H. Smith School of Business

David Kirsch

University of Maryland

Date Written: September 19, 2019

Abstract

We explore the effectiveness of economic experimentation as a learning mechanism through a historical exploration of the early automobile industry. We focus on a particular subset of economic experiments, called strategic pivots, that requires irreversible firm commitments. Our quantitative analysis suggests that strategic pivoting was associated with success. We then use historical methods to understand whether this association is reasonably interpreted as a causal link. We identify lessons that could only plausibly have been learned through strategic pivoting and document that those firms that were able to learn from the strategic pivots were most likely to succeed. We discuss the generalizability of our findings to build the hypothesis that strategic pivots and economic experiments originate firm strategy.

We explore the effectiveness of experimentation as a learning mechanism through a historical exploration of the early automobile industry. We focus on a particular subset of experiments, called strategic pivots, that requires irreversible firm commitments. Our analysis suggests that strategic pivoting was associated with success. We identify lessons that could only plausibly be learned through strategic pivoting and document that those firms that were able to learn from the strategic pivots were most likely to succeed. Even though firms may use lean techniques, market solutions may only be discovered through with strategic pivots whose outcomes are unknowable ex-ante. Therefore, successful strategies reflect an element of luck.

Keywords: Learning by Economic Experimentation, Strategic Decisions, Lean Startup, Strategic Pivot, Automobile

Suggested Citation

Pillai, Sandeep and Goldfarb, Brent D. and Kirsch, David, The Origins of Firm Strategy: Learning by Economic Experimentation and Strategic Pivots in the Early Automobile Industry (September 19, 2019). Strategic Management Journal, Forthcoming, Bocconi University Management Research Paper, Available at SSRN: https://ssrn.com/abstract=3484764 or http://dx.doi.org/10.2139/ssrn.3484764

Sandeep Pillai (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Brent D. Goldfarb

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-9672 (Phone)
301-314-8787 (Fax)

David Kirsch

University of Maryland ( email )

College Park
College Park, MD 20742
United States

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