The Red Queen in Organizational Creation and Development*

We propose a synthesis of organization learning theory and organizational ecology. We argue that organizations learn in response to competition. This learning then intensifies the competition generated by each organization against its rivals, motivating rivals to learn, thereby becoming stronger competitors. In turn, this response increases the competitive pressure faced by each organization, again triggering a learning response. This self-exciting dynamic, sometimes referred to as the “Red Queen” in general evolutionary theory, has been shown to influence organizational survival chances in predictable but competing ways. In this paper, we develop the model to explain organizational founding and growth rates among the thousands of retail banks that have operated in Illinois at any time from 1900-1993. We find strong evidence that Red Queen evolution led some organizations to grow quickly and to place strong competitive pressure on rivals. Red Queen evolution also helped establish barriers to entry. Nevertheless, this same evolutionary process appears to make organizations more susceptible to “competency traps,” ultimately slowing their growth rates. Overall, the results suggest that observed size distributions of firms emerge from ecologies of learning organizations. More generally, we discuss the use of ecological theory and models in order to study the empirical consequences of organizational learning. The Red Queen in Organizational Creation and Development How do organizations develop over time? Some of the earliest work in organizational sociology addresses this question (Blau, 1955; Stinchcombe, 1965), and it remains the central focus of two vital research areas. The literature on organizational learning focuses on processes of organizational development, and on the adaptive and maladaptive consequences of these dynamics (March, 1988). Meanwhile, organizational ecology seeks to understand the dynamics of organizational founding, growth, change, and failure in a variety of contexts over long periods of time (Hannan and Freeman, 1989; Hannan and Carroll, 1992). Comparing these schools of thought, it is striking how distinct each has remained from the other. If one listed the most significant theoretical developments in learning theory, rarely, if ever, would one find mention of ideas or findings from organizational ecology. Similarly, nearly every major empirical finding in organizational ecology can be explained without recourse to organizational learning theory – the exception being duration-dependent models, arguably the least “ecological” findings in that literature. Due to this theoretical divide, our understanding of how organizations develop depends greatly on which of the two leading dynamic perspectives we choose: learning theorists point to processes of internal organizational development, while ecologists point to interdependencies among organizations. Although each of these theoretical approaches has made considerable progress on its own, we believe the combination of these two perspectives can provide powerful new insights into organizational dynamics. We propose such a synthesis here and advance two propositions that create a complementary link between learning theory and organizational