Rubik's dilemma: partial knowledge and the efficacy of learning

Abstract

Does superior knowledge today engender enhanced learning and superior performance in the future? While popular managerial wisdom might typically answer in the affirmative, the strategy literature is circumspect, pointing to the benefits of knowledge for future performance, but also to costs such as competency traps and cognitive rigidities. We argue that opposing views on the implications of knowledge derive from the fact that knowledge has not one, but two mechanisms by which it alters future firm performance: an endowment effect because it enhances the efficacy with which new knowledge is accumulated, and a behavioral effect because it alters the search strategy a firm employs in seeking to build upon and supplement its prior knowledge. Consider a firm endowed with partial knowledge good answers to a subset of problems within a larger multi-dimensional problem. The firm naturally focuses its search on the dimensions of the problem for which it does not have solutions. Using a computational model, we examine the efficacy of this focus heuristic and implications of initial knowledge for future performance. By considering the dual consequences of knowledge, our theory is able to reconcile opposing accounts of the benefits of initial knowledge. Specifically, we identify conditions under which initial knowledge is negatively or positively correlated with future performance.