In this paper, we explore how a firm's reputation affects both the reaction of the market to that firm's product defects, as well as the firm's learning response. In contrast to a variety of arguments set out by information economists and market sociologists claiming that reputation serves as an organizational asset, we explore the possibility that reputation can be an organizational liability. We propose that a good reputation is less advantageous than a poor reputation in absorbing the impact of product defects, and thus high reputation firms are more likely to be punished by the market. We also propose, however, that this liability is transformed into a future asset by providing high reputation firms with more incentives to learn from these mistakes, and thus reduce their subsequent defect rate. Low reputation firms are also incented to learn, which means that moderate-reputation firms are likely to have the greatest problems learning from these defects. We empirically test these propositions using data on product recalls in the U.S. automobile industry from 1975 to 1999, and find support for predicted relationships. High reputation firms are punished more than low reputation firms, and learning from product recalls has an inverted U-shaped relationship with firm reputation. We conclude with a discussion of the implications of these results for learning and organizational status/reputation theories.

What is the role of volition in organizational learning? Do firms learn better in response to internal procedures or external mandates? Existing literature provides conflicting answers to this question, with some theories suggesting that volition is important for learning because autonomy increases commitment and problem analyses, whereas external mandates tend to produce defensive reactions that are not coupled to the organization in any useful way. Yet, other theories suggest that mandate is important for learning because external pressures act as jolts that help overcome organizational inertia, resulting in deep exploration of problems to prevent future surprises. We investigate this issue in the context of automakers learning from voluntary versus involuntary product recalls. Using data on all recalls experienced by automakers that sold passenger cars in the United States during the 1966--1999 period, we follow the learning-curve tradition in investigating the effects of voluntary and involuntary recalls on subsequent recall rates. We find that voluntary recalls result in more learning than mandated recalls when learning is measured as a reduction in subsequent involuntary recalls. This effect is at least partly because of shallower learning processes that result from involuntary recalls. The effect of volition, however, is different for generalist and specialist automakers. The results of this study suggest an important, yet understudied, determinant of the rate and effectiveness of learning---volition. The results also add to our knowledge of the different learning processes of generalist and specialist organizations.organizational learning, volition, generalism, product recalls

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We explore the contextual factors surrounding reputation damage and their potential implications for reputation repair. We propose a model that examines how (1) the multidimensional property of reputation, (2) organizational age, (3) the diversity of market segments served by the organization, and (4) third parties influence a firm's perceived capability to cope with a reputation-damaging event and the external visibility of the event, which, in turn, determine the difficulty of the firm's reputationrepairing activities.

This article proposes that specific features of environmental dynamism and the notion of internal variety should be taken into consideration in response to caveats in prior research on choice or balance between exploration and exploitation and its implications for organizational performance. The study extends March's exploration-exploitation model by (1) conceptualizing and varying two dimensions-amplitude and frequency-of environmental dynamism and (2) articulating the notion of internal variety in an organization. Results from the simulation models show how a combination of organizational practices shapes internal variety, which in turn influences an organization's level of knowledge over time amid a changing environment.The study's findings suggest that the level of internal variety, along with the mechanisms by which each practice influences internal variety, affect adaptations of organizational knowledge. Managing internal variety through a combination of strong complementary practices, rather than anchoring on moderate levels of those practices, can achieve the balance between exploration and exploitation.