How Long Does It Take to “Get to” the Learning Curve?

The learning curve describes learning from experience, even in its earliest phases, as an iterative process in which the ratio of positive to negative outcomes rises sharply with experience before becoming subject to diminishing returns. In contrast, the organizational learning literature suggests that learning when experience is limited is difficult, and unfavorable outcomes are common. Resolution of these competing claims is especially important in the context of strategic decision-making, where the costs of unreliable learning are significant. We develop theory and draw on a unique dataset of strategic decisions – the selection of franchisee applicants by a large global remittances firm over a 14-year period – to test competing predictions about how long it takes to “get to” the learning curve: that is, to the point after which performance trends reliably positive. Results from 3,620 selection decisions in 165 markets indicate that it took about 19 decisions per market to reach the learning curve. Furt...