Learning from No Experience: How Firms Handle an Unprecedented Crisis

“Learning from experience” describes a process that underlies many of our essential skills. I am grateful that I was made to practice driving before getting my driver’s license, and grateful that others did too. By the same token, most people would worry about how they might respond to a critical situation that they had never seen. I was in Tokyo during the 2011 Tohoku earthquake (Magnitude 9) and was pleased with myself after coping with the shaking building and two small kids and knowing when and how to evacuate. Still, I can imagine other surprises that I would handle less well.

Similarly, firms sometimes encounter a completely new crisis. How do they handle it? I looked for answers in research published in Strategy Science onhow the airline industry responded to the COVID-19 crisis and the suddenrestrictions on mobility. This was a pandemic the likes of which the world had not seen since the 1917-1918 Spanish Flu, long before the airline industry existed. The best solution was timely storage of many aircraft and scrapping of others, but this was a difficult decision to make. Would the data show evidence that some airlines handled the crisis better than others because of learning? Surprisingly, the answer was yes.

Understanding why this happens requires taking a broader view of learning. The airlines had never seen nation states shutting down mobility, including air traffic, in response to a pandemic, but some of them had experienced abrupt reductions in demand before. The 9/11 attack led to a big drop in air travel in the USA, and the Financial Crisis had a similar effect in most rich countries. Airlines in any of those places at the time of the crisis, but not those that were founded later, responded better to the pandemic. Their current leadership could draw from stories about the old crisis and their good and bad responses, including those of their competitors at the time. They learnt from history.

Equally important, airlines that were in regions that were hit hard by the crisis also responded well, and not just by imitating their nearby peers. Observing a severe crisis allowed them to understand many different actions taken by their peer firms, accelerating their learning and allowing better responses. We often refer to such learning as bricolage, because the executives were picking up many pieces of information and putting them together to form better decisions. They learnt from diversity.

Learning from experience is not just learning from taking the same action repeatedly, and from facing the same situation repeatedly. Firms learn from history and diversity in ways that involve more consideration, and such learning allows some firms to perform better than others.

Greve, Henrich R. 2024. Airline Responses to the COVID Collapse:Applying Learning to an Unprecedented Crisis. Strategy Science, forthcoming.