Selection-based learning: The coevolution of internal and external selection in high-velocity environments

To understand the effects of selection on firm-level learning, this study synthesizes two contrasting views of evolution. Internal selection theorists view managers in multiproduct firms as the primary agents of evolutionary change because they decide whether individual products and technologies are retained or eliminated. In contrast, external selection theorists contend that the environment drives evolution because it determines whether entire firms live or die. Though these theories differ, they describe tightly interwoven processes. In assessing the coevolution of internal and external selection among personal computer manufacturers across a 20-year period, we found that (1) firms learned cumulatively and adaptively from internal and partial external selection, the latter occurring when the environment killed part but not all of a firm; (2) internal and partial external selection coevolved, as each affected the other's future rate and the odds of firm failure; (3) partial external selection had a greater effect on future outcomes than internal selection; and (4) the lessons gleaned from prior selection were reflected in a firm's ability to develop new products, making that an important mediator between past and future selection events.