Most CEOs say that their employees are their company’s greatest asset. Developing employees’ strengths, skills, and knowledge is a top priority for most organizations. While some companies and professions offer—and even require—formal education such as continuing professional education and training goals, experience is generally viewed as the best teacher.
Learning “on the job” isn’t always feasible, but, fortunately, employees don’t have to rely solely on their own experiences to learn (i.e., experiential learning). They can look to others’ experiences for learning opportunities (i.e., vicarious learning). We conducted two studies to better understand how employees learn vicariously and how that type of learning compares to experiential learning.
In our first study (“Vicarious Learning Under Implicit Contracts,” The Accounting Review, July 2016), we examined vicarious learning in the context of a strategic performance measurement system such as the balanced scorecard, which translates strategic constructs (such as customer satisfaction and financial performance) into a set of causally linked performance measures (for example, customer satisfaction survey scores and operating profit). Within this context, an employee observes a peer being either promoted or demoted.
Our interest lies in the conclusions that the employees who witnessed a colleague being promoted or demoted draw about what they can do to either achieve (in the case of a promotion) or avoid (in the case of a demotion) a similar outcome. We find employees’ inferences are broader in scope after they observe a peer being demoted and are more likely to emphasize the strategic constructs contained in the strategic performance measurement system.
Psychology theory says people subjectively judge the “distance” between themselves in the here and now to other people, places, and points in time. Experiences people encounter or observe affect how they judge that distance. In our study, observing a peer’s promotion motivates employees to draw themselves “closer” to the peer and the situation, while observing a peer’s demotion motivates employees to “keep their distance.”
These differences in “distance” alter the aspects that employees consider important. When they feel closer to the peer and the situation, they focus more on how or what things are done, which in our context is reflected in the performance measures in the strategic performance measurement system. Yet when they feel more distant from the peer and the situation, they focus more on why things are done, which in our context is reflected in the strategic constructs in the strategic performance measurement system.
These results suggest that the lessons employees take from vicarious learning—and what they do with them—depend on whether the outcome they observe is positive or negative in nature.
EXPERIENTIAL VS. VICARIOUS LEARNING
Our second study compares experiential and vicarious learning and involves individuals trying to maximize the expected payoffs of a decision-making task. (This study, “Bring the Noise, but Not the Funk: Does the Effect of Performance Measure Noise on Learning Depend on Whether the Learning is Experiential or Vicarious?” will be in the June 2020 issue of The Accounting Review.)
In this study, experiential learners perform the task multiple times and receive feedback after each iteration in the form of a performance measure. In contrast, vicarious learners first observe an experiential learner perform the task and receive the same feedback before performing the task once themselves.
A critical feature of our context is the presence of a random element that affects task performance. This random element, performance measure noise, is meant to capture the potential for uncontrollable factors to affect the performance measure. This is critical because greater performance measure noise makes it harder to use the performance measure to learn the best way to perform the task.
We find experiential learners exhibit less learning as performance measure noise increases, but an increase in performance measure noise doesn’t affect vicarious learning. The relative benefits of vicarious learning depend on the level of performance measure noise. While experiential learners exhibit greater learning than vicarious learners when performance measures are relatively less noisy, vicarious learners exhibit greater learning when performance measures are relatively noisier.
This is because vicarious learners have a comparative advantage in processing information. They adopt a more holistic information-processing approach in which they consider a broader set of information, while experiential learners tend to be more short-sighted and focus on more recent information. These differences are critical because the tendency to be more short-sighted becomes more problematic as performance measures become noisier.
For example, a company collects quarterly customer satisfaction data using customer surveys. In evaluating the data and figuring out next steps, experiential learners are more likely to base decisions on data from the most recent fiscal quarter while vicarious learners are more likely to base decisions on data for the entire fiscal year.
WHICH IS BEST?
These results have important implications for a wide array of settings in which employee learning is a key contributor to company performance. One promising application relates to the development and implementation of strategies to control and improve financial performance. In this setting, as employees implement strategy through strategic initiatives and other similar actions, they learn about the effectiveness of these actions using the company’s strategic performance measurement system.
Performance measure noise is especially problematic in this setting because it makes it hard to disentangle the effects of employees’ actions and other, uncontrollable factors. Yet the results of the second study suggest that companies can overcome this by encouraging more vicarious learning.
Our two studies demonstrate that the experiences of colleagues can serve as an important source of information and facilitate employee learning. The results of our study comparing experiential and vicarious learning suggest that vicarious learning can be especially beneficial as performance measure noise increases. Whether experience is the best teacher depends not only on whose experience is being considered, but also under what conditions that experience is gained (how noisy the performance measures are).
Companies can take various steps to capitalize on the potential benefits of vicarious learning, such as developing formal systems for information sharing among employees and adopting more open office plans to encourage more spontaneous opportunities for vicarious learning.