Tacit Knowledge as a Source of Competitive Advantage in the National Basketball Association

Author(s): Shawn L. Berman, Jonathan Down and Charles W. L. Hill

Reviewed work(s):
Source: The Academy of Management Journal, Vol. 45, No. 1 (Feb., 2002), pp. 13-31
Published by: Academy of Management
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? Academy of Management Journal
2002, Vol. 45, No. 1, 13-31.

TACIT KNOWLEDGEAS A SOURCEOF

COMPETITIVEADVANTAGEIN THE NATIONAL
BASKETBALLASSOCIATION
SHAWN L. BERMAN
Santa Clara University

JONATHAN DOWN
Oregon State University

CHARLES W. L. HILL
University of Washington

In this study, we investigate a central tenet of the resource-based view of the firm-that
tacit knowledge often lies at the core of sustainable competitive advantage-and
attempt to articulate it with greater theoretical precision than has been done previ-
ously. Using data from the National Basketball Association, we find support for a
predicted positive relationship between shared team experience and team perfor-
mance that declines as shared experience grows, eventually becoming negative. The
implications of this study for non-sports-related firms are discussed along with sug-
gestions for future research.

Over the last decade or so, the resource-based
view of the firm has emerged as a major paradigm
in the strategic management field (Barney, 1991;
Conner, 1991; Wernerfelt, 1984). At its most basic
level, the resource-based view of the firm is built
upon a number of straightforward propositions.
One is that firms differ as to their resource endow-
ments. A second is that resource heterogeneity
gives rise to differential performance. More specif-
ically, valuable and rare resources are theorized to
result in superior performance-an idea that dates
back to David Ricardo. A third proposition is that
superior performance may persist for a significant
period of time if isolating mechanisms protect the
valuable and rare resources from imitation or dif-
fusion (Rumelt, 1987). Isolating mechanisms in-
clude high barriers to imitation and an inability to
separate out resources for sale through the market
mechanism (Barney, 1986).
As the theory has developed, many authors have
drawn on the work of Nelson and Winter (1982) to
The helpful comments of John Butler, Colin Camerer,
Philip Cochran, Jeri Coles, Pete Frost, Robert Jacobson,
Edwin Locke, Timothy Rowley, Tim Simin, and the AMI
reviewers are appreciated. We also benefited from pre-
senting the paper at seminars at the University of Florida
and Santa Clara University. Previous versions of this
research were presented at the 1997 Western Academy of
Management conference and the 1998 National Academy
of Management conference.
13
argue that socially complex tacit knowledge that is
diffused throughout a firm can constitute a valu-
able intangible resource (Barney, 1991; Reed & De-
Fillippi, 1990). Similar arguments concerning the
role of tacit knowledge as source of competitive
advantage have been articulated by Lippman and
Rumelt (1982), Kogut and Zander (1993), Teece
(1982), and Teece and Pisano (1998). These authors
have theorized that tacit knowledge is difficult to
imitate and all but impossible to codify. Because it
cannot be codified, tacit knowledge cannot be sep-
arated out for sale through the medium of the mar-
ket mechanism. In other words, when tacit knowl-
edge leads to high performance, resource-based
scholars propose, such high performance can be
sustained for some time.
Building upon the resource-based view of the
firm and its allied literature on core competencies,
dynamic capabilities, and organizational routines,
in this article we too theorize that tacit knowledge
often lies at the core of the sustainable competitive
advantage enjoyed by many organizations. Al-
though this point is a persistent theme in the liter-
ature on the resource-based view of the firm, we
attempt to articulate it with greater theoretical pre-
cision than hitherto. In doing so, we make the fol-
lowing arguments: First, that there are two types of
tacit knowledge-individual tacit knowledge and
group- or team-based tacit knowledge. Second, we
evoke Weick and Robert's (1993) concept of the
collective mind to explore the notion of tacit
14 Academy
knowledge that is collectively held by a group of
individuals, any one of whom only has access to a
part of the overall stock of collective knowledge.
Third, we argue that the stock of tacit knowledge is
a function of learning effects. The stock of tacit
knowledge accumulates through time as an indi-
vidual learns a particular skill, or as members of a
group or team learn to interact with each other.
Fourth, we argue that such learning effects are sub-
ject to diminishing returns with respect to time:
tacit knowledge accumulates at a diminishing rate.
Finally, we theorize that in the group or team con-
text, the value of a stock of tacit knowledge may
begin to decay after a period of time, owing to what
we refer to as knowledge ossification. As a result,
we postulate, past some point diminishing returns
to cumulative experience may be replaced by neg-
ative returns. Up to a point, the accumulation of a
stock of tacit knowledge improves performance,
albeit at a diminishing rate; but after some point,
increasing knowledge ossification sets in, and per-
formance may actually decline with greater cumu-
lative experience. Thus, we postulate an inverted
U-shaped relationship between the stock of tacit
knowledge accumulated through experience and
the performance of a group.
Testing the resource-based view of the firm has
turned out to be a difficult endeavor (Godfrey &
Hill, 1995; McGrath, MacMillan, & Venkataraman,
1995; Miller & Shamsie, 1996; Rouse & Daellen-
bach, 1999). One problem is that a key construct,
tacit knowledge, is by definition unobservable
(Godfrey & Hill, 1995; Winter, 1987). Indeed, if tacit
knowledge could be measured directly, it could
also be codified, and therefore, it would no longer
be tacit! To confront this problem, we used data
from the National Basketball Association (NBA) to
construct a measure that taps into team-based tacit
knowledge. The measure is based upon the cumu-
lative experience that members of a team have play-
ing with each other. In the following sections, we
argue that this measure is a reasonable proxy for the
stock of tacit knowledge at the team level. We then
explore how this measure is related to team perfor-
mance. We hypothesize an inverted U-shaped rela-
tionship between cumulative experience and team
performance. As cumulative experience rises, so
does the stock of team-based tacit knowledge. Al-
though this knowledge has value and can help a
team win more games-that is, to gain a competi-
tive advantage-past some point knowledge ossifi-
cation sets in. As this occurs, the value of the stock
will begin to decline, and the relationship between
cumulative experience and team performance will
turn from positive to negative.
Our choice of empirical testing ground follows
of Management Journal February
the lead of several researchers who have made ef-
fective use of comprehensive data on sports teams
to draw out useful implications for a broad range of
organizations. Notable examples using a basketball
setting include Staw and Hoang (1995), who tested
theory regarding the escalation of commitment by
examining the role of sunk costs in managerial
decision making, and Pfeffer and Davis-Blake
(1986), who explored issues relating to administra-
tive succession. The use of sports data offers many
advantages for testing organizational theories, and
much can be learned from this setting.
THEORY AND HYPOTHESES
Tacit knowledge is knowledge that is not codi-
fied. If it could be codified, then it would no longer
be tacit knowledge; it would have become explicit
knowledge. It is possible to convert some tacit
knowledge into explicit knowledge (Nonaka &
Takeuchi, 1995), but much tacit knowledge is dif-
ficult, if not impossible, to codify and can never be
made explicit. Accordingly, tacit knowledge can-
not be taught by reading manuals or listening to
lectures; it must be learnt through experience. As
articulated by a scientist turned philosopher,
Michael Polanyi, whose work has had a profound
influence on subsequent expositions of the con-
cept, tacit knowledge involves the training of per-
ception in such a way that the individual "discov-
ers by an effort of his own something that we could
not tell him. And he knows it then in his turn but
cannot tell it" (Polanyi, 1969: 142).
Individual Tacit Knowledge
At the level of an individual, the concept of tacit
knowledge is closely related to the concept of skills
(Nelson & Winter, 1982; Polanyi, 1969). It is tacit
knowledge that a great baseball player uses when
hitting a home run. In a remarkable feat, the player
uses a narrow rounded surface to hit a small ball
traveling in a curved line at close to 100 miles an
hour hurled from just 60 feet away. The feat is
made all the more remarkable by the fact that the
response time the eye needs to register the trajec-
tory of a ball once it leaves the pitcher's hand and
send a signal to the brain, and for the brain to send
a signal down the nerve pathway to the arm to
instruct it to move, is roughly equivalent to the
time it takes for the ball to travel to the point where
the bat connects with it. This implies that the batter
must have begun his stroke before the ball left the
2002 Berman, Down, and Hill
pitcher's hand. He must have anticipated the tra-
jectory and speed of the ball.1' 2 How can this be?
The answer is that through cumulative experi-
ence, having faced hundreds of pitchers in many
different settings, the batter has amassed the tacit
knowledge required to read the signs and anticipate
the trajectory and speed of the ball. The look in a
pitcher's eyes, the placement of his feet, the curve
of his arm, the bead of sweat on his brow, these are
the signs that the batter has learnt through experi-
ence to read and interpret. He does this not in a
conscious fashion, but in a wholly unconscious
process that enables him to begin his swing before
the ball has left the pitcher's hand. Indeed, there is
not the time for conscious thought. What the batter
is recognizing is a pattern or gestalt. He uncon-
sciously adjusts his stroke in line with this pattern.
Ask the batter to explain how he does this, and he
would be at a total loss. It is not explainable, but it
has a real, observable effect, for the bat connects
with the ball far more often than would be pre-
dicted on the basis of pure chance. This example
suggests some important things about tacit knowl-
edge: it involves pattern recognition, it is acquired
through cumulative experience, it operates uncon-
sciously in the background, it is difficult if not
impossible to articulate, and it forms the basis of
valuable individual human skills-from hitting a
baseball to playing chess or writing a computer
program.
Group Tacit Knowledge
So far we have been discussing individual tacit
knowledge; but what about group- or team-based
tacit knowledge? Is there such a thing? What form
1 A professional baseball pitcher hurls the ball at about
100 mph (44.7 meters/second). The distance from the
pitcher's mound to the batter is 60 feet (20 meters). Thus,
the total time it takes the ball to arrive from the pitcher's
mound is 0.4 seconds. The minimum delay between the
onset of target movement and initial motions the human
eye is about 0.1 seconds. The delay between recognized
eye motions and motor output at the level of an arm or a
leg is about 0.2-0.3 seconds. Thus, there are between 0
aild 0.1 seconds to judge the trajectory of the ball and the
motion of the bat to have the two intersect. If the path is
not detectable until the ball has traveled about 50 percent
of the path, classic circuit analysis cannot easily explain
hits. (We are indebted to Professor Tom Daniel, a neuro-
biologist at the University of Washington, for these data).
2 Given professional baseball's limitation to male play-
ers, we use masculine pronouns here. We also do so later
in this article, when referring to players in the all-male
NBA.
15
does such knowledge take? Where is it stored, and
how is it accessed? Weick and Roberts (1993),
drawing on prior work by Wegner and his associ-
ates (Wegner, 1987; Wegner, Erber, & Raymond,
1991; Wegner, Giuliano, & Hertel, 1985), have pos-
tulated that knowledge relating to group activities
may be stored in something akin to a "collective
mind." The essence of this argument is this:
People in close relationships enact a single transac-
tive memory system, complete with differentiated
responsibility for rememberingdifferent portions of
common experience. People know the locations
rather than the details of common events and rely
upon one another to contribute missing details that
cue their own retrieval.... Transactivememory sys-
tems are integrated and differentiated structures in
the sense that connected individuals often hold re-
lated informationin differentiatedlocations. (Weick
& Roberts, 1993: 358)
For illustration, envisage a complex task that
must be accomplished rapidly and requires coordi-
nated action and mutual adjustment among a num-
ber of individuals in order for it to be executed with
precision. An example would be the coordination
(integration) required between eight individuals on
a large sailing boat to simultaneously change a fore-
sail while rounding a mark in rough seas during a
close race. As anyone who has been in such cir-
cumstances knows all too well, this is a complex
situation in which a simple error can rapidly mag-
nify into a major adverse event unless all partici-
pants not only perform their ascribed tasks, but also
adjust rapidly to the way in which others are per-
forming their tasks and to unpredictable events,
such as a large wave, a momentary lull in the wind,
or the tactics of other boats. Each individual has a
role that he or she is assigned to-there is a helms-
man; a tactician; a foredeck hand; halyard men,
who let down and raise the sails; and sheet men,
who let out and pull in the foresail. Each individual
lacks the full knowledge required to undertake the
roles of others on the boat and is not in the appro-
priate position to do so. Thus, the knowledge re-
quired to perform this complex task is diffused
among the individuals, each of whom has a differ-
ent responsibility. In its totality, the knowledge
required to perform the task does not reside in the
head of any single individual. Each individual pos-
sesses but a part of the whole. Nor is the knowledge
purely technical. It has an important interpretative
component. The effectiveness with which individ-
uals perform their prescribed tasks is contingent
upon their interpretation of how others are simul-
taneously performing their tasks while adjusting to
unpredictable environmental events, such as wind
16 Academy
gusts, wave flows, and the position of other boats.
Thus, a constant process of mutual adjustment and
synchronization is required for the collective task
to be executed with precision.
The knowledge required for a team to perform
such a task with a relatively low error rate requires
practice with each other. It is experiential. Take a
collection of highly skilled individuals who have
never sailed together, put them on a boat in a chal-
lenging race situation, and the odds are that signif-
icant errors will impede their performance. With-
out the experience of working with each other, the
individuals will not have had the chance to con-
struct the interpretative cognitive schemata- or
patterns-required for successful mutual adjust-
ment.
We submit that experiential group knowledge of
this nature must be tacit for two reasons: First, the
group's related pattern-recognition capability that
each individual draws upon is itself an uncon-
scious and difficult-to-articulate skill. As with the
hitter in a baseball game, events occur too rapidly
for conscious thought, and the large number of
variables that enter into split-second decisions im-
ply a level of complexity and unconscious acquisi-
tion and processing of information that defies cod-
ification. Second, since each individual has only
one component of the overall knowledge base, no
one individual, or indeed, no one subset of those
individuals, is in a position to describe the knowl-
edge in its totality. Put differently, knowledge that
is both dispersed and embedded within a network
of social relations by its very nature tends to be tacit
(Nelson & Winter, 1982). Thus, just as knowledge
embedded within an individual mind has a tacit
component, so knowledge embedded within a col-
lective mind also has a tacit component.
In sum, group knowledge is stored in a collective
mind, which can be defined as the combination of
individual cognitive schemata, patterns, or gestalts
acquired through mutual experience and expressed
through unconscious synchronicity of action when
the group is confronted with complex tasks that
must be performed within the context of a challeng-
ing environment. Although some of this knowledge
base can be rendered in an explicit form as a kind of
playbook, much of it, we submit, is in a tacit form.
It is difficult-to-articulate and socially diffused
knowledge. The utility of this knowledge is contin-
gent upon the context within which it is used. It
depends upon there being a relatively stable collec-
tion of members within the group. Other things
being equal, high turnover in a group will disrupt
the ability of members to draw upon experientially
constructed schemata in order to operate in a syn-
chronous fashion.
of Management Journal February
Learning Effects and Knowledge Ossification
As noted earlier, group knowledge does not
emerge fully formed the moment a group is consti-
tuted. Since such knowledge is acquired through
shared experience, a learning process must be at
work. Clearly, the utility or value of a group's
knowledge will initially increase as members of the
group acquire the experience required to construct
the patterns or schemata needed for synchronicity.
In the language of the resource-based view of the
firm, valuable resources may be viewed as stocks of
assets that are accumulated over time with experi-
ence (Dierickx & Cool, 1989). Thus, the stock of
tacit knowledge that underlies the collective mind
is accumulated over time with experience. There
are reasonable theoretical and empirical grounds,
however, for believing this learning or accumula-
tion process to be nonmonotonic in form, so that
the stock of valuable group knowledge is subject to
diminishing and ultimately negative returns to cu-
mulative experience over time. This view suggests
an inverted U-shaped relationship between the
value of group knowledge and cumulative experi-
ence. Why would this occur?
First, if technology is held constant, there is
clearly a limit to the knowledge that can be accu-
mulated about any activity or process. Anyone who
has performed a repetitive task will be familiar
with the phenomenon. Initially, repetition leads to
rapid improvements in productivity as an individ-
ual or a group learns to perform the task more
efficiently. However, after a time, much of what
there is to learn has been learned, and learning-
based improvements in productivity begin to de-
cline, reflecting diminishing returns. Over the last
half-century, the phenomenon has been well doc-
umented empirically, perhaps most extensively in
the concept of learning curves in manufacturing
processes such as airframe manufacture (Alchian,
1963; Hall & Howell, 1985; Lieberman, 1985).
These curves show that unit costs decline by some
characteristic amount each time cumulative pro-
duction is doubled, in part because of learning
effects. The functional form of the empirical rela-
tionships observed in such studies implies that
there are diminishing returns to the cumulative
experience associated with performing a particular
activity or task.
The same basic learning phenomenon has been
observed at a more micro level. For example, in a
study of 45 process improvement teams in the elec-
tronics industry, Pelled, Eisenhardt, and Xin (1999)
found a significant, positive correlation between
shared experience and group performance. Their
explanation of this finding is that shared experi-
2002 Berman, Down, and Hill
ence allows group members to learn about the di-
verse perspectives of other members, which in turn
leads to a more effective group. Katz (1982) found a
similar relationship between shared team experi-
ence and team performance in a study of 50 R&D
teams. As he concluded:
The upward slope in performanceprobably reflects
the positive effects of learning and team building as
new project members contribute fresh ideas and ap-
proaches while also developing a betterunderstand-
ing of each other's capabilities, of the technologies
involved, and of their working relationships. Such
positive effects, however, appear to taper off for
teams whose members have continued to work to-
gether for a long period of time. (Katz, 1982: 98)
Katz's work is most interesting in terms of the
present context, for it clearly suggests rapid learn-
ing once a new group has been formed, followed by
a tapering off as the group's members learn much of
what there is to learn about each other and their
mode of operating. Put differently, in an initial
learning period the collective mind emerges; sche-
mata are formed, backed by a stock of tacit knowl-
edge; and a level of synchronicity is attained. After
this, modifications may be made to core schemata
on the basis of further experience, but the basic
patterns are probably set.
Herein lies the germ of an explanation not only
for diminishing returns, but also for the possibility
of negative returns to cumulative experience over
time. Once a collective mind has coalesced around
a set of interdependent individual schemata, it may
be progressively more difficult to alter them. Put
differently, a knowledge ossification process oc-
curs. Thought process and schema become routin-
ized around a taken-for-granted way of interacting.
For someone faced with a constant, albeit complex,
environment, this is by no means a bad thing. The
routinization might well limit variation, which in
many contexts is a highly desirable attribute, as in
Weick and Robert's (1993) example of teams that
operate the flight decks of aircraft carriers. Those
authors described how the formation of cognitive
schemata linked to a collective mind can lead to
heedful interrelating that reduces the probability of
deadly errors on an aircraft carrier flight deck.
Past some point, however, routinization might
also have negative consequences. Once the collec-
tive mind has coalesced around a prescribed way of
doing things, it may be less open to new routines
that upset its equilibrium. Individuals within the
group may be unwilling or unable to adopt new
modes of behavior, particularly if they involve the
unlearning of existing tacit routines. Indeed, behav-
ior that is grounded upon tacit knowledge may be
17
the most difficult to unlearn, precisely because it is
unconscious. This "problem" might become more
serious if the group, team, or organization is con-
fronted with environmental change. Miller (1990)
has described how the core skills of an organiza-
tion-the very things that made the organization
successful in the first place-can also lead to cog-
nitive rigidity and an inability to adapt with suffi-
cient alacrity to a changing environment. Miller's
point is that more of the same does not always lead
to sustained performance. Thus, it has been argued
that firms can become trapped within their own
competencies (Levinthal & March, 1993). Their
core competencies can become core rigidities (Ar-
gyris, 1999). It is also possible that high levels of
group experience, and a commensurate lack of
turnover, may result in a lack of acquaintance with
new technologies that would otherwise be intro-
duced by new members of the group or team (Katz,
1982). Individuals may also become complacent as
their knowledge of organizational routines grows
such that it allows them to achieve performance
goals without full effort. All these reasons are
grounds for believing that not only will diminish-
ing returns set in, but also that, past some point, the
benefits of greater shared experience will decay
and the relationship between cumulative experi-
ence and performance will become negative.
Tacit Knowledge in the NBA
In this study, we focused on the formation and
effects of group-level tacit knowledge in NBA
teams. We submit that team-based sports provides
an appropriate setting for the investigation of
organizational phenomena of interest to manage-
ment scholars. There are important similarities be-
tween sports teams and organizations in other in-
dustries (Keidel, 1984). These include their mutual
concern for competing externally, cooperating in-
ternally, managing human resources strategically,
and developing appropriate systems and struc-
tures. Moreover, from a methodological point of
view, sports organizations offer the distinct advan-
tage of completeness and objectivity of the data
describing their operation and performance (on the
court or field, at least). The complete data allow
scholars to examine many important issues in busi-
ness theory, including the focus of this study: sus-
tained competitive advantage and the links be-
tween shared experience at the group level, tacit
knowledge, and organizational performance. For a
sports team, a competitive advantage is related to
winning, and teams that win more than they lose,
and continue to do so for an extended period of
time, have a sustained competitive advantage.
18 Academy of Management
Professional baseball, football, and basketball
have been used to illustrate distinct organizational
models along a variety of dimensions, including
interdependence, coordination, and the role of
management (Daft, 1995; Keidel, 1984, 1987).
Of the three sports, baseball has the lowest levels of
interdependence among players. When interaction
does occur, it usually involves only two or three of
the nine players on the field. The players bat indi-
vidually and, with few exceptions, work on im-
proving their skills individually. If each player is
successful as an individual, the team should win.
In football, with its higher interdependence, all
players have a role in executing the game plan;
however, only some of the players directly coordi-
nate their actions-for example, the blockers lead-
ing a running back.
Interdependence and coordination are highest in
basketball. The players continually interact on of-
fense, working to get a teammate open and the ball
to him or her. Examples of coordination on defense
include players double-teaming an offensive player
and covering for each other on "breakdowns" and
unsuccessful gambles on defense. This is a setting
in which experientially acquired tacit knowledge
of how other members of the team play, and where
they are likely to be positioned in a particular sit-
uation at a particular time, is highly important. The
cumulative experience shared with other team
members is a critical variable here. The greater the
time that team members spend playing together,
the more likely it is that they will develop the
individual cognitive schemata required to under-
stand and appreciate each others' capabilities and
to synchronize their individual game play accord-
ingly. Put differently, the basketball court is a set-
ting in which the stock of tacit knowledge that
underpins the collective mind of a team is likely to
be of significant value.
In the National Basketball Association, tacit
group-level knowledge is manifest in players'
learning the nuances of playing together. This is
context-dependent knowledge that each member of
the team develops about the details of how other
members of the team play basketball. Learning de-
rives from the experience of playing together. The
knowledge so gleaned allows individuals to antic-
ipate the actions their teammates will take in the
split-second decision making that characterizes a
fast break or a switch on defense. It is difficult for
observers to understand the nuances and subtleties
of the way the individuals on the team play. At
many games, enthusiastic observers (that is, fans)
are often heard expressing feelings of amazement
and disbelief at the ability of well-acquainted team-
mates to interact in a synchronous manner without
journal February
eye contact. It is only through actually playing to-
gether-through cumulative playing experience-
that each member of the team accumulates the
stock of tacit knowledge about the game play of
other members of the team that enables such syn-
chronicity. As players interact on the same team
over time, they increase team performance and per-
haps build a competitive advantage through group-
level tacit knowledge.
Consistent with our earlier arguments, however,
NBA team performance is expected to decline be-
yond a certain level of shared experience. Initially,
newly formed teams are expected to benefit from
significant learning effects, but diminishing returns
to experience are expected to set in as the shared
cognitive schemata of team members begin to crys-
tallize and as additional benefits from shared expe-
rience become increasingly difficult to attain. Ulti-
mately, these diminishing returns could become
negative returns. Teams with very high levels of
shared experience have not been infused with new
talent that brings with it new techniques. The play-
ers will likely be less willing to experiment with
new ways of playing as they rely more and more on
their customary modus operandi. The individual
efficiency of the players may decline as they be-
come complacent with their roles on the team (and
with their long-term contracts).
Moreover, the value of the tacit knowledge cre-
ated through individuals playing together may de-
cline as some of the routines generated from this
knowledge become apparent to competitors. Al-
though competitors may use observational mecha-
nisms such as game films and scouting reports to
document the tactics of a winning team, it is
through repeated game play that competitors best
learn to anticipate and respond to the synchronized
moves of a team. Put differently, competitors will
develop, as part of their own collective experience,
the knowledge base required to play better against
the experienced team. As competitors accumulate
their own explicit and tacit knowledge of the spe-
cific routines that an experienced team relies upon
to operate, they improve their ability to develop
appropriate responses. Ultimately, this will dimin-
ish the value of the tacit knowledge base of a team
with a high level of shared experience. Thus, hold-
ing other factors constant, such as age and coach-
ing, even the best team will ultimately see its ex-
perience-based competitive advantage decay as
opponents develop their own synchronized coun-
termoves to the synchronized game play of the
team.
To summarize, we have argued that shared team
experience results in the accumulation of a stock of
valuable collective knowledge, much of it tacit, that
2002 Berman, Down, and Hill
results in superior performance. As shared experi-
ence grows, however, it is subject first to diminish-
ing and then, possibly, to negative returns as other
factors undermine the positive performance effect
of collective tacit knowledge. Success brings with it
the seeds of its own failure-after a time, more of
the same will no longer produce the same level of
wins, and any competitive advantage enjoyed by
the team will begin to decay. Thus, although com-
petitive advantage can be sustained, without some
change in team composition it cannot be sustained
indefinitely (even if age could be held constant).
Therefore:
Hypothesis la. There is a positive relationship
between shared team experience and team per-
formance. This relationship is subject to di-
minishing returns. The positive performance
effect of shared experience will decline as
shared experience grows.
Hypothesis lb. After some point in time, the
relationship between shared team experience
and team performance will become negative as
the costs of knowledge ossification start to out-
weigh the benefits of cumulative experience.
As noted above, both diminishing returns and
the eventual decline in team performance with ex-
perience are due to a knowledge ossification effect,
coupled with learning on the part of competitors. It
follows that any steps that can be taken to attenuate
or reverse these tendencies should have a moder-
ating effect on the predicted relationship between
shared experience and team performance. An obvi-
ous moderator would be a change in the leadership
of the organization or team. Certainly, there is sig-
nificant evidence that a new leader in a business
organization often heralds a change in operations
or strategy. In their review of executive succession
research, Kesner and Sebora noted that "few if any
transitions at other organizational levels have as
profound an effect either inside or outside the firm"
(1994: 329) as does a change in CEO. The evidence
"has clearly suggested that change follows succes-
sion" (Kesner & Sebora, 1994: 357) and that or-
ganization members expect this to be the case. The
form of change affecting the organization as a result
of a new leader will be shaped by the new leader's
background and experiences. Hiring executives
from other organizations has been suggested as a
means of facilitating the transfer of skills and tech-
nology across organizations (Aldrich & Pfeffer,
1976). In a more recent study, Boeker (1997) exam-
ined executive migration across 67 organizations
over 18 years and found interfirm movement of
executives was associated with decisions to enter
19
product-markets in which the new executives were
experienced.
In the context of our study, executive succession
translates to making a coaching change. Other
things being equal, maintaining continuity of team
leadership on teams with low levels of shared ex-
perience is important to allow for tacit knowledge
to rapidly develop among team members. However,
teams with high levels of shared experience might
benefit from a coaching change because of the in-
fusion of fresh thinking that a new coach can
bring-particularly with regard to game strategy.
By helping to force the alteration of an existing set
of game plans, or strategies, a new coach may force
an experienced team to engage in new learning,
while reducing the value of the experiential tacit
knowledge that competitors have gleaned from re-
peated games against the team.
In sum, what we are suggesting is that the conti-
nuity of coaching experience and team member-
ship is important for teams with low levels of
shared experience and has a positive impact on
performance. However, we expect the strength of
this relationship to weaken substantially as shared
experience grows. Indeed, for those teams that have
a high level of shared experience, logic suggests
that a coach whose experience with that team is
low might have a beneficial effect:
Hypothesis 2. Coaching experience with the
same team interacts nonmonotonically with
shared team experience to affect performance.
The positive performance effects of coaching
experience with the same team will decline as
shared experience grows.
Although the average tenure of the players on a
team is central to the theory presented here, prior
empirical research on group performance suggests
that group heterogeneity may also be important.
Specifically, though shared organizational experi-
ence is important to understanding the implicit
routines and ways of interacting that lead to higher
organizational performance, it is also important
that team members are exposed to new perspec-
tives and ideas. This idea was put forward 40 years
ago, with Hoffman and Maier (1961) suggesting that
group diversity would enhance overall group prob-
lem-solving capacity. From this viewpoint, the
best-performing teams may have a mix of players
with high tenure, who bring an understanding of
both organizational and industry norms, and new
players, who may bring a fresh perspective with
youthful energy. The 1979-80 Los Angeles Lakers
seemed to exemplify this mix, with the veterans
Kareem Abdul-Jabbar and Jamaal Wilkes teamed
with the rookie Earvin "Magic" Johnson.
20 Academy of ManagementJournal
The empirical research using top management
teams offers some contradictory evidence. Work in
this area has examined many aspects of heteroge-
neity (such as education, functional area expertise,
age, and so forth; see Hambrick [1994] for a general
review); we focus here, however, on the results
relating to heterogeneity of tenure. The relationship
between tenure heterogeneity and performance is
not completely clear. Tenure heterogeneity has
been shown to be negatively related to many out-
comes that should be linked to firm performance,
such as innovation (O'Reilly & Flatt, 1989), com-
munication (Ancona & Caldwell, 1992), and overall
team rapport (O'Reilly, Snyder, & Boothe, 1993). In
a study of the airline industry, however, Hambrick,
Cho, and Chen (1996) found tenure heterogeneity
to be positively related to two measures of perfor-
mance. The latter were careful to point out that
they were examining a "highly turbulent" environ-
ment (D'Aveni, 1994). In the setting of the NBA,
however, the critical factors are the development of
a rapport and high levels of finely tuned nonverbal
communication. These are in large part the intan-
gible elements that may lead to the cumulation of
tacit knowledge important in building competitive
advantage. Thus, in this research setting we ex-
pected the negative effects of team heterogeneity to
dominate, leading us to predict:
Hypothesis 3. Tenure heterogeneity will be
negatively associated with organizational per-
formance.
METHODS
In order to test the resource-based view, one
needs a data set with three attributes. First, the data
must allow for a good means to get at the intangible
and unobservable resource-in this case, the stock
of collectively held tacit knowledge. There must be
a good proxy measure for the unobservable con-
struct. Difficulties identifying such proxies have
slowed down empirical testing of hypotheses gen-
erated from the resource-based view of the firm
(Godfrey & Hill, 1995). Second, one must be able to
adequately measure the dependent variable (typi-
cally, performance). And third, the structure and
completeness of the data set must allow for isola-
tion of the effect of the intangible asset.
We believe the data set used in this research,
compiled from National Basketball Association sta-
tistics, not only is appropriate for testing the theory
presented here, but also meets the practical criteria
listed above. In the following paragraphs, we de-
scribe a measure of shared team experience that, we
argue, provides a good proxy for the value of the
February
stock of collectively held tacit knowledge and de-
pendent variables that are objective and clear mea-
sures of performance. Moreover, the data set is built
on consistent measures of underlying variables
over the entire 14 years of data used in the study.
Sample
Our sample consists of the 23 teams that com-
peted in the NBA from the 1980-81 season through
the 1993-94 season. Each regular season begins in
November and runs through May of the following
year. These 23 teams represent the entire popula-
tion of teams in the NBA during the first year of the
study, and all 23 teams continue to operate in the
NBA today. Appendix A lists the teams used in this
study.
All teams in the NBA are governed by standard
rules of competition. These rules eliminate many
factors that would otherwise substantially increase
the complexity and reduce the power of this study,
for instance, the length of each regulation game is
48 minutes playing time; five players always play
at a time; and the length of the regular season is 82
games.
Dependent Variables
We used two different dependent variables to test
the above hypotheses. First, the number of regular
season wins for each team, in each year, was used
as a measure of performance. This measure is prob-
ably the simplest way to establish the presence of a
competitive advantage. Although the correlation
between wins and the shared team experience mea-
sure may be mitigated by many other factors, sig-
nificant results would point to the importance of
playing together in building a winning team.
Total regular season team assists for each team,
in each year, was also used as a performance mea-
sure. A basketball player is credited with an assist
when he or she passes to a teammate who scores
without dribbling first. Since the number of assists
is clearly related to the ability of a team to play well
together, it may be a purer measure of the outcome
of tacit knowledge or organizational learning accu-
mulated by the players on a given team. It is im-
portant to note, however, that the number of assists
may also be significantly influenced by the choice
of team strategy, which is a variable not included in
our study.3
3 Acknowledging that NBA teams are for-profit or-
ganizations, we also used some profitability data for sup-
plemental analysis. Since only one team in the NBA is
2002 Berman, Down, and Hill 21

Independent Variables relationship between shared experience and perfor-

mance, which is the functional form we have hy-
Several of our independent and control variables
pothesized.
required assessing characteristics of the individual
Standard deviation of shared team experience.
players who played on each team in each year of
To calculate a measure of team experience hetero-
our study and then cumulating these data to arrive
geneity, we simply calculated the standard devia-
at the 322 team-year observations in our sample (23
tion of the shared experience variable for each
teams over 14 years). Our source of player perfor-
team-year. That is, this variable is the standard
mance data is the Official NBA Basketball Encyclo-
deviation of the experience measures for all players
pedia (Sachare, 1994), which contains detailed sta-
who played for a team in a given year. This calcu-
tistics on everyone who had played in the NBA
lation follows the method used to calculate tenure
through the 1993-94 season. From this source, we
heterogeneity in previous studies.
created a database of 4,189 individual player-year
records.
Shared team experience. A central issue for our
study was the determination of an appropriate mea- Control Variables
sure of the shared team experience that, we have
Many other factors may affect a team's ability to
argued, is a proxy for the value of the stock of tacit
win games or generally work effectively. To take
knowledge held in the collective mind of a team.
these factors into account, we included three other
We measured shared team experience by assessing
variables in the regression models. The variables
how many years of experience each player had on a
represent the quality of the players on a team, the
specific team at the end of a season. Years of player-
average age of the players on a team, and the num-
team experience was weighted by the minutes
ber of years a team has had the same coach.
played in games in that season by that player, and
Average draft position. In order to control for
an average was then calculated for each team-year.
the quality of the players on each team in each
This is our average shared team experience vari-
season, we developed a measure using the draft
able. An average was appropriate because the num-
position of the individual players. Each year, dur-
ber of players on each team varies from season to
ing the off-season, the NBA holds a draft wherein
season owing to trades and injuries. See Appendix
each team gets a turn to select a player, usually
B for a sample calculation of this variable.
from the college ranks, to join its team. The selec-
It is important to note that, in arriving at this
tion order is generally determined by the win-loss
definition of shared team experience, we consid-
record of each team from the previous year, with
ered several different options. We recognize that
the teams with the worst records getting the early
experience playing together can obviously be mea-
picks. This process is designed to provide weaker
sured in several ways with a variety of variables.
teams with better opportunities to improve the
We are not attempting, however, to argue that the
quality of its human resources. Because the differ-
method we have chosen is the only acceptable mea-
ence between two adjacent draft positions early in
sure, but, rather, that it is a reasonable measure of
the draft represents a more significant difference in
experience and provides a straightforward means
quality of the players than the difference between
of investigating the relationship between tacit
two adjacent positions later in the draft, we took
knowledge and performance.
the natural logarithm of each player's draft position
Shared team experience squared. This is the
before calculating draft position total for each team-
squared value of average shared team experience.
year. We then summed this for each team-year and
This variable allows for a curvilinear form for the
divided by the number of players on that team in
that year.
We expected player quality to impact the perfor-
publicly traded (although publicly traded companies mance of a team for several reasons. First, perfor-
hold stakes in other teams), reliable data on revenues, mance varies across individuals, and the number of
salaries, and profitability are hard to obtain. Since the exceptionally talented players is obviously limited.
1988-89 season, Financial Worldhas published data for
A top-caliber player can improve a team simply
all teams in the four main professional sports (basketball,
football, baseball, and hockey). We used net income es- through his sheer ability. Second, through effects
timates from 1988-89 through 1993-94 to explore the related to tacit knowledge and organizational learn-
relationship between the creation of tacit knowledge and ing, a high-quality player can improve the perfor-
organizational profitability. This analysis did not yield mance of his teammates by complementing their
any significant result-a fact that can be attributedto the abilities. Finally, an exceptional player can im-
limits of the data-and we do not report it here. prove the offensive performance of his teammates
22 Academy of Management Journal
by drawing the attention of the opposing team's
defenders, thereby giving teammates better oppor-
tunities to score.
It should be noted that the link between player
quality and organizational performance may be
muted for several reasons. First, the NBA currently
uses a lottery system in assigning draft picks, so
that teams that did poorly in the previous season
have the highest chances of receiving the top draft
positions in the next draft. This should narrow the
difference in player quality between teams. Sec-
ond, revenue sharing and salary cap arrangements
are designed to prevent teams from acquiring the
services of more than two or three top-tier players.
For the reasons outlined in the previous para-
graphs, however, we felt it was necessary to control
for player quality.
Average age. The age of the players for each
season was calculated by taking the difference
between the year each season was completed and
the birth year of the player. We then calculated
an average for each team-year. The variable may
be significant because the skills necessary for
success in the NBA tend to deteriorate rapidly
once a player begins to slow down. Without in-
cluding a variable measuring age in the estima-
tion of the regression equations, it would be dif-
ficult to rule out the simple aging of players as
the main reason for a decline in performance at
high levels of shared experience.
Coaching experience. We created a variable that
captured how long a coach had been with the team
at the end of the season in order to examine the
impact of the coach on the team's performance.
This variable represents years of coaching experi-
ence with the team. Although this variable does not
measure coaching quality per se, by including it in
the models we examined the possibility that the
same sorts of tacit knowledge and learning effects
discussed above might be manifest in the relation-
ship established between the players and the
coach. Also, a positive relationship between coach-
ing tenure and performance could stem from the
fact that it may take some time for a coach to recruit
players who fit his coaching style (Pfeffer & Davis-
Blake, 1986). This variable also allowed us to
investigate the predicted declining performance ef-
fects of increasing coaching experience in environ-
ments in which shared team experience is high.
Standard deviations of age and draft position.
To further explore the relationship between demo-
graphic heterogeneity and organizational perfor-
mance, we also included the standard deviation
measures for age and draft position.
February
Model Specification
The following regression model was used to es-
timate the performance effect of shared organiza-
tional experience: Yft = a'C + bl'EXPit + b2'EXP2it
+ b3'AVGDPit + b4'AVGAGEit + b5'CEXPit +
b6'CE x EXPit b7'SDEXPit + b8'SDAGEit +
b9'SDDPit + eit. The subscript i indexes the teams
(i = 1, ..., 23), and t indexes the time periods (t =
1 [1980-81 season], ..., 14 [1993-94 season]). Yit
defines the relevant dependent variable (perfor-
mance measured as either wins or assists) for team
i in year t. C is a constant. EXPit represents the
measure of shared organizational experience;
EXP2it, the square of the experience variable;
AVGDPit, the measure of player quality, using data
on the position of each player in the yearly draft;
AVGAGEit, the average age of the team's players;
and CEXPit, the number of years a coach had been
with team i as head coach in year t. CE x EXPit is
the interaction between coaching experience and
shared organizational experience; this term was
necessary to test Hypothesis 2. SDEXPit, SDAGEit,
and SDDPit represent the standard deviations of
these three variables. Finally, eit is the error term
associated with each team-year.
A pooled time series model was used to analyze
the data. The use of pooled time series methods
suggests, however, that the error terms show
correlation over time (autocorrelation), and over
cross-sectional units (heteroskedasticity). Under
conditions of both heteroskedasticity and auto-
correlation, the ordinary least squares estimators
(OLSE) of regression coefficients will be unbiased
and consistent. Clearly, these are desirable proper-
ties. The problem with respect to the use of OLSE
rests with the estimated variances of the regression
coefficients. The principal objective is to find con-
sistent estimates of the variance-covariance matrix.
Kmenta (1986: 618-622) showed that such consis-
tent estimates can be found by subjecting the orig-
inal data set to a double transformation.
We implemented Kmenta's double-transforma-
tion approach for correcting heteroskedasticity
and autocorrelation problems using the time ser-
ies cross-section (TSCS) procedure in LIMDEP
(Greene, 1992). This procedure rests on the as-
sumption that a coefficient vector is constant over
time for all teams, and it controls for "groupwise"
heteroskedasticity, cross-group correlation, and
within-group autocorrelation (Kmenta, 1986), us-
ing an AR(1) model (an autoregressive process
lagged one time period), thus additionally control-
ling for the correlation of the dependent variable
over time.
2002 Berman, Down, and Hill 23

ANALYSIS AND RESULTS
Table 1, which gives descriptive statistics and
correlations, reveals some multicollinearity in the
data. Examining the variance inflation factors
(VIFs) and further analysis suggested that multicol-
linearity would not significantly affect interpreta-
tion of the results. The values of the VIFs never
exceeded the critical limit of ten (Neter, Wasser-
man, & Kutner, 1989).
Table 2 shows the results from the regression
analysis. In model 1 (which has wins as the depen-
dent variable), five variables are significant (p <
.10). In model 2 (using assists as the dependent
variable), three variables are significant (p < .10).
Specific implications of the findings will be dis-
cussed below.
Table 2 shows that the measure of shared team
experience was significant and positive in both
models (b = 0.01, p < .001 in model 1; b = 0.17,
p < .001 in model 2). From a resource-based view-
point, it appears that teams create a stock of valu-
able tacit knowledge by keeping players together.
As players play together longer, they become more
adept at anticipating each other's movements and
suffer from less confusion over what roles each
player will take. This shared organizational expe-
rience, or collective mind, translates into more
victories. Hypothesis la, however, predicts a
curvilinear relationship between experience and
organizational performance, with the positive ef-
fects of shared organizational experience slowing
as more shared experience is accrued. This predic-
tion was supported by the coefficients for the ex-
perience-squared variable, which was negative and
highly significant in both models (p < .01 in model
1 and p < .001 in model 2). Therefore, the gains
from teammates' becoming familiar with each oth-
ers' playing styles are eroded by the negative effects
of competency traps; other teams' ability to predict
the focal team's style of play; and players' simply
becoming complacent about playing together.
Taken together, the findings provide strong support
for Hypothesis la.
Hypothesis lb suggests that, past some point,
diminishing returns to cumulative shared experi-
ence might become negative returns. To explore
this possibility, we took the partial derivatives of
models 1 and 2 with respect to experience, set the
result equal to zero, and solved for experience. This
calculation told us the level of shared experience at
which negative returns started to set in. The results
are as follows:
Model 1: 6wins/6experience = 0.0063
- 0.00000053 X experience = 0.
Experience = 11,887.
Model 2: 6assists/6experience = 0.1702
- 0.0000198 X experience = 0.
Experience = 8,686.
In the case of model 1, the value of 11,887 is
actually above any value observed in the data, sug-
gesting that, although negative returns are a theo-
retical possibility, they are not encountered. In the
case of model 2, the value of 8,686 comes in at
about the 95th percentile, suggesting that, at the
limit, a handful of teams in the NBA may have
encountered this problem for a season or two.
Thus, the support for Hypothesis lb is weak. From
a theoretical perspective, negative returns do occur,
but as a practical matter, only a handful of teams

TABLE1
Descriptive Statistics and Correlations
Variables Mean s.d. 1 2 3 4 5 6

1. Wins 41.2 12.3

2. Assists 1,947.9 265.3 .47**

3. Shared experience 5,116.4 1,889.8 .57** .34**

4. Shared experience squared 2.9E+7 2.3E+7 .51** .29** .97**

5. Average age 27.6 1.2 .42** .15** .59** .59**

6. Coach tenure 3.2 2.6 .22** .22** .25** .24** .06

7. Average draft position 35.8 12.1 -.23** -.16** -.19** -.21** -.06 -.02
** p < .01
24 Academy of Management Journal February

TABLE 2
GLS Regression Resultsa
Variable Model 1: Wins Model 2: Assists

Constant 6.96 (15.00) 1,671.80*** (353.10)

Shared experience 0.0063*** (0.0014) 0.17*** (0.03)

Shared experience squared -2.6E- 7** (1.03E-7) -9.9E-6*** (2.6E- 5)

Average age 0.53 (0.57) 0.47 (13.39)

Coaching experience 1.45* (0.61) 15.14 (13.84)

Player quality -4.13** (1.57) -66.45' (38.29)

Experience x coaching experience -O0.0002' (0.000096) -0.0006 (0.0022)

Experience heterogeneity 0.0004 (0.0005) -0.0138 (0.0005)

Player quality heterogeneity 3.03 (2.03) -25.73 (48.50)

Age heterogeneity 0.01 (0.78) -5.77 (19.14)

-2 log likelihood 919.71 918.24

a
n = 322. Unstandardized regression coefficients are shown, with standard errors in parentheses.
tp < .10
* p < .05
** p < .01
*** p < .001

ever experience them. It may be that there are two
mechanisms at work, one that leads to diminishing
returns and one that leads to actual negative re-
turns. Diminishing returns suggest merely that the
benefits of later minutes playing together improve
performance less dramatically than the first min-
utes teammates share together. Given many of the
findings about learning curve effects, this formula-
tion makes sense. For negative returns to occur, at
least in the way we have argued, rigidity in the face
of environmental changes would be a key element.
Given the absence of major changes within the
environment facing NBA teams, it is perhaps not
surprising that we did not find strong support for
Hypothesis lb.4
Support for Hypothesis 2 is suggested by the
significance of the interaction between coaching
experience and shared experience. This variable is
negative and marginally significant in model 1 (b =
-0.00 [-0.0002], p < .10), suggesting that, as
coaching experience increases at a given level of
shared experience, a negative relationship to win-
ning is evident. This hypothesis was not supported
in model 2. To assess the validity of this finding,
4 Thanks to an anonymous AMJ reviewer for helping
us clarify these points.
we performed further analysis. The data set was
divided into quartiles based on levels of shared
experience. To fully support the hypothesis, the
relationship between wins and coaching experi-
ence should have weakened as the level of shared
experience increased. Table 3 shows that this is
exactly the relationship exhibited in the data.
Coaching experience is positively and statistically
significantly related to wins for the teams with the
lowest levels of shared experience. The slope coef-
ficient becomes smaller in each progressive quar-
tile. This pattern of results supports the idea that
the positive effects of coaching experience decline
as the level of shared organizational experience
increases, as hypothesized.
Hypothesis 3 received no support. The measure
of heterogeneity, the standard deviation of the ex-
perience variable, was not significant in either
model. Further supporting the rejection of this hy-
pothesis, none of the dispersion measures were
significant in either model. In the National Basket-
ball Association, at least, nothing seems to be lost
(or gained) by combining players with different
levels of organizational experience.
A brief discussion of the control variables is war-
ranted. Coaching experience was positively related
to the number of wins (b = 1.45, p < .05), but not to
2002 Berman,Down, and Hill 25

TABLE3
Regression Models Testing Relationship between Wins and Shared Experiencea
Model 1: Model 2: Second Model 3: Third Model 4:
Lowest Quartile Quartile of Quartile of Highest Quartile
of Shared Shared Shared of Shared
Variable Experience Experience Experience Experience

Constant 28.53*** (1.68) 38.94*** (1.99) 43.84*** (1.95) 50.68*** (1.59)

Coaching experience 1.07* (0.49) 0.59 (0.59) 0.22 (0.42) 0.11 (0.33)

n 80 81 81 80
Adjusted R2 .05 .01 .01 .01

a
The dependent variable in all cases is wins. Unstandardized regression coefficients are shown, with standard errors in parentheses.
* p < .05

* p < .001

the total number of assists (b = 15.14, n.s.). There
are at least two possible explanations for the posi-
tive relationship between coaching experience and
wins. First, in terms of organizational learning, it
takes time for players become familiar with a
coach's style. Coaches clearly emphasize different
aspects of the game and particular strategies (for
instance, Phil Jackson stresses a "triangle"offense
for the Los Angeles Lakers,and Doug Moe stressed
a fast-breakoffense when he was head coach of the
Denver Nuggets). There is also learning involved
for a coach, in terms of motivating the players on
the team. Learningbetween the coach and players
may take time to bear fruit in improved play. Also,
as Wright, Smart, and McMahan (1995) showed, fit
between strategyand human resources is important
in sports. It may take some time, therefore, for a
coach to have a squad of players who fit his style.
As the coach's tenure lengthens, we should expect
improvements in a team's winning percentage as
the fit between strategyand resources improves. As
shown in Table 3, this relationship weakens at the
highest levels of shared organizational experience.
The measure of player quality represents the av-
erage level of talent on a team as measured by the
order in which the players were drafted. This vari-
able measure was negative and statistically signifi-
cant in both models, as one would expect. Since a
low draft number represents a higher level of per-
ceived ability, the negative coefficient for this vari-
able in model 1 (b = -4.13, p < .01) shows that
teams will win more games if they have, on the
average, players gained earlier in the draft. This
variable was not statistically significant in explain-
ing the total number of assists, suggesting perhaps
that the knowledge derived from shared experience
(playing together),ratherthan player quality per se,
is the more important in generating assists. Still,
human capital is probably the most important in-
put in the NBA. Therefore, the statistical signifi-
cance of this variable on wins is not surprising,
given the ability of a Magic Johnson, a Shaquille
O'Neal, or an Allen Iverson to have an immediate
impact on the ability of his team to compete effec-
tively.
The variable measuring average age was not sig-
nificant in either model. This lack of significance
may be due to the prevalence of short careers in the
NBA. The average age of the players in the sample
was 27.6 years, and the standard deviation of the
team-yearobservations was only 1.2 years, suggest-
ing that there is little variance in this variable.
Certainly, we would expect a team comprised of
individuals in their late 30s to perform less well
than a team of players in their prime, all else being
equal. These data show, however, that NBA teams
seem to keep their average age tightly clustered
around the mean.
The Shared Experience-Performance
Relationship and the Decay of Competitive
Advantage: Causality
An issue that we have not yet addressed is the
question of causality: Is our finding that shared
experience explains performancespurious? Rather,
is the true relationship only that performance
causes shared experience? That is, winning teams
are kept together, so high levels of shared experi-
ence result, and losing teams are broken up, and
therefore have low levels of shared experience.
We took advantage of the longitudinal nature of
our data set to look at this important question in
two different ways. First, following a methodology
suggested by Granger(1969), we regressed the ex-
perience variable, lagged one year, on wins. Simi-
26 Academy of Management Journal
larly, we regressed the number of wins, lagged one
year, on the shared organizational experience vari-
able. In each of these regressions, we again used the
TSCS procedure in LIMDEP(Greene, 1992), em-
ploying an AR(1) model. Table 4 reports the results
of these regression models. Not surprisingly, the
data suggest a case of mutual causality. In model 3,
the number of wins from the previous year exhibits
a positive and highly significant relationship to the
level of shared experience in the next year (b =
50.04, p < .001). We accept this finding as support
for the assertion, commonly made among sports
fans, that winning teams are generally kept to-
gether, while losing teams are generally reformu-
lated with the hope of developing a more compet-
itive team.
The evidence for the idea that increased levels of
shared experience actually lead to improved per-
formance is presented in model 4. The lagged ex-
perience variable is positive and strongly signifi-
cantly related to the number of wins in the next
season (b = 0.00 [0.0008], p < .05). This finding
gives support to the hypothesis presented here,
stating that creation of a collectively held stock of
tacit knowledge by keeping a team together trans-
lates into a higher number of victories.
We examined this relationship further by focus-
ing on teams that won fewer than half of their
games. We identified 125 cases in which a team
won 40 or fewer games. Focusing on such teams
allowed us to furtherexamine the assertion that the
positive relationship between shared experience
and performance exists only because teams with
winning records stay together. We found losing
TABLE 4
GLS Regression Models Testing Causalitya
Model 3: Shared
Variables Experience Model 4: Wins
Constant -4,303.80* (1,836.88) -11.47
Wins in previous 50.04*** (6.54)
season
Shared experience in 0.00*
previous season
Average age 346.17*** (63.54) 2.26*** (0.49)
91.69** 0.61**
Coaching experience (29.04)
Player quality -916.34*** (212.60) -5.15**
-2 log likelihood 854.54 858.62
a n = 299. Unstandardized regression coefficients are shown,
with standard errors in parentheses.
* p < .05
** p < .01
*** p < .001
February
teams with an increase in experience in the follow-
ing year won an average of 5.7 more games than in
the previous year (n = 70). Losing teams with a
decrease in team experience the following year
only won an average of 1.2 more games (n = 55).
This difference in means is significant at the .05
level. Further, regressing change in wins on change
in shared experience within this subsample yields
a coefficient equal to 0.0028 (p < .01). Using this
coefficient, the impact on performance of whether
the team is or is not broken up after a losing season
can be predicted. The difference between (1) keep-
ing a team together and allowing the shared expe-
rience to grow and (2) changing several players and
reducing the shared experience would amount to a
change in shared experience of about 2,000 min-
utes. This value multiplied by the coefficient
impacts the number of wins by 5.6 games (2,000
multiplied by 0.0028). These results support a re-
ciprocal relationship between shared experience
and performance, clearly showing that increasing
shared organizational experience has a positive ef-
fect on increasing performance.
Further, to gain some understanding of the
"stickiness" of the performance effect, we followed
a procedure outlined by Jacobsen (1991). We calcu-
lated the correlations between wins in the final
year of the data set and the preceding 13 years of
data. Table 5 shows the levels of autocorrelation for
wins. These data reveal that the performance ef-
fects are significant only in the first two years and
decay steadily over time. This relationship was
consistent when data series of 10, 11, 12, and 13
years were examined as well. Relative to the prof-
itability measures examined by Jacobsen (1991),
the performance effects decay much more quickly
when the dependent variable of interest is winning
percentage in the NBA. The stock of tacit knowl-
edge created by high levels of shared experience
would therefore appear to provide a foundation for
stemming the erosion of this competitive advan-
(14.90) tage.
DISCUSSION AND CONCLUSION
(0.00)
The most important finding from this study is
support for a nonmonotonic relationship between
(0.22)
levels of shared group experience and group per-
formance. This finding has important implications
(1.72)
for the resource-based view of the firm. In the re-
source-based view of the firm and its allied litera-
ture, the stock of firm-level tacit knowledge is often
presented as a potentially valuable intangible re-
source that is protected by isolating mechanisms
and might therefore lead to a sustained competitive
advantage. Testing this proposition has proved
2002
Autocorrelations
K 1 2 3 4 5
Pk 0.61** 0.50* 0.33 0.34 0.28
a - k).
Pk = Corr (winning percentageit, winning percentageit
* p < .05
** p < .01
Two-tailed tests.
problematic because of methodological difficulties
associated with measuring tacit knowledge, which
by definition is an unobservable resource and
therefore, not amenable to direct measurement. In-
deed, as argued earlier, if tacit knowledge could be
measured directly, it could also be codified and,
thus, it would no longer be tacit. Following the
recommendations of Godfrey and Hill (1995), we
have attempted to circumvent this problem by us-
ing shared experience as a proxy for the stock of
tacit knowledge. We have argued that there is a
relationship between shared experience, the emer-
gence of a collective mind, and the stock of collec-
tively held tacit knowledge. Specifically, shared
experience is the mechanism by which a stock of
tacit knowledge is accumulated over time. This
argument is based on deductive logic and is en-
tirely consistent with prior theorizing by the likes
of Nelson and Winter (1982) and Weick and Rob-
erts (1993). The use of a proxy variable to tap into
the effects of an unobservable construct has a long
history in scientific and social science research and
can be justified on philosophical and methodolog-
ical grounds (Godfrey & Hill, 1995).
We found that the value of shared experience,
and by extension tacit knowledge, as measured by
performance variables, is positive but subject to
diminishing returns. Moreover, at the limit, the
positive effects of shared experience may become
negative as the effects of knowledge ossification
begin to outweigh any benefits of collective knowl-
edge accumulation. This argument suggests two
things: First, collectively held tacit knowledge can
indeed be a source of competitive advantage; but
second, core competencies based on tacit knowl-
edge may become core rigidities if and when
knowledge ossification effects set in. Miller (1990)
and Argyris (1999) were right; the things that make
organizations great-shared skills accumulated
over time-might also lead to rigidity and decline.
This is one of the central paradoxes of organiza-
tions. The accumulation of a stock of collectively
held tacit knowledge may be immensely valuable,
leading to a sustained competitive advantage, but
that advantage cannot be sustained indefinitely be-
Berman,Down, and Hill 27
TABLE 5
of Winning Percentagea
6 7 8 9 10 11 12 13
0.11 0.00 0.02 0.34 0.48 0.14 0.19 0.05
cause the other fact of knowledge accumulation is a
certain rigidity or myopia as organizational behav-
ior becomes increasingly routinized in taken-for-
granted ways of doing things. The resulting predict-
ability of behavior may allow competitors to better
anticipate the strategies and tactics of the focal
organization and thus result in a decay of its com-
petitive advantage.
We emphasize again that, in our data, at least two
mechanisms lead to this effect. First, there seems to
be less performance enhancement the longer a team
stays together, simply because the easiest gains
come early in the relationship between the players.
That is, learning to run a fast break may be accom-
plished relatively easily, so fewer gains accrue the
longer a team is together. Second, environmental
changes can expose a group's knowledge ossifica-
tion and inability to respond to those changes, lead-
ing to actual negative performance effects. Our data
suggest this may happen in the NBA, but not to a
great extent.
Our data also suggest that the value of a new
coach depends on the level of shared experience
existing on the team. Although the tenure of the
head coach was positively and significantly related
to winning percentage, a closer analysis showed a
more complex relationship. A coach's experience is
most valuable when there are low levels of shared
experience. It must be cautioned, however, that the
measure of coaching experience is merely the
amount of time spent with a specific team. It is not
a measure, at any level, of a coach's "quality." One
way to extend the current study would be to intro-
duce a finer-grained measure of coaching quality.
Higher levels of player quality were also posi-
tively related to winning percentage. Indeed, the
value of human capital cannot be underestimated
in this setting. Keeping teams together may be im-
portant, but working to improve the quality of play-
ers may be the most important factor in attaining
success. Intuitively, the best situation would seem
to be acquiring high-quality players and keeping
them together long enough for significant synergies
to be created. The analogy to business is instruc-
tive. Keeping poorly performing employees to-
28 Academy of Management Journal
gether may, in fact, increase their performance. But
performance may be raised even more by recruiting
better employees. At some level, high-quality em-
ployees make up for a lack of experience. The price
of obtaining a whole team of star employees may
preclude this option (not only would this be ex-
tremely expensive in the NBA, but also, this strat-
egy is generally made impossible by an NBA-
mandated team salary cap). This study makes clear,
however, that success is related to the ability to
identify and retain talented employees.
The findings related to the interaction between
coaching experience and shared organizational ex-
perience point to one of the limitations of the cur-
rent investigation. The data suggest that the impact
of coaching experience differs for teams with high
levels of shared experience and teams whose play-
ers have not played together long enough to have a
strong team sense. In this study, we did not control
for strategy-that is, a coach's ability to deploy
human resources. Part of the reason for the findings
presented in Table 3 may be that as a coach length-
ens his tenure with a given team, he is acquiring the
services of players who better fit his preferred strat-
egy. Building a team around a specific style of play
would lower shared organizational experience while
the coach's tenure was increasing. Further research
should therefore explore this link between both in-
tended and revealed strategy and human resources,
extending the work of Wright and his colleagues
(1995). Unfortunately, we did not have the data in the
current study to explore such questions.
Taken as a whole, the findings seem to support
the resource-based view. The lack of strong sup-
port for Hypothesis lb and the complete lack of
support for Hypothesis 3 in no way suggest that
the theory needs to be dramatically revisited. In
the first case, as pointed out above, the finding
seems to indicate that responding to external
pressures for change is not a significant factor in
the NBA, as evidenced by the lack of a strong
negative relationship between shared experience,
at the highest levels, and either dependent vari-
able. The lack of support for Hypothesis 3 is
intriguing, because the argument is often made
that the teams performing best will have a mix of
veterans and "young guns." From a resource-
based perspective, however, the lack of support
for this argument draws into question the strategy
of looking externally for top talent. The fact that
the relationship between shared experience and
winning percentage is positive over most of the
range of the data suggests that developing an
internal tacit knowledge stock may be more im-
portant than "renting" the services of top talent
February
for a brief period of time, in line with the argu-
ments of a resource-based perspective.
A number of other areas for future research seem
evident. An interesting and potentially important
factor that may moderate the rate at which tacit
knowledge is created is the level of team cohesion.
Cohesion refers to the desire that individual mem-
bers have to remain part of the team or group. The
relationship between group cohesion and group ef-
fectiveness has been studied for many years. Cart-
wright reported that "the members of a highly co-
hesive group, in contrast to one with a low level of
cohesion, are more concerned with their member-
ship and are therefore more strongly motivated to
contribute to the group's welfare, to advance its ob-
jectives, and to participate in its activities" (1968:
91). The evident proposition here is that a more
cohesive group will be more effective in converting
time interacting together into valuable tacit knowl-
edge. In the future, researchers could test this prop-
osition by assessing the level of a group's cohesion
using one of several well-tested cohesion instru-
ments. Related to our arguments about know-
ledge ossification, it would also be interesting to
test the relationship between cohesion, so-called
groupthink, and performance. Part of the knowl-
edge ossification process may be a tendency for
group members to view the environment using sim-
ilar frameworks, leading to an inability to respond
to environmental changes.
Another interesting question we have not at-
tempted to answer is this: Who, fundamentally,
owns tacit knowledge? The answer is fairly simple
with regard to individual knowledge, but in the
setting studied here, no single individual "owns"
such knowledge, since it is the product of mutual
learning at the group level and is dispersed among
members of the group. Since tacit knowledge can-
not be codified, is it possible for an enterprise to
extract economic rents based on the value of the
tacit knowledge? Similarly, does the success asso-
ciated with the creation and maintenance of tacit
knowledge lead to higher market values than
would be expected for individuals? That is, for
instance, was the value of individual members of
the Chicago Bulls of the early and mid 1990s raised
in the free-agent market because of the success built
as a team?
This research represents progress toward unlock-
ing the mysteries surrounding the creation and as-
sessment of tacit knowledge. More work needs to
be done in areas in which input and outcome vari-
ables can be measured, or at least reasonably "prox-
ied." Clearly, generalizations from sports teams to
the business world should be made with care. Find-
ing research settings within corporations will be
2002 Berman, Down, and Hill
crucial to fully exploring the usefulness of the re-
source-based view. Untangling the trade-offs be-
tween the quality of employees and the benefits of
keeping a stableworkforceis needed. Finally, linking
work such as this with ongoing work in employee
retention and turnover may be enlightening. If the
findings here can be duplicated in other settings, de-
cisions to alter work groups within organizations
should be carefully considered with regardto how
those changes will impact a group'scollective mind.
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trative experience mediates the succession effect.
Academy of Management Journal, 29: 72-83. Teams Included in the Sample
Polanyi, M. 1969. Knowing and being. Chicago: Univer- The 23 teams used in this study are shown below:
sity of Chicago Press. 1. Atlanta Hawks
Reed, R., & Defillippi, R. J. 1990. Causal ambiguity, barriers 2. Boston Celtics
to imitation, and sustainable competitive advantage. 3. Chicago Bulls
4. Cleveland Cavaliers
Academy of Management Review, 15: 88 -102.
5. Dallas Mavericks
Rouse, M. J., & Daellenbach, U. S. 1999. Rethinking re- 6. Denver Nuggets
search methods for the resource-based perspective: 7. Detroit Pistons
Isolating sources of sustainable competitive advan- 8. Golden State Warriors
tage. Strategic Management Journal, 20: 487-494. 9. Houston Rockets
10. Indiana Pacers
Rumelt, R. 1987. Theory, strategy, and entrepreneurship. 11. Los Angeles Clippers
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556-570. Cambridge, MA: Ballinger. 13. Milwaukee Bucks
14. New Jersey Nets
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15. New York Knicks
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Staw, B., & Hoang, H. 1995. Sunk costs in the NBA: Why 17. Phoenix Suns
draft order affects playing time and survival in pro- 18. Portland Trail Blazers
fessional basketball. Administrative Science Quar- 19. Sacramento Kings
20. San Antonio Spurs
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21. Seattle Super Sonics
Teece, D. J. 1982. Towards an economic theory of the 22. Utah Jazz
multiproduct firm. Journal of Economic Behavior 23. Washington Bullets
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2002 Berman, Down, and Hill 31

APPENDIX B
Sample Calculation of Shared Organizational
Experience
Shawn L. Berman (sberman@scu.edu) is an assistant pro-
Average shared team experience
fessor of management and organizational analysis at
Santa Clara University. He received his Ph.D. in strategic
, (years with team) x (minutes played in current season) management from the University of Washington. His re-
All players
-search interests include empirical examinations of firm-
number of players on team in current season
stakeholder relationships, issues of interorganizational
trust, and corporate governance.
Consider the following simplified hypothetical exam-
ple. Assume that a team called The Power has only three Jonathan Down (down@bus.orst.edu) is an assistant pro-
players for the 1993-94 season: Hendrix, Smith, and fessor of strategic management at Oregon State Univer-
Parker.The individual players have the following histo- sity. He earned his Ph.D. from the University of Wash-
ries in the NBA: ington and his MBA from the Harvard Business School.
His research focus is on the design of planning systems to
Years of manage strategic flexibility in changing environments.
Minutes Experience with
Player Season Team Played the Power Charles W. L. Hill (chil@u.washington.edu) is the
Hughes M. Blake Professor of Strategy and International
Business at the School of Business, University of Wash-
Hendrix 1990-91 Power 2,000 1 ington. He received his Ph.D. from the University of
1991-92 Power 1,500 2 Manchester's Institute of Science and Technology
1992-93 Power 1,000 3 (UMIST) in Britain. His current research focuses on com-
1993-94 Power 1,000 4 petitive strategy in high-technology industries.
Smith 1990-91 Explosion 1,500 0
1991-92 Explosion 1,500 0
1992-93 Power 1,500 1
1993-94 Power 1,500 2

Parker 1993-94 Power 2,600 1

These data yield the following calculation of total

shared experience for The Power's 1993-94 season:
Hendrix 4 X 1,000 = 4,000
Smith 2 X 1,500 = 3,000
Parker 1 X 2,600 = 2,600

9,600 total
minutes.

Dividing the total by the number of players (three)

yields an average shared team experience for The Pow-
er's 1993-94 season of 3,200 minutes.