Evolution Cum Agency: Toward a Model of Strategic Foresight

This study examines the origin of the strategic innovation that changed the face of financial services—Charles Merrill’s financial supermarket business model—through three well-known and largely juxtaposed conceptual models of strategic foresight. Our study, whose purpose, business historical focus, and structure mirrors Graham Allison’s famous “Conceptual Models of the Cuban Missile Crisis,” allows us to make three contributions. First, it sharpens our understanding of the models we used in the study. Second, it provides the foundations of an integrated view and model of strategic foresight that suggests disciplined strategic foresight is possible, understandable, and replicable within some precise boundaries. Finally, it suggests directions for future behavioral strategy work

Strategy Making in Novel and Complex Worlds: The Power of Analogy

We examine how firms discover effective competitive positions in worlds that are both novel and complex. In such settings, neither rational deduction nor local search is likely to lead a firm to a successful array of choices. Analogical reasoning, however, may be helpful, allowing managers to transfer useful wisdom from similar settings they have experienced in the past. From a long list of observable industry characteristics, analogizing managers choose a subset they believe distinguishes similar industries from different ones. Faced with a novel industry, they seek a familiar industry which matches the novel one along that subset of characteristics. They transfer from the matching industry high-level policies that guide search in the novel industry. We embody this conceptualization of analogy in an agent-based simulation model. The model allows us to examine the impact of managerial and structural characteristics on the effectiveness of analogical reasoning. With respect to managerial characteristics, we find, not surprisingly, that analogical reasoning is especially powerful when managers pay attention to characteristics that truly distinguish similar industries from different ones. More surprisingly, we find that the marginal returns to depth of experience diminish rapidly while greater breadth of experience steadily improves performance. Both depth and breadth of experience are useful only when one accurately understands what distinguishes similar industries from different ones. We also discover that following an analogy in too orthodox a manner—strictly constraining search efforts to what the analogy suggests—can be dysfunctional. With regard to structural characteristics, we find that a well-informed analogy is particularly powerful when interactions among decisions cross policy boundaries so that the underlying decision problem is not easily decomposed. Overall, the results shed light on a form of managerial reasoning that we believe is prevalent among practicing strategists yet is largely absent from scholarly analysis of strategy

A Model of Collective Interpretation

We propose a cognitively plausible formal model of collective interpretation. The model represents how members of a collective interact to interpret their environment. Current theories of collective interpretation focus on how heedful communication among members of a collective (i.e., how much individuals pay attention to others' interpretations) improves interpretive performance; their general assumption is that heed tends to be uniformly beneficial. By unpacking the micromechanisms that underlie such performance, our model reveals a more complex story. Heedfulness can benefit interpretive performance. It can help collectives properly interpret situations that are especially ambiguous, unknown, or novel. Conversely, heedfulness also generates conformity pressures that induce agents to give too much weight to others' interpretations, even if erroneous, thereby potentially degrading interpretive performance. These two effects join into a nonmonotonic trajectory that represents how heed relates to interpretive performance: due to its beneficial properties, performance increases with heed until it peaks before degrading due to conformity pressures. The form of this nonmonotonic relationship is contingent on the nature of the task: ambiguous situations make collectives vulnerable to too much heed: ambiguity ignites conformism; novel situations make collectives dependent on heed: novelty requires multiple eyes to be seen. In addition to these results, our model offers a flexible platform that future work can use to explore collective interpretation in a variety of organizational and supraorganizational contexts.We propose a cognitively plausible formal model of collective interpretation. The model represents how members of a collective interact to interpret their environment. Current theories of collective interpretation focus on how heedful communication among members of a collective (i.e., how much individuals pay attention to others' interpretations) improves interpretive performance; their general assumption is that heed tends to be uniformly beneficial. By unpacking the micromechanisms that underlie such performance, our model reveals a more complex story. Heedfulness can benefit interpretive performance. It can help collectives properly interpret situations that are especially ambiguous, unknown, or novel. Conversely, heedfulness also generates conformity pressures that induce agents to give too much weight to others' interpretations, even if erroneous, thereby potentially degrading interpretive performance. These two effects join into a nonmonotonic trajectory that represents how heed relates to interpretive performance: due to its beneficial properties, performance increases with heed until it peaks before degrading due to conformity pressures. The form of this nonmonotonic relationship is contingent on the nature of the task: ambiguous situations make collectives vulnerable to too much heed: ambiguity ignites conformism; novel situations make collectives dependent on heed: novelty requires multiple eyes to be seen. In addition to these results, our model offers a flexible platform that future work can use to explore collective interpretation in a variety of organizational and supraorganizational contexts

Cognition, capabilities, and the evolutionary dynamics of organizations

Understanding the genesis and evolution of organizational capabilities is one of the central concerns of recent theoretical work in strategic management and organization theory. Answering this question is particularly important to the search for an intellectual framework that explains differential performance of firms in Schumpeterian business environments. Following the evolutionary theory of Nelson and Winter (1982), much of this literature emphasizes processes of experiential learning and local search, which lead to the evolution of relatively stable organizational routines. This work proposes that capabilities slowly evolve on the basis of performance feedback from past experience, or as a result of positive and negative reinforcement from prior choices. Although this perspective powerfully describes many aspects of behavior in organizations, it less successfully captures other key organizational phenomena such as intentionality, deliberation, agency and explicit cognition: intelligent action is driven not only by actors\u27 experience in the world, but also by these actors\u27 beliefs or theories about the world. As boundedly rational actors, managers develop simplified representations of their decision problem, and use them to explicitly consider the possible consequences of the choices they make. This thesis attempts to develop a more comprehensive theory about the genesis and evolution of organizational capabilities. It complements evolutionary explanations by jointly considering managerial cognitive processes and the local intelligence of experiential learning. These issues are examined in three essays. The first develops theoretical foundations by using a formal model of organizational cognition and action. The second essay explores the relationship between cognition and action via an in-depth field study of a firm undergoing a radical transition. This study grounds the development of a model, explicated in the third essay, that examines how these processes occur within organizational hierarchies and attempts to show how corporate executives can influence the evolutionary dynamics of firm capabilities

Cognition, capabilities, and the evolutionary dynamics of organizations

Understanding the genesis and evolution of organizational capabilities is one of the central concerns of recent theoretical work in strategic management and organization theory. Answering this question is particularly important to the search for an intellectual framework that explains differential performance of firms in Schumpeterian business environments. Following the evolutionary theory of Nelson and Winter (1982), much of this literature emphasizes processes of experiential learning and local search, which lead to the evolution of relatively stable organizational routines. This work proposes that capabilities slowly evolve on the basis of performance feedback from past experience, or as a result of positive and negative reinforcement from prior choices. Although this perspective powerfully describes many aspects of behavior in organizations, it less successfully captures other key organizational phenomena such as intentionality, deliberation, agency and explicit cognition: intelligent action is driven not only by actors\u27 experience in the world, but also by these actors\u27 beliefs or theories about the world. As boundedly rational actors, managers develop simplified representations of their decision problem, and use them to explicitly consider the possible consequences of the choices they make. This thesis attempts to develop a more comprehensive theory about the genesis and evolution of organizational capabilities. It complements evolutionary explanations by jointly considering managerial cognitive processes and the local intelligence of experiential learning. These issues are examined in three essays. The first develops theoretical foundations by using a formal model of organizational cognition and action. The second essay explores the relationship between cognition and action via an in-depth field study of a firm undergoing a radical transition. This study grounds the development of a model, explicated in the third essay, that examines how these processes occur within organizational hierarchies and attempts to show how corporate executives can influence the evolutionary dynamics of firm capabilities

Searching, Shaping, and the Quest for Superior Performance

This article has three premises. First, much strategy work has tended to focus more on search than shaping the business context. Second, prior research has yet to precisely define and elucidate conceptually what it means to shape the business context. We argue that shaping entails creating or changing the payoff structure\u2014the mapping between the choices that firms make and the payoffs to them\u2014for all firms in a particular business context. Third, research has paid limited attention to the interdependencies between search and shaping, and to what we call the \u201cparadox of shaping.\u201d That is, firms face the paradox that although they can improve their performance by shaping the business context or landscape, the more often other firms reshape the landscape and the more elements of the landscape that other firms alter, the less sustainable are any competitive advantages derived from shaping. Taken together, these premises highlight an important gap\u2013that most theories and formal models of firm performance, strategic opportunities, and competitive advantage, miss an important component of the profitability equation\u2014 and addressing it is precisely what this article aspires to do