Enhancing mental models,analogical transfer,and performance in strategic decision making

Recent research suggests that managers often make strategic decisions in novel situations by utilizing past experiences to reason by analogy. However, there is substantial evidence that decision makers often fail to identify and apply knowledge about one situation to a similarly structured situation. Two experimental studies investigated the mechanisms impacting knowledge transfer from one managerial situation (the source) to an analogous situation. The results show that exposure to variation in the source situation improves transfer performance. Variation decreases performance in the short term but improves learning and increases analogical transfer. Higher performance on and systematic search of the source situation also increase transfer performance. These results yield important implications for enhancing analogical transfer in strategic decision making and for future research on reasoning by analogy. Copyright © 2012 John Wiley & Sons, Ltd.     

Strategic groups and competitive enactment: a study of dynamic relationships between mental models and performance

This study used computer-assisted content analysis of more than four hundred presidents' letters to shareholders to examine empirical linkages between cognitive strategic groups clustered by themes in the reports and strategic groups clustered by performance. We found these groups converged as predicted by the literature, and that mental models and performance are involved in a recursive process of competitive enactment which contributes to strategic group stability. Our research used inductively derived themes from the letters to structure a mental model widely shared in the pharmaceutical industry, and then employed thematic variations to find stable clusters of companies. These thematic clusters were triangulated with the strategic groups from a published study of the same industry, in the same period, and were shown to converge. Additionally, longitudinal linkages between earlier mental models of strategic goals and later reports of performance were found. The findings of our large-scale empirical study support strategic group theory, demonstrate a novel approach to data mining, and pose questions for future research. Copyright © 2001 John Wiley & Sons, Ltd.     

Using panel data dea to measure CEOs' focus of attention: An application to the study of cognitive group membership and performance

In this study, we examine the existence and performance of cognitive groups. In accordance with the attention‐based view of managerial cognition, cognitive groups are defined as groups of firms in which the CEOs focus their attention on similar strategic elements when seeking to maximize their firm's competitive advantage. We developed a panel data extension of the original Data Envelopment Analysis to gauge CEOs' focus of attention and then clustered firms into groups. We compared our approach with other approaches that use content analysis of CEOs' letters to shareholders and CEOs' demographic characteristics to measure CEOs' attention. Although the different approaches are related, indicating the existence of a common underlying construct (i.e., mental models), our approach explains a higher proportion of the variation in organizational performance. Copyright © 2014 John Wiley & Sons, Ltd.     

Mental models,decision rules,and performance heterogeneity

This paper focuses on the role of managerial cognition as a source of heterogeneity in firm strategies and performance. We link differences in mental models to differences in decision rules and performance in a management simulation. Our results show more accurate mental models lead to better decision rules and higher performance. We also find that decision makers do not need accurate knowledge of the entire business environment; accurate mental models of the key principles are sufficient to achieve superior performance. A fundamental assumption in much of strategic management is that managers who have a richer understanding about organizational capabilities and the dynamics of industry structure can improve the performance of their firms. Our findings provide empirical evidence supporting this assumption and show that differences in mental models help explain ex ante why managers and firms adopt different strategies and achieve different levels of competitive success. Copyright © 2010 John Wiley & Sons, Ltd.     

Relating strategy and structure to flexible automation: A test of fit and performance implications

This study analyzed various strategy and structure choices to determine their fit relationship with flexible automation (FA). ¹Using the moderator hypothesis, we proposed that the more strategy and structure choices complemented FA's competences, the higher would be the performance impact of FA. Data from 87 FA users indicate that quality and flexibility strategies, described as complementary to FA's strengths, interact positively with FA. Low cost strategy, described as conflicting with FA, interacts negatively. Organic structure, viewed as complementary to FA, has only main effects whereas a mechanistic structure interacts negatively. At the manufacturing level, skill diversity and team approaches, considered as complementary to FA, interact positively. While a subgroup analysis of high-low performers lends additional support to these relationships, analysis of industry subgroups indicates that some relationships are industry specific. We discuss the implications of these findings for research and practice.     

Search behavior of the diversified firm: The impact of fit on innovation

This paper provides a new approach to account for the relationship between diversification and innovation by integrating insights concerning strategic fit. We argue that the type of diversification strategy leads to greater innovation output when the appropriate technological search strategy is employed. Using a longitudinal study of the patenting activity of 258 manufacturing firms, we find that strategic fit is important for innovation output. More specifically, a related diversification strategy leads to greater innovation when firms use a narrow technological search strategy. In contrast, an unrelated diversification strategy leads to greater innovation when a broader technological search strategy is used. Implications for future research are discussed. Copyright © 2013 John Wiley & Sons, Ltd.     

Modeling the dynamics of strategic fit: a normative approach to strategic change

This study develops and tests a dynamic perspective on strategic fit. Drawing from contingency and resource‐based arguments in the strategy and organizational theory literatures, we propose a distinctive analytical approach to identify environmental and organizational contingencies that should predict changes in a firm's strategy and the performance implications of such changes. We test our model using extensive longitudinal data from over 4000 U.S. savings and loan institutions during a period when many S&Ls considered changing strategic direction. The findings support our model of dynamic strategic fit. Specifically, we find that (1) the timing, direction, and magnitude of strategic changes can be logically predicted based on differences in specific environmental forces and organizational resources, and (2) organizations that deviated from our model's prediction of dynamic strategic fit (i.e., changed more or changed less than our model prescribed) experienced negative performance consequences. We conclude by discussing the implications of our approach and findings for future research on strategic fit and strategic change. Copyright © 2000 John Wiley & Sons, Ltd.     

How organizations promote person-environment fit: using the case of japanese firms to illustrate institutional and cultural influences

The majority of person-environment (P-E) fit studies have been conducted in the Western context and little is known about the process through which organizations promote P-E fit. In this paper, I illustrate how Japanese organizations promote multiple types of P-E fit through their human resource practices. I also develop conceptual models in which promoting P-E fit in Japanese firms is contrasted with that of U.S. firms. The case and models suggest that institutional and cultural contexts affect the way organizations promote P-E fit. Future research directions for a better understanding of P-E fit management especially in the Asia-Pacific region are discussed.     

The antecedents and innovation effects of domestic and offshore R&D outsourcing: The contingent impact of cognitive distance and absorptive capacity

This paper analyzes differences in the antecedents and performance consequences of domestic and offshore R&D outsourcing. Offshore outsourcing is characterized by larger cognitive distance. We find that absorptive capacity from internal R&D allows for more offshore outsourcing and that offshore outsourcing leads to more positive innovation outcomes, especially product innovation.     

Ceos' cognitive maps and the scope of the organization

In this paper, CEOs are considered as ‘cognizers’ charged with integrating views in the top management team; a role which should require high cognitive complexity especially in diversified multinational corporations. A methodology for studying top managers' cognitive complexity is described and then applied to a sample of 26 CEOs. The CEOs' cognitive maps of the structure and of the dynamics of their industry are analyzed in terms of their degree of complexity, in relation to the breadth of the business portfolio of the firm, its geographic scope and the links the firm has with foreign parents. The results of this exploratory test generally confirm the principle of requisite cognitive complexity, and reveal a new set of more precise hypotheses linking particular dimensions of the scope of the firm with particular dimensions of CEOs' cognitive complexity.     

Organization–stakeholder fit: A dynamic theory of cooperation,compromise, and conflict between an organization and its stakeholders

Research Summary : We advance the concept of organization–stakeholder fit (O–S fit) to explain cooperative behavior between an organization and its stakeholders. O–S fit describes the compatibility that exists between an organization and a stakeholder when their characteristics are well matched. We highlight two dimensions of O–S fit: value congruence, or the supplementary fit of organizational and stakeholder values, and strategic complementarity, or the complementary fit of strategic needs and resources. For each dimension, we detail the unique relational factors—including core elements of trust, predictability, attraction/exchange, and communication—that motivate cooperation. We then explicate the ways in which value congruence and strategic complementarity dynamically interrelate over time. Finally, we consider how organization‐stakeholder misfit may result in alternative relational behaviors, such as conflict or compromise. Managerial Summary : We develop a new way of thinking about the relationship between organizations and stakeholders. Recognizing that positive relationships require a degree of fit or compatibility, we argue that cooperative behavior between an organization and its stakeholders is maximized when relational partners share both core values and strategic priorities. We explain that high fit along these two dimensions increases trust, relational predictability, attraction/exchange, and communication. We also describe how positive relationships might be formed with fit along only one dimension, and how negative relationships might result in the presence of misfit. Ultimately, we suggest that managers who want to foster positive relationships with stakeholders should concentrate on aligning their values and priorities, rather than simply concentrating on one or the other.     

Entangled decisions: Knowledge interdependencies and terminations of patented inventions in the pharmaceutical industry

Research Summary : This study explores the role of knowledge interdependencies on the termination of patented inventions. Termination refers to the abandonment of inventive efforts that are no longer deemed promising. We argue that high interdependencies between an inventive effort and the other inventions in the same research program will increase the cognitive burden on managers and decrease the likelihood of termination. Further, in the presence of interdependencies, managers are likely to rely on heuristics for termination decisions. We focus on two such heuristics: interdependencies of an invention with those in other research programs and the level of external competition in the research program. We test our hypotheses with longitudinal data on patent terminations through non‐payment of renewal fees in the pharmaceutical industry. Managerial Summary : Effective management of innovation portfolios requires termination of opportunities that are no longer promising. Most current tools on termination assume that opportunities to be evaluated are independent from one another. This assumption may limit their usefulness in increasingly complex research domains, such as pharmaceutical R&D. In this study, we investigate how interdependencies among inventions influence firms' tendency to terminate those inventions. Our results on patent terminations show that a patent that is more interdependent with other patents in the same research program is less likely to be terminated. This suggests that managers may have difficulty in evaluating the inherent value of interdependent opportunities. This result is stronger when the patent is less interdependent with those in other research programs or in a more competitive area.     

The effects of strategic and market complementarity on acquisition performance: evidence from the U.S. commercial banking industry, 1989–2001

Most traditional research on mergers and acquisitions tends to focus on the role of similarity in explaining acquisition performance. While scholars have recently begun to examine acquisition complementarity, there is still little evidence concerning how complementarity influences acquisition performance. Further, previous research has not drawn the connections between related contexts and the potential benefits from complementarity. In this article, we move the study of acquisition complementarity forward by investigating the effects of strategic and market complementarity on acquisition performance in the context of related horizontal acquisitions. We also propose that two key attributes of acquirers—strategic focus and out‐of‐market acquisition experience—will moderate this relationship. We investigate our research questions in the context of all 2,204 acquisitions made by publicly traded U.S. commercial banks during the 12‐year period from 1989 to 2001. Our findings are generally supportive, suggesting complementarity is an important antecedent of acquisition performance, and raising important issues on the nature of acquisition research in general. Copyright © 2009 John Wiley & Sons, Ltd.     

The plurality of co-existing business models: Investigating the complexity of value drivers

Business models are key tools to provide a means of operationalizing theories about firm and industry level strategies, and to understand the nature of value drivers and the role of marketing in these processes. In this paper we assess empirical evidence for a plurality of co-existing business models within firms by developing a typology of business models in a single industry, the New Zealand Wine industry. We examine the co-existence of the types of models using in-depth analysis of seven case firms that vary in size and ownership. Our findings show how value creation is done in the context of interactions and they provide support for multiple business models that co-exist alongside each other with varying degrees of separation. Plurality better explains the complexity of value drivers and strategies for firms in this rapidly changing industry environment, where businesses are under extreme financial pressure. Our findings challenge assumptions that firms have (or should have) a single business model thus allowing a plurality of approaches within a single firm or industry that shifts the focus from implementing strategy A or B or C, to implementing strategy A and B and/or C.     

Mental representation and the discovery of new strategies

Research summary : Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect how managers search for profitable strategies as well as the quality of strategies they discover. To study how mental representation and search interact, we formally model the dual search over possible representations and over policy choices of a strategy “landscape.” We analyze when it is preferable to emphasize searching for the best policies rather than the best mental representation, and vice versa. We show that, in the long run, a balance between the two search modes not only results in better expected performance, but also reduces the variation in performance. Additionally, the article describes conditions under which increased accuracy of mental representations can actually worsen firm performance. Managerial summary : Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect the quality of strategies managers can discover. We analyze a computer simulation of how managers use mental representations to search for strategies. This sheds light on how managers should deal with the trade‐off between searching for policies and searching for representations; that is, whether managers should think creatively about how to represent a strategy problem or whether they should just stick to the current problem understanding, and try to find ways to improve performance as suggested by the current representation. We provide insight regarding the balance between the two search modes and describe conditions under which increasingly accurate mental representations can worsen firm performance. Copyright © 2015 John Wiley & Sons, Ltd.     

Unveiling the role of risk-taking in innovation: antecedents and effects

This study addresses innovation development with a focus on risk-taking, widely considered a relevant driver for the exploration and exploitation of new ideas. The study empirically examines the effects of risk-taking propensity on innovation performance and its antecedents. We consider the role of several key antecedents related to the organizational structure and the activities of firms aimed at encouraging employees to take risks in innovation. We performed an empirical survey within a global and innovation-oriented Swedish company to test our hypotheses. Correlation and linear regression analyses were used to analyze the collected data. The results highlight the significant effect of risk-taking on innovation performance and show that the availability of organizational resources, innovation support activities, clear innovation goals, and collaboration have a significant positive effect on risk-taking. However, contrary to the hypothesis, well-established innovation processes have a significant but negative effect on risk-taking and innovation performance. This study contributes to existing knowledge on the role of risk-taking for innovation, providing insights into designing organizational contexts that encourage an appropriate risk appetite in employees.