Cognition

1. Cognition CH Kim and Luis Rios

2. Propositions: Are organizations systematically stupid? (Feldman & March, 1981) • H1 Managerial Cognition at top and middle management level is key to strategy, as it provides the guidelines for organizational action. • H2 Role of managerial cognition is exaggerated. Cognition is distributed and embedded into structure and processes. Management has little scope to change it.

3. It is reasonable to doubt that managers can impact a firm’s cognition • Organizational routines and processes are well suited for the processing of information (production functions, inventory, manufacturing, etc.) with clear inputs and outputs. • Each departments local search is a “precise guideline in one particular setting” (Weick, 1990) • Managers seem to be good at “crude guidelines useful in several settings” • Why would a local expert (scientist, account manager, floor shop leader, etc.) trust that a top manager in a remote corporate office actually “knows” better? • “I don’t need an MBA to figure out how to get down from a mountain” Pyrenees Rockies Mt. Levinthal Alps

4. OK, now what do we do? • Cognition may indeed be embedded into organization structure, but embedded cognitions may clash • (each department goes in a different direction to get off their mountain!) • Local cognition may not be able to navigate rugged terrains (see beyond) • Many firms and situations are similar enough that broad managerial experience is necessary sometimes

5. The Myth of Maps (when “good enough” is good enough) • It is likely an oversimplification to say that “motivation” is enough, but if you don’t move, you won’t move • And, it turns out the Pyrenees actually DO resemble the Alps! (as suggested by Gavettti, et.al., 2005) • Cognitive representations (analogies, symbols) can be dangerous—they have to be ”good enough” • If instead they had a map of the Rockies, they would have never gotten off the mountains. • And what if they had two wrong maps? (Polaroid) • Managerial cognition (leadership) may also resolve dissonance between conflicting organizational maps Cognitive Map 2: Rocky Mountains Reality: Alps Cognitive Map 1: Pyrenees

6. The Analysis of Propositions Proposition 1 Cognition in Top/Middle StrategyMaking StrategyImplementation Cognition embeddedin structure and processes ?? Proposition 2

7. Test Beds External Fit(Fitness to Environment) Cognition in Top/Middle Ο Ο Cognitions Embedded in Structure & Processes Ο Ο ① ② ① When cognitions embedded in structure and processes fits to environment unlike cognitions in Top/Middle? When cognitions in Top/Middle fits to environment unlike cognitions embedded in structure and processes? ②

8. ① When cognitions embedded in structure and processes fits to environment unlike cognitions in Top/Middle? Industry Firm Tripas, Mary and Gavetti (2000) Digital Camera Polaroid • - Cognitions/Capabilities embedded in structure and processes failed to overcome cognitions in top/middle management. • Gate-Keeping • Framing • Political Power in allocating resource Teece (1986) CAT Scanner Cola EMI RC Cola Hiltzik (1998) Software (Graphic User Interface) Xerox PARC Lab

9. When cognitions in Top/Middle fits to environment unlike cognitions embedded in structure and processes? ② Reinforcing power to keep organizational structure Momentum for Change Organizational Inertia Institutional Power of Managers • Organizational selection favors INERT structures, because inert structures gives reliability and accountability(Hannan & Freeman). • Structure Inertia prevents radical change. • Dynamic Capability • Meta-Routines : Routines for changing routines • Change of TMT It depends on Competency Trap Declining Performance • Complexity of experience: size (amount of information) is negatively related with transformation • Complexity in interpreting experience: how orgs interpret market signal; external environment mediates • Problematic Search : When performance does not meet the aspiration/goal, organization begins search activity(Cyert and March 1963) • Change can be beneficial for low-performing organizations (Greve 2003)

10. When cognitions in Top/Middle fits to environment unlike cognitions embedded in structure and processes? ② Moderators Uncertainty • Unlike risk, under uncertainty org. does not have any probability function. So, extant frameworks, norms, and beliefs do not work. • Selection of a new analogy(Anchoring by mangers)  Shaping the area of subsequent local search (Gavetti, Levinthal & Rivkin2005) • Framing (Kaplan 2008) • Attention to / Recognition of facts • Interpretation of performance • Framing contests  Transform cognitive frames Managerial Discretion (Hambrick &Finkelstein 1997) • Environmental Condition : Cultural Difference • Organizational Factors : Week/Strong Board/ The existence of slack • Agent Factors : Endurance to the ambiguity

11. Conclusion • Cognition in Top/Middle Managers do matter even when the cognition does not represent the reality well. • It is not easy to transform cognitions embedded in structure and processes even though the cognitions do not fit to the environment. • Uncertainty, novelty, managerial discretion, negative feedback from environment forms a momentum for changes in cognitions. (note: representation of managerial importance not to scale)