Behavioral Strategy in Perspective: Volume 39

Cover of Behavioral Strategy in Perspective
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Table of contents

(21 chapters)

Prelims

Pages i-viii
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Part I The Field of Behavioral Strategy and its Evolution

Abstract

The earliest contributors to discussions of strategy were advisors to military leaders, and that model was carried into early business schools, where the teachers of strategy were, for the most part, people with extensive experience as executives or advisors to them. The key course materials were anecdotes and cases, and the standard intellectual discourse was organized around recollected episodes in organizational history. The central contributions of the early teaching of strategy were consciousness of the complications introduced by complexity, competition, and attention to the second-order surprises of intentional action. There was neither a pretense of theory nor a significant involvement in research.

Although it shared in the onus of a general academic skepticism about the academic legitimacy of research on business, the “discipline” of strategy sought to emulate the attributes of more established disciplines. The new field was typified by an early open interdisciplinary flavor that facilitated the differentiation of a new field, and a subsequent refinement that restricted access. By the start of the twenty-first century, this process had run much of its course, and the field of strategy had taken its place as a reasonably respectable academic specialty. The history of an emphasis on real organizations in real situations led to an openness to anchors drawn from sources other than conventional economics. These included particularly the theory of games, the evolutionary theory of the firm, and the behavioral theory of organizations.

The struggle for respectability in economics was repeatedly frustrated by the difficulty of discovering a formulation that honored the litany of economics while fitting the observations of real strategy making. The future seems likely to be more of the same, a combination of efforts to secure recognition through emulation of the standards and barriers to entry that characterize established disciplines, and of exploratory gambits that are mostly destined to be forgotten. The optimal balance is likely to be as elusive as it is in other domains.

Abstract

Despite widespread interest in “behavioral strategy,” it is not clear what this term, or its associated academic subfield, is all about. Unless a critical mass of scholars can agree on the meaning of behavioral strategy, and professionally identify with it, this embryonic community may face a marginal existence. We describe three alternative conceptions for the academic subfield of behavioral strategy, along with assessments of the pros and cons of each. The “small tent” version amounts to a direct transposition of the logic of behavioral economics to the field of strategic management, specifically in the style of behavioral decision research. The “midsize tent” view is that behavioral strategy is a commitment to understanding the psychology of strategists. And the “large tent’ view includes consideration of any and all psychological, sociological, and political factors that influence strategic outcomes. We conclude that the midsize tent represents the best path forward, not too narrow and not too broad, allowing rich scope but with coherence. The large tent conception of behavioral strategy, however, is not out of the question and warrants serious consideration.

Abstract

In this chapter, I draw from theory and research on intergroup relations and decoupling to critique prevailing conceptions of behavioral strategy, and then propose a viable alternative. I suggest that prevailing definitions of behavioral strategy exclude or marginalize theoretical perspectives that should logically be included, which has (1) created undesirable ingroup/outgroup dynamics in the strategy field and (2) resulted in decoupling between behavioral strategy as defined by category leaders and the actual content of research conducted by category members. I contend that this state of affairs has likely reduced the impact of behavioral strategy on other disciplines, and also likely constrained its impact on non-academic audiences. As an alternative, I propose a more interdisciplinary approach that involves identifying behavioral mechanisms that explain how social and psychological processes at different levels of analysis interact and interrelate to affect strategy and performance.

Abstract

This paper reflects on the evolution of implicit and explicit behavioral ideas in the field of strategic management using Herbert Simon’s scholarship as a starting point, that is, his emphasis on empirically driven; interdisciplinary theorizing allowing and enabling two-way street learning. We argue that historically, there were plenty of behavioral ideas embedded in the field and, together with the recent movement towards explicit “behavioral strategy,” these provide several possible paths for future developments in strategic management research. In the spirit of broadening the tent for behavioral strategy in the future (Hambrick & Crossland, 2018), we suggest some topics and approaches for behavioral strategy in empirically driven, interdisciplinary directions which allows also for two-way street learning between concepts and real-world strategic phenomena.

Part II Perspectives on Behavioral Strategy and Strategizing

Abstract

The strategy field has historically addressed the problem of strategy as a problem of ex-ante economic calculation of pay-offs associated with alternative choices. Given the inherent intractability of such problems, at least with respect to identifying an optimum, behavioralism is in some form inevitable. However, behavioralism need not imply a lack of intentionality or even high-order design efforts. The argument proposed here is for a focus on the design of organizations as complex, adaptive systems that are more or less capable of achieving satisfactory strategic outcomes.

Abstract

Behavioral strategy aspires to build theories that are behaviorally plausible. However, the diversity of human behaviors can make it challenging to know what behavioral assumptions to use when building theories about organizations and their strategies. Fortunately, organizational contexts are, to varying degrees, designed. This introduces a powerful set of levers – sorting, framing, and structuring – that reduce this diversity of behavioral possibilities to a tractable yet plausible few. Attention to the organizational contexts that shape individual and group behavior can, therefore, help behavioral strategists attain their objectives of building theories with sound behavioral foundations.

Abstract

Problemistic search is a central part of behavioral strategy because it is a fundamental step in the decision process leading to strategic change. Despite the significant research efforts so far, there is a gap in our understanding of search. Unlike the theory of myopic search, most research so far has emphasized search initiated by performance relative to aspiration levels on goals that are too broad to justify directing search toward the form of strategic change selected for investigation. In the following, I outline the foundation of an extended theory of problemistic search in response to broad goals through either broad search, use of multiple goals, use of power, reliance on cognitive biases, or responses to environmental stimuli. Each of these processes, alone or in combination, can give more specific predictions of where firms search when encountering performance below aspiration levels on broad goals. Substantial progress in empirical research is needed, however, to distinguish which of these processes occur.

Abstract

What can a behavioral approach contribute to the understanding of strategizing? Assuming that “strategizing” is a deliberative process typically engaged in by small groups in the leadership of a large organization, the most promising targets for behavioral studies may not be that process itself. Attention could well go instead to the organizational sensors that detect strategic issues and provide the information input for considering them, and the constraints that limit implementation. In contrast to the content of deliberation, these sensors and related structures are often slow-moving organizational traits and may be readily observable from external vantage points – such as the position of an observer seeking to predict the strategic choices of the organization.

Abstract

There are many cases where top management either missed or almost missed detecting or interpreting a major change in the environment that might have led them to a major setback. We propose a model of sensing in hierarchical organizations that describes a sequence of sensing and detecting changes in the environment, followed by successive stages of perception, interpretation, and finally action. We model an organization as a complex signal detection system, where the flow of information among members of the organization is constrained by two elements: the structure of the organization, which is defined by who reports to whom, and the attentional and cognitive limitations of the individuals. We infer the probability of sensing over time for different levels of environmental shocks and different organizational structures. By focusing on the (un)reliability of sensing and the information flow in different organizational structures, we are able to provide preliminary analysis of the trade-offs among cognitive limitations, speed of detection, modes of information flow, and the resulting performance measure of delay, false-alarms, and true detections.

Abstract

Herbert A. Simon and Alan Newell won the Turing Award jointly in Computer Science for foundational work on Artificial Intelligence. Simon also won the Nobel Prize in Economics for the concept of “bounded rationality.” In both cases, the same heuristic was deemed fundamental: “Search till a satisfactory solution is found.” We argue that behavioral strategy can learn a great deal from the Theory of Computational Complexity and Artificial Intelligence. These fields can provide a sounder theoretical grounding for bounded rationality and for the necessity and usefulness of heuristics. Finally, a concept of “organizational intractability” based roughly on the metaphor provided by the Theory of Computational Complexity may be useful in determining what analytical decision technologies are actually intractable in real organizations with constraints on time and managerial attention.

Abstract

Behavioral decision research focuses on cognitive biases and other barriers to economic rationality. However, if cognitive biases are costly to eliminate, the second-best solution to bounded rationality may be less rationality rather than more. I define the concept of behavioral rationality and discuss two extreme forms of strategizing, which I call Romantic and Mercenary. Using twentieth century humanitarian Albert Schweitzer as a case study, I discuss the optimization of economic and behavioral rationality. I argue that the success of behavioral strategy as a field does not depend on removing cognitive biases but on helping people deliver more effective strategic actions.

Abstract

By theorizing choice as an information and decision problem, behavioral strategy research has not considered fully the agentic capacities of strategists. We argue that agentic capacities are distinct from decision-making and information-processing capacities as they rest on temporally anchored engagements with the world through habit, imagination, and judgment. We propose that understanding agency as temporally anchored action capacities is particularly important for research in behavioral strategy, as strategic phenomena encompass accumulated experience and path-dependencies (the past), ongoing competitive, market, and organizational interactions and exchanges (the present), and plans, visions, and forecasts for the future (the future). We outline how strategic choice and agency involve cognitive engagement in the three time horizons through distinct cognitive capabilities and the organizational processes that support them.

Abstract

I seek to further develop the behavioral approach to strategic management through sketching a communitarian view of the firm. Specifically, I argue that the latter, informed by a practice-based onto-epistemology, especially a neo-Aristotelian understanding of praxis, and the related institutional work of Selznick, suggests the centrality of value commitments firms make, which, through habituation, are integrated to form organizational character. The latter provides firms with certain core competences – a distinctive style with which practitioners enact their tasks. Organizational character helps confront the self-command problem firms face. However, the behavioral consistency that character provides may lead to rigidities when competitive circumstances change, while organizational character, through praxis, may take on features that prevent the leadership of a firm from realizing the novelty of the circumstances in order to modify existing core competences and the accompanying organizational character dispositions.

Part III Behavioral Strategy in Action

Abstract

Can (and should) strategy scholarship attempt to find general prescriptions for business strategy that are applicable to all firms across all business conditions? We suggest that a universal theory of business strategy is a chimera: attractive but completely illusory. Our argument is based on two fundamental insights namely, organizations do not automatically adopt all practices and activities that could benefit them (even if knowledge about those activities is in the public domain), and theories and empirical work can address portions of the strategy problem usefully without attempting or achieving a general theory of strategy. Based on this, we believe strategy scholarship can fruitfully build on a variety of mid-range theories to offer three things from a prescriptive standpoint: (1) understanding the structure and processes inherent in organizations and markets; (2) offering productive ways to frame and analyze problems; and (3) offering recommendations for stratagems that appear successful. More generally, organizations might find immense value in strategy scholarship that offers specific tools, prescriptions, and alternative ways of looking at a problem, and that raise performance, on average.

Abstract

Behavioral strategy completes the analyses of superior profitability by highlighting how non-economic, behavioral barriers generate an alternative source of strategic opportunities. Existing internal and external analysis frameworks fail to explain why strategic factors can be systematically mispriced and why large firms’ structural and resource advantage are regularly disrupted by entrepreneurs. We argue that the systematic biases documented in the behavioral and organizational sciences in fact illuminate an alternative source of competitive advantage. Strategists could develop superior insights into the value of resources and recognize factors that are either under- or overvalued while competitors remain blind to such possibilities. Our argument is illustrated by how three “underdogs” disrupted the incumbents in their industries by exploiting rivals’ predictable biases and blind spots. We conclude by discussing how our ideas can be generalized as an alternative, behavioral approach for strategy.

Abstract

Measuring behavior requires research methods that can capture observed outcomes and expose underlying processes and mechanisms. In this chapter, we present a toolbox of instruments and techniques we designed experimental tasks to simulate decision environments and capture behavior. We deployed protocol analysis and text analysis to examine the underlying cognitive processes. In combination, these can simultaneously grasp antecedents, outcomes, processes, and mechanisms. We applied them to collect rich behavioral data on two key topics in strategic management: the exploration–exploitation trade-off and strategic risk-taking. This mix of methods is particularly useful in describing actual behavior as it is, not as it should be, replacing assumptions with data and offering a finer-grained perspective of strategic decision-making.

Abstract

Courses in strategic management should teach future strategists how to react to unexpected strategic events such as the appearance of innovative technologies, proposed mergers, drastic changes in production costs, or major actions by competitors or customers. Strategic events often trigger important changes in strategies, and reactions to strategic events make the difference between long-run success and failure. Courses can teach students about the philosophical and psychological difficulties posed by complex environments and uncertain futures and teach some procedures that help to assure that important issues receive consideration. Research may be able to identify some decision-making heuristics that foster success.

Part IV Epilogue

Index

Pages 275-286
Content available
Cover of Behavioral Strategy in Perspective
DOI
10.1108/S0742-3322201839
Publication date
2018-09-21
Book series
Advances in Strategic Management
Editors
Series copyright holder
Emerald Publishing Limited
ISBN
978-1-78756-348-3
eISBN
978-1-78756-347-6
Book series ISSN
0742-3322