Cognitive view on strategy

Cognition is defined in the Oxford dictionary as “the mental action or process of acquiring knowledge and understanding through thought, experience and the senses” (“Oxford dictionaries,” n.d.). Weick (1979) is describes cognition as a self-referential process in which people filter experiences through their cognitive frames, and choose the explanations that confirms their existence. The cognitive view on strategy has its roots in the social construction of reality (Berger &

Luckman, 1966), where reality is seen as something socially constructed and socially shared to build common understandings. Members of an organization build a common understanding while interacting with each other, and by so doing, simultaneously construct organizational values, and rules, and make assumptions in interaction with each other (Huff, 1982; Nadkarni & Narayanan, 2007).

2.2.1 Cognitive structures and processes in strategy work

The cognitive view on strategy links cognitive aspects and strategy at both the individual and organizational levels in both individual and organizational level (Hahn, Preuss, Pinkse, & Figge, 2015; Narayanan et al., 2011; Walsh, 1995) via two constituents: cognitive structures and cognitive processes (Figure 3). Narayanan et al. (2011) identify three elements of cognitive structures: strategy frames, organizational routines and organizational identity. Strategy frames are also discussed in earlier literature by portraying the phenomena as a schema construct (Walsh, 1995), a mental model (Cannon-Bowers & Salas, 1993), a shared cognition (Cannon-Bowers & Salas, 2001), cognitive frameworks (Bogner, Barr, & Robinson, 2000) or as strategy frames (Narayanan et al., 2011). The phenomenon is also analyzed through cognitive maps developed through shared beliefs (Axelrod, 1976;

Langfield-Smith, 1999). Strategy frames acts as “cognitive filters that admit certain bits of information into the strategizing process while excluding others”

(Porac & Thomas, 2002, p. 178). Managers work history and experiences influence their cognitive frames, as a previous career affect both their perceptions of the reality and search mode (Beyer et al., 1997). If managers are used to working on internally-oriented activities, such as accounting or engineering, they tend to highlight the task orientation and internal efficiency. Hence, externally- or customer-oriented managers, for example marketing or R&D, tend to focus more on meeting competing demands of different stakeholders and therefore their cognitive frames are usually broader than internally focused managers (Hambrick

& Mason, 1984; Maon, Lindgreen, & Swaen, 2008).

Cognitive structures; strategy frames, organizational routines and organizational identity, enable sensemaking by including executives beliefs about strategy work,

the environment, and the connected processes (Finkelstein & Hambrick, 1996;

Porac & Thomas, 2002). To put it differently, cognitive structures acts as the tools for the sensemaking process (Bundy et al., 2013; Thomas et al., 1993). Although cognitive structures are seen as more stable behavioral patterns, both cognitive structures and processes evolve over time in organizations, and heavily influences organizations’ strategy work and strategic initiatives (Narayanan et al., 2011).

Cognitive processes are described as including the things executives know, believe, and think they know (Finkelstein & Hambrick, 1996). Narayanan et al. (2011) divide cognitive processes into 1) strategy formulation, 2) strategy implementation, 3) strategic change and 4) organizational learning. This study adopts framework of strategic cognition (Einola, 2017), and defines cognitive processes as phases of the strategy work process, which includes knowledge acquisition, sensemaking, decision making, and strategic adaptation. Cognitive structures and processes are influencing in organizational strategizing, processes faster and more visible, while structures slower and more unconsciously.

Figure 3. The framework of cognitive structures and processes in strategy work.

2.2.2 Sensemaking

“We considered ourselves lost and waited for the end. And then one of us found a map in his pocket. That calmed us down.

We pitched a camp, lasted out the snowstorm and then with the map we discovered our bearing. And here we are.

The lieutenant borrowed this remarkable map and had a good look at it.

He discovered to his astonishment that it was not a map of the Alps but of the Pyrenees”.

(Weick, 1995, p. 54) originally by Miroslaw Holub

The sensemaking poem above that Weick (1995) made famous, illustrates well the sensemaking process. In that process, people are retrospectively trying to answer for what they believe they ought to have been doing (Gioia, 2006; Mangham & Pye, 1991; Weick, 1995). Sensemaking happens through conversations and interpretations made in ongoing dialogical discourses, when trying to make sense of the reality and the surrounding world (Gephart, 1993; Giddens, 1984). Weick and colleagues. (2005, p. 409) claim that organizations and situations are talked into being. The interplay between action, talk, and interaction is at the core of the sensemaking process. The process of sensemaking enables organizations to build not only a shared language, but also shared thinking, and organizational learning (Nahapiet & Ghoshal, 1997). The sensemaking process involves actions and interpretations through which an organization aims to understand the surrounding world through retrospection (Weick, 1995).

Sensemaking spring into action when something unusual happens, while in routine business situations the organization proceeds as if on autopilot. When something peculiar awakens an actor from their routines, it triggers sensemaking and its first phase enactment to engage (Weick, 1988). In the enactment phase, actors start to notice and observe the ambiguous situation, and bracket things to bring order to obscurity and to group the notions formed following a peculiar happening (Weick et al., 2005). After noticing and bracketing, the second phase of sensemaking is selection. In the selection phase, labeling and categorizing reduces interpretations. In this phase, mental models and discussions frame the labeling process, to enable the construction of a plausible story about what has been happening (Tsoukas & Chia, 2002; Weick et al., 2005). After labeling, actors categorize possible explanations, which remain unconfirmed until the last sensemaking phase, retention, where the story gains greater stability. In the retention phase the plausible story is “talked into being through the interactive

exchanges of organizational members to produce a view of circumstances including the people, their objects, their institutions and history” (Taylor & Van Every, 2000, pp. 33–34; Weick et al., 2005).

Mangham and Pye (1991, pp. 27–28) describe sensemaking as a “cyclical ongoing process of sense reading and sense wrighting” (in the sense that a shipwright

“wrights”). Sensemaking occurs in both individual and organizational levels, as sensemaking at the individual level shapes the organizational level sensemaking processes and outcomes (Rouleau & Balogun, 2011). In addition to retrospective sensemaking studies, scholars have put addressed to prospective sensemaking (Stigliani & Ravasi, 2012; Wright, 2005), sensegiving (Gioia & Chittipeddi, 1991;

Maitlis & Lawrence, 2007), and sensebreaking (Mantere, Schildt, & Sillince, 2012).

In this study, the sensemaking process is viewed through a retrospective lens (Einola, Kohtamäki, Parida, & Wincent, 2017), especially in a context of relational R&D offshoring, in where the organizational members are retrospectively trying to understand the phases of strategic change in relational R&D collaboration.

2.2.3 The cognitive view on decision making

Strategic decisions have for decades been seen as “important, in terms of actions taken, the resources committed, or the precedents set” (Mintzberg, Raisinghani, &

Théorêt, 1976, p. 246). Strategic decisions and decision making is claimed to be crucial for the success of organizations because of its role in determining the course taken by organizations (Eisenhardt & Zbaracki, 1992), which explains the popularity of strategic decision-making research among strategy process scholars (Amason, 1996; Bromiley & Rau, 2016; Hutzschenreuter & Kleindienst, 2006).

Studies from the Carnegie school (March & Simon, 1958), argued that complex decisions are more affected by the interpretations of a decision maker, than the result of mathematical calculations or objective observations. To the alternative perspective of mathematical modeling of decision making, Simon introduced the idea of bounded rationality (Simon, 1957) to show how people are only partially rational, and that cognitive limitations affect to decision making. Building on the Carnegie School, Hambrick and Mason (1984) identified how manager’s cognitive base, values, age, education, experiences and personalities heavily influence to their interpretations of a situation and the strategic choices they made. Pihkala and colleagues (2007) show systematic differences between the views of politicians and other decision makers when aiming to develop regional adaptation, and as a solution, they highlight the role visionary, leadership, and networking capability in development and decision making. Furthermore, Bromiley and Rau (2016) divide factors influencing the strategy process and strategic decision making into

social and behavioral and cognitive influences. Social and behavioral influences include constructs that influence a decision maker’s behavior or actions, are natural to executives, and/or happen in interaction with each other. Cognitive influences relate to managers thinking and are connected to information processing (Bromiley & Rau, 2016).

While earlier research highlights the role of rationality and bounded rationality in decision making, recent and more managerial studies deepen the understanding of the cognitive biases influencing strategic decision making (Johnson, Scholes, &

Whittington, 2008; Kahneman, Rosenfield, Gandhi, & Blaser, 2016). Biases, such as over optimism, loss aversion, champions’ bias, the principal agent problem, and sunflower syndrome are recognized as affecting decision-making processes (Lovallo & Sibony, 2006). Real-time information can play a role in preventing biases and their impact, which is a topic discussed in this dissertation’s fourth article. Organization-level data gathering, data analysis and the structured usage of data in decision making certainly enhances decision making. That said, as

“leadership of a complex organization is a shared activity, and the collective cognitions, capabilities, and interactions of the entire TMT (top management team) enter into strategic behaviors” (Hambrick, 2007, p. 334), no amount of data can ensure that decisions made are exactly the correct ones. This notion in mind, this study highlights the role of participation of practitioners in decision-making to ensure multifaceted phenomenon acquires different organizational perspectives to improve decision making.