Cognitive Diversity, Managerial Characteristics and Performance Differences across the Cleantech Firms

Cognitive Diversity, Managerial Characteristics and Performance Differences across the Cleantech Firms

Jukka-Pekka Bergman (LUT University, Lappeenranta, Finland), Pasi Luukka (LUT University, Finland), Ari Jantunen (LUT University, Lappeenranta, Finland) and Anssi Tarkiainen (LUT University, Lappeenranta, Finland)
Copyright: © 2020 |Pages: 26
DOI: 10.4018/IJKBO.2020010101

Abstract

Continuous change in the energy sector towards more sustainable solutions has raised the importance of managers' abilities to interpret changes in their environments and translate those perspectives into strategic choices. This study examines managerial interpretation on changing business environment opening the relationship of cognitive diversity, board composition, and performance differences across the cleantech firms. The authors' empirical study employs both indirect and direct cognitive measures for analysis of cognitive maps collected through surveys from the cleantech firms. The study utilizes the hybrid cognitive mapping technique with distance ratio to investigate cognitive diversity and bridges it with the firms' performance. The study also advances and operationalizes the distance ratio as a measure for the analysis of cognitive maps to utilize more information available in the maps. The results indicate that the managerial characteristics showing firm-level economic expertise creates high-level cognitive diversity and high financial volatility in performance among the cleantech firms.
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Introduction

Today’s ambiguous and rapidly changing business environment is increasing interest in strategic cognition research, especially in top managements’ perceptions on their environment (see for review, Kaplan, 2011; Narayanan et al., 2011; Gavetti & Warglien, 2015; Bromiley & Rau, 2016). Research in managerial cognition and organizational theory has long noticed the fundamental importance of cognitive structures studying interaction of organizations and changing environment. The literature has provided several interesting research strands to investigate, e.g. systematic bias in interpretation and decision making (Kahneman & Lovallo, 1993), cognitive maps and cognitive categories (Axelrod, 1979; Porac et al. 1989; Tyler & Gnyawali, 2009), managerial attention and sense making (Dutton & Duncan, 1987; Weick, 1995; Ocasio, 1997), managerial dominant logic (Prahalad & Bettis, 1986; Nadkarni & Narayanan, 2007b; Targowski, 2014), and organizational behaviour and performance (Cyert & March, 1993; Tripsas & Gavetti, 2000; Powell et al., 2011). However, recent research has been advocating more comprehensive approaches with multiple methods to investigate the role of managerial cognition in organizational outcomes (Powell et al., 2011; Gavetti & Warglien, 2015; Bang & Phadtare, 2017).

When an environment is uncertain and ambiguous, managers continuously receive and interpret new information triggering them to adjust their assumptions of competition. These assumptions are bounded by managers’ existing beliefs influencing the manner in which they frame external changes and thus how they search for and enact the information (Daft & Weick, 1984; Tripsas & Gavetti, 2000; Vecchiato, 2017). Studies have shown that managers’ cognitive structures developed across time enhance as well as limit organizational sense making and actions responding to external stimuli (Kaplan & Tripsas, 2008; Salisbury, 2014; Martignoni et al., 2016). In organizational settings, managers act in groups gathering, sharing, and attending to relevant information and jointly analyse and integrate it establishing a shared understanding on a certain issue or situation (Daft & Weick, 1984; Klimoski & Mohammed, 1994). They also interact within the particular business environment and become influenced by their stakeholders’ beliefs and behaviours (Bogner & Barr, 2000). Consequently, managers begin to share a worldview with their stakeholders that holds commonly accepted beliefs on the business environment creating similarities in organizations’ strategies and future operations across the organizations (Porac et al., 1989; Nadkarni & Narayanan, 2007b, Gavetti & Warglien, 2015). For managerial cognition studies, an important question has been the extent to which individual managers within the organization and a wider population have similarities or differences in their cognitions and their linkages to firms’ outcomes and environmental changes (Lyles & Schwenk, 1992; Hodgkinson et al., 1999; Tyler & Gnyawali, 2009; Martignoni et al., 2016).

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