We suggest that a systematic socio-cognitive approach to “competitive sensemaking” has been absent from theory and research on competitive strategy. We define competitive sensemaking as the social and cognitive processes that underlie how firms detect, define, and conceptualize their competitive relationships with other firms. Competitive sensemaking is a subset of the more general process of strategic sensemaking, which is the “making plausible sense” of the broad array of stimuli and circumstances that characterize complex market situations. Using the value-based view of value creation and capture as a conceptual base for our arguments, we unpack four cognitive underpinnings of competitive sensemaking: mental time travel, comparability, counterfactual reasoning, and stories. We then show how these four components were differentially involved in shaping competitive sensemaking in four actual market situations. In doing so, we illustrate how competitive sensemaking provides fundamental inputs into the value creation and value capture process. We conclude the paper by drawing out the implications of competitive sensemaking for strategy theory and research.
At the root of the conceptual difficulties in determining the competitive structures that underpin markets is the fact that firms and their product offerings can be described along a large number of attributes, and so be viewed as more or less similar depending on the attributes used for comparison. Our chapter exposes the multi-level cognitive embeddedness of competition among restaurants in New York City. Using field interviews and archival data on restaurant evaluations, categories, pricing, and menus, we employ qualitative counterfactual analysis to address fundamental issues concerning competitive boundaries that cut across categorical, organizational, and transactional perspectives of competition. We argue that conceptualizations of competition are only loosely coupled across different perspectives, and we contend that competitive judgments are better construed as a collective sensemaking process where different actors interact and competitive boundaries are constantly defined, contested, and redefined. Thus, we propose a heuristic framework for understanding the cognitive embeddedness of competition as part of a broader sensemaking perspective of competition.
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