Managerial Categorization of Competitors: Using Old Maps to Navigate New Environments

Abstract

The authors empirically examine differences between automatic and controlled processing by executives in an increasingly dynamic industry. The results suggest that cognitive inertia affects judgments in both modes, but the effect is stronger with automatic processing. Specifically, the authors conducted two studies examining executives' cognitive maps of competitive positioning. First, they explored differences in ways strategists categorize competitors in a cross-sectional field study conducted during a period of significant environmental upheaval. They found that managers relied on cognitive maps that reflected obsolete industry boundaries rather than configurations representative of the deregulated marketplace. Hence, managers must be mindful to incorporate new information proactively from many sources and to actively discard old, automatic maps in order to develop reliable maps for changing environments. In a second study, managerial competitive schemas of competitive positioning were compared longitudinally across three research projects conducted in the financial intermediary industry. An eight-year time frame provided a unique opportunity to explore the content of mental models in an industry undergoing an accelerating rate of change. The longitudinal results indicate that change creates diversity of thought across managers in the same environment. Managers at competing firms are therefore apt to view competition quite differently in turbulent environments. Implications of the study findings for strategic decision making, consensus and conflict, and organizational learning and executive succession in turbulent environments are discussed. Issues are identified that warrant further research.

Competitive Dynamics across Industries: An Analysis of Inter-Industry Competition in German Passenger Transportation

“…According, for example, to the industry lifecycle model, industries in the growth and maturity stages have, inter alia, established dominant product designs, widely diffused production technologies and knowledgeable customers (Malerba and Orsenigo (1996), Utterback and Suarez (1993)). Since these dominant designs, technologies and customer expectations differ from industry to industry they also have resulted in differences in organisational structures and cognitive schemes of both, top management team as well as middle line managers, and thus shape rivals' perceptions of relevant competitors, competitive actions and consequences for their own firm's behaviour (Marcel et al (2010), Reger and Palmer (1996)) -in other words, their awareness drivers. Also, resource similarity will be low in the inter-industry case which, according to traditional competitive dynamic arguing, is reflected in a where the incumbents were at first unaware of the rival's threat and then unable to adapt to its competitive actions (Barr et al (1992)).…”

“…At the same time, they shape future sensemaking processes, as they help individuals to interpret their environment, make predictions and guide action (Reger & Huff (1993)). Those mental models are unique to each individual and "change slowly even when environments change rapidly" (Reger & Palmer (1996), p. 34), resulting in cognitive inertia. Thus, cognitive schemes strongly determine the competitive behaviour of a firm and are -at least in the short term -relatively stable (Marcel et al (2010)).…”

“…Extant research suggests that managerial interpretation is linked to experience and that especially in stable environments, executives tend to develop ingrained schemas (Reger & Palmer (1996)). The railway industry represents an industry that was traditionally sheltered from competition and major environmental dynamism -railway managers are therefore likely to have developed stable cognitive schemes regarding their environment and, especially, concerning competitive threats.…”

“…The new competitive situation with (low cost) airlines represented a rapid environmental change within months only. In such quick change situations, mental models can not be adapted quickly enough to keep pace with the environmental change, strategic mistakes are most likely to occur -managers might feel motivated to pursue competitive actions later revealed as inappropriate (Reger & Palmer (1996)). We find indicators of such decisions among the German railways: DB rapidly cut down prices to cope with their hitherto unperceived airline competitors, representing a generic, tactical move that resulted in substantial yield losses (see also Friebel & Niffka (2009)).…”

“…With the understanding that airlines are actually relevant competitors that have different operational possibilities than their own organisations, railway executives tried to imitate managerial elements from air traffic to their own business, partly neglecting the distinct characteristics of the rail production system as well as the specific requirements of railway customers (as illustrated by the quotes in 3.4 above). Supporting this attempt to quickly overcome management's cognitive inertia and to induce different mental models was the recruiting of former airline executives, a strategy that has been reported to be appropriate to the changed competitive environment (Reger & Palmer (1996)). …”