Essays on cognition, digitization, and competitive behavior of firms

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Zhao, Liang
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Electronic thesis
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ABSTRACTThis dissertation proposal consists of three distinct but related essays about the effect of managerial cognition and digitization on the competitive behavior of firms. Managerial cognition reflects the decision-maker’s (as well as the organization’s) knowledge of external and internal environment, and it is critical for guiding the strategic decision-making and the firm’s competitive behavior. Firms act variously depending not only on the objective factors such as external environmental change, but more importantly, depending on how the organization and key managers sense and understand these objective changes. In this dissertation, we ask how managerial cognition could affect a firm’s competitive behavior. Moreover, as digitization is playing an increasingly important role in business models, we also examine how digitization shapes a firm’s competitive behavior. In the first essay, focusing on the action-response dyad, we study how managerial cognition and digitized capability affect the way focal firms respond to their rivals. In particular, we examine whether managerial cognition and digitized capability differential could result in a higher likelihood of response and how this relationship could be moderated by alliance with rivals and common shareholders with rivals. We find that a focal firm is more likely to respond to a rival’s action under two conditions: (1) the rival’s action is salient; and (2) the rival’s action is aligned with the focal firm’s attention focus. Moreover, our results show that digitized capability differential between a firm and its rival has a curvilinear relationship with response likelihood. In addition, we find that alliance with rivals and common shareholders with rivals could negatively moderate the relationship between digitized capability and response likelihood, indicating that the decision-making process could be influenced by external stakeholders. In the second essay, we focus on the action-repertoire of firms and examine how cognitive complexity, digitization, and managerial incentives shape a firm’s competitive aggressiveness. Cognitive complexity reflects the breadth and comprehensiveness of a firm’s knowledge. We focus on two dimensions of cognitive complexity: (1) differentiation and (2) connectedness. Differentiation refers to the breadth of environmental, strategic, and organizational concepts embedded in the cognitive framework, and connectedness refers to the development of connections and sophistication among the various concepts. We find that cognitive complexity, has a mixed effect on a firm's competitive behavior. Differentiation has a positive effect on competitive aggressiveness, while connectedness has a negative effect. Further, we also find that firms with higher digitized analytics capability and higher cognitive complexity would compete more aggressively. Finally, our results suggest that providing risk incentives to executives could reduce the motivational bias of shirking and thereby influence the competitive aggressiveness of firms. However, this effect is contingent on the awareness in that only when the organization has a clear strategic plan does risk incentives motivate the CEO to take actions aggressively. In the third essay, we are trying to understand how Red Queen competition aligning with CEO temporal focus influences a firm’s digital strategic posture. The Red Queen competition can be explained as a race where each firm needs to match or exceed the actions from rivals to improve its competitive positions in the market (Derfus et al. 2008). Furthermore, as CEOs’ temporal focus (i.e., the degree of CEOs attending to the past, present, and future) is important for decision making, we examine the implications of CEOs’ present and future focus for digital strategic posture. We find that rivals’ innovation-oriented actions will positively impact the digital strategic posture while rivals’ resource-oriented actions will negatively influence the digital strategic posture. Furthermore, we also find that the present focus of CEO will strengthen the above relationships.
School of Management
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Rensselaer Polytechnic Institute, Troy, NY
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