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Entrepreneurial start-ups suffer high rates of business failure. Previous research on entrepreneurial failure has focused on two kinds of explanations: statistical and psychological. Statistical explanations attribute excess entry to random errors made by boundedly-rational entrepreneurs attempting to estimate business opportunities in risky markets. Psychological explanations focus on entrepreneurial overconfidence and competition neglect. These explanations emerged independently and have not been tested or compared in the same study. In this experimental study, we distinguish entrepreneurial markets from other types of markets and test statistical and psychological hypotheses for all market types. We find that excess entry is significantly greater in small, risky markets than in other market types, and that confidence levels account for excess entry, over and above the effects of unbiased statistical errors.
How can we explain the fact that most entrepreneurial ventures fail within five years? Market risk, inadequate capital and inexperienced management certainly play a role. However, from an economic point of view, it seems odd that inexperienced, under-funded people continue to engage in risky behavior that is widely known to fail. We conducted experiments that tested two explanations of entrepreneurial failure. The first explanation – the statistical hypothesis – argues that entrepreneurship involves high uncertainty, so random errors are inevitable and can produce excess entry (or under-entry). The second explanation – the psychological hypothesis – says that entrepreneurs’ mistakes are not random but skewed heavily toward excess entry; hence, their decisions are distorted by psychological factors such as overconfidence. Our experiments found support for both of these explanations. Random errors under uncertainty explained 60% of the excess entry in our experiments. However, the overconfidence hypothesis correctly predicted that excess entry exceeds under-entry, and our psychological measures of overconfidence found support in the data. We also found that the markets that most often attract entrepreneurial investment – emerging markets with high uncertainty – were the markets most conducive to psychological overconfidence and excess entry. Hence, we conclude that potential entrepreneurs should pay less attention to their own abilities and aspirations, and more attention to the external realities of competition in the marketplace.
The Oxford Scenarios Programme (OSP) is an executive education programme at the Saïd Business School of the University of Oxford that uses ‘reflective practice’ (Schön 1983) to help individuals alone and in groups learn by doing and reflecting. Since 2007 this experiential learning (Markulis 1985) has been helped by deploying “live client case studies” to ground the learning in a real, still-unfolding, setting. Our designing executive education as an inquiring system (Churchman 1971) includes wider stakeholder engagement as a foundation for learning. The main purpose of the OSP is to help participants to improve the effectiveness of their scenario planning by understanding the epistemology, theories and methodology that underpin choices of methods (techniques, practices, tools) used in any scenario planning engagement. Grounding this in a real engagement with live ‘clients’ helps learners but little is known about how it helps or is meaningful to clients and their organizations. It is this experience with clients we analyze in this paper. The OSP has been a week-long programme since 2007 occurring twice each year. The clashes between theory and practice that this programme design surfaced has helped faculty to produce research that clarifies methodological and epistemological misunderstandings (e.g., Ramirez and Wilkinson 2014, 2016). The stable format offers laboratory-like conditions to allow
comparison of how live case client executives benefit from a limited exposure (set up brief, three hours Monday evening, one on Wednesday, and 90 minutes on Friday) to scenario planning applied on an issue that matters to their organisation. We used abduction (Suddaby 2006) and interpretative research (Gephardt 2004) to study 22 live case clients drawn from 15 OSPs since 2007. We designed, tested, and used a questionnaire to explore dependent variables on (i) how actual values derived from claims in scenario planning literature were met and (ii) how purpose expectations compared with outcome. As engaged scholarship (Trist, Murray, and Trist 1990; Van de Ven 2007) that links theory and practice, our findings suggest the ‘impact’ of executive education and development can extend to the executives of a large number of organisations beyond the executives attending the programme and thereby extend the meaningfulness of business schools. Findings inform the literatures on (a) management education and (b) scenario planning.
Intuitively, how we feel about potential outcomes will determine our decisions. Indeed, one of the most influential theories in psychology, Prospect Theory, implicitly assumes that feelings govern choice. Surprisingly, however, we know very little about the rules by which feelings are transformed into decisions. Here, we characterize a computational model that uses feelings to predict choice. We reveal that this model predicts choice better than existing value-based models, showing a unique contribution of feelings to decisions, over and above value. Similar to Prospect Theory value function, feelings showed diminished sensitivity to outcomes as value increased. However, loss aversion in choice was explained by an asymmetry in how feelings about losses and gains were weighed when making a decision, not by an asymmetry in the feelings themselves. The results provide new insights into how feelings are utilized to reach a decision.
As developing countries move from policy to implementing adaptation to climate change, formal operational structures are emerging that exceed the expertise of any one actor. We refer to these arrangements as ‘meta-organisations’ that comprise many autonomous component organisations tackling adaptation. The meta-organisations set standards, define purposes, and specify appropriate means-ends criteria for delivering adaptation. Using empirical data from the three cases, Nepal, Pakistan and Ghana, the study identifies and analyses six attributes of the meta- and component organisational structures. We argue that organisational structures are crucial to understanding adaptation, specifying policy and implementation. Our analysis demonstrates that while each country promotes similar objectives, the emerging structures are quite distinct, shaped by country-specific attributes and issues that lead to different outcomes. Nepal’s priority for a formal process has come at the cost of delayed implementation. Pakistan’s devolved approach lacks legitimacy to scale up the process nationally. Ghana’s use of existing decentralised structures and budgets relegates adaptation below other development priorities. These divergent structures arise from the different needs for legitimacy and accountability, and the relative priority attached to adaptation against other needs.
Dynamic capability is a theory of competitive advantage in rapidly-changing global environments. We reconcile this explanation with previous theories of competitive advantage, showing how it informs and complements explanations based on market positions, firm resources and Schumpeterian creative destruction. We examine the scope conditions of dynamic capability; that is, when the theory has more and less explanatory power. We find that dynamic capability has greatest explanatory power when a partially-foreseeable technological change is on the verge of transforming the basis of market competition. The theory has less explanatory power when dynamic capabilities are not undervalued or scarce; when change is unforeseeable; when change is too easily foreseeable; when the effect size of new capabilities is small; in industries subject to repeated technological shifts; and in markets that reward short bursts of extraordinary performance over long-term persistence. We discuss these scope conditions and show how dynamic capability combines with prior theories to explain competitive advantage in different industry contexts.
It’s ironic that companies often spend significant resources on external strategy advice while ignoring one the most fruitful sources of strategic insights: their own employees. Unfortunately, employees whose ideas about strategy aren’t listened to may quit -- and take their ideas with them.
Seeing—perception and vision—is implicitly the fundamental building block of the literature on rationality and cognition. Herbert Simon and Daniel Kahneman’s arguments against the omniscience of economic agents—and the concept of bounded rationality—depend critically on a particular view of the nature of perception and vision. We propose that this framework of rationality merely replaces economic omniscience with perceptual omniscience. We show how the cognitive and social sciences feature a pervasive but problematic meta-assumption that is characterized by an “all-seeing eye.” We raise concerns about this assumption and discuss different ways in which the all-seeing eye manifests itself in existing research on (bounded) rationality. We first consider the centrality of vision and perception in Simon’s pioneering work. We then point to Kahneman’s work—particularly his article “Maps of Bounded Rationality”—to illustrate the pervasiveness of an all-seeing view of perception, as manifested in the extensive use of visual examples and illusions. Similar assumptions about perception can be found across a large literature in the cognitive sciences. The central problem is the present emphasis on inverse optics—the objective nature of objects and environments: e.g., size, contrast, color. This framework ignores the nature of the organism and perceiver. We argue instead that reality is constructed and expressed, and we discuss the species-specificity of perception, as well as perception as a user interface. We draw on vision science as well as the arts to develop an alternative understanding of rationality in the cognitive and social sciences. We conclude with a discussion of the implications of our arguments for the rationality and decision making literature in cognitive psychology and behavioral economics, along with suggesting some ways forward.
Research summary: Reorganization has been proposed as a key dynamic capability. This study compares the performance outcomes of two forms of reorganization, differing in their pervasiveness: organizational restructuring and organizational reconfiguration. Our dynamic panel data analysis of large U.S. corporations between 1985 and 2004 finds contrasting performance outcomes for these two forms of reorganization: in general, the more pervasive restructuring is associated with positive performance outcomes, while the more limited reconfiguration is associated with negative performance outcomes. However, outcomes vary by environment. Consistent with dynamic capabilities theory, we find evidence that in dynamic environments reconfiguration outcomes turn positive, while restructuring outcomes turn negative. We discuss implications for dynamic capabilities theory and managerial policy.
Responding to increasing practitioner and academic interest in Open Strategy, this article builds on recent theoretical and empirical studies in order to advance research in the following ways. We begin by developing a definition of Open Strategy that emphasizes variation along the two dimensions of transparency and inclusion, as well as the dilemmas and dynamics inherent in its practices. We identify five dilemmas in particular: those of process, commitment, disclosure, empowerment and escalation. We continue by exploring key dynamics in Open Strategy, including both movements along the dimensions of transparency and inclusion, and movements between the two dimensions. Respecting the acute dilemmas of Open Strategy, we allow in each case for movement away from greater openness. The article concludes by proposing an agenda for future research on Open Strategy.
The Swiss Watchmaking Field is again entering a period of turbulence (Emery and Trist 1965) due to regulatory changes, the emergence of connected devices, volatile consumer behavior, currency changes, and relations among these factors that may challenge the capabilities for adaptation of key firms. Ramirez and Selsky (2014) suggested that in turbulent environments, a socio-ecological strategy approach emphasizing collaboration at a field level rather than competition is advisable. Based on multiple case study research, we empirically examine the application of contrasting strategic stances and principles comparing competitive strategy with the socio-ecological approach. We assess the presence of the transition, heterogeneity and subjectivity principles and how a coopetition strategic stance fares in the context of the Swiss Watchmaking Industry. We conclude by exploring new research venues.
This paper makes two contributions to strategic management research. It positions scenarios research as a way to connect micro, meso, and macro level cognitive framing (Cornelissen and Werner, 2014) regarding environmental uncertainties. This extends the boundaries of strategy as practice by involving extra organizational actors in strategy praxis to ascertain macro level uncertainties (Vaara and Whittington, 2012, Floyd, 2011) and by linking the complex connections between the micro, meso and macro praxis (Jarzabowski and Spee 2009).
The paper considers the role of a scenarios methodology in strategic management with respect to two unrelated case studies – a real estate firm, and a trade association, with and about whom two of the researchers have a detailed knowledge since 2009. While the findings we report here must be treated as exploratory, they do conform to a pattern of findings that a broader six year old research effort has been producing (Ramirez et al, 2015). The findings also conform to the way sociology has been treating the ‘framing’ of issues since Goffman (1974) popularized the construct. As Cornelissen & Werner’s (2014) recent review of framing suggests, the field includes ‘micro’ (individual) level research concerning the cognitive frame, frame of reference, and the framing effects involved; ‘meso’ organizational) level research about what strategic frame, technological framing, and collective action framing take place; and ‘macro-level’ research at the field level including institutional frames as well as framing contexts. This paper establishes that scenarios research allows management to clearly connect what Pierre Wack (1985) famously called the 'microscope of the mind to the 'macroscope- of the world accessed with scenarios; it does so by respectively reframing roles and relationships at the micro and meso levels.
This paper is also a response to the call made by Vaara and Whittington (2012) to broaden the analyses of strategy-making, moving away from a strong emphasis on the ability of individual managers or management teams to steer an organization to instead become more concerned with placing agency in a web of practices. Accordingly, Whittington et al (2003) proposed that strategy be investigated as a field or social system characterised by connections between corporate elites, strategy consultants, financial institutions, state agencies, the business media, and business schools with an emphasis on understanding how these interactions contribute to the production and consumption of particular kinds of strategy discourse. This paper establishes that taking a scenarios approach can help strategists in firms in turbulent environments (Emery and Trist, 1965) to host diverse views without having to reach agreement, and so more readily comprehend the relevance, complexity, and potential impacts of such a web of practices. By having a small set of scenarios that disagree with each other but do so within different futures, the views of “the other” (Habermas, 2000) and the connections between the web of practices can be safely explored within a “safe” transitional space (Amado and Ambrose, 2001).
Broadly speaking, The Oxford Handbook of Civil Society views the topic of civil society through three prisms: as a part of society (voluntary associations), as a kind of society (marked out by certain social norms), and as a space for citizen action and engagement (the public square or sphere).
This case study1 will examine the emergence, development and global variations of a new financing mechanism for welfare services, the Social Impact Bond (SIB). The case will define SIBs in their historical context and will explore the first, pilot, SIB in Peterborough in the UK in detail. In addition, it will consider innovations introduced by other examples from the UK, Australia and the USA. Conclusions will set out the key innovations and contributions of the SIB form and will also consider obstacles and considerations in terms of the future expansion and development of this novel contractual model.
Specifically, this case aims to enhance the reader’s knowledge about:
- How an environment of government reform encourages the development of new contracting models
- How social purpose organizations and social enterprises that deliver welfare services are involved in new relationships with government
- How innovative social finance investment opportunities grow the social finance market
- How social impact metrics can support new funding opportunities and improve organizational performance in terms of social outcomes
- How long-term contracts and flexible funding can enhance strategic flexibility in welfare services delivery that enhances overall performance
- How the involvement of several stakeholder groups in the pursuit of a single outcome creates a unique set of benefits and challenges
Traditional strategy assumes stability and predictability. Today's world is better characterised by turbulence, uncertainty, novelty and ambiguity - conditions that contribute disruptive changes and trigger the search for new ways of coping.
This book aims to become the premier guide on how to do scenario planning to support strategy and public policy. Co-authored by three experts in the field, the book presents The Oxford Scenario Planning Approach (OSPA). The approach is both intellectually rigorous and practical. Methodological choices and theoretical aspects in practice are detailed in reference to the relevant literatures and grounded in 6 case studies the authors have been involved with.
The book makes several contributions to the field, centred on how learning with scenario planning is supported by re-framing and re-perception; how this iterative process can be embedded in corporate or government settings, and how it helps those that it supports to do well in today's world.
The book is written in an accessible style and will be a useful introductory text as well as a useful guide for the more experienced scenario planning practitioner and scholar.
We develop and test a set of hypotheses on investors’ reactions to a specific form of impression management, public presentations of overall strategy by Chief Executive Officers (CEOs). Contrary to expectations from a ‘cheap talk’ perspective, we suggest that such strategy presentations convey valuable information to investors, especially in conditions of heightened information asymmetry associated with varying types of new CEOs. Broad empirical support for our theoretical arguments is shown in a sample of strategy presentations carried out by NYSE and NASDAQ listed organizations over 10 years. Our research contributes to literature on new CEOs and impression management. We draw out implications both for management and for further research.
This paper investigates the changing job characteristics of strategic planners in the face of long-run increases in environmental turbulence since the 1960s.We build on contingency theory to examine how growing turbulence may have impacted three aspects of strategic planner jobs: temporal range, processes, and organizational location. Drawing upon job advertisement data between 1960 and 2003, we compare strategic planner jobs over time and relative to a similar managerial function, marketing. We find that the secular increase in environmental turbulence is negatively associated with forecasting (temporal range), economics and analysis (processes) and centralization (organizational location), especially when compared with marketing. These findings broadly support contingency theory in a domain that has so far lacked empirical consensus. We contribute further by introducing a fine-grained methodology that allows a detailed approach to contingency theory studies of managerial roles, and opens a bridge to the Strategy as Practice tradition of research. Our findings also have implications for participation in strategic planning in firms, for the role of analysis in management education, and for research
attention to strategic planning as an enduring strategy practice.