Sunday, July 24, 2011

Reasoning about threats and opportunities

When I started to write this blog, I pondered what are would count as the most common approaches to reasoning within organization theory and strategy. While institutional theory probably wins with a number of key arguments relating to how people think, strategic issue framing is certainly centrally connected to how managers and organizations reason. In 1987 Dutton & Jackson suggested that the way managers perceive events or changes influences how they respond to them. That is, if something counts as a threat then it tends to trigger reasoning that leads to altogether different actions than if that something counts as an opportunity.

This viewpoint draws on Staw's amazingly good 1981 paper on Threat Rigidity Effects. Staw argues that when an individual, a group, or an organization faces a considerable threat (a radical change) their premises to reason rationally are influenced. On individual level, stress and anxiety reduce ability to process information and reason about alternatives. On collective levels, managers faced with threat seek to restrict information and centralize control in order to effectively control the threatened organization (moreover, threats increase group pressures to cohesion and organizational pressures for efficiency). Naturally, the centralization of control towards the top managers is rather detrimental when an organization needs to improvize a novel and creative response to cope with a radical external change.

From the perspective of reasoning, threats to the organizations and individuals seem to change the individual and collective ability to link beliefs and observations as reasonable justifications for proper actions. Threats (when associated with stress) prevent individuals from exploring initially uncertain courses of action that might otherwise provide solutions. Threats also prevent the management in the organization from engaging in typical open discourse about the available alternatives.

This is all good and well, but do framings (opportunity/threat) matter in real life? This is very very difficult to study because the framings are dependent on the content of the events. In scientific jargon, the framing is endogenously determined (by the content of the event). The initial natural solution would be to device a research setting examining the responses of numerous organizations to a single event that is equal to all actors. Yet, the same event is not the same event for every actor. Effects that events have are always relational, and thus the framing of a common event (e.g. Lehman Brothers) by different corporations as threats or opportunities depends in part in how the organization is influenced by it. Heat wave is objectively a single event, but it is much more of a threat to pensioners than teenagers. Teenagers will inevitably frame a heat wave as an opportunity (to go to the beach, perhaps) and pensioners will inevitably frame it as a threat. Not surprisingly, empirical research will find that those with threat framing have more conservative responses and fare worse.

Whether an event is a threat or an opportunity to us or our organizations influences how we reason about it. However, the initial classification itself is based on our reasoning concerning the event.

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