Academic journal article Academy of Strategic Management Journal

The Advent of the Internet and the On-Line Book Trade: The Role of Managerial Cognition and the Liabilities of Experience

Academic journal article Academy of Strategic Management Journal

The Advent of the Internet and the On-Line Book Trade: The Role of Managerial Cognition and the Liabilities of Experience

Article excerpt

INTRODUCTION

Few technological innovations have created as much popular furor as the commercialization of the Internet. The boom in IPOs, twenty-something year-old millionaires, and venture capital icons not only touched the public imagination but also prompted many business schools to hastily revamp their curricula to sate the demand for new courses for the New Economy. The 2000 crash of the NASDAQ, the wave of paper riches to paper rag stories of young entrepreneurs, and the collapse of the IPO market vindicated the skeptical who had argued that old economic rules still applied in the New Economy. Underpinning this lively discourse are more fundamental questions: Does the Internet constitute a radical technological discontinuity? If so, will firms with more industry experience be able to act upon changes in the economic environment resulting from the advent of the Internet?

This paper addresses these issues by extending and testing theoretical work in managerial cognition to the study of the relationship between length of industry experience and organizational decision making during periods of technological discontinuity. Specifically, we explore how the mental models of managers contributed to an industry-wide dominant logic guiding the behavior of experienced proprietors in the used and out-of-print book trade. This research finds that the logic that served the proprietors of these small firms so well during periods of stability may prevent them from recognizing, evaluating, and responding to fundamental changes in the competitive environment.

In what follows, we review theoretical and empirical research contributing to our understanding of the role of cognition and its relationship to industry experience in organizational decision-making during periods of disruptive impact on the market. We then extend this analysis to the study of the used and out-of-print book trade by demonstrating that the Internet constitutes a disruptive impact on the retail book market that has undermined the validity of the dominant logic on which experienced proprietors have relied. This leads to the formulation of a number of hypotheses concerning the relationship between years of experience and organizational practices and the impact of these practices on sales. These hypotheses are tested in the subsequent section of the paper where we analyze an original data set that matches recently collected survey responses from on-line booksellers with independently collected archived sales and inventory data made available from the company processing the credit card transactions and electronic inventories of these same firms.

THEORY

There are a number of assumptions underpinning the study of managerial cognition that highlight the importance of decision processes of individual mangers. The first is that a large part of what managers contribute to organizational performance is their ability to filter, sort, absorb, and process complex and ambiguous information (Mintzberg, Raisinghani and Theoret, 1976; McCall and Kaplan, 1985; Starbuck and Milliken, 1988). Interchangeably referred to as knowledge constructs (Walsh, 1995), mental templates (Neisser, 1976; El Sawy and Pauchant, 1986), frames of reference (March and Simon, 1958; Shivastava and Mitroff, 1983; Dunn and Ginsberg, 1986), cognitive maps (Axelrod, 1976; Bougon, Weick, and Binkhorst, 1977; Weick and Bougon, 1986; Barr, Stimpert, and Huff, 1992; Calori, Johson, and Sarnin, 1992), and schemata (Fiske and Dyer, 1985), these mental models help managers interpret reality and formulate strategic responses. Second, the mental models of managers not only help managers determine what information is relevant but these models also guide action (Nisbett and Ross, 1980). Third, managers are assumed to have numerous cognitive limitations that inhibit their ability to filter this information (Miller, 1956; March and Simon, 1958). Thus, to process information efficiently, managers rely upon mental models which simultaneously filter "irrelevant data," and provide a template to analyze the data made salient by the knowledge structure. …

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