Academic journal article Academy of Entrepreneurship Journal

Cognitive Similarity, Imitation and Performance Variation: Via the Lens of Intra-Industry Group

Academic journal article Academy of Entrepreneurship Journal

Cognitive Similarity, Imitation and Performance Variation: Via the Lens of Intra-Industry Group

Article excerpt

ABSTRACT

This article seeks to explore the performance variations across cognitive communities among Korean asset-management companies. It is to test the argument that cognitive similarity of managers within a cognitive community would lead to imitation which eventually yields the formation of a strategic group with similar performance. However, the empirical results do not show such a relationship. It implies the possible o strategic balance within a cognitive community. Furthermore, it also casts the question on the link between strategy and performance. The results calls for much more scrutiny on the commensurability of strategic group and cognitive community

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INTRODUCTION

Scholars in the vein of cognitive school introduced the notion of "cognitive community", a group of firms in an industry sharing similar mental model (Porac & Thomas, 1990, 1995; Porac et al, 1989). According to the cognitive school, managers are taken to have a very narrow, asymmetric cognition of competition, which in turn affects the development of competitive strategy. Managers pay attention to the activities of firms whose action repertoire includes the types of actions they perceive to be important (from experience and learning), and of course, pay little attention to firms that use fewer of these actions, according to the managers' perception and valued types of action (Marcel, Barr et al. 2005). Therefore, the selection of competitors' action repertoires to be responded to is conducted with reference to managers' mental models (Miller 1993). Similarly, the selection of competitors to be paid attention also depends on managers' mental models.

In the seminal study carried out by Porac, Thomas and Baden-Fuller (1989), it was found that Scottish knitwear manufacturers only consider other Scottish manufacturers as their competitors even though Scottish knitwear manufacturers only account for 3% of the global market share. This narrow focus on competitor identification was certainly one good reason for the late, and poor, response by the American automobile manufactures toward their Japanese counterparts in the 1980s (Yates 1983). Motivated by studies and practical examples, cognitive school researchers argue that managers in a firm focus on a small number of competitors whom they believe are similar to their firm. In other words, managers set the reference group for firms and do not search whole firms in their industry when developing strategy (Marcel, Barr et al. 2005, Daniels, Henry 1998, Fahey, Narayanan 1989, Reger, Huff 1993). Therefore, group structure becomes a reality as a social construction by industry participants and firms sharing a group identity.

The core premise of cognitive community research is that members of a cognitive community hold a strong shared belief, or 'recipe'(Huff 1982). It leads researchers to assume that the members adopt similar strategic choices and hence have similarities in performance (Reger, Huff 1993, Hodgkinson 1997, Osborne, Stubbart et al. 2001). For example, Reger and Huff (1993) found performance differences across cognitive communities in the US banking industry. Similarly, Osborne et al. (2001), while following the study of the US pharmaceutical industry, demonstrated that cognitive communities are identical to strategic groups categorized by performance differences.

However, this assumption has been contested (Porac, Thomas 2002, DeSarbo, Grewal 2008), for the equivalence of cognitive groups and performance based strategic groups is not easily justified considering their differences in basis theories, origin, construct and maintaining mechanism between the two notions.

This article investigates the relationship between the cognitive communities and (performance based) strategic groups. The first research objective is to determine whether firms within a cognitive community imitate each other. The inconclusive link between group membership and performance variations is then investigated. …

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