Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change

Abstract

We investigate the conditions under which managerial cognition affects the timing of incumbent entry into a radical new technological market. We address this question using a longitudinal study of communications technology firms entering the fiber-optics product market. Using a hazard rate model, we investigate the relevance of cognition based on the direction of CEO attention. We find that attention toward the emerging technology and the affected industry is associated with faster entry, and attention to existing technologies is associated with slower progress. Second, we assess the extent to which the effect of cognition is dependent upon the levels of relevant organizational factors and find that CEO attention to the emerging technology may amplify the effects of industry orientation. Managerial cognition is important in understanding organizational outcomes, and considering both the direction of cognition and its interaction with organizational factors provides a more nuanced view of entry behavior. These results contribute to the literatures on incumbent response to technical change and new product development by suggesting that context-specific managerial cognition has a separate and important influence on the degree and direction of strategic renewal. We argue that managerial cognition is therefore a dynamic managerial capability that can shape adaptation by established firms.