Cognitive Complexity, Digitized Analytics Capability, CEO Incentives and Competitive Aggressiveness

Abstract

The competitive dynamics research has shown that firms with more aggressive competitive behaviors exhibit better performance. However, limited studies have explored the antecedents of a firm's competitive behavior. In this study, we analyze the competitive behavior of firms through a cognition perspective and focus on two dimensions of cognitive complexity: (1) differentiation and (2) connectedness. Differentiation refers to the breadth or variety of environmental, strategic, and organizational concepts embedded in the cognitive framework, and connectedness refers to the development of connections and sophistication among the various concepts. We argue that the biases embedded in complex cognitive structures would influence a firm's competitive behavior, and digitized analytics capability and CEO incentives could modulate these biases. We test our hypotheses using data for 334 U.S. firms from 2008 to 2015. We find that highly differentiated cognitive structures will enable firms to increase competitive aggressiveness while highly connected ones will inhibit firms from taking competitive actions aggressively. Furthermore, we find that firms with higher digitized analytics capability would be capable of competing more aggressively when their cognitive framework is complex. Finally, we find that risk incentives could reduce shirking, and hence, positively moderate the relationship between differentiation and competitive aggressiveness but negatively moderate the relationship between connectedness and competitive aggressiveness. We discuss the theoretical and practical implications of our findings and draw guidelines for future research.