14.2 Theoretical background

Numerous research streams deal with the question of how managers develop mental maps, knowledge structures and administrative routines that create a dominant logic over time (Mintzberg and Walters, 1982; Walsh, 1995; Miller, 1999; Baum and Dobbin, 2000). Four of these, grounded respectively in decision theory, evolutionary economics, neo-institutionalism and strategic management, are among the most influential.

March s (1994, 1996) theory of organizational action offers an answer in the form of a rule-following model that stipulates that organizations grow, learn and adapt by alternating between modes of exploration and exploitation. The process results in socially constructed rules that offer a reasonable adaptation to appropriate contexts (Levinthal and March, 1993). Rules also guide actions in a consistent and mutually understood way (Weick, 1995), and are therefore an important element of an organization s dominant logic.

Important findings have also been produced by parallel research in evolutionary economics and institutionalism. In evolutionary economics (Nelson and Winter, 1982) the term ˜routines is used to describe the guiding rules of organizational evolution when organizations are moving forward with limited knowledge of the context and options. In this situation routines limit cognitive strain and provide clear, if suboptimal, guidance for actions. Institutional theorists (DiMaggio and Powell, 1983) offer a typology of mechanisms that regulate organizational change and create dominant patterns of behaviour in organizations. The most important of these are coercive isomorphism, mimetic isomorphism and normative isomorphism, all of which lead to institutionalized behaviours that homogenize the way organizations behave and once put in place are difficult to change or remove (Powell, 2000).

In the field of strategic management Prahalad and Bettis have developed a framework of dominant logic defined as a ˜mind set or a world or conceptualization of the business and administrative tools to accomplish goals and make decisions in that business (Prahalad and Bettis, 1986, p. 491). The conceptual foundations of dominant logic consist of two main elements: operant conditioning and complex problem-solving behaviour. Operant conditioning serves to reinforce behaviours that have led to success. Thus strategic choices (Child, 1997) that have proved successful are remembered and reinforced. Complex problem-solving behaviour is a result of cognitive bias (heuristic decision making) and cognitive simplifications created by conventional wisdom ( paradigms ) and past experiences.

Prahalad and Bettis s (1986) definition of the concept as a ˜mind set offers, as Grant (1988) notes, only limited guidance to operationalizing the concept for research purposes. Instead Grant examines dominant logic as a set of specific corporate-level functions: resource allocation, the formulation of business strategies, and the establishment and monitoring performance targets. This approach, however, equates dominant logic with routines and is not consistent with the cognitive premises of the original theory.

In this chapter dominant logic is understood as a much more complex regulator than just routines, and therefore closely follows the dominant logic model originally conceptualized by Bettis and Prahalad (1995). In this conceptualization dominant logic is viewed as an information filter and knowledge structure that owes its evolution to experiences related to the characteristics of the core business, tasks that are critical to success, performance measures and values, and the evolution of norms over a substantial period of time. Thus they incorporate into the model both cognitive and operational dimensions, and this approach shapes our research model (Figure 14.1).

Figure 14.1: The research model