Cognition, capabilities, and the evolutionary dynamics of organizations

Understanding the genesis and evolution of organizational capabilities is one of the central concerns of recent theoretical work in strategic management and organization theory. Answering this question is particularly important to the search for an intellectual framework that explains differential performance of firms in Schumpeterian business environments. Following the evolutionary theory of Nelson and Winter (1982), much of this literature emphasizes processes of experiential learning and local search, which lead to the evolution of relatively stable organizational routines. This work proposes that capabilities slowly evolve on the basis of performance feedback from past experience, or as a result of positive and negative reinforcement from prior choices. Although this perspective powerfully describes many aspects of behavior in organizations, it less successfully captures other key organizational phenomena such as intentionality, deliberation, agency and explicit cognition: intelligent action is driven not only by actors' experience in the world, but also by these actors' beliefs or theories about the world. As boundedly rational actors, managers develop simplified representations of their decision problem, and use them to explicitly consider the possible consequences of the choices they make. This thesis attempts to develop a more comprehensive theory about the genesis and evolution of organizational capabilities. It complements evolutionary explanations by jointly considering managerial cognitive processes and the local intelligence of experiential learning. These issues are examined in three essays. The first develops theoretical foundations by using a formal model of organizational cognition and action. The second essay explores the relationship between cognition and action via an in-depth field study of a firm undergoing a radical transition. This study grounds the development of a model, explicated in the third essay, that examines how these processes occur within organizational hierarchies and attempts to show how corporate executives can influence the evolutionary dynamics of firm capabilities.