Is that an opportunity? An attention model of top managers' opportunity beliefs for strategic action

• Date: 01 March 2017
• DOI: http://doi.org/10.1002/smj.2499
• Author: Dean A. Shepherd,Jeffery S. Mcmullen,William Ocasio
• Published date: 01 March 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 626–644 (2017)

Published online EarlyView 22 February 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2499

Received 5 May 2014;Final revision received24 November 2015

IS THAT AN OPPORTUNITY? AN ATTENTION MODEL

OF TOP MANAGERS’ OPPORTUNITY BELIEFS

FOR STRATEGIC ACTION

DEAN A. SHEPHERD,1*JEFFERY S. MCMULLEN,1and WILLIAM OCASIO2

1Department of Management and Entrepreneurship, Kelley School of Business,

Indiana University, Bloomington, Indiana, U.S.A.

2Department of Management and Entrepreneurship, Kellogg Graduate School of

Management, Northwestern University, Evanston, Illinois, U.S.A.

Research summary: Exploiting opportunities is critical to a rm’s competitive advantage. Not

surprisingly, there has been considerable interest in the processes by which top managers

allocate attention to potential opportunities. Although such investigations have largely focused

on top-down processes for allocating attention to the environment, some studies have explored

bottom-up processes. In this article, we consider both top-down and bottom-up processing to

develop a model by which top managers form opportunity beliefs for strategic action depending

on the allocation of transient and sustained attention. Specically, this attentional model provides

insights into how a top manager’s attention is allocated to identify potential opportunities from

environmental change and explores how different modes of attentional engagement impact the

likelihood of forming beliefs about radical and incremental opportunities requiring strategic

action.

Managerial summary: Managers are interested in noticing and exploitingopportunities because

the exploitation of an opportunity representsan important strategic action. Noticing and exploiting

opportunities depends on how and where top managers allocate their attention. Managers can

focus attention based on their knowledge and experience or as a result of something in the

environment capturing their attention. In this paper, we consider both knowledge-driven and

environment-drivenprocesses for allocating attention to form opportunity beliefs. This opportunity

belief arises from a two stage process. The rst stage explains how a top manager identies

environmentalchanges as potential opportunities. The second stage explains how the top manager

forms a belief that these identied environmental changes represent a radical or incremental

opportunity worthy of exploitation. Copyright © 2016 John Wiley & Sons, Ltd.

“Despite early investments and leading-edge tech-

nological capability in areas related to digital imag-

ing, the Polaroid Corporation failed to shift from

analog to digital imaging.” Polaroid’s senior man-

agers developed strong beliefs in the razor/blade

Keywords: opportunity belief; attention; noticing; envi-

ronmental change; strategic action

*Correspondence to: Dean A. Shepherd, 1309 E. Tenth St.

Bloomington, IN 47405. E-mail: shepherd@indiana.edu

Copyright © 2016 John Wiley & Sons, Ltd.

business model, which focused the rm’s search

efforts on the blades (i.e., the lm) and not the

razors (i.e., the cameras), and as a result, failed to

notice the change in market for lmless cameras.

Consequently, as of 1998, Polaroid had “not per-

formed well in the digital imaging market” (Tripsas

and Gavetti, 2000: 1157). Yet, Apple (1994), Kodak

(1995), Casio (1995), and Sony (1996) were quicker

to notice and act on the potential of digital cameras

for the mainstream consumer market.

An Attention Model of Top Managers’ Opportunity Beliefs 627

INTRODUCTION

Although there are many potential reasons why

managers of incumbent rms (e.g., those of

Polaroid in the example above) have difculty

noticing and responding to discontinuous change

of strategic importance (e.g., economic incentives

[Christensen, 1997], rigid routines [Levinthal and

March, 1993], and/or a poor competitive analysis

system [Zahra and Chaples, 1993]), recent research

has focused on the role of managerial cognition

and attention (Eggers and Kaplan, 2009; Kaplan,

2008; Maula, Keil, and Zahra, 2013). To date,

most managerial cognition studies have employed

top-down processes to investigate the relationship

between attention allocation (Cho and Hambrick,

2006; Dutton and Jackson, 1987; Ocasio, 1997) and

top managers’ ability to notice and interpret poten-

tial opportunities (Eisenhardt and Schoonhoven,

1990; Kiss and Barr, 2015; Tripsas and Gavetti,

2000). These top-down processes have been given

many different labels, but each conceptualization

typically denotes a set of knowledge structures

through which top managers deductively interact

with the environment to notice, interpret, and

respond to new environmental stimuli (Bogner and

Barr, 2000; Walsh, 1995). A knowledge structure is

“a kind of mental template that individuals impose

on an information environment to give it form and

meaning” (Walsh, 1995: 281); it provides a top

manager a basis for forming a subjective represen-

tation of the environment used to inform strategic

action (Dutton and Jackson, 1987; Starbuck and

Milliken, 1988).

Topmanagers’ knowledge structures direct atten-

tion to aspects of the rm’s environment that are

expected to be relevant (Kaplan and Tripsas, 2008).

Such direction of attention has been found to lead

to high levels of strategic persistence and enhanced

performance in slowly changing industries

(Nadkarni and Narayanan, 2007). Thus, according

to top-down explanations of managerial attention,

the failure of Polaroid to capitalize on its early

investments in digital imaging technology was

the result of top managers’ failure to apply the

right knowledge structure to changes in the rm’s

environment. As a result, Polaroid was left with

“quite limited technical strength in this emerging

market” (Tripsas and Gavetti, 2000: 1157).

Though essential, this top-down explanation may

be incomplete. For example, why was Kodak (also

an incumbent in the photography industry) able to

notice the potential of mainstream consumer digi-

tal cameras before Polaroid? If existing knowledge

structures guide attention by generating expecta-

tions that facilitate noticing, interpreting, and acting

on some— but not other—environmental signals,

then how does top management notice unexpected

environmental signals that do not align with any

existing knowledge structures despite the strategic

relevance of these signals? Howmight top managers

attend to such unexpected but important aspects of

their environment?

Recent research exploring bottom-up processes

of attention allocation— where striking aspects of

the environment capture attention whether they are

expected or not (Ocasio, 2011)— offers an alter-

nate or potentially supplemental mode to top-down

processes. Rindova, Ferrier, and Wiltbank (2010)

found that action sequences with the gestalt prop-

erties (i.e., perceptions of the whole) of simplicity,

grouping, and motif were associated with higher

investor evaluationsfor rms attempting to adapt to

a discontinuous change. They argued that instead

of knowledge structures, which direct attention

to aspects of the situation that are expected to be

important, managers in contexts of discontinuous

change rely on gestalt properties within the situ-

ation to seek and perceive patterns (Whitson and

Galinsky, 2008), and thus, make sense of unfold-

ing events (Ariely and Carmon, 2000; Ariely

and Zauberman, 2000). Similarly, Shepherd,

McMullen, and Jennings (2007) theorized about

how a big-picture representation of the environ-

ment, known as a gist, triggers a bottom-up process

in which prominent changes in the environment

capture the attention of top managers that would not

have been noticed through top-down processing.

Studies such as these offer a more inductive alter-

native to top-down approaches for understanding

how top managers can notice the unexpected while

raising a question about the relative performance

of top-down versus bottom-up processes in notic-

ing, interpreting, and using information to form

opportunity beliefs.

In this article, we propose an attention model

of top managers’ opportunity beliefs for strategic

action that offers a number of new insights. First, the

model distinguishes between types of opportunities

for strategic action, noting that radical opportunity

beliefs differ from incremental opportunity beliefs.

Although prior models have sought to explain

the detection of incremental changes and the

incremental opportunities these changes can create

Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 626–644 (2017)

DOI: 10.1002/smj