The Manager’s Notepad: Working Memory, Exploration, and Performance

• Author: Daniella Laureiro‐Martinez,Maurizio Zollo,Amulya Tata,Stefano Brusoni
• Published date: 01 December 2019
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/joms.12528

© 2019 Society for the Advancement of Management Studies and John Wiley & Sons, Ltd.

The Manager’s Notepad: Working Memory,

Exploration, and Performance

Daniella Laureiro-Martineza, Stefano Brusonia,

Amulya Tataa and Maurizio Zollob

aETH Zürich; bLeonardo Centre, Imperial College Business School

ABSTRACT This study builds upon March and Simon’s proposition that individual-level dif-

ferences must be considered when explaining decision-making performance. We extend their

discussion on the importance of decision-makers’ attention to explain heterogeneous patterns

of exploration and exploitation within the same uncertain environment. We develop a model of

decision-making under uncertainty in which ‘working memory’ – i.e., the ability to hold multiple

elements in mind to actively process them – explains the emergence of heterogeneity in exploration-

exploitation choice patterns. We validated the model in a laboratory study and two replications

involving 171 individuals. Our findings show that differences in working memory allow us to

identify individuals who are more likely to choose exploration over exploitation appropriately,

and thus achieve higher performance. We discuss the implications for management theories, and

re-propose the work of March and Simon as a unifying framework that still can be used to gener-

ate and test managerially relevant hypotheses.

Keywords: attention, cognition, e-greedy, exploitation, exploration, sequence analysis, working

memory

INTRODUCTION

In 1958, March and Simon introduced a decision-making model that incorporated the

cognitive limits of organizational members and laid the foundations of the study of the

role of memory as a key antecedent of decision-making in organizations. March and

Simon framed the analysis of organizations as problem-solving institutions, and stated

that ‘In virtually all human problem-solving, memory plays an enormous role’ (March and

Simon, 1958/1993, p. 198, emphasis added). Thirty-three years later, in 1991, March

proposed the choice between exploration and exploitation as a crucial dilemma for orga-

nizations. Over time, this dilemma has become a central element of the discussion about

Journal of Man agement Studi es 56:8 December 2019

doi:10. 1111/j om s. 125 28

Address for reprints: Stefano Brusoni, ETH Zürich (sbrusoni@ethz.ch).

1656 D. Laureiro-Martinez et al.

© 2019 Society for the Advancement of Management Studies and John Wiley & Sons, Ltd.

strategy and innovation (March, 1991; O’Reilly and Tushman, 2013). In this paper, we

tie in these two foundational works, both theoretically and empirically, to discuss how

working memory – i.e., the ability to hold multiple elements in mind to actively process

them – helps explain the choice between exploitation and exploration. Our objective

is to develop and validate a model of decision-making under uncertainty in which this

important cognitive ability explains the emergence of heterogeneity in strategic choices

related to innovation and change.

Understanding the origins of strategic heterogeneity is important for both theory and

practice, as it could add to our understanding of the sources of performance heteroge-

neity. Several studies have established a relationship between individual-level cognitive

characteristics and particular dimensions of performance (Datta et al., 2003; Herrmann

and Nadkarni, 2014; Rosenbloom, 2000; Taylor and Helfat, 2009). These studies have

focused primarily on the organization of information, the coding of knowledge, and the

relationships between different types of knowledge to understand individual and organi-

zational cognition.

March and Simon’s model of selective attention in organizations proposed a different

but complementary perspective (March and Simon, 1958/1993). The authors suggested

that differences in individual cognition are important for differentially processing the

information that the organization filters, which can lead to differences in behaviour. We

build on their model and complement it with recent advances in cognitive neurosciences

and psychology. More specifically, we rely on recent and ongoing work on working mem-

ory as an ability related to what March and Simon, in 1958, called ‘span of attention’ (p.

175, 1993 edition). In Chapter 6, March and Simon proposed a model of selective atten-

tion within which the decomposition of a complex problem into organizational subgoals

enables and impels individuals to focus their attention ‘as a function of the dif ferentiation

of subgoals … and the persistence of subgoals’ (1993, p. 174; emphasis in original). Through

the formation and persistence of subgoals, ‘there is selective attention to particular con-

sequences of proposed alternatives, and selective inattention to others’ (1993, p. 175).

Crucially for our purposes, the authors add: ‘[t]he magnitude of these effects depends

in part on variations in the ‘capacity’ of the individual participants in the organization.

The smaller the span of attention, the narrower the focus of attention and the more critical

the screening mechanisms cited above’ (1993, p. 175; emphasis in original). This paper

focuses on the role of the individual-level ‘span of attention’ – but we theorize and ex-

plore it by building upon the discussion about working memory. Working memory, in

fact, determines which information receives more processing, and which falls outside the

attention span instead.

As March and Simon (1958/1993) proposed, individuals in an organization differ in

their capacity to hold elements under their attention. Differences in such ‘capacity’ are

important, as they mediate the ways in which different organizational stimuli are pro-

cessed by individuals (see Figure 1, taken from March and Simon’s book, Chapter 6).

This variation in ability constitutes an important source of heterogeneity in behaviour.

Using the established metaphor, working memory can be described as the brain’s

‘notepad.’ (i.e., a pad of paper for writing notes on). It temporarily stores information

and supports thinking by providing an interface between attention, perception, and

action (Baddeley, 1992, 2003). Recent advances in cognitive sciences have found that