The creation of novel strategies, the pursuit of entrepreneurial opportunities, and the development of new technologies, capabilities, products, or business models all involve solving complex ...problems that require making a large number of highly interdependent choices. The challenge that complex problems pose to boundedly rational managers—the need to find a high-performing combination of interdependent choices—is akin to identifying a high peak on a rugged performance “landscape” that managers must discover through sequential search. Building on the NK model that Levinthal introduced into the management literature in 1997, scholars have used simulation methods to construct performance landscapes and examine various aspects of effective search processes. We review this literature to identify common themes and mechanisms that may be relevant in different managerial contexts. Based on a systematic analysis of 71 simulation studies published in leading management journals since 1997, we identify six themes: learning modes, problem decomposition, cognitive representations, temporal dynamics, distributed search, and search under competition. We explain the mechanisms behind the results and map all of the simulation articles to the themes. In addition, we provide an overview of relevant empirical studies and discuss how empirical and formal work can be fruitfully combined. Our review is of particular relevance for scholars in strategy, entrepreneurship, or innovation who conduct empirical research and apply a process lens. More broadly, we argue that important insights can be gained by linking the notion of search in rugged performance landscapes to practitioner-oriented practices and frameworks, such as lean startup or design thinking.
Ongoing product design has been defined as a complex problem solving task that is central for the development of new products. Despite its importance, existing work has mostly focused on studying how ...designers' creativity at the initial stages of design influences the development of radical innovations. However, the role of non-creativity related mechanisms at later stages is still not well understood. Our contribution is to analyze how motivational factors influence non-creative tasks in ongoing incremental design processes. We use an agent based simulation model in which designers improve an existing product by making design modifications based on customers' feedback on product attributes. Drawing on regulatory focus theory, we argue that designers' motivations (promotion focus vs prevention focus) influence the way they search for solutions. We find that, in complex tasks, customer feedback acts as a situational factor that biases designers' decisions, making promotion focused problem-solving more effective than prevention-focused one.
We propose a new model of exploration and exploitation, in which firms rely on local search for exploitation and on imitation for exploration. We assume that firms imitate the knowledge base of ...successful competitors, with imitation errors taking place depending on the social distance between the imitating firm and imitated firm in the network. The key model outcome, consistent with earlier empirical findings, holds that successful imitation generally occurs at an intermediate level of cognitive proximity because imitation at high cognitive distance is too error-prone, while for imitation at low cognitive distance there are typically no firms to imitate. A second outcome holds that social and cognitive proximity are substitutes. The model further shows that exploration by imitation is more beneficial in highly complex industries than in less complex industries, and that small-world networks yield the highest benefits for collective learning.
Research Summary
We study the effect of coordination between businesses on the adaptation of diversified firms. Using a simulation‐based approach, we show that coordination between businesses limits ...adaptation, causing the relative performance of diversified firms to decline relative to their focused counterparts over time, with this effect being strongest for moderate levels of relatedness between, and complexity within, businesses. Given complexity, firms diversifying into moderately related businesses may therefore be better off limiting coordination between businesses to a few key activities—if they diversify at all—sacrificing short run synergies for long run flexibility. Our study thus offers a novel argument for conglomerate diversification, while linking work on the costs of coordination in diversified firms to the literature on organizational adaptation.
Managerial Summary
While coordination of activities between businesses enables a diversified firm to realize synergies, it may also limit the flexibility of each business to adapt to changing conditions over time. Thus, the very cross‐business coordination that gives a diversified firm an advantage relative to its single business competitors in the short run may cause it to fall behind them in the long run. Using a mathematical simulation, we show that this negative effect is strongest for firms coordinating across moderately related businesses with activities that are highly interdependent. Multibusiness firms—especially moderately related diversifiers in complex businesses—may thus be better off coordinating only those activities that yield the greatest synergies, foregoing more marginal synergies in the short run for the sake of long run flexibility.
Research Summary
In this article, we explore the effects of managerial monitoring on the behavior of subordinates tasked with the search for alternatives in a complex environment. We argue that ...managerial monitoring will lead subordinates to exhibit more search than they would engage in otherwise as they try to impress their superiors by exerting more effort. We test and confirm our hypothesis in four laboratory studies with a total of 444 participants. Our findings show that search distance and duration are highly susceptible to managerial monitoring, whereas similar interventions from peers and subordinates are ineffective.
Managerial Summary
A key task for employees is to find new solutions to corporate problems when and where they occur. But what determines how long these individuals search and how far they venture before settling on one solution eventually? And how can and should managers steer this process, particularly if they are as unknowing about potential solutions as their subordinates? Here, we show that leaders can bring their staff to explore complex solution spaces longer and more remotely by regularly appraising their subordinates' efforts. This is because employees will feel an enhanced need to demonstrate their industriousness to their bosses, and long and distant search is easily justified. Whether this increases corporate performance depends on the complexity of the solution space and the opportunity costs of search.
•In contrast to prior work, the study shows that the NK model correctly captures the relationship between the N, K and average performance.•Specifically, I find an empirical pattern that is ...consistent with the key prediction of the NK model – the “complexity catastrophe”.•Single-industry context may allow for more precise measurement of technological complexity.
The process of innovation is frequently modeled as a bounded, iterative, trial-and-error search over a complex landscape using an NK model. An important question, however, is whether such theoretical approximation is consistent with empirical data. Prior work tested specific insights of the NK model while yielding mixed evidence. I examine how the full set of predictions generated by the NK model map onto observed empirical patterns while relying on commonly used patent-based measures of complexity. While the fit between the predictions and data is not perfect, I find that the ability of the NK model to capture innovative processes is better than previously thought. While doing so, I draw attention to potential boundary conditions for both the applicability of the model and usefulness of the measures. The study sheds new light on an important discussion within the field of innovation and technology management and helps to bridge the gap between the NK model and its empirical implementation.
This paper provides a new insight into the price puzzle using a new Keynesian (NK) model with household heterogeneity. To do this, we adopt a tractable heterogeneous-agent NK (THANK) model that nests ...the two-agent NK (TANK) and representative-agent NK models. We first demonstrate that when the share of liquidity-constrained (LC) consumers is high, the degree of inflation stabilization in the Taylor rule crucially affects whether the price puzzle occurs in the TANK model. Second, we show that regardless of the share of LC consumers, the price puzzle disappears in the THANK model with a discounted dynamic IS (DIS) curve. In contrast, for a compounded DIS curve, a higher share of LC consumers generates the price puzzle. Finally, we find that even in the case of a compounded DIS curve, reinforced interest rate smoothing can prevent the price puzzle.
•A method for risk coupling analysis based on DBN and NK model is proposed.•The proposed method is used to quantify risk coupling of subsea blowout accidents.•Risk coupling types are defined and ...their coupling degree values are calculated.•The effects of risk factors on risk coupling types are researched by sensitivity analysis and uncertainty analysis.
Risk analysis of subsea blowout accidents is critical to well control strategies and the overall safety of offshore drilling operations. Therefore, the interactive relationships among different types of risk factors should not be neglected. This paper proposes a novel method to quantify risk coupling of subsea blowout accidents based on dynamic Bayesian network (DBN) and NK model. First, causation of subsea blowout accidents is analyzed and risk factors are classified. Second, the types of risk coupling caused by human factors, electrical factors, hydraulic factors and mechanical factors are defined. Third, the DBN model is developed based on risk analysis of subsea blowout accidents and its NK model. Forth, parameters of risk coupling nodes in the developed DBN are determined by the calculation results from NK model. Finally, the developed model is validated by a three-axiom-based method. Dynamic characteristics of risk evolution and risk coupling of the subsea blowout accidents could be described by the developed DBN. In addition, sensitivity analysis of risk coupling types is performed and influences of risk factors are quantified by mutual information. With the developed model, uncertainty analysis is perform to research the effects of failure rates of risk factors on main risk coupling types.
The mining and extractive industry’s operations have significant harmful environmental consequences. Mining companies have started adopting green supply chain management (GSCM) practices which ...include green information technology systems (GITS) to help provide economic benefits while seeking minimal environmental damage. These mining organizations face significant hurdles related to introducing and implementing various GSCM practices which can address some of the environmental burdens. This study addresses this issue by adopting a GSCM practices framework and applying a novel decision support method that integrates grey numbers with DEMATEL and the NK model for evaluating and developing an implementation path model. Using a multiple case field study with input from managers of the Ghanaian gold mining industry, the adopted GSCM practices framework and methodology is applied. The results provide an evaluation and development path model to guide these organizations and managers for GSCM planning and investment decisions. The path results show that these organizations should first develop SSP (Strategic Supplier Partnership) with their suppliers for implementing GITS (Green Information Technology and Systems) and other GSCM practices. These results provide some exploratory insight and guidelines for managers and policy-makers who seek to integrate green initiatives. This study also sets the stage for further investigation of organizational greening in developing countries and the mining industry.
•Develops an analytical framework of historical driving forces to innovation.•Most Swedish innovations were developed as response to problems or new opportunities..•Creative response is linked to ...industry, complexity and radicalness of innovation..•The economic and energy crises of the 1970s spurred problem-driven innovation.•New legislation and policy contributed to automotive and environmental innovation.
An unresolved issue in innovation studies is to what extent and how innovation is affected by changes in the economic environment of firms. This study elaborates on a theoretical framework that unites theories of innovation as creative response and the economics of complexity. In the empirical section, results from a new micro-based database on Swedish product innovations, 1970–2007, are introduced. Applying the theoretical framework, both quantitative evidence and collected innovation biographies inform of the historical impulses that have shaped innovation activity in the Swedish economy in two broad surges during the 1970s and 1990s. The study shows that, rather than being the result of continuous efforts, most innovations were developed as a response to discrete events, history-specific problems and new technological opportunities. It is also suggested that patterns of creative response are industry-specific and associated with the radicalness and complexity of innovation processes.
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