Capability creation: Heuristics as microfoundations

Abstract

Research Summary While much research suggests that capabilities are critical for firms, little is known about the individual‐level origins (“microfoundations”) of capabilities. Using in‐depth nested case studies, we explore how firms develop an internationalization capability. The setting is six entrepreneurial firms from three culturally distinct countries. Our data show that executives begin by seeding the process with imperfect heuristics and then managers continue development by elaborating their understanding of what task to perform and how to perform it. Importantly, managers across hierarchical levels support the development of their firm's internationalization capability by abstracting key heuristics away from any one experience such that the capabilities become less routine over time. Overall, we contribute to the microfoundations movement in strategy and to the literature on organizational learning. Managerial Summary Firm capabilities are not just important to strategy, but often are the strategy of firms, especially in dynamic markets. Popular examples include Cisco's acquisition capability, Hewlett–Packard's alliance capability, Starbuck's internationalization capability, and Apple's product development capability. Unfortunately, it is often unclear to executives how to build a firm capability. We explore how entrepreneurial firms develop their own internationalization capability over time. Our data show that these capabilities develop through a process of seeding, elaborating, and abstracting key heuristics for internationalization. Importantly, we show that this process is shaped by extensive communication within and across multiple hierarchical levels. In this way, heuristics move from individual‐level “rules of thumb” for action to firm‐level understandings for fueling growth and creating competitive advantage.

How Entrepreneurs make sense of Lean Startup Approaches: Business Models as cognitive lenses to generate fast and frugal Heuristics

“…Our overarching findings are corroborated by the activity of contrasting and comparing evidences surfacing from the case with extant theory on heuristics and simple rules (e.g., Gigerenzer and Brighton;2009;Bingham and Eisenhardt, 2011;Gigerenzer et al, 2011;Look and Hinnen, 2015;Gigerenzer, 2016;Bingham et al, 2019).…”

“…As a result, our study confirms that heuristics, and in our case the first and second-order heuristics stemming from the BM's cognitive lens, facilitate accurate decision making in the startup context which involves uncertainty (Gigerenzer, 2014;Loock and Hinnen, 2015). What we add is that the BM heuristics are scalable in complexity, and could play as both relatively simple heuristics in the startups' uncertain context, and complex model when the startup scales and enters a risky context (Bingham et al, 2019): the BM heuristics can hence smoothen the entrepreneurial mental transition from effectuation to causation settings, where the latter require more cognitive demanding approaches and artifacts, like the business plan (Ghezzi, 2019).…”

“…As a whole, from a theory perspective, our research provides new life to the study of BMs as heuristics, thus reconciling the theories on business model design, innovation and validation with that on heuristics; it adds a recent and relevant empirical context where to accrue knowledge on how heuristics are formed, used and transferred; it offers a new opportunity to frame the LSAs, a set practitioner practices in need for better theory, within the heuristics theoretical stream; and finally, it paves the way for a more explicit inclusion of BM-generated heuristics in the microfoundations discourse in Entrepreneurship and Strategy (e.g. Bingham et al, 2019).…”

Supplementary schools with connections to religious organisations in the United Kingdom: A heuristic device for school leaders and researchers

“…There is also the compromise with the potential for greater bias within a heuristic device (Ehrig and Schmidt, 2019), which needs balancing with the potential for it to foster fast decision-making while being abandoned when it is no longer needed or superseded. This heuristic needs elaboration from experience but, as Bingham et al (2019) contend, a heuristic's early forms are more important for the structure they offer rather than their content.…”

“…Supplementary schools can be referred to as a type of school, but only to distinguish them from mainstream or private full-time schools, and there is no attempt here to claim a normative typology of schools as heuristics are meant to be incomplete and inherently inaccurate devices for discovery that can be constantly revised. They aim to bring attention to structuring decision-making (Bingham et al, 2019) and involve a compromise that while they may lead to better predications, they involve greater bias (Ehrig and Schmidt, 2019).…”