Corporate entrepreneurship initiatives: Antagonizing cognitive biases in business model design

What is it about?

----------------------- Research Focus ----------------------- Entrepreneurs often come up with great ideas for their venture but struggle to transform these ideas into a valid business model. We examine in this study how entrepreneurs, who participate in corporate incubator programmes, rely on specific thought processes to address this central challenge in the venture creation. We find that trusting the gut feelings and thinking rationally often helps to develop a sound business model for the new venture.

Featured Image

Photo by Austin Distel on Unsplash

Photo by Austin Distel on Unsplash

Why is it important?

------------------------------------------------------- Contribution to Academic Scholarship ------------------------------------------------------- While the cognitive perspective on business models has evolved as a significant research stance, it has been criticized for its focus on the limitations of human cognition, resulting in studies that focus on cognitive constraints, such as bounded rationality. Business models reflect managerial mental schemas, and managers can proactively reconfigure business model components through processes of generative cognition. However, current research on cognitive biases in business model design tends to be descriptive and lacks substantive empirical grounding. To further substantiate business model research in the realm of generative cognition, we address this shortcoming by analyzing the controlled mental operations of entrepreneurs handling cognitive biases during the design of novel business model configurations. Our research setting is situated in corporate entrepreneurship initiatives, implying a potential impact of cognitive biases on entrepreneurial thinking. Specifically, we explore the following research question: How do entrepreneurs cope with cognitive biases inherent in business model design in the context of corporate entrepreneurship initiatives? To pursue this question, we analyzed salient cognitive mechanisms that entrepreneurs activate to cope with novelty. Relating to cognitive psychology research, our study proposes an integrative theoretical framework of cognitive mechanisms and cognitive processes undergirding entrepreneurial reasoning in the design of new business models. We make three primary contributions to literature. First, complementing the prevalent view on managerial cognition as a cognitive constraint in business model innovation, we argue that entrepreneurs cope with cognitive biases by changing inherent business model schemas. Specifically, we identify five cognitive mechanisms and two cognitive processes that assist entrepreneurs in handling cognitive biases inherent in business model design. Second, we develop a theoretical model highlighting the interrelatedness of cognitive mechanisms and cognitive processes guiding entrepreneurial reasoning in the given context. Third, we suggest the identified cognitive heuristics to converge into a higher-level design process guiding mental operations in complex and uncertain decision contexts. ------------------------------------------------------- Contribution to Management Practice ------------------------------------------------------- When designing new business models, entrepreneurs: (1) invoke metaphorical comparisons by linking the creation of new ventures to other domains of experience. While these reference points for using metaphors reside outside the immediate venturing contexts, they lower the complexity and uncertainties of entrepreneurial decisions about business model design options; (2) structurally align mental representations of novel and familiar objects to perceive similarities between those objects. Specifically, entrepreneurs compare and identify similarities to develop categories to make sense of new information; (3) sense problems during the design of innovative business models by noticing and constructing meaning about environmental change. We find evidence that the course of sensing problems aligns with the sequential model of noticing stimuli, interpreting stimuli, and incorporating stimuli into strategic decisions; (4) design new business model configurations by recognizing patterns in seemingly unrelated events, such as changes in market demand or technology, that form the basis for identifying and exploring new opportunities. The fifth cognitive mechanism, that is, searching locally, primarily sources knowledge situated in the immediate entrepreneurial context. Our study findings further confirm insights on the role of local search in strategic cognition. As entrepreneurs gradually develop greater expertise in their areas, they search for solutions in closely related knowledge domains. However, this focused search strategy increases the risk of falling into competency traps. Our research shows that, beyond rational thinking, peripheral factors such as the entrepreneurial environment affect the degree of innovativeness in entrepreneurial endeavors. The potentially restraining effects of closely related knowledge on innovativeness in the cognitive mechanism of searching locally bears some important implications. That is, if entrepreneurs intend to design highly innovative business models, they ideally maintain a sufficient level of inputs into their cognition processes, which is independent from proximal environmental consensus of how to do business. Furthermore, by empirically investigating the role of managerial cognition as constraint versus enabler in design processes, our study findings provide implications for the cognitive view on business model innovation. Specifically, we further complement and extend the argument that analogical reasoning and conceptual combination constitute central cognition processes, assisting entrepreneurs in addressing the cognitive inertia inherent in the process of business model design. While analogical reasoning relies on the search for similarities between existing and aspired value propositions that can be leveraged efficiently, conceptual combination helps to identify differences to create new concepts. Our results show that entrepreneurs in our research setting commonly modify, extend, and transform their stored knowledge by structurally mapping relationships and attributes of objects from a source domain to a target domain. Our findings also show that the two higher-level cognitive processes of analogical reasoning and conceptual combination do not act in isolation but interrelate with several cognitive mechanisms in dealing with the complexity involved in business model innovation. By emphasizing that the identified cognitive mechanisms undergird analogical reasoning and conceptual combination, our research suggests a more holistic and contextualized consideration of cognitive heuristics, which moves away from the separate examination of distinct cognitive processes. Finally, our study findings suggest differing levels of cognitive control over the identified cognitive mechanisms and cognitive processes. The more the five respective cognitive mechanisms integrate into the two higher-level cognitive processes, the more entrepreneurial reasoning moves from intuitive thought patterns to deliberate ones. Consequently, the process of business model design involves intuitive and deliberate cognition modes, and one mode of thought should not be suppressed in favor of the other.

Perspectives