Risk perceptions of TMTs: impact on strategic change and conformity

Description

Research on how managers influence strategic change and conformity has largely overlooked the role of risk perceptions in strategic choices, focusing instead on notions of “objective” risk. Drawing on the psychology literature on risk, prospect theory, and the threat-rigidity thesis, we argue that strategic change and conformity are shaped by the risk perceptions of top management teams (TMTs), which may not necessarily correspond to the “real” situation at hand. We develop a framework that differentiates between risk perceptions based on potential loss of resources and loss of control, and demonstrate that these two dimensions affect strategic change and conformity in distinct ways. Furthermore, we argue that the risk attitudes of TMTs and ambiguity in the organization’s environment moderate the relationship between risk perceptions and strategic responses. The hypothesized relationships are tested using data from two industries. Our results broadly support the hypotheses and show that risk perceptions play a significant role in strategic decision-making. Incorporating the concept of risk perception into the analysis of strategic choices not only helps reconcile the apparent conflict between prospect theory and the threat-rigidity hypothesis but also provides a more comprehensive explanation for why different TMTs respond differently to similar situations.

Publication Date

1-1-2014

DOI

10.5465/AMBPP.2014.199

Publisher

Academy Of Management

Keywords

Human Resource Management, Strategic Planning, Strategic Changes, Strategic Choice, Top Management Teams, Risk Perception

Conference

The 74th Annual Meeting of the Academy of Management: 1-5 August, 2014, Philadelphia, Pennsylvania

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