Sensing– Seizing- Reconfiguring

Thecriticalroleofsensingindynamiccapabilitiesanditsinteractionwithorganizationstructure

ZurShapiraCCCFacultyDay2016Bocconi University

CCC2016Bocconi1

FollowingTeece’s (2007)Vision:

Sense Seize Reconfigure

TheSourceoftheProcess MostoftheResearch

CCC2016Bocconi2

A“Biased”SnapshotofPastResearch:

• Teece,Pisano&Shuen (1997).• Eisenhardt &Martin(2000)• Bingham,Eisenhadt &Furr (2007)• Winter(2003).• Teece (2007).• Helfat &Winter(2011).• Helfat &Peteraf (2015).

CCC2016Bocconi3

Sensing– Perceiving– Interpreting:• Examples:Pictureanoldoryoungwoman.• Necker’sCube.• CEOcognitionandmentalactivities.• Connie’swritingoncognition;Kathy’swritingon

simplerules.• Heuristicsvs.DualProcessTheory.• FastEnvironmentalChanges.• CEOsasexperts.• BillSimon:Buying–>Sellingbonds.

CCC2016Bocconi4

Thepaomnnehil pweor ofthehmuan mnid

Aoccdrnig toarscheearch atCmabrigdeUinervtisy,itdeosn't mttaer inwhatoredr theltteers inawrod are,theolny iprmoetnt tihng istaht thefrist andlsat ltteer beattherghit pclae.Therset canbeatotalmses andyoucansitllraed itwouthit aporbelm.Tihs isbcuseae thehuamn mnid deos notraed ervey lteter byistlef,

butthewrod asawlohe.

Purple

Red

Orange

Blue

Blue

Black

Green

Yellow

Red

Blue

Brown

Purple

TheStyleofExpertise:

• Simon’sfocusonPatternRecognition• Theroleofmemory• Degroot’s StudyofChess• AQualitativeFormulaofIntuition• SensingandOrganizationalStructure

CCC2016Bocconi8

ExpertiseinChessTask: 25 pieces on board

Shown for 10 secondsExperts and laypersons try to reconstruct the board

Condition 1: Pieces spread randomly on boardFinding: No difference between Novices and Grand

Masters. Both reconstruct about 6 pieces correctly.

Condition 2: Pieces on the board reflect a meaningfulsituation.

Finding: Novices reconstruct 6 pieces, Grand Masters 23-24 pieces.

Intuition=Intelligence+alotofexperience

• Dynamiccapabilities:sense->perceive->seize->configure• Howshouldorganizationsbestructuredforaccurateand

timelysensingofshiftsintheenvironment?

HierarchicalSensingModelElad Green&ZurShapira

CCC2016Bocconi11

CEO

Level2

Level1

Env

• Structureishierarchical(nooverlapinspanofcontrol)

CCC2016Bocconi12

Level1

Env

• AshiftintheenvironmentismodeledasashockofextentS:S%oftheenvironmentalattributeschange.Attributesthatchangearerandomlyselected.

CCC2016Bocconi13

0 5 10 15 20 25 30 350.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

• EachDM(DecisionMaker)intheorganization:Ø Perceives correctlyachangeineachenvironmentalattribute

withaprobability(Pi)thatdecreaseswiththeno.ofattributessheisresponsiblefor(Span):

SpanPP i

i

max

=

iP

(insimulations:Pimax =0.8)

CCC2016Bocconi14

• EachDM(DecisionMaker)intheorganization:Ø Updatesherbeliefsaccordingtoherperceptionofthe

environmentalattributes‒ Ifanattributehasbeenperceivedtochange,the

correspondingbeliefisupdatedtoreflectthechange‒ Beliefsarerepeatedlyupdatedduringthesimulationastime

advances

CCC2016Bocconi15

• EachDM(DecisionMaker):Ø Interpretsherupdatedbeliefsand decides whethertoalert

hersuperior:DecisionD istoalertifthemagnitudeofinterpretedchangeexceedsathresholdT%

D

>=

otherwisechangedinterpreteofmagnitudeif %Talert

D

CCC2016Bocconi16

0 10 20 30 40 50 60 700.2

0.25

0.3

0.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

No. of DMs Attempting Communication

P(R

ecei

ve A

ttent

ion)

• EachDM(DecisionMaker):Ø Ifthedecisionistoalert,theDMgetsthesuperior’sattention

withaprobability(Qa)thatdecreaseswiththeno.ofotherDMs(d)thataremakingconcurrentattempts:

aQ

)Q(Qk)(dQQ aaaa

minmaxmax 1=

d =no.ofDMsattemptingtoalertthesuperior

k =aconstantthatdependsontheno.ofDMsinthatlevel(k>d)

(insimulations:Qa

min =0.2,Qamax =0.7)CCC2016Bocconi

17

• TheprocessrepeatsforeachDMintheorganization,frombottomtotop:Ø Perception ofsignalsfromsubordinates

andupdateofDMsbeliefsØ Interpretationanddecision whetherto

alertthesuperiorØ Ifdecisionistoalert- attempttoget

superior’sattention

D

aP

iP

CCC2016Bocconi18

• TheprocessrepeatsforeachDMintheorganization,frombottomtotop:Ø Perception ofsignalsfromsubordinatesØ Decision whethertoalertthesuperiorØ Ifdecisionistoalert- attempttoget

superior’sattention• TheprocessendswiththeCEO,who

makesthefinalevaluationwhetheranenvironmentalshockhasoccurred.

CCC2016Bocconi19

HierarchicalSensingModel• Weinduceenvironmentalshocksinarangearoundthe

thresholdT% thattheorganizationistunedtosense.

• Modelparameters:– Variousorganizationaldesigns

E.g.:[1641]denotesanorg.designof16 DMsatlevel1(bottomlevel),4 DMsatlevel2,andthe1 CEO

– Foreachorg.design:multiplelevelsofenv.shockaroundthethresholdT=40%– Foreachenv.shock:500 simulations(resultsareaveragedacrosssimulations)– Eachsimulationlasts:100 rounds(eachroundDMsperceive,updatebeliefs,

interpret,andalert;roundsreflecttime)– #env.attributes:512– DMsthresholdtoidentifyenv.change:40%– Probabilityparameters:

2.0

7.0

8.0

min

max

max

=

=

=

a

a

i

QQP

CCC2016Bocconi20

0 20 40 60 80 1000

0.2

0.4

0.6

0.8

1Structure: 32 8 2 1

RoundsP(

Sens

ing)

0.300.330.360.390.420.450.48

0 20 40 60 80 1000

0.2

0.4

0.6

0.8

1Structure: 32 4 2 1

Rounds

P(Se

nsin

g)

0.300.330.360.390.420.450.48

0 20 40 60 80 1000

0.2

0.4

0.6

0.8

1Structure: 32 4 1

Rounds

P(Se

nsin

g)

0.300.330.360.390.420.450.48

0 20 40 60 80 1000

0.2

0.4

0.6

0.8

1Structure: 32 2 1

Rounds

P(Se

nsin

g)

0.300.330.360.390.420.450.48

0 20 40 60 80 1000

0.2

0.4

0.6

0.8

1Structure: 32 1

Rounds

P(Se

nsin

g)

0.300.330.360.390.420.450.48

• P(sensing)overtime

• Plotperstructure• Curveperlevelof

env.change

• Probabilityofsensingincreaseswithlevelofenv.change,andsensingdelaydecreases

Notation:Structure[1641]denotesanorg.designof16 DMsatlevel1(bottomlevel),4 DMsatlevel2,andtheCEO

CCC2016Bocconi21

• Whatistheprobability ofsensingachangeintheenvironment,fordifferentlevelsofenvironmentalshocks?

• Theidealisastepfunction:nosensingbelowthethreshold(zerofalse-alarms),andperfectsensingabovethethreshold(100%truedetections)

P(Sensing)

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

CCC2016Bocconi22

P(Sensing)• Plotsbyorganizationalsize(totalno.ofDMs)• Curveperorganizationalstructure• P(Sensing)iscomputedatRound=100and

averagedacrosssimulations

Notation:[1641]denotesanorg.designof16 DMsatlevel1(bottomlevel),4 DMsatlevel2,andtheCEO

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

64 16 4 164 8 2 164 8 164 4 164 2 164 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

32 8 2 132 4 2 132 4 132 2 132 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

16 4 2 116 4 116 2 116 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

64 16 4 164 8 2 164 8 164 4 164 2 164 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

32 8 2 132 4 2 132 4 132 2 132 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

16 4 2 116 4 116 2 116 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

64 16 4 164 8 2 164 8 164 4 164 2 164 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

32 8 2 132 4 2 132 4 132 2 132 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

16 4 2 116 4 116 2 116 1

CCC2016Bocconi23

P(Sensing)• Plotsbyorganizationalsize(totalno.ofDMs)• Curveperorganizationalstructure• P(Sensing)iscomputedatRound=100and

averagedacrosssimulations

Ø Widerspansofcontrol(flatterorgs.)increaseprobabilityofsensing,butalsoincreasefalse-alarms

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

64 16 4 164 8 2 164 8 164 4 164 2 164 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

32 8 2 132 4 2 132 4 132 2 132 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

16 4 2 116 4 116 2 116 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

64 16 4 164 8 2 164 8 164 4 164 2 164 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

32 8 2 132 4 2 132 4 132 2 132 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

16 4 2 116 4 116 2 116 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

64 16 4 164 8 2 164 8 164 4 164 2 164 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

32 8 2 132 4 2 132 4 132 2 132 1

0.3 0.35 0.4 0.45 0.50

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Env. Change [%]

P(Se

nsin

g)

16 4 2 116 4 116 2 116 1

CCC2016Bocconi24

EnhancingSensing• TheCEOmayreceiveanindicationthat“somethingisgoingon”,yet

evidenceofanenvironmentalshockisinconclusive.• Inthiscase,theCEOmaybypasshisimmediatesubordinates(Level

2or3),anddirectly inquirewithDMsatLevel1.

• Configuration:– Org.istunedfora40%env.change– CEOinquireswhen20%ofhis

immediatesubordinatesindicatechange– CEOinquires20%ofDMsatL1

(onlyunderVPswhodidnotindicatechange)– CEO’sperceptionoftheinquiredDMs’

evaluationsiserrorless

CCC2016Bocconi25

Summary

• Increased competition necessitates targeting top quality projects

• An important determinant of DC is early detection of opportunities and environmental changes hence the need to attract top management’s attention

• CEO’s SDM is an associative rather than a linear process. We need a better understanding of this process.

• Dynamic capabilities application processSense->Perceive->Infer->Seize->Reconfigure

CCC2016Bocconi26

ALooktotheFuture:

• Themostimportantprogressin(human)scienceoverthelasttwodecades.

• Studyofthebrain• AI

CCC2016Bocconi27

CCC2016Bocconi

ThankyouDavidforintroducingustodynamiccapabilities.

Andthankstoallofyouforlistening!

28