Think broader or dig deeper? Managerial cognition’s influence on firm innovation during crisis

Abstract

Purpose Building on upper echelons theory, this study explores the influence of managerial cognition on firm innovation during times of crisis. Specifically, we aim to disentangle the concept of cognitive complexity by examining how CEOs’ cognitive depth and cognitive width differently influence their firms’ innovation outcomes. Additionally, we investigate how organizational slack moderates the impact of these cognitive attributes on innovation, providing a deeper understanding of the conditions under which managerial cognition drives firm adaptability in crises. Design/methodology/approach This study utilized a sample of 115 listed US firms ranked in the top 200 in terms of market capitalization share in 2020. We measured the key variables by analyzing text and archival data from interviews with CEOs, particularly focusing on their discussions regarding the impacts of the COVID-19 pandemic. Regression analysis was employed to test the hypothesized relationships in the research model. Findings The results reveal that under the crisis, CEO cognitive depth enhances firm innovation, while CEO cognitive width impedes firm innovation. Moreover, organizational slack weakens the positive relationship between CEO cognitive complexity and innovation. Research limitations/implications This study significantly contributes to and extends the established body of research on a leader’s cognition during a crisis. Our study goes beyond traditional views of cognitive complexity by highlighting the distinct impacts of two critical elements: cognitive depth and width, on decision-making processes. This study contributed to the innovative decision-making literature by opening up the black box behind the decision-making process of innovation during uncertainty. This underscores the multifaceted nature of cognitive processes in innovation, highlighting the interplay between cognitive depth, cognitive width and organizational resources in driving firm innovative outcomes during the crisis. We also broaden the temporal scope of empirical research on CEO cognition by gathering data from CEO interviews conducted during the COVID-19 pandemic. Practical implications This study reveals that when CEOs have a broader focus and attend to a wide range of information, their ability to quickly utilize firm resources for formulating competitive actions decreases during uncertainty. Consequently, it is crucial for CEOs to acknowledge the limitations of their attentional capacity. The allocation of their attention and information processing capacity has significant implications for their innovative decision-making processes, particularly in navigating through crises. Social implications Our study finds that excessive attention during times of crisis may not necessarily be beneficial to firm innovation. An excessive focus on problems can lead to scattered attention, impairing judgment and decision-making abilities. Moreover, excessive attention to problems may trigger panic and unnecessary stress, further impacting decision quality. High cognitive width can trap teams in short-term thinking and emergency mode, neglecting long-term strategies and opportunities such as innovation investment. Yet, firms with more slack resources can reduce the negative impacts of cognitive depth. Originality/value This study proposes a comprehensive cognitive model to understand managers’ decision-making during a crisis. The research posits that different dimensions of CEOs’ managerial cognition have distinct impacts on firm innovation in crisis environments. This study significantly contributes to the study of managerial cognition and innovation literature.

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