Literature Search

The Literature of Strategic Problem Formulation (example literature review)

Research question: What factors determine high performance problem-finding in firms?

H1: As bias in indivuduals and teams increases, performance of problem-finding decreases. Overview.

Mahoney and McGahan (2007, p. 80) have asserted a need for new directions in

strategic management, noting “[a] need to move ahead with the confidence and authority

to have the kind of meaningful impact envisioned when strategic management emerged

as a distinct field years ago.” Subsequently, they stated that one recommendation for

revitalizing strategic management research and practice is to develop a practical problem-

solving orientation.

Putting problems under a lens is not a new approach. Yet, it is consistently

characterized by certain emphases: in the recent history of problem-centric literature, a

focus on problem solving tends to persist. Our narrative shows a progression from

problem solving to its antecedent, formulation. We discuss Nickerson and Zenger’s

(2004) work on problem solving, and Baer, Dirks, and Nickerson’s (2013) subsequent

logic on effects of biases on organizing choices. We note that these thought-experiments

are well-crafted, coherent, and compelling, but that they lack empirical support (either

quantitative or qualitative/anecdotal).

What We Already Know: Problem formulation: plausible theory, limited evidence.

The importance of the topic of problem formulation has been noted consistently

over the years in different streams of literature (e.g., Kiesler & Sproull, 1982;

Ramaprasad & Mitroff, 1984; Cowan, 1986; Lyles, 1987; Smith, 1989; Nickerson &

Zenger, 2004). Early examples of broader problem-oriented work include Pounds (1969),

who pointed out that a manager’s job is not simply to solve well-defined problems, but to

also identify new potentially profitable problems to solve on an ongoing basis. Pounds

specified three sequential activities: problem identification, the assignment of problem

priority, and the astute allocation of scarce resources to problems. Subsequently, Simon

(1973) introduced a complementary perspective on problem formulation by suggesting

that the boundary between well-structured and ill-structured problems is vague, fluid, and

not generally tractable to formalization (see also Ramaprasad & Mitroff, 1984). Lyles and

Mitroff (1980) were among the first to empirically establish the importance of problem

formulation in the strategic management literature. Among other contributions, they

usefully developed process and problem typologies in their exploratory study. Cowan

(1986) took the discussion from an organizational level to an individual level,

concentrating on problem recognition characterized by three general stages:

gestation/latency, categorization, and diagnosis, all of which are affected by limits to

cognition.

Existing Empirical Work.

Among the few empirical articles published on strategic problem formulation,

Lyles (1987) examined criteria for strategic problem formulation: clarity, politicality, and

complexity. Although the effects of these were not tested against performance outcomes,

the study suggested that there exist specific factors exist that influence problem

formulation outcomes, notably, awareness of processes and attendant biases. In the study,

it was noted that “early studies on problem formulation indicate that executives are, in

fact, aware of the SPF process and can articulate the activities involved” (Lyles, 1987, p.

266). Also, while the findings suggest a need to unpack problem formulation processes,

concrete roles for bias awareness, and distortions (bias) in problem formulation are not

specified. More commonly, empirical studies using a problem finding/problem solving

logic concentrate on testing a logic of problem solving. For example, in an empirical

work on problem-attributes Macher (2006) provided support for Simon’s theory on

different organizing requirements for solving ill- versus well-structured problems.

Notwithstanding the emphasis on problem solving, Macher’s work provided useful

insight for problem formulation by usefully shifting the unit of analysis from the industry,

firm or transaction, to the problem (Lyles, 1987, Felin & Zenger, 2014).

Modern Problem Finding Solving Theory.

In their theoretical work, Nickerson and Zenger (2004) asserted the importance

of the problem as unit of analysis (again, primarily in a problem solving context). They

also introduced a coherent, economizing sequential logic that starts with problem finding,

proceeds to problem solving, and leads finally to value capture; Beckman and Barry

(2007) subsequently further decomposed problem formulation into two processes:

discovery and choice of problem, as antecedents to problem solving processes.

Gaps in the Literature: Empirical Work, over-focus on solving vs. Finding Problems.

While Nickerson and Zenger (2004) theoretically explored the role of value

creation within firms via a focus on problem-solving, Nickerson, Silverman and Zenger

(2007, p. 214) put more emphasis on problem-formulation. They also updated prior work

reflecting the crucial idea that biases matter in the problem formulation activity:

“in…unconstrained-search contexts…biases are likely to be particularly severe

impediments – impediments that contaminate efforts to discover and identify problems”

(See also Ramaprasad and Mitroff, 1984). Hurmelinna-Laukkanen and Heiman (2012)

pushed ahead incrementally by identifying new, testable candidates for biases to problem

formulation performance, and by offering a plausible chain of logic organized around

distinct logics for particular managerial decision points. Their study described a complete

picture from awareness of bias, to problem formulation, to problem solving, and finally to

value capture (economic performance).

Contribution of This Paper.

The most refined theory work on problem formulation is presently that of Baer,

Dirks and Nickerson (2013) who offer a framework for problem formulation that takes

into account team- / project-level conditions including heterogeneous information sets,

objectives, and cognitive structures as well as their relationships to biases (i.e.,

impediments to problem formulation, see also Furr, Wuebker, & Nickerson, 2016). Baer,

et al (2013) proffered an alluring methodology for choosing discrete organizing solutions

by looking at how, and how well, each mitigates specific biases.

References Baer, M., Dirks, K.T., & Nickerson, J.A. (2013). Microfoundations of Strategic Problem

Formulation. Strategic Management Journal, 34, 197-214.

Beckman, S.L., & Barry, M. (2007). Innovation as a learning process: Embedding design

thinking. California Management Review, 50, 25-56.

Cowan, D. A. (1986). Developing a process model of problem recognition. Academy of

Management Review, 11, 763-776. Lyles, M.A., & Mitroff, I.I. (1980).

Felin, T., & Zenger, T.R. (2014). Closed or open innovation? Problem solving and the

governance choice. Research Policy, 43, 914-925.

Furr, N., Nickerson, J.A., & Wuebker, R.A. (2016). Theory of entrepreneuring. INSEAD

Working Paper No. 2016/16/STR. Available at SSRN:

http://ssrn.com/abstract=2747458 or http://dx.doi.org/10.2139/ssrn.2747458

Hurmelinna-Laukkanen, P., & Heiman, B. (2012). Finding the right problems to solve:

Value creation unpacked. Baltic Journal of Management, 7, 238-250.

Kiesler, S. & Sproull, L. (1982). Managerial response to changing environments:

Perspectives on problem sensing from social cognition. Administrative Science

Quarterly, 27, 548-570.

Lyles, M.A., & Mitroff, I.I. (1980). Organizational problem formulation: An empirical

study. Administrative Science Quarterly, 25, 102–119.

Lyles, M. (1987). Defining strategic problems: Subjective criteria of executives.

Organization Studies, 8, 263-280.

Macher, J.T. (2006). Technological development and the boundaries of the firm: A

knowledge-based examination in semiconductor manufacturing. Management

Science, 52, 826-843.

Mahoney, J.T., & McGahan, A.M. (2007). The field of strategic management within the

evolving science of strategic organization. Strategic Organization, 5, 79-99.

Nickerson, J.A., Silverman, B.S., & Zenger, T.R. (2007). The ‘problem’ of creating and

capturing value. Strategic Organization, 5, 211 – 225.

Nickerson, J.A., & Zenger, T.R. (2004). A knowledge-based theory of the firm: The

problem-solving perspective. Organization Science ,15, 617-632.

Pounds, W.F. (1969). The Process of Problem Finding. Industrial Management Review,

11, 1-19.

Ramaprasad, A. & Mitroff, I.I. (1984). On formulating strategic problems. Academy of

Management Review, 9, 597-605.

Simon, H.A. (1973). The structure of ill structured problems. Artificial Intelligence, 4,

181-201.

Smith, G.F. (1989). Managerial problem identification. Omega, 17, 27-36.