Is dominant logic a value or a liability? On the explorative turn in the German power utility industry.

• Author: Brandtner, Ekaterina

INTRODUCTION

Times of disruptive changes call for constructs that help companies to master the change. While in most recent times, technological developments like digitalization stand at the fore when it comes to analyzing disruptive change, sustainability and the related energy provision play an important role in terms of radical social and economic changes as well. With regard to incumbents, there is a strong need to adapt to these changes and, therefore, to 'reanimate' their explorative capabilities to avoid getting stuck in an 'exploitation trap' (Freiling, 2018). However, sometimes, the incumbents seem to be unable to move. One example is the rapid development of renewable energy sources, in connection with the current political pressure in terms of climate change. While this holds true for many countries worldwide, Germany is an extreme case due to massive changes in environmental public policy and legislation (Haake, 2015; Lee & Lee, 2019). The term 'German Energiewende' (i.e., energy transition: an exit from nuclear and fossil energy and a move to sustainable energy sources) crystallizes the disruptive character of the major political and social changes caused by the Fukushima catastrophe (Beveridge & Kern, 2013; Giones et al., 2018). As a consequence, incumbents had to develop completely new businesses and business models as the old ones broke down almost from one day to the other. In terms of ambidexterity (March, 1991), managers in the energy industry had to move from exploitation back to exploration to realize an explorative turn (Gibson & Birkinshaw, 2004).

While it is still an open question as to how to master an explorative turn in formerly stable businesses like energy provision, the simultaneous pressure of digitalization and its imprint on strategy is strong (Buchan, 2012; Teece, 2018) and reconfiguring resources and capabilities must indispensably be followed by changing business models, organizational cultures and even company identities (Kor & Mesko, 2013). Against this background, incumbent business models, existing structures, commitments and cognitive constraints prevent companies from explorative turns (Christensen, 1997; Desai, 2013). However, examples from other industries like the German company Linde show how dominant logic may drive change--here in the direction of permanent transformations towards up-and-coming trends and technologies like the fuel cell.

While the reasons for this resistance to change may be different, Prahalad and Bettis (1986) pointed to cognitive issues around 'dominant logic' (DL) as the "way in which managers conceptualize the business and make critical resource allocation decisions" (p. 490). As DL can drive or prevent disruptive change, DL comes into play when an explorative turn is required. Particularly in the case of strongly committed and traditional power utility companies, DL may relate to traditional ways of managerial thinking based on previous experience and accomplishments that make them stick to the old business and get stuck in an exploitation trap. Two faces of the DL debate appear: DL as a value when it leads to renewal and DL as a liability when specific knowledge and old styles of thinking prevent the required changes. Accordingly, we raise two research questions:

RQ1) How to re-conceptualize the construct of the dominant logic to address both the driving and the hampering role in the case of explorative turns? RQ2) Which factors restrain and which factors allow explorative turns? The response to these questions is relevant, as the explorative turn in connection with an exploitative trap is a less understood phenomenon that relates to a wide number of industries. Currently, the automotive industry is undergoing a fundamental change, where incumbents still stick to previously learned ways of manufacturing combustion engines, trying to 'greenwash' business models and technologies (Fischedick & Grunwald, 2017). Many established companies in mechanical and plant engineering still believe in the power of traditional ways of designing and tailoring solutions, with limited drive to move towards advanced 'industry 4.0' options. On the other hand, and on a more general level, societies recognize the power and potential of recent Al solutions--and this conviction currently opens many doors for change. While DL seems to be in place in all these cases, we still do not know very much of the ambiguous role of DL in the context of rapid change. Facing the relevance of this issue, this paper makes a contribution to fill this relevant gap and aims at specifying this ambiguous, yet largely undiscovered role of DL, by taking into account the time dimension.

As for the contribution, the study enhances research on managerial cognition with an emphasis on the complex interplay between the individual, team and organizational level that allows an explanation of DL's ambiguity. A six-factor framework refines and structures the cornerstones of DL that are decisive to the value or liability role of the construct. Owing to the complexity of the research topic, a qualitative research design is chosen that rests on a single case study.

This article proceeds as follows: the next section provides the conceptual background and state of the art in the literature. Afterward, the methodology clarifies the epistemological frame and delivers details of the empirical fieldwork. It is followed by a section on the results that already comprises a discussion. The article ends with a section on conclusions and implications.

CONCEPTUAL BACKGROUND

This section seeks to clarify the core constructs in use. This step is connected with a literature review to locate the state of research.

Dominant logic and its immanent ambiguity

Basics of DL. Following the research line, the DL construct rests on beliefs, assumptions, experiences, and industry-specific identities with predictable models of behavior and action consequences (Bettis & Prahalad, 1995). The discourse on DL in strategic management research is, to some extent, iterative. On this note, Bettis and Prahalad (1995) extended the above understanding and regard DL as "a fundamental aspect of organizational intelligence, whereas organizational learning can be thought of as occurring at the level of the strategy, systems, values, expectations and reinforced behaviors, which then shape the dominant logic through feedback" (p. 7). The ambiguity in definition highlights the complex nature of DL. Furthermore, a state of ambiguity implies complexity as well as uncertainty (Kaplan, 2008). This research aims to contribute to the conceptual development of a special view of DL as a barrier to and enabler of innovation by explaining how DL is related to organizational transformation and to shaping managerial decision-making, especially under time pressure and causal ambiguity (March, 1991). This balanced view of DL ties in with most recent discourses on hybrid phenomena like 'enabling constraints' (Selden & Fletcher, 2015; Gancarczyk et al., 2021).

The roots of the DL phenomenon stem from cognitive psychology (Grant, 1988; Ginsberg, 1989). The DL concept rests on input from four streams of research on cognitive maps and problem-solving behaviour: "operant conditioning, paradigms, cognitive biases, and artificial intelligence" (Prahalad & Bettis, 1986, p. 491). This traces back to Kelly's construction systems as "transparent patterns or templates, which he creates and then attempts to fit over the realities of which the world is composed" (Kelly, 1955, p. 7). In our case, this interrelation of thinking and acting, the management's interpretation of the environment, has a 'double effect' with positive (value) and negative (liability) impacts.

DL and Liabilities. An important facet of DL relates to its consistency and rigidity (Blettner, 2008). Tversky compared people's internal representations to mental maps and cognitive biases in general, supported by mental collages and spatial mental models (Tversky, 1993). On the one hand, this mental mapping is an articulation of fundamental beliefs and expectations based on previous accomplishments and failures (Kor & Mesko, 2013, p. 235). On the other hand, this can imply systematic errors or wrong judgments of the environment. Especially in times of rapid changes, these interpretations may be detrimental and end up in the least possible efforts or following old paths and learned rules (Greif & Laitin, 2004).

Later contributions from research on organizational and institutional theory revealed change-inhibiting forces based on negative developments of a managerial logic and its adoption by organizations, which may result in technological, organizational, and strategic lock-ins (Sydow et al., 2009). The organization moves along its own path. Alternative ways and choices may remain hidden, as well as market changes ignored (Levitt & March, 1988). Even signs of innovation tend to be seen as provocation or threat (Markides, 2006) rather than as an opportunity. Preservation of the well-known business and an (over-)emphasis on exploitation, based on firm routines, technological expertise, established learning styles or core competences (Leonard-Barton, 1992; Bettis & Wang, 2003) seems to be 'logical' from this angle--a disruptive change, however, not. Based on empirical evidence in mechanical engineering, Freiling and Dressel (2015) found how a goods-dominant logic, developed and practised over decades, 'made sense' internally and prevented the unfolding of service-dominant logic (Vargo & Lusch, 2004; Vargo & Lusch, 2007).

DL and Value. A firm's cognitive framework develops over time framed by resources, assets and knowledge and, on a different level, organizational boundaries. Each company has its own unique experiences with DL's emergence and its establishment within iterative learning processes. This influences a firm's resource allocation and competence configuration (Kor & Mesko, 2013)...