Decision Making Processes and the Rate and Direction of Innovation *

David J. Teece

in Managing Intellectual Capital

Published in print March 2002 | ISBN: 9780198295426
Published online November 2003 | e-ISBN: 9780191596964 | DOI:

Series: Clarendon Lectures in Management Studies

 Decision Making Processes and the Rate and Direction of Innovation *

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The reluctance to introduce competency‐destroying innovations may be understood as a product of the decision‐making biases of many large firms; some large firms tend to lose their ability and desire to engage in competency‐destroying innovative activities as they grow because of decision‐making biases associated with their size, asset base, business practices, and organizational structure. There are two key behavioural factors that influence and bias decision making in organizations: bounded rationality (and cognitive biases in general), and inconsistent risk aversion. The interaction of these behavioural aspects with the established capabilities, complementary assets, and administrative and organizational routines in firms intensifies decision‐making biases, thereby limiting radical innovation. Implications for managing innovation and change are considered.

Keywords: bounded rationality; cognitive biases; competences; decision‐making; innovation; large firms; risk aversion

Chapter.  8384 words. 

Subjects: Microeconomics

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