Strategic overconfidence as an organisational capability and liability

Abstract

Strategic management has reached opposite conclusions about executive overconfidence. One body of work links it to inflated acquisition premiums, escalating commitment and misreporting; another to innovation, market entry and venture persistence. The field has reconciled these findings by adding moderators, which preserves the assumption that overconfidence is an individual disposition whose effects depend on context. This paper argues that the assumption is the problem. We define strategic overconfidence as an organisational property, namely the collectively held and structurally reproduced overestimation by a dominant coalition of the accuracy of its beliefs about the environment and its control over strategic outcomes. We identify four carriers through which individual miscalibration becomes organisational and durable, giving the property the isolating features of a core rigidity rather than the correctability of a bias. Its valence then turns on which organisational problem is being solved. Miscalibration does capability work where action must precede the evidence that would justify it, because the available calibrated procedures are conservative by construction and because a commitment that can be staged is a weaker signal to the parties whose mobilisation the strategy requires. It does liability work where a standing commitment must be registered as failing. The claim is a net of offsetting effects, and we set out the exceptions. Benefit accrues from the act of committing while cost accrues from the inaccuracy of the belief meeting the irreversibility of the action, so the two are produced together and collected apart. An architectural rather than psychological remedy follows, with thirteen propositions.