SMT goes ABMS: Developing Strategic Management Theory using Agent-Based Modelling and Simulation.

Abstract

For the emerging complexity theory of strategy (CTS), organizations are complex adaptive systems able to co-evolve with their dynamic environments through interaction and response, rather than purely analysis and planning. A promising approach within the CTS context, is to focus on a strategic logic of opportunity pursuit, one in which the distributed decision-makers behave audaciously despite unpredictable, unstable environments. Although there is only emergent support for it, intriguingly organizations can perform better when these decision-makers ‘throw caution to the wind’ even at their own possible expense. Since traditional research methods have had difficulty showing how this can work over time, this research adopts a complementary method, agent-based modelling and simulation (ABMS), to examine this phenomenon. The simulation model developed here, CTS-SIM, is based on quite simple constructs, but it introduces a rich and novel externally driven environment and represents individual decision-makers as having autonomous perceptions but constrainable decision-making freedom. Its primary contribution is the illumination of core dynamics and causal mechanisms in the opportunity-transitioning process. During model construction the apparently simple concept of opportunity-transitioning turns out to be complex, and the apparently complex integration of exogenous and endogenous environments with all three views of opportunity pursuit in the entrepreneurship literature, turns out to be relatively simple. Simulation outcomes using NetLogo contribute to CTS by confirming the positive effects on agent performance of opportunistic transitioning among opportunities in highly dynamic environments. The simulations also reveal tensions among some of the chosen variables and tipping points in emergent behaviours, point to areas where theoretical clarity is currently lacking, provoke some interesting questions and open up useful avenues for future research and data collection using other methods and models. Guidance through numerous stylized facts, flexible methods, careful documentation and description are all intended to inspire interest and facilitate critical discussion and ongoing scientific work.