Some managers are better than others.
Based on the cognitive hierarchy framework of Camerer, Ho, and Chong
(2004), we develop a structural econometric model that estimates the
level of strategic thinking. In the model, firms with a high level of
strategic thinking are more likely to correctly infer the expected
actions of their competitors. We apply this model to the decisions by
managers at 2233 Internet Service Providers to adopt 56K modems in
1997. We validate our model by showing that firms with higher estimated
probability of strategic thinking were more likely to have survived
through April 2007. We estimate considerable heterogeneity in the
degree to which firms behave strategically and find that strategic
ability affects technology choices. In particular, we simulate an
increase in strategic ability and find that the diffusion rate of 56K
modems falls substantially.
The article from Businesspundit "Are You A Level 0 Manager?" summarized the highlight of the paper as follows:
At it's core, strategic thinking is all about finding your company's
points of differentiation, preferably ones that can be generated by
some sort of competitive advantage. Differentiation without paying heed
to competition could turn out badly. So ask yourself what kind of
manager you are. How much to do you think about your competitors? Do
you anticipate what they might do, and how you might respond? Or is
this analysis all a bunch of fluff that takes the focus off execution?
Should you be a level 0 manager, or is it something to avoid at all
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