The Role of Imagination in Organizational Search

When managers search for strategies in novel and complex worlds, cognition and action areintertwined. Managers envision courses of action that may lead them to desired outcomes, andrevise their thinking along the way of executing those actions. We advance a new theory andmodelling platform that reflects this nature of organizational search. Contrary to prior work,the model predicts that firms are only likely to be successful in their search if they imaginethe structure of the environment correctly. We study a new type of search strategy, whichwe call ’global search guided by what-if beliefs’: Firms search, not necessarily by increasingthe performance gradient, but by choosing actions that increase the firm’s information aboutcombinations of actions that produce desired goals. The model predicts that global searchguided by what-if beliefs outperforms local search, even if the firmhas access to only incompleteinformation. However, a firm’s search is slowed down, if it overestimates the complexity, andmay fail altogether, if the firm underestimates the complexity of the task environment.