Imitate Others? Not if We Have the Chance: Competitive Differentiation in Medical Malpractice Insurers' Pricing Decisions under Uncertainty
| Published date | 01 July 2014 |
| DOI | http://doi.org/10.1111/1467-8551.12039 |
| Date | 01 July 2014 |
Imitate Others? Not if We Have the
Chance: Competitive Differentiation in
Medical Malpractice Insurers’ Pricing
Decisions under Uncertainty
Vinit M. Desai
University of Colorado, Denver, School of Business, 1250 14th Street, PO Box 173364, Campus Box 165,
Denver, CO 80217-3364, USA
Email: vinit.desai@ucdenver.edu
Several perspectives assert that organizations facing uncertainty tend to imitate other
organizations’ actions. While one might therefore expect to see great homogeneity
across fields characterized by uncertainty, it is surprising that this homogeneity has not
been observed more frequently in practice. Research investigating this puzzle has typi-
cally focused on the role played by organizational characteristics or the information
organizations possess about their environments. Instead, this study turns attention to the
information others possess about the organization. To that end, I disaggregate organi-
zational uncertainty into the uncertainty facing decision makers and the uncertainty
faced by others about what those decision makers might ultimately do, providing a more
fine grained analysis of uncertainty and its impact on competitive action than typically
offered in this literature. I suggest that uncertainty in competitors’ evaluations of the
organization provides an opportunity for the organization to differentiate itself rather
than imitate others. I also suggest that this effect is stronger than the effects of the
uncertainty facing the decision makers themselves. Related hypotheses are tested on a
panel of medical malpractice insurance providers. The study’s perspective generates
unique predictions regarding imitation and differentiation in this industry and across
other contexts featuring both uncertainty and competition.
Introduction
An extremely wide body of literature establishes
that organizations tend to imitate other organiza-
tions when faced with uncertainty (Belderbos, Van
Olffen and Zou, 2011; Haunschild and Miner,
1997; Henisz and Delios, 2001; Semadeni and
Anderson, 2010). Under uncertainty, imitation
appears beneficial for a variety of reasons. For
example, following others conveys legitimacy to an
organization’s chosen course of action (Briscoe
and Safford, 2008) and helps the organization
maintain competitive parity during turbulent
periods (Belderbos, Van Olffen and Zou, 2011;
Lieberman, 1987). The observation that uncer-
tainty promotes imitation is so fundamental to
learning theory and to a diverse array of other
literatures that an observer might expect to
see great homogeneity in practices across
fields characterized by uncertainty (Haunschild
and Miner, 1997; Henisz and Delios, 2001;
Rueda-Manzanares, Aragon-Correa and Sharma,
2008; Semadeni and Anderson, 2010).
Therefore, it is surprising that this homogeneity
has not been observed more frequently in practice.
Anecdotal and scholarly examples exist of organi-
zations that have departed from common practice
I am grateful for comments on earlier versions of this
work from David Chandler and Peter Madsen.
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British Journal of Management, Vol. 25, 589–606 (2014)
DOI: 10.1111/1467-8551.12039
© 2013 The Author(s)
British Journal of Management © 2013 British Academy of Management. Published by John Wiley & Sons Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
even under considerable uncertainty, and research
has turned to examining this mystery and under-
standing its causes (e.g. Goodrick and Salancik,
1996). Indeed, one of the greatest challenges faced
by the literatures in strategy and competitive
dynamics is in explaining why competing organi-
zations might pursue different courses of action
despite facing similar environmental pressures,
since such differentiation could provide some firms
with a competitive advantage relative to other
firms (Chen, 1996; Chen and Miller, 1994, 2012;
Lui and Ngo, 2012). Where do these persistent
competitive advantages come from? How do they
arise? Why are some organizations able to pursue
competitively beneficial strategies without fear of
imitation or reprisal? Understanding the answers
to those questions requires that we turn our
attention to how certain environments might
create opportunities for organizations to diverge
competitively, while at the same time shielding
their divergence from direct observation and
imitation by their rivals. And in this case, a focus
on environmental uncertainty is paramount, since
uncertainty is known to disconnect relationships
between actions and consequences and make
organizational actions more difficult to observe,
interpret and trace to meaningful competitive out-
comes (Haunschild and Miner, 1997; Latham
and Braun, 2010; Parnell et al., 2012; Rueda-
Manzanares, Aragon-Correa and Sharma,
2008).
Past answers to the mystery of competitive
differentiation under uncertainty have focused
largely on characteristics of the acting organiza-
tion (the ‘actor’). For instance, puzzled by the
prospect of competitive differentiation rather
than imitation under high uncertainty, Greve
(1996) posits that such departures can be
explained either by differences in organizational
characteristics that make differentiation appear
more valuable than imitation, or by differences in
the information held by organizations about
others’ practices, which may vary across organi-
zations as a result of their unique positions in
the field’s social structure (Greve, 1996, p. 34).
However, despite the importance of these pro-
cesses, a singular focus on the acting organization
obscures a larger picture regarding how and why
some firms might seek to differentiate under
uncertainty. To that end, the present study
adds the possibility that information held by
other organizations (the ‘evaluators’) about the
acting organization also influences the deci-
sion to imitate (Goodrick and Salancik, 1996;
Haunschild, 1994; Sanders and Boivie, 2004).
This is important because it provides a new per-
spective regarding whether and when organiza-
tions might pursue competitive differentiation
under uncertainty. Rather than emphasizing
whether an acting organization has the requisite
information or social position to recognize that
competitive differentiation is a viable option (as is
done by past research), I consider whether other
evaluating organizations have (or lack) accurate
information about the acting organization’s
actions. This is theoretically important because
information possessed by evaluators about the
actor influences their likelihood of competitive
retaliation, ultimately affecting the success of any
effort to differentiate competitively from rivals.
Therefore, understanding the availability and
accuracy of external competitive information pro-
vides a direct and understudied window into one
of the central debates in the strategy literature:
why some firms seek to differentiate themselves
and what makes these competitive efforts either
succeed or fail (Chen and Miller, 1994, 2012;
Latham and Braun, 2010; Parnell et al., 2012).
To advance this perspective, I disaggregate
organizational uncertainty into two conceptually
distinct components. First, an acting organiza-
tion’s decision makers might face uncertainty
regarding the types or extent of changes that
could occur in their environment, which I refer to
as decision uncertainty since it creates a lack of
clarity regarding which particular actions might
yield desirable outcomes in the future, compli-
cating the decision making process (Haunschild
and Miner, 1997; Leblebici and Salancik, 1981).
Second, a less well understood form of organiza-
tional uncertainty involves the uncertainty faced
by others, such as competitors, regulators and
customers, when attempting to determine what
actions the acting organization might pursue in
the future (Goodrick and Salancik, 1996; Sanders
and Boivie, 2004).
The latter form of uncertainty, which I refer to
as evaluative uncertainty since it involves others’
evaluations of the organization, is important
to our understanding of organizational action.
Although decision uncertainty is known to
promote imitation, evaluative uncertainty might
do the opposite. Research recognizes that organi-
zations face competing pressures to appear similar
590 V. M. Desai
© 2013 The Author(s)
British Journal of Management © 2013 British Academy of Management.
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