Strategic Sensemaking and Organizational Performance: Linkages among Scanning,

Interpretation, Action, and Outcomes

Author(s): James B. Thomas, Shawn M. Clark and Dennis A. Gioia
Source: The Academy of Management Journal, Vol. 36, No. 2 (Apr., 1993), pp. 239-270
Published by: Academy of Management
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' Academy of Management journal
1993, Vol. 36, No. 2, 239-270.

STRATEGIC SENSEMAKING AND

ORGANIZATIONAL PERFORMANCE: LINKAGES
AMONG SCANNING, INTERPRETATION, ACTION,
AND OUTCOMES
JAMES B. THOMAS
SHAWN M. CLARK
DENNIS A. GIOIA
Pennsylvania State University

This study investigated the strategic "sensemaking"processes of scan-

ning, interpretation, and action and how those activities are linked to
organizational performance.Using path analyses on data from 156 hos-
pitals, we tested the direct and indirect effects among these sensemak-
ing processes and performance outcomes and developed a model of
their relationships. In a more general sense, the research represents an
attemptto provide insight not only into relationships between cognition
and action, but also into the links between those fundamental processes
and organizational performance outcomes.

The exploration of relationships between cognition and action has

gained increasing prominence in organizational studies in recent years. If
cognition and action are linked, however, it is intuitively apparent that both
should be related to performance. Performance linkages to cognition and
action, although clearly important, have received considerably less study
than those between cognition and action, and the existing work in this do-
main has been directed mainly at individual and group-level outcomes. An
important area of concern that has received even less empirical attention is
the investigation of the relationships among cognition, action, and organiza-
tional performance.
Studies dealing with cognitive processes have explored the effects of
antecedent and contextual factors on decision makers' interpretations of
information (e.g., Bateman & Zeithaml, 1989; Thomas & McDaniel, 1990) and
the effects of strategic interpretation on organizational action (e.g., Meyer,
1982; Smart & Vertinsky, 1984). Other relevant work has focused mainly on
the relationship between group schemas and decision makers' attributions of
causality and their subsequent decisions (e.g., Clapham & Schwenk, 1991) or

Thanks to Charles Snow, David Ketchen, Glenn Firebaugh, Reuben McDaniel, and this
journal's reviewers for their helpful comments and guidance. We gratefully acknowledge the
research support of Roger Harvey and the Healthcare Financial Management Association.

239

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240 Academy of Management journal April

has used laboratory settings to test hypothesized interpretation-outcome

linkages at an individual level (e.g., Fredrickson, 1985; Gioia & Sims, 1986;
Walsh, Henderson, & Deighton, 1988). There has been, however, a notable
lack of empirical work seeking to link "sensemaking"-which subsumes the
key cognition-action processes of environmental scanning, interpretation,
and associated responses (Gioia & Chittepeddi, 1991; Weick, 1979)-with
organizational performance.
In the strategic context, increasing emphasis has been placed on under-
standing the link between how top managers make sense of information and
how they act to influence organizational outcomes (Dutton, Fahey, & Naray-
anan, 1983; Dutton & Jackson, 1987; Nystrom & Starbuck, 1984). Because
modern organizational environments are complex and dynamic, a key role of
top management has become providing meaningful interpretations for pat-
terns of ambiguous information. Indeed, the imposition of meaning on issues
characterized by ambiguity has become a hallmark of the modern top man-
ager (cf. Smircich & Stubbart, 1985; Weick, 1979). Those interpretations are
often seen as critical to the success and even the survival of organizations,
mainly because of their implications for influencing action alternatives and
subsequent outcomes (Dutton & Duncan, 1987).
This study was intended to articulate and empirically investigate link-
ages between sensemaking processes and organizational performance in the
strategic arena to provide insight into what distinguishes organizations that
flourish from those that flounder within the same competitive environment.
We tested and refined hypothesized relationships among scanning, interpre-
tation, action, and organizational performance. Overall, we posed the ques-
tion, How are key cognitive processes and the associated actions of top
managers linked to organizational performance?

CONCEPTUAL FRAMEWORK

Researchers have developed a number of models to describe the way

managers and organizations deal with potentially significant information
(e.g., Dutton & Duncan, 1987; Kiesler & Sproull, 1982; Meyer, 1982). Daft and
Weick (1984) and Milliken (1990) proposed that organizational adaptation
entails three key processes-scanning, interpreting, and responding. These
are all important aspects of the more general notion of sensemaking, which
involves the reciprocal interaction of information seeking, meaning ascrip-
tion, and action (cf. Gioia & Chittipeddi, 1991; Weick, 1979). Each element
of this sensemaking process is presumed to have some relationship to per-
formance. Thus, the basic model underlying this study can be represented as
a scanning-interpretation-action-performance sequence.

Scanning

Scanning involves information gathering; it usually is considered an

antecedent to interpretation and action (Daft & Weick, 1984; Hambrick,

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1993 Thomas, Clark, and Gioia 241

1982). Top decision makers typically have access to far more information
than they can actually use (Mintzberg, 1973); therefore, they are necessarily
selective in attending to specific information employed to develop and in-
terpret strategic issues (Huber & Daft, 1987). Researchers have most often
defined scanning as searching the external environment to identify impor-
tant events or issues that might affect an organization (Daft & Weick, 1984;
Kiesler & Sproull, 1982; Milliken, 1990). From a strategic perspective, how-
ever, scanning also involves searching an organization's internal environ-
ment to identify important elements that might bear on future performance
(e.g., Cowan, 1986). Dutton and Duncan (1987) viewed these search activi-
ties as activators of strategic issue interpretation and action.
Interpretation
Interpretation involves the development or application of ways of com-
prehending the meaning of information; it entails the fitting of information
into some structure for understanding and action (Gioia, 1986; Taylor &
Crocker, 1981). Researchers have usually viewed interpretation as an indi-
vidual-level process wherein people attend to and ascribe meaningful labels
to incoming information (cf. Cantor & Mischel, 1979; Smart & Vertinsky,
1984; Taylor & Fiske, 1978). At a different level of conceptualization, how-
ever, organizations themselves can be viewed as interpretation systems (Daft
& Weick, 1984). In this sense, different areas and levels of an organization
may be involved in the scanning activities associated with sensemaking, but
it is top managers who have primary influence over which strategic issues
are attended to and how they are labeled (Bartunek, 1984; Hambrick & Ma-
son, 1984).
Meanings attached to strategic issues are often the result of the catego-
ries that decision makers use. Rosch (1978) defined categories as cognitive
classifications that group objects, events, and the like with similar perceived
attributes. When decision makers use particular labels to describe a given
issue (cf. Dutton & Jackson, 1987), the labels initiate a categorization process
that affects the subsequent cognitions and motivations of the decision mak-
ers. Two of the most salient strategic issue labels are "opportunity" and
"threat" (Dutton & Duncan, 1987; Mintzberg, Raisinghani, & Theoret, 1976;
Nutt, 1984; Perrow, 1970). Jackson and Dutton (1988) showed that three
dimensions differentiate those strategically relevant interpretation labels: (1)
whether decision makers evaluate an issue in positive or negative terms, (2)
whether they see it as representing potential gain or loss for their organiza-
tion, and (3) whether they see it as controllable or uncontrollable. Thomas
and McDaniel (1990) verified the relevance of these labels for describing
strategic issues but also noted that because the positive-negative and gain-
loss dimensions were operationally indistinguishable, and were in fact
highly correlated (r = .90), they should be collapsed into a single dimension.
We followed that suggestion in formulating hypotheses in this study and
labeled the composite variable "positive-gain."
A basic premise of research on interpretation in organizations is that the

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242 Academy of Managementjournal April

way a strategic issue is labeled or framed mobilizes action in a particular

direction (Dutton, Fahey, & Narayanan, 1983). Dutton and Jackson (1987)
noted that chosen labels can affect the level of risk taking, involvement, and
commitment associated with strategic issues (cf. Kahneman & Tversky,
1984). Similarly, Fredrickson (1985) found that the decision labels "oppor-
tunity" and "problem" affected the type of recommendation participants in
a business simulation made. Consequently, we assumed that interpretation
is important in developing and sustaining the adaptive cognitive frame-
works necessary for strategic action and change (Bartunek, 1984; Gioia &
Chittipeddi, 1991).

Action

Effective organizational action in response to strategic issues often de-

pends on an ability to implement decisions based on scanning strategies and
subsequent interpretations of strategic information (cf. Pfeffer & Salancik,
1978). Indeed, Jackson and Dutton (1988) suggested that interpretation might
hold the key to organizational adaptation models (e.g., Tushman & Ro-
manelli, 1985) that attempt to link changes in strategic action to changes in
top managers' readings of an environment. This interpretation-action link is
also reflected in the work of both Whetten (1988) and Ranson, Hinings, and
Greenwood (1980), who argued the importance of the link between manag-
ers' understanding of their environment and firm action.
Adaptive actions involve some change; they can range from small-scale
forms, such as changes in procedures, to larger-scale forms, such as product-
service changes, revisions in overall strategy, and the redesign of organiza-
tional structures (Dutton & Duncan, 1987). For the purposes of this research,
we defined action as any significant change in ongoing organizational prac-
tices, such as a substantive alteration in product or service offerings (Gins-
berg, 1988).
Performance

As noted earlier, a body of work now exists exploring internal linkages

among the sensemaking processes of scanning, interpretation, and action.
Thomas and McDaniel (1990) argued that a "critical mass" of such research
now exists and that one of the key remaining research issues is the extension
of those relationships to account for organizational performance. Specifi-
cally, researchers need to examine how differences in the performance of
similar organizations are related to differences in their ability to carry out the
three sensemaking tasks. It is apparent that without a performance referent,
neither researchers nor executives have a good way of evaluating the effec-
tiveness of their scanning and interpretation processes or the associated
actions. Additionally, examining the performance implications of the sense-
making process can provide a basis for understanding how the information-
processing structures of firms might be designed to facilitate this vital set of
activities.

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1993 Thomas, Clark, and Gioia 243

HYPOTHESES
Our interest in investigating the links between the scanning-
interpretation-action-performance variables drove hypothesis generation.
However, to learn more about the intricacies of the process, we also com-
pared the direct and indirect relationships among the variables.
Scanning and Interpretation
Top decision makers usually scan according to their perceptions of the
necessity for information (Pfeffer & Salancik, 1978). For instance, they might
differ with respect to the amount of information used and to their emphasis
on attending to internal or external information. If decision makers across
firms give unequal emphasis to the amount and type of information available
to them, they are likely to differ in their interpretations and responses (Dut-
ton & Duncan, 1987).
The greater the level of information use, the more raw material top
managers have for constructing their interpretations (Knight & McDaniel,
1979). More specifically, the more complete the information decision mak-
ers have about presumed cause and effect relationships (Thompson, 1967),
the greater the likelihood they will perceive causes as controllable. A sense
of mastery and a feeling that no stone has been left unturned emerges (Eisen-
hardt, 1989).
From an information-processing perspective, top managers who use
much information are more likely to emphasize the positive aspects of an
issue (Thomas & McDaniel, 1990). Not only are they able to cope with am-
biguity (Eisenhardt & Bourgeois, 1988) and uncertainty (Milliken, 1990), but
also, over time, they will limit ambiguity through the information-
processing structures that evolve, which might include teams, task forces,
and reporting systems (Daft & Lengel, 1986). These arguments suggest the
following hypotheses concerning information-rich scanning behaviors:
Hypothesis la: High levels of information use among top
managers will be positively related to their interpretation
of strategic issues in positive-gain terms.
Hypothesis lb: High levels of information use among top
managers will be positively related to their interpretation
of strategic issues as controllable.
Smith, Grimm, Gannon, and Chen (1991) argued that top managers in
externally oriented firms are more likely to sense competitors' actions and
perceive themselves as more capable of implementing competitive re-
sponses than those in internally focused firms. This argument supplements
Aldrich's (1979) observation that externally oriented managers will collect a
richer array of information and be more confident that they can create a fit
between their environment and organization when data from external scan-
ning is added to their natural familiarity with internal factors. For those
reasons, they will tend to interpret strategic issues as generally under their

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244 Academy of Management Journal April

control. Similarly, increased external scanning should enhance early detec-

tion of environmental disturbances before threat interpretations emerge
(Jackson & Dutton, 1988), thus heightening managers' sense of control be-
cause they feel they can predict long-range outcomes (White, Duttrich, &
Lang, 1980). Therefore,
Hypothesis 2a: An external scanning orientation among
top managers will be positively related to their interpre-
tation of strategic issues in positive-gain terms.
Hypothesis 2b: An external scanning orientation among
top managers will be positively related to their interpre-
tation of strategic issues as controllable.

Interpretation and Action

Staw, Sandelands, and Dutton (1981) argued that the perception of an

issue as a threat restricts the number of alternatives for action decision
makers consider. In response to threat, managers tend to emphasize infor-
mation that is consistent with current, conservative interpretive frames and
can thus be more easily assimilated than new information. Managers also
tend to rely on fewer sources of information in these circumstances (Smart
& Vertinsky, 1977) and hence tend to use simplified assessments of situa-
tions and choose limited action-response patterns.
Perceptions of threat also intensify concerns about efficiency (Williams,
1957), which are manifested in cost cutting, budget tightening, and the re-
striction of activities (Starbuck & Hedberg, 1977). Organizational actions
associated with conservation of resources and tight control mechanisms are
likely to be manifested in maintenance of the status quo, which in turn
favors existing interpretation-action patterns. In sum, a threat interpretation,
like a crisis, may distort information processing (Smart & Vertinsky, 1977),
generate pathologies associated with action restriction (Rubin, 1977), and
cause rigidity in decision processing that limits organizational responses
(Staw et al., 1981).
Issues labeled as opportunities are associated with projected positive
outcomes and expectations of gain (Jackson & Dutton, 1988). In general, the
opportunity label provides an issue with a "positive gloss" (Dutton, 1990),
making it seem attractive and increasing decision makers' sense of control
(Taylor, 1989). Further, the reaction to opportunity is likely to be low un-
certainty (Milliken, 1990) and feelings of external control (Walsh et al.,
1988). Those interpretations will in turn enhance the potential for top man-
agers' taking strategic change actions, such as altering product-service offer-
ings, because their confidence in achieving desired outcomes is high (Gins-
berg, 1988; Milliken, 1987). Therefore,
Hypothesis 3a: Top managers' labeling of strategic issues
in positive-gain terms will be positively related to product
and service changes.

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1993 Thomas, Clark,and Gioia 245

Hypothesis 3b: Top managers' labeling of strategic issues

as controllable will be positively related to product and
service changes.
Action and Performance
The link between effective action and successful performance is a fun-
damental presumption in the strategic management literature. In the turbu-
lent modern environment facing most competitive organizations, "domain
offensive" actions in the form of new products and services (Miles, 1982)
might be expected to engender competitive advantage. Smith and colleagues
(1991) found that high numbers of organizational responses were linked to
the profitability of domestic airlines. Similarly, Zajac and Shortell (1989)
found that hospitals that stressed a commitment to new product and service
development performed better than hospitals relying on current products
and services. Shortell, Morrison, and Friedman (1990) made more specific
findings showing that to be successful, hospitals' managers had to recognize
the need to constantly differentiate and increase their product-service offer-
ings to match the changing and growing needs of their patient bases. Snow
and Hrebiniak (1980) suggested that such action-performance linkages might
come about because of the development of necessary distinctive competen-
cies in changing environments. Thus,
Hypothesis 4: Organizations characterized by growth in
their product and service offerings will exhibit higher per-
formance than organizations characterized by little or no
growth.
Indirect and Direct Effects of Sensemaking Processes on Performance
Strategic cognition-action models are generally predicated on an as-
sumption that rational thought is closely linked to chosen actions. Likewise,
the basic scanning-interpretation-action-performance model that undergirds
this study also implies active information processing and systematic, se-
quential execution of the constituent stages. In this view, one way organiza-
tions compete is by acquiring superior strategic information via decision
makers' effective scanning of the internal and external organizational envi-
ronments and interpreting that information into a form they can use to im-
plement appropriate actions that will lead to effective performance.
However, several authors have questioned this portrayal of sensemaking
and learning as deliberate. Issues such as beliefs, perceptions, politics, and
goals (Staw, 1980) and the outcomes of prior actions and performance (Mil-
liken & Lant, 1991; Weick, 1979) all conspire to complicate the process and
give rise to nonlinear effects. O'Reilly (1982) and Beach and Mitchell (1978)
suggested that because of decision makers' resistance to the expenditure of
personal resources, some sensemaking antecedents might affect performance
more directly or indirectly than the linear theoretical models predict. Ac-
cordingly, Daft, Sormunen, and Parks (1988) recommended that researchers

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246 Academy of Management Journal April

explore the detailed linkages among scanning, interpretation, and strategic

adjustment to understand their performance implications for organizations.
It is apparent that the overall configuration of pathways and the comparison
of the direct and indirect links between sensemaking and performance de-
serve closer examination. Because of the lack of coherent or compelling
theoretical or empirical research evidence concerning those linkages, we
framed our exploration as a research question: What is the relative strength
of the direct and indirect paths between the sensemaking activities of scan-
ning and interpretation, and organizational performance?

METHODS
Overview

Industry studied. We decided to focus on a single industry to control for

the impact of industry characteristics on the perceptions of strategic issues
(cf. Yasai-Ardekani, 1986) and chose the health care industry. As Zajac and
Shortell (1989) noted, in the 1980s health care organizations nationwide
experienced an "environmental jolt" (Meyer, 1982) because of changes in
regulation, clients' expectations, costs, and reimbursement mechanisms.
Given that turbulence, the industry was a fertile ground for examining how
top managers process information about issues associated with such envi-
ronmental change and the action and performance consequences of that
information processing. Past research also gave us confidence that top man-
agers from different hospitals would be likely to focus on different informa-
tion pertaining to the same environment (Ashmos, McDaniel, & Duchon,
1990; Meyer, 1982; Thomas & McDaniel, 1990) and respond strategically in
different ways (Shortell & Zajac, 1990).
Data sources. To obtain data on the scanning and interpretation behav-
iors of hospitals' decision makers, we sent 545 questionnaires to hospital
chief executive officers (CEOs) in the state of Texas in 1987. We mailed the
questionnaire only to public-access hospitals, excluding university health
centers, prison hospitals, and hospitals located on military bases. Mailings
were conducted in a single state to control for the possible impact of state
hospital regulations. We used only those questionnaire responses indicating
that the informant was the CEO of a hospital.
Using the top executive as the sensemaking focal point for a hospital is
consistent with the work of Daft and Macintosh (1981), Hambrick (1981),
Zajac and Shortell (1989), and Thomas and McDaniel (1990), who noted that
the CEO represents the most knowledgeable person regarding a hospital's
strategic position and is the individual most responsible for taking actions
intended to align the hospital's strategy, structure, processes, and environ-
ment. Additionally, this focus on CEOs seemed appropriate in light of the
findings of Provan (1991), who found that hospitals' CEOs receive twice as
much decision-making information as their boards and three times as much
as their medical staffs. Those findings, coupled with the earlier finding of

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1993 Thomas, Clark, and Gioia 247

Ritvo, Salipante, and Notz (1979) that the CEO is the primary interpreter of
the issues faced by a hospital, suggested that CEOs were the appropriate
people to inform us on the scanning foci and interpretations of hospitals. In
addition, the members of a panel of experts (discussed fully later in this
section) confirmed that CEOs would be the best informants for this study.
Thus, although CEOs are not the only decision makers-sensemakers at hos-
pitals, previous research and expert advice supported their use as infor-
mants.
A total of 210 managers responded to the questionnaire, a response rate
of 38.5 percent. Of those responses, 54 were unusable, 15 because the infor-
mant failed to complete parts of the questionnaire, 2 because the informant
was not the CEO, 31 because the informant did not perceive the question-
naire as strategically relevant to his or her hospital (we discuss those cases
in detail below), and 6 because product-service or performance data were
not available. Chi-square analysis indicated no significant differences in
size, type, and ownership between the remaining 156 hospitals and the
nonresponding hospitals.1
The average age of the CEO informants was 44; they had an approximate
average of 12 years of managerial work experience and 5 years of strategic
decision-making experience in their respective hospitals. Most of the infor-
mants (approximately 75 percent) had degrees in hospital administration.
The average size of the 156 hospitals represented by the CEOs was 194 beds.
We classified approximately 94 percent of these hospitals as "general hos-
pitals" rather than specific types like psychiatric or rehabilitation facilities.
The hospitals ranged in location from major metropolitan areas, such as
Dallas and Houston, to rural areas. There was an approximately equal dis-
tribution across five ownership categories: church, nonprofit-nonchurch,
county, hospital authority-district, and corporation.
Questionnaire. We employed a case-scenario methodology to study the
scanning and interpretation processes (cf. Fredrickson, 1986). Specifically,
we provided the informants with two different case scenarios and then asked
a series of questions regarding scanning and interpretation; the Appendix
gives the scenarios and questions. To assure that there was no order bias, we
used two versions of the questionnaire differing only in terms of the presen-
tation order of the scenarios.
An important assumption of this method is that strategic decision pro-
cesses constitute patterns of decision behavior (Mintzberg et al., 1976;
Weick, 1979). As Fredrickson (1986) noted, the characteristics of those de-
cision processes-for example, scanning and interpretation-are consistent
across decisions that are perceived as strategic.

1 For the analysis of respondent-nonrespondent differences, we divided size, defined as the

number of licensed beds in a hospital, into three categories: small (<200), medium (201-500),
and large (>500). We defined type as "general" and "other" and used five ownership categories.
Chi-squares were as follows: size, 2.79 (p < .25); type, 2.52 (p < .63); ownership, 4.60 (p < .59).

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248 Academy of Management Journal April

Before constructing the scenarios, we compiled a list of topics by tap-

ping several sources: Interviews with health care executives, hospital stra-
tegic planning documents, articles in leading journals in the field, cases that
had been written for hospital administration classes, and the popular press.
Topics included malpractice insurance, the effects of Acquired Immune De-
ficiency Syndrome (AIDS) on long-term care, hospital affiliation agreements,
health maintenance organizations (HMOs), outpatient surgical centers, and
satellite care centers.
We then formed an expert panel consisting of the president of the Texas
State hospital association, the president of the state's physicians' associa-
tion, two hospital CEOs, a chief operating officer, a chief financial officer, a
marketing director, a general counsel (most members of which were employ-
ees of different hospitals), and two university faculty members whose pri-
mary research interest was hospital administration. We felt this selection
would encompass any different perspectives or insights we might encounter.
Our primary goal with the panel was to select topics and draft scenarios that
hospital administrators in the state would consider strategic and were fac-
ing. As a result of this process, the HMO and satellite care center topics were
selected.
The next step was to draft scenarios that would provide a realistic yet
balanced presentation of informational elements across the two scenarios.
To assure realism, we gleaned much of the information used in the scenarios
from strategic planning documents that we had obtained from several hos-
pitals in the state. To assure balance and minimize framing effects, we con-
structed both scenarios using a two-by-two-by-two matrix. The three dimen-
sions of the matrix were (1) whether the information was from a formal or
informal source (written report or discussion, for instance); (2) whether the
information came from a source within the hospital (an internal report) or
outside it (general knowledge in the field); and (3) whether the information
would generally be considered good (a reputation for quality care provision)
or bad (outpatients are declining in number). Two pertinent information
elements were placed in each of the resulting eight cells. Thus, each scenario
consisted of 16 information cues that were identical in type but different in
specific content.
We then conducted multiple interviews with panel members to refine
and cross-check the type and source of the information items to assure that
they were accurate depictions of what would be encountered in the hospital
environment. We also had them assess the overall content validity of each
scenario as we proceeded through this process, asking "Is the scenario on
the whole representative of the type of strategic situation being faced by
hospital managers?" Finally, to assure that the hospital CEOs perceived the
scenarios as strategically relevant, we included a question to that effect
(see the Appendix). Informants who gave a scenario a strategic relevance
rating of less than five on a seven-point scale were not included in the
analysis.

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1993 Thomas, Clark, and Gioia 249

Variables

The questionnaire included multiitem scales with seven-point Likert

response formats for all scanning and interpretation variables. Cronbach
alphas for all scales were greater than .71.
Scanning. Items for this scale were constructed from the information in
the case scenario. The focus was on whether the information was in regard
to, and was generated from, something external to the hospital (for instance,
a rumor that a new hospital was moving into the area) or internal (for in-
stance, an internal report indicating ambulatory care service was down; see
the Appendix). Ten items consisting of five external and five internal infor-
mation cues from each scenario were used initially to measure the extent to
which the CEOs used internal or external information for strategic interpre-
tation purposes. However, we found that one item for the second scenario
had a negative interitem correlation and dropped it from the scale. Items
were scaled so that high scores indicated high use of external information for
interpretation. The Cronbach alpha for this scale was .73.
We also asked the informants to indicate on a seven-point Likert scale
the extent to which they would use the information cues in a scenario to
clarify and define the strategic issues identified in the applicable case. Col-
lectively, these questions about the information cues served as a measure
of the amount of information in each case that was used to interpret strate-
gic issues (information use). High scores on the 16-item scale for each sce-
nario indicated a more comprehensive use of available information for de-
veloping a strategic issue. The Cronbach alpha for the information use scale
was .88.
Interpretation. We identified the measures of interpretation from Dut-
ton and Jackson's (1987) three strategic interpretation dimensions (positive-
negative, gain-loss, and controllable-uncontrollable). However, as noted ear-
lier, we collapsed the positive and gain dimensions into a single scale prior
to analysis. We posed five questions to assess the extent to which a CEO
would use the controllable label to describe the two case scenarios and ten
items to assess the positive-gain dimension of interpretation. All items were
adapted from the questionnaire used by Jackson and Dutton (1988). For
example, after respondents read a case scenario, they were asked: "To what
extent would you label the situation as something positive?" and "To what
extent do you feel the hospital can manage the situation instead of the
situation managing it?" The continua were respectively scaled so that high
ratings indicated that respondents labeled the case situation as positive or
controllable (see the Appendix). The Cronbach alpha for the positive-gain
scale was .91; the alpha for the controllability scale was .72.
Organizational action. We measured the strategic changes (Ginsberg,
1988) that occurred in each hospital's product-service offerings over the
three-year period (1987-89) that followed collection of the scanning and
interpretation data. This measure assessed the extent to which hospitals

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250 Academy of Management Journal April

added or deleted products and services. The Annual Guide Book of the
American Hospital Association reports 54 product-service or facility cate-
gories for all U.S. hospitals each year (see the Appendix). The categories
range from acquiring cutting-edge technologies (for instance, magnetic res-
onance imaging) through marketing actions (health promotion services) to
specialization (women's centers).
Using the list, we constructed a profile of product-service offerings for
each of the hospitals analyzed for the years 1987 and 1989. The extent of
product-service change was then measured in three different ways. The first
was a weighted-differences method used by Hambrick (1981): a service
added in 1989 that one-third or fewer of the hospitals offered in 1987 was
assigned a weight of three, a service added in 1989 that existed in between
one-third and two-thirds of the hospitals in 1987 was assigned a weight of
two, and a service added by 1989 that existed in two-thirds or more of the
hospitals in 1987 was assigned a weight of one. The difference between the
number of services offered in 1987 and the summed weights of the products
and services offered in 1989 indicated the extent of growth in offerings.
Weighted changes in offerings between 1987 and 1989 ranged from - 2 to 41
for the hospitals analyzed.
We then looked at product-service change from two other perspectives:
(1) the extent to which hospitals had added high-technology products and
services (for instance, open-heart surgery facilities) as opposed to low-
technology ones (health promotion services) and (2) the extent to which they
had added noncore products and services (like recreational therapy) versus
core-related ones (intensive care units). We asked five health care executives
and researchers who were not members of the expert panel to identify the
services that hospital administrators would consider high technology and
those they would consider core (see the Appendix). We then defined the
action measure in two ways, as the difference between the numbers of high-
technology and noncore services offered in 1987 and the numbers of those
offerings in 1989. We found that these three measures of product-service
growth were highly correlated, with the lowest correlation among the three
measures being .86; thus, the data demonstrated ample convergent validity.
Because of its grounding in the literature, we retained only the measure
based on Hambrick's method for the analyses.
Performance. Three measures of performance were used: (1) occupancy
was defined as hospital inpatient days divided by the total number of days
beds were available; (2) profit per discharge was defined as the net inpatient
revenue minus inpatient cost divided by total discharges; and (3) admissions
was the number of admissions divided by total beds to standardize for size.
As Fottler (1987) noted, measures of performance outcomes for hospitals
should reflect both efficiency indicators, such as productivity, and effective-
ness indicators, such as financial viability (cf. Chakravarthy, 1986). Effi-
ciency measures, such as the occupancy and admissions measures we used
in this study, are important because competition for patients has been in-
tensifying among hospitals (Fottler & Lanning, 1986). Financial viability,

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1993 Thomas, Clark, and Gioia 251

measured here as profit, is crucial to survival in the dynamic health care

environment (Shortell et al., 1990).
The occupancy and profit measures were collected from the Healthcare
Financial Management Association's Medicare Cost Report data base, an
archival source of hospital operating and financial performance data. Ad-
missions data were obtained from the American Hospital Association's An-
nual Guide Book. To guard against one-year outlier performance, we aver-
aged performance data from 1989 and 1990 to form the measures.
Control Variables
Our basic perspective was an "upper echelons" one (cf. Hambrick &
Mason, 1984). A number of authors have argued that top executives' char-
acteristics, such as observable background attributes, affect their percep-
tions, and therefore, strategic choices (cf. Hitt & Tyler, 1991). Because CEOs
are such a dominant strategic force in hospitals, we were concerned that
their individual characteristics might affect the scanning, interpretation, and
even strategic action variables (Norburn, 1989). Accordingly, in the regres-
sion analyses we controlled for those characteristics Hitt and Tyler (1991)
found affected strategic decisions significantly, adapting them to the hospi-
tal environment where appropriate. These included age, type of education (1
= hospital administration degree and 0 = other), amount of managerial
work experience, and years of experience in the strategic decision making of
a given hospital. We obtained information on CEOs' individual characteris-
tics from the American College of Healthcare Executives: A Biographical
Dictionary of Membership. As in past studies, age and managerial experi-
ence were highly correlated (r = .75). We used only age after preliminary
analyses revealed it made no difference which variable was entered in the
regression models.
Data Analysis
We tested the hypothesized relationships among variables using path
analysis. This analytical technique allowed us to identify the relative mag-
nitudes of the direct and indirect effects of the three sensemaking activities,
scanning, interpretation, and action, on organizational performance. We as-
sessed the effect of case content on the scanning and interpretation variables
by means of a paired comparison t-test, comparing the means for the re-
sponses to the first case to those of the second. We tested for differences in
responses associated with the version of the questionnaire a respondent read
(case presentation order) by means of univariate analysis of variance
(ANOVA), where version was the main effect. We employed multivariate
regression analysis to identify the overall relationship between the perfor-
mance measures and the sensemaking process measures.
To identify significant changes in product-service provision, it was nec-
essary for us to have at least a two-year time lag between measurement points
(Tushman, Virany, & Romanelli, 1985). We used the 1987-89 difference in
product-service provision to represent change in accordance with Tushman
and colleagues' precedent. Because we used the average of the two years

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252 Academy of ManagementJournal April

1989 and 1990 for the performance measures, the working assumption was
a one-year lag time between product-service change and performance.

RESULTS
Descriptive Statistics
Results of the t-tests and ANOVA indicated no significant differences in
responses based on the case content or version of the questionnaire used.
These results gave us confidence that there was a pattern of scanning and
interpretation behavior across strategic issues. Because of the lack of differ-
ences in the variables, we calculated statistics on the basis of averaged re-
sponses for each of the variables from both cases.
Table 1 presents means, standard deviations, and Pearson zero-order
correlations. Multivariate statistics indicated that the set of performance
measures-admissions, occupancy, and profit-was significantly related to
the sensemaking process variables (Wilks's lambda = .678, F15 376 = 3.77,
p = .0001).

Tests of Hypotheses
The path analyses required us to analyze six regression equations:
Admissions = a + b, product-service change
+ b2 positive-gain interpretation
+ b3 controllability + b4 information use
+ b5 information source + e, (1)
Occupancy = a + b, product-service change
+ b2 positive-gain interpretation
+ b3 controllability + b4 information use
+ b5 information source + e, (2)
Profit = a + b, product-service change
+ b2 positive-gain interpretation
+ b3 controllability + b4 information use
+ b5 information source + e, (3)
Product-service change = a + control variables
+ b, positive-gain interpretation
+ b2 controllability
+ b3 information use
+ b4 information source + e, (4)
Positive-gain = a + control variables + b, information use
+ b2 information source + e, (5)
and
Controllability = a + control variables + b, information use
+ b2 information source + e. (6)

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1993 Thomas, Clark, and Gioia 253

b 12. 11.10. 9. 8. 7. 6. 5. 4. 3. 2. 1.
* aN Action Control
**pp p = Scanning
Age Variables
< < < Values Profit Performance source
changeb Interpretation
.01 .05 for 156. Education
.001 Occupancy
Admissions Informationexperience
Information
Positive-gain
experience
Managerial
Controllability
Product-service Organizational
use
weighted -

384.00
24.70 41.60 13.20 5.104.40 3.90 5.40 0.7544.10
11.70 5.40 Means

product-service

s.d.
1,401.00
18.10 19.30 8.60 0.920.98 0.47 0.69 0.336.505.20 6.10
change
Means,
- -
between-.06.05 .04 -.05 -.05-.03 .06 -.09 .01 1
.25*
* .23**
* *
1987
Standard
and .02 .01 .05 .13 .04 .04 .11 2
.14* .14*.75**
*
1989
-

range .08 .01 .12 .10 .02 .03 .09 -.01 3

.15*
Deviations,
from
-
TABLE
2 -.10.01-.05 -.02 4 and1
.20* .04
-.03-.07
to *

41.
.10 .07.01 .04 .06 5
.53***
.34***
Zero-order
-.09 .12 .12 .07 6
.20**
.27***
-
.01 .10 .01 .04 7
.50***
Correlationsa

.07 .13 8
.16* .18*

9
.32***
.28*** .34***

.16* 10
.32***

.16* 11

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254 Academy of Management Journal April

The beta coefficients obtained from these regression equations represent the
path coefficients of the model and the direct effects of the antecedents on the
relevant dependent variable. Table 2 presents results of this aspect of the
analysis.
These multiple regression results show a significant, positive relation-

TABLE 2
Results of Regression Analysis
Variables a t R2 F df
Profit 0.17 5.39*** 5,125
Information use .06 0.66
Information source .15 1.87*
Positive-gain interpretation - .18 - 2.08*
Controllability .14 1.40
Product-service change .28 3.42***
Occupancy 0.13 4.35** 5,149
Information use - .06 - 0.70
Information source .06 0.79
Positive-gain interpretation - .06 - 0.70
Controllability .08 0.88
Product-service change .32 4.03* * *
Admissions 0.11 3.62*** 5,149
Information use .11 1.20
Information source - .17 - 2.11*
Positive-gain interpretation - .00 - 0.01
Controllability .00 0.03
Product-service change .30 3.71***
Product-service change 0.09 2.01* 7,147
Experience - .08 - 0.08
Education - .05 - 0.67
Age .12 1.52
Information use - .06 - 0.67
Information source .19 2.35*
Positive-gain interpretation - .03 - 0.44
Controllability .18 1.89*
Controllability 0.29 15.25*** 5,149
Experience - .00 - 0.08
Education - .08 - 1.22
Age .05 0.71
Information use .52 8.24***
Information source .10 1.63
Positive-gain interpretation 0.13 5.61*** 5,149
Experience .01 0.09
Education - .10 - 1.39
Age -.01 - 0.21
Information use .35 5.01**
Information source .07 0.98
a The reported beta coefficients represent path coefficients.
* p < .05
** p < .01
*** p < .001

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1993 Thomas, Clark, and Gioia 255

ship between high information use during scanning and positive-gain inter-
pretations of strategic issues (,B = .35, t = 5.01, p < .01). More specifically,
increased attention to a wide array of information during the scanning stage
of the sensemaking process was tied to the interpretation of strategic issues
as positive and as implying potential gains. Similarly, there was a significant
relationship between information use and interpretations of issues as con-
trollable (,B = .52, t = 8.24, p < .001). Thus, results supported Hypotheses
la and lb. However, although the amount of information used was a pre-
dictor of interpretation, the type of information collected during scanning
was not (see Table 2). Thus, results did not support Hypotheses 2a and 2b,
although their direction was as predicted.
There also was no support for the hypothesized relationship between
positive-gain interpretations of an issue and subsequent action (Hypothesis
3a). However, there was a positive and significant interpretation-action link-
age when we used perceptions of controllability as an antecedent variable to
product-service change (I = .18, t = 1.89, p < .05). When top managers
interpreted strategic issues as controllable, they tended to act upon that
perception by adding products and services to their hospitals' offerings. This
result supports Hypothesis 3b. For all the hypothesized relationships dis-
cussed to this point, individual characteristics were not significantly linked
to the interpretation and action variables.
The predicted relationship between action and performance was also
supported (Hypothesis 4). Hospitals that added more products and services
than others performed better across all three measures: for occupancy, the
beta coefficient was .32 (t = 4.03, p < .001); for profit, beta was .28 (t = 3.42,
p < .001); and for admissions, beta was .30 (t = 3.71, p < .001).
Table 2 also shows a number of other significant and revealing links to
performance. For example, the information source variable was directly,
negatively linked to admissions and directly, positively linked to perfor-
mance.2 Specifically, scanning for internal information seemed to enhance
admissions, and scanning for external information appeared to improve
profits. Similarly, the positive-gain variable was directly and negatively
linked to profit, suggesting that profit was enhanced when CEOs interpreted
strategic issues negatively, in terms of potential loss. Figure 1 presents these
findings, coupled with the results of the hypothesis testing, as a revised
model of sensemaking and performance.

2
In a subsequent analysis, we included hospital ownership, defined as a dummy variable
with 0 for nonprofit and 1 for for-profit, as a control in the regression equations. After reana-
lyzing the six equations involved in the path analysis, we found a positive relationship between
ownership and profit (, = .21, p < .002). However, including ownership in the third model
rendered the information source variable's relationship to profit nonsignificant. This was the
only change across all six regression equations analyzed earlier. The significant correlation
between ownership and information source (r = .26, p < .001) suggests that the top managers
of for-profit hospitals tend to focus more on external than on internal information. Ownership,
then, may explain some of the variance previously explained by scanning behavior.

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256 Academy of Management Journal April

All

Scanning,
relationships
1987

significant
at
p
<
.05. Emergent

Interpretation,

1987

Relationships
Performance
ositive-Ga FIGURE
1
Among
Action,
Variablesa

1987-89
Sensemaking

and

Performance,
~~~~~~~~Admissions

1989-90

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1993 Thomas, Clark, and Gioia 257

TABLE 3
Direct and Indirect Relationships Compared
Performance r Direct Effecta Indirect Effect
Profit
Information use .07 .06 .01
Information source .27*** .15* .06
Positive-gain interpretation - .10 - .18* .01
Controllability .16* .14t .05
Occupancy
Information use .01 -.06 .03
Information source .12t .06 .07
Positive-gain interpretation .01 -.06 -.01
Controllability .13t .08 .06
Admissions
Information use .10 .11 .01
Information source -.09 -.17* .06
Positive-gain interpretation .01 -.01 .01
Controllability .07 .01 .05
a Beta coefficients are reported.
t p < .10
* p < .05
** p < .01
* p < .001

To examine our research question concerning the relative strengths

of direct and indirect paths between sensemaking activities and organiza-
tional performance, we first calculated the indirect effects of the scanning
and interpretation variables on the performance measures by multiplying
the coefficients of all relevant paths (Duncan, 1971). For example, we cal-
culated the indirect effect of a positive-gain interpretation on profit through
product-service change by multiplying the coefficients for the path be-
tween the positive-gain and product-service change variables and the path
between the product-service change and profit variables. We calculated the
total indirect effect of the scanning variables by summing their indirect
effects through the positive-gain interpretation, controllability, and prod-
uct-service change variables (cf. Trevino & Youngblood, 1990). The next
step involved examining the relative effects attributable to the indirect and
direct effects on performance for each variable. Table 3 presents those
results.
This analysis revealed that although there were also indirect paths from
information source to performance, the direct path dominated in terms of the
effect of the variable on admissions and profit. The indirect path, however,
dominated when occupancy was the dependent variable. In the absence of a
significant, indirect path from positive-gain interpretation to profit (as de-
picted in Figure 1), it was not surprising that calculations showed that the
significant, direct path dominated.

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258 Academy of Management Journal April

DISCUSSION

There has been long-standing interest in the relationship between cog-

nition and action in organizations. More recently, researchers have shown
increasing interest in the relationships among the more general sensemaking
processes, which include not only cognitive processing but also consider-
ations of associated action (Weick, 1979), and their relationship collectively
and individually to performance.A number of researchers have noted that
sensemaking activities, such as scanning an external environment (Nystrom
& Starbuck, 1984) and interpretation (Ford, 1985), are key to organizational
performance.Although sensemaking processes have been cited for their sub-
stantial theoretical importance, relatively little empirical researchhas inves-
tigated their proposed internal linkages (Milliken, 1990) or their relation-
ships to organizational performance. As a way of articulating, testing, and
refining the specific relationships involved, we framedthis researchin terms
of the links among the sensemaking processes of scanning, interpretation,
and action, and measures of organizationalperformance.
In response to the fundamental research question of whether there are
demonstrable links between sensemaking and variation in organizational
performance, the results of this study indicate clearly that there are. How-
ever, this overarchingresult has perhaps even more important implications
in terms of the constituent linkages among the sensemaking component
processes. Using path analysis, we were able to construct a detailed model of
those relationships, which is shown in Figure 1.

Emergent Model

Scanning and interpretation. Top managers'attention to high levels of

information during scanning was related to their interpretation of strategic
issues as positive and as implying potential gains. Such information use
during scanning was also associated with a heightened interpretation of
strategic issues as controllable. These results, taken in tandem, imply that
high information use strongly influences strategicinterpretation;attention to
a wide arrayof information tends to influence the interpretationof strategic
issues positively. This implication is consistent with the findings of Thomas
and McDaniel (1990) and suggests that when organizations put mechanisms
in place to increase information use, they can increase the likelihood that
managers will interpret issues as potential gains and as controllable. Such
mechanisms might include decreasing the use of formalized scanning pro-
cedures and increasing the use of "boundary spanners" (Daft & Weick,
1984), reducing internal communication barriers(Roberts&O'Reilly, 1974),
and increasing interaction among top management team members (Gioia &
Chittipeddi, 1991).
Interpretation and action. Although we found no link between positive-
gain interpretations of strategic issues and subsequent action, there was a
significant interpretation-actionlink when CEOsinterpreted issues as con-

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1993 Thomas, Clark,and Gioia 259

trollable. More specifically, the interpretationof a strategic issue as control-

lable had a positive effect on product-service change. This result suggests
that despite the inherently risky nature of strategic changes, top managers
nonetheless increased the number and sophistication of their hospitals'
product-service repertoireswhen they felt they could control strategic issues
confronting the hospital-regardless of interpretationsfocusing on the pos-
itive-gain dimension. Positive change in product-service offerings was also
linked to scanning efforts being focused outward, suggesting that, in the
hospital industry, such scanning and interpretationtogether facilitated stra-
tegic action in the form of product-service changes.
Action and performance. Hospitals that implemented more product-
service changes performed better on all three performancemeasures: occu-
pancy, profitability, and admissions. Finding such linkages was consistent
with previous theory and research; our contribution to earlier work was in
showing that the associations between external scanning behaviors and in-
terpretationsof controllability serve as sensemaking antecedents to strategic
actions, which are in turn associated with effective organizational perfor-
mance. These findings have implications for research that focuses on the
effects of top management intervention on strategic change (e.g., Greiner &
Bhambri, 1989).
Direct and indirect links. Our results also suggest that in cases resem-
bling the scenarios examined in this study, decision makers do not neces-
sarily execute the sensemaking process in a normative, linear fashion. For
example, although the amount of information attended to during scanning
affected the interpretation of strategic issues, and through those interpreta-
tions the subsequent action taken, the focus of information search during
scanning-internal or external-had direct linkages to both action and per-
formance (see Figure 1). Specifically, we found that attention to external
information was associated with higher profit, and attention to internal in-
formation was associated with higher hospital admissions levels. Those
findings, coupled with the other results, suggest that although a focus on
external information facilitates product-service change and increased profit,
an eye on internal information enhances a hospital's ability to use strategic
change to attract clients.
These findings do not necessarily imply that a scanning focus circum-
vents the interpretationprocess involved in sensemaking. It is possible that
the direct link between a scanning focus and performance reflects the in-
herent cyclicity of the sensemaking process. As Mintzberg and his col-
leagues (1976) discovered, decision processes often lose steps as decision
cycles cascade over time. Decisions made in the past that generatedeffective
outcomes do not always require reinterpretationand altered action; those
stages often can be bypassed as a consequence of organizational learning
(Walsh & Ungson, 1991). The multiyear time frame of this study may have
provided a view of the sensemaking process that tapped this skipping of
stages. It is possible, and perhaps even likely, that the hospitals were cap-
tured in the middle of a cycle in which top managers had taken previous

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260 Academy of ManagementJournal April

actions that had affected performance.On the next scanning cycle, managers
might have been affirming the pattern of information that led to the im-
proved performance,thus bypassing any need for reinterpretationor revised
action; or they might have been seeking types of information to support the
actions that generated the observed profit increase-a possibility that is
consistent with the "prior hypothesis bias" Levine (1971) observed and the
"action justification efforts" Starbuck (1983) suggested.3
This nonlinear aspect of sensemaking is furtherevidenced in the reveal-
ing observation that positive-gain interpretationswere also linked directly to
profitability, although in an apparently counterintuitive fashion: percep-
tions of strategic issues as representing potential gains appeared to affect
profit negatively. Again, knowledge of prior actions and outcomes would
probably best explain the direct link between interpretation and perfor-
mance in this instance. It appears, however, that the effects of such previous
actions on profit influenced the hospital managers'interpretive orientations;
a concern with avoiding failure rather than the expected concern with pur-
suit of profit seemed to dominate the process. Hospital managers,especially
those of not-for-profit institutions, are perhaps highly sensitive to the po-
tential for failure and therefore apt to be more responsive to potential prob-
lems or threats than to opportunities.
Perhaps orienting strategic issue diagnosis toward threat interpretations
heightens the sense of vigilance in identifying important strategic issues not
previously noticed. Positive-gain interpretationsmay curtail decision mak-
ers' desire to understand a strategic issue of interest (Mintzberget al., 1976)
because they may assume that they can simply exploit opportunities without
conducting extended analyses (Fredrickson,1985). In the hospital industry,
such a stance might lead managers to act in an overly optimistic manner
toward strategic issues (Stevenson, 1976) even though they are ill-equipped
to capitalize on possible opportunities (Thomas, McDaniel, & Anderson,
1991). The conservative stance found here also tends to encourage consid-
eration of the implications of maintaining the status quo and works against
a hospital's relying on preconceptions that might be obsolete in the face of a
changing environment. In general, the present findings suggest that the man-
agers of successful hospitals might begin from a position that strategic issues
represent potential losses and then may adjust their product-service offer-
ings through perceptions of controllability.
Control variables. The findings also indicate that the individual char-
acteristics (age, education, and organizational experience) used as control
variables in the regression equations had no significant effect on interpreta-
tion or action. The absence of individual difference effects might be ex-

3 It is possible that the dimensions used in this study, positive-gain interpretation and
controllability, did not fully capture the complexity of the interpretation process when scan-
ning focus was treated as the antecedent. Dimensions such as legitimacy (Dutton, 1988), un-
certainty (Milliken, 1990; Dutton & Webster, 1988), and importance (Dutton, Stumpf, & Wagner,
1990) might also need to be included in the model as possible issue characteristics.

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1993 Thomas, Clark,and Gioia 261

plained by the research procedure used. In the questionnaire CEOs were

asked to act as informants for their organizations rather than as individual
decision makers. Future investigations may wish to examine the impact of
these control variables on strategic sensemaking through the interactions
they have with the kind of perceptual variables we used.
Limitations and Normative Implications
Some possible limitations of the study should be noted. First, the hos-
pital industry is a regulated, high-technology industry characterizedby high
competition, low growth, and a mix of for-profit and nonprofit organiza-
tions; it remains to be seen if our findings will generalize to other settings.
Also, because the measures of the scanning and interpretation constructs
were drawn from a single source, some possibility of common methods bias
exists.
Although we examined an extensive arrayof actions that directly affect
health care, the primary mission of the organizations studied, other organ-
izational actions, such as reorganization, the installation of new manage-
ment information systems, and changes in staffing that go beyond product-
service change, were not represented in this study. Future research might be
designed to specify how strategic action is related to sensemaking activities.
For example, are interpretations of controllability linked to product-, mar-
ket-, and technology-related actions differently? Do positive-gain interpre-
tations affect actions surrounding such different elements of task environ-
ments as customers, suppliers, competitors, and regulators (Thompson,
1967) in different ways?
We should also note that we tested the relationship between scanning
and interpretation through the use of hypothetical, though quite realistic,
cases, not through ongoing observations of scanning and interpretation in
hospitals. Given the need to build our understanding of the cycles of the
sensemaking-organizational outcome relationship, multiple field research
methods (cf. Eisenhardt & Bourgeois, 1988) may be needed in light of the
complex, temporal dimensions involved in such research.
A number of possible implications for hospital CEOsengaged in actual
sensemaking processes can be considered. For example, for the hospitals we
studied, product-service growth was positively related to all three measures
of performance. This finding does not imply that the quantity of change
should be the dominant guideline, but it does suggest that aggressive devel-
opment and implementation of product-service offerings is critical for hos-
pital success. The sensemaking processes that help drive that growth are also
worth considering as decision makers attemptto manage the change process
in hospitals, institutions that have traditionally been ratherstatic. Increased
boundary-spanningbehavior, coupled with a sense of control, appear to be
positively linked to the propensity of a hospital to engage in strategic action
with respect to product-service growth. Overall, the results suggest that hos-
pital managers may need to alter the internal information-processingenvi-
ronments of their organizations to maximize the probability of successful

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262 Academy of Management Journal April

change. For example, mechanisms that increase exposure to a wide range of

strategic information, such as enhancing information-processing structures
for top management teams (Thomas & McDaniel, 1990) and strengthening
relationships with hospital stakeholders (Shortell et al., 1990), may facilitate
the positive relationship between information use and controllability we
found to be a precursor of strategic change.

CONCLUSIONS
Overall, the main contribution of this study is its specification of links
between the cognitive tasks of scanning and interpreting and organizational
actions and performance. More generally, the study established an empirical
basis for exploring and understanding linkages among cognition, action, and
outcomes and provided some insight into sensemaking processes that con-
tribute to variations in organizational performance.
Although significant headway has been made in understanding sense-
making processes and their links to organizational outcomes, a significant
research agenda remains. For example, the cyclical link between perfor-
mance outcomes and scanning activities has been, with some exceptions
(e.g., Milliken & Lant, 1991), ignored in the literature. Because cognition
often begins with action (Weick, 1979), the boundaries and sequence of the
sensemaking and performance constructs become blurred, especially when
we consider cyclical or historical influences (cf. Cook & Campbell, 1979;
Keats & Hitt, 1988). Studies that incorporate scanning, interpretation, action,
and performance outcomes from previous or overlapping time periods
would further enhance researchers' understanding of sensemaking, espe-
cially in terms of providing insights into causal directions over time. Such
research would enable specific feedback and learning "loops" to be incor-
porated into the model based on the present findings (Figure 1).
Future integrative research might also include systematic examination
of the relative impact on sensemaking of individual characteristics (Hitt &
Tyler, 1991), cross-level effects such as organizational strategy (Daft &
Weick, 1984) and top management team structure (Thomas & McDaniel,
1990), and multilevel constructs such as image and identity (Dutton &
Dukerich, 1991). Moving beyond single-level approaches to sensemaking
research and adopting methods that facilitate longitudinal observations may
help researchers address the key question of how organizations can perform
differently despite facing the same environment.
Beyond the specific findings, this work encourages an overarching ap-
preciation of the complexity of linkages between strategic sensemaking and
organizational performance. Simon (1979) characterized complex issues,
such as strategic issues, as mazes. Once defined, each maze consists of a set
of possible paths between perceptions of where an organization is vis-a-vis
its environment and where it wants to be in terms of performance outcomes.
Some approaches to understanding strategic management imply that organ-
izations need to focus on how to "run the maze" to maximize performance.
Such portrayals amount to oversimplifications of sensemaking-performance

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1993 Thomas, Clark, and Gioia 263

relationships and do not do justice to the intricate processes involved. They

also suggest a kind of determinism that clearly does not characterize com-
plex organizational settings. Our findings not only provide some specific
insights into these intricacies, but also hint that the mazes might be con-
stantly changing as a result of the very processes used to negotiate them.
Variationsin scanning orientations, interpretationmodes, actions taken, and
performance outcomes all conspire to alter strategic issue mazes over time.

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APPENDIX
Case Scenarios and Assessment Information
Scenario One
"The make-up of the area population, along certain dimensions, appears to be changing.
For example, a recent study by the hospital reveals that nearly 1/3 of the area population has no
regular physician and, considering that the number of medical indigents in the area is dramat-
ically increasing, this proportion may continue to increase quite steeply.
"At a recent executive committee meeting, a colleague remarked that nearly 10% of the
local population is ineligible for health insurance coverage or government-funded health cost
assistance. Additionally, the trend in the area towards more service-oriented jobs and self-
employment may lead to more and more people being uninsured. The rumor of a new, and
supposedly quite large firm coming to the area is also discussed.
"The hospital has been contemplating adding satellite centers to its operations. The mix of
services offered by the hospital has seemed right, but the occupancy rate has continued down-
ward. This has suggested to some that the hospital needs to reach out into the perimeters of the
area to see more patients. With the hospital's reputation for quality care and with its capacity

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268 Academy of Management Journal April

to handle increased service provision, your colleagues feel this possible expansion is attractive.
However, there is a general concern that there may be some difficulty in attracting needed
physicians. Further, with the general shortage of nurses in the area there is concern that nursing
support for the centers may be a problem.
"A page in the recent hospital financial report shows that DRG outliers are increasing.a
Given that nearly 40% of reimbursement for services to the hospital is from Medicare (with
about 30% from commercial insurers) this information on outliers could have an effect on the
financial performance of the hospital."
Scenario Two
"The role of HMO's in serving the medical needs of the area is changing. Information to
support this includes a survey performed by the hospital which shows that HMO's have pen-
etrated nearly 20% of the market for those under 65 years old. It has been suggested that this
percentage could easily grow to 30-35% in the next 15 years if the HMO option is made more
available as expected.
"Additionally, a local marketing firm hired by your hospital to track consumer trends in the
area reports that the population in the area will be increasing through the year 2000. Currently,
75% of the population is under 44 years old. It is expected that this percentage will remain
constant during the period. Executive staff feels that the medical needs of this growing popu-
lation will not only change, but show dramatic growth in certain areas.
"However, a recent internal operations report circulated to staff indicates that ambulatory
care utilization of the hospital has fallen off. Some feel this downward direction in ambulatory
care utilization may continue in light of the increase in the number of physician group practices
and the in-house services that many of these groups are providing (a trend that will probably
continue).
"An HMO has approached your hospital to negotiate a contractual agreement for the pro-
vision of certain services to its members. Your hospital was chosen, according to the HMO
representatives, because of its good name recognition and location-two factors that scored
very high in a recent survey of HMO users who were asked why they would choose a particular
hospital. For some of the services requested by the HMO your hospital is presently unable to
meet expected demand. However, top management has always maintained that it would be
capable of bringing about needed expansion or change, though many feel a major reorganization
of the hospital may be necessary. Attracting additional and/or specialty medical staff for any
expansion program would not be difficult."
Strategic Assessment of Scenarios
"A situation is said to be strategic when it could alter the position of the hospital in the
market, could significantly affect the whole hospital, and could have an effect on the hospital's
purposes and goals. To what extent would your hospital consider the situation to be strategic?"
(1 = small extent, 7 = great extent)

Positive-Gain and Controllability

All 15 items were repeated after each scenario was presented. The notations "PG" (positive-
gain) and "C" (controllability) were not on the questionnaire.
"Using the scale provided, circle the number that is the best indicator of how your hospital
would generally perceive the situation presented above:" (1 = small extent, 7 = great extent)
"To what extent would your hospital ...
Perceive that benefits will come from the situation? (PG)
Label the situation as something negative? (PG)
Have a choice about whether or not to address the situation? (C)
Feel the future will be better because of the situation? (PG)
Label the situation as a potential gain? (PG)

aA
DRG is a diagnostic related group. DRG outliers are third-party reimbursements that fall
outside of a standard payment schedule for that group.

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1993 Thomas, Clark, and Gioia 269

Feel it has the capability to address the situation? (C)

See the situation as having positive implications for the future? (PG)
Feel that there is a high probability of losing a great deal? (PG)
Feel it can manage the situation instead of the situation managing it? (C)
Be constrained in how it could interpret the situation? (C)
Feel that how the situation is resolved will be a matter of chance? (C)
Feel that there is a high probability of gaining a great deal? (PG)
Label the situation as a potential loss? (PG)
Label the situation as something positive? (PG)
See the situation as having negative implications for the future?" (PG)
Information Use
The scale consisted of all 16 information cues in each scenario. Examples of information
cues from scenario one are "the percent ineligible for health insurance" and "difficulty in
attracting physicians."
"Below is a listing of the information that is available from the situation description. Using
the scale provided, please indicate for each piece of information the extent to which your
hospital would use it to clarify and define the issue(s):"
Information Source
An example of the items derived from scenario one follows:
External information elements
"Report that 33% of the population is without a physician.
"Same report indicates that the number of medical indigents is increasing.
"Rumor that a new firm is moving into the area.
"Report that self-employment and service-oriented jobs in the area are increasing.
"High reputation in the community for providing quality care."
Internal information elements
"Occupancy rate of the hospital is down.
"Hospital report indicates that DRG outliers are increasing.
"Internal discussion suggests that hospital may need to increase patient volume.
"Staff feels that hospital has capacity to meet changing demands of the community.
"Hospital report indicates that the mix of hospital services seems right."

Product-Service Change Categories

The notations "H," for a high-technology product or service, and "C" for a core product or
service, did not appear on the questionnaire.
1. Outpatient surgery services (H,C)
2. Intensive care unit (cardiac care only) (H)
3. Intensive care unit (mixed or other) (H,C)
4. Open-heart surgery facilities (H)
5. Trauma center (certified) (H)
6. Ultrasound (H,C)
7. X-ray radiation therapy (H)
8. Megavoltage radiation facility (H)
9. Radioactive implants (H)
10. Diagnostic radioisotope facility (H)
11. Therapeutic radioisotopic facility
12. Histopathology laboratory (C)
13. Organ/tissue transplant (H)
14. Blood bank (C)
15. Health promotion services
16. Respiratory therapy services (C)
17. Magnetic resonance imaging (MRI) (H)

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270 Academy of Management Journal April

18. Alzheimer's diagnostic-assessment services

19. Skilled nursing or other long-term care
20. Hemodialysis (C)
21. Hospice
22. Burn care unit (H)
23. Physical therapy services (C)
24. Occupational therapy services
25. Rehabilitation inpatient unit
26. Rehabilitation outpatient unit
27. Psychiatric inpatient unit
28. Psychiatric outpatient services (C)
29. Psychiatric partial hospitalization (H)
30. Psychiatric emergency services
31. Psychiatric consultation-liaison services
32. Psychiatric education services
33. Women's center
34. Organized outpatient department (C)
35. Emergency department (C)
36. Birthing room, labor, delivery, recovery room
37. Reproductive health services (H)
38. Genetic counseling-screening services (H)
39. Extracorporeal shock wave lithotripter (ESWL) (H)
40. Obstetrics (C)
41. Home health services
42. Recreational therapy
43. Comprehensive geriatric assessment
44. Speech pathology services
45. Hospital auxiliary (C)
46. Volunteer services department (C)
47. Patient representative services (C)
48. Alcoholism-chemical dependency inpatient unit
49. Alcoholism-chemical dependency outpatient services
50. Geriatric clinics
51. Neonatal intensive care unit (H)
52. Pediatric inpatient unit (C)
53. CT scanner (H,C)
54. Cardiac catheterization laboratory (H)

James B. Thomas is an assistant professor in the Smeal College of Business Adminis-

tration, Pennsylvania State University. He received his Ph.D. degree from the Univer-
sity of Texas at Austin. His current research interests include strategic issue interpre-
tation, top management team information processing, and strategic alignment.
Shawn M. Clark received a master's degree from Brigham Young University. He is
currently a doctoral candidate in management and organization at the Pennsylvania
State University. His research interests include strategic sensemaking, the relationship
between business strategy and information technology, and the role of trust in infor-
mation processing.
Dennis A. Gioia is a professor of organizational behavior in the Department of Man-
agement and Organization, the Smeal College of Business Administration, Pennsylva-
nia State University. He received his doctorate from Florida State University. His pri-
mary research and writing focuses on the nature and uses of complex cognitive pro-
cesses by organization members and the ways that these processes affect sensemaking,
communication, influence, and organizational change.

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