To Infinity, and Beyond? Artificial Intelligence and Its Effects on Organizational Search

• Applicant: Professor Dr. Oliver Alexy
• Subject Area: Accounting and Finance
• Term: from 2021 to 2023
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 463181179

Artificial intelligence (AI) is gaining increasing prominence in the public discourse, as it becomes evident that our lives will be transformed by the sheer boundless scope of opportunity that AI offers. Yet, businesses and theories of businesses, too, should need to adapt to exploit this technological shift. Specifically, increasing data volumes and AI performance may require us to revisit some of our foundational beliefs of how business firms function. For example, one core theory of how firms operate, the Behavioral Theory of the Firm (BTF) proposed by Richard Cyert and James March in 1963, builds on assumptions that will be challenged by AI, in particular that humans and the organizations they comprise are bounded rational (i.e. limited in cognitive ability). With AI handling more data than humans in a more consistent fashion, known behaviors may be overruled by (near-)rational analysis and computing power.The goal of this project is to investigate how AI affects will change the nature of what firms do, and how they do it, through the lens of the BTF. By theoretically exploring and empirically observing patterns of how AI as a process technology may change and elevate how organizations operate, the project will contribute to existing theory and managerial practice. For example, prior work has considered how new technology may lead firms looking to solutions to innovative problems that are quantitatively more distant, i.e., helping organizations slowly increase their search horizon to draw on new partners and technologies. I propose that AI may represent a qualitative shift, meaning organizations could even immediately start searching for strategically distant performance improvements, given how distant search, at the extreme, would essentially occur instantaneously and at zero cost. This represents a fundamental change to the standard process model. In turn, we will also look into the required organizational structures and processes to make such new approaches work, in order to provide guidelines to managers running current and future AI initiatives.This project will consist of three integrated modules. In the initial, conceptual module, I seek to present novel theorizing as to what it means for our understanding of search and organizing if agents were to increasingly overcome bounded rationality. Second, I propose qualitative fieldwork to shed light on the organizational changes to the process of innovative search and identify potential boundary conditions for these changes. The third module consists of a large-scale empirical survey. Here, my goal is to quantify the diffusion of AI process technology that enables innovative search and analyse the structural and organizational conditions that enable higher performance.

• DFG Programme: Research Grants