Breaking the silos: Distributed knowledge and strategic responses to volatile exchange rates

A model of effective decision-making in a situation of distributed knowledge is developed, drawing on three perspectives: the sociocognitive perspective, which focuses on framing issues; the economic perspective, which focuses on the role played by incentives in the integration of knowledge and decision-making authority; and the process perspective, which stresses the role of integrating mechanisms and of processes that either hinder or foster risk awareness and flexibility. The model is tested on a sample of managers from different functional areas of Fortune 500 firms, using strategic responses to exchange-rate volatility as the context. The results show that all three perspectives - framing, incentives and process - are significant in explaining the effectiveness of strategic responses to volatile exchange rates. The findings suggest that simultaneously addressing managerial mindsets, incentives and process may be crucial to generating effective strategic responses across functions.