This paper explores the cognitive aspects underlying industries in hypercompetitive environments. Hypercompetition represents a state of competition with rapidly escalating levels of competition and reduced periods of competitive advantage for firms. In hypercompetitive industries member firms act boldly and aggressively to create a state of competitive disequilibrium. In this paper we explore the particular conditions that managers encounter in making sense of hypercompetitive industries and argue that the nature of these conditions is such that conventional sensemaking frameworks will not work. We then describe the “adaptive sensemaking” practices established in the literature for dealing with temporary turbulence and suggest that in hypercompetition those processes continue indefinitely. We argue that these processes can become institutionalized as standard operating procedures within firms, and as shared recipes within industries, which in turn perpetuates hyperturbulent conditions.

To describe human action as purely the product of rational calculation leaves unanswered the question of how human beings can act in the absence of any structure for calculating the likely outcome of their actions. If the answer is that they cannot, how can any such structure be stable and comprehensive enough to enable action without becoming either inert or deterministic? In this paper, we seek to understand how free will and social context can interact to produce both structure and action. This is accomplished through the development of a framework based on the notion of convention. Organizations, in this view, are grounded in “effort conventions” of what constitutes “normal” effort at work, that structure the action of those who work within the organization, and in turn reinforce these structures. We show how humans can calculate within a context of socially constructed beliefs, and how these beliefs can evolve, provided that they remain essentially nonjustified and beyond the reach of rational calculation. It is this mix of rational calculation and nonrational beliefs that form the core of our model. We begin by defining the nature of a convention and its properties. We then describe the evolutionary dynamics of conventions, and show that conventions exist in competition with other conventions and evolve over time. Our model of convention is then linked to other notions, advanced in the managerial literature, which point to a kind of ‘deep structure’ that lies at the heart of organizations. We conclude by outlining how this notion can shed new light on the analysis of organizations.