Modeling the micro-foundations of routine formation: When expectations match interpretations

While organizational routines have received considerable attention in strategic management literature, relatively little is known about how new routines are formed. In this paper we develop a formal model of routine formation that builds upon the game-theoretic concepts underlying "common knowledge". We focus on individual-level cognitions of situations and actions as key factors in routine formation, and explicate how these cognitions change over time as situations recur. We treat actions as signals that both call for subsequent action and trigger a retrospective evaluation of the situation. The retrospective sense-making gives rise to expectations regarding future actions in similar situations. Over time, the amount of information conveyed by these signals decreases and eventually disappears - a situation which we identify as routine operation. In such situations, actors' perceptions, and their corresponding expectations for actions, become aligned, so that no "surprises" can happen and no further sense-making is required. We discuss the implication of our model on the empirical study of routines, as well as its contribution to the theoretical understanding of routines and learning in organizations.