Studying Strategic Cognition by Content Analysis of Annual Reports: A Validation Involving Firm Innovation

We test the psychometric validity of a new measure of managerial cognitive focus on innovation described in Kabanoff and Brown (in press). The new measure and six other cognitive strategic dimensions are derived using machine learning and content analysis of top management messages in annual reports of Australian Stock Exchange listed firms (1992-04). A pre-existing, independently-derived economic measure of successful value adding innovation (the Intellectual Property Research Institute of Australia’s annually calculated enterprise-level Innovation Index Score (IIS) (2002-04)) is used to test for convergent and discriminant validity as well as compare temporal stability. Additional examination shows the association between the measure of cognitive focus on innovation and IIS is consistent with expectations derived from analysis of then derivation and calculation of IIS. Demonstration of associations between the cognitive and economic measures of innovation partly addresses three of McGee’s (2005) ‘make-or-break’ issues that face cognitive approaches to theories of firmlevel strategising.