The Microfoundations of Organizational Risk

Organizational risk is the possibility of events preventing the achievement of objectives and disrupting organizational viability. Developing understanding of organizational risk is necessary to allow realization of opportunities and protection from harm. However, much existing theorizing focuses on either a higher level of analysis, for example, studies of organizational risk culture, or a lower level of analysis, such as studies of individual perception, personality, and risk-taking. One way to advance theorizing involves connecting both levels of analysis. These connections are central to a microfoundations perspective that suggests organizational phenomena can be understood by linking macrolevel contexts with microlevel contexts and actions. I draw on this perspective to develop a model of organizational risk and explain how cross-level processes connect macro- and microlevel concepts. I focus on the organizational psychology literature that encompasses higher and lower levels of analysis to select and examine relevant concepts. I explain how organizational cultures create contexts for individual risk-taking that are homogeneous when constraints are strong and directional or variable when constraints are weak and ambiguous. These behaviors aggregate within and across units to influence organizational risk. Individual risk-taking also influences organizational risk via autonomy and discretion. In developing the model, I show how theories of cross-level processes extend understanding of organizational risk. I discuss implications for advancing theorizing about organizational risk by encompassing its microfoundations and linking them with managerial actions and objectives. Future research could examine these mechanisms through empirical studies and shed light on how leaders influence processes and change organizational risk.