Exploring the microfoundations of organizational risk exposure: Risk perception, risk management and cross‐level mechanisms

Abstract Organizational risk exposure arises from external sources and internal activities intended to reduce the potential for risks to cause harm. While organizational risk exposure is necessary to realize opportunities, misalignment between risk management and risk exposure may achieve the opposite outcomes. Through an inductive, qualitative case study, I explore how 73 managers in a technology services company perceive and manage risk and consider how their risk management contributes to organizational risk exposure. Through analysing informants' accounts, I show how managers perceive risk in terms of uncertainty. These perceptions motivate risk management that involves knowledge acquisition and knowledge sharing. By identifying these individual‐level concepts and how they shape risk management, I elucidate how interdependence between practices and the supporting structures necessary for acquiring and sharing knowledge constitutes cross‐level mechanisms that connect individual behaviour with organizational outcomes. Yet variable and undeveloped structures hamper the effectiveness of risk management by reducing the visibility of risks. The corollary is that executives' decisions and actions are not informed by risk knowledge, and organizational risk exposure is increased unknowingly. I advance psychological microfoundations research with these findings and make novel contributions to theorizing about cross‐level mechanisms involving interdependence between risk management and organizational structures.