Nicolai J. Foss

Bocconi University | Bocconi · Department of Management and Technology

Behavioral strategy has emerged as one of the most important currents in contemporary strategic management. But, what is it? Where does it come from? Why is it important? This Element provides a review of key streams in behavioral, interpreting behavioral strategy as a consistently microfoundational approach to strategy that is grounded in evidence...

Much progress has been made with respect to improving our understanding of organizational learning. However, important gaps remain with respect to understanding barriers to learning flows that are rooted in bounded rationality and how such barriers can be reduced. We show how manifestations of bounded rationality in the form of framing effects and...

Building on transaction cost economics and the literature on capabilities, we provide a new, inte-grative lens on core firms in ecosystems. Specifically, we characterize ecosystems with core firms as a hybrid governance structure and describe the externally-oriented capabilities of core firms as means to reduce ecosystem-level transaction costs. Th...

Scholars have long debated the merits of advocacy-based research versus research considered from the quest for objective truth. Building upon reflections from multiple sources, a set of 11 brief reflections on three posed questions are presented. Tsang concludes our discussion with additional insights on how moving beyond the “interestingness” advo...

To remain competitive, firms must innovate their business models (BMs) to meet the demands of the external environment. Given the severity of external threats or opportunities, managers need to determine the scope of BM innovation (BMI) – how many elements of a BM need to be changed – and the degree of novelty required. However, internal firm knowl...

Research shows that women are less successful than men in obtaining external funding for research projects. However, other research points to advantages of female leadership and suggests that women are capable of breaking glass ceilings in competitive contexts (e.g., promotions). We bridge these ideas by arguing that although women are disadvantage...

Psychology-grounded research on heuristics and biases in decision making has become increasingly influential in the field of management studies. However, although this line of inquiry is recognized as a valuable perspective for advancing understanding of decision processes in the upper echelons of firms, extant research remains unbalanced, the bulk...

Plain English Summary The winner of the 2022 Global Award for Entrepreneurship Research, Saras Sarasvathy, has improved our understanding of how entrepreneurs make decisions and has developed new concepts and ideas about the entrepreneurial process. Professor Sarasvathy introduced the term “effectuation” to emphasize how (expert) entrepreneurs oper...

We examine the externalisation of labour as a strategic response to a temporary exogenous shock (i.e. COVID-19). Combining ideas from employment externalisation theory and the CATO framework (which are both extensions of transaction costs economics), we argue that firms that are hit harder by the COVID-19 shock are more likely to plan hiring freela...

Monteiro and Miranda (2022) argue that owners differ in their ability to select and work within a particular institutional environment, suggesting “institutional competence” as a dimension of ownership competence distinct from what we call governance, matching, and timing competence. We agree that institutions matter and welcome the chance to descr...

Core organization design issues have emerged in recent popular and influential discussions of managers and organizations, specifically in a genre of writing—the “bossless company narrative”—that declares that the classic managerial hierarchy is dead. In this article, we review our critical discussion of this genre in our book, Why Managers Still Ma...

Much thinking in strategy about how firms should position themselves in their external environments have been based on ideas on market power rooted in industrial organization economics. These ideas implicitly make assumptions about the costs of contracting. Explicitly taking property right and transaction costs into account reveals new ways of mane...

We analyze the role and effect of ecosystem leadership understood as the exercise of effort towards others with the purpose of establishing and maintaining an ecosystem around a focal systemic innovation. While there has been much attention to the firms that sponsor ecosystems in the ecosystem literature, ecosystem leaders are usually characterized...

Property rights economics emerged around 1960 in the works of Ronald Coase, Armen Alchian, and Harold Demsetz. It highlighted the property right as the key unit of analysis and analyzed the (transaction) costs of establishing, enforcing, and exchanging property rights. As the approach developed it became an extension of price theory to contracts an...

Many of the original property rights ideas were quickly assimilated into mainstream thinking in economics. In the mid-1980s a related approach developed, often also called “property rights economics.” However, this later approach is different in key dimensions. It specifically focuses on how the allocation of ownership matters in a relation, wherea...

Putting property rights economics into strategy theory is consistent with the heavy emphasis on microfoundations in strategy research over the last decade. Property rights economics is explicitly micro in its analytic focus as it places human decision-making and control over resources center stage in the analysis.

The firm represents one way to organize production, as Coase’s early (Economica NS4:386–405, 1937) analysis of the nature of the firm made clear. Coase pointed out that firms may save on the costs of discovering what the right prices are but did not explained this. Linking Coase’s work on firms to his work on opportunity costs, the process of disco...

Specialization and property rights are closely linked. When the changing division of labor implies changes to specialization, coordination problems arise and property rights need to be re-allocated. The firm is a low-cost mechanism for doing this. Thus, Coase’s analysis of the firm can be linked to the division of labor by means of the property rig...

Resources have become the preferred unit of analysis in much contemporary thinking. However, resources may be understood as clusters of property rights to the multiple attributes of resources. This view lends new insight into resource heterogeneity and the role of transaction costs in shaping value creation. Thus, the property rights approach to st...

Property rights economics has the potential to further thinking about the core issues in strategy, notably value creation and appropriation and competitive interaction. Property rights economics links up with a long tradition of economics-based strategy theory.

A key perspective in contemporary entrepreneurship theory is that entrepreneurship is about the discovery of new opportunities. Such discovery is fundamentally influenced by prevailing property rights and transaction costs. Transaction costs determine how well-defined and enforced property rights to resource attributes are, and this influences the...

Sustainable business models (SBMs) integrate economic with social and/or environmental value creation. Many relevant aspects of organizing for sustainable business model innovation (SBMI) have yet to be accounted for to understand how firms can add a new SBM to their already existing portfolio of business models. Specifically, how the development o...

Organizations involve joint production where members engage in purposive coordination and cooperation with others. Scholars have often noted the importance of “moral factors” in facilitating such collaboration but previous research has not adequately explained the nature of these moral factors, how they are embodied within joint production, or why...

Research summary The strategic management and international business fields have followed, in some respects, quite similar intellectual trajectories, as reflected in the push for a field of “global strategy.” However, a key distinction in the strategy literature—namely, Williamson's distinction between “strategizing” and “economizing”—has not been...

Policymakers, commentators, and academics have called for a Great Reset, a deepseated overhaul of the organization of the global economy. Some suggest that management theory needs a reset of its own. We argue that Great Reset proponents fail to appreciate the power of markets to bring about desirable social outcomes and are overly sanguine about wh...

Academics, pundits, and policymakers have recently called for a stronger governmental role in the economy to tackle social issues such as inequality and grand challenges like global warming. Despite a general recognition among economists and management scholars that government efforts to guide and control innovation or subsidize private entrepreneu...

Much entrepreneurship research has focused on explaining why some countries and regions have more entrepreneurial activity than others, and the role played in this regard by cross-national and cross-regional differences in institutions. However, this stream has not considered entrepreneurship from a process perspective that is, as a set of activiti...

Research on business model innovation (BMI) processes is blossoming and expanding in many directions. Hence, the time is ripe to summarize and systematize this body of knowledge for the benefit of current and future BMI scholars. In this article, we take stock of the current literature to clarify the concept of a BMI process, develop a categorizati...

The purpose of this article is to reinvigorate research in the intersection of corporate strategy and the theory of the firm in light of the rapid advancement of digital technologies. Using the theory of the firm as an interpretive lens, we focus our analysis on the implications of the emerging digital age for three broad domains of corporate strat...

Henry Mintzberg’s celebrated critique of the “design school” argued that strategy is best thought of as adaptive, bottom-up, and based on dispersed knowledge and learning. Yet Mintzberg’s account lacks a clear and comprehensive theoretical underpinning, especially regarding how to guide emergent strategy in dynamic environments, and leverage it to...

What is now called the judgment-based approach to entrepreneurship (JBA) has a rich pedigree in Austrian economics and continues to grow rapidly in that tradition as well as in various research fields in business and management. The JBA has also attracted some criticisms. Frédéric Sautet’s recent review essay is an example. Sautet’s main concern is...

Our understanding of the link between women managers and firm-level innovation remains incomplete. Building on recent research on gender and leadership styles, we argue that there is a positive association between women managers and firm innovation. We highlight the selection process of women managers as an important underlying mechanism and discus...

We study what determines delegation of authority over innovation decisions in firms. Extant research that addresses this topic in an open innovation context, suggests that firms that engage in open innovation tend to delegate authority over innovation decisions. We provide a more nuanced argument that considers important contingencies. Thus, we arg...

Digital transformation is fundamentally changing the business landscape. It is also affecting the roles of top managers within firms. Our survey of more than 160 senior managers in Europe suggests that digitalization, rather than encouraging more decentralized forms of management, will lead to an expanded role for headquarters and further empowerme...

Online communities have emerged as important organizational forms, but there are many gaps in our understanding. In particular, researchers have mainly focused on individual-level drivers of behaviors in communities, while downplaying (formal, informal) context at various levels. We theorize that different dimensions of context (i.e. omnibus and di...

Research identifies different modes of ambidexterity (sequential, contextual and structural ambidexterity) that, however, are implicitly seen as mutually exclusive. Accordingly, the copresence of structural and contextual ambidexterity modes—here called “blended ambidexterity”—has been given little attention, although it may be characteristic of (s...

Research summary Research has examined how “economizing” and “strategizing” mechanisms interact in driving competitive outcomes, but the role of coalitions in this process has received little attention. Coalitions are formed to create more value (i.e., economizing) and to strengthen competitive positions (i.e., strategizing). Based on a formal coal...

Research summary Ownership is fundamental to firm strategy, organization, and governance. Standard ownership concepts—mainly derived from agency and incomplete contracting theories—focus on its incentive effects. However, these concepts and theories neglect ownership's role as an instrument to match judgment about resource use and governance with t...

Entrepreneurship has emerged as a major research theme across a number of disciplines and fields, including the industrial dynamics tradition. Entrepreneurship is often seen as closely linked to firms and firm formation. However, the links between economic organization and entrepreneurship are unclear. Do entrepreneurs always need firms to realize...

The introduction of mobile devices (e.g., smartphones and tablets), to the workplace has had many positive effects. While research also indicates that mobile devices may lead to the misallocation and depletion of attention, the negative effects, particularly on interactions in organizations, remain less well understood. We draw on micro-sociology t...

Online communities have emerged as important organizational forms, but there are many gaps in our understanding. In particular, researchers have mainly focused on individual-level drivers of behaviors in communities, while downplaying (formal, informal) context at various levels. We theorize that different dimensions of context (i.e., omnibus and d...

While considerable research interest has been devoted to university governance (i.e., the allocation of authority over decisions in a university), little is known about the formation and content of university strategy and how it relates to university governance and organization. To further our knowledge about university strategy and its relation to...

Using data from the European Value Survey, covering more than 300,000 respondents in 32 countries between 2002 and 2012, we offer new insight into the consequences for subjective well-being of self-employment. We hypothesize that the positive link between entrepreneurship and well-being is influenced by the extent to which the decision to engage in...

The corporate headquarters (CHQ) is an important part of the organization of large firms; yet, it is neglected in organization design theory. In this brief essay, I argue that we need a better understanding of the CHQ to further our understanding of the link between the top-management team and the rest of the organization, and to improve our unders...

We used the dynamic capabilities approach to study environmental sustainability and development in the fashion industry. To achieve green transformation, companies need to develop effective dynamic capabilities, which entails changing their current organizational design by realigning their activities, partnerships, and routines with the changed ext...

Elert and Henrekson (2019) draw important connections between Austrian economics and the Schumpeterian literatures on “development blocs” and “the experimentally organized economy.” We appreciate their emphasis on experimentation and think that Austrian ideas on the time structure of production and the multiple specificities of capital offer comple...

“Microfoundations” has become prominent in the discourse of management scholars. But what is it and how does it matter? This Element provides a characterization of microfoundations based on classical work on the methodology of social science and documents and discusses its manifestations in management research over the last one and a half decades....

This position paper updates about methodological and epistemological issues on the micro-foundations perspective. We propose that conceptual divergences between the different streams of contributions to dynamic capabilities (DCs) research (the Eisenhardt versus Teece divide) hide discrepancies about methodological aspects, and about the locus of DC...

The 'Austrian' tradition is well-known for its definitive contributions to economics in the twentieth century. However, Austrian economics also offers an exciting research agenda outside the traditional boundaries of economics, especially in the management disciplines. This Element examines how Austrian ideas play a key role in expanding the unders...

Microfoundations have become an important theme in recent macro-management research. However, the international management (IM) field is an exception to this. We document the lack of attention on microfoundations in IM research by focusing on knowledge sharing – a key IM research field – which we investigate by means of a keyword-based literature s...

Social identity has entered the discourse of social scientists, pundits, and politicians to an extent that no one could have anticipated only about a decade ago. Thus, recent electoral events have strongly pointed to the importance of identity.

Research Summary The global strategy literature highlights the role of headquarters (HQ) in realizing global integration benefits while enabling independent subsidiary strategic initiatives. We construct a game‐theoretic model of the interaction between HQ and subsidiaries, and, building on procedural justice theory, we analyze the motivational cos...

The authors argue that organization design needs to play a more active role in the explanation of differential performance and outline a set of ideas for achieving this both in theoretical and empirical research. Firms are heterogeneous in terms of (1) how well they do things, capturing persistent productivity differences, and (2) how they do thing...

The economics and management literatures pay increasing attention to the technological, competitive, and institutional environment for entrepreneurship. However, less is known about how context influences the judgment of entrepreneurs. Focusing on the emerging judgment‐based approach to entrepreneurship, we argue that economics can say much about h...

The past decade has witnessed a surge of research interest in social entrepreneurship (SE). This has resulted in important insights concerning the role of SE in fostering inclusive growth and institutional change. However, the rapid growth of SE research, the emerging nature of the literature, and the fact that SE builds on different disciplines an...

We argue that the stakeholder and CSR literature can benefit from more systematic thinking about ownership. We discuss general notions of ownership in the economics and legal literature and the entrepreneurial notion of ownership we have developed in prior work. On this basis, we argue that stakeholder theory needs to deal more systematically with...

Practical advice from experts on how to create, manage, measure, and improve innovation in and for today's digital markets All organizations grapple with what digitalization means for their business and, in particular, how digital forces will drive their approaches to innovation. But very few organizations have clearly defined the scale, speed, and...

How well do managers know the capabilities of the firms they manage? Such knowledge, which we refer to as managerial meta-knowledge, has not been systematically addressed in the management and governance literature—which is problematic, as managerial meta-knowledge influences governance choice. In fact, transaction cost economics, the dominant theo...

This article briefly surveys the relations between key Austrian economics themes such as the market process aspects of competition, the subjectivity of economic value, methodological individualism, resource heterogeneity, distributed knowledge, the time-structure of production and the entrepreneur, and modern strategy thinking. Parallels can be fou...

The economic analysis of property rights was pioneered in the 1960s, and has had some impact on strategic management theory over the last decade. These ideas redefine resources as endogenous outcomes of transaction cost economizing, link transaction costs and value creation and capture, and highlight the role of contracting in competitive strategy.

Organizational goals are central in management theory, yet our understanding of their antecedents, formation and dynamics, and consequences contains many gaps, in particular concerning the microfoundations of how goals are formed and changed and through which they may affect individual and organizational performance. We distill a number of key them...

Much research suggests that entrepreneurial opportunities in established firms result from bottom-up initiative in a diverse workforce, senior management's main role in the entrepreneurial process is to select among opportunities generated in the bottom-up process, and it should refrain from directly getting involved in this process. We develop an...

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We reassess the concept of the hypothetical monopolist as a device for relevant market definition. The hypothetical monopolist test (also known as the Small but Significant Non-transitory Increase in Price test) is a clever, intuitive way of thinking the relevant market in antitrust, and is gaining ground in strategic management. The test, however,...

A central construct in competitive strategy research is market power, the ability to raise price above marginal cost. Positioning research focuses on attempts to build, protect, and exercise market power. However, this approach contains hidden assumptions about transaction costs. Parties made worse off by the exercise of market power can negotiate,...

The use of external knowledge for innovation (i.e., inbound or outside-in open innovation) has received substantial attention in the innovation literature. However, the “human side” of open innovation is still poorly understood. We consider the role of employee characteristics with respect to predicting firm-level openness. Drawing on the human cap...

While research on business models and business model innovation continue to exhibit growth, the field is still, even after more than two decades of research, characterized by a striking lack of cumulative theorizing and an opportunistic borrowing of more or less related ideas from neighbouring fields in the place of cumulative theory. We argue that...

This chapter argues that new venture team (NVT) processes are relatively ill-understood in the entrepreneurship literature, and describes various theoretical and empirical research avenues that may be pursued in order to improve our understanding of these processes. It then focuses on the widely established input-processes-outcome (IPO) framework....

The paper argues that organizational capabilities are comprised of two fundamental components: resources and activities. The starting point of the argument is that resources are best conceptualized by Barney’s (1991) and others’ research on the resource-based view, while activities are best conceptualized by Porter’s (1985) writings on the activity...

Team identity has received little research attention even though an increasing number of firms are moving to team-based organizations and there is evidence that teams form identities. We explore the extent to which team identity can be institutionalized as a central organizing principle of team-based firms. We argue that managerial and stakeholder...

and Keywords Agency theory studies the impact of and remedies to asymmetrically distributed information in principal-agent relations. Yet, it does so in a surprisingly binary manner: It assumes the principal to be perfectly knowledgeable of some pieces of information (such as the agent's risk aversion), while others (such as the agent's true effort...

We briefly summarize the contributions of Oliver Hart and Bengt Holmstrom, two key founders of modern contract theory, and describe their significance for the analysis of organizations and institutions. We then discuss the foundations of modern contract theory and review some criticisms related to modeling strategy, assumptions about knowledge and...