ArticlePDF Available

Complexity-Based View of the Firm: Evidence, Features and Method

Authors:
  • Universidad Nebrija

Abstract and Figures

Understanding the behavior of the firm continues to be one of the key challenges of economic theory today, yet it remains elusive. Few other problems in the history of economics has persuaded the interest of so many economists, sociologists, psychologists, mathematicians, and even philosophers, as the endeavor to describe and somehow predict the behavior of the firm. However, a conspicuously lack of progress in terms of theoretical and practical outcomes shows that our theories are wrong or incomplete. In this paper the author highlights one key reason is that we fail to understand what complexity entails for the economic system and the firm, and suggests the need for an entirely new theoretical and methodological view of the firm based on complexity thinking. The evidence provided and the characterization made of the firm as a complex system are the prelude to a method to tackle complexity. The complexity-based view of the firm has strong implications for figuring out how to think about complexity of the firm, draft reality-bounded theories, and set the grounds for further research.
Content may be subject to copyright.
A preview of the PDF is not available
... Most firms in the real world act and behave as open systems embedded in complex environment settings with which resources and value are exchanged (Navarro-Meneses 2015). By adopting such complexity-based view (CBV) of the firm, firms acknowledge they share a set of characteristics which are a defining feature of complex systems. ...
... By adopting such complexity-based view (CBV) of the firm, firms acknowledge they share a set of characteristics which are a defining feature of complex systems. Specifically, these properties are enunciated by Navarro-Meneses (2015) as follows: ...
... The CBV approach suggests that hierarchy is a central organizing principle of firms, capable of offering insight into many complex phenomena (Clauset, Moore et al. 2008). Furthermore, CBV assumes that value creation is configured in a hierarchical scale, where top level groups (or VRs) divide into secondary groups that further subdivide into lower level groups, and so forth over multiple levels (Navarro-Meneses 2015). ...
Article
Full-text available
Developing a methodological framework which enables researchers and practitioners to tackle complexity in a practical way is key for the successful implementation of the complexity-based view of the firm. This paper seeks to provide a first attempt towards the development of such framework, specifically unravelling the activities, method and tools of its first and foremost stage: the mapping of complexity. The guidelines outlined in the paper will allow complexity practitioners to set solid foundations for a thorough understanding of the firm's complexity defining characteristics and how they operate, which constitutes an essential step for satisfactorily starting to address the challenges posed by complexity.
... 1997), and it was usually referred back to another early post-Coasian perspective, focusing on complexity and this dynamic organizational factors (e.g., Cyert, March 1992 [1963]; Penrose 1959). In this tradition, Bloch and Metcalfe (2013), among many others (e.g., Navarro-Meneses 2015; Aoki 2010; also Hodgson 1996), have recently related the embedded firm, with its manifold external interactions and relations, and dynamic adaption, as well as the persistent diversity of its objectives and forms, to the complexity and often unpredictable dynamics and perceived turbulence, of its environment. Under these conditions, firms will, among others, strive for some homeostasis, i.e., for reduced (perceived) complexity, for simplification and stability, through some institutionalization of cooperation, in more or less intricate decision problems, such as social dilemmas (Bloch, Metcalfe 2013, 82f., 86f.; also, e.g., Hodgson 1996, 262f.; Navarro-Meneses 2015, 11f.). ...
Research
Full-text available
The increasing complexity of the environment of firms, of strategic interaction, and emergent informal institutional network cooperation, seems to outreach the traditional Coase-Williamson transaction-cost framework with its market-hierarchy dichotomy. We propose to take the complexity of nowadays’ firm ecologies more serious and integrate an institutional dimension to enhance the analysis of real-world organizational forms and the theory of the firm. This institutional dimension is conceptualized as an “OIE” (Veblenian) “institutional dichotomy” that ranges between “instrumental” cooperative networking and “ceremonial encapsulation” (lock-in). Thus, a more comprehensive two-dimensional, particularly triangular, organizational space is drafted, which can better map the numerous and diverse forms of production and innovation systems, including their emergence as spatial clusters and corporate networks. The additional dimension integrates institutionalized network cooperation as “instrumental problem-solving”, vs. power and status seeking (by both large hierarchies and fiercely rivalling market participants) as “ceremonial dominance”. In addition to ideal market and hierarchy, it provides the ideal solution of institutionalized network cooperation, learned in recurrent social-dilemma problems, as a third vanishing point and corner. The resulting Organizational Triangle is considered a heuristic for inter-firm organizational research. As a check of its usefulness, this device is applied to recent developments in the global corporate economy.
... Another early post-Coasian perspective, focusing on complexity and dynamic organisational factors has often been referred to in that context (e.g., Cyert andMarch, 1992 [1963]; Penrose, 1959). In this tradition, Bloch and Metcalfe (2013), among many others (e.g., Navarro-Meneses, 2015;Aoki, 2010;also Hodgson, 1996), have recently related the embedded firm, with its manifold external interactions and relations, and dynamic adaption, as well as the persistent diversity of its objectives and forms, to the complexity and often unpredictable dynamics and perceived turbulence, of its environment. Under these conditions, firms will, among others, strive for some homeostasis, i.e., for reduced (perceived) complexity, for simplification and stability, through some institutionalisation of cooperation [Bloch and Metcalfe, (2013), 82f., 86f.; also, e.g., Hodgson, (1996), 262f.; Navarro-Meneses, (2015), 11f.]. ...
Article
Transaction cost economics explains organizations in a market vs. hierarchy dichotomy. In this view, complex real-world coordination forms are simply considered hybrids of those pure and ideal forms. This organizational dichotomy is mainly based on relative marginal transaction costs and rational choice of coordination form. The present paper, in contrast, argues that pure market and hierarchy, including their potential formal hybrids, are an empirically void set. Coordination forms, it is argued, have to be conceptualized in a fundamentally different way. A relevant organizational space must reflect the dimensions of a complex world such as dilemma-prone direct interdependence, resulting in strong strategic uncertainty, mutual externalities, collectivities, and subsequent emergent process. This, in turn, will lead either to (1) informally institutionalized, problem-solving cooperation (the dominant instrumental dimension of institutionalization) or (2) mutual blockage, lock-in on an inferior path, and power and status-based market and hierarchy failure (the dominant ceremonial dimension of the institution). This paper establishes emergent (instrumental) institutionalized cooperation as a genuine organizational dimension which generates a third ‘attractor’ in the new organizational space besides ‘market’ and ‘hierarchy’, namely the informal ‘network’. In this way, an organizational triangle can be constructed which may serve as a more realistic heuristic device for empirical organizational research. Its ideal corners and some ideal hybrids on its edges still remain empirically void, but its inner space becomes empirically relevant and accessible. The Organizational Triangle is tentatively applied, by way of a set of criteria for instrumental problem-solving, corresponding survey questions, and a simple formal algorithm, to the cases of the supplier network of ‘DaimlerChrysler US International’ at Tuscaloosa, AL, to the open-source network Linux, and the web-platforms Wikipedia and ‘Open-Source Car’. It is considered to properly reflect what is generally theorized in evolutionary-institutional economics of coordination and the firm and might offer some insight for the topical reconstructions of the car and other industries to come.
Conference Paper
Full-text available
Complexity economics has developed into a promising cutting-edge research program for a more realistic economics in the last three or four decades. Also some convergent micro-and macro-foundations across heterodox schools have been attained with it. With some time lag, boosted by the financial crisis 2008ff., a surge to explore economic complexity's (EC) policy implications emerged. It demonstrated flaws of " neoliberal " policy prescriptions mostly derived from the neoclassical mainstream and its relatively simple and teleological equilibrium models. However, most of the complexity-policy literature still remains rather general. Therefore, policy implications of EC are reinvestigated here. EC usually is specified by " Complex Adaptive (Economic) Systems " [CA(E)S], characterized by mechanisms, dynamic and statistical properties such as capacities of " self-organization " of their components (agents), structural " emergence " , and some statistical distributions in their topologies and movements. For agent-based systems, some underlying " intentionality " of agents, under bounded rationality, includes improving their benefits and reducing the perceived complexity of their decision situations, in an evolutionary process of a population. This includes emergent social institutions. Thus, EC has manifold affinities with long-standing issues of economic heterodoxies, such as uncertainty or path-dependent and idiosyncratic process. We envisage a subset of CA(E)S, with heterogeneous agents interacting, in the " evolution-of-cooperation " tradition. We exemplarily derive some more specific policy orientations, in a " framework " approach, embedded in a modern " meritorics " , that we call Interactive Policy. (223 words)
Article
This paper surveys the history of an alternative view of value creation to that associated with industrial production. It argues that technical breakthroughs and social innovations in actual value creation render the alternative—a value co‐production framework—ever more pertinent. The paper examines some of the implications of adopting this framework to describe and understand business opportunity, management, and organizational practices. In the process, it reviews the research opportunities a value co‐production framework opens up. Copyright © 1999 John Wiley & Sons, Ltd.
Chapter
The controversies over the thesis of the unity of the natural and social sciences and its kin, social scientific naturalism, which are conventionally but misleadingly dated as having begun with A. Comte,’ are still very much with us. And for good reason. Throughout the history of these controversies many important issues about the social sciences were raised, some of which are still unsettled and which deserve review. I propose to consider some of them and to criticise some assumptions which were supported both by social scientific naturalists and their opponents (whom we may label anti­social scientific naturalists) about and in the course of the controversies.
Article
One of the main concerns of a historian of economic thought is with traditions or streams of thought. Even if we accept some kind of ‘relativist’ hypothesis in our interpretation of the economic thought of different historical periods, it remains true that there are always important elements of continuity in the development of thought within any particular period — and even (up to a point) from one period to another — which are bound to be of interest to historians. And since nobody can tell where a particular stream is flowing until it actually gets there, this means that each generation has to rewrite the history of economic thought in the light of the new point which it finds the stream has reached.