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The evolutionary perspective on organizational change and the theory of the firm
Abstract
Introduction From an abstract point of view, the organization of the firm is a prototype of a planned institution deliberately created to coordinate the division of labour. As such, it contrasts with the wide range of informal institutions – most prominently the markets – that emerge spontaneously to promote the coordination of specialization and exchange. Indeed, the contrast between firms and markets is a leitmotiv in the theory of the firm. It has inspired a huge number of arguments trying to explain why the two institutions coexist and which of them is used when. Somewhat fewer explanatory efforts have been undertaken to explain the genesis of firm organizations – i.e. how and when firms are created, and how and when their organizational form changes over time. However, business history shows that changes in the organizational set-up of, and the internal interactions within, firms are the rule rather than the exception, and that these changes often have a crucial impact on the firms’ performance (Chandler, 1992). Indeed, a firm's growth or decline often hinges on whether and when organizational metamorphoses occur and how they are managed. Once the level of abstract, functional comparisons between formal and informal institutions is left, the ‘why?’ and ‘how?’ of organizational change is therefore a major issue. Organizational changes may be caused by exogenous shocks, such as shifts in demand, in the factor costs or in technology.
... Crucially critics argue that adopting a routine-organization conceptualization of the replicatorinteractor excludes the possibility of intentionality, cognition, learning [49], motivation, creativity, imagination, and deliberate adaptations [50] particularly on the part of those enacting the routines. For instance Witt [49] argues that cognition and learning downplay the role of selection in socio-economic change, where selection is viewed as the environmental selection of an entity based on its degree of fitness (i.e. the organization in some Generalized Darwinist accounts), and calls for a shift in focus towards choices made by individuals within organizations, and the role of cognitive frames in this process [51]. This role of agency and adaptation during the lifetime of the entity in question might also reflect the phenomena of developmental plasticity or adaptation during the lifetime of the entity in question [52]. ...
... Selection however might be seen to occur at multiple levels, with individuals, groups and organizations 'selecting' entities. Witt [51] would argue that individuals and groups make choices, and thereby select habits and routines for enactment [51]. If individuals are viewed as 'selecting' habits or routines for enactment through the choices they make, then clearly foresight, anticipation of futures, and the interpretation of feedback from the external world are important factors influencing these choices. ...
... Selection however might be seen to occur at multiple levels, with individuals, groups and organizations 'selecting' entities. Witt [51] would argue that individuals and groups make choices, and thereby select habits and routines for enactment [51]. If individuals are viewed as 'selecting' habits or routines for enactment through the choices they make, then clearly foresight, anticipation of futures, and the interpretation of feedback from the external world are important factors influencing these choices. ...
Whilst past research has explored the notion of co-evolution and ambidexterity in organizations, few have drawn from theoretical insights made in other domains of study such as biology and cultural evolution. This paper seeks to make a contribution towards this project, by developing an agent-based simulation model of multi-level co-evolution within an organization, with a view towards shedding new light on organizational adaptation. Unlike previous simulation studies of this nature, this study focuses on the co-evolution of behavior at multiple-levels between interacting individuals, based on the evolutionary mechanisms of variation, selection and retention. In this way it is seen that incremental, punctuated and chaotic patterns of aggregate organizational behavior arise from the same core building blocks of variation-selection-retention. The findings from this study point to the need for management control in ambidextrous organizations both during times of stability AND transformational change. In the latter case, this control was not that of an overpowering management suppressing variations and innovation from within the organization. Rather it might be interpreted as the voice of calm in the chaos of the storm, providing direction to the many actors within the organization and walking them along the thin line between inaction and chaos.
... The coincidence of biological innovation remains problematic for implication in the social sciences as long as Darwinist selection, based on random mutation, is considered as synonym for biological evolution. This discrepancy forces the distancing of evolutionary economists from biological analogy, which prevails till this day [Witt, 2005]. More to that in the following sections. ...
... Modern biology turns to feature much more mechanisms of Lamarckian evolution than economists seem to be aware of. Examples for the (obsolete) biological evolution paradigm of economical evolutionists can be found in the formulations of Witt [Witt, 1987, Witt, 2005, Foster [Foster, 2005] , Nelson and Win- ter [Nelson & Winter, 1982, Nelson & Winter, 2002 and practically anybody who writes anything on the subject of economic evolution.Taking a new journal were devoted to the subject of epigenetics [Bird, 2007], the term and the idea seem not to have reached the conscience of evolution economists. It is perhaps time for economists to take notice of this new understanding of natural phenotypical and genetical change. ...
... The processes of its development can be followed and documented. However, there is no common causality determining the path of change for all or any subgroup of the total of organizations, analogue to the genes in nature [Witt, 2005]. But the most problematic stage in the life cycle of organizations is the one that should dene their analogue death. ...
The aim of this work is to develop an alternative evolutionary approach to assessing the performance of co-operative organizations. The focus of investigation is turned to the co-operative organization as a group of members in a market environment containing non-members. Significant unique features of the co-operative organization is illustrated at first. After reviewing historical aspects of evolution theories and their positioning in biology, economic and social sciences, alternative notions of evolution and the osmosis of ideas is suggested. Further on, a concept for the evolutionary function of exit, voice and acquiesce strategies in social contexts is developed analog to the biological concept of fight, flight or cope reactions. Leaning on the known social and group-psychological features of the co-operative organizations species, and on the assumption of membership rationality at the individual members level, a theory of exit, voice or acquiesce decisions, and the influence of the groups size on their results, is being introduced. A following empirical dynamic model will utilize the previous recognitions achieved, to demonstrate the effect of ommanent restrictions to group-growth. Moreover it is being proven, that the co-operative organization can still be considered as successive, in the populations ecological as well as in the social sense, even if it is not growing. A corrected approach to the utilization of group growth as indicator for co-operative performance is suggested as a result. Ziel dieser Arbeit ist die Entwicklung eines alternativen evolutionären Ansatzes zur Bewertung der Leistung genossenschaftlicher Organisationen. Im Mittelpunkt der Untersuchung steht die genossenschaftliche Organisation als Gruppe von Mitgliedern in einer aus Nicht-Mitgliedern bestehenden Marktumgebung. Einleitend werden für die Untersuchung elementare Eigenschaften der genossenschaftlichen Organisation geschildert. Nach einer Übersicht historischer Aspekte der Evolutionstheorien und ihrer Positionierung in der Biologie, den Wirtschafts- und Sozialwissenschaften, wird eine neue Vorstellung der Evolution und der Osmose von Ideen vorgeschlagen. Weiterhin wird ein Konzept für die evolutorischen Funktionen der strategischen Abwanderung/ Widerspruch/ Duldung in sozialen Zusammenhängen, als Analogie zum biologischen Konzept von Fight, Flight or Cope-Reaktionen präsentiert. Anlehnend an anerkannten sozialen und gruppenpsychologischen Eigenschaften der Genossenschaften und an die Annahme der Rationalität der Mitgliedschaft auf der Ebene des individuellen Mitglieds, wird eine Theorie über Abwanderung, Widerspruch und Duldung, und über den Einfluss der Gruppengröße auf deren Ergebnis, vorgestellt. Die zuvor erarbeiteten Erkentnisse werden im Anschluss in einem empirisch dynamischen Model umgesetzt, um die Wirkung immanenter Restriktionen des Gruppenwachstums zu demonstrieren. Weiterhin wird bewiesen, dass genossenschaftliche Organisationen weiterhin als erfolgreich beurteilt werden dürfen, sowohl im populationsökologischen als auch im sozialen Sinn, auch wenn sie kein Wachstum aufweisen. Ein weiterentwickelter Ansatz zur Anwendung des Gruppenwachstums als Indikator für genossenschaftliche Leistung wird als Resultat der Untersuchung vorgeschlagen.
... In biology, replicators generate, in ontogenesis, the interactors that carry them. In organization and scholarship, actors are not only active in interacting with their environment but also in cognitive construction, which entails that they develop their replicators, on the basis of experience (Witt 2005). As is widely recognized, ontogenetically produced replicators may be adopted by others, so that here evolution is, at least in part, Lamarckian, with 'inheritance of acquired characteristics'. ...
... The notions of 'parents' and 'offspring' become diffuse. While in biology there is a clear separation between ontogenetic and phylogenetic development, in society there is not (Witt 2005). ...
... Also, as noted by Witt (2005) and Nelson (2006), particularly in economics and science there is much 'pre-practice' testing, in mental thought experiments, debate, computer simulations, the testing of physical prototypes, market testing and consumer focus groups. Human beings learn testing and experimentation before practice at an early age, in child's play, and proceed to refine their mental experimentation in later education. ...
Does evolutionary theory help, for a theory of the firm, or, more widely, a theory of organization? In this paper I argue that it does, to some but also limited extent. Evolutionary theories of economies, and of culture, have acquired considerable following, but have also been subject to considerable criticism. Most criticism has been aimed at inappropriate biological analogies, but recently it has been claimed that a 'universal Darwinism', purged of all such mistaken analogy, is both useful and viable. Why should we try to preserve evolutionary theory, and will such theory stand up to sustained critical analysis? How useful is it for theory of the firm? Evolutionary theory appears to be the most adequate theory around for solving the problem of agency and structure, avoiding both an overly rational, managerial 'strategic choice' view of organizations and a 'contingency' view of organizations as fully determined by their environment. Whether universal Darwinism stands up to critical analysis remains to be seen. Here, the focus is on evolutionary theory of organization and of knowledge. Use is made of a constructivist 'embodied cognition' view of cognition and of elements of a cognitive theory of the firm.
... We examine the biological philosophy in Chapter 4, which leads to numerous metaphors and theories of organizational change (Witt, 2004). Appropriated from biological evolution, the philosophy refers to the adaptations experienced by species-or in this case a population of organizations-over time. ...
... Erfolgreichen Unternehmern gelingt es demnach, ihre Geschäftskonzeption als gemeinschaftlich geteilten kognitiven Rahmen im Unternehmen zu platzieren (Witt 1998). Im Kontext dieser individualistisch fundierten evolutionsökonomischen Theorie der Unternehmung bedeutet das letztlich, dass nicht nur einzelne unternehmerische Akteure eine Form kognitiver Führung auf der Grundlage neuerungsorientierter Visionen ausüben können, vielmehr kann diese unternehmerische Führung auch verteilt über mehrere Akteure innerhalb der Unternehmensorganisation wahrgenommen werden (Witt 2005). ...
Die Arbeit befasst sich mit dem wenig diskutierten Thema der Koordination und emergenten Struktur des Wissens in einem evolvierenden Wirtschaftssystem. Ausgehend vom historischen Narrativ der modernen Marktwirtschaft und ihrer Positionierung in der vergleichenden Wirtschaftssystemanalyse werden theoretische Bausteine auf der Basis einer Diskussion der Arbeiten in der Tradition von Smith, Coase, Hayek, Schumpeter und anderen identifiziert und im Rahmen einer Mikro-Meso-Makro Architektur als Komponenten eines einheitlichen Erklärungsansatzes diskutiert.
... Les premières se définissent comme « [...] an executable capability for repeated performance in some context that has been learned by an organization in response to selective pressures » (Cohen et al., 1996, p. 683), alors que les secondes comme « the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments » (Teece et al., 1997, p. 516). Dans ce cadre, la survie des firmes passe par un renouvellement ou un enrichissement des routines via l'accumulation de compétences de manière intentionnelle grâce aux capacités cognitives des agents (via un processus d'apprentissage organisationnel) ou non (l'état de l'environnement) (Witt, 2005). Cette accumulation des compétences serait constante et progressive (Carpenter, 2010). ...
Ce texte propose une étude des comportements innovants des firmes françaises de plasturgie en combinant l’approche évolutionniste de la firme et les apports de la littérature sur les barrières à l’innovation. En accord avec ce cadre théorique et à partir de l’exploitation de 24 entretiens approfondis, nous proposons une nouvelle typologie des stratégies d’innovation des firmes françaises de plasturgie. Nous montrons que ces firmes tendent dans leur majorité à activer leurs compétences dynamiques pour adopter des stratégies et devenir de plus en plus indépendantes et survivre dans un environnement incertain caractérisé principalement par une position asymétrique avec les clients/donneurs d’ordres et une forte concurrence internationale. C’est grâce aux compétences spécifiques et à l’intensité de l’innovation développée que les firmes de plasturgie peuvent retrouver des marges de manœuvre. Dans le même temps, la mise en œuvre de stratégies d’innovation entraîne l’apparition de barrières à l’innovation.Classification JEL : L21, L24, L52, L69, O32, O33.
... Evoluční ekonómovia (Foster a Mecalfe, 2001;Witt, 2005;Metcalfe, Foster a Ramoglan, 2006) upozorňujú, že rozhodujúcim aspektom evolúcie trhovo založeného ekonomického prostredia je jeho vlastná spotreba. Procesy selekcie likvidujú, resp. ...
In paper we try to introduce an alternative framework of post-socialist study, which includes the knowledge of evolutionary and institutionally economy. We aimed at issues of terminology of post-socialist transformation and an overview of opinions on its development including spatial aspects. Specifically, the question how to define and date the final stage of transformation process was emphasized. We assumption that, post-socialist transformation is considered to be a temporary stage divide into several period, which is followed by societal development in conditions of post-industrial society.
... Evoluční ekonómovia (Foster a Mecalfe, 2001;Witt, 2005;Metcalfe, Foster a Ramoglan, 2006) upozorňujú, že rozhodujúcim aspektom evolúcie trhovo založeného ekonomického prostredia je jeho vlastná spotreba. Procesy selekcie likvidujú, resp. ...
... So, selection 'of' these individuals and groups results in the selection 'for' associated ideas, routines and knowledge (Hodgson and Knudsen 2010). However, such an interpretation of selection downplays choices made by the individuals concerned (Witt 2005). Selection 'for' routines gives primacy to the selective powers 'of' the world external to the phenomena (e.g. ...
Research in business and management has recently taken a co-evolutionary turn, with studies examining co-evolutionary processes in internationalization strategies, off-shoring of business services, organizational adaptation and organizational learning. This drive towards more co-evolutionary research is driven both by the pace of environmental change, but in addition by the increasingly complex and interconnected nature of business environments. Despite this increased level of interest, few studies have drawn from the theoretical approaches used to study co-evolutionary processes in other scientific domains such as biology, psychology or cultural evolution. In this paper recent advances in these latter fields of study are examined with a view towards filling this gap, and providing a much needed theoretical underpinning to recent developments in co-evolutionary research. It is seen that the identification of the unit of evolution is a critical issue in this endeavor, with two broad approaches taken, namely the entity- and practice-based approach. In the former it is assumed that ideas, knowledge and capabilities are bound to individuals, groups and organizations with change over time being determined largely by external selection forces. In the practice-based view, the focus shifts to the process in which ideas, knowledge and capabilities are continually enacted and modified through actions. The paper further explores key theoretical and methodological issues relating to the development of multi-level co-evolutionary narratives using both approaches. In sum, the paper seeks to make a contribution not only to evolutionary research but to broader research in business and management which seeks to advance a co-evolutionary narrative.
... As argued by Graetz et al., the business world has much in common with the natural world where constant change in reaction to environmental circumstances is normal (Witt, 2004;2006, p. 9). Just as industries evolve and adapt to their environments (Van de Ven & Poole, 1995), so might projects. ...
The occurrence of rapid change in the business environment presents both a threat to, and opportunity for, the success of projects conducted across all industries. This challenge, hereafter referred to as dynamism, has been acknowledged as a key unresolved issue in management and project management. Traditional prescriptive approaches to management, which are orientated around process control, are considered sub-optimal in addressing the issue of dynamism. While many small projects face the challenge of dynamism, so do numerous large, high-impact projects, some of which cost billions of dollars and have significant national security impact.
This research employed a qualitative approach in order to build a grounded theory for managing dynamism in projects, incorporating planning styles, culture, communication, and leadership. Building the grounded theory involved conducting in-depth interviews and focus groups with a broad range of project managers who were challenged by dynamism. In Study One of the research, 37 interviews were conducted with 31 project managers. These interviews were analysed qualitatively for content themes. In Study Two, three focus group interviews were conducted with 16 project managers in order to verify and expand upon the findings of the first study. Both studies included practitioners across ten industries (defence, community development, construction, technology, pharmaceutical, film production, scientific startups, venture capital, space, and research).
The resulting model and theory are useful for practitioners seeking an in-depth understanding of project management tailored to the increasing challenge of rapid change. The model and theory fill a gap in project management literature regarding the management of projects that require learning, that have loosely defined goals and methods, that involve the development of new technologies, and that have high degrees of newness.
... Path-dependent and often cumulative search, learning and adaptation processes thus may lead to multiple equilibria in (formal models of) spontaneous decentralized systems, i.e., most basically high vs. low institutionalizations of intra-firm routines, firms' outward strategies, and coordination and cooperation forms among firms. (For the tradition of classical elaborations of firm behavior under uncertainty, evolutionary process, learning, adaptation, and routinizations, see, e.g., Schumpeter 1942; Simon 1957 Simon , 1959 Penrose 1959; Cyert, March 1963; Nelson, Winter 1982; many modern evolutionary economists of the theory of the firm refer back as far as Smith and Marshall, see, e.g., Loasby 1976; Kay 1992; Dietrich 1994; Hodgson 1998; Witt 2005). Proper reflection of complexity and its far-reaching implications, thus, also sheds light on diverse coordination mechanisms and forms and hence promotes an understanding of the structures of different allocation and coordination forms, their interrelations and potential combinations (see, e.g., Amin, Hausner (eds.) ...
... These questions concern the issue of the evolution of a firm; and are questions which are not addressed in the post-Coasean theories of the firm (e.g., Williamson 1985). Nevertheless, there is no doubt that the analysis of the evolution of the firm can contribute to a better understanding of a firm (see also Witt 2005). ...
The aim of this paper is to contribute to a better understanding of the firm through an explanation for its evolution, as part of the co-evolution of social and physical technologies. The author argues that since the emergence of the capitalist firm (factory) in the British Industrial Revolution this co-evolutionary process has brought about two major mutant-firms, namely the M-form which emerged from the beginning of the Second Industrial Revolution and the decentralized-disintegrated organization (project-based firm) born in the New Economy. The author analyzes the rise of the succeeding mutant-firms in the co-evolutionary process framework and also highlights the nature of the differences between them.
... The most long held change philosophy has been commandeered from biology. In fact, biology has been used in several different ways as a metaphor for organizational change (Witt, 2004). The first is appropriated from evolution itself. ...
The underlying assumption of the classical, linear approach to organizational change is that it involves a series of predictable, reducible steps that enable senior management to establish a new work order and routines. This article confronts the conventional assumption that change is a finite, one-off phenomenon, representing the exception rather than the rule. Beginning with the rational change model as an exemplar, and subsequently by examining 10 organizational change philosophies, this article reviews the fundamental assumptions governing different change management approaches. In revealing the biases and uni-dimensional nature of theoretical philosophies of organizational change, this article argues for a multi-philosophy approach that applies an interactive mix of continuity and change. Managing the continuity-change continuum helps to guard against complacency and inertia, and underpins an organization's capacity both to exploit and explore.
... " Evolutionary " thinking encompasses both ontogenic and phylogenic evolution, and within the class of models of phylogenic evolution one can pick among Lamarckian, Weismanian, and/or Darwinian processes, to start with (Hodgson 1993; Hodgson and Knudsen 2006). Naturally, practitioners of evolutionary economics are also active in the discussion, instantiating their claims by elaborating models and narratives and by debating on which approach seemed to capture best economic change (Witt 2005). Yet, these different perspectives do not address directly the question of why there is so little agreement on the heuristic value of biology for evolutionary thinking in economics. ...
Argument
The heuristic value of evolutionary biology for economics is still much under debate. We suggest that in addition to analytical considerations, socio-cultural values can well be at stake in this issue. To demonstrate it, we use a historical case and focus on the criticism of biological analogies in the theory of the firm formulated by economist Edith Penrose in postwar United States. We find that in addition to the analytical arguments developed in her paper, she perceived that biological analogies were suspect of a conservative bias – as in social Darwinism. We explain this perception by documenting the broader context of Edith Penrose's personal and professional evolution, from her student days at Berkeley to her defense of Owen Lattimore against McCarthyism. We conclude that in the case under study at least, science and values were certainly intertwined in accounting for her skepticism towards biological analogies – insight we develop in the conclusion about today's relationships between biology and economics.
... Path-dependent and often cumulative search, learning and adaptation processes then may lead to 'multiple equilibria' in spontaneous decentralized systems, for instance high vs. low instrumental institutionalizations of intra-firm routines, firms' strategies, and coordination and cooperation forms. (For classical elaborations of firm behavior under uncertainty, evolutionary process, learning, adaptation, and routinizations, see, e.g., Schumpeter 1942;Simon 1959;Penrose 1959;Cyert, March 1963;Nelson, Winter 1982; many modern evolutionary economists of the theory of the firm even refer back as far as Smith and Marshall, see, e.g., Loasby 1976;Kay 1992;Dietrich 1994;Hodgson 1998;Witt 2005). Proper reflection of complexity and its far-reaching implications, thus, sheds light on diverse coordination mechanisms and forms, and hence promotes an understanding of the structures of different 'allocation mechanisms' and coordination forms, their interrelations and potential combinations (see, e.g., Amin, Hausner (eds.) ...
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.
... Path-dependent and often cumulative search, learning and adaptation processes thus may lead to multiple equilibria in (formal models of) spontaneous decentralized systems, i.e., most basically high vs. low institutionalizations of intra-firm routines, firms' outward strategies, and coordination and cooperation forms among firms. (For the tradition of classical elaborations of firm behavior under uncertainty, evolutionary process, learning, adaptation, and routinizations, see, e.g., Schumpeter 1942; Simon 1957 Simon , 1959 Penrose 1959; Cyert, March 1963; Nelson, Winter 1982; many modern evolutionary economists of the theory of the firm refer back as far as Smith and Marshall, see, e.g., Loasby 1976; Kay 1992; Dietrich 1994; Hodgson 1998; Witt 2005). Proper reflection of complexity and its far-reaching implications, thus, also sheds light on diverse coordination mechanisms and forms and hence promotes an understanding of the structures of different allocation and coordination forms, their interrelations and potential combinations (see, e.g., Amin, Hausner (eds.) ...
Transaction cost economics explains organizational forms in a market vs. hierarchy dichotomy as hybrids of those two ideal forms. The present paper, in contrast, argues that pure market and hierarchy, including their potential formal hybrids, are an empirically void set and that coordination forms have to be conceptualized in a fundamentally different way. A relevant organizational space must reflect the dilemma-prone direct interdependence in a complex world that either leads to (1) informally institutionalized, problem-solving cooperation (the instrumental dimension of institutionalization), or (2) mutual blockage, lock-in, and power- and status-based market and hierarchy failure (the ceremonial dimension of institutionalization). Institutionalized cooperation is established as a genuine organizational dimension that generates a third "attractor" in the new organizational space. Thus, an organizational triangle is constructed as a more realistic heuristic device for empirical organizational research. The Organizational Triangle is then tentatively applied in a couple of case studies.
... 2 the fact that unlike biological processes, economic mutations do not appear randomly (Metcalfe 2005). 2 Obviously, they are often the product of a conscious intention. As Witt (2005) explains, changes in an organization are not only conducted by a mere adaptation to external conditions, but also rest on strong internal considerations where hierarchical decisions have an important role to play. This perspective may help to analyze the cognitive and intentional dimensions of change in organizations. ...
This paper aims to analyze learning as a two-type process. A dynamic equilibrium process represents a stable learning process, that may express an individualistic behavioral learning or an organizational adaptation. A teleological process represents an intentional, goal-oriented, learning process. This second type of learning can express an individualistic cognitive learning or a managerial organizational change. It is argued that this learning typology can helps to understand why similar organizations or individuals may learn differently when confronted to the same environmental stimuli.
The development of salient ideas and publications on dynamic capabilities is given, extended by ideas outside the literature of strategic management. Dynamic capability is presented as an interdisciplinary subject to which knowledge is central. Diversity of knowledge is treated in terms of cognitive distance, limited through organisational focus. To deal with diversity, development and uncertainty, evolutionary theory and the notion of entropy are used. The relation between individual and organisational knowledge is modelled with the notion of a script and linguistic ideas. The governance of collaborative relations for innovation is discussed, including trust, which are also dynamic capabilities.
Die evolutorische Ökonomik betrachtet wirtschaftlichen Wandel als Ausdruck langfristiger Neuerungs- und Anpassungsprozesse, die bestehende Entwicklungspotentiale beständig erweitern, und damit eine Selbsttransformation der involvierten Akteure, Strukturen und Prozesse bewirken. Hierbei spielen die Funktion des Unternehmertums und die Figur des Unternehmers eine zentrale Rolle. Im Sinne von Schumpeters Entwicklungstheorie wird der Unternehmer als Treiber kreativer Zerstörung aufgefasst. In der österreichischen Marktprozesstheorie gilt er vornehmlich als Faktor des Wissenswettbewerbs. Die jüngere Evolutionsökonomik greift diese Ansätze auf, um sie in ein genuin evolutionäres Verständnis wirtschaftlichen Wandels einzubetten. Mit dieser Perspektive auf den aktiven Charakter wirtschaftlichen Handelns unterscheidet sich die evolutorische Ökonomik fundamental von der neoklassischen Wirtschaftstheorie.
Die evolutorische Ökonomik betrachtet wirtschaftlichen Wandel als Auswirkung endogener Kräfte, die das bestehende Entwicklungspotential beständig erweitern, und damit die Selbsttransformation der involvierten Akteure und Prozesse bewirken. Hierbei spielt die Figur des Unternehmers eine zentrale Rolle. Im Sinne von Schumpeters Entwicklungstheorie wird er als Akteur kreativer Zerstörung aufgefasst. Analog zur österreichischen Marktprozesstheorie gilt er auch als Faktor des Wissenswettbewerbs. Mit dieser Perspektive auf den aktiven Charakter wirtschaftlichen Handelns in Neuerungs-und Selektionsprozessen unterscheidet sich die evolutorische Ökonomik fundamental von der neoklassischen Wirtschaftstheorie.
Some models in evolutionary economics rely on direct analogies to genetic evolution, assuming a population of firms with routines, technologies, and strategies on which forces of diversity generation and selection act. This narrow conception can build upon previous findings from evolutionary biology. Broader concepts of evolution allow many or just one adaptive entity, instead of necessarily requiring a population. Thus, an institution or a society can also be understood as an evolutionary entity. Both the narrow and broad approaches have been extensively used in the literature, albeit in different literature traditions. I provide an overview of the conception and development of both approaches to evolutionary modeling, and argue that a generalization is needed to realize the full potential of evolutionary modeling.
Evolutionary economics provides a self-organizing, stabilizing mechanism without relying on mechanic equilibria. However, there are substantial differences between the genetic evolutionary biology and the evolution of institutions, firms, routines, or strategies in economics. Most importantly, there is no genetic codification and no sexual reproduction in economic evolution, and the involved agents can interfere consciously and purposefully. This entails a general lack of fixation and a quick loss of information through a Muller’s ratchet-like mechanism. The present contribution discusses the analogy of evolution in biology and economics, and considers potential problems resulting in evolutionary models in economics.
Die gestiegene Dynamik der Wettbewerbsumwelt vieler Unternehmen und die daraus resultierende Unsicherheit und Komplexität für das unternehmerische Handeln sind, nach Grant und Williamson, die Hauptthemen des strategischen Managements. Phänomene, wie die Entwicklung und der Wandel von Unternehmen rücken verstärkt in den Mittelpunkt der wissenschaftlichen Betrachtung, wie Van de Ven und Poole konstatieren. Vor diesem Hintergrund muss die zentrale Fragestellung nach der Entstehung von Wettbewerbsvorteilen laut Houthoofd und Heene neu diskutiert werden. Verschiedene Autoren leiten daraus einen Bedarf für die Entwicklung neuer Erklärungsansätze im strategischen Management ab, welche die veränderten Wettbewerbsbedingungen besser erklären können. Autoren wie D'Aveni sehen die Notwendigkeit, eine neue Denkschule zu entwickeln, die Unternehmen und Unternehmensstrategie aus einer dynamischen Perspektive (dynamic view of strategy) betrachtet. Dieser neue Ansatz wird von Ulrich als „Theorie der Fähigkeiten“ bezeichnet. Beinhocker plädiert für eine Theorie zur Erklärung von Unternehmensführung im Kontext von Komplexität und verfolgt somit eine ähnliche Richtung. Harvey und Jones sehen in der Fokussierung auf organisationale Fähigkeiten, in Verbindung mit den Konzepten zu Wettbewerbsvorteilen, einen der bedeutendsten Ansätze im strategischen Management.
The focus of evolutionary economics is a process of continuous and irreversible economic and organizational change over time. Currently there is no agreement on the explanation of economic evolution.
From the perspective of the history of economic thought, at first the theoretical approaches of Schumpeter and Marshall with regard to economic development or evolution are dealt with in detail. For both authors technical and economic innovations are the engine of economic change. According to Schumpeter, they are created through newly established firms as the agents of change. For Marshall, innovations and economic development are a side effect of the manufacturing process and the division of labour. Technical and economic changes go off both gradually (Marshall) or discontinuously (Schumpeter).
After that, a concept of neo-Schumpeterian evolutionary economics is elaborated. Evolution is understood as a process of change that leads to the adaptation of complex systems, the result of the causal interaction between variation, selection and retention of variety leading to continuity over time. It has gained wide application to the theory of innovation and later to resource-based theories of the firm. Modern evolutionary economics includes the determinants of new knowledge and innovations into its analysis. Business enterprises not only follow their routine behaviour, in a dynamic view they also show capabilities to restructure their given resources and to build new ones. To sum up, technical and economic evolution are both the result of the unintentionalmarket selection through competitive forces of the environment, and of the intentional, voluntary entrepreneurial choices, based on the firm’s resources and dynamic capabilities.
Acquiring the necessary funding from discerning investors and lenders is regarded as a notorious problem for new ventures in Germany. Entrepreneurs' deciding to adjust capital requirements or terminate the fund-raising struggle altogether affect the sustainable growth of new ventures. Yet, entrepreneurship research knows relatively little about the actual course of entrepreneurs' fund-raising attempts during the start-up process. Marc Grünhagen examines the evolution of fund-raising struggles in eleven in-depth case studies of seed and early stage ventures. In particular, the book zooms in on potential influence factors triggering changes in entrepreneurs' fund-raising intentions over time. The empirical analysis offers a novel model of task-specific entrepreneurial intentions and their cognitive antecedents in the context of investors' demands for new venture legitimacy. The findings suggest two core recommendations for supporting growth-oriented fund-raising processes: a) to build legitimizing potential and b) to ensure sufficient financial scope for flexible adaptations throughout the financing struggle. © Gabler | GWV Fachverlage GmbH, Wiesbaden 2008. All rights reserved.
Resumen El objeto del presente artículo es proveer un enfoque sobre la utilización metafórica de la concepción evolucionista desde la teoría darwinista a distintas áreas del conocimiento –ciencias sociales, antropología, sociología, psicología y economía–. Se realiza un análisis teórico de los vínculos que guardan dichas áreas con las organizaciones empresariales, arribando a una fundamentación teórica sucinta de las interrelaciones que tiene la evolución como concepto biológico con la realidad de la empresa. Esta última, como cualquier especie, debe adaptarse al entorno en la contienda por su existencia, además de coevolucionar para aumentar sus probabilidades de sobrevivencia. Por último, se idean ausencias o contradicciones que dilucidan prismas para futuras investigaciones.
Abstract The purpose of this paper is to provide an approach to the metaphorical use of Darwin's evolutionist view in a variety of areas of knowledge –social sciences, anthropology, sociology, psychology and economics. A theoretical analysis of the links between these areas and business organizations is carried out resulting in a succinct theoretical foundation about the interrelationships of evolution, as a biological concept, with the business reality. The latter, like any species, must adapt to the environment in the struggle for existence, and must, in addition, co-evolve in order to increase its chances of survival. Finally, unaddressed aspects or contradictions are pointed out which suggest possible outlooks for future research studies.
Large corporations are invariably structured as formal institutions, and this formality is reflected in organizational charts. These charts depict a multilevel managerial hierarchy of authority within the organization typified, in the simplest case, by a pyramid. Many economic and business researchers attribute formality to a desire for greater efficiency, although I do not take this position in the present paper. Instead, I agree with researchers who connect formality with organizational legitimacy. I further argue that personal interests are at work in bigness and formalization. Top managers are motivated by desire for power and prestige. Formality furthers these objectives by rigidly fixing relations and ranks within the organization. Widespread belief in efficiency and legitimacy converge with personal motives to encourage and entrench formality. Corporate size and structure are seen as having deleterious effects on employees and society at large. But they also have some negative impacts on those at the top.
An evolutionary tool kit is applied in this paper to explain how innate social behavior traits evolved in early human groups. These traits were adapted to the particular production requirements of the group in human phylogeny. They shaped the group members’ attitudes towards contributing to the group's goals and towards other group members. We argue that these attitudes are still present in modern humans and leave their “phylogenetic footprints” also in present-day organizational life. We discuss the implications of this hypothesis for problems arising in firm organizations in relation to the coordination and motivation of organization members.
This chapter stresses the need for research in organizations to reflect the co-evolutionary and complex nature of the changing world we live in today. We argue that key concepts can be abstracted from biological evolution, and used as a starting point for the conceptual development of such approaches. In addition, computational modeling techniques can be used not only as a tool for shaping this conceptual development, but simulating changing behaviors at multiple levels in real organizations. While a number of researchers have developed co-evolutionary accounts of organizational change, these efforts have been constrained by an entity interpretation of the unit of co-evolution. In this latter view, it is assumed that organizations act as vehicles for bundles of routines, being subject to external selection forces only. As a result change occurs largely through the actions of customers or senior executives. We argue that practice-based interpretations offer an alternative approach in the modeling of co-evolution, unpacking the complexity and interconnected agency within and beyond organizations. Building on these conceptual foundations, we outline key conceptual, empirical and ethical challenges in developing related computational models. We argue that such simulation models can be used by managers to help them navigate complex future worlds.
This paper gives an overview of the main elements of a cognitive theory of the firm, and organization more widely, with a focus on innovation. The theory claims that the main purpose of an organization is to align cognition, in a wide sense of perceptions, meanings, interpretations, values and norms of behaviour, thus limiting 'cognitive distance' between people within an organization, in order to achieve coordination. This is done on the basis of an organizational 'cognitive focus' that has a 'competence side' related to capabilities and knowledge, and 'governance side' related to norms and values of conduct. The paper starts with a review of related theories of the firm: the competence view from Penrose, the transaction cost view from Williamson, and the evolutionary view from, in particular, McKelvey and Aldrich. Next comes a note on the relation between the notions of firms and organizations. The paper proceeds with an outline of the underlying theory of 'embodied' cognition, the notions of cognitive distance and organizational focus, inter- and intra industry differences between organizations, organizational boundaries, organization between organizations, and learning and invention.
According to the advocates of a "Generalized Darwinism" (GD), the three core Darwinian principles of variation, selection and retention (or inheritance) can be used as a general framework for the development of theories explaining evolutionary processes in the socioeconomic domain. Even though these are originally biological terms, GD argues that they can be re-defined in such a way as to abstract from biological particulars. We argue that this approach does not only risk to misguide positive theory development, but that it may also impede the construction of a coherent evolutionary approach to "policy implications". This is shown with respect to the positive, instrumental and normative theories such an approach is supposed to be based upon.
This paper provides empirical tests of hypotheses of cooperative behavior provided by evolutionary approaches in the resource-based view of the firm. The influences of “technological proximity”, individual incentives to cooperate and managerial tools to the choice of research partner are analyzed. Using German patent data we can show the positive influence of those three determinants. The results of this paper confirm theories dealing with the path-dependency of research activities.
Employees are motivated intrinsically as well as extrinsically. Intrinsic motivation is crucial when tacit knowledge in and between teams must be transferred. Organizational forms enable different kinds of motivation and have different capacities to generate and transfer tacit knowledge. Since knowledge generation and transfer are essential for a firm's sustainable competitive advantage, we ask specifically what kinds of motivation are needed to generate and transfer tacit knowledge, as opposed to explicit knowledge.
This paper attempts to place the theq of the boundaries of thejirm within the context of the passage of time. More precisely, it resurrects and places in a modem frame some of the insights of the chsical and Marshallian theories of organization. The modem reinterpretation of those theories centers around the 'capabilities' view of the jirm. Taken together with governance costs, the capabilities ofjirm and market determine the boundaries of the jirm in the short run. Ovw time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost-the cost of trandewing the firm's capability to the market w vice versa. These 'dynamic' govern- ance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably txchnological and organizational innovation. In fit, they are the costs of not having the capabilities you need when you need them. Dynamic transaction costs provide an explanation for vertical integra- tion that is arguably more general than those dominant in the literature. In the face of uncertainty and divwgent views ofthe future, common ownership of multiple stages of production is a supwior institutional arrangement for coordinating systemic change. Asset-specrfity is neither necessary nor suffient for this to be true. Dynamic governance costs may also affIt internal organization. It may sometimes be costly-in 3 - terms of persuasion, negotiation and teaching-to create within the firm capabilities _ readily available on the market. Indeed, in cases in which systemic coordination is not 4 the issue, the market may turn out to be the superior institution of coordination. In E 2 genwal, the capabilities view of the jirm suggests that we look atfim2 and market as alternative-and sometimes overlapping-institutions of learning. $ - 8 1. Transaction costs in the long rzln and the short 9 X u Classical and neoclassical perspectives
The beginning of a new millennium provides a welcome opportunity to take stock of the accomplishments, open questions, and most promising research avenues of evolutionary models in management and organization theory. Johann Peter Murmann has invited Howard Aldrich, Daniel Levinthal, and Sidney Winter to appraise the state of the art in evolutionary research and where scholarly efforts should go in the new millennium. The panel also clarified their positions by answering questions that Johann Peter Murmann solicited from the scholarly community in response to the panel's dialogue.
In this book, the editors and a team of distinguished international contributors analyse the nature of organizational capabilities, studying how organizations do things, use their knowledge base, and diffuse that knowledge in competitive environment. Offering both theoretical analysis and detailed evidence from a variety of individual firms and sectors, this book presents insights into the relationship between organizational structures and organizational capabilities, the patterns of accumulation of technical knowledge, and the management of competence‐building in changing markets.
This paper discusses the relationships between stage of development in organizational life cycles and organizational effectiveness. We begin the paper by reviewing nine models of organizational life cycles that have been proposed in the literature. Each of these models identifies certain characteristics that typify organizations in different stages of development. A summary model of life cycle stages is derived that integrates each of these nine models.
Next, a framework of organizational effectiveness developed by Quinn and Rohrbaugh is introduced. This framework organizes criteria of effectiveness into four models—rational goal, open systems, human relations, and internal processes models. We hypothesize that certain of the models are important in evaluating the effectiveness of organizations in particular life cycle stages but not in others. The analysis of a state agency's development over five years provides some evidence to support these hypothesized relationships between life cycle stages and criteria of effectiveness.
We conclude that major criteria of effectiveness change in predictable ways as organizations develop through their life cycles. Some shifts in state of development are resisted by the organization much more than are others, and intervention into organizations may be needed to help make the transitions less painful and costly. We also discuss why the predictions of contingency theory often are not substantiated by research because the responses of organizations to the external environment vary in different life cycle stages.
A comparison of the development of the synthetic dye industry in Great Britain, Germany, and the US. The rise of this industry constitutes an important chapter in business, economic, and technological history because synthetic dyes - invented in 1857 -represent the first time that a scientific discovery quickly gave rise to a new industry. British firms led the industry for the next eight years, but German firms came to dominate the industry for decades before WWI, while American firms played only a minor role during the entire period. This study identifies differences in educational institutions and patent laws as the key reasons for German leadership in this industry. Successful firms had strong ties to the centers of organic chemistry knowledge. The book also argues that a complex coevolutionary process linking firms, technology and national institutions resulted in very different degrees of industrial success for dye firms in the three countries.
Thesis--Yale University. Abstracted in Dissertation abstracts, v.25 (1965) no. 11, p. 6301. Bibliography: leaves 98-101. Microfilm of typescript.
The article compares alternative approaches to the theory of the firm. The two main approaches confronted are the contractual (Coasian) perspective and the competence (evolutionary) perspective. Whereas, the firma as a repository of tacit knowledge is neglected in the contractual perspectives, it occupies center stage in the competence perspective. It is argued that the competence perspective is not only applicable an understanding of the sources of firms' competitive advantage, but may also be applied to the issues of the existence and the boundaries, of the firm. This means that a distinct theory of the firm can be constructed on the basis of evolutionary theory.
The authors attempt to interpret Frank Knight by taking him on his own terms. Among their conclusions are the following: (1) Knight's distinction between risk and uncertainty is not solely a distinction between insurable and uninsurable risk; (2) Knight's explanation for the existence of firms does not reduce to a moral-hazard theory, except perhaps in the broadest and least-interesting sense; and (3) Knight's treatment of the problem of the separation of ownership from control is not as obviously wrong as commentators have made it out to be. Copyright 1993 by Oxford University Press.
Both transaction cost-economics and property-rights theories offer explanations of the boundaries of the firm based on ideas of ex post bargaining and holdup. These theories are quite distinct in their empirical predictions, but neither offers a satisfactory account of a large variety of observed practices. The authors discuss a number of such examples, where the boundaries of the firm seem to be determined by factors other than the need to protect investments, and where other mechanisms than the allocation of asset ownership are used to provide investment incentives. These examples indicate the need to enrich their theory of firm boundaries. Copyright 1998 by American Economic Association.
The authors explore the twin hypotheses (1) that high-performance incentives, worker ownership of assets, and worker freedom from direct controls are complementary instruments for motivating workers, and (2) that such instruments can be expected to covary positively in cross-sectional data. They also relate their conclusions to empirical evidence, particularly that on the organization, compensation, and management of sales forces. Copyright 1994 by American Economic Association.
This book seeks to deepen and broaden the understanding of change in organization populations by examining the dynamics of numbers of organizations in populations. The authors have studied various kinds of organizations, including national labour unions, newspapers and newspaper publishers, brewing firms, life insurance companies, and banks.
In 1937, Ronald H. Coase published The Nature of the Firm, a classic paper that raised fundamental questions about the concept of the firm in economic theory. Coase proposed that the comparative costs of organizing transactions through markets, rather than within firms, are the primary determinants of the size and scope of firms. This volume derives from a conference held in 1987 to commemorate the fiftieth anniversary of the publication of Coase's classic article. The first chapter gives an overview of the volume. It is followed by a re-publication of the 1937 article, and by the three lectures Coase presented at the conference. These lectures provide a lively and informative history of the origins and development of his thought. Subsequent chapters explore a wide range of theoretical and empirical issues that have arisen in the transaction cost economic tradition. They illustrate the power of the transaction cost approach to enhance understanding not only of business firms, but of problems of economic organization generally. Contributors: Ronald H. Coase, Sherwin Rosen, Paul Joskow, Oliver Hart, Harold Demsetz, Scott Masten, Benjamin Klein, Oliver Williamson, and Sidney Winter.
Resource-Based and Evolutionary Theories of the Firm: Towards a Synthesis explores the intersection of evolutionary theories of the firm with an emergent body of research in the field of strategic management that has been broadly referred to as the `resource-based view of the firm'. The volume approaches strategic questions from several vantage points, thereby fostering a useful cross-fertilization of ideas. The views presented spring from a variety of sources, namely the principles of strategic management, organisation economics, and population ecology.
From the Publisher:
This book explains the resurgence of Japan's IC giants, their global status, and their strengths and weaknesses. Empirical scrutiny of their evolution is complemented by the author's own theory of the most appropriate method for studying the dynamics of long-term industrial change. While the Japanese motor vehicle and consumer electronics industries have been relatively well analysed, there are no comprehensive up-to-date studies of the Japanese IC industry. This book addresses the questions consequently left unanswered: How were Japanese IC companies able to catch up with their western rivals - and in some cases overtake them? How have Japanese IC companies responded to the 'post-IBM' world of computing? Why do they remain primarily dependent on the Japanese market? Why do they combine competences in computers, semiconductors, and telecommunications equipment, while their US counterparts are far more specialized? What role has been played by the Japanese government and the system of controlled competition in their success? Will Japanese IC companies become increasingly competitive internationally in the future? The author extends the evolutionary approach to the organization of the firm and industry developed by such writers as Schumpeter, Nelson, Winter, and Chandler. He argues that in order to understand the evolution of companies and industries, it is necessary to create a theory of the firm capable of encompassing the development of real firms in the real world in real time. This approach stresses the importance of the beliefs that are constructed in the firm under conditions of 'interpretive ambiguity', which guide the firm's decisions and its reactions to new technologies. These concepts are illustrated by lengthy analyses of NEC and NTT, and of the computing, switching, and optical fibre industries.
Comparisons between not only alternative hypotheses, but also between alternative theories (sets of hypotheses), have long
been an integral — if often somewhat disappointing — feature of economic discourse. For example, the argument that one theory
is merely a special case of some more general theory has often been used. Another argument is that two seemingly opposed theories
can be shown to be consistent in the sense that they can both be reduced to some overarching, general theory. These discussions
are relevant and interesting, because one general way (among many) in which science may progress is precisely that seemingly
different and even antagonistic theories are demonstrated to be consistent in some sense (Laudan, 1977).
This book discusses the development of a theory on the growth of the firm. It is shown that the resources with which a particular firm is accustomed to working will shape the productive services its management is capable of rendering. The experience of management will affect the productive services that all its other resources are capable of rendering. As management tries to make the best use of the resources available, a ‘dynamic’ interacting process occurs which encourages growth but limits the rate of growth.
In this book, the editors and a team of distinguished international contributors analyse the nature of organizational capabilities, studying how organizations do things, use their knowledge base, and diffuse that knowledge in competitive environment. Offering both theoretical analysis and detailed evidence from a variety of individual firms and sectors, this book presents insights into the relationship between organizational structures and organizational capabilities, the patterns of accumulation of technical knowledge, and the management of competence‐building in changing markets.
There are not many books that are genuine classics, and only a handful in business and management whose insights and ideas last for 50 years and more. This book is one of the very few 'must reads' for anybody seriously interested in the role of management within the firm. Originally published in 1959, The Theory of the Growth of the Firm has illuminated and inspired thinking in strategy, entrepreneurship, knowledge creation, and innovation. Edith Penrose's tightly-argued classic laid the foundations for the resource based view of the firm, now the dominant framework in business strategy. She analyses managerial activities and decisions, organizational routines, and also the factors that inevitably limit a firm's growth prospects. For this new anniversary edition, Christos Pitelis has written a new introduction which both tells the story of Penrose's extraordinary life, and provides a balanced assessment of her key ideas and their continuing relevance and freshness.
Computers, telecommunications equipment, semiconductorsthe products and technologies of the information and communications industry (IC)have transformed our world. Most of these products were initially developed in Western countries, but by the early 1990s some of the world's largest companies in the field were Japanese. This book explains the resurgence of Japan's IC giants, their global status, and their strengths and weaknesses.Empirical scrutiny of their evolution is complemented by the author's own theory of the most appropriate mehtod for studying the dynamics of industrial change. The author argues that in order to understand the evolution of IC companies and industries, it is necessary to create a theory of the firm capable of encompassing the development of real firms in the real world in real time. This approach stresses the importance of the beliefs that are constructed in the firm under conditions of 'interpretive ambiguity', which guide the firm's decisions and its reactions to new technologies. Lengthy analyses of NEC and NTT (by far the world's largest company in terms of market value; its future currently under government scrutiny), and of the computing, switching, and optical fibre industries, illustrate these concepts. Based on over 600 interviews over eight years with Japanese leaders, this book provides important new material on the past, present, and future of Japanese industry. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0198289359/toc.html
Different from the prevailing staticperspective in the theory of the firm, adevelopmental approach focuses on processes ofchange in firm organizations (rather than onstates and their properties). Although businesshistory provides ample evidence for systematicorganizational change, few contributions in theliterature take a developmental viewpoint andoffer explanations for the endogenous processesof change. To contrast static and developmentalinterpretations, the paper identifies threeparadigmatic questions for each of them. Theircomparison sheds some new light on the theoryof the firm and draws attention to theneglected entrepreneurial role inorganizational change.
Bounded rationality prevents humans from tracing all action plans that could, in principle, be imagined. In the present paper, individuals' partly socially-shaped cognitive frames explain which action plans do gain attention. This provides the basis for a new entrepreneurial theory of the firm where `business conceptions,' which underlie any entrepreneurial venture, play a key role. Coordination and motivation of the firm members can be achieved – and opportunism be held down – if through `cognitive leadership' the entrepreneur succeeds in implementing and defending his own business conception as a tacit cognitive frame collectively shared within the firm.
The influence of history on an organization is a powerful but often overlooked force. Managers, in their haste to build companies, frequently fail to ask such critical developmental questions as, Where has our organization been? Where is it newt and What do the answers to these questions mean for where it is going? Instead, when confronted with problems, managers fix their gaze outward on the environment and toward the future, as if more precise market projections will provide the organization with a new identity. In this HER Classic, Larry Greiner identifies a series of developmental phases that companies tend to pass through as they grow. He distinguishes the phases by their dominant themes: creativity, direction, delegation, coordination, and collaboration. Each phase begins with a period of evolution, steady growth, and stability, and ends with a revolutionary period of organizational turmoil and change. The critical task for management in each revolutionary period is to find a new set of organizational practices that will become the basis for managing the next period of evolutionary growth. Those new practices eventually outlast their usefulness and lead to another period of revolution. Managers therefore experience the irony of seeing a major solution in one period become a major problem in a later period. Originally published in 1972, the article's argument and insights remain relevant to managers today. Accompanying the original article is a commentary by the author updating his earlier observations.
This paper provides a framework for addressing the question of when transactions should be carried out within a firm and when through the market. Following Grossman and Hart, we identify a firm with the assets that its owners control. We argue that the crucial difference for party 1 between owning a firm (integration) and contracting for a service from another party 2 who owns this firm (nonintegration) is that, under integration, party 1 can selectively fire the workers of the firm (including party 2), whereas under nonintegration he can "fire" (i.e., stop dealing with) only the entire firm: the combination of party 2, the workers, and the firm's assets. We use this idea to study how changes in ownership affect the incentives of employees as well as those of owner-managers. Copyright 1990 by University of Chicago Press.
This paper explores the relationship between increasing returns and structural change in the context of an explicitly evolutionary model. The central theme concerns the behaviour of a population of competing firms which is elaborated in terms of Fisher's Principle, the rate of change of the moments of this population distribution are functionally related to higher order moments of the distribution. Different kinds of increasing returns are distinguished and it is shown how they influence the dynamics of selection. The basic principles here are those of replicator dynamic systems and it is shown how the Fisher Principle interacts with the more familiar Kaldor/Verdoorn principles of endogenous growth.
Standard transaction cost economics (TCE) considers transactions from the perspective of static efficiency. Increasingly, attention is required to dynamic efficiency; to capabilities to exploit transaction relations for innovation. Since innovation is dependent on knowledge and learning, the step from the statics to the dynamics of exchange requires an understanding of the development and acquisition of knowledge, preferences, and meaning, and the role in that of interaction between transaction partners. As a step towards this, the article provides an exploration of theories of knowledge and knowledge development, the relation to language, the role of intersubjective relations, the connection with evolutionary theory and the implications for transaction cost theory.
This paper discusses the notion of development in firm organizations on the basis of a comparison with ontogenetic phenomena in nature and offers a behavioral foundation that highlights in particular the impact of bounded rationality, cognition and social learning. On this basis the paper explores the role of entrepreneurship and its cognitive underpinnings, particularly with regard to the nucleus (multi-person) firm, i.e. a newly started entrepreneurial business. If the entrepreneurial venture is successful and grows, the increasing business volume requires that the firm organization also be expanded. Its size then sooner or later reaches a stage where the cognitive underpinnings of the firm change qualitatively in a way that forces the firm into major restructuring. At this point developmental paths can branch off in quite diverse directions, some of which are briefly highlighted. Copyright 2000 by Oxford University Press.
The recent decade has witnessed a strong expansion of work on the firm, both from a capabilities perspective and from a contractual perspective. These two bodies of theories are often thought to be fundamentally different, because their domains of applications are different (knowledge-accumulation vs contracts and incentives). However, we need to integrate propositions from capabilities perspectives with ideas about economic organization (markets, hybrids, firms). This is because only a more unified theory will allow us to understand such issues as the dynamics of the modern corporation, and, more topically, the costs and benefits of outsourcing. I discuss the relations between these two bodies of theories. It is possible to argue in favor of a relation of complementarity between the two and pursue a research strategy on this basis. However, it is also possible two claim that they are rivals. Along this line, it is argued that the capabilities perspective contains propositions about economic organization that are not to be found within the modern Coasian approach to economic organization, and thus may be seen as a distinct emerging perspective on economic organization.
Multiproduct firms are perceived to be coherent in their scope, yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory. This paper shows that as U.S. manufacturing firms grow more diverse, they maintain a constant level of coherence between neighboring activities. This finding runs counter to the idea that firms with many activities are generally more ‘incoherent’. A framework is then presented which appeals to the nature of enterprise learning, path dependencies, and the nature of the selection environment to explain the ubiquity of coherent diversifiers.
In my book Scale and Scope (1990), I focused on the history of the modern industrial firm from the 1880s, when such firms first appeared, through World War II. I did so by comparing the fortunes of more than 600 enterprises—the 200 largest industrial firms at three points in time (World War I, 1929, and World War II) in each of the three major industrial economies (those of the United States, Britain, and Germany). In this paper, I first describe the similarities in the historical beginnings and continuing evolution of these enterprises and then outline my explanation for these similarities. Next, I relate my explanation of these "empirical regularities" to four major economic theories relating to the firm: the neoclassical, the principal-agent, the transaction cost, and the evolutionary. Finally, I suggest the value of the transactions cost and evolutionary theories to historians and economists who are attempting to explain the beginnings and growth of modern industrial enterprises.