What Firms Do? Coordination, Identity, and Learning

Abstract

Firms are organizations that represent social knowledge of coordination and learning. But why should their boundaries demarcate quantitative shifts in the knowledge and capability of their members? Should not knowledge reside also in a network of interacting firms? This line of questioning presents the challenge to state an alternative view to the “theory of the firm,” a theory that has moved from Coase's early treatment of what firms do to a concern with ownership, incentives, and self-interest. We return to Coase's original insight in understanding the cost and benefits of a firm but based on a view that individuals are characterized by an “unsocial sociality.” Does the perception of opportunism generate the need to integrate market transactions into the firm, or do boundaries of the firm lead to the attribution of opportunism? This basic dichotomy between self-interest and the longing to belong is the behavioral underpinning to the superiority of firms over markets in resolving a fundamental dilemma: productivity grows with the division of labor but specialization increases the costs of communication and coordination. The knowledge of the firm has an economic value over market transactions when identity leads to social knowledge that supports coordination and communication. Through identification, procedural rules are learned, and coordination and communication are facilitated across individuals and groups of diverse specialized competence. A firm is distinct from a market because coordination, communication, and learning are situated not only physically in locality, but also mentally in an identity. Since identity implies a moral order as well as rules of exclusion, there are limitations and costs to relying upon a firm for exchange as opposed to the market. These costs are not necessarily those traditionally assigned to the category of decreasing returns to hierarchy. For example, an identity implies that some practices, and businesses, may be notionally inconsistent with each other. Norms of procedural justice that are identified with a firm imply that not all technically feasible complements are permissible within the logic of a shared identity. There is consequently a cost to an identity that offsets the benefits. Because the assemblage of elements that compose an organization are subject to requirements of consistency, identities rule out potentially interesting avenues of innovation and creativity. We illustrate these ideas by returning to the original prisoners’ dilemma game and by an analysis of the coherence of a firm as a search for complements that are consistent with norms of procedural justice. We argue that the underlying dynamic of a prisoners' dilemma game reveals the problems of coordination, communication, and conflicts in norms of justice when players are deprived of social knowledge and shared identity. Similarly, the determination of a firm's coherence arises out of the demand for a moral and notional consistency in the “categorization” of its activities, as opposed to a technological necessity. These ideas are illustrated through an empirical examination of logical complements in high performance work systems.

Integrating Acquired Capabilities: When Structural Integration is (Un)Necessary

“…coordinate effectively (Galbraith, 1977;March & Simon, 1958;Thompson, 1967). In addition to the impact on the formal systems and procedures of the organization, structural form also shapes over time the emergence of informal organizational processes that aid knowledge transfer, such as the creation of common ground, informal communication channels and group identity (Camerer & Knez, 1996;Ibarra, 1993;Kogut & Zander, 1996;Krackhardt, 1990;Moran & Ghoshal, 1996). These effects may be strengthened if structural integration also results in collocation.…”

“…This study also highlights the contrast between formal measures to coordinate interdependence (such as structural integration) and informal coordination based on common ground. Several scholars have argued that common knowledge aids coordination (Becker & Murphy, 1992;Camerer & Knez, 1997;Postrel, 2002), and that common ground within the firm may be a basis for its coordination advantages over the market (Demsetz, 1988;Kogut & Zander, 1996). However, common ground as a means of coordination is salient in the context of technology acquisitions because of the significant costs of disruption that formal coordination mechanisms -such as structural integrationimpose.…”

Pesquisa em Marketing e Estratégia nos Principais Periódicos Internacionais: Um Estudo Bibliométrico sobre Publicações no Século XXI

“…Barney (1986) (Grant, 1996) capacidades dinâmicas (Teece, Pisano & Shuen, 1997). A visão baseada no conhecimento é uma extensão da VBR ao definir que empresas também produzem conhecimento, que é heterogêneo entre empresas de um mesmo setor e que se constitui num recurso estratégico e sustentável (Kogut & Zander, 1996;Zander & Kogut, 1995). Cohen e Levinthal (1990) introduziram o conceito de capacidade absortiva para a capacidade de uma empresa em reconhecer o valor de informações novas, assimilá-las e aplicá-las para obtenção de desempenho superior.…”

Shareholders Should Welcome Employees as Directors

“…Numerous suggestions have been made as to how the efficiency of the boards could be improved, but only a few of these suggestions have taken into account what is today common understanding in the strategic management literature, namely that the key task of firm governance is to generate, accumulate, transfer and protect valuable knowledge and capability (e.g. Penrose 1959;Rumelt 1984;Teece et al 1977;Kogut & Zander 1996;Spender 1996). In particular, agency theory, as the main approach in the corporate governance discussion, has disregarded knowledge work aspects.…”

“…As has been widely discussed in the knowledge based theory of the firm (e.g. Grant 1996;Kogut & Zander 1996;Nonaka & Takeuchi 1995;Spender 1996), sustainable, hard to imitate competitive advantages need firm-specific investments in knowledge capital. In contrast to physical work, knowledge work cannot be contracted ex ante when the parties enter a relationship.…”