Entrepreneurship and the Established Firm: A Call to Arms

| Nicolai Foss |

Frequent readers of this blog will know that we (well, some more than others [ahem]) tend to obsess about the proper conceptualization of entrepreneurship, such as whether “opportunity” is a useful construct in the context of entrepreneurship research, and whether this, heavily expanding, research field is best off by thinking of entrepreneurship in terms of “opportunity discovery.” In this brief essay, just published in Strategic Organization, Dr. Jacob Lyngsie (Dept of Strategic Management and Globalization, Copenahgen Business School) and I discuss how the emphasis on opportunity discovery in the literature is accompanied by a neglect of entrepreneurship in the established firm and a tendency to think of entrepreneurs as individuals (rather than teams) (similar themes are discussed in the recent Foss and Klein volume, Organizing Entrepreneurial Judgment). We call for a research effort that systematically deal with how entrepreneurial established firms organize a division of entrepreneurial labor, and on how administrative machinery can be deployed inside firms to foster the motivation, opportunity and ability that drive entrepreneurial behaviors.

26 August 2014 at 11:39 am 4 comments

Theories of the Firm

| Peter Klein |

At the recent Academy of Management conference in Philadelphia I was pleased to participate in a pre-conference workshop organized by Paul Drnevich, Larry Tribble, and David Croson, “Theories and Their Words: A Cross-Academy Discussion of Perspectives on Value Creation and Capture.” From the blurb:

In this workshop a panel of senior and emerging scholars provides a forum to examine and discuss the roles and implications of several prominent management theories and their differing terminology for creating and capturing value. Our distinguished panelists will provide an overview of the value implications of several well-known foundational theories of the existence and purpose of business organizations: Transaction Cost Economics (TCE), Property Rights Theory (PRT), the Capabilities and Resource-based View (RBV), and Industrial Organization (IO), discuss challenges often encountered in efforts to integrate these theories and their terminology, and explore commonalities and intersections across these perspectives that may yield opportunities for future research. We provide perspectives from the distinguished scholars as a means of clarifying how each theory explains the core concepts of value creation and value capture, without which a sustainable business cannot exist. We then offer a discussion of points of commonality and integration of the theories around value creation and value capture with an open forum Q&A session with the presenters regarding directions for future research. We conclude with round-table breakout discussions, each led by a senior scholar and focused on a specific aspect of the theory they presented for more detailed discussion of future research in that theoretical stream.

The presentations from the workshop are online here. You may find them interesting for for research and for teaching. My own presentation on strategy and transaction cost economics covered the basics of TCE and asked if TCE is really a theory of strategy (short answer: no and yes).

25 August 2014 at 8:24 am Leave a comment

Debating Microfoundations, Euro-style

| Nicolai Foss |

As readers of this blog will know, probably to a nauseating extent, microfoundations have been central in much (macro) management theory over the last decade. Several articles, special issues, and conferences have been dedicated to microfoundations, most recently a Strategic Management Society Special Conference at the Copenhagen Business School. Some, uhm, highlyspirited exchanges have taken place (e.g., AoM 2013), with proponents of those foundations being accused of economics imperalism and whatnot, and critics of microfoundations receiving push-back for endorsing defunct Durkheimian collectivism (an obviously justified criticism). Here is recent civilized exchange on the subject between Professor Rodolphe Durand, HEC Paris, and myself. Complete with heavy Euro accents of different origins. 

21 August 2014 at 6:13 am 12 comments

History Lesson: 200 Years of Management, uhm, Thought

| Nicolai Foss |

OK, surely you have come across those timelines featuring the great economists, á la Aristotle-the Spanish Scholastics–William Petty-Cantillon-Smith-Ricardo-Say-Menger-Wicksteed-Marshall-Mises-Hayek-Boettke-Langlois-Klein-etc. Here is a similar timeline with the Greats of management theory, 1800-2000 (Lien seems to be missing, however). Many of the names of those management types are clickable, taking you to e.g. their wikis. Fun brush-up, and may be good for students. 

17 August 2014 at 8:19 am 5 comments

Evaluating New Ideas: Looking Across and Looking Beyond

| Nicolai Foss |

Those of us who have experience with research councils and other funding bodies with expert evaluations of the submitted research are familiar wilth folklore, such as “When evaluating economists routinely smash non-economics projects,” “sociologists are a total incrowd and will not tolerate any application of rational choice method, serious econometrics or common sense,” etc. Of course, this is part of the various conspiracy theories about how, notably, economists seek to establish intellectual hegemony.

However, the folklore may be wrong. In a new paper, “Looking Across and Looking Beyond the Knowledge Frontier: Intellectual Distance and Resource Allocation in Science,” Kevin Boudreau, Eva Guinan, Karim Lakhani and Christoph Riedl look at the grant proposal process at a major research university and show that evaluators tend to treat proposals more harshly the closer they were to their own areas of expertise. However, evaluators also treat highly novel proposals negatively. Taking issues of ecological and external validity into account, there are obvious implications for the understanding of the nature of the exploitation/exploration tradeoff: There may indeed be a bias against exploring in the domains of highly novel ideas (as predicted by the literature), but the harsh evaluation of new, but well understood ideas may mean that there is a domain of relatively novel and less well understood ideas within which firms will explore. 

17 August 2014 at 2:16 am 3 comments

Making Money from Behavioral Social Science?

| Peter Klein |

Longtime readers of this blog expect skepticism about behavioral social science. One of my issues is the assumed, but unexplored, assumption that private actors and market institutions cannot deal with behavioral anomalies, and therefore government intervention is necessary to make people act “rationally.” But if we can really improve health outcomes by putting the chocolate cake behind the carrot sticks in the display case, why wouldn’t profit-seeking entrepreneurs exploit this fact? Consumers pay substantial price premiums for organic produce, grass-fed meats, and other healthy products, even when the purported health benefits are long-term and uncertain. Wouldn’t some patronize the behavioral-economics-influenced grocer? “Our shelves are arranged to encourage healthy food choices.” Add earth tones, hipster music, an onsite juice bar, and the place will make as much money as your local Whole Foods.

To be a little less flippant: consider adverse selection theory. Many people misread Akerlof’s famous paper as a call for government regulation of used-car markets (or, worse, as a demonstration that used-car markets can’t exist). In fact, as Akerlof states plainly in the original piece, his theory explains the existence of private assurance mechanisms such as warranties, third-party certification, quality signalling, and the like.

A recent Forbes piece puts it this way: How do you make money by helping mitigate behavioral anomalies? Cognitive biases “have been accepted into the mainstream of economics and pop culture, particularly since the recent publication of popular books such as Richard Thaler and Cass Sunstein’s Nudge, Dan Ariely’s Predictably Irrational, and Daniel Kahneman’s Thinking, Fast and Slow. Even so, relatively few companies have attempted to use behavioral economics to try to change people’s behavior around overeating, smoking, or other bad habits many are desperate to break.” The focus is on the diet company StickK, which takes advantage of loss aversion (pun intended) to help people achieve weight and other goals. 

StickK is a cool site, and I hope it is successful. But, if behavioral theory is so powerful and general, why aren’t more entrepreneurs taking advantage of it?

13 August 2014 at 2:42 pm 7 comments

Microeconomics of Central Banking

| Peter Klein |

I have a chapter in a new book edited by David Howden and Joseph Salerno, The Fed at One Hundred: A Critical View on the Federal Reserve System (New York: Springer, 2014). My chapter is called “Information, Incentives, and Organization: The Microeconomics of Central Banking,” and builds upon themes discussed many times on this blog, such as Fed independence. Here is a SSRN version of the chapter. The book comes out next month but you can pre-order at the Amazon link above.

2 August 2014 at 8:42 am 2 comments

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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