Micro-Foundations at the Rotterdam School of Management

28 November 2008 at 8:48 am 15 comments

| Nicolai Foss |

We have blogged extensively on “micro-foundations” here on O&M (particularly in those Golden Days of O&M when the present blogger was more active). The micro-foundations theme seems to be gaining a lot of ground in management recently. About two years ago I had a paper on the subject rejected from a leading management journal because the reviewers and the editor argued that the micro-foundations theme was essentially non-controversial and scholars handled it in a pragmatic manner — i.e., there was no need to raise it as an issue. That same editor, I hear, is now actively talking about the pressing need for micro-foundations in management ;-) This reflects an increasingly widespread discourse on the subject. At the recent Strategic Management Society Conference in Köln micro-foundations were explicitly discussed in several of the PDWs, in David Teece’s keynote speech, in the keynote panel that I participated in, and in lots of paper sessions.

The work of Teppo Felin and I on the micro-foundations issue (e.g., here) has been particularly taken up with the lack of clear micro-foundations in the dominant capabilities view of the firm and strategy. Back in 2005 Teppo and I organized a two-days conference in Copenhagen on the subject. Koen Heimeriks, then an Assistant Professor at Copenhagen Business School, is organizing something like a follow-up conference at the Rotterdam School of Management where he is now an Assistant Professor. Keynote speakers are Sid Winter, Maurizio Zollo, and yours truly. Here is the homepage for Koen’s conference. Koen is a very good and meticulous conference organizer, the subject is inherently interesting, so please submit a paper!

Entry filed under: - Foss -, Management Theory. Tags: .

Some Interesting Working Papers Pay For Performance, Robert Rubin Edition

15 Comments Add your own

  • 1. Marc Benoit  |  28 November 2008 at 5:21 pm

    What is original in the observation that “microfoundations” are important for firms and competitive advantage? Maybe for someone who believed in the “resource-based” view or “capabilities” it is a revolutionary insight, since the former two concepts offer little guidance for managers and entrepreneurs. To write that microfoundations are important for strategic management is a mere tautological statement. I also find that the notion of “explanation” in your paper is beyond the reality of your paper.

  • 2. Nicolai Foss  |  28 November 2008 at 5:39 pm

    Mr. Benoit:
    It is “original” in the sense that very few have hitherto argued the need for such micro-foundations.
    I didn’t say it was “revolutionary.”
    No, it is not “tautological” to say that micro-foundations are important for strategic management. Why would it be tautological??
    What do you mean with this sentence: “the notion of ‘explanation’ in your paper is beyond the reality of your paper.” I can make no sense of it.

  • 3. Marc Benoit  |  28 November 2008 at 6:19 pm

    Well, “very few” is slightly misleading. The whole discipline of microeconomics is, essentially, about “microfoundations”. A look in every introductionary microeconomics book readily reveals that “microfoundations” are obviously important for firms and competition. It is tautological because the insight that “microfoundations” influence firm-level outcomes and thus competitive advantage is true by its logical form alone. As for the part about “explanation”, you assert in your paper, among other things, that you offer an explanation “how microfoundations…impact firm performance.” But you actually do not explain it.

  • 4. Nicolai Foss  |  29 November 2008 at 2:26 am

    You obviously haven’t understood the context of the microfoundations discussion here. I am talking in the post and in various papers about management research (as indicated by the second sentence in the post). Of course, I completely agree with you on that microecon is about microfoundations. But why state such a platitude which we all know and which isn’t at issue here?
    It is not tautological because the case could be argued (in fact has been argued) that we don’t need to pay attention to micro, e.g., because individuals are entirely malleable by context.
    If you read the the paper by Abell, Felin & Foss a bit more carefully than you have been reading my post, you will find that it does have performance implications.

  • 5. Marc Benoit  |  29 November 2008 at 9:50 am

    It is obvious that the intended context is “management research.” But if you take a statement, such as that “microfoundations” are important for firms and competitive advantage, which has already been shown to be true in economics and you place it in a “management context”, the statement as such is unaltered and still true and sadly you have not come up with an original finding. As for your philosophically inspired defence, suppose your “microfoundations” are denoted ‘A’, and you have a firm, denoted ‘B’, surrounded by other firms (say its competitors) denoted ‘C.’ We know that B is, by its nature, logically dependent on A, and that if B changes it has consequences for its relationship with C. It hence follows that your statement that A influences B, and subsequently C, is always true by its logical form alone, and is hence tautological. And, much to my regret, you still have not explained “how microfoundations…impact firm performance.”

  • 6. Nicolai Foss  |  29 November 2008 at 10:30 am

    OK .. there are lots of issues here. For example, it is really up to discussion whether your explicit starting poiint here, i.e., that microfoundations are important for competitive advantage “has already been shown to be true in economics”. What exactly do you have in mind? Our best “micro-“theories of firms in economics are not about competitive advantage (but about economic organization).

    The micro-foundations project in management is first and foremost a claim that our research strategies should change: We should explicitly account for the beliefs, prefences, heterogeneity etc. of individuals — which we don’t really do in most of strategic management (and organizational theory and international business etc etc). Calling this a “tautology” is just a misnomer. It is about research heuristics.

    This is of course based on the conjecture that new insights will emerge, e.g., on the relative contributions to firm-level competitive advantage of firm-level vis a vis individual level, on how interaction produces such collective level phenomena such as capabilities, etc. — things we are fundamentally ignorant about.

    You explicitly claimed that there are no implications for firm performance of micro-foundations in a specific paper — which is n’t correct. Now you relate that claim to the tautology issue (which is a non-issue). Tsk-tsk.

  • 7. Marc Benoit  |  29 November 2008 at 1:58 pm

    I understand that there are lots of issues. So why not be more specific and conclude our conversation by simply answering the following two simple questions:

    1. In your paper you define micro-level as “individual action and interaction.” You go on to point out, among other things, that microfoundations are important for firms and to explain “firm-level outcomes.” Do you propose that this relationship has not been demonstrated to be true in the microeconomics literature?

    2. Essentially, the point of your paper is to demonstrate why “micro-foundations” (i.e. “individual action and interaction”) are necessary and important to understand firm performance. Do you claim that this is an original insight?

    As for (1): I would argue, as pointed out previously, that only because you place the above statement in a management context, does not make it original and that it has been demonstrated to be true already (cf. any introductionary microeconomics text book)

    As for (2): I argue that this is a tautological insight and that your paper fails to explain how individual action and interaction impact firm performance.

    PS: While it is not terribly important for the discussion, unfortunately, I am a bit puzzled by your last paragraph

    (“You explicitly claimed that there are no implications for firm performance of micro-foundations in a specific paper — which is n’t correct. Now you relate that claim to the tautology issue (which is a non-issue)”)

    I never wrote that there are “no implications for firm performance of micro-foundations in a specific paper.” What exactly are you referring to?

  • 8. tf  |  29 November 2008 at 3:33 pm

    Marc: I may be biased, but, I have absolutely no idea what you are chasing after here.

    If geneticists discover that genes matter, then that does not somehow obviate a sociologist making a genetic contribution to their respective field (there’s a recent special issue in American Journal of Sociology on this exact topic). I don’t think that using genetics in sociology, by way of an example, even then somehow makes the scientific contribution lesser or more derivative in nature — the questions and foci of each respective field are different, though they obviously also inform each other.

    So — what is wrong with saying that strategy research has lacked microfoundations — either it has or hasn’t, and there are important contributions to be made in bringing in a variety of micro intuition. Sure, perhaps some of this micro intuition builds on, say, microeconomics or psychology or sociology — but, its not necessarily, at all, a direct importation but rather a unique contribution focusing on different sets of questions.

    Marc: What area do you do research in?

  • 9. Marc Benoit  |  29 November 2008 at 6:01 pm

    @tf: As for your genetics example. I do not object if somebody takes a finding or model from one discipline and tries to apply it to another discipline. However, it strikes me as intellectually questionable if you take a finding (from one discipline), apply it to another discipline, but then suggest to have found the original finding you were using in the first place. This is what my first question in post #7 refers to.

    Likewise, only because “strategy research” has supposedly not explicitly stated that “microfoundations” are important for firms does not make it automatically original, because research in other “disciplines” has already found this relationship to be true. It is also not original to discuss a tautological finding (cf. the second question in post #7).

    In essence, I therefore object to claims of originality that are unfounded, sweeping generalisations, and dubious explanations.

  • 10. Marc Benoit  |  29 November 2008 at 6:05 pm

    PS: “I may be biased, but, I have absolutely no idea what you are chasing after here.” Read the paper mentioned in the posts above. If you do not have any objections, good for you. If you have objections, please post them here, it will be informative to the authors and readers.

  • 11. tf  |  29 November 2008 at 7:55 pm

    Marc: well, originality and contribution might be in the eye of the beholder (e.g., TCE has been considered tautological and non-original). And, nothing really gets built ex nihilo.

  • 12. Marc Benoit  |  29 November 2008 at 10:25 pm

    @tf: Well, originality can indeed be a tricky subject. But the above posts do provide a much richer picture of why some concern and objection with regard to the original post and the mentioned paper are appropriate; after all scientific standards exist for a reason, which leave little room for “eye in the beholder” statements. And I can only repeat that I never objected to the academic practice to build on existing knowledge. As I said, it is entirely up to you. You can indulge in your bias, although it is not obvious why you should be biased in this case, or you can critically read the paper and post your impressions here.

  • 13. tf  |  30 November 2008 at 2:51 am

    Marc: Well, there’s probably a deeper epistemological point here as well — you might walk into many disciplines and lob a bomb and say that what is happening there is truly uninteresting and obvious; but, some of this might be dependent on the state of the field and its current conversations, foci, etc (hmm, that is a hopelessly Kuhnian argument).

    And, the reason I highlighted TCE was b/c its points just seem so obvious — like the Earth circling the Sun — yet, in retrospect, obviously true but also important.

    So, if the capabilities literature says that org capabilities are largely collective-level constructs (with associated assumptions of micro homogeneity, etc: see Spender, Cockburn, Kogut, Nelson/Winter, etc)) and an essay is written that challenges that assertion, well, then, does the essay move the discussion forward?

    A similar ‘Methodenstreit’ existed between German Historicism and Austrian Economics as well, should we largely proceed from methodological individualism or collectivism. It sounds like for you the former is a self-evident truth, but note that this is scarcely the case for many literatures, including the one cited above.

    [In the interest of full disclosure, I obviously am sympathetic to the cause and a contributor to it.]

  • 14. Marc Benoit  |  30 November 2008 at 5:12 pm

    I see, now I know what tf stands for. In any case, your analogies (TCE and the earth/sun example) are, unfortunately, unhelpful. I did not criticise the fact that your proposed findings are obvious, in the sense that it represents reality everybody can now see but nobody ever stated. It is obvious because the proposed contributions re-state findings that already existed (e.g. that “microfoundations” are important for firms). It also has nothing to do with a “Methodenstreit.”

    Now, I understand that your paper has been published, at least two people in your field, apart from the authors, agreed that is worth publishing, and you are obviously, as noted, “sympathetic to the cause.” But what is the point of the paper? Firms and “microfoundations” have been studied for quite some time. That does, of course, not mean that everything about the two fields is known, especially in the latter case it is likely that some things will never be known. But how have you contributed to knowledge? Only because you use fancy terms (“capabilities” or “strategic management” come readily to mind) and link them to “microfoundations” does not mean that the underlying enquiry is original, as defined above. In your paper you claim to make methodological and theoretical contributions. I can see neither. Of course, if you intentionally define your “discipline” so narrow that research, which does not use your preferred terms (“capabilities”, etc.) but that has studied the underlying question, does not count, then everything you do is original and important.

    But why fool yourself. You cannot seriously claim that the insight that individual action and interaction are important for firms and “firm-outcomes” (which essentially is the message of your paper) is new knowledge.

    [For full disclosure: I do not know the authors, I have never posted on this blog, and I am still undecided whether or not I want to be a strategic management researcher, an organizational researcher, or just a professor in management]

  • 15. tf  |  30 November 2008 at 5:35 pm

    Marc:

    OK, well, since capabilities and strategy are “fancy words,” that illustrates that we indeed are talking past each other.

    (Williamson has a nice 1999 Strategic Management Journal piece that might introduce you to some of this vocabulary; other fundamentals include work by Porter, Rumelt, Teece and indeed Nicolai, or past O&M contributors like Mahoney, as well as excellent work by Langlois.)

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