| Nicolai Foss |
In a SOapBox Essay in 2005, Teppo Felin and I called for “micro-foundations” for macro management theory, specifically the dominant routines and capabilities (etc.) stream in strategic management. (check Teppo’s site for the paper, commentaries by Jay Barney and Bruce Kogut, and various other Felin & Foss papers on the subject). We thought our argument was fairly simple, not really that novel (economists have been talking about micro-foundations for decades), and “obviously true.” Yet, the argument was apparently provocative (or, perhaps more correctly, our formulation of it was…), and it met with considerable hostility. For example, the DRUID 2008 conference in Copenhagen featured a panel on micro-foundations with opposing sides represented by Sidney Winter and Thorbjørn Knudsen, and Peter Abell and yours truly, respectively. I remember seeing several (extremely) prominent management scholars shaking their heads in disbelief about the folly of micro-foundations. (The debate, though not the head-shaking, can be accessed through the DRUID site).
And yet, 7 years later the micro-foundations project appears to have met with general acceptance, although it is sometimes referred to as the “Foss Fuss,” by at least one very prominent contributor to our field. In fact, some of the head-shaking persons from DRUID 2008 now themselves talk about micro-foundations. Both Sid Winter and Thorbjørn Knudsen (not headshakers) now embrace micro-foundations–albeit of the “right” kind (e.g., behavioralist and informed by neuroscience and experiments). Papers in leading journals have “micro-foundations” in the title. Specific examples: :
- The Journal of Management Studies just published a special issue on “Micro-origins of Routines and Capabilities,” edited by Teppo, me, Koen Heimeriks, and Tammy Madsen, and featuring contributions by various luminaries.
- The European Management Review’s December issue (not yet online) will feature a transcribed exchange between Sid Winter, me and Maurizio Zollo on micro-foundations.
- A leading association in our field will adopt “micro-foundations” as the theme of one its conferences (to be held in 2014). Details to be disclosed (soon).
Micro-foundations are “everywhere.” List der Vernunft, I reckon.
UPDATE: The Academy of Management Perspectives will feature a paper symposium next year on micro-foundations. Contributors: Jay Barney, Teppo Felin, Henrich Greve, Siegwart Lindenberg, Andrew van de Ven, Sid Winter, and me.
| Nicolai Foss |
Given the importance they usually ascribe to the sinister forces of ”neo-liberalism,” it is — perhaps– surprising that prominent pomo writers seldom engage with the major economists with more or less strong classical liberal/libertarian leanings, such as Nobel Prize Winners Gary Becker, James Buchanan, Ronald Coase, Milton Friedman, and Friedrich Hayek. However, most of these write very clearly; for example, it is hard to imagine a stronger contrast to the murky prose of pomo than Nobelist Gary Becker’s refreshingly direct and clear writing.
And yet, pomo demi-god and arguably the clearest writer among the pomo social critics and philosophers, Michel Foucault critically dealt with Gary Becker in his 1979 “Birth of Biopolitics” lectures. In a recent UChicago WP, “Becker on Ewald on Foucault on Becker’: American Neoliberalism and Michel Foucault’s 1979 ‘Birth of Biopolitics’ Lectures,” Foucault’s assistant at the time of these lectures, Francois Ewald, debate Foucault’s Becker-reading with Bernard Harcourt, and–the scoop of this transcribed dialogue–Becker himself.
The whole debate is (unlike the Pomo Periscope) highly civilized; in fact, Becker notes that “I was very happy to read these two lectures, which impressed me in a number of directions. They are very clear, I thought. He had a good understanding of what human capital consisted of.” However, in spite of his politeness Becker offers a direct refutation of the Foucauldian critique that economics in general, and human capital theory in particular, dehumanize people and portray them stimulus-response puppets:
Instead of saying that the vision of man is poor, I would say the vision of man is rich in this approach, because you enrich both what people do as consumers—that’s why I think Foucault says this was an interesting theory of consumption—and you enrich what they do in terms of a lot of their other life decisions that would go beyond consumption, in terms of their education, how they might invest to respond to different government laws, how they might evade bad laws.
A fun read!! HT to Henrik Lando.
| Nicolai Foss |
From the official SMG blog, Strategy and Organization:
A long-standing discussion in management research concerns the relation between capabilities perspectives on the firm and organizational economics, including transaction cost economics and agency theory. In particular, proponents of capabilities ideas have criticized organizational economics for exaggerating the role of opportunism (and similar constructs), neglecting value creation and downplaying dynamics. Conversely, proponents of organizational economics have criticized the lack of a clear unit of analysis, causal mechanisms and micro-foundations in the capabilities approach.
“While these early debates clarified many things,” says SMG Professor Nicolai J Foss, “the field is increasingly moving towards a more conciliatory stance in which the two perspectives are seen as capable of cross-fertilizing each other. This is going further than merely stressing a relation of complementarity in which capabilities ideas lend themselves to the explanation of organizational heterogeneity while organizational economics provides the understanding of the organization of heterogeneous resources and capabilities. The new view is that, notably, organizational economics has the potential of illuminating capability emergence and therefore organizational heterogeneity.”
With Nicholas Argyres (Washington University), Teppo Felin (Brigham Young University), and Todd Zenger (Washington University) Foss is an editor of the September-October issue of the leading management research journal, Organization Science, titled “Organizational Economics and Capabilities: From Opposition and Complementarity to Real Integration” (http://orgsci.journal.informs.org/content/23/5.toc). This special issue contains a number of articles by leading contributors to the discussion, and mixes theoretical, empirical and modeling approaches, as well as an introduction by the editors that survey the debate and defines a new agenda for research in the field.
“We are pleased that we got so many high-level contributions for this special issue,” says Foss, “and in particular that these contributions truly manage to define a new, creative research frontier where the emphasis is on researching the interplay between theoretical mechanisms identified by the two perspectives.
| Nicolai Foss |
A new special issue of Managerial and Decision Economics on “the wisdom of crowds” has just been published. It deals with issues of emergence in firms and markets, including capability formation, information aggregation and the like. The editor is Orgtheory.net’s Teppo Felin. The SI is genuinely interdisciplinary with contributions from a physicists, sociologists, political scientists and economists, including Austrian economists, Peter Leeson and Christopher Coyne. I haven’t had time to read more than a few of the paper (including Teppo’s characteristically provocative and broad-ranging introduction), but look forward to peruse it. Enjoy!
| Nicolai Foss |
Journal of Organizational Design is a newly started open-access journal that should be of considerable potential interest to readers of O&M. While I am generally skeptical of open-access journals in social science — “open access” still largely signals “low quality” — JOD seems likely to become a success story. First, organizational design is making much of a come-back as a research field in management research and in economics organizational economics/the economics of the firm is fundamentally about organizational design issues. However, the established organization studies/theory journals do not seem to publish much organizational design research, and perhaps JOD can partially preempt this niche. Second, the editors (Børge Obel and Charles Snow) are assisted by impressive editorial board members and associate editors. Third, the journal is supported by an organized community. In any case, there is much interesting reading in the first two available issues of the journal, such as John Mathews’ interesting article on supra-firm architectures. Enjoy!
| Nicolai Foss |
The Mises Institute kindly invited me to give this year’s Hayek Memorial Lecture at their Austrian Scholars Conference on March 8. I chose Austrian Capital Theory as my subject, arguing that it is productive to consider it as a theory of production and not just as part of the theory of distribution and interest. The lecture has now appeared in print. Here it is on YouTube (complete with thick Euro-accent and all). And here is a characteristically fine recent paper by Peter Lewin that makes the point (which nicely converges with my Hayek Lecture) that capital theory was absolutely key to the evolution of Hayek and Lachmann’s thought. Peter cites Lachmann’s extremely acute critique of Keynes (which Peter Klein and I would have cited had we known it in this paper):
The modern theory of investment, set forth by Lord Keynes in The General Theory, has had its many triumphs these last twelve years, but it still has a number of gaps. Conceiving of investment as simple growth of a stock of homogeneous capital, it is ill-equipped to cope with situations in which the immobility of heterogeneous capital resources imposes a strain of the economic system. In particular, it can tell us little about the ‘inducement to invest’ in a world where scarcity of some capital resources co-exists with abundance of others. (Lachmann 1948: 131
| Nicolai Foss |
OK, my eleven weeks, Euro-style, full-tax-payer-paid, summer vacation starts today. In the time-honored tradition of narcissistic academic bloggers, here is what I plan to (hope to) read while frolicking on the beaches of the Riviera and relaxing in those small Spanish villages:
- Jonathan Haidt: The Righteous Mind. This will be a re-read. I read Haidt’s book 2 months ago and loved most of it, although I thought it was rather weak towards to the end. The whole argument is basically founded on the notion of group selection, and while group selection has made a huge comeback in terms of scientific respectability, perhaps Haidt is overdoing it?
- Mark Pagel: Wired for Culture. Interest in group selection is also why I will read Pagel’s book, which seems to be all about human group selection, written by a leading British expert on human evolution. A reason why I take an interest in group selection stems from my interest in Hayek’s work on cultural evolution which is basically a group selection story — and which has been strongly criticized for exactly this reason.
- Ezequiel Morsella, John A Bargh and Peter M. Gollwitzer: Oxford Handbook on Human Action. No, this is not a commentary on Mises, but a collection of essays that” … brings together the current thinking of eminent researchers in the domains of motor control, behavioral and cognitive neuroscience, psycholinguistics, biology, as well as cognitive, developmental, social, and motivational psychology. It represents a determined multidisciplinary effort, spanning across various areas of science as well as national boundaries.” Great and accessible reading for anyone with an interest in human action and behavior that goes beyond simplistic economics treatments.
- Steven Pinker: The Better Angels of Our Nature: Why Violence Has Declined. Pinker is always worth a read!
| Nicolai Foss |
In conversations with Italian colleagues I have often been struck by the sad cynicism, sometimes even spite, with which they talk about Italian academic institutions. There is mention of “barons,” backstabbing, secret deals and networks, “the Roman approach,” the Illuminati and whatnot (OK, perhaps not that specific secret society) that hinder fully realizing the potential of Italian social science. To be sure, the situation cannot be entirely debilitating as there is quite serious research being conducted across a number of Italian universities (and as a frequent visitor to both Bocconi and Luiss Guido Carli I can testify to this). But, there is clearly a perception of rot among Italian academics themselves .
Here is a quite controversial 2009 paper, “L Words: The Curious Preference for Low Quality and Its Norms,” by famed rational choice sociologist, Diego Gambetta and philosopher Gloria Origgi. The paper begins thusly: “We have spent our academic careers abroad, Gloria in France and Diego in Britain. Over this long period of time each of us has had over a hundred professional dealings with our compatriots in Italy – academics, publishers, journals, newspapers, public and private institutions. It is not an exaggeration to say that 95% of the times something went wrong. Not catastrophically wrong, but wrong nonetheless.”
The reasons for “this cocktail of confusion, sloppiness and broken promises” that, allegedly, is Italian academia, can be located in a peculiar equilibrium, described as the “L world.” This is not, as one might think, a world described by the PD-game, but rather a situation in which both (all) parties agree on delivering high quality (H) and both (all) deliver low quality (L), and, as Gambetta and Origgi explain, (more…)
| Nicolai Foss |
The University of Chicago Press has just published the seventh volume, “Business Cycles, Part I and II,” in their nineteen volumes Collected Works of F.A. Hayek project. The two books contain most of Hayek’s well-known interwar work on the business cycle, particularly his more methodological Monetary Theory and the Trade Cycle (originally published in 1928) and, of course, Prices and Production, in addition to a number of essays on, as they were called, “industrial fluctuations.” The two parts of Volume 7 both have excellent 40+ pages introductions penned by Hansjoerg Klausinger who may well be the scholar in the world with the deepest knowledge of Hayek’s contributions to business cycle theory and who does a superb job in terms of discussing Hayek’s work through the lens of modern economics.
| Nicolai Foss |
| Nicolai Foss |
OK, it is June and high season for tenure letter requests. I have written tons of these letters within the last decade or so, and I confess that I find this activity increasingly annoying and the tenure letter institution increasingly hard to fathom. Deans will write me, saying that I have “been identified” (well, yes, in the sense that I was on someone’s shortlist, and you just picked me) as an “expert” (hmmm) in “X” (X may be strategy, organization theory, HRM, knowledge management, entrepreneurship — even organizational behavior, but not yet, alas, sociology), and I have “three weeks” to write up my letter (and I have nothing else to do in June?) for “Dr. Doe” (who didn’t bother to ask me whether I would write such a letter).
I once brought up the issue of compensation for at least one day of intense work effort with a dean, but that was not well received. However, at least for us Euro professors the “what’s in it for me” question is quite real. Euro schools typically don’t use the tenure letter institution (INSEAD and LBS do, but they are “Americanized” schools), and we get zero credit for this service. (Euro schools tend to pay for comparable services, BTW). Still, when I bring up these issues, righteous types will say things like “”Nicolai, citizenship isn’t tit-for-tat” or lecture me on “generalized reciprocity.” However, the argument that ultimately made me continue writing these letters, rather than turning requests down, was that apparently people are harmed by someone’s refusal to write the letter.
So, I do it. But I reserve the right to bitch and whine. And speculate on the rationale of this institution. What is really its purpose? Anyone can produce a list of half a dozen people (close colleagues, former advisors, friends …) and get them to write nice letters. What kind of objective assessment is produced by some dean picking people from such a list? Is this empty ritual? Or, is there some underlying efficiency rationale?
| Nicolai Foss |
Wernerfelt, a key originator of the resource-based view of strategy (here) who has made numerous important contributions to the economics of organization, marketing, and other fields, received the degree at a ceremony at the Copenhagen Business School yesterday (another recipient of the honorary doctoral degree was Deirdre McCloskey). I motivated the degree with the following remarks: (more…)
| Nicolai Foss |
As readers of this blog will know, the dialogue between the firm capabilities literature and organizational economics has a long history in management research and economics. Co-blogger Dick Langlois has been an important contributor in this space. The forty years long discussion (dating it from George B. Richardson’s 1972 hint that his newly coined notion of capability is complementary to Coasian transaction cost analysis) has proceeded through several stages. Thus, the initial wave of capabilities theory (i.e., beginning to mid-1990s) was strongly critical of organizational economic. This gave way to a recognition that perhaps the two perspectives were complementary in a more additive manner. Thus, whereas capabilities theory provided insight in which assets firms need to access to compete successfully, organizational economics provide insight into how such access is contractually organized. However, increasingly work has stressed deeper relations of complementarity: Capabilities mechanisms are intertwined with the explanatory mechanisms identified by organizational economists.
In a paper, “The Organizational Economics of Organizational Capability and Heterogeneity: A Research Agenda,” that is forthcoming as the Introduction to a special issue of Organization Science on the the relation between capabilities and organizational economics ideas, Nick Argyres, Teppo Felin, Todd Zenger and I argue, however, that the discussion has been lopsided—hardly qualifying as a real debate—and that a reorientation is necessary.Specifically, the terms of the discussion have largely been defined by capabilities theorists. Part of the explanation for this dominance is that capability theorists have had a rhetorical advantage, because everyone seems to have accepted that organizational economics has very little to say about organizational heterogeneity. We argue that this rests on a misreading of organizational economics: while it is true that organizational economics was not (directly) designed to address and explain organizational heterogeneity, this does not imply that the theory is and must remain silent about such heterogeneity. In fact, we discuss a number of ways in which organizational economics is quite centrally focused on explaining organizational heterogeneity. Specifically, we argue that organizational economics provides guidance around how organizational design and boundaries facilitate the formation of knowledge, insight, and learning that are central to the heterogeneity of firms. We also demonstrate how efficient governance can itself be a source of competitive heterogeneity. We thus call on organizational economists to actively and vigorously enter the discussion, turning something closer to a monologue into real dialogue. (more…)
| Nicolai Foss |
Economists have typically been suspicious of data generated by (mail, telephone) surveys and interviews, and have idolized register data. The former are soft and mushy data, the latter are hard and serious ones. I have always been a bit sceptical regarding whether the traditional economist’s suspicion of soft data is really that well-founded; after all, the statistical agencies of the world and other government institutions that are in the business of data collection are populated by fallible individuals and respondents are the same ones that respond to, say, a mail survey conducted by Prof. N. J. Foss, PhD. (Having recently conducted a major data collection effort with a public statistical agency, my skepticism has dramatically increased!)
The argument is sometimes made that there may be a legal duty to respond to the queries of a government agency and this means a high response rate and accurate reporting. However, it appears that we know rather little about the accuracy of data generated in this way, and it is quite conceivable that measurement error is high, exactly because the provision of data is “forced” (those anarcho-capitalist types out there may delight in providing errorneous data!). The serious content of the traditional economist’s prejudice is rather, I think, that surveys often have respondents reacting to subjective scales rather than providing absolute numbers. This is a warranted concern, but not a critique of surveys and interviews per se, because these methods do not imply commitment to subjective scales per se.
As a rule register data are not available that can be used to address numerous interesting issues in organizational economics, labor economics, productivity research and so on. Scholars working on these issues have to resort to those softy surveys and interviews that have been the workhorses of business school faculty for decades. This is a new recognition in economics. Case in point: A recent paper by Nicholas Bloom and John Van Reenen, “New approaches to surveying organizations.” There is absolutely nothing, I submit, in this short, well-written paper that would surprise virtually any empirically oriented business school professor (i.e., virtually all bschool professors) to whom this would not be anything “new” at all, but rather old hat.
This is not a critique of Profs. Bloom and Van Reenen at all (on the contrary, it is excellent that they educate their economist colleagues in this way). It is just striking and a little bit amusing, however, that we have had to wait until 2010 until empirical approaches that have been mainstream in management research for decades reach the pages of the American Economic Review.
| Nicolai Foss |
Over the last few years, CBS has bestowed honorary doctoral degrees on the likes of Jay Barney, Oliver Williamson, Oliver Hart, Michael Brennan, and other luminaries in strategy, the theory of the firm, and finance (in addition to a number of reps of pomo in management research that are of small interest to O&M readers). At a ceremony on 19 April a CBS honorary doctorate will be bestowed upon Birger Wernerfelt.
Wernerfelt is the JC Penney Professor of Management of the MIT Sloan School of Management. A Danish citizen, Wernerfelt holds degrees from the University of Copenhagen and Harvard. Wernerfelt’s best known work is no doubt “A Resource-based View of the Firm.” With more than 12,000 cites (google scholar) this paper is also one of the most cited social science research articles ever, and, of course, one of the founding papers of strategy’s (still) dominant view, the resource-based approach. The paper develops a conception of firms as bundles of heterogeneous and partly firm-specific resources, and links this conception to sustainable performance differences between firms as well as to growth strategies through resource-based diversification. These ideas opened up several paths of research in strategic management in the following decades, including Wernerfelt’s own influential empirical work (with Cynthia Montgomery) on diversification and its link to performance (e.g., here).
More recently, Wernerfelt has been working on other truly fundamental aspects of the theory of the firm, namely the reason why firms exist and what explains their boundaries and internal organization. Thus, in a series of papers, Wernerfelt has developed an argument that the employment relationship exists because it allows the parties to the contract to exploit economies of scale in bargaining costs (e.g., here) — a stream that may be seen as much more true to the original message in Coase’s (1937) “The Nature of the Firm” than the asset-specificity branch of the theory of the firm. Wernerfelt has extended the argument to the understanding of asset ownership, communication within and between firms, and the strength of incentives in firms versus markets. In addition to these contributions to strategic management and the theory of the firm, Wernerfelt has contributed to the economics of search and numerous important contribution to marketing theory.
| Nicolai Foss |
It is not yet online, but the University of Paris-Sorbonne is looking for a Full Professor in the Economics of Organization (see the ad text below). Importantly, proficiency in French is not a requirement … “upfront,” at least.
Very apropos (if I may) the Department of Strategic Management and Globalization will be hiring one assistant professor and three associate professors in ”strategic and international management” over the next few months. Proficiency in French, or Danish for that matter, is not required at all. The job ads are here. Or, contact me directly on firstname.lastname@example.org (more…)
| Nicolai Foss |
Watching Rick Perry commit political harakiri made me wonder whether academia can report similar incidents (and with similar career-destroying results?). To be sure, many of us academics have engaged in Rick Perry-like behaviors — as is only to be expected when, as many of us do, we regularly talk to (student, executive, colleague) audiences of varying sizes, often several times a week.
I have certainly had my share of situations similar to the Perry episode. Thus, about a decade ago I was supposed to talk about the challenges of managing “knowledge workers” to a bunch of middle-aged (and beyond) medical professors, all with management responsibilities, very impressive scientific records, and all supremely arrogant and self-confident. I got 5 mins into my talk, before I was cut down. Totally. Decisively. Left dumbfounded. Another example, more research-oriented, derives one from one of the BYU-UUtah winter conferences on strategy. I gave a talk on transaction costs economics and competitive strategy. It was rather abstract. After the talk a very (in fact, extremely) prominent strategy scholar asked me in a very pointed and inquisitive manner: “What is in this that I can teach my MBA students?” Again, I was left dumbfounded, probably in awe of this person (and didn’t come up with the obvious answer: “So, do you think that is a good criterion for scientific progress?”).
Of course, there are other Rick Perry episodes from my career, but these two must suffice. Of course, these gaffes just emphasize my humanity. And your Rick Perry episodes?
| Nicolai Foss |
A reviewer of a recent book proposal by Teppo Felin and me (which was accepted, BTW; details later) had the effrontery to note that “Felin and Foss get considerable pushback when they take a strong stand on methodology.” Of course, this reviewer got it all wrong. To wit:
- Teppo and I recently published “The endogenous origins of experience, routines and organizational capabilities: The poverty of stimulus” in the Journal of Institutional Economics, accompanied by critical comments by Sidney Winter, Brian Pentland, Geoff Hodgson and Thorbjørn Knudsen. Here is our response to the comments of our critics. The response has been accepted for publication in the Journal of Institutional Economics.
- In a recent paper in Sociological Theory, influential sociologists Ronald Jepperson and John W Meyer took issue with the rampant “micro-chauvinism” that, in their opionion, increasingly dominates social science, and called for multi-level explanation that admits a role for causation that (in some unexplained fashion) takes place at levels above that of individuals. In this brief note, Teppo and I (and Peter Abell of LSE) take issue with their arguments, and argue that they fundamentally misunderstand methodological individualism and its crucial role in understanding those phenomena that are “multi-level”, “complex” and “emergent.”
Thus, the macro chauvinists are the ones who are getting the pushback ;-)
| Nicolai Foss |
“Selective intervention” and the more narrow notion of the “impossibility of selective intervention” are among the more elusive notions in the theory of the firm. We have blogged on them a number of times (the most explicit treatment is here). Coined by Oliver Williamson, selective intervention simply means intervention to produce net gains. Thus defined, selective intervention is, of course, not “impossible.” The” impossibility” refers to the conjecture that firms cannot just be grown continuously by selective intervention; at some point various commitment and enforcement problems associated with managerial intervention kicks in, resulting in zero net gains. However, demonstrating this is a “puzzle.”
A new paper, “Solving the Selective Intervention ‘Puzzle’,” by noted French economist, Jacques Cremer, usefully places the problem in context, provides a nice overview of the extant literature, and argues that the problem has essentially been solved:
I have shown that the common thread to all the solutions is the fact that the principal stays in the game” after the contract is signed, and cannot commit himself to a policy which would make the world similar to the world in which there would be no vertical integration. On this basis, solutions that stress incompleteness of contracts, the change in the allocation of authority, the change in the amount of information available to the principal, all provide solutions that are theoretically consistent, and, furthermore, often not incompatible with each other. Determining which solution provides a better guide to applied analysis requires an examination of other features of the model.