Fundamental Questions About Organizations
| Peter Klein |
Our most popular tag here at O&M seems to be ephemera, but occasionally we write a “big think” post (e.g., this one). Today I’ll offer another. A colleague recently asked me to write down, for a research project we’re sketching out, some “fundamental questions about organizations.” He wanted my off-the-cuff response, not a carefully crafted set of ideas. Here’s what I came up with:
1. Does organizational form matter? How much does it really affect performance, however measured? Organizational form might not be that important because (a) its effects on performance are small relative to the performance effects of technical or allocative efficiency; (b) organizational form is easily changed and always chosen optimally to fit the circumstances; or (c) organizational form is merely a legal distinction without any economic significance.
To explore this, one would want:
- Better ways of measuring or classifying organizational types. Are there just a few discrete types (proprietorship, partnership, cooperative, limited-liability company, publicly traded corporation), or are there important variations within types (e.g., M-form versus holding company)? Are Williamson’s markets, hierarchies, and hybrids discrete types? Maybe Coff and Makadok’s set of eight types is the right taxonomy. Or is organizational form best understood as a continuum?
- Better techniques for measuring the effects of organizational form on performance in a cross-section of firms. There is a huge endogeneity problem. If underperforming firms of type A are converted to type B while strong performers remain as type A, then type B will look like a dog even if the conversion from A to B improves the performance of that particular organization. Are there good instruments for selection bias? Are there legal or other institutional differences across communities or states or regions that allow for natural experiments?
- Good sources of longitudinal data, from which we can learn about births and deaths, transitions/reorganizations, spawning, and the like. Is organizational change easy or hard? Are there short-term performance losses followed by long-term performance gains? What kinds of firms get reorganized, and why? What would have happened to them (counterfactually) if they hadn’t reorganized?
2. Which theory best explains organizational choices and their effects — TCE, RBV, agency theory, or something else? E.g.,
- Is asset specificity as important as Williamson thinks it is?
- Is holdup the most important source of external or market transaction costs, or are measurement costs more important?
- Is the RBV really a theory of firm-level returns, or simply an explanation for the returns to individual factors? (If Jay Barney reads this, he will recognize the use of the word “simply” as an inside joke.)
- How do capabilities, routines, etc. affect performance?
3. How do agents learn about organizational form?
- Do market participants generalize the experiences of a firm with a particular organizational type to other firms with similar organizational characteristics? E.g., do investors value firm structure itself, or simply individual firms, regardless of their structure?
- Do firms cluster — geographically or in product space — by organizational type?
4. How is entrepreneurship related to the theory of the firm?
- Can the establishment of a new organizational form, the transition to such a form, etc., be regarded as an entrepreneurial act?
- Can theories of individual entrepreneurship be extended to group or team entrepreneurship, to account for entrepreneurial activity among partners, within the top management team, etc.?