Organizations and Markets

New Foss Sell-Out (?) Paper

21 April 2009 at 6:08 am Nicolai Foss 6 comments

| Nicolai Foss |

With Siegwart Lindenberg, Professor of Cognitive Sociology at the University of Groningen, I have written “Why Firms Work?  A Goal-Framing Theory of the Firm.” Colleagues already refer to it as the “Foss sell-out paper” (but wait until I blog on that recent sell-out paper on entrepreneurship and the government by a certain O&M blogger . . . ). 

Whatever that is, the paper starts from the familiar and long-standing debate between organizational economists and proponents of the knowledge-based view, and the many interesting recent attempts to merge key insights from TCE with ideas on learning and capabilities (Argyres, Nickerson, Mayer, Leiblein, Zenger, Hoettker, and others). The underlying idea is that additional explanatory leverage, for example, with respect to understanding the boundaries of the firm, will emerge from an integration of the two (clusters of) theories.

The argument in  our paper is a very different one: The dominant extant conceptualizations of what firms are do not provide us with a satisfactory explanation of why firms work — specifically, how intelligent, adaptive effort can be mobilized by motivational means to contribute to joint production, that is, productive activities with a common goal and typically heterogeneous but complementary resources, task, and outcome interdependences. Such endeavors are basic to both human beings and human forms of cooperation. A theory of organization must be based on human capabilities for joint production. From an evolutionary point of view, the ability for joint production is what created the adaptive advantage of human beings living in larger groups, and it seems that our brain has evolved along these lines (the “social brain hypotheses,” Dunbar 2003). Firms work to the extent that they can motivate employees to contribute to joint production in this sense. 

The paper tries to build micro-foundations that will allow for more satisfactory answers to why firms work than the answers provided by organizational economics and the knowledge-based view. The key point in these micro-foundations is that the management of motivation is largely the management of cognitive processes, specifically the management of high-level goals. This implies that cognition and motivation are partly organizationally embedded. While the knowledge-based view also recognizes this embeddedness (Kogut and Zander, 1996; Ghoshal and Nahapiet, 1998), it has no supporting micro-foundations for this recognition. While organizational economics does have explicit micro-foundations, these micro-foundations completely separate cognition and motivation. Therefore, it does not include the notion that the management of motivation is largely the management of cognitive processes.

We draw on closely related research in different fields, namely social psychology (e.g., Ryan, Huta and Deci, 2008), evolutionary anthropology (e.g., Dunbar, 2003), cognitive science (Caporael, Dawes, Orbell, and Van de Kraagt, 1989), and cognitive sociology (Hogg, 2001; Lindenberg, 2003) to build a “goal-framing theory” of the firm that better identify the mechanisms that explain why firms work. We also indicate how these micro-foundations provide additional insight into traditional concerns in the theory of the firm, notably the issue of organizational failure.

Send me a mail at njf.smg@cbs.dk if you want a copy of the paper. Because we intend to send the paper to a journal that does not allow submitted manuscripts to be in the public (electronic) domain, I cannot post this paper.

Entry filed under: - Foss -, Papers, Recommended Reading, Theory of the Firm.