Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization

Langlois, Richard N.; Foss, Nicolai J.

doi:10.2139/ssrn.77668

Cited by 134 publications

(154 citation statements)

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“…Firms often differ substantially in their ability to produce different kinds of products and services for a given cost or quality, because the complexity of coordinating organizational activities makes learning a slow, path dependent, hard to replicate process (Barney 1991;Langlois and Foss 1999;Winter 1988). Outsourcing allows firms to access other organizations' capabilities, which may be better suited to a given transaction.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Politics and Firm Boundaries: How Organizational Structure, Group Interests, and Resources Affect Outsourcing

Bidwell

2012

Organization Science

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How does managers' pursuit of their own intraorganizational interests affect decisions about what work to outsource and how to contract with vendors? I study this question using a qualitative study of outsourcing in the information technology department of a large financial services firm.Traditional transaction cost-based theories argue that decisions about which transactions to outsource should reflect the characteristics of those transactions, yet I find only a weak link between transaction characteristics and outsourcing decisions. Qualitative evidence suggests that managers' pursuit of their own intraorganizational interests helps to explain why outsourcing decisions were often divorced from transaction characteristics. I found that the consequences of outsourcing projects were consistent with the assumptions of transaction cost and capabilities-based theories: managers had less authority over outsourced projects than internal ones, those projects were subject to weaker administrative controls, and outsourced vendors provided different capabilities than internal suppliers. However, the way that those consequences were evaluated often reflected managers' own interests rather than those of the organization.I highlight three aspects of organizational structure that affected how managers evaluated outsourcing: the nature of differentiated goals and responsibilities, the administrative controls that managers faced, and the pressures caused by interdependent workflows within the organization. I also show how the distribution of authority and other resources shaped which projects were outsourced. The analysis highlights the value of understanding make-or-buy decisions as an endogenous consequence of the structure in which those decisions take place, rather than as isolated decisions that are maximized regardless of their context. Keywords: Outsourcing; Firm boundaries; make or buy; transaction cost economics; politics; resource dependence; organizational decision-making; offshoring; information technology.Acknowledgements: I am very grateful to Heski Bar-Isaac, Henrik Bresman, Forrest Briscoe, Diane Burton, Isabel Fernandez-Mateo, Martin Gargiulo, Bob Gibbons, Javier Gimeno, Adam Grant, Quy Huy, Michael Jacobides, Sarah Kaplan, Jackson Nickerson, Joanne Oxley, Sean Safford, Felipe Santos, Brian Silverman, Andrew von Nordenflycht, Christoph Zott, seminar audiences at London Business School and the Rotman School, Nick Argyres and three anonymous reviewers for their comments and suggestions on various drafts of this paper. I am particularly grateful to all of the employees of the Bank who spent so much time talking with me and sharing the data that led to this paper.

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Section: Theoretical Backgroundmentioning

confidence: 99%

Politics and Firm Boundaries: How Organizational Structure, Group Interests, and Resources Affect Outsourcing

Bidwell

2012

Organization Science

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“…While the three classes of transformation are logically distinct, in a modern economy they are complementary and jointly underpin its input: output structure within and between production 18 On the thermodynamic principles behind transformation processes and the distinction between energy and exergy see Buenstorf (2004) 19 For a valuable discussion of the relation between organisation and production see Langlois and Foss (1999) #0909 establishments.. Some examples will help.…”

Section: Technology As Transformative Activitymentioning

confidence: 99%

Technology and economic theory

Metcalfe

2009

Cambridge Journal of Economics

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“…Shifting the point of emphasis from incentives to coordination has been one of the central accomplishments of the emerging "capabilities view" in the theory of organizations (for instance, Langlois and Foss 2003). In that literature, firms are seen as solutions to the problem of coordinating dispersed knowledge capabilities rather than as solutions to shirking and opportunistic behaviors.…”

Section: Consumption Incentives and Coordinationmentioning

confidence: 99%

Religious Identity and Consumption

Minkler¹,

Coşgel²

2004

Review of Social Economy

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Consumption choices assist in solving the problem of how to convey and recognize religious identities. In the communication of an identity, individuals use the knowledge embedded in consumption norms, which restrict the range of choices to a smaller set and abbreviate the required knowledge for encoding and decoding messages. Using this knowledge as a shared framework for understanding, individuals with religious beliefs can choose consumption items that would not only strengthen their beliefs but also help them express the intensity of their commitments to these beliefs. Because individuals and societies have different beliefs, norms, commitments, and expressive needs, consumption choice can help to express these differences. Our explanation contrasts with incentive-based approaches that view religious consumption norms as solutions to free-rider problem inherent in clubs. 1 Religious Identity and Consumption LANSE MINKLER AND METIN M. CO! ! ! !GEL * The University of ConnecticutAbstract: Consumption choices assist in solving the problem of how to convey and recognize religious identities. In the communication of an identity, individuals use the knowledge embedded in consumption norms, which restrict the range of choices to a smaller set and abbreviate the required knowledge for encoding and decoding messages. Using this knowledge as a shared framework for understanding, individuals with religious beliefs can choose consumption items that would not only strengthen their beliefs but also help them express the intensity of their commitments to these beliefs. Because individuals and societies have different beliefs, norms, commitments, and expressive needs, consumption choice can help to express these differences. Our explanation contrasts with incentive-based approaches that view religious consumption norms as solutions to free-rider problem inherent in clubs.

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Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization

Cited by 134 publications

References 72 publications

Politics and Firm Boundaries: How Organizational Structure, Group Interests, and Resources Affect Outsourcing

Politics and Firm Boundaries: How Organizational Structure, Group Interests, and Resources Affect Outsourcing

Technology and economic theory

Religious Identity and Consumption

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