Organizational Economics of Capability and Heterogeneity

Abstract

F or decades, the literatures on firm capabilities and organizational economics have been at odds with each other, specifically relative to explaining organizational boundaries and heterogeneity. We briefly trace the history of the relationship between the capabilities literature and organizational economics, and we point to the dominance of a "capabilities first" logic in this relationship. We argue that capabilities considerations are inherently intertwined with questions about organizational boundaries and internal organization, and we use this point to respond to the prevalent capabilities first logic. We offer an integrative research agenda that focuses first on the governance of capabilities and then on the capability of governance.

Microfoundations In Strategy Research

“…Foss and Foss (2005) thus continue a long tradition in strategic management of seeking microfoundations for key strategic concepts and processes in organizational economics (cf. Argyres, Felin, Foss & Zenger, 2012). While this tradition is very much alive and well, scholars working in it seldom explicitly style their work as microfoundational, perhaps because strategy work building on organizational economics has always inherently had a microfoundational component.…”

Building Governance Capability in Online Social Production: Insights from Wikipedia

“…Once a capability has been developed and consolidated as an asset, it may become itself an object of governance: therefore a governance capability may ultimately include the governance of other capabilities (Argyres et al, 2012;Winter, 2003). Knowledge integrated into a governance capability can be understood as knowledge about controlling and coordinating a large-scale distributed system, which is closely related to but different from production-oriented capabilities such as writing encyclopedia articles or developing software.…”

“…A capability is what an individual, organization or other type of collective arrangement can actually do, which is expressed as learned patterns of repetitive behaviour, that is, routines (Jacobides & Winter, 2012;Nelson & Winter 1982;Pentland & Feldman, 2005;Winter, 2003). We assume that governance itself can be regarded as a type of capability; it is the capability to progressively design and implement mechanisms to control and coordinate joint production (Argyres, Felin, Foss, & Zenger, 2012). We define collective governance capability as the capability of a collective arrangement to steer a production process and an associated interaction system.…”

Benchmarking for routines and organizational knowledge: a managerial accounting approach with performance feedback

“…In doing so, it bridges a gap between studies on firm productivity based on frontier techniques and strategic management. By using best practice benchmarking to assess firm outcomes, the analysis accounts for the endogenous components of across-firms heterogeneous routines (Winter 2003;Abell et al 2008;Felin and Foss 2011;Argyres et al 2012). 1 This approach is grounded in the managerial accounting task of performance monitoring for control and reward systems (Ittner and Larcker 1997;Kaplan and Atkinson 2000;Balk 2003;Langfield-Smith 2005;).…”

“…Importantly, resources and routines are heterogeneous across firms (Teece et al 1997;Winter 2003;Abell et al 2008;Argyres et al 2012;Felin et al 2012). Benchmarking information is especially relevant in this case since it gauges information on endogenous firm routines and compares them to the results of heterogeneous competitors (Agrell et al 2002 andOtto 2011).…”