Framework: theory of the firm

Purpose of the article: investigate the concept of routine

Take into account the context in which routines emerge

Focus on communities

An evolutionary framework

Nelson & Winter : Evolutionary Theory of Economic Change (1982)

Analogy with Darwin's theory of biological evolution

3 pillars:

 - variety

 - selection

 - heredity

Nelson & Winter's major contribution:

emphasis on the concept of routines

-> the "heredity" pillar

-> the "genes" of the firm : routines encompass the knowledge of the firm.

According to Coriot & Weinstein, the evolutionary theory of the firm has a big advantage:

it explains how one can define the firm: through the set of competences of the firm

it explains why firms differ: because they rely on different routines

it is dynamic: firms can change through the mechanisms of selection and variation of routines.

A wide theoretical background

Competence-based approaches of the firm

-> the firm is viewed as a processor of knowledge

Contractual approaches

-> transaction cost theory, focus on information assymetry...

-> the firm as a processor of information

Research on routines is particularly active today:

i) routines and cognitive approaches (organizational learning)
ii) neo-Schumpeterian approaches: routines as genes

iii) routines as the building block of competence-based approach (Prahalad & Hamel, Teece & Pisano)

iv) dynamics of routines: dynamic capabilities (Teece)

routine = "an executable capability for repeated performance in some context that has been learned by an organization in response to selection pressure"

⇒ the 'organizational memory'

⇒ The memory of what to do and how

- cognitive dimension : “organization remember by doing” -> remember how

- motivational dimension: control of conflict -> remember why

Routines can be changed through learning

- trial-and-error

- organizational search (but there is bounded rationality

Routines are filtered through selection mechanisms (mostly external)

Routines can die, or be forgotten (memory loss)


competence-based approach’s use of routines is too weak

The motivational aspect is under-investigated

the selection mechanisms rely too much on external explanations.

Some risks to avoid:

- no incentive to improve existing routines -> risk of “lock-in”

- no incentive to explore new routines

- conflict between individual and collective learning

What about the context in which routines develop ?

the concept of community is used here to understand how routines appear and develop.

Cohendet & Llerena : the emergence of routines is a community-dependent process

-> focus on communities

Functional group.

Homogeneity: same background, same mission (marketing, finance, accounting).

Agents have their codes, jargon.

To be recruited you have to prove your mastery of the discipline (diploma).

Knowledge creation is unintentional

Community of practice (Lave and Wenger).

Group of people engaged in the same practice and communicate regularly together.

A means to improve the individual competencies.

Focus on the members.

Self-organised community.

There is mutual exchange: the members bring their experiences and in exchange, rely on the knowledge capitalised by the community to carry their activity. Collective discussions, debriefing sessions.

Nature of knowledge : know-how, implicit, localised.

Communication occurs among the members but not towards the outer world.

Epistemic communities.

Group of agents sharing a common goal of knowledge creation, an a common framework.

Heterogeneous members

the objective of knowledge creation is for the sake of knowledge.

Sense of identity and autonomy is weaker, and it allows for more creativity.

Codified knowledge, creation of a codebook.

Agents are bound together by their commitment to improve the set of knowledge.

Each community has different learning processes.

Learning can be deliberate or not.

Different incentives. Extrinsic motivation/ Intrinsic (pride, no disutility of effort..).

-> functional group have extrinsic motives

-> Members of communities of practice expect financial rewards (for their increased expertise) and recognition.

-> members of epistemic communities have intrinsic motivations

Coordination mechanisms are not the same in the communities.

Functional group are hierarchical and therefore vertically coordinated.

The 2 others are more horizontally coordinated.

Need to find a balance between the communities in the organization...

- Epistemic communities are good at searching activities.

- Communities of practice are good at the exploitation of existing routines.

->The balance between these communities will affect the performance of the organization.

Which governance in the firm ?

The manager has to assume a entrepreneurial function :

- > decide which orientation to give to the firm, which core competences they want to develop

-> in accordance to their choice, pick the communities that are committed to create this knowledge

-> sort of "community management" !

In this view the firm is a processor of knowledge

Knowledge management becomes crucial

Towards a dual governance structure

Core competences and periphery

2 different structures of governance :

- the first to manage the core competences.

Orient the learning within the firm...

- the second to manage the periphery.

Less knowledge-processing, more information-processing. Rely on the more classical views of theory of the firm. Transaction costs -> contract, make-or-buy. Still important, but not “core”

How to hold the firm together ?

To sum up:

The originality of this paper is to focus on an intermediate level of analysis

By focusing on communities we get to understand

how routines are localized in the organization and how local context matters.

there are various types of communities, which differ in the way they organize themselves and produce routines. This is why routines can be very different from one firm to the others.

These findings raise new issues!

dual governance structure of the firm between core competences and periphery

How do firms maintain their coherence?

Traditional forms of the firm (U-form, M-form) are adapted for information processing.

What if new firms are oriented toward knowledge creation ?

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Public - 11/28/16, 9:44 PM