Evolutionary Theory of the Firm

Nelson and Winter argue that an evolutionary theory of organization is a superior description of firm behavior than orthodox views around optimization and that routines act as the genes of the firms in their model. The evolutionary theory defines the firm as a set of essential skills, gained from its learning ability. The theoretical

The terms of the discussion: “orthodox” and “evolutionary

We have above made the first of many references to something called “orthodox” economic theory. Throughout this book, we distinguish our own stance on various issues from the “orthodox” position. Some such usage is inevitable in any work that, like the present one, argues the need for a major shift of theoretical perspective on

The Structure of Orthodox Models

There are some readily identifiable building blocks and analytic tools employed in virtually all models within contemporary orthodox theory of the behavior of firms and industries.3 These same struc-tures are visible in models spanning a very diverse set of specific inquiries. While our discussion of the orthodox art form will be quite general, it

The Structure of Evolutionary Models

The decision rules employed by firms form a basic operational con­ cept of our proposed evolutionary theory as well as contemporary orthodoxy. However, we rej ect the notion of maximizing behavior as an explanation of why decision rules are what they are; indeed, we dispense with all three components of the maximization model-the global

The awkward treatment of economic change by orthodox theory

Much of economic analysis is concerned wi th predicting, explaining, evaluating, or prescribing change . Presumably, then, the adequacy of a theory of firm and industry behavior should be assessed in good part in terms of the light it sheds on such phenomena as the response of firms and the industry as a whole

Diagnosis and prescription for Evolutionary Theory

Many of our criticisms of orthodox analysis are familiar enough, at least within the individual theoretical contexts to which they refer. Less familiar, and more controversial, is our suggestion that the dif­ ficulties of such analysis are largely a reflection of fundamental limi­ tations arising from orthodoxy’s canonical assumptions of profit maximization and equilibrium.

Allies and antecedents of evolutionary theory

In intellectual evolution, as in other sorts, the accidents and inci­ dents along the way play an important role in the transformation of relatively simple and amorphous beginnings into the complex struc­ tures of later times. Thus, while traits of economic theory today be-tray both its classical origins and its present scientific utility, it would

The nature of fruitful theorizing in economics

The answer to the first question can be located in Marshall’s own am­ bivalence. It has already been suggested that there was a strong ten­ sion in Marshall between having a theory that captured what he saw as the key structural aspects of the economic system and of economic processes, and having an abstract

The objectives of business firms

In the simplest orthodox model of business firms the objective is simply profit, or market value, and the more the better. But many scholars have qualified or questioned this simple specification. There have been efforts to shore up the standard formulation by detailing the linkage between owner interests and management actions. Ob­ j ectives

Production sets and organizational capabilities

Although, as indicated above, there has been extensive discussion in the economic literature about the motivational aspect of the theory of the firm, there has been startlingly little examination of the implicit theory of the capabilities of business firms that is employed as a key building block in orthodox theory. The orthodox mode of

Behavior as maximizing choice

Given capabilities and objectives, the orthodox explanation of behavior- what firms do, given constraints-runs in terms of maxi­ mizing choice. The postulate that firm behavior results from maxi­ mizing choice leads the theorist to analyze an optimizing decision lule for the firm, a rule that maps from market conditions and other variables external to

Skills as programs

A variety of terms have been used in the literature of social science to denote a smooth sequence of behavior that functions, in some senseI as an effective unit. “Skill’l is obviously one such; there is, in partic­ ular, a substantial psychological literature relating to skills and skill learning. The terms “plan/’ Uscript,” “habit,1I

Skills and tacit knowing

The late scientist-philosopher Michael Polanyi wrote extensively of the central place in the general scheme of human knowledge occu­ pied by knowledge that cannot be articulated- tacit knowledge. On the simple observation “We know more than we can tell,” Polanyi built an entire philosophical system (Polanyi, 1967, p. 4) . Though the full import

Skills and choices

While the exercise of a skill involves the selection of behavior op­ tions, the selection process is highly automatic. This raises the ques­ tion of whether it is at all appropriate to discuss this process in terms of “choice.” In the terminology of the previous chapter, the sort of choice that takes place in

The uses of skill names

Skills, like computer programs, govern performances that are com­ plex relative to the actions that are required to initiate them. The manifold coordinated details of the performance seem to take care of themselves once the decision to exercise the skill is made and a few initial steps are taken. This differential in complexity between

Skills: Ambiguity of scope

Performance of a complex skill involves, we have remarked, the inte· gration of a number of more elementary units of action. Often, these more elementary units constitute subskills that are optional compo­ nents of the main skill, selected in response to cues in the perform­ er’s environment. Thus, the integration required is not just

The skills of the businessman

Our primary purpose in this examination of individual skills has been to establish a useful starting point for the appraisal of the corre­ sponding issues in the case of the large, complex organization. Much of the discussion of “theory and realism” in the economic theory of the firm has, however, been implicitly or explicitly

Routine as organizational memory

It is easy enough to suggest that a plausible answer to the question uWhere does the knowledge reside?” is “In the organization’s mem­ ory.” But where and what is the memory of an organization? We pro­ pose that the routinization of activity in an organization constitutes the most i mportant form of storage of

Routine as truce

Our discussion to this point has been concerned with the cognitive aspects of the performances of organization members-with the question of whether they know what to do and how to do it. We have ignored the motivational aspect- the question of whether they would actually choose to do what is “required” of them in

Routine as target: control, replication, and imitation

So far, we have emphasized that a state of routine operation in an organization is in many ways self-sustaining. Judging by the preced­ ing sections, an organization might be expected to encounter diffi­ culty in departing from its prevailing routines, but it should have no trouble in conforming to them. Although this generalization is