2 Los orígenes de la RSE
2.5 El diálogo como vía de acercamiento
The knowledge-based theory has developed in recognition of the idea that firms apply knowledge to the production of goods and services, and this knowledge is the most strategically important of a firm’s resources (Conner and Prahalad, 1996;
Grant, 1996; Kogut and Zander, 1992; Liebeskind, 1996). While neoclassical theory focuses on the problems of coordinating resources and activities within the firm, the knowledge-based theory argues that knowledge, as a strategic asset, must also be coordinated if it is to be used to its full potential. The theory distinguishes between tacit and explicit knowledge. Tacit knowledge cannot be conveyed sufficiently quickly to be appropriated immediately by the learner. For example, learning to ride a bike involves observation and practice, and cannot be done immediately simply by reading a manual. Explicit knowledge, in contrast, is easily absorbed, and can be transferred to various uses immediately. For example, a trade secret might be regarded as explicit knowledge: as soon as the secret is revealed, anyone can make use of the relevant knowledge.
It is not only MBA students who have, for decades, learnt these theories. Many thousands of executives have been taught the same lessons on business courses. Even those who never attended a business school learnt to think this way because these theories were in the air, legitimizing some managerial actions and delegitimizing others and shaping the intellectual back-ground against which day-to-day decisions were made. Is it any surprise, then, that executives in Enron, Global Crossing and scores of other companies granted themselves excessive stock options, treated their employees badly and took their customers for a ride when they could?
Much of the problem has arisen from the excesses of business school academics in pretending that business is a science. Not only economists but also those in areas such as marketing and organizational behaviour increasingly treat business as if it were a kind of physics, in which individual intentions and choices either do not play a role or, if they do, can safely be taken as being determined by economic, social and psychological laws.
The problem is that, unlike theories in the physical sciences, theories in the social sciences tend to be self-fulfilling. A theory of sub-atomic particles does not change the behaviour of those particles. A management theory, if it gains enough currency, changes the behaviour of managers. Whether right or wrong to begin with, the theory becomes ‘true’ as the world comes to conform with its doctrine.
This is why it is nonsense to pretend that management theories can be completely objec-tive and value-free. Even if the theorists pretend to be objecobjec-tive, the subjects and users of the theory cannot. By incorporating negative and highly pessimistic assumptions about people and institutions, pseudo-scientific theories of management have done much to reinforce, if not create, pathological behaviour on the part of managers and companies. It is time the academics who propose these theories, and the business schools and universities that employ them, acknowledged the consequences.
Source: Sumantra Ghoshal, Business schools share the blame for Enron, FT.com site, 17 July 2003.
Liebeskind (1996) argues that firms exist in order to protect explicit knowledge.
Employment contracts may specify exclusivity and confidentiality clauses, prevent-ing the transfer of economically advantageous knowledge to rival organizations.
Firms can protect their explicit knowledge by threats of dismissal of staff who pass on information, making their departure costly through the loss of bonuses, pensions, stock options and promotion opportunities. The firm may try to ensure that its staff have access to no more information than is strictly necessary for them to perform their functions.
Grant (1996) assumes that (tacit) knowledge in the organization is held by indi-viduals, and not by the organization as such. To be useful, this knowledge must be coordinated. The firm exists because its management are better able to perform this coordinating function than the market. How is coordination achieved?
n Through the use of rules and directives based on corporate etiquette, social norms and procedures.
n Through the efficient sequencing of tasks by individual specialists.
n Through the presence of routines that help develop ‘mutual adjustments’, lead-ing to synchronized outputs. Routines play a key role in the strategic theory of the firm (Coriat and Dosi, 1998; Nelson, 1994; Nelson and Winter, 1982).
n Where communication between specialists is important, the organization ensures a focus on group decision making and problem solving.
The necessary coordination also depends on the development of common knowledge within the organization. Types of common knowledge include the development of shared meanings in the form of metaphors and analogies understood by members of the organization but not by outsiders, and the sharing of specialized knowledge, which leads to more effective communication within the organization. If there is job rotation, common knowledge becomes more important than specialized knowledge.
As the breadth of knowledge held by employees widens, so too does the ability of other firms to acquire the information they require in order to imitate or replicate the organization’s most successful characteristics.
3.9 Summary
In Chapter 3, we have traced the historical development of the neoclassical theory of the firm, and we have seen how, over the years, economists have attempted to develop alternative models and theories that are more realistic in describing and explaining the essential or fundamental characteristics of firms. Paradoxically, it has been argued that the neoclassical theory of the firm is not really an analysis of the firm at all, but rather a theory of resource allocation at the level of the market. The neoclassical theory devotes little attention to internal decision making within the firm; instead, the firm is viewed almost as a black box. The firm pursues its goal of profit maximiza-tion by converting inputs into outputs in a purely mechanistic fashion.
Some of the earliest challenges to the neoclassical theory of the firm were developed in the 1950s and 1960s, in the light of growing evidence of the increas-ing complexity of firms, and the separation of the ownership of large corporations 108 Chapter 3 n Theories of the firm
(in the hands of shareholders) from control (in the hands of salaried managers).
Where previously it had been assumed that firms were run so as to maximize the interests of their owners, economists began to acknowledge that managers’ objec-tives may differ from those of the shareholders. In Baumol’s theory of sales revenue maximization, managers are assumed to seek to maximize the size of the firm meas-ured by its sales revenue, since managers’ compensation and prestige are assumed to depend more on firm size than on profitability. Profit cannot be ignored altogether, however, because the managers’ job security depends upon their ability to earn a satisfactory rate of return for the firm’s shareholders.
Marris develops a more dynamic model of growth maximization in the long run, which emphasizes the need for balanced growth in the demand for the firm’s pro-ducts and the firm’s capacity to supply. The managers’ pursuit of a growth strategy is subject to both a managerial and a financial constraint. Williamson develops a model based on the maximization of managerial utility, which depends on staff expenditure, managerial emoluments and discretionary profit. Finally, the beha-vioural theory of the firm associated with Cyert and March defines the firm in terms of its organizational structure and decision-making processes, involving all indi-viduals or groups with influence or interests in the organization’s activities. Decision making takes place in an environment of uncertainty or bounded rationality, as individuals and groups bargain in an attempt to secure rewards that meet their own aspirations. The resolution of conflict is facilitated by the existence of organizational slack which, in normal conditions, allows parties to receive rewards over and above the level necessary to prevent them from withdrawing their participation and support altogether from the organization.
Coase provides a natural point of departure for many of the more recent, altern-ative theories of the firm, by raising the question as to why institutions known as firms exist at all. In other words, why should the task of coordination or resource allocation be left within the sphere of the market in the case of some transactions, but handled within the domain of the firm for others? Coase’s answer is that the firm’s conscious method of coordination creates a saving in transaction costs: the costs incurred when using market mechanisms to allocate resources in a world of imperfect information. Coase’s original emphasis was on transaction costs incurred before contracts are concluded, such as the costs of negotiation. The later transac-tion costs literature, to which Williamson is perhaps the most influential contributor, focuses on costs incurred after contracts are concluded, arising from bounded rationality, asset specificity and difficulties in monitoring and enforcing compliance.
The transaction costs approach has been used to explore the question of the most effective organizational structure. With a U-form structure, the firm’s activities are subdivided into functional areas (marketing, finance, production, personnel), each of which is run by a specialist manager. However, effective coordination becomes more difficult as the U-form firm increases in size. In the twentieth century, such problems were addressed by the development of the M-form structure, in which the firm is divided into a number of quasi-independent operating divisions. Organiza-tional structures are adaptable in the light of changing conditions. With market transactions, agents modify their behaviour in response to price signals. In contrast, organizations rely on skilled or specialized managers to take decisions as to how the organizational structure should adapt and evolve.
3.9 Summary 109
110 Chapter 3 n Theories of the firm
Coase’s original insights have also influenced the development of Alchian and Demsetz’s theory of the firm as an efficient structure within which to organize team production. A central contracting agent (the employer or owner) carries out essential coordinating and monitoring functions, which cannot be performed effectively through the medium of markets. Jensen and Meckling’s nexus of contracts approach focuses attention on the entire set of contractual relationships which bind together the firm’s owners, employees, material suppliers, creditors, customers, and so on.
The firm encompasses a much wider set of relationships than those defined purely in terms of team production. Echoing the earlier managerial approach, agency theory emphasizes the conflicts that can arise between principals (owners or shareholders) and agents (managers). Under conditions of incomplete contracts and uncertainty, opportunities may arise for agents to act against the best interests of principals, unless the incentive structures confronting principals and agents are properly aligned.
Finally, in the property rights approach, a key distinction is drawn between specific rights defined explicitly in the terms of contracts, and residual rights which accrue to the owner once all specific rights have been assigned. In a world of incomplete contracts the ownership of the residual rights is of paramount importance. The ownership of the residual rights gives the firm control over access to physical assets, or less tangible assets such as brands or reputation.
Recently, resource-based or knowledge-based theories of the firm have been developed in the fields of management science and strategic management. These theories emphasize strategic choices facing the firm’s decision makers. The resource-based approach defines firms in terms of the resources they own and control.
Resources include both physical inputs and intangible resources including technical expertise and organizational structure. The firm’s resources combine to produce dis-tinctive capabilities, and the firm acts as a repository for all of the skills, knowledge and experience that have accumulated over time. Knowledge-based theories have developed in recognition of the idea that firms apply knowledge to the production of goods and services. Knowledge is emphasized as perhaps the most distinctive and important of all the firm’s resources.
Many of these theories have provided new insights and superior analytical tools with which to understand the modern organization. What seems clear is that no single theory can, by itself, adequately capture the essence of what a firm is, how it acts and how it evolves. Therefore it would be wrong to select one single character-istic, and expect a general theory to emerge from a partial analysis. A more productive approach is draw insights from each of the theories, so as to develop as broad an understanding as possible.
Discussion questions
1. Outline the strengths and limitations of the neoclassical theory of the firm in enhancing our understanding of firm behaviour.
2. With reference to Case studies 3.1 and 3.2, assess the extent to which shareholders can influence corporate objectives.
Further reading 111
3. Assess the contribution of the managerial theories of the firm of Baumol, Marris and Williamson to our understanding of the conduct and performance of firms.
4. What is bounded rationality, and why is it important?
5. With reference to Cyert and March’s behavioural theory of the firm, give examples of groups and coalitions within a specific organization with which you are familiar. Identify the possible conflicts between these groups, and suggest ways in which such conflicts can be resolved.
6. Explain why Coase believed that the defining characteristic of the firm was the supersession of the price mechanism.
7. In what ways do transaction costs influence the design of the most efficient organizational structure?
8. With reference Case study 3.3, examine the lessons concerning the limits to outsourcing that can be drawn from the experience of the UK’s rail industry.
9. The author of Case study 3.4 wrote: ‘By incorporating negative and highly pessimistic assumptions about people and institutions, pseudo-scientific theories of management have done much to reinforce, if not create, pathological behaviour on the part of managers and companies.’ To what extent do you agree or disagree with this view?
10. Some economists claim the firm is a collection of contracts. If so, in what ways does this differ from the market?
11. Assess the contribution of agency theory to our understanding of firm behaviour.
12. Discuss the extent to which the strategic and knowledge-based theories of the firm can be regarded as substitutes for the neoclassical and alternative economic theories of the firm.
Further reading
Bolton, P. and Scharfstein, D.S. (1998) Corporate finance, the theory of the firm and organizations, Journal of Economic Perspectives, 12, 95 –114.
Cowling, K. and Sugden, P. (1998) The essence of the modern corporation: markets, strategic decision-making and the theory of the firm, The Manchester School, 66, 1, 59 – 86.
Foss, N.J. (2003) The strategic management and transaction cost nexus: past debates, central questions, and future research possibilities, Strategic Organization, 1, 139 – 69.
Kaplan, S., Schenkel, A., von Krogh, G., and Weber, C. (2001) Knowledge-based theories of the firm in strategic management: a review and extension. Submitted to Academy of Management Review, www.mit.edu/people/skaplan/kbv-0301.pdf, retrieved 11 March, 2004.
Kay, J. (1999) Mastering Strategy, Financial Times, 27 September 1999 www.johnkay.com/strategy/135, retrieved 2 March 2004.
Koppl, R. (2000) Fritz Machlup and behavioralism, Journal of Industrial and Corporate Change, 9, 4.
Moss, S. (1984) The history of the theory of the firm from Marshall to Robinson and Chamberlin: the source of positivism in economics, Economica, 51, 307–18.
Shelanski, H. and Klein, P. (1995) Empirical research in transaction cost economics: a review of the evidence, Journal of Law, Economics and Organization, 11, 335 – 61.
Stigler, J. (1957) Perfect competition, historically contemplated, Journal of Political Economy, 65, 1–17.