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Strategy Research : Governance And Competence Perspectives. Written by: Oliver E. Williamson Published in: 1999 Presented by : Orange . Structure of today’s presentation. Overview of today’s reading Williamson 1999 paper: The focus of this paper The structure of this paper
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Strategy Research: Governance And Competence Perspectives Written by: Oliver E. Williamson Published in: 1999 Presented by : Orange
Structure of today’s presentation • Overview of today’s reading • Williamson 1999 paper: • The focus of this paper • The structure of this paper • The main contents of this paper • What is the future research from this paper • Discussions • Williamson’s work in Transaction Cost • The relationship among today’s papers
Overview of today’s paper • Mahoney, 2005 --- Transaction cost theory • Original – Coase 1937 • Development – Arrow 1974; Williamson 1971, 1979; etc • TC theory helps to describe, explain and predict governance based on comparative efficiency criteria • Klein, Crawford and Alchian, 1978 • Governing cost high, seeking for long term contracts • Opportunisms and assets appropriation • Further study might consider Libecap 1989 • Williamson, 1991 • Contract law; Organization forms • Zajac and Olsen, 1993 • Analyze inter-organization value through transaction value framework • Joint value maximization and the process to attain it • The paper can be related to Stakeholder theory and Property Rights Theory • Williamson, 1999 • Governance and Competence in Strategy • Bucheli, Mahoney and Vaaler, 2010 • Transaction cost Theory and the emergence of American firm integration
Williamson 1999:Focus of this paper Focus of this paper • This paper applies the lenses of governance and competence to the study of strategy. • Both perspectives contain reasoning of Organization theory • Governance perspective – greater prominence to economics; TCE involved • Competence perspective – greater prominence to organization theory; “process” oriented
Williamson 1999:Structure of this paper Structure of this paper • Six key moves of Governance perspective • Six same key moves of Competence perspective • Challenges of competence perspective for Governance • Conclusions
Williamson 1999: Main ContentsSix key moves of Governance Economists, TCE • Human Actors • In favor of bounded rationality to hyper-rationality; Incomplete contract • Self-interest; opportunism • Foresighted rather than nearsighted • Unit of Analysis • Commons: basic unit analysis • For operationalization, use dimensions: frequency, uncertainty and degree of asset specificity • Describing the Firm • In organization terms rather than technological term • To deal with Coasian puzzle, hypothesize “replication” and “selection” intervention • Purposes Served • The discriminating alignment hypothesis (See in figure 1 on next page) • Empirical • The theory and evidence display a remarkable congruity • Better empirical will be beneficial • Efficiency Criterion • More conceptual rather than operational • Efficiency is rebuttable
Williamson 1999: Main ContentsSix key moves of Governance • The discriminating alignment hypothesis --- according to which transactions, which differ in their attributes, are aligned with governance structures, which differ in their cost and competence, so as to effect an economizing result.
Williamson 1999: Main ContentsSix key moves of Competence • Human Actors • Bounded rationality • Myopia rather than foresighted • Not mention trust, commitment, mind etc. (mentioned as opportunisms in TC) • Unit of Analysis • Routine is the basic unit analysis • Three routines(Nelson and Winter 1982): Short run; investment; long-run • Describing the Firm • Reject that firm is a production function • Emphasizes management and organization features • Purposes Served • Penrose 1959, the distinctive competence of the firm resides in making better use of its resources • To operationalize, first address: Which firms are more and which are less competent in deploying their institutional capabilities to protect their knowledge? • Empirical • Much of the competence perspective entails ex post rationalizations for success and has been remiss in predictive respects. • Williamson 1996: view transaction cost economics as feeding into the competence perspective in much the same way as organization theory is grist for the study of governance • Efficiency Criterion • Claim that competence deals with dynamic efficiency --- essential about learning and innovation • But criteria about how to judge dynamic efficiency has never been posted
Williamson 1999: Main ContentsChallenges • Challenges from “competence perspective” for TCE • Mistaken critiques – critiques the author focused on • opportunism does not have the organizational consequences that have been ascribed to it • transaction cost is a static concept and needs to be made dynamic, • governance does not engage the issues of management. • Opportunism • zeroing out opportunism has different and pervasive organizational results • initial conditions can be more consequential than they are usually treated by TCE • Dynamic TCE • TCE has been criticized as static since they deal with equilibrium • Author: intertemporal complications are not merely incidental but are central to the transaction cost economics project • Easy to say than to do • Management • Significant provision for management does not imply adequate provision for management
Williamson 1999: Main ContentsResearch Opportunities • Beyond Peace-meal • Interaction Effects; need to redefine “transaction” • Aggregation: firm as a whole > Σ(all parts) • Beyond Generic Governance: Strategy • Rumelt, Schendel, and Teece 1991: Of all the new fields of economics, the transaction cost branch of organizational economics has the greatest affinity with strategic management • Allow competition • Assumes specialized investment • Learning • Relate learning to foresight and examine the ramifications for some of the myopic biases to which learning is subject. • See in Table 1.
Williamson 1999: Main ContentsConclusions • The competence perspective is attuned to good issues and challenges both orthodoxy and the governance perspective to be responsive. • Competence and Governance – Rival and Complementary (more complementary) • Both of them are bounded rationality constructions and hold that organization matters, so share much in common. • Governance is more microanalytic (the transaction is the basic unit of analysis) and adopts an economizing approach to assessing comparative economic organization • competence is more composite (the routine is the unit of analysis?) and is more concerned with processes (especially learning) and the lessons for strategy.
Discussions:Relationships among the papers • The first three paper looks at the TCE in the firms and organizations. They are under the assumptions of TCE and are more like theory papers • The fifth paper, is more like a “case study”, instead of going to the theory, the paper applies theory into cases and see how the theory works • The fourth paper, unlike the rest of the paper, compares two different ways of doing strategy research rather than only focus on TCE. • These five papers, are also complementary to our study of TCE.
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