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Theories of the Firm

Theories of the Firm. Evolutionary Theory. Introduction. Unit of analysis: the firm and its “specific physical and human assets” (Chandler, 1992) These evolve over a relatively long period of time They involve cumulative and collective action. Concepts. Organisational capabilities

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Theories of the Firm

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  1. Theories of the Firm Evolutionary Theory

  2. Introduction • Unit of analysis: the firm and its “specific physical and human assets” (Chandler, 1992) • These evolve over a relatively long period of time • They involve cumulative and collective action

  3. Concepts • Organisational capabilities • Organisational routines • Dynamic capabilities • Organisational learning • Inertia

  4. The Theory • Routines and capabilities differentiate firms • Organisational learning enhances this difference and can increase competitiveness • The more rapidly routines develop, the more rapidly resources are released for dynamic capabilities • Illustration: Hilliard (2002)

  5. Critique • Evolutionary theory does not adequately incorporate innovation • This is because of its emphasis on automaticity of decision making (O’Sullivan, 2000, p.37) • As it is based on routines, the theory’s ability to embrace strategy, change and innovation is limited

  6. Advantages • Unlike neoclassical theory (R & I), evolutionary incorporates developmental and organisational (D & O) resource allocation • Dynamic capability “captures the strategic actions of deliberate reflection on firm learning and capability” (Hilliard, 2002).

  7. Sources G M Hodgson (2000), Evolution and Institutions: On Evolutionary Economics and the Evolution of Economics, Edward Elgar Zollo, M. and G Winter (2001), “Deliberate learning and the evolution of dynamic capabilities”. Paper given at the DRUID Nelson and Winter Conference, Aalborg, June 12-15, 2001 Mary O’Sullivan (2000), pp.29-38

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