Are Routines Necessary for an Evolutionary Theory of the Firm?
| Nicolai Foss |
The seminal and in many ways founding contribution to the evolutionary theory of the firm, and its numerous relatives in management, such as the knowledge-based , the competence , the capabilities, etc. views, is without much doubt Sidney Winter and Richard Nelson's An Evolutionary Theory of Economic Change from 1982.
The book is very heavily cited in management (e.g., it is among the top 10 cites in Strategic Management Journal), but has made less of an impact in economics (it was originally intended as an economics contribution rather than a contribution to management). The reason can be found in chapters 4 and 5 that develop notions of routines and organizational capabilities, and try to do so from the notion of individual skill. Since Nelson and Winter (1982) organizational routines have become a primitive in the definition of "higher-level" constructs, such as capabilities or "dynamic" capabilities.
In a number of recent papers (beginning with this paper, but mainly with Teppo Felin), I have identified and discussed various problems with the notion of routines. Very briefly, there are still no clean definitions of routines (which evidently makes it somewhat problematic to define capabilities etc. in terms of routines), the routines construct often implies a denial of methodological individualism, the empirical basis for asserting that routines are so strongly prevalent in real world firms that it is meaningful to think of firms in terms of routines is questionable, routines draw attention away from conscious, rational choice, etc. etc.
Given all these problems, one may ask why evolutionary economists and management scholars remain so infatuated with routines. Perhaps they just don't see the problems (or deny that there are the problems I claim). However,I believe the reason is that evolutionists believe that they must claim a firm-level counterpart to genes, and the relevant counterpart can only be found in features of organizations that are traits of the entity itself (i.e., the firm), transmit information/knowledge over time, and which are selectable. Some evolutionists talk about "organizational replicators."
However, it is far from clear to me whether the routines construct is strictly necessary to an evolutionary theory of the firm. What is needed for such a theory is sluggish, rather than perfect, adjustment. In biology, evolution simply means that gene frequencies change. Applied to domain of firms and industries, evolution means that firms have different rates of growth. However, there may be all sorts of reasons for differential growth that have nothing to do with routines. Firms can fall victim to political deadlocks among their various coalitions. Management may suffer from cognitive biases. There may be path-dependencies of all sorts. Etc. Such things are not easily placed under the rubric of routines. However, they seem to be just as, or more, real causes of sluggish adjustment as the presence of semi-mystical entities, called "routines."