“Selective Intervention and Internal Hybrids: Interpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization.” Organization Science 14: 331-349.
Infusing hierarchies with elements of market control has become a much-used way of simultaneously increasing entrepreneurialism and motivation in firms. However, this paper argues that such “internal hybrids,” particularly in their radical forms, are inherently hard to successfully design and implement, because of fundamental credibility problems related to managerial promises to not intervene in delegated decision-making ¾ an incentive problem that is often referred to as the “problem of selective intervention.” This theoretical theme is developed and illustrated, using the case of the world-leading Danish hearing aids producer, Oticon. In the beginning of the 1990s, Oticon became famous for its radical internal hybrid, the ”spaghetti organization.” Recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by imposing loose coupling on the organization, neglecting, however, that about a decade later, the spaghetti organization has given way to a more traditional matrix organization. This paper presents an organizational economics interpretation of organizational changes in Oticon, and argues that a strong liability of the spaghetti organization was the above incentive problem. Motivation in Oticon was strongly harmed by selective intervention on the part of top-management Changing the organizational structure was one means of repairing these motivational problems. Refutable implications are developed, both for the understanding of efficient design of internal hybrids, and for the more general issue of the distinction between firms and markets, as well as the choice between internal and external hybrids.
“Bounded rationality in the economics of organization: “Much cited and little used,” Journal of Economic Psychology 24: 245-264.
Herbert Simon was the apostle of bounded rationality. He very often illustrated bounded rationality in the context of the theory of the firm, and was, of course, a major contributor to organizational theory. However, in spite of Simon’s efforts, I argue that bounded rationality has been only incompletely absorbed in the economics of organization, is little used for substantive purposes, and mostly serves a rhetorical function. In order to substantiate these claims, I discuss and compare alternative approaches to integrating bounded rationality with the theory of economic organization. I argue that in general bounded rationality is treated “thinly,” and is actually not necessary for producing the main insights of these theories. The paper ends with a brief discussion of how to proceed with integrating richer notions of bounded rationality with the theory of economic organization.
(with Thorbjørn Knudsen) "The Resource-based Tangle: In Search of Sustainable Foundations,” . Managerial and Decision Economics 24: 291-307.
To advance the RBV we propose separation of necessary and additional conditions for the expression of SCA. We argue that there are only two necessary conditions, namely uncertainty and immobility and that all other conditions are additional.
“The Strategic Management and Transaction Cost Nexus: Past Debates, Central Questions, and Future Research Possibilities,” Strategic Organization 1: 139-169.
The role of transaction cost economics (broadly conceived) in developing research in strategic management has been a hotly debated topic over the last decade. This methodological essay develops the argument that transaction cost insights are more than merely useful complements to existing approaches to strategic management. Rather they are necessary for adequately understanding the nature of strategizing, because transaction costs are essential aspects of processes of creating, capturing and protecting value. If transaction costs are zero, these processes do not pose any strategic problems. However when transaction costs are positive, opportunities for value creation through the reduction of inefficiencies caused by transaction costs exist, and protecting and appropriating value are costly activities that dissipate value. The use in strategic management of models in which the fullest possible account of transaction costs is taken is contrasted with more constraining models, in particular the patched-up competitive equilibrium models that are now used as the benchmark models in some important parts of strategic management research, most notably in the core models of the resource-based view.
“Bounded Rationality and Tacit Knowledge in the Organizational Capabilities Approach: an Evaluation and a Stocktaking,” Industrial and Corporate Change 12: 185-201.
The famous three chapters in Nelson and Winter's An Evolutionary Theory of Economic Change (1982) that focus on firm routines and capabilities are often taken to be solidly founded on an assumption of bounded rationality. I argue that, in actuality, bounded rationality plays a rather limited role in Nelson and Winter (1982), that the very different assumption of tacit knowledge is much more central, and that the links between bounded rationality and routines/capabilities are not clear. I then argue that the absence in Nelson and Winter of a clear methodological individualist foundation for notions such as routines, capabilities, competencies, etc., has resulted in certain explanatory difficulties in the modern organizational capabilities approach that has taken so much inspiration from their work.
(with Keld Laursen) “New HRM Practices, Complementarities, and the Impact on Innovation Performance” , Cambridge Journal of Economics 27: 243-263.
In this paper, we take our theoretical point of departure in recent work in organisational economics on systems of human resource management (HRM) practices. We develop the argument that just as complementarities between new HRM practices influence financial performance positively, there are theoretical reasons for expecting them also to influence innovation performance positively. We examine this overall hypothesis by estimating an empirical model of innovation performance, using data from a Danish survey of 1,900 business firms. Using principal component analysis, we identify two HRM systems which are conducive to innovation. In the first one, seven of our nine HRM variables matter (almost) equally for the ability to innovate. The second system is dominated by firm-internal and firm-external training. Of the total of nine sectors that we consider, we find that the four manufacturing sectors correlate with the first system. Firms belonging to wholesale trade and to the ICT intensive service sectors tend to be associated with the second system.