organization of the modern firm the principles of organization got more attention among us than they...

Organization of the Modern Firm

The principles of organization got more attention among us than they did then in universities.

Alfred Sloan

What Organizations Do?

Organizations exist to motivate their members and coordinate their activities.

Chief Challenge – entrepreneurialism– knowledge

Successful Organizational Designs

Must solve the challenges of entre-preneurialism and knowledge in tandem

The Disaggregation imperative•Internal disaggregation•External disaggregation

Internal or External?

• Internal disagg. may not sufficient– how to solve “imperfect commitment”

• External disagg. may be the more straightforward choice

Enforced cooperation(coordination)

Personalinitiative

(motivation)

Market forms

Hierarchicalforms (firms)

Forms of Organization


Personalinitiative

(motivation)

Market forms


Impact of Disaggregation

Externaldisaggregation

Internal disaggregation

Relational Forms of Organization

The relational forms of organization, allow companies to make market-based relationships more like the coordinated interactions within a firm.– Alliances– joint ventures– long-term supplier relationships– licensing arrangements


Personalinitiative

(motivation)

Market forms


Innovative Relational Forms

Relationalforms

Managing Relational Forms

The Key to capturing value within a relational form is ownership of an asset that is both scarce and complementary.

– complementarity also operates within a firm

– call for carefully planning and continuous monitoring

The Difficulty of Knowledge Management

• Knowledge has complex characteristics

• disaggregation may put up barriers to the generation of knowledge.

Complex Characteristics of Knowledge

• extraordinary leverage and increasing returns

• tendency toward fragmentation and leakage

• need for refreshment

• uncertainty to value creation and value sharing

The Shape of the Modern Firm

No single form will prevail.

Organizations will adopt a variety of shapes, and change them as new strategic challenge emerge.

Case in Point

• The ABB Group– successful internal disaggregation

• British Airways– relational form of organization

• North West Company– established in 1779– with the shape of the “modern” firm

How does a firm integrate and thereby benefit from the decentralised tacit competences dispersed on multiple sites?

Theory of the Firm

Firm as a processor of information– a firm is a nexus of bilateral contracts

Firm as a process of knowledge– a firm is an evolving, knowledge-based

organization

Firm as a Processor of Information

• bounded rationality• principal-agent problem• the theory of teams• imperfect information problems

Firm as a Processor of Knowledge

• Evolutionary theory of Firm– cognitive mechanisms of individual

agents

• The creation and management of knowledge– firm is a locus where competences are

continuously built, managed, combined, transformed, tested and selected.

What Matters Is Not Information per se

• Information -> knowledge ->competence

• What may most hamper the firm’s dynamics is the risk of lock-in to inefficient routines rather than the problem of a limited capacity to deal with information.

The Elusive Notion of Competence

As Andreu and Ciborra (1996) suggest, there are three levels of learning process allow the emergence of new competences– routinization learning loop– capability learning loop– strategic loop

Competences

Competitive Environment

Core Competences

Resources

Work Practice

Routinizationlearning loop

Capabilitylearning loop

Strategic loop

The Notion of Distributed Competences

Granstrand et al (1997, CMS) suggested that, in the multi-technology corporations competences are distributed – across a large and increasing number of

technical field– in different parts of the organization– among different strategic objectives of the

corporation

The Organizational Knowledge-Creation Process

• Individual or collective learning activities

• Tacit knowledge vs. codified knowledge

• The interaction of tacit and codified knowledge forms the basis for creation of organizational knowledge

Combination Internalization

Externalization SocializationFrom

To

Explicit

Tacit

TacitExplicit

Modes of Knowledge Conversion (Nonaka, 1994)

Knowledge Transfer and Creation

According to Nonaka & Takeuchi (1995),dialogue between bodies of tacit and explicit knowledge forms the basis of a dynamic spiral of creation of new knowledge.

Things Are Different Now

Synergy and continuous innovation are increasingly required to cope with a rapidly changing environment, while the multi-divisionalized structure centralizes competences, in inter-product allocation and diversification, but decentralizes competences in inter-functional coordination.

organization of the modern firm the principles of organization got more attention among us than they...

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