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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 ContentsResearch Opportunities

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.

Thank You!

Have a Great Day!

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