Capabilities and organisational economics: how do they relate?

This interesting question is asked by Nicolai Foss at the Organizations and Markets blog. His answer is comes via the Strategy and Globalization blog:

A long-standing discussion in management research concerns the relation between capabilities perspectives on the firm and organizational economics, including transaction cost economics and agency theory. In particular, proponents of capabilities ideas have criticized organizational economics for exaggerating the role of opportunism (and similar constructs), neglecting value creation and downplaying dynamics. Conversely, proponents of organizational economics have criticized the lack of a clear unit of analysis, causal mechanisms and micro-foundations in the capabilities approach.

“While these early debates clarified many things,” says SMG Professor Nicolai J Foss, “the field is increasingly moving towards a more conciliatory stance in which the two perspectives are seen as capable of cross-fertilizing each other. This is going further than merely stressing a relation of complementarity in which capabilities ideas lend themselves to the explanation of organizational heterogeneity while organizational economics provides the understanding of the organization of heterogeneous resources and capabilities. The new view is that, notably, organizational economics has the potential of illuminating capability emergence and therefore organizational heterogeneity.”

With Nicholas Argyres (Washington University), Teppo Felin (Brigham Young University), and Todd Zenger (Washington University) Foss is an editor of the September-October issue of the leading management research journal, Organization Science, titled “Organizational Economics and Capabilities: From Opposition and Complementarity to Real Integration” (http://orgsci.journal.informs.org/content/23/5.toc). This special issue contains a number of articles by leading contributors to the discussion, and mixes theoretical, empirical and modeling approaches, as well as an introduction by the editors that survey the debate and defines a new agenda for research in the field.

“We are pleased that we got so many high-level contributions for this special issue,” says Foss, “and in particular that these contributions truly manage to define a new, creative research frontier where the emphasis is on researching the interplay between theoretical mechanisms identified by the two perspectives.