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Organizational process, strategic content and socio-economic resources: small enterprises in East Germany, 1990-94

Organization Studies, Oct, 2003 by Arndt Sorge, Martin Brussig

Abstract

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The theory of the firm implies a framework which links up conceptually diverse aspects and approaches. This article tests a specific framework: an interactionist variant of co-evolution theory derived from an article by Hrebiniak and Joyce. Organizations are viewed as enacting different combinations of strategic choice and environmental determinism, which point toward specific market forms and internal processes, through a process of mutual adaptation. Co-evolutionary configurations are hypothesized to have an effect on resource outcomes (profitability and employment). The present article tests this theory, based on a combined qualitative study and standardized questionnaire investigation of a quota sample of 120 smaller enterprises in East Germany. This refers to an environment which, because of the new and rapid emergence of new firms subdivided into different types, can be seen to render the application of interactionist co-evolutionism particularly exigent. It was found that the typology derived according to the framework performed well in predicting and explaining economic performance and employment development. It is suggested that this type of study, linking internal and external organizational characteristics within an interactionist scheme, has potential. It would also help to systematize and control co-evolutionary research on the firm following a coherent research design, going beyond the liberal interpretation of historical information.

Keyword: co-evolution, interactionism, theory of the firm, strategic choice, East Germany, small business

Introduction

The evolutionary theory of the firm brings together contributions from fields as varied as general economic theory, strategy, organization and management theory, and industrial organization and economics. When scholars discuss 'the firm', one implication is that 'the firm' is the capitalist firm operating within a regulatory framework which in principle makes competition between firms possible in a market economy. Furthermore, the firm is constituted and run following comparatively utilitarian motives and has relatively specific goals. Another implication is that there is a large variety of firm types; firms are not uniformly what a governing order appears to require or promote. Firms evolve into differentiated configurations. There are basically two opposed perspectives to explain how this happens; Hodgson (1997: 92-93) distinguished between 'evolutionary and competence-based theories', on the one hand, and 'contractarian approaches', on the other. Evolutionary and competence-based approaches, notably the resource-based view of the firm, imply the following:

* A recognition of learning-by-doing as a source of endogenous growth, implying a process of development in contrast to static and equilibrium-based approaches

* A recognition of the role of radical uncertainty, in principle, with regard to fundamental information and knowledge

* A recognition of tacit knowledge, embodied in individuals and social relations within the firm and beyond, and

* Limits to contractibility, for the procurement of resources, because of tacit, idiosyncratic and context-dependent knowledge.

The firm obtains its commercial aridity to contract and generate measurable value through path-dependent social construction of endowed resources in interaction with the development of strategic orientation, elaboration of goals and an internal array of routines and regularities (Nelson and Winter 1982).

The concrete form of a firm is thus to some extent self-made, but this self-creation is always interdependent with the selection and fashioning of external references (suggested norms or practices, externally supplied resources, and market and financial opportunities).

The contractarian approaches mentioned by Hodgson are in a tenuous relationship with what he identified as recent lessons in the evolutionary theory of the firm. They are more focused on measurable results, tangible rather than somewhat elusive factors of production, clear relationships with efficiency and effectiveness, explicit contracts or contracts that can be made explicit between agents, and managerial responsibility. Marris (1997) has grouped, discussed and summarized them under 'managerial theories of the firm'. However, their affinity with industrial economics is greater. In a larger theory of the firm, they are indispensable, although in opposition to evolutionary approaches.

The theory of the firm is thus subject to internal tensions. There have, however, been conceptually significant attempts to try the near impossible and integrate theoretically divergent approaches under a broader roof. A pragmatic synthesis is certainly viable, for which Grandori (1997) has furnished a noteworthy example. Different angles of attack may, however, be chosen. It is also characteristic that competing approaches to a theory of the firm increasingly overlap. Theories of the firm in capitalist market economies tend to combine, with different emphases, the following ingredients:

Organizational process, strategic content and socio-economic resources: small enterprises in East Germany, 1990-94

Organization Studies, Oct, 2003 by Arndt Sorge, Martin Brussig

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