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A theory of the cultural evolution of the firm: the intra-organizational ecology of memes

Organization Studies, Oct, 2003 by John Weeks, Charles Galunic

Abstract

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In this article, we propose a theory of the cultural evolution of the firm. We apply cultural and evolutionary thinking to the questions posed by theories of the firm: What are firms and why do they exist? We argue that firms are best thought of as cultures, as social distributions of modes of thought and forms of externalization. Using the term 'meme' to refer collectively to cultural modes of thought (ideas, beliefs, assumptions, values, interpretative schema, and know-how), we describe culture as a social phenomenon, patterns of symbolic communication and behavior that are produced as members of the group enact the memes they have acquired as part of the culture. Memes spread from mind to mind as they are enacted and the resulting cultural patterns are observed and interpreted by others. The uncertainties of interpretation and the possibilities of reinterpretation and recontextualization create variation in the memes as they spread. Over time, firms evolve as a process of the selection, variation, and retention of memes. Our claim is that understanding firms in this way provides a new perspective (what we call the 'meme's-eye view') on the question of why we have the firms we have and, by allowing us to shed the functionalist assumptions shared by both economics and knowledge-based theories of the firm, makes possible a genuinely descriptive, as opposed to normative, theory of why we have the firms that we have.

Keywords: organizational culture, evolution, intra-organizational ecology, theory of the firm

Introduction

Theories of the firm seek to answer the question: Why do we have firms? Yet, in phrasing the question that way, we must not lose sight of the important extent to which firms have us. Business organizations exert a tremendous cultural influence in modern society. Not only do we have an organizational economy, as Simon (1991: 28) says, but our expectations, preferences and, indeed, our very sense of identity are shaped by organizational forces. It is perhaps this pervasive cultural influence that makes it so difficult to answer the question of why firms exist. The most direct answer may be that we have firms today because we had them yesterday. That is, we believe we need firms in large part because we have been schooled to believe we need them. They serve our purposes because they have a hand in defining those purposes and in evaluating their achievement.

If this is true, it means a functionalist approach that treats firms as if they were merely our tools and seeks to explain their existence by identifying the efficiency or effectiveness advantages afforded by coordinating business activities in a firm, rather than through a market, will not get us very far. Any serious theory of the firm has to be able to explain why we have the organizations we actually do have, with their persistent mix of functional, dysfunctional, and apparently indifferent elements. It is not enough to explain the firms we should have and dismiss the rest as noise. Nevertheless, this has been the approach that theories of the firm have traditionally taken. They have been essentially normative theories, though claims have been made for their descriptive power as well. They have proceeded by identifying why we should have firms (their performance advantages over market forms of coordination) and assuming that if these advantages exist in theory they will be realized in fact.

We argue that a truly descriptive theory of the firm needs to take seriously the idea that firms are fundamentally cultural in nature and, further, that cultures evolve. It must explain why the cultural patterns we recognize as firms have emerged and how they evolve. Accordingly, in this article, we propose a theory of the cultural evolution of the firm. We first consider the two most influential extant theories of the firm to motivate our argument and show that our theory can capture the important insights of these earlier efforts while avoiding their limitations. Next, we outline our theory of how firms as cultures evolve through the retention, selection, and variation of memes, a concept we define and elaborate. Lastly, drawing heavily upon the historical data gathered by Chandler (1962; 1977), we turn directly to the question of the origins and persistence of the cultural form we call the firm.

Extant Theories of the Firm

The first theory of the firm, and probably still the most prominent, is transaction cost economics (Coase 1937; Williamson 1985). Its thesis is that firms exist to the extent that they are efficient contractual instruments. That is, individuals will organize themselves in a firm, rather than contract in a market, when doing so economizes on transaction costs. In the past decade, an important challenger to this economic theory of the firm has emerged: a knowledge-based view of the firm that is grounded in the fields of organization theory and strategy (Kogut and Zander 1992; Conner and Prahalad 1996; Grant 1996). The knowledge-based theory of the firm posits that firms exist because they are better than markets at integrating and applying valuable knowledge to business activity.

A theory of the cultural evolution of the firm: the intra-organizational ecology of memes

Organization Studies, Oct, 2003 by John Weeks, Charles Galunic

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