S TRATEGY R ESEARCH ： G OVERNANCE A ND C OMPETENCE P ERSPECTIVES Written by: Oliver E. Williamson Published in: 1999 Presented by : Orange

S TRUCTURE 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

O VERVIEW OF TODAY ’ S PAPER Mahoney, 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

W ILLIAMSON 1999: F OCUS 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

W ILLIAMSON 1999: S TRUCTURE 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

W ILLIAMSON 1999: M AIN C ONTENTS S IX KEY MOVES OF G OVERNANCE 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

W ILLIAMSON 1999: M AIN C ONTENTS S IX KEY MOVES OF G OVERNANCE 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.

W ILLIAMSON 1999: M AIN C ONTENTS S IX KEY MOVES OF C OMPETENCE 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

W ILLIAMSON 1999: M AIN C ONTENTS C HALLENGES 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

W ILLIAMSON 1999: M AIN C ONTENTS R ESEARCH O PPORTUNITIES 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.

W ILLIAMSON 1999: M AIN C ONTENTS R ESEARCH O PPORTUNITIES

W ILLIAMSON 1999: M AIN C ONTENTS C ONCLUSIONS 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.

D ISCUSSIONS : R ELATIONSHIPS 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.