1. Strategy Research: Governance and Competence Perspectives Oliver E
Strategy Research: Governance and Competence Perspectives Oliver E. Williamson, 1999, SMJ Eva Herbolzheimer

2. Objective and Introduction
Comparing the Governance (TCE) and the Competence (Capabilities) approaches and exploring future research opportunities and issues.
“Six Key Moves” through which TCE has been operationalized, and applying the same moves to the competence perspective
Key issues that TCE must address:
Dynamic Transaction Costs
Learning
Generic Governance in TCE

3. Six moves to operationalize TCE (I)
Human actors
Bounded rationality, which leads to incomplete contracting
Foresight (to build in dispute settling to incomplete contract)
Self-interest
Adverse selection, moral hazard and opportunism
Unit of analysis
Transaction
TCE variables: frequency, uncertainty, and asset specificity
Describing the firm
In organizational terms as a governance structure rather than technological term (firm vs. market)
Incentive intensity, administrative controls and legal rules regime
To deal with Coasean puzzle: “replication,” “selective intervention,” and bureaucratic costs

4. Six moves to operationalize TCE (II)
Purposes Served
Discriminating alignment hypothesis: transactions are aligned with governance structures (transaction specific investment cost = k; safeguards = s)

5. Six moves to operationalize TCE (III)
Empirical
The theory and evidence display a remarkable congruity
Efficiency criterion
No feasible superior alternative
More conceptual rather than operational
Rebuttable

6. Six moves to operationalize competence (I)
Human actors
Bounded rationality (implicit) e.g., learning and incomplete contracting
Myopia (fire department)
Emphasize elusive notion of trust instead of opportunism
Unit of analysis
Resource in the resource-based approach
Routine for evolutionary economics theory
Describing the firm
Emphasizes management and organization features and rejects that firm is a production function
Firm as bundle of resources / routines
Doesn’t address limit to firm size issue (only limit to growth)

7. Six moves to operationalize competence (II)
Purposes served
When to learn and develop interpersonal relations in a single, combined firm rather than in two separate firms?
Which firms are more and which are less competent in deploying their institutional capabilities to protect their knowledge?
Empirical
Entails ex post rationalizations for success and has been remiss in predictive respects
Research opportunity: view TCE as feeding into the competence perspective in much the same way as organization theory is grist for the study of governance
Efficiency criterion
Competence deals with dynamic efficiency (learning and innovation)
A feasible criterion for judging dynamic efficiency is never proposed
Path dependency

8. Overdrawn critiques of TCE
Opportunism does not have the organizational consequences that have been ascribed to it
Opportunism absent: no moral hazard, adverse selection, shirking, filtering, undisclosed sub-goal pursuit, distortions etc.
Initial conditions can be more consequential
Transaction cost is a static concept and needs to be made dynamic
Timely adaptation and timely convergence
Intertemporal arguments are central to TCE
But, TCE could benefit from more dynamic constructions
Governance does not engage the issues of management
Underdeveloped cognitive specialization, imperfect understanding of bureaucracy and entrepreneurship

9. Research opportunities from “competence perspective” for TCE (I)
Beyond piecemeal
Redefine the transaction to consider interaction effects
The firm as a whole is larger than the sum of parts (e.g. informal organization)
Learning
Relate learning to foresight and examine the myopic tendencies of learning.
Call for the lens of both TCE and competence to uncover the myopic biases
Beyond generic governance: strategy (see table 1)

10. Research opportunities from “competence perspective” for TCE (II)

11. Conclusion
Governance and competence are both rival and complementary (more complementary).
Both can answer the key questions of existence, structure, and boundaries of firms.
For the competence perspective, the principal factor explaining the existence, structure, and boundaries of firms is the capacity of such an organization to protect and develop the competences of groups and individuals contained within it
For TCE, the principal factor is transaction cost.
TCE informs the generic decision to make-or-buy while competence brings in particulars (learning, path dependences, technological opportunities, and complementary assets)

12. Discussion
What advances in operationalization has the competence perspective made in the time since Williamson’s 1999 article was published?
What advances has TCE made in order to respond to the critiques of the advocates of the competence perspective?