Academics From The United States

"Most organisations firms are simply legal fictions which serve as a nexus for a set of contracting relationships among individuals."

"We define agency costs as the sum of:"

"We define an agency relationship as a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent. If both parties to the relationship are utility maximizers there is good reason to believe that the agent will not always act in the best interests of the principal."

"This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears the costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem."

"This paper analyzes the relations between knowledge, control and organizational structure both in the market system as a whole and in private organizations. Limitations on the mental capacity of the human mind and the costs of producing and transferring knowledge means that knowledge relevant to all decisions can never be collected in the mind of a single individual or a small body of experts. This means that if the knowledge valuable to a particular decision is to be used in making that decision, there must be a system for partitioning out decision rights to individuals who already have the relevant knowledge and abilities or who can acquire or produce them at the lowest cost. Self interest on the part of individual decision-makers means a control system is required to motivate individuals with the decision rights and the relevant knowledge to use those decision rights appropriately. This control problem is solved in a capitalist economy by a system of alienable property rights."

"The corporation as an organizational form is an enormously productive social invention. Partly because of its success it is under increasing attack from various quarters, often under the guise of “protecting” investors from self-interested managers. Some of these attacks are successful simply because the corporation is a poorly understood entity. This paper discusses what the corporation is, what it is not, and how certain misconceptions about the corporate form are fostered by its critics as part of their attack."

"A major social problem we face today is how to control the political process that is eroding the free enterprise market system. Although I am pessimistic that we will in fact ever resolve this problem completely, we will surely never solve it unless we develop a viable positive theory of the political process. Such a political theory will not be complete until we also have developed a theory that explains why we get the results we do out of the mass media."

"It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary -- the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the 'labor-managed firm' system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i.e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation."

"The relationship of agency is one of the oldest and commonest codified codes of social interaction. We will say that an agency relationship has arisen between two (or more) parties when one, designated as the agent, acts for the other, designated the principal, in a particular domain of decision problems. Examples of agency are universal."

"[In the early 1900s, ecologists Alfred Lotka and ] independently proposed models of populations dynamics that incorporate effects of competition between populations."

"The existing literature usually stresses the capacity of organizations to learn about and adapt to uncertain, changing environments. We think this emphasis is misplaced. The most important issues about the applicability of evolutionary-ecological theories to organizations concern the timing of changes. Learning and adjusting structure enhance the chance of survival only if the speed of response is commensurate with the temporal patterns of relevant environments."

"Inertial pressures prevent most organizations from radically changing strategies and structures."

"Natural selection, as it is actually used in evolutionary population biology, serves mainly as an optimization process. In fact, the reasoning that underlies much evolutionary biology often strikes social scientists as strongly reminiscent of neoclassical economics."

"A system with greater organizational diversity has a higher probability of having in hand some form that does a reasonably satisfactory job of dealing with the changed environmental conditions. Adaptation in such a system means reallocating resources from one type of existing organization to another, either by command or by market mechanisms, rather than trying to identify and create appropriate organizational forms."

"For wide classes of organizations there are very strong inertial pressures on structure arising from both internal arrangements (for example, internal politics) and from the environment (for example, public legitimation of organizational activity). To claim otherwise is to ignore the most obvious feature of organizational life. Failing churches do not become retail stores nor do firms transform themselves into churches."

"The concept of "niche," initially borrowed by biologists from early social science, plays a central role in ecological theory... The niche... consists of all those combinations of resource levels at which the population can survive and reproduce itself."

"We argue that in order to deal with the various inertial pressures the adaptation perspective must be supplemented with a selection orientation. We consider first two broad issues that are preliminary to ecological modelling. The first concerns appropriate units of analysis. Typical analyses of the relation of organizations to environments take the point of view of a single organization facing an environment."

"Legitimacy constraints also emanate from the environment. Any legitimacy an organization has been able to generate constitutes an asset in manipulating the environment. To the extent that adaptation (e.g., eliminating undergraduate instruction in public universities) violates the legitimacy claims, it incurs considerable costs. So external legitimacy considerations also tend to limit adaptation."

"Once standards of procedures and the allocation of tasks and authority become the subject of normative agreements, the cost of change greatly increased. Normative agreements constrain adaptation in at least two ways. First, they provide a justification and an organizing principle for those elements that wish to resist reorganization (i.e. they can resist in terms of a shared principle). Second, normative agreements preclude the serious consideration of many alternative responses."

"A population ecology perspective on organization-environment relations is proposed as an alternative to the dominant adaptation perspective. The strength of inertial pressures on organizational structure suggests the application of models that depend on competition and selection in populations of organizations. Several such models, as well as issues arising in attempts to apply them to the organization-environment problem, are discussed."

"Hannan and Freeman examine the ecology of organizations by exploring the competition for resources and by trying to account for rates of entry and exit and for the diversity of organizational forms. They show that the destinies of organizations are determined more by impersonal forces than by the intervention of individuals by the intervention of individuals."

"Freeman’s early research focused on organizational politics and the variations among organizations in the ratios of managers and supervisors to the rest of the work force. Freeman’s empirical studies revealed that organizations in decline have higher “administrative intensity” than similar-sized growing organizations because staffing decisions are made by managers, who might be expected to favor their close associates. The pattern came to be known as the “Freeman effect” and became a staple of macro-organization theory."

"Until the mid-1970s, the prominent approach in organization and management theory emphasized adaptive change in organizations. In this view, as environments change, leaders or dominant coalitions in organizations alter appropriate organizational features to realign their fit to environmental demands.. Since then, an approach to studying organizational change that places more emphasis on environmental selection processes, introduced at about that time (Aldrich and Pfeffer 1976; Hannan and Freeman 1977; Aldrich 1979; McKelvey 1982), has become increasingly influential. The stream of research on ecological perspectives of organizational change has generated tremendous excitement, controversy and debate in the community of organization and management theory scholars. Inspired by the question, Why are there so many kinds of organizations?"

"Hannan and Freeman examine the ecology of organizations by exploring the competition for resources and by trying to account for rates of entry and exit and for the diversity of organizational forms. They show that the destinies of organizations are determined more by impersonal forces than by the intervention of individuals by the intervention of individuals."

"Entrepreneurs often are organizational products... The capital required, human resources, space, information, permits and licenses are all provided, perhaps grudgingly, by existing organizations."

"Professor Rumelt’s research has centered on corporate diversification strategy and the sources of sustainable advantage to individual business strategies. His current research interests center on the dynamics of industry transitions with a focus on the patterns and forces shaping the evolution of complex industries."

"Throughout his long career Rumelt published little. But his influence grew slowly, and interest in his ideas was reignited in 2007 by a widely read interview published in McKinsey Quarterly. His most influential thoughts were contained in just two articles published some ten years apart. In 1982 he demonstrated that there was a statistical link between corporate strategy and profitability, showing that somewhat diversified companies performed better than highly diversified ones. And in 1991 he published a controversial paper arguing that neither the ownership of a business nor the industry that it was in could explain the bulk of the difference in profitability between different businesses. Being good at what you do, he maintained, counted for a lot more."

"A strategy coordinates action to address a specific challenge. It is not defined by the pay grade of the person authorizing the action."

"The kernel of strategy contains three elements:"

"When organizations are unable to make new strategies — when people evade the work of choosing among different paths in the future — then you get vague mom-and-apple-pie goals everyone can agree on. Such goals are direct evidence of leadership’s insufficient will or political power to make or enforce hard choices."

"A leader’s most important job is creating and constantly adjusting this strategic bridge between goals and objectives."

"Having conflicting goals, dedicating resources to unconnected targets, and accommodating incompatible interests are the luxuries of the rich and powerful, but they make for bad strategy. Despite this, most organizations will not create focused strategies. Instead, they will generate laundry lists of desirable outcomes and, at the same time, ignore the need for genuine competence in coordinating and focusing their resources. Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does."

"Given that background, I was interested in what Steve Jobs might say about the future of Apple. His survival strategy for Apple, for all its skill and drama, was not going to propel Apple into the future. At that moment in time, Apple had less than 4 percent of the personal computer market. The de facto standard was Windows-Intel and there seemed to be no way for Apple to do more than just hang on to a tiny niche."

"The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action."

"Despite the roar of voices wanting to equate strategy with ambition, leadership, “vision,” planning, or the economic logic of competition, strategy is none of these. The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors."

"Nelson’s challenge was that he was outnumbered. His strategy was to risk his lead ships in order to break the coherence of his enemy’s fleet. With coherence lost, he judged, the more experienced English captains would come out on top in the ensuing melee. Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain. It does not pop out of some "strategic management" tool, matrix, chart, triangle, or fill-in-the-blanks scheme. Instead, a talented leader identifi es the one or two critical issues in the situation—the pivot points that can multiply the effectiveness of effort—and then focuses and concentrates action and resources on them."

"In 1805, England had a problem. Napoléon had conquered big chunks of Europe and planned the invasion of England. But to cross the Channel, he needed to wrest control of the sea away from the English. Off the southwest coast of Spain, the French and Spanish combined fleet of thirty-three ships met the smaller British fleet of twenty-seven ships. The well-developed tactics of the day were for the two opposing fleets to each stay in line, firing broadsides at each other. But British admiral Lord Nelson had a strategic insight. He broke the British fleet into two columns and drove them at the Franco-Spanish fleet, hitting their line perpendicularly. The lead British ships took a great risk, but Nelson judged that the less-trained Franco-Spanish gunners would not be able to compensate for the heavy swell that day. At the end of the Battle of Trafalgar, the French and Spanish lost twenty-two ships, two-thirds of their fleet. The British lost none. Nelson was mortally wounded, becoming, in death, Britain’s greatest naval hero. Britain’s naval dominance was ensured and remained unsurpassed for a century and a half."

"Then, in 1998, I had the chance to talk with Steve Jobs after he’d come back and turned Apple around. I was there to help Telecom Italia try to do a deal with Apple, but after that business was completed I couldn’t help asking a question. “Steve,” I said, “this turnaround at Apple has been impressive. But everything we know about the personal-computer business says that Apple will always have a small niche position. The network externalities are just too strong to upset the de facto “Wintel” standard. So what are you trying to do? What’s the longer-term strategy?”"

"Back in the mid-1990s I was researching strategy in the global electronics industry. I interviewed 20 to 30 executives, CEOs, and division managers and asked fairly simple questions. Which company was the leader in their market? How did that company become the leader? What’s their own company’s strategy?"

"Some of the biggest changes have been in the process of generating business strategies—what I call “strategy work.” Around 1980, the received wisdom was to decentralize into business units, which would each generate a strategic plan. These plans were then amalgamated up the hierarchy, in some portfolio way, for senior management. That approach has all but disappeared, and we’ve seen a dramatic recentralization of strategy work."

"For Schumpeter the most important firms are those that serve as the vehicles for action of the real drivers of the system — the innovating entrepreneurs."

"A major advancement in the strategy field is the development of models where firm heterogeneity is an endogenous creation of economic actors."

"I consider myself a mainstream researcher in the field of business policy, and the ideas I want to describe in this paper concern the foundations of a theory of business strategy that is rooted in economics. But is such a paper, whatever its merits, really appropriate at a conference entitled 'Non-traditional Approaches to Policy Research'? Surprisingly, it is. The use of economic theory to model and explicate business strategy, as it is understood within the field of business policy, is distinctly non-traditional."

"This study partitions the total variance in rate of return among FTC Line of Business reporting units into industry factors (whatever their nature), time factors, factors associated with the corporate parent, and business-specific factors. Whereas Schmalensee (1985) reported that industry factors were the strongest, corporate and market share effects being extremely weak, this study distinguishes between stable and fluctuating effects and reaches markedly different conclusions. The data reveal negligible corporate effects, small stable industry effects, and very large stable business-unit effects. These results imply that the most important sources of economic rents are business-specific; industry membership is a much less important source and corporate parentage is quite unimportant."

"In summary, uncertain imitability obtains shen creation of new production functions is inherently uncertain and when either causal ambiguity or property rights in unique resources impede imitation and factor mobility."

"Ambiguity as to what factors are responsible for superior (or inferior) performance acts as a powerful block on both imitation and factor mobility."

"Prior work has shown an association between diversification strategy and profitability. This paper replicates that association using more recent and complete data and goes on to investigate the sources of the association. Theoretical arguments are advanced which predict the association which will remain once the effects of varying industry profitability are removed. Empirical tests verify this prediction and permit the discrimination between the effects of industry and diversification strategy on profitability."

"It is commonly accepted that successful performance of a firm hinges on restricting activities to cultivating a related and familiar range rather than 'bold moves into uncharted'."

"The enhanced ability to obtain external funding and ... capacity to deploy capital internally to the most promising of a wide range of divisional ventures."

"[In related businesses] common skill, market or resource applies to each."