The Microfoundations Movement in Strategy and Organization Theory

Abstract

Microfoundations have received increased attention in strategy and organization theory over the past decade. In this paper, we take stock of the microfoundations movement, its origins and history, and disparate forms. We briefly touch on similar micro movements in disciplines such as economics and sociology. However, our particular focus is on the unique features of the microfoundations movement in macro management. While the microfoundations movement in macro management does seek to link with more micro disciplines such as psychology and organizational behavior, it also features a unique set of questions, assumptions, theoretical mechanisms, and independent/dependent variables that complement the focus in the micro disciplines. We also discuss the disparate criticisms of the microfoundations literature and the challenges the movement faces, such as defining distinct theoretical and empirical programs for microfoundational research. The overall purpose of this manuscript is to clearly delineate the promise and uniqueness of microfoundations research in macro management, to discuss how the movement originated and where it is going, and to offer rich opportunities for future work.

Notes

1 For example, the actions of a cartel may be explained in terms of the actions of the participating firms. Or, the functioning of a routine may be explained in terms of the coordinated actions of individuals. As these simple examples suggest, microfoundations may or may not directly involve individuals; thus, while the “microfoundations project” (Winter, 2011) is committed to reductionism, it is not necessarily committed to methodological individualism.

2 For example, the capabilities view seeks the explanation of differential firm performance in firm-level heterogeneity, that is, heterogeneous routines and capabilities. However, heterogeneity may be located at the individual level, notably when individuals self-select into particular firms (Felin & Hesterly, 2007).

3 For example, it makes little sense to argue that managers can directly intervene on the level of, for example, capabilities. Perhaps, however, managers can influence capabilities, for example, by hiring key employees (in which case the micro level is directly involved) or by changing overall recruitment policies, reward systems, etc., all of which involves the micro level.

4 As Coleman (1990, p. 3) explains:

An explanation based on internal analysis [i.e., micro-foundations] of system [organization] behaviour in terms of action and orientations of lower level units is likely to be more stable and general than explanation which remains at the system level. Since the system's behaviour is in fact resultant of the actions of its component parts, knowledge of how the actions of these parts combine to produce systematic behaviour can be expected to give greater predictability than will statistical relations of surface characteristics of the system.

5 This assumption is not philosophically uncontroversial (Udehn, 2001). An alternative ontology is that the social world is flat rather than hierarchical, but that scaling matters (e.g. small-scale versus large-scale situations).

6 It is worth noting that theoretical exercises like this are inherently characterized by Weberian ideal types. In other words, the purpose of theory is to try to simplify the world and to focus on central factors, recognizing that the full complexities of the world cannot be captured in stylized models.

7 Hedstrom and Swedberg (1996, pp. 296–298) refer to arrows 1, 2, and 3 as “situational,” “individual action”, and “transformational” mechanisms, respectively.

8 Of course, Coleman himself was committed to rational choice sociology which adds much meat to the Coleman diagram skeleton.

9 However, the Coleman diagram and uses thereof are not entirely uncontroversial. Thus, Vromen (2010) takes issue with Abell et al.’s (2008) use of the Coleman diagram (and more implicitly Coleman, 1990) by arguing, drawing on arguments in the philosophy of science, that there no causal relations between levels, only constitutive relations, and that Abell et al. (2008) err by placing capabilities solely on the macro level (as these involve cross-level relations). See Abell et al. (2010) for a rejoinder.

10 Even here there is considerable variety or potential for variety. Consider “routines” as an explanandum. What does it mean to “explain routines”, exactly? Thus, one may be interested in how a routine arises de novo from the interaction of organizational members (Egidi & Narduzzo, 1997). Alternatively, the interest may lie in how an established routine gets changed over time as those who execute the routine get exposed to new contingencies (Pentland et al. 2012). Or, the interest may lie in the forces that stabilize a routine over time. Perhaps those who jointly execute the routine lose the motivation to undertake the effort levels that are consistent with the proper execution of the routine, or their attention drift; the result is that the routine decays (Lindenberg, Foss, & Wittek, 2014). The result may be a new routine, operating at a lower level of efficiency. From a managerial point of view, it is of considerable interest to understand how routine operation can be made stable at a high level of operation, particularly in the context of tasks that involve massive potential danger, such as firefighting, flying an airplane, operating advanced military equipment, and so on.

11 This possibly reflects that research on diversification and vertical integration is partly microfoundational already (e.g. to the extent that it takes managerial motives into account).

12 The term “micro literatures” is used to inclusively reference the scholarly literatures that focus primarily on individual and small group (meso) outcomes: psychology, micro OB, and micro HR management. We treat micro and meso together because the distinctions between them are not central for the arguments developed here.

13 In macro disciplines, context tends to refer to above-organizational factors associated with the organizational environment (population of other organizations, various institutions, competitive dynamics, etc.). The focus is usually between firms. This is in contrast to micro disciplines, where context is usually within a firm, and most typically, at the level of small groups or from the perception of individuals (Johns, 2006). Our use of the term context is consistent with the macro definition.

14 A conceptually separate infinite regress problem that has also emerged in the literature that is critical of microfoundations is the regress problem down through the hierarchy of levels of analysis (Hodgson, 2012; Winter, 2013). Thus, if organizational and social analysis needs to engage in reduction by looking at lower, micro levels—individuals and their interaction—then where should this reduction stop? Should organizational analysis be reduced beyond individuals to brains or genes—or perhaps parentage, ancestry, or even, say, the big bang? See Barney and Felin (2013) for a discussion of this point.

15 This draws on Abell, Foss, and Lyngsie (2014).

16 It is also worth noting that HLM and related approaches are not commonly used in strategy and organizational research.

17 If, however, one introduces the idea that the individual performances are distributed over an interaction structure, then it opens up the possibility of summarizing the properties the network so produced.