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  • Cited by 7
  • Print publication year: 2005
  • Online publication date: September 2009

10 - The evolutionary perspective on organizational change and the theory of the firm

    • By Ulrich Witt, Professor of Economics, University of Jena and Director of the Max Planck Institute for Research into Economic Systems, Evolutionary Economics Group, Jena, Germany
  • Edited by Kurt Dopfer, Universität St Gallen, Switzerland
  • Publisher: Cambridge University Press
  • DOI: https://doi.org/10.1017/CBO9780511492297.010
  • pp 339-364

Summary

Introduction

From an abstract point of view, the organization of the firm is a prototype of a planned institution deliberately created to coordinate the division of labour. As such, it contrasts with the wide range of informal institutions – most prominently the markets – that emerge spontaneously to promote the coordination of specialization and exchange. Indeed, the contrast between firms and markets is a leitmotiv in the theory of the firm. It has inspired a huge number of arguments trying to explain why the two institutions coexist and which of them is used when. Somewhat fewer explanatory efforts have been undertaken to explain the genesis of firm organizations – i.e. how and when firms are created, and how and when their organizational form changes over time. However, business history shows that changes in the organizational set-up of, and the internal interactions within, firms are the rule rather than the exception, and that these changes often have a crucial impact on the firms’ performance (Chandler, 1992). Indeed, a firm's growth or decline often hinges on whether and when organizational metamorphoses occur and how they are managed. Once the level of abstract, functional comparisons between formal and informal institutions is left, the ‘why?’ and ‘how?’ of organizational change is therefore a major issue.

Organizational changes may be caused by exogenous shocks, such as shifts in demand, in the factor costs or in technology.

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