Peter Moran

Bio: Peter Moran is an academic researcher from INSEAD. The author has contributed to research in topics: Managerial economics & Employability. The author has an hindex of 5, co-authored 6 publications receiving 2763 citations.

Bad for Practice: A Critique of the Transaction Cost Theory

Abstract: Transaction cost economics (TCE), and more specifically the version of TCE that has been developed by Oliver Williamson (1975, 1985, 1993b), has become an increasingly important anchor for the analysis of a wide range of strategic and organizational issues of considerable importance to firms. As argued by some of its key proponents, the theory aims not only to explain but also to influence practice (Masten, 1993). In this article, we argue that prescriptions drawn from this theory are likely to be not only wrong but also dangerous for corporate managers because of the assumptions and logic on which it is grounded. Organizations are not mere substitutes for structuring efficient transactions when markets fail; they possess unique advantages for governing certain kinds of economic activities through a logic that is very different from that of a market. TCE is “bad for practice” because it fails to recognize this difference. We identify some of the sources of the “organizational advantage” and argue for the ...

A New Manifesto for Management

Abstract: The corporation has emerged as perhaps the most powerful social and economic institution of modern society. Yet, corporations and their managers suffer from a profound social ambivalence. Believing this to be symptomatic of the unrealistically pessimistic assumptions that underlie current management doctrine, Ghoshal et al. encourage managers to replace the narrow economic assumptions of the past and recognize that: ? Modern societies are not market economies; they are organizational economies in which companies are the chief actors in creating value and advancing economic progress. ? The growth of firms and, therefore, economies is primarily dependent on the quality of their management. ? The foundation of a firm's activity is a new "moral contract" with employees and society, replacing paternalistic exploitation and value appropriation with employability and value creation in a relationship of shared destiny. In the 1980s, managers concentrated on enhancing competitiveness by improving their operating efficiencies. They cut costs, eliminated waste, downsized, and outsourced. They extracted value ? as reflected in shareholder returns ? but at what price? In contrast, firms that seem to continuously proliferate new products and technologies (for example, HP, 3M, Disney, and Microsoft) have never accepted this logic of auto-dismemberment. They have escaped what the authors term "the deadly pincer of dominant theory and practice": an almost exclusive focus on appropriation and control. A different management model is now taking shape, based on a better understanding of individual and corporate motivation. As companies switch their focus from value appropriation to value creation, facilitating cooperation among people takes precedence over enforcing compliance, and initiative is valued more than obedience. The manager's primary tasks become embedding trust, leading change, and establishing a sense of purpose within the company that allows strategy to emerge from within the organization, from the energy and alignment created by that sense of purpose. The core of the managerial role gives way to the "three Ps": purpose, process, and people ? replacing the traditional "strategy-structure-systems" trilogy that worked for companies in the past.

Value creation by firms.

Abstract: Extant strategy theory focuses largely on the appropriation of value as the basis for explaining and predicting firm performance. We argue that this focus is inappropriate. Drawing on the ideas of ...

Theories of Economic Organization: The Case for Realism and Balance

Abstract: The article reports on the economic theory of industrial organization. The authors focus on responding to a criticism of their article “Bad for Practice: A Critique of Transaction Cost Theory.” They go on to suggest that markets and industrial organizations feature a vastly different set of dynamics. It is suggested that managers cannot run business enterprises or corporations based on transactional cost economics (TCE) because that particular theory is meant to decipher market situations. The authors endeavor to provide a realistic and balanced view of organizational behavior.

Employment Security, Employability and Sustainable Competitive Advantage

Abstract: The employment relationship is undergoing fundamental change and promises of employment security, long a central feature of the modern employment relationship, are increasingly losing credibility (Cappelli, 1995). Many see this change as an inevitable response to a dilemma brought about by the increasingly dynamic competitive environments that many employers must reckon with; "dynamic environments require flexible workers, flexible workers require a stable employment relationship, but stable employment relationships may not be possible in dynamic environments" (Heath, Knez, & Camerer, 1993: 89). Whatever the reason for its demise, however, companies world-wide are abandoning long held promises and policies of employment security, with no clear alternative to replace it. In this paper, we present a model of sustainable competitive advantage in dynamic environments that points to one way of overcoming this dilemma and provides a theoretical basis for addressing the observed changes in employment practices. In our model, rent creation replaces rent appropriation as the key source of competitive advantage and employability substitutes for employment security as the defining characteristic of the employment relationship. Such a relationship, we show, can provide for stable adaptable employment relationships and may, therefore, be of advantage for the firm as well as for the employee.

Social Capital, Intellectual Capital, and the Organizational Advantage

Abstract: Scholars of the theory of the firm have begun to emphasize the sources and conditions of what has been described as “the organizational advantage,” rather than focus on the causes and consequences of market failure. Typically, researchers see such organizational advantage as accruing from the particular capabilities organizations have for creating and sharing knowledge. In this article we seek to contribute to this body of work by developing the following arguments: (1) social capital facilitates the creation of new intellectual capital; (2) organizations, as institutional settings, are conducive to the development of high levels of social capital; and (3) it is because of their more dense social capital that firms, within certain limits, have an advantage over markets in creating and sharing intellectual capital. We present a model that incorporates this overall argument in the form of a series of hypothesized relationships between different dimensions of social capital and the main mechanisms and proces...

Toward a Knowledge-Based Theory of the Firm,” Strategic Management Journal (17), pp.

Abstract: Given assumptions about the characteristics of knowledge and the knowledge requirements of production, the firm is conceptualized as an institution for integrating knowledge. The primary contribution of the paper is in exploring the coordination mechanisms through which firms integrate the specialist knowledge of their members. In contrast to earlier literature, knowledge is viewed as residing within the individual, and the primary role of the organization is knowledge application rather than knowledge creation. The resulting theory has implications for the basis of organizational capability, the principles of organization design (in particular, the analysis of hierarchy and the distribution of decision-making authority), and the determinants of the horizontal and vertical boundaries of the firm. More generally, the knowledge-based approach sheds new light upon current organizational innovations and trends and has far-reaching implications for management practice.

Toward a Knowledge-Based Theory of the Firm

Abstract: Given assumptions about the characteristics of knowledge and the knowledge requirements of production, the firm is conceptualized as an institution for integrating knowledge. The primary contribution of the paper is in exploring the coordination mechanisms through which firms integrate the specialist knowledge of their members. In contrast to earlier literature, knowledge is viewed as residing within the individual, and the primary role of the organization is knowledge application rather than knowledge creation. The resulting theory has implications for the basis of organizational capability, the principles of organization design (in particular, the analysis of hierarchy and the distribution of decision-making authority), and the determinants of the horizontal and vertical boundaries of the firm. More generally, the knowledge-based approach sheds new light upon current organizational innovations and trends and has far-reaching implications for management practice.

The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage

Abstract: In this article we offer a view that suggests that a firm's critical resources may span firm boundaries and may be embedded in interfirm resources and routines. We argue that an increasingly important unit of analysis for understanding competitive advantage is the relationship between firms and identify four potential sources of interorganizational competitive advantage: (1) relation-specific assets, (2) knowledge-sharing routines, (3) complementary resources/capabilities, and (4) effective governance. We examine each of these potential sources of rent in detail, identifying key subprocesses, and also discuss the isolating mechanisms that serve to preserve relational rents. Finally, we discuss how the relational view may offer normative prescriptions for firm-level strategies that contradict the prescriptions offered by those with a resource-based view or industry structure view.

Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness

Abstract: This chapter aims to develop one of perhaps multiple specifications of embeddedness, a concept that has been used to refer broadly to the contingent nature of economic action with respect to cognition, social structure, institutions, and culture. Research on embeddedness is an exciting area in sociology and economics because it advances understanding of how social structure affects economic life. The chapter addresses propositions about the operation and outcomes of interfirm networks that are guided implicitly by ceteris paribus assumptions. While economies of time due to embeddedness have obvious benefits for the individual firm, they also have important implications for allocative efficiency and the determination of prices. Under the conditions, social processes that increase integration combine with resource dependency problems to increase the vulnerability of networked organizations. The level of investment in an economy promotes positive changes in productivity, standards of living, mobility, and wealth generation.