Thesis
The boundaries of the firm : a problem solving perspective
- Creator
- Awarding institution
- University of Strathclyde
- Date of award
- 2012
- Thesis identifier
- T13354
- Qualification Level
- Qualification Name
- Department, School or Faculty
- Abstract
- This thesis contributes to the problem-solving perspective (PSP) of the boundaries of the firm, both theoretically and empirically. Two main theoretical contributions are made. First, although it is generally acknowledged that the NK modelling literature is a source of theoretical inspiration for PSP, this literature is probably less familiar to most economists working on the theory of the firm. To fill the gap, the NK modelling literature is systematically reviewed and is linked more closely to the problem solving perspective. Second, on the basis of a detailed review of the PSP literature, it is argued that knowledge-set interaction and decomposability are two analytically distinguishable dimensions of complexity and should be treated as separate variables in empirical analysis. With reference to other closely-related literatures, such as the knowledge-based view, organizational learning, and innovation, it is argued that a firm's existing knowledge base has a significant impact on the organization of its problem solving activities. However, this dimension has been missing or ignored in the current PSP literature. It is also noted that the PSP has mainly been applied to the organization of R&D activities (i.e. technological problem solving). It is concluded that once joined with Porter's activity analysis (in particular, the value chain analysis), the PSP could be applied to other non-R&D activities and be further developed into a more general framework for discussing economic organization and the boundaries of the firm. Some ways of doing this are outlined. On the empirical front, a regression-based analysis of the Chinese consumer electronics industry is carried out. A small primary dataset of firms (142 cases) in this industry was assembled by employing interviewing and questionnaire techniques. Based on a review of previous empirical studies, key hypotheses were tested. More specifically, binomial and multinomial regression models were estimated. Hypotheses from PSP and the now dominant transaction cost theory were tested, with one aim being to establish the relative importance in terms of explanatory power. The empirical results are more supportive of the problem-solving perspective rather than the transaction cost theory. Four categories of explanatory variables were included in the regression models: (1) Variables measuring "problem complexity" (problem structure, knowledge set interaction and decomposability); (2) Variables measuring a firm's existing "knowledge base"; (3) Variables related to "knowledge characteristics" (such as tacitness and social distribution/embeddedness of knowledge); and (4) Transaction variables (such as asset specificity, demand uncertainty and appropriability).;The results suggest that PSP variables are important determinants of a firm's organizational choice and their effects are largely in line with theoretical expectations. It is found that the higher the complexity (be it measured by problemstructure, knowledge set interaction, or decomposability), the more likely the problem-solving will be organized in-house rather than through market transactions. Moreover, it is also found that the effects of problem knowledge-set interaction and decomposability are significant for other organizational choices. On the other hand, the effects of problem structure are far less evident, and likely only play a role in the choice between make-or-buy. The results also lend support to some of the transaction costs expectations (in particular, those related to asset specificity and appropriability). However, in terms of their relative explanatory power (magnitude of effects or the level of significance), the few PSP and knowledge base variables are far better predictors of a firm's organizational choices than transactions cost variables. In other words, the results lend more support to the problem-solving perspective and the knowledge-based view, rather than the transaction cost economics. The results also suggest that a firm's existing knowledge base is the single most important variable in explaining a firm's organizational choice of technological problem solving. In the existing PSP literature, however, the role of a firm's existing knowledge base has largely been ignored.;The results further indicate that the effects of knowledge-set interaction and decomposability are not always working in the same direction. This lends support to the argument that complexity (knowledge-set interaction) and decomposability should be treated as two distinct variables. Finally, contrary to the general prediction of the problem solving perspective, the results reveal that as far as the choice between in-house and alliance is concerned, a higher level of complexity tends to favour the choice of alliance rather than inhouse - i.e. alliance is preferable to in-house for solving highly complex problem. This suggests, as far as the costs and competencies of governing different types of problem-solving are concerned, alliances are probably not "hybrid" modes of organization. Rather, they are distinct categories of organizational mode in their own rights. Apart from these main contributions, two detailed critical reviews of the background transaction cost economics literature are presented. One reviews the evolution of the concept of transaction costs in transaction cost literature, aiming to highlight the basic logic of the transaction cost economics, the diversity of the literature and to demonstrate how the concept is applied to the boundary determination of the firm. The second reviews Oliver Williamson's theory of the firm, aiming to illustrate the basics of his method, to highlight his major contributions and to identify the strengths and weaknesses of his theory. Given that the transaction cost economics is now the dominant approach in the field (in particular, Williamson's approach), and that in many aspects, the problem-solving perspective follows the method of "discrete structural analysis" developed by Williamson, these two reviews are highly relevant to our analysis.
- Resource Type
- DOI
- Date Created
- 2012
- Former identifier
- 972681
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