Making Sense of Todayé─˘s Structures, by Re-introducing Evolutionary (and Institutional) Theory to Business History
by Michael Jacobides, James Quinn and Sidney Winter
Academics working in the areas of both Evolutionary (and Institutional) Theory and Business History have a common interest in the subject of change. This is an important shared characteristic, given that the vast majority of research carried out into organisations is cross-sectional. However, while evolutionary researchers have increasingly leveraged empirical material from historic sources, the level of direct engagement between the two academic disciplines has remained limited.
Of course, not all change is evolutionary. For a process to be evolutionary, it must involve three distinct mechanisms: variation, selection and retention (Campbell 1969, Barron 2003). In contrast, historians concern themselves with change in all its diversity and tend to think along a past-present axis, offering as much contextual material as one can cull from related sources. This approach also differentiates the historian from the future-oriented perspectives of management theorists within the social sciences. Management theorists want (in principle) to predict the future using the past, while historians aim to provide a balanced view of the past as a means of understanding the present. That said, there is much to be gained from bringing the two groups together in a more formal way, providing ample justification for a workshop that assesses the mutual interests across these disciplines.
The Evolutionary Perspective
Murmann et al (2003:23) have noted that é─˛as part of an open-systems revolution in organisation theory, evolutionary models blossomed in the 1970s. Within a short period of time, scholars formulated evolutionary accounts to explain phenomena ranging from the micro to the macro levels of organisationé─˘. The development of evolutionary thinking has its roots in the rejection of the overly static approach to economic activity inherent in neoclassical economics, with its attendant overload of allegedly rationalistic accounts of human action. It was also influenced by challenges to the adaptation view that had become é─˛almost an unquestioned article of faith for mainstream organisation theoryé─˘ (Singh, 2006: 180).
This interest in evolutionary accounts of change drew adherents from a range of disciplines including economics, sociology and social psychology. The most prolific engagement has come through the work of modern-day evolutionary economists whose approach is rooted in the seminal work of Nelson and Winter (1982) and underpinned by the earlier behavioural work of Herbert Simon, James March and Richard Cyert. In tandem with this, another stream of work emerged within organisation theory. One school was inspired by the work of Donald Campbell and took root through the 1979 writings of Karl Weick (social psychology) and Howard Aldrich (sociology). This emerged in parallel with the 1977 work of Hannan and Freeman, a sociological approach that drew heavily from population biology. All of this has produced a wide range of work underpinned by differing methodologies. The work on industry evolution, to date, can still be broadly placed within the three categories identified by (Malerba and Orsenigo, 1996): industrial demography, industrial dynamics and structural evolution.
While some researchers have focused on theoretical modelling, a significant body of work has been underpinned by empirical research, both qualitative and qualitative. However, even where modelling has been the focus, a significant feature of the empirical work has been a strong engagement with historical data (e.g. Malerba et. al. (1999) on é─˙history-friendly modellingé─¨).
Sidney Winter has also underscored the importance of grounding evolutionary explanations in a historical context. In the reporting of a 2003 symposium on é─˛Evolutionary Thought in Management and Organisation Theoryé─˘, he noted that:
One kind of glaring omission in our 1982 book was the failure to think about evolution, and industry evolution in particular, in an historic context. This is a real head-thumper kind of realisation after the fact. The realisation is that if you look at historical situations, a lot of the struggle, survival-of-the-fittest kind of thing that goes on in an industry is something that has a particular historic setting. (Murmann et al 2003:28)
In this context, he pays tribute to later work, particularly that of Stephen Klepper and his collaborators, which goes some way towards addressing this initial omission. The use of historic data to illuminate evolutionary processes is also evident in Mowery and Nelsoné─˘s (1999) Sources of Industrial Leadership: Studies of Seven Industries and Murmanné─˘s (2003) careful study of the co-evolution of the German dyestuffs industry and its institutional context.
Separately, research on institutional economics was originally inspired by the actual patterns of organization of business firms, and at how the boundaries of organizations, and entire sectors, are set (Coase, 1937). However, some of the founding works in the institutional economics tradition (Williamson, 1975) were heavily influenced by studies of business history, and Chandleré─˘s in particular (1962; 1977). Chandler, however, expressed greater enthusiasm for the evolutionary view of the firm as a bundle of capabilities, even if little of this was ever theoretically developed (Chandler 1992).
Recently, work has emerged in the intersection of evolutionary and institutional economics, which poses some sharp questions on the drivers of patterns of industrial organization. Langlois & Robertson (1995), for instance, develop their research by considering long-term changes in the patterns of organization of sectors, and firms. More recently, strategy scholars have started to reconsider theories of organizational and industry boundaries by looking at how sectors are transformed in particular historical time and space, shifting from integration to dis-integration and back (Jacobides, 2005). This work has recently been expanded, under the banner of é─˙industry architectureé─¨ research, to consider the evolution of the rules and roles that pertain to the division of labour, and subsequently the division of profit, in a sector (Jacobides et al, 2006; Brusoni et al, 2009). Such studies often rely on historical data spanning long periods (eg. Ferraro & Gurses, 2009), where the historical evidence and the importance of context becomes a theoretically important element of theory development. However, a feature evident in a significant amount of the work, to date, has been the use of historical vignettes as a support for relatively abstract explanations and propositions, rather than engagement with a full blown historical account.
Business history is a highly eclectic subject area that can draw on a range of disciplines, including history, economics, sociology and management. Its principal aim é─˛is to study and explain the behaviour of the firm over long periods of time, and to place the conclusions in a broader framework composed of the markets and institutions in which that behaviour occursé─˘ (Wilson 1995: 2). Although the core methodology is empirical, the field derives its modern form from the application of German-inspired historical scholarship conventions to corporate history at the Harvard Business School. Its standing was further enhanced by the founding of the Bulletin of the Business Historical Society in 1926 (the forerunner of the Business History Review, founded in 1954). The study of business history in the UK began in the early part of the 20th century, where its initial focus was on the events surrounding the industrial revolution.
After an earlier focus on entrepreneurs, Alfred Chandler almost single-handedly shifted the focus of the business historian to the study of organisations. It is through Chandler that a recognisable link can be made with an evolutionary perspective within business history, through his studies of strategic and structural change, leading on to the current work by Whittington and Mayer (2000), Wilson et al (2006). In fact, Chandler appears to have provided a bridge across the disciplines, a fact acknowledged by both Nelson and Winter (2002) and Williamson (1975). Other business historians have consequently engaged with many topics that overlap with evolutionary research within organisation and management fields. Some examples are
é─ó The evolutionary nature of organisational change
é─ó The multiple-paths of organisational development
é─ó The iterative shaping of the relationship between organisations and their institutional environment
é─ó Technological change
é─ó Innovation and entrepreneurship
More traditional historians like Jeremy (2002) continue to see their first task as being to establish the facts, with these facts being viewed and understood by their participants from numerous and differing angles. However, many within the business history community, including those involved in this project, see their field in a different light. For them, business history is primarily concerned with assembling and interpreting data, using techniques and tools drawn from a range of social science disciplines to present constructive frameworks that balance the range of views presented through the raw data. As the current editors of Business History have noted, é─˛an increasing number of business historians are recognising the value of incorporating theoretical and conceptual approaches into their work. While empirical and archival work will remain at the core of much of what we do, it is essential to engage with other disciplines as a means of improving the nature and depth of our analytical toolsé─˘. From this perspective, the mere accumulation of facts ignores the enormous potential in applying these techniques and tools. In simple terms, they argue that business history must employ a multi-disciplinary approach in developing a methodology that can stand comparison with other social sciences.
One of the most exciting and satisfying developments in the past 20 é─ý 30 years has been the emergence and maturing of an evolutionary approach to business and the economy within the social sciences that provides new and rich insights into development and change at multiple levels of analysis. At their core, concepts such as evolution, path dependency, national systems of innovation, varieties of capitalism etc. are historical. Yet, for the most part, while social scientists have mined historical data in the course of their research, much of this data has been developed and articulated with only limited regard being paid to historians or historiography. Meanwhile, historians for their part, have acquired only a fleeting acquaintance with these social science concepts and the rich literature that is associated with them.
We think that there could hardly be a better time to cross-germinate, by looking at what each of the two camps has to offer. If anything, the recent financial meltdown has forcefully demonstrated that business structuresnot only can change, but can do so with potentially dramatic consequences for the entire society. A better aswareness and understanding of business history might have contributed to early warnings about dangerous lines of evolution in the financial sector é─ý but in fact, both economists and strategy scholars lacked the historical evidence and theory to explain causes and consequences of structural change; and business historians lacked the theory tools to leverage their knowledge of the past in informing the debate about the future. A substantial opportunity was thus missed, but is now highlighted We are in the midst of revisiting the division of labour and the rules not only in the financial services sector, but in other systemically important sectors such as healthcare, telecommunications, etc. Studies that provide a historical foundation for understanding important strategic and economic aspects of sectoral dynamics are therefore to be welcomed.
The proposed workshop at Trinity College Dublin will provide a venue to begin overcoming these divisions, and perhaps develop a degree of consensus regarding promising lines of future research. The goal is not primarily the presentation of existing research, but rather a vigorous and wide-ranging discussion that will map out the territory. Such a discussion should proceed on the assumption that setting appropriate limits to a particular inquiry is a task that must be pursued in parallel with the inquiry itself.
To provide some factual grist for the discussion mill, some participants will be asked to speak to the general problem from the particular perspective of this own work. Potential presentations of this kind that are planned at this point will address the historical evolution of three broad industrial groupingsé─ţautomobile manufacturing, financial services, and distribution (wholesaling/retailing). The format will bring together evolutionary scholars who have developed social science approaches to industry evolution on the one hand with business historians who have worked on the industry on the other. The challenge will be to combine the more theoretical and generalising tendencies of the industry evolution approach with the more empirical tendencies of the historians, with its associated predisposition towards an emphasis on the unusual and a willingness for that reason to make only mid-level generalisations at best. Scholars on both sides will certainly learn more about the other, and the potential for collaboration and/or new approaches emerging from this dialogue is considerable.
Barron, D. (2003). Evolutionary Theory, in (eds.) D. O. Faulkner and A. Campbell, The Oxford Handbook of Strategy, Oxford University press, 74-96
Brusoni S., M. G. Jacobides, and A. Prencipe (2009), Strategic Dynamics in Industry Architectures: The Challenges of Knowledge Integration, Call for the special Issue of European Management Review
Campbell, D. T. (1969). Variation and Selective Retention in Socio-cultural Evolution, General Systems, XIV.
Chandler A. D. (1962). Strategy and structure: Chapters in the history of industrial enterprise, MIT Press, Cambridge, MA,
Chandler, A.D. (1977). The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Harvard University Press.
Chandler, A.D. (1992). Organizational Capabilities and the Economic History of the Industrial Enterprise, Journal of Economic Perspectives 6, 79-100.
Coase, R. (1937). The Nature of the Firm, Economica N.S., 4, 386-405
Ferraro, F., and K. Gurses (2009). Building Architectural Advantage in the US Motion Picture Industry: Lew Wasserman and the Music Corporation of America, Working paper IESE Business School, Barcelona, Spain.
Jacobides, M. G. (2005). Industry Change Through Vertical Disintegration: How and Why Markets Emerged in Mortgage Banking, Academy of Management Journal, 48, 3, 465-498
Jacobides, M. G., T. Knudsen and M. Augier (2006). Benefiting from innovation: Value creation, value appropriation and the role of industry architectures, Research Policy, 35, 8, 1200
Jeremy, D. J. (2002). Business History and Strategy, in (eds.) A. Pettigrew, H. Thomas and R. Whittington, Handbook of Strategy and Management, Sage, 436-460
Langlois, R. N. and P. L. Robertson, (1995). Firms, Markets and Economic Change, Routledge.
Malerba, F. and L. Orsenigo (1996). é─˛The Dynamics and Evolution of Industriesé─˘, Industrial and Corporate Change, 5 (1) 51-87.
Mowery, D. C. and Nelson, R. R. (1999). Sources of Industrial Leadership: Studies of Seven Industries, Cambridge University Press.
Murmann, J. P. (2003). Knowledge and Competitive Advantage: The Coevolution of Firms, Technology and National Institutions. Cambridge University Press.
Murmann, J. P., Aldrich, H, Levinthal, D., and Winter, S. G. (2003). Evolutionary Thought in Management and Organisation Theory at the Beginning of the New Millennium, Journal of Management Inquiry, 12 (1) 22-40.
Nelson, R. R. and Winter, S. G. (2002). Evolutionary Theorizing in Economics, Journal of Economic Perspectives, 16 (2), 23-46.
Singh, J. V. 2006. Ecology, Strategy and Organisational Change In J. A. C. Baum, S. D. Dobrev and A. van Witteloostuijn (Eds.), Advances in Strategic Management Vol. 23: Ecology and Strategy, Elsevier JAI. pp. 177 é─ý 214.
Whittington, R and M. Mayer (2000). The European Corporation, Oxford University Press
Williamson, O. E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.
Wilson, J. F. (1995), British Business History, 1720-1994, Manchester University Press.
Wilson, J. F., M. Iversen, H. Schroter, A. Colli, V. Binda, and V. Antcliff (2006). Mapping Corporate Europe: business responses to institutional change, 1957-2007’, European Journal of International Management, 1, 3, 1-14.