What Firms Do? Coordination, Identity, and Learning

Kogut, Bruce; Zander, Udo

doi:10.1287/orsc.7.5.502

Cited by 3,078Economic Theory and InstitutionsManagement and Organizational StudiesInnovation and Knowledge Management

What Firms Do? Coordination, Identity, and Learning

Kogut, Bruce, Zander, Udo·1996·Organization Science

DOI 10.1287/orsc.7.5.502

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Abstract

Firms are organizations that represent social knowledge of coordination and learning. But why should their boundaries demarcate quantitative shifts in the knowledge and capability of their members? Should not knowledge reside also in a network of interacting firms? This line of questioning presents the challenge to state an alternative view to the “theory of the firm,” a theory that has moved from Coase's early treatment of what firms do to a concern with ownership, incentives, and self-interest. We return to Coase's original insight in understanding the cost and benefits of a firm but based on a view that individuals are characterized by an “unsocial sociality.” Does the perception of opportunism generate the need to integrate market transactions into the firm, or do boundaries of the firm lead to the attribution of opportunism? This basic dichotomy between self-interest and the longing to belong is the behavioral underpinning to the superiority of firms over markets in resolving a fundamental dilemma: productivity grows with the division of labor but specialization increases the costs of communication and coordination. The knowledge of the firm has an economic value over market transactions when identity leads to social knowledge that supports coordination and communication. Through identification, procedural rules are learned, and coordination and communication are facilitated across individuals and groups of diverse specialized competence. A firm is distinct from a market…

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Authors: Kogut, B., & Zander, U.
Affiliations: University of Pennsylvania (US)
Stockholm School of Economics (SE)
ORCID: Kogut, Bruce
Zander, Udo
Venue: Organization Science
Publisher: Institute for Operations Research and the Management Sciences (INFORMS)
Published: 1996-10
Volume: 7
Issue: 5
Pages: 502-518
ISSN: 1047-7039 (ISSN-L)
1526-5455
DOI: 10.1287/orsc.7.5.502
OpenAlex: W2102435235
Cited by: 3,078
References: 59
Citations by year: 2026: 34 · 2025: 51 · 2024: 53 · 2023: 54 · 2022: 73 · 2021: 79 · 2020: 121 · 2019: 108 · 2018: 118 · 2017: 115 · 2016: 127 · 2015: 134 · 2014: 151 · 2013: 182 · 2012: 178
FWCI: 65.42
Type: journal article
Language: en
Open access: closed
Locations: Organization Science (publishedVersion)
Topics: Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Theory and Institutions
Social Sciences › Business, Management and Accounting › Organizational Behavior and Human Resource Management › Management and Organizational Studies
Social Sciences › Business, Management and Accounting › Strategy and Management › Innovation and Knowledge Management
Keywords: theory of the firm, firm boundaries, social knowledge, organizational identity, coordination, learning, opportunism, division of labor, market versus firm, procedural justice, prisoner's dilemma, organizational coherence, sociality, communication overhead, creativity and innovation, Ronald Coase, moral consistency, complementarity

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What Firms Do? Coordination, Identity, and Learning

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