Federico Sallusti

If progressive de-integration of firms can be interpreted in terms of relative variations in transaction and production costs, specialization, and structural and strategic heterogeneity do not. In order to analyse the characteristics and the mechanisms that ground firms’ concentration on both specific technological contexts and particular functions along the value chain, the processes of management and generation of knowledge have to be taken into account. Throughout this work, we will stress as the choice to specialize derives from the decision on management of learning processes enabled by the interaction between the agents who compose the organizational structure. The approach followed is that of defining the firms’ structure based on cognitive capabilities that the organizational design can express. Agents’ rationality is bounded and operational environment is instable. Strategies of coordination within the firm have the passive role they are traditionally known for, but they will also have an active role: the decisions on coordination determine the typology of the learning processes enabled by the firm. We will show that: generally, the strategic choice depends on agents’ characteristics; the maintenance of the efficiency of the processes of management and development of knowledge calls for specialization. This work allows us to characterise the firms’ (structural and strategic) heterogeneity, and to stress the mechanisms that lead to their progressive (technological and functional) specialization. Acknowledgement I would like to thank Guido Rey for his support and useful comments. I thank also Bart Nooteboom, Gabriel Colletis, Cristiano Antonelli, and Brian J. Loasby for their comments on early versions of that paper. That notwithstanding the author is responsible for the contents of the paper. Introduction The process of progressive de-integration and the tendency towards specialization of firms observed in the last decades have deeply changed the structure of productive system of the industrialised countries. They also represent one of the most interesting issues for firm theory (Hamel e Prahalad, 1990). Firms have tended to concentrate their activities on particular functions and technologies, showing, at the same time, a tendency towards an increasing differentiation in structural and strategic characteristics depending on both the typology of function carried out along the value chain and the technological context in which they operate. Then, progressive specialization and firms’ increasing heterogeneity can be considered as connected phenomena. They raise the question on why firms differentiate and specialise themselves along the double dimension of functions and technological ambit. The aim of this work is proposing a scheme that allows the characterisation of the determinants of this choice, and the definition of its dynamics. If de-integration can be interpreted as a change in the relative rapport between production and transaction costs, the make or buy dialectic does not allow a satisfactory explanation and analysis of the determinants of specialization process. De-integration represents a dimensional change that is coherent with the determination of the firms’ boundaries in terms of comparison between transactions and production costs. Instead, specialization is a qualitative phenomenon whose analysis imposes to take into account the process of management and development of the knowledge utilised by firms to carry out their activities. Indeed, the process of specialization have manifested itself as a reaction to the raise in the importance of both innovative capabilities and product differentiation within the competitive strategies of firms, which are in turn increasingly less oriented towards price competition. Such variation in the strategies has lead to a rise in the complexity of production and commercialization of products and services. In this context, firms’ competitive resources are not only referable to the capability of the form of governance to maintain the allocative efficiency, but also to the capabilities and competencies the firm owns, and to the most efficient organizational design in managing and developing them (Stalk et al., 1996). Within the approaches of transaction cost economy (Williamson 1975, 1985; Radner, 1992; Menard, 1994; Furubotn, 2001), property rights (Alchian and Demsetz, 1972; Grossman and Hart, 1986: Hart and Moore, 1990; Hart, 1995) and incentive system (Jensen and Meckling, 1976; Tirole, 1988; Holmstrom and Tirole, 1991; Holmstrom, 1999), the organizational coordination is aimed at managing the inefficiencies produced by contract incompleteness. Firm is a structure within which the flow of information is utilised to reduce the impact of informative asymmetries coming from the impossibility to complete contracts. Governance, control, and incentive systems are implicitly aimed at allowing the maintenance of the allocative efficiency in an environment characterised by asymmetrical information. The mechanisms of reduction of such asymmetries, which are proposed within those formulations, seem to be referable to a passive approach towards governance, that is, towards both the reduction of perverse behaviours and the management of potential conflicts. The relationship that links agents to the structure which coordinate them is univocal (their characteristics do not affect the organizational structure) and static (there is not a relation that links the developments of agents’ characteristics to the typology of coordination). This is essentially linked to the hypothesis of full rationality – or to a not complete development of the bounded rationality hypothesis, such as the case of transaction costs economy – which eliminates the agents’ heterogeneity and overshadows the learning processes, which, instead, ground the development of their cognitive characteristics. Within the formulations that utilise the full rationality hypothesis, cognitive resources are not definable, as well as the learning processes that allow their development are not taken into account (Holmstrom e Tirole, 1989). On the other hand, the inexistence of a relationship that links firm’s cognitive characteristics to the form of coordination prevents the analysis of the role of coordination in managing and developing resources. Stating an active relation between the structure of governance and agents’ characteristics is an essential condition in order to allow the emergence of the dependence between the two dimensions (structural and strategic) of heterogeneity. They will be defined in terms of knowledge, in order to express them based on the same logic unit of measurement. The relation that links the strategies of coordination to the characterisation of the firms’ organizational structure will be also stressed. Throughout this work, firms’ efficiency will not be merely linked to factors and production allocation. The efficiency of the learning processes, which allow the firm to operate in an instable environment, will be also considered a goal. In such context, firm is a structure within which the flow of information is also utilised to manage and develop the knowledge. Knowledge is needed to decide (Simon, 2000), and it is acquired by means of the interaction between agents’ heterogeneities. Their characteristics will represent the characterisation of the structure, while the coordination, and the design of relationships between them, will represent the strategic dimension of heterogeneity. Based on such characterisation of heterogeneity, we will see that firms’ strategic choice will lead to a process of specialization whose necessity comes from the goal of maintaining the efficiency of learning and communication processes. From a theoretical point of view, we will follow the approach of the theories that in Gibbons (2005) have been defined as «adaptation theories». In particular, resourcebased (Penrose, 1959; Barney, 1992, 1996), evolutionary (Nelson and Winter, 1982, 2002), and knowledge-based (Kogut and Zander, 1992, 1996; Nonaka, 1994; Conner and Prahalad, 1996) traditions will be widely utilised throughout the development of the logical scheme of the work. These theories, as also claimed by other authors (Williamson, 2001; Menard, 2005; Garrouste e Saussier, 2005), have in common the assumptive frame, which is characterised by bounded rationality and presence of systemic instability, and the aim of analysing firms’ dynamical processes. Particularly, the evolutionary dynamics related to dimension (Penrose, 1959), technology (Dosi, 1982, 1988; Dosi et al., 1988; Teece, 1996; Kogut and Zander, 1992, 1996; Fagerberg et al, 2006), and organizational structure (March and Simon, 1958; Cyert and March, 1963; Nelson and Winter, 1982, 2002; Conner and Prahalad, 1996) are widely analysed through formulations that carve out an important role for the mechanisms of management and development of firms’ capabilities (resources). 1. From individual to collective action: the coordination Starting from Coase’s work of 1937, the debate on firm theory can be considered as an implicit dialectic on coordination. Indeed, firm is alternative to market as the lieu of economic transactions. Firms’ organizational structure manages the transactions that are not efficiently coordinated by market mechanisms. Incompleteness of contracts does not allow the agents to complete the definition of the decisional context, thus generating the premise for the existence of the informative asymmetries that reduce the efficiency of the exchanges. Then, transaction costs assign a role to firms and justify their existence. The coordination of economic transactions has two roles: supplying the information about the decisional context, and limiting the room for perverse behaviours. In the case of market, relative prices represent the agents’ informative set, while the constraint for behaviours is determined by the concurrent working of