STRATEGY RESEARCH

GOVERNANCE AND
COMPETENCE
PERSPECTIVES
Written by: Oliver E. Williamson
Published in: 1999

Presented by : Orange
STRUCTURE OF TODAYS
PRESENTATION
Overview of todays reading

Williamson 1999 paper:

The focus of this paper
The structure of this paper
The main contents of this paper
What is the future research from this paper

Discussions
Williamsons work in Transaction Cost
The relationship among todays papers
OVERVIEW OF TODAYS PAPER
Mahoney, 2005 --- Transaction cost theory
Original Coase 1937
Development Arrow 1974; Williamson 1971, 1979; etc
TC theory helps to describe, explain and predict governance based on comparative efficiency
criteria
Klein, Crawford and Alchian, 1978
Governing cost high, seeking for long term contracts
Opportunisms and assets appropriation
Further study might consider Libecap 1989
Williamson, 1991
Contract law; Organization forms
Zajac and Olsen, 1993
Analyze inter-organization value through transaction value framework
Joint value maximization and the process to attain it
The paper can be related to Stakeholder theory and Property Rights Theory
Williamson, 1999
Governance and Competence in Strategy
Bucheli, Mahoney and Vaaler, 2010
Transaction cost Theory and the emergence of American firm integration
WILLIAMSON 1999:
FOCUS OF THIS PAPER
Focus of this paper
This paper applies the lenses of governance and
competence to the study of strategy.

Both perspectives contain reasoning of Organization theory

Governance perspective greater prominence to economics;

TCE involved

Competence perspective greater prominence to

organization theory; process oriented
WILLIAMSON 1999:
STRUCTURE OF THIS PAPER
Structure of this paper

Six key moves of Governance perspective

Six same key moves of Competence perspective

Challenges of competence perspective for Governance

Conclusions
WILLIAMSON 1999: MAIN CONTENTS
SIX KEY MOVES OF GOVERNANCE
Economists, TCE
Human Actors
In favor of bounded rationality to hyper-rationality; Incomplete contract
Self-interest; opportunism
Foresighted rather than nearsighted
Unit of Analysis
Commons: basic unit analysis
For operationalization, use dimensions: frequency, uncertainty and degree of asset specificity
Describing the Firm
In organization terms rather than technological term
To deal with Coasian puzzle, hypothesize replication and selection intervention
Purposes Served
The discriminating alignment hypothesis (See in figure 1 on next page)
Empirical
The theory and evidence display a remarkable congruity
Better empirical will be beneficial
Efficiency Criterion
More conceptual rather than operational
Efficiency is rebuttable
WILLIAMSON 1999: MAIN CONTENTS
SIX KEY MOVES OF GOVERNANCE
The discriminating alignment hypothesis
--- according to which transactions, which differ in their
attributes, are aligned with governance structures, which differ in
their cost and competence, so as to effect an economizing result.
WILLIAMSON 1999: MAIN CONTENTS
SIX KEY MOVES OF COMPETENCE
Human Actors
Bounded rationality
Myopia rather than foresighted
Not mention trust, commitment, mind etc. (mentioned as opportunisms in TC)
Unit of Analysis
Routine is the basic unit analysis
Three routines(Nelson and Winter 1982): Short run; investment; long-run
Describing the Firm
Reject that firm is a production function
Emphasizes management and organization features
Purposes Served
Penrose 1959, the distinctive competence of the firm resides in making better use of its resources
To operationalize, first address: Which firms are more and which are less competent in deploying their institutional
capabilities to protect their knowledge?
Empirical
Much of the competence perspective entails ex post rationalizations for success and has been remiss in predictive
respects.
Williamson 1996: view transaction cost economics as feeding into the competence perspective in much the same way
as organization theory is grist for the study of governance
Efficiency Criterion
Claim that competence deals with dynamic efficiency --- essential about learning and innovation
But criteria about how to judge dynamic efficiency has never been posted
WILLIAMSON 1999: MAIN CONTENTS
CHALLENGES
Challenges from competence perspective for TCE

Mistaken critiques critiques the author focused on

opportunism does not have the organizational consequences that have been ascribed to it
transaction cost is a static concept and needs to be made dynamic,
governance does not engage the issues of management.
Opportunism
zeroing out opportunism has different and pervasive organizational results
initial conditions can be more consequential than they are usually treated by TCE
Dynamic TCE
TCE has been criticized as static since they deal with equilibrium
Author: intertemporal complications are not merely incidental but are central to the transaction
cost economics project
Easy to say than to do
Management
Significant provision for management does not imply adequate provision for
management
WILLIAMSON 1999: MAIN CONTENTS
RESEARCH OPPORTUNITIES
Beyond Peace-meal
Interaction Effects; need to redefine transaction
Aggregation: firm as a whole > (all parts)

Beyond Generic Governance: Strategy

Rumelt, Schendel, and Teece 1991: Of all the new fields of economics, the
transaction cost branch of organizational economics has the greatest affinity
with strategic management
Allow competition
Assumes specialized investment

Learning
Relate learning to foresight and examine the ramifications for some of the
myopic biases to which learning is subject.
See in Table 1.
WILLIAMSON 1999: MAIN CONTENTS
RESEARCH OPPORTUNITIES
WILLIAMSON 1999: MAIN CONTENTS
CONCLUSIONS
The competence perspective is attuned to good issues and challenges
both orthodoxy and the governance perspective to be responsive.

Competence and Governance Rival and Complementary (more

complementary)

Both of them are bounded rationality constructions and hold that

organization matters, so share much in common.

Governance is more microanalytic (the transaction is the basic unit

of analysis) and adopts an economizing approach to assessing
comparative economic organization

competence is more composite (the routine is the unit of analysis?)

and is more concerned with processes (especially learning) and the
lessons for strategy.
DISCUSSIONS:
RELATIONSHIPS AMONG THE
PAPERS
The first three paper looks at the TCE in the
firms and organizations. They are under the
assumptions of TCE and are more like theory
papers
The fifth paper, is more like a case study,
instead of going to the theory, the paper applies
theory into cases and see how the theory works
The fourth paper, unlike the rest of the paper,
compares two different ways of doing strategy
research rather than only focus on TCE.
These five papers, are also complementary to
our study of TCE.
 Thank You!
Have a Great Day!