Managerial Meta-Knowledge and Adaptation: Governance Choice when Firms do not know their Capabilities

Bocconi University Management Research Paper No. 9

Forthcoming in Strategic Organization

43 Pages Posted: 7 Jan 2019

See all articles by Nicolai J. Foss

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation

Henrik Jensen

BI Norwegian School of Business

Date Written: June 1, 2018

Abstract

How well do managers know the capabilities of the firms they manage? Such knowledge, which we refer to as managerial meta-knowledge, has not been systematically addressed in the management and governance literature—which is problematic, as managerial meta-knowledge influences governance choice. In fact, transaction cost economics, the dominant theory of governance choice in management research, assumes that managers perfectly know the capabilities of their firms. However, micro-level research streams on resource cognition and transactive memory, as well as the knowledge-based view of strategy, suggest that this assumption is not in general warranted: Managers’ meta-knowledge is in general imperfect. We therefore examine the implications of imperfect managerial meta-knowledge for governance choice. The key mechanism we highlight is that imperfect managerial meta-knowledge leads to surprises and frictions in contractual relationships, negatively influences the ability to engage in coordinated adaptation, and is a driver of ex post transaction costs. For these reasons, managerial meta-knowledge holds implications for governance choices, which we summarize in four propositions.

Suggested Citation

Foss, Nicolai J. and Jensen, Henrik, Managerial Meta-Knowledge and Adaptation: Governance Choice when Firms do not know their Capabilities (June 1, 2018). Bocconi University Management Research Paper No. 9, Forthcoming in Strategic Organization, Available at SSRN: https://ssrn.com/abstract=3311439

Nicolai J. Foss (Contact Author)

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

Henrik Jensen

BI Norwegian School of Business ( email )

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