Capabilities and the Theory of the Firm

27 Pages Posted: 13 Mar 1998

See all articles by Nicolai J. Foss

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation

Date Written: Undated


The recent decade has witnessed a strong expansion of work on the firm, both from a capabilities perspective and from a contractual perspective. These two bodies of theories are often thought to be fundamentally different, because their domains of applications are different (knowledge-accumulation vs contracts and incentives). However, we need to integrate propositions from capabilities perspectives with ideas about economic organization (markets, hybrids, firms). This is because only a more unified theory will allow us to understand such issues as the dynamics of the modern corporation, and, more topically, the costs and benefits of outsourcing. I discuss the relations between these two bodies of theories. It is possible to argue in favor of a relation of complementarity between the two and pursue a research strategy on this basis. However, it is also possible two claim that they are rivals. Along this line, it is argued that the capabilities perspective contains propositions about economic organization that are not to be found within the modern Coasian approach to economic organization, and thus may be seen as a distinct emerging perspective on economic organization.

JEL Classification: D23, D40, D83

Suggested Citation

Foss, Nicolai J., Capabilities and the Theory of the Firm (Undated). Available at SSRN: or

Nicolai J. Foss (Contact Author)

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

Frederiksberg, 2000

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