The Logic of the Operating Model Under Changing Scarcities and New Technologies: An Exercise in the Foundations of Business Administration?
72 Pages Posted: 12 May 2005
Date Written: May 6, 2005
In the economy of the second industrial revolution firms deployed only a limited number of distinct operating models. These are: the functional model, the holding, the multi-product-division, country-division-model, the split-business chain and the Verlag-model. These models implicitly are based on a number of assumptions with respect to economic characteristics of technology deployed, resources, institutional environment, scarcities in the economy and human capital. Firms selected operating models not consciously rational, but on basis of thoughtless rationality and especially on basis of convention and emulation of operating models deployed by competitors. Each of these models not only served as a practical translation of underlying economic models of firms, they also, by intention and convention, turned into control models as well. Also, these operating models turned into socially accepted roles and identities. As a result the consciousness with respect to the underlying economic model of a firm, respectively the awareness of - economic - assumptions underlying such popular models as the multi-divisional form, never developed. Even the economic organization theory, using Coase's first theorem of 1937, fails to do so. Since scarcities in the economy are changing, so are economic models, and thus should operation logics. This paper explains why this process is half hearted, lack of awareness of underlying assumptions being one explanation, lack of institutional change being another. This phenomenon is not restricted to the era of management of firms itself, but is also to be found with practitioners like management consultants, controllers and auditors. Also this phenomenon of half hearted adaptation of operating models to the new economic realities, is to be found in many of the textbooks on management, strategy and organizational behaviour. This paper argues that it is possible to design the internal organization of firms on basis of economic models for value creation and rent appropriation. Apart from the contribution of this paper to the field of organization, it also raises questions with respect to the foundations of the field of business administration. This paper argues in line with Williamson's argument for institutional change, that and how the foundations of business administration should be redefined as a prerequisite for economic growth.
Keywords: Organization design, organization forms, value creation, business administration
JEL Classification: M10, M21, D20
Suggested Citation: Suggested Citation