The Architecture and Design of Organizational Capabilities

27 Pages Posted: 28 Dec 2005

Date Written: November 2006


This paper considers how ideas from evolutionary theory and the neo-Schumpeterian tradition can be fruitfully combined with ideas from Herbert Simon and the Carnegie tradition on decomposability and cognitive limits. Rather than focusing on any one individual issue, this paper outlines a research programme on the architecture and design of organizational capabilities. Such a programme can help us explain how labour is divided and organized within and between firms; and can consider the implications of the division of labour for the process of capability development. In the paper, I start with the behavioural foundations on cognitive limitations; show how these explain the division of labour within organizations; then move into the implications of this division of labour (within firms) and the role of management within firms to countervail them. I then consider the division of labour between organizations; and conclude with the implications of inter- and intra-organizational division of labour for capability structure and development, by showing how such divisions affect knowledge bases and the process of capability development. This could help us understand why structure emerges, in the sense that some organizational architectures emerge or dominate as a result of their abilities to develop and utilize new knowledge. It could also help appreciate the advantages and limitations of any given organizational architecture on the nature of capabilities. This paper, then, builds on and integrates recent research, point areas where neo-Schumpeterian research may have substantial impact. In particular, I point to the promise of studying relatively under-researched empirical regularities: Industries and their vertical / value chain structures over time; firms and their overall boundaries (and resulting capabilities) over time; trajectories of capability development, at the firm and industry level; organizational architecture, and the architecture of capabilities, or the related business models (and their re-configurability). These new empirical foci should be complemented with research drawing on the evolutionary and neo-Schumpeterian tradition on the one hand, and the Carnegie tradition on the other hand, and as such shed new light as for the causes and consequences of the division and the organization and division of labour within and between firms.

Keywords: Organizational architecture, capabilities, evolution, cognition, firm and industry boundaries

JEL Classification: L20, L23, L14, L22, D20, D21, D22, D51, D52, D92, K1, M2, O33

Suggested Citation

Jacobides, Michael G., The Architecture and Design of Organizational Capabilities (November 2006). Advanced Institute of Management Research Paper No. 039, Available at SSRN: or

Michael G. Jacobides (Contact Author)

London Business School ( email )

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