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Journal of Institutional Economics: page 1 of 21 C The JOIE Foundation 2011 doi:10.


Problems at the Foundation? Comments on Felin and Foss

Deloitte and Touche Professor of Management, Emeritus, The Wharton School of the University of Pennsylvania, Philadelphia PA 19104-6370, USA

Abstract: This paper reviews the assessment of the routines and capabilities literature provided by T. Felin and N. J. Foss, The Endogenous Origins of Experience, Routines and Organizational Capabilities: The Poverty of Stimulus, published by the Journal of Institutional Economics. Although valuable points are raised, the assessment is largely off target because it is xated on the implausible view that the literature assessed is strongly shaped by the tradition of behavioral psychology (B. F. Skinner and others). At the same time, important portions of the routines and capabilities literature that are highly relevant to the authors substantive concerns, and which are plainly inconsistent with the main interpretive claim, are not considered.

1. Introduction Teppo Felin and Nicolai Foss provide a provocative critique of past research on routines and capabilities, and seek to point us in a different direction (Felin and Foss, 2011). While I believe I understand most of their specic points, and agree with quite a few of them, I nd myself quite puzzled about the underlying presumptions and ambitions of their discussion. They give an extended account of the intellectual antecedents of the key ideas, an account that receives space commensurate with a considerable and wideranging intellectual effort. This account, however, is barely recognizable to me; that is, it corresponds very little to the intellectual history of the subject as I, at least, experienced it. Further, the weakness of the correspondence is something that would be readily ascertained with only a modest amount of checking. This suggests that perhaps the account is not supposed to be read as intellectual history at all; it is, rather, the authors theoretical exploration of the question, Where did ideas about routines and capabilities come from? In that case, we should ask what grounds there are for accepting this theoretical proposal. Complementing the analysis and critique, they offer a constructive program for the eld. Again, there is a good deal here with which I agree, but much of it


I am indebted to Markus Becker, Thorbjrn Knudsen, Brian Pentland and Nathalie Lazaric for helpful comments on an earlier draft. Responsibility for the views expressed here rests entirely with me.


also seems to correspond to the actual path of the eld in recent years. For some time now, there has been widespread recognition of the need to move beyond the simplest models of experiential learning. As for the featured idea of the poverty of stimulus, it is harder to interpret concretely in the relevant context, perhaps because the authors do not identify extant examples of this approach that might deserve emulation. The approach may be too fresh for that, or more likely in my view the idea is actually more cautionary than constructive. It offers further guidance on what not to do. My complaint here is reminiscent of the one that we heard from neoclassical economists years ago: You criticize our theories and you propose very different ways of thinking but what do you have to show that might convince us that these different ways are actually helpful in specic research contexts that are of interest to us? But that was many years ago, and now the research program that seeks to respond to that complaint is the one that Felin and Foss criticize, while I am the one to ask the skeptical question about what is really on offer. For me, this is a welcome change relative to the earlier era. At a deeper level, Felin and Foss seek to ground their discussion primarily in philosophical considerations, as distinguished from considerations of theory and evidence. They do allude to some lines of empirical inquiry that they seem to approve (as distinguished from the empiricism they deplore), but for the most part these are remote from the routines and capabilities discussion itself. Thus, for example, they refer to an important line of inquiry about the mechanisms of language acquisition in humans, in which the contributions of Noam Chomsky are of historic importance. Since language is a complex competence, it is easy to accept the idea of a high-level analogy between the challenges of understanding language acquisition and those of understanding capability learning. Certainly it is more than legitimate to explore this. Reecting that pursuit, the FelinFoss bibliography contains ve references to Chomsky but on the other hand it is thin and very selective in its treatment of the literature on capability learning, tending to focus on examples close to the learning-curve tradition that are said to be tainted with empiricism.1 As I shall illustrate further, this example captures a pervasive tendency in the paper: it often seems that the topic referenced in the papers title is only in the peripheral vision of its authors. Focal attention is occupied by more abstract concerns, illuminated by that diverse array of philosophers, psychologists, etc who carry such weight in the bibliography. Since it appears that we may not really agree on what is or should be under discussion, it could well be that there are some fundamental communication
1 The evidence on the origins of capabilities is widely scattered, often appearing in works that were not conceived as addressing that question. Much of it is in the technology literature, some in organizations and some in strategic management and business history. It is, however, far from the case that there is nothing on the origins question in the capabilities literature proper, including works whose relevance to the issue is strongly signaled in the title. An example of that is my own article, The Satiscing Principle in Capability Learning (Winter, 2000). Several others are noted subsequently.

Problems at the Foundation? 3

problems here. While difculties of that kind are notoriously difcult to straighten out, I welcome the occasion to make the attempt. Certainly a portion of the critical view that Felin and Foss present is shared by others, including some others who are themselves active contributors to the routines literature. There is also some detectable convergence regarding desirable new directions. The effort to clear the channels is certainly worthwhile. In the remainder of this comment, I rst examine some of the sources of communication blockage, and then pursue the ve problems identied in the Felin and Foss critique. Finally, of course, I discuss the new directions. 2. Some possible misunderstandings The rst misunderstanding worth noting is possibly mine, and it is one to which I am inevitably prone: I tend to read the discussion as if the authors were speaking to me personally. While there is a certain amount of warrant for that in the mentions of my work with Richard Nelson, and later with Maurizio Zollo, I am not sure whether I am entitled to object to the proffered characterizations of the literature on routines and capabilities merely on the grounds that it does not apply to me. Neither, however, does it clearly apply to Nelson, or to many other friends and colleagues who have worked in this area. I would be hard pressed, in fact, to think of anyone to whom the broad-brush characterization clearly applies although some of the narrower points are at least backed by relevant quotations.2 This raises the suspicion that the point of view criticized may be in large part the creation of the authors, or at least that the specic targets are poorly identied. In any case, while I seek to respond to the critique on behalf of the wider community whose contributions are referenced and/or neglected by Felin and Foss, I offer apologies in advance for any overly-personalized interpretations, as well as for my possible failure to appreciate fully the larger agenda that seems to motivate the authors. A second possible misunderstanding relates to the purposes for which we study organizational routines. At least in evolutionary economics, the concepts of routines and capabilities were put forward as components for a theory of organizational behavior, and that theory is itself a descriptive theory, i.e. a predictive/explanatory theory, not a normative or prescriptive one.3 It is not
2 If the intention is to critique the views of a particular author, it takes more than an isolated quotation to do that persuasively. For example, the quotation from Herbert Simon (Felin and Foss, 2011: 13) seems to catch Simon in one of his occasional overstatements, but the statement is hardly indicative of what Simons thought contributes to the questions at hand. Problems of this kind, and worse, are unfortunately frequent in the paper. 3 The prescriptive content of the theory is rendered as follows by Felin and Foss (2011: 9): The practical advice for a young organization would be to have lots of good experiences . . .). That is plausible enough, both as a reading and as advice; the main problem with it is that good (informative) experience can seem catastrophic in the short run. More importantly, however, the question of the


claimed that learned routines are the only things driving behavior, or the only thing worth studying. It is certainly not claimed that organizations should avoid intentionality, or creativity or the exercise of whatever free will they or their leaders may have. On the contrary, the concept was developed partly to provide a realistic backdrop against which these other sorts of activity could be examined. What is true, however, is that the theory is intended to be an operational one that can be implemented on the basis of empirical observations that might actually be feasible in at least some cases. This accounts for the emphasis on observables, to which Felin and Foss object, including the emphasis in the empirical literature on the very simple device of counting the number of times the actor has dealt with that sort of situation. I am not aware of any empirical researcher who has proclaimed that counts are plenty good enough for me; what they afrm is that counts are available, theoretically interpretable and prove to be capable of explaining variance in performance. The admitted conceptual deciencies of the counts measure actually offer an empirical researcher some indirect long-run encouragement for the larger research program you might not expect anything so simple to work at all; who knows what better data might unveil? These researchers would probably be inclined to ask Felin and Foss what variance they seek to explain and what observables they think might explain it; I doubt that they would put free will, or even creativity, forward in that context. While routines are certainly not the only things going on inside business rms, they do have distinctive appeal as an element of a theory that aspires to prediction. Unlike the inner workings of a creative mind, or the subtleties of organizational politics at the highest level, they are relatively accessible to observation. Further, there is reason to think that close observation of the routines in use at period t might actually have a payoff in terms of successful prediction of rm behavior in period t+1.4 In our 1982 book, Nelson and I pushed this point further in a concluding statement at the end of chapter 5. We offered a broad, routine-centered formula for approaching the problem of predicting rm behavior, a formula that has a number of important nuances (Nelson and Winter, 1982). To our critics I would say, what specically is it that you propose to substitute for that recipe, and what is the basis for thinking that it is both feasible and an improvement? (Needless to say, actual improvements could only rise from an operationalized version of a rival approach, which could be expected to present its own difculties.) It appears to me here, as it has on other occasions over the years, that this question is not actually being addressed. If, hypothetically, we are aspiring to do empirical science in this area, is that not a key question to address?
prescriptive signicance of the theory raises a different set of issues, not central to the scientic discussion, and I am setting them aside. 4 A compelling illustration of this possibility was provided long ago by the department store pricing model reported in Cyert and March (1963); see Winter (1986) for related references and discussion.

Problems at the Foundation? 5

I do think of successful empirical science as being the goal, though such success can be pursued in many ways. The observations of Felin and Foss leave me uncertain as to where their favored internalist or rationalist approach lies in relation to modern ideas of scientic inquiry. What are we to make of a passage like the following?
Unfortunately, behaviorist and empiricist models in organization theory have been closely linked to natural sciences with the emphasis placed on such things as incremental and experiential evolution, randomness, and environmental selection (e.g., Nelson and Winter, 1982; also see Holland, 1995), and thus the evidence of mans artice essentially gets lost in ascribing causal roles to the artice rather than the man (Felin and Foss, 2011: 14).

I take some pride in this complaint. Unfortunately, . . . closely linked to natural sciences? Such linkage is a very good thing, in my view, and the real question is who does it best. The emphasis placed seems in the main to be appropriately placed, although there is an implicit issue here, which is discussed below, about the emphasis that should be given to prior biological evolution. There may be a related misunderstanding involving the meaning of cause and causal explanation. Felin and Foss argue that experience and repetition are not a fundamental cause of capability:
We argue that experience and repetition are only an epiphenomenon of more ultimate theoretical causes of behavior; experience and capability have endogenous origins. Citing experience and repetition as causes of behavior and capability only restates rather than resolves the theoretical problem of understanding and explaining organizational behavior or heterogeneity (2011: 7).

Here we have a philosophical issue of the kind that presents a nice target for the sort of analysis the authors would like to promote. The object of this analysis should be, Experience and repetition are not a true cause. What does that mean, exactly? Consider the case of a concert pianist who spent years at the keyboard practicing, but not, thereby, promoting her chances of professional success according to Felin and Foss. This history of experience and (tedious, let me tell you) repetition was not a nal theoretical antecedent of her musicianship, according to the authors. In their favor, we should acknowledge that there are other things to be said about the situation mentioning innate aptitudes, musically-inclined parents, hormones and upbringing supportive of high diligence, etc but reference to these only restates rather than resolves the problem: whence came these? Most importantly, reference to these important considerations hardly seems to devalue the signicance of Practice, practice, practice! as a causal explanation for how this person got to be on stage at


Carnegie Hall.5 The strangeness of only an epiphenomenon in this case derives in part from the fact that much of the required antecedent behavior was not observably adjacent to the effect at all and a corresponding point extends also to the authors dismissal of experience in relation to organizational learning. The authors say By an epiphenomenon we refer to the question of whether the theoretical explanation given provides causal nality, or whether the explanation induces immediate questions about the nested, actual antecedents. (2011: 7) I take the view that causes operate in time; everything has causal antecedents, and causal antecedents are, in a broad sense, evolutionary antecedents. In this perspective, causal nality may be hard to reach, but the explanatory regress reaches a terminus at the Big Bang, somewhere around 14 billion years ago. This regress embraces all of the considerations that the authors offer as nal causes, including the levels of intentionality and creativity displayed in Homo sapiens. Why they believe that human intentionality is a nal cause, which does not itself require explanation, or cannot have a scientic one, is unclear to me. 3. Bibliography gaps I have referred above to the heavy bibliographic weight carried by references that seem fairly remote from the routines and capabilities topic, and the correspondingly light weight of those that are plainly on point. A broad range of literature is referenced. I confess to being unfamiliar with perhaps the larger proportion of it, outside of the domain of obvious relevance, though familiar with some. A portion of the unfamiliar part seems, at the title and author level, to be highly relevant; in other cases I am more doubtful that this is so. On the other hand, I have a reasonable sense of the routines and capabilities literature, including contributions that were important in the background of my work with Nelson, and a range of subsequent contributions up to the present that have supplemented, tested and in some degree modied the case that Nelson and I presented.6 As noted previously, very little of the topic-specic bibliography is acknowledged in the FelinFoss argument. Some of the items that are missing are quite central, in my view, to the concerns raised. Thus, it seems to me that part of the difculty I have in recognizing this map of the intellectual territory is attributable to the fact that not much familiarity with that territory is displayed. The leading example of these difculties is the remarkably strong emphasis given to the idea that the concepts of organizational learning that appear in the routines and capabilities literature are close cousins to the ideas advanced in

5 For those unfamiliar with it, the quoted phrase is the A part of an ancient New York joke, in which the Q is from a tourist who asks How do you get to Carnegie Hall? 6 I am also familiar with many references in the philosophy of science that, had I been writing a piece in the FelinFoss style, would have been quite prominent in my bibliography, but do not appear in theirs.

Problems at the Foundation? 7

behavioral psychology by B. F. Skinner, Edward Thorndike, John Watson and others.

Overall, what is quite striking about the routines and capabilities-based literature is that it utilizes the exact same inputs, mechanisms and theoretical arguments as the psychological literature that it builds on. For example, Schwartzs (1978) book on psychological learning illustrates that the same exact inputoutput relationships and theoretical mechanisms are featured both in behaviorist psychology and much of the organizational literature on routines and capabilities (Felin and Foss, 2011: 6, emphasis in the original).

Here it is important to note that the illustrates judgment derives entirely from Felin and Foss, not Barry Schwartz whose 1978 textbook (1st edn) obviously predates most of the relevant literature on capabilities. While the bibliography contains multiple works by behavioral psychologists (three by Skinner), the bibliography of the Nelson and Winter book contains none of these names. However, the latter work does cite some psychologists in chapter 4 (Skills) and chapter 5 (Organizational Capabilities and Behavior), particularly Roger Schank and Robert Abelson, and George Miller, Eugene Galanter and Karl Pribam. More important, however, is the debt of chapter 4, and indirectly chapter 5, to Michael Polanyi not a psychologist, but a writer with vast insight into many things, including the phenomenon of procedural memory that psychologists later dened and studied. There is also a psychologist whom we did not cite in our 1982 book (Nelson and Winter, 1982) but is now understood as a major gure in the background of the routines and capabilities work, or at least as an earlier author with a helpful and congenial perspective on these issues John Dewey.7 None of these authors, who actually inuenced the routines and capabilities ideas at that particular stage of their long history, are mentioned. All are ignored, in favor of authors imagined to have been particularly inuential, simply to support the aggressive claim of strong parallels between the capabilities theory and behavioral psychology. Like Polanyi and Dewey, Nelson and I devoted considerable attention to the many interactions between the relatively automatic and often tacit parts of learned behavior and the more deliberate and truly choice-laden parts that guide the directions of learning and modify learned patterns. The critique that Felin and Foss offer seems to reect a selective reading of chapter 5 in Nelson and Winter (ibid.). For example, the authors do not engage with section 5.5, Optimal routines and optimization routines, or 5.6, Routines, heuristics and innovation. But that is only the beginning of the shortcomings of the FelinFoss characterization. What happened to chapters 1, 4, 11, 1215 and much in the
7 Recognition that Deweys psychology is relevant has been actively promoted by Michael Cohen (Cohen, 2006, 2007). Cohens experimental work on the origins and foundations of routines (Cohen and Bacdayan, 1994), perhaps the single most important foundational work in the routines literature, also goes unmentioned, along with the several papers that followed that lead.


chapters in between? On what basis, aside from unsupported reference to the alleged inuence of Skinner and others is it possible to read these pages and then return a verdict of neglect of the importance of intentionality, as if the book closely paralleled a study of learning by rats and pigeons? Perhaps Nelson and Winter (ibid.) is not in the bulls-eye of the intended target for the FelinFoss critique. But if it is not, what is? The complaints that have little validity for Nelson and Winter (ibid.) have even less validity for our writings since then, or for those of our many collaborators and others who have followed a similar line. On the behalf of the latter, in particular, we do feel some real sense of offense. It is particularly unfortunate that the broad-brush characterization tars scholars such as Nelson and Zollo with association with rat psychology as practiced by Skinner and others. This in fact is the opposite of what these two scholars are about. Indeed, even the titles of their works provide a sufcient clue to the error of the characterization; I will not do here what anyone can do with a quick search on Google Scholar. Similarly, Felin and Foss identify March and Simons Organizations (March and Simon, 1958) as an important channel by which the errors of behaviorist psychology inltrated subsequent literature.
Theoretically there is a strong link between psychological behaviorism (as pioneered by the likes of Thorndike, 1932; Watson, 1934; and Skinner, 1989) and subsequent models of organization (specically see, e.g., March and Simon, 1958: 910; 139142) (Felin and Foss, 2011: 3).

While March and Simon (1958) do reference Thorndike and other champions of behaviorism, a reader will also nd emphasis on the internal states of actors, including memory conditions, and the suggestion that the relation between actor and environment is one of mutual interaction. Thus, the claim of a foundational role for behaviorism in the work of March and Simon is not signicantly more credible than in the case of Nelson and Winter, although the supercial evidence from citations is less clear-cut. The authors go so far as to cite Zollo and Winter (2002) to support the charge of an overemphasis on experience accumulation, saying that Zollo and Winter give primacy to the role of accumulated experience as the origin of organizational capabilities. The claim of primacy is quite unjustied, since the paper is actually dedicated to the cause of going beyond simple accounts of experiential learning as might be suggested by the fact that the rst two words of the cited articles title are Deliberate Learning. . ..!8 Zollo and Winter say:
In the spirit of bridging the behavioral and cognitive approaches to the organizational learning phenomenon. . ., we attend both to the experience accumulation process and to more deliberate cognitive processes involving the
8 A similar distortion by selectivity aficts the immediately following reference (Gavetti and Levinthal, 2000) to experiential wisdom (Felin and Foss, 2011: 4).

Problems at the Foundation? 9 articulation and codication of knowledge derived from reection upon past experiences (ibid.: 340).

One of the recognized limitations of the behavioral tradition in the study of organizational learning consists of the lack of appreciation of the deliberative process through which individuals and groups gure out what works and what doesnt in the execution of a certain organizational task (ibid.: 341).

So much for the primacy of accumulated experience and the alleged neglect of intentionality.9 As I briey discuss below, the discussion of routines has broadened considerably in recent years, and many scholars have concerned themselves with the interplay of routinized behavior and agency. With respect to that development, the FelinFoss critique is even farther from the mark than in the cases just cited. In short, the FelinFoss interpretations of texts and of the broader intellectual history are far from trustworthy. There seems to be an underlying commitment to an id e xe that blinds them to an abundance of obvious evidence e that does not t. 4. The problems Origins and causation Providing a fully compelling theoretical account of the origins of routines and capabilities is indeed a challenging goal, and in my view it is correct to say that no such account exists at present. In 1982, Nelson and I largely sidestepped the problem by focusing on the phenomena associated with established skills and routines, while making occasional contrasts with novice performance and also allowing for the contribution of routines to innovation. In this we followed Schumpeter (1934 [1911]), whose discussion of the circular ow precedes his account of entrepreneurship and its correlates and the latter does not so much explain as simply remark upon the phenomena that entrepreneurial history presents. If, however, we were addressing these matters today, we certainly would be able to do much better on the problem of origins, because so much has been learned in the intervening years not nearly enough in some absolute sense, but relatively speaking a great deal. The concerns that Felin and Foss express in this area illustrate some of the issues noted above. For example, they say . . . how one (an individual or organization, any organism) sets out to have a better or quality
9 Incidentally, Zollo and Winter (2002) discuss dynamic capabilities as opposed to organizational capabilities in general. Felin and Foss (2011) cite, in this passage, Eisenhardt and Martin (2000), but reference it incorrectly in the title, substituting organizational for dynamic. These conceptual distinctions are signicant and require more careful treatment.



(heterogeneous) experience(s) remains unanswered (2011: 78). This (along with the question about the better and the right experiences) implicitly invokes the prescriptive perspective on the phenomena, an important area of concern but one that (as previously noted) should be distinguished from the criteria of scientic success. It seems clear, however, that one does not have to set out to have heterogeneous experiences; often it is hard to avoid that. As to quality, it is true that ex ante choice often plays a limited role, but so what? I can certainly provide serious causal explanations for observed effectiveness without presuming that the actors involved set out to achieve it as the theory of biological evolution powerfully illustrates.10 Similarly, the idea of an innite regress is invoked by way of critique of the idea that capabilities arise from experience. This distorts a question of history or evolution into a question of logical entailment. The origin of todays organizational routines and capabilities lies in the past, along with the origins of the Constitution of the United States, the Earth, and the element carbon. New entities such as these (recognized in the various ontological domains created by H. sapiens) do appear from time to time. Broadly speaking, they all have identiable evolutionary origins. The challenge is not to unpack an alleged regress, but to understand how those specic novelties emerged by the operation of dynamic processes of a more general character, which transcend the narrow ones invoked to explain the relevant phenomena within the established ontologies (e.g., orbital calculations for Earth, organic chemistry). Next we encounter the rhetorical quest for the rst experience and the claim that . . ., if experience and repetition is the origin of learning, then logically the experiences themselves, and input and environmental stimuli more generally, should in essence carry the contents of experience or lessons learned within them (Felin and Foss, 2011: 8). This seems like an attempt to problematize the obvious. Presumably the authors have had a lot of recognizable rst experiences in various domains, at the personal level. It is obvious that these experiences did not impinge on a logical blank slate but actually impinged on a complex, already experience-laden human being. It should be quite clear also that capability is not antecedent to repetition (as implied; ibid.: 10) not, at least, if rst experiences with pronouncing a foreign language are indicative. To understand the nature and import of such origin events is a worthy but challenging objective. It requires understanding how the system (e.g. a Felin or a Foss) state at t, which emerged from the full history (back to the Big Bang) prior to that time, interacts with the time t input to the system (e.g., instruction in some skill) to produce the system outputs and its state at t+1. It is difcult to do that for a complex system because a large fraction of the relevant history lies buried in the system state at t,

10 I say serious rather than correct because I do not believe that 100% certainty about the correctness of a causal explanation is ever available.

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and much of it is unobservable. These big scientic challenges are not, however, logical puzzles to which the idea of innite regress applies. Aside from reecting on the processes that produced their own skills, the authors might examine some of the accounts in the literature of the development of routines and capabilities at the organizational level e.g., the Cohen and Bacdayan experimental study previously cited (1994), or studies such as Usselman (1993) on IBMs capabilities, or Szulanski (2000) on the origins of Banc Ones replication capability (Narduzzo et al. 2000) on the creation of a cellular phone network, or Raff (2000) on the book superstores, or the great book on the German synthetic dye industry (Murmann, 2003). In their different ways, these studies make clear that the development processes certainly cannot be fully accounted for by individual-level psychology, and that, yes, shared experience does play a crucial role in the origins of effective group performance. There are also, however, papers that anticipate the FelinFoss warnings against an overly mechanical conceptualization of learning from experience (e.g., Mishima, 1999; Sinclair et al. 2000). Those warnings, however, have much greater force with respect to some limited, and older, parts of the learning curve literature than to the routines and capabilities literature which is perhaps why Felin and Foss are focused there. The learning-curve literature itself has progressed a long way from its origins as a planning device for aeronautical engineers (Argote, 1999). Contemporary enthusiasts of the capabilities approach cannot reasonably be accused of neglecting the role of deliberate, intelligent problemsolving efforts; consider Dosi and Marengo (1994), Winter (2000), Zollo and Winter (2002), Becker and Lazaric (2003), and see also the generous assessment of evolutionary theory provided by the late Alfred Chandler (Chandler, 1992), hardly a man to minimize the role of intentionality and intelligence in the creation of capabilities. Most important, consider the full body of Nelsons work, past and present. Today, inquiry into the origins of capabilities promises to be greatly invigorated by the recent burgeoning of research on the spinoff phenomenon. Surprising things have been discovered about the typical origins of new rms, and questions raised about the specic content of the genetic information with which new rms are apparently endowed. The answers for those questions are being vigorously sought on this exciting new frontier. Steven Klepper has played the leading role in this movement; see, e.g., Klepper (2002), Klepper and Sleeper (2005) and several subsequent papers. Extremes Under this heading, some of the observations have a welcome grounding in familiar themes of the strategic management literature, particularly the entrants vs. incumbents theme. This issue is linked to the critique of experience accumulation as the basis of capability. For example:



To take one glaring example from the literature, how do experiential models account for organizational diseconomies. . ., that is, the oft-noted discrepancy between the radically skewed innovation outcomes in small and young versus large and old organizations (the former being much more productive and innovative in relation to their size)? That is, experience or repetition-based learning models would of course predict the primacy of older, larger (thus more experienced) organizations, given that the theoretical mechanisms (e.g., repetition, accumulation . . .) have operated both longer and more frequently, thus leading to increased organizational capability (Felin and Foss, 2011: 910, emphasis in the original).

There is a misapprehension here, which has become quite common in the strategic management literature, and I welcome the opportunity to comment on it. To begin with, it is worth recalling here that the second paragraph of the capabilities chapter in the Nelson and Winter (1982) book concludes with the following statement about the scope of the discussion being introduced: . . . organizations that are involved in the production or management of economic change as their principal function organizations such as R&D laboratories and consulting rms do not t neatly into the routine operation mold (ibid.: 97). The caveat I would offer today would actually be signicantly weaker than that (Winter, 2008), but it remains true and important that high routinization is much more prominent in some situations than in others. Operational capabilities, such as production and distribution, are expected to display more routinization than rst-order dynamic capabilities such as research and development (R&D) (Winter, 2003). This is not a limitation of capabilities theory or a denial of the role of experience, but an illustration of it. The newer or less repetitive the activity, the less weight we should give to experience in predicting success. In the domain of production, the predicted primacy of older, larger (thus more experienced) organizations does correspond to the empirical reality. It is overly generous of Felin and Foss to attribute this accurate prediction specically to capabilities theory. There are alternative explanations, but we are happy to accept the scoring of this point. If the question is restricted to innovative activity, then the balance does shift toward newer rms. It is true that a good deal of evidence points to the higher efciency of small rms in R&D projects of a given type. Whether the efciency difference implies primacy in an important sense is not so clear. R&D projects are heterogeneous, and some important ones are not realistically within the capabilities of small rms (Schumpeter, 1950). This heterogeneity is only one of several measurement problems that may detract from the meaningfulness of the comparison. In the strategic management literature, claims for the innovative superiority of small rms and entrants often go beyond the narrow efciency question, and are often exaggerated. The observation Isnt it interesting that David sometimes defeats Goliath in business competition became so familiar and well illustrated

Problems at the Foundation? 13

with selected examples that it was transmuted into What is the explanation for the fact that David generally beats Goliath? If this generalization were true, it would indeed count against the most straightforward sort of prediction from the capabilities viewpoint. But it is not remotely true, as any inspection of readily available descriptive statistics will amply demonstrate. The great bulk of economic activity in the economy is performed by the larger, older rms. As far as I know, nobody has ever sought to demonstrate in a statistically credible way that David generally beats Goliath, which is not surprising given that the aggregate gures are so much to the contrary. Such a demonstration would require (as usual) some care with the operational denitions, particularly on the question of when a Goliath is declared beaten. It is quite common that dominant incumbents get wounded by new competition, particularly new, innovative rms, but it is also common that they rally and recover, if not all the way to their former dominance.11 Sometimes the wounding is severe enough to carry them at least temporarily into bankruptcy, but if they retain a major market share, is that not a retention of primacy? Such questions raise basic conceptual issues for evolutionary theory, which I addressed some time ago (Winter, 1990). Equally fundamental to an adequate statistical demonstration is a denition of the universe of DavidGoliath contests, from which we need a representative or random sample. (What we mostly have on record reects sampling on the dependent variable value David wins!.) If every aspiring startup in an established industry counts as a new David, then the proposition that David generally wins will be overwhelmingly rejected, so we probably need a more stringent criterion to locate a question that might conceivably be open. In the perspective of evolutionary theory, innovative small rms are seen as an important contributor of variety to the system. They are important not because they do given tasks better than more experienced large rms, but because they often attempt different tasks. Neither efciency nor nancial success is necessary for the role performance to be a valuable one, since the fruits of failed efforts are often not lost to the economy as a whole (Dosi and Lovallo, 1997; Knott and Posen, 2005; Hoetker and Agarwal, 2007). Meanwhile, in established domains, rms like Intel exercise their dynamic capabilities to pursue trajectories of worldtransforming innovation on a world-transforming scale though some might disparage such experience-based innovation as incremental, relying mainly on the fact that the innovators make it look easy (Winter, 2008). Intentionality There is a germ of truth in the observations that Felin and Foss (2011) offer under this heading. In a part of the routines and capabilities domain, the
11 There is some interesting literature on the resilience and tenacity of challenged incumbents facing technological change (e.g., Miller et al. 1995; Tripsas, 1997; Rosenbloom, 2000; King and Tucci, 2002).



themes of experiential learning and relatively automatic response arguably became over-developed relative to rival themes of cognition, problem-solving and intentionality. Similarly, the contribution of routines to organizational inertia may have been overstated relative to the role of routines in producing change. As already suggested in the origins and causation discussion, the extent of this misallocation should not be overstated, for these dualities are certainly recognized in Nelson and Winter (1982) and in the deeper antecedents in the routines literature. Nevertheless, an assessment of the situation similar to that of Felin and Foss was part of the motivation for the convening of a workshop on Cognition and Capabilities, held at the Harvard Business School in 2002. Several of the recent works cited by Felin and Foss as exceptions to their general point had some connection to that workshop. There are others, some published (Gavetti, 2005; Gavetti et al. 2005) and some still in progress. Meanwhile, another line of work had been developing independently, in which agency in seen as operating through the ongoing practice of a routine to modify the routine itself. An important example of this body of theoretical and empirical work is Feldman and Pentland (2003) a paper notable for its award-winning contribution (2009 ASQ [Administrative Science Quarterly] Scholarly Contribution Award), the suggestive juxtaposition of the words routines, exibility and change in its title, its high citation rate, and its absence from the FelinFoss bibliography. For related work, see Pentland and Rueter (1994), Feldman (2000), and Pentland and Feldman (2008), among others. Thus, the recommended adjustment of research direction actually has been developing for several years now (Becker et al. 2005; Gavetti et al. 2007). Beyond this broadly agreed territory, most of what the authors say under this heading derives simply from their dedication to the perception that routines and capabilities theory is grounded primarily in behaviorist psychology. To oversimplify the points already made in this connection, the reader is advised to note that the behaviorist psychologists multiply referenced by Felin and Foss (2011) are not referenced at all in Nelson and Winter (1982); meanwhile, many of the authors cited by Nelson and Winter as among their antecedents are not cited at all by Felin and Foss. Perhaps the most crucial and extreme of these problems is the neglect of the inuence of Polanyi; nothing would do more to lay to rest the rat psychology charge than to read Polanyi (1964), especially chapter 4 on Skills. One issue possibly deserving of further comment is the relationship of intentionality to evolutionary logic. The opening sentence of Dosi et al. (2000: 1) notes that It is familiar enough that business rms and other organizations know how to do things things like building automobiles or computers, or ying us from one continent to another. It would be remarkable if anyone were to believe that organizations learned to do these things in the manner that a rat learns to run a maze, running strictly on short-run feedback and without intentionality (of a human kind). It is correspondingly remarkable that such

Problems at the Foundation? 15

a belief is vigorously attributed by Felin and Foss to persons who consider themselves students of the phenomena of organizational capability. A more penetrating question could be raised about the compatibility of high intentionality with an evolutionary viewpoint. In biology, it is the blind watchmaker of evolution who offers an explanatory alternative to intelligent design. But in the development of capabilities, there really is a lot of intelligent design though not to the exclusion of experiential learning. Is the evolutionary approach therefore unsuited to the explanatory task in the domain of capabilities? No, the point is that while the watchmakers in human organizations are far from blind, they are quite near-sighted. They can do complicated instrumental things in the interest of making an attempt at a complicated performance but that does not mean that they can accurately foresee the long-run consequences of the attempt. From the system-level viewpoint, this means that genuine experiments are being run; new ways of doing things are being put to the reality test, and outcomes are not highly predictable. It is the weakness of foresight that brings the evolutionary logic into play (Hodgson and Knudsen, 2006; Jantunen and Sainio, 2008). Thus, in making appropriate room for intentionality in our theories, it is important to avoid the distortions that crippled rational choice theory, where ideas of rational intentionality became stretched to the point where they effectively impute a kind of perfect foresight to the actor.12 Intentionality can be very effective locally, in time and space, and is a crucial factor in the appearance of sophisticated artifacts but this does not imply that the actor has reliable insight into, much less control over, the future. Absent such insight and control, and given the reality of continuities in behavior, an evolutionary approach to the task of explanation is a forced move. Creativity and new knowledge Much of the above discussion of the origins problem is applicable to the obviously closely related problem of the origins of new knowledge. In particular, as just noted, there is simply no substance in the suggestion that the capabilities approach is at odds with the existence of intelligence or its occasional application in episodes of creativity and problem-solving. The question is one of its empirical prevalence in various contexts, especially in organizational behaviors of a complex but quite repetitive kind a kind represented in a great deal of productive activity. The authors have very high standards for what they would concede to be new knowledge. Computation evidently cannot produce new knowledge, per such long-familiar claims as computers and articial agents can only produce what they are programmed to do, originating no new knowledge and showing no
12 More precisely, perfect understanding of the basic structure of the situation in which the actor is embedded, as in rational expectations theory.



creativity (Felin and Fosse, 2011: 13). By the time such statements are trimmed and qualied to the point where they reduce to a core truth, the truth thus disclosed has become so small that it is uninteresting. There is a basic distinction to be made between the role of the programmers in creating algorithms and the results of those algorithms when run. If a computer extends the known digits of pi, or the known set of prime numbers, is it reasonable to say that no new knowledge is thus created? Relatedly, there is considerable overstatement in the claim that computers are deterministic in a sense that somehow precludes the appearance of interesting novelty. From todays perspective, these conceptions all seem rather quaint (see McCorduck, 2004, an update of a book on articial intelligence published 25 years earlier). For decades now, the quest for computational models of emergent phenomena has been pursued to impressive effect. The species chauvinism of H. sapiens continues to fuel the quest for a denition of the domain of creative accomplishment that computers assuredly cannot get into but the territory claimed keeps shrinking, and it has long been apparent that most humans do not get into it either. Perhaps the important question in the context of capabilities research is whether computers are so limited in their capacities as to make them necessarily ineffective in modeling the creation of novelty. Practitioners in the eld generally perceive that it is not the limitations of the computers that principally stand in the way of progress, but the cognitive limitations of the human beings who need to understand what the computer has done. The environment, the internal approach and the poverty of stimulus Under these headings, the Felin and Fosse (2011) press their assault on a hypothetical theory in which experience alone accounts for the learning underlying routines and capabilities, with no weight at all given to the nature of the system exhibiting the learning. This notion is evoked repeatedly in the paper, for example in the attribution to Karl Popper (1972) of the claim that behaviorists view the mind as a tabula rasa (Felin and Foss, 2011: 5). The argumentation in this vein reaches some kind of extremum with the rhetorical invocation of the pet bee, whose experience hypothetically matches that of a learning child:
The child would not develop the navigational ability of the bee, and the bee would not develop language capabilities, despite uniform environmental stimuli (ibid.: 16).

I ask, very seriously, whether anybody ever actually believed to the contrary. True, there has been plenty of back and forth on the matter of allocation of emphasis; Gestalt psychologists such as Wolfgang Kohler were a lot different from the Skinnerians. But the tabula rasa and pet bee language is extreme; it is unfortunately the kind of thing that often happens when somebody is tendentiously characterizing somebody elses opinion. It is not the kind of thing

Problems at the Foundation? 17

that anybody ever seriously advanced as his own opinion. Felin and Foss devote a great many words to attacking a position that probably nobody ever held not just nobody in the capabilities camp, nobody at all.13 They come out, constructively, for the program of giving more weight to the internal attributes of the learner. If I understand them correctly, it is those attributes that make up the explanatory decit called the poverty of stimulus. In that stance they have a lot of distinguished company going back a long way. It was very much what the Gestalt psychologists said by way of criticism of behavioral psychology. (Personally, I learned my (undergraduate) psychology from the Gestalt viewpoint long ago, and was never tempted by the other view.) It should be conceded that there is a glaring poverty of stimulus issue in the logic of the simplest models of evolutionary economics, though it is not strictly a matter of capability learning. Many such models presume that a very simple feedback mechanism involving protability and growth is sufcient to shape the detailed destiny of a large, complex rm. That is hardly credible on its face, and (consistent with the general FelinFoss point), there is an implied need to inquire much more closely into what is going inside those complex rms. Perhaps the capability theorists should have given explicit emphasis to the premise that the organizations of which we spoke were indeed inhabited by representatives of H. sapiens, and thus came to the situation endowed with the many remarkable capacities of that species (including language), and ready to learn. Probably we should have gone on to discuss the rich heritage of social, cultural and personal factors that also shaped these actors, and shrunk explicitly from any claim that species membership by itself would sufce to dene the class of actors to which the ideas might relate. If that failure of exposition is the ultimate source of the misunderstandings that Felin and Foss pursue, it was an expensive failure indeed. Unfortunately, we probably took that all for granted. A curious thing about the Felin and Foss account is that evolution (in a general sense) is not prominent as a possible explanation for the human nature that needs to be understood if we are to complete the behavioral picture. Yet that seems like a plausible direction for an inquiry into origins. As a practical matter, however, we always identify punctuation points in the causal chain and pursue the argument forward from there. We do not pursue the question of the origin of life back into the question of the origin of the chemical elements, or the origin of primates back to the question of the origin of life. We tend to take the typical attributes of H. sapiens as given when discussing human learning, although the diversity within the category is enormous. Similarly, the question of the origins

13 I am told that some Skinnerians came close. They believed that they had skillfully constructed their experiments to get past the obvious species-specic attributes of the learning animals, and thereby arrive at propositions that would be of general validity, though somewhat abstract (Barry Schwartz, personal communication). Such a contrived attempt to sidestep the attributes of the learner is still quite a way from the hypothetical pet bee experiment, i.e. denying altogether the relevance of the attributes of the learner.



of routines and capabilities can be, and to some extent has already been, pursued back into the origins of the particular organization and beyond but perhaps not far enough into historical and evolutionary antecedents, and certainly not all the way back to the origins of the human species. Remarkably, there is a sense in which the possibility of adjusting that balance is perhaps better than ever before because modern instrumentation gives us unprecedented access to the internal workings of human bodies and minds, shaped as they are by biological and cultural evolution. A dramatically inviting future is beckoning, not just for scholars interested in routines and capabilities, but for social science generally. Stronger foundations for our future work can be located by looking in that direction, where there is an opportunity to craft a strong explanatory connection to the present attributes of the human species, and beyond that to their evolutionary sources. But . . . its not going to be simple. Perhaps Felin and Foss are simply urging us to look back beyond the punctuation points presumed in some discussions of routines and capabilities. They may favor more careful case studies of organizations, perhaps with a developmental focus, on the model provided by Gavetti and Rivkin (2007). If this is the proposal, I agree with it. In that case, however, the considerable volume of existing research that also supports this proposal should not be ignored.

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