Organizational capabilities and industry dynamics: a computational model

Marco Corsino, Roberto Gabriele () and Enrico Zaninotto ()
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Enrico Zaninotto: DISA, Faculty of Economics, Trento University

No 809, DISA Working Papers from Department of Computer and Management Sciences, University of Trento, Italy

Abstract: In this paper we propose a model of bounded rational organizations that addresses the role of organizational capabilities in shaping firm size, growth rates and profitability. Our approach aims at reconciling the logic behind stochastic models of firm growth with the notion of organizational capabilities as drivers of economic performance. We extend the stochastic framework by incorporating behavioural assumptions on: (a) the interactions between the firm and the business environment; and (b) the mechanism by which firms sense and seize business opportunities. In our perspective, the degree of concurrence between the substance and organization of the firm and the context in which it operates will directly influence its profitability and indirectly (through costly mutations of the organizational structure) drive its growth. Despite its simple nature the model is able to capture well known regularities about industry dynamics. It generates firm size distributions that are skewed and heterogeneous across different scenarios. Moreover, our results suggest that the higher the selective power of the firm's organizational capabilities, the more the steady state distribution deviates from a log normal. Besides, the distribution of growth rates has a tent-shaped form which is consistent with the pattern described in empirical studies. The distribution of opportunities per firm is also skewed suggesting that a very few entities account for a large fraction of business opportunities arising throughout the simulation period. Finally, the interaction between the external environment and the internal structure of the firms also influences the heterogeneity in the value of the opportunities they capture.

Keywords: organizational capabilities; firm size distribution; growth rates; simulation model (search for similar items in EconPapers)
Pages: 33 pages
Date: 2008-11, Revised 2008-11-18
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-cse and nep-knm
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Working Paper: Organizational capabilities and industry dynamics: a computational model (2008)
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