Worker problem-solving and the nature of the firm: new theory, new evidence

Peter Dorman and Heike Nolte

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a different theory of the firm and demonstrates how it can be employed to yield hypotheses about differences in innovation and human resource strategy according to the shareholder/stakeholder and liberal/coordinated market dichotomies. The theory assumes that feasible production and demand sets are nonconvex due to interaction among activities; thus firms exist to permit the identification and exploitation of profit opportunities through coordinated action. This implies that firms face a nonconvex profit landscape comparable to the fitness landscapes invoked in evolutionary biology. Given the complexity of these landscapes and the uncertainty of the location of profit hills, there is a tradeoff between exploiting existing or adjacent hills and prospecting for more distant ones: the first minimizes risk, the second maximizes potential profit. A further assumption is then introduced, that shareholder firms seek to maximizes the present value of expected future profit streams, while stakeholder firms maximize the likelihood of achieving profitability over a given time horizon. Combining these theoretical priors, we characterize the likely innovation, organizational and human resource characteristics of the two types of firms and the effects exerted by their external environment, as described in the Varieties of Capitalism literature. These theoretical predictions are confirmed in a set of case studies of a stakeholder firm in liberal and coordinated environments and a shareholder firm in a coordinated environment. This is seen through differences in the role of worker problem-solving, which brings together innovation and learning, organizational structure and human resource strategy.

Keywords: theory of the firm; profit; nonconvexity; varieties of capitalism; innovation; strategy; worker participation (search for similar items in EconPapers)
JEL-codes: B52 D23 D89 J53 L21 M11 M16 O32 P11 P51 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-bec, nep-hme and nep-ino
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