10 - What Determines the Productivity of an Organization?

Summary

This chapter brings together the neglected pre-1980 “behavioral theory of the firm” and the Marshallian resource-based or capabilities-based evolutionary approach to the firm to analyze the drivers of efficiency and productivity in organizations. It begins with Leibenstein’s X-efficiency view of why firms differ in their costs and then adds a dynamic perspective by considering the growth of knowledge view of the firm offered by Marshal and Penrose, which emphasizes the role of managerial learning, before introducing the learning curve concept. The focus then moves to the consequences of employment contracts being loosely specified and managers having to earn their authority by how they operate. This leads in turn to the behavioral view of organizations as shifting coalitions of stakeholders who are trying to pursue diverse subgoals, which may result in firms earning smaller profits that would have been possible and in the accumulation of “organizational slack.” Finally, the chapter discusses the impact of (sometimes highly dysfunctional) corporate cultures – i.e., the operating systems of formal and informal rules that firms use – in shaping their productivity and ability to change.