Nicolai Juul Foss

Opportunities and New Business Models: Transaction Cost and Property Rights Perspectives on Entrepreneurship

Entrepreneurs in a competitive economy face three fundamental problems. They need to search for and discover a business opportunity (Kirzner, 1973), evaluate it (Knight, 1921), and then seize the opportunity to reap entrepreneurial profits (Schumpeter, 1911) (Langlois, 2007). The problem that we address is how the ability to exploit business opportunities is influenced by entrepreneurial search and the economic organization of entrepreneurship (Arrow, 1962; Lippman & Rumelt, 2003; Aghion et al., 2005; Foss et al., 2007). In many cases, the discovery for a new business opportunity needs to be motivated by expected gains, since the search and evaluation of business opportunities is a costly, resource-consuming process (Denrell, Fang & Winter, 2003; Nickerson & Zenger, 2004; Foss & Klein, 2005; Teece, 2007; Foss & Foss, 2008). We show the critical role of expectations for understanding of the economic organization of entrepreneurship, and argue that transaction cost economics, with its insistence on bounded rationality, but far-sighted contracting offers useful insights and presents rich opportunities for further theoretical and empirical research (cf. also Furubotn, 2002).

The System of Management Ideas: Origins, Microfoundations, and Dynamics

We argue that there is a system of management ideas, that is, set of institutionalized high level heuristics that guide organizational and individual behaviours in managerial reality, involves distinct knowledge and transfers that knowledge across time and space, may change as a result of local adaptation or innovation, and may be selected for or against. This system operates at multiple levels, particularly the individual, organizational and institutional levels. A system of management ideas can be analyzed through a microfoundational approach, where actions of individual agents lead to an evolution of the system through processes of variation, selection and retention. We then specifically apply this approach to organizational level choices between adopting existing, fashionable management practices versus creating novel management practices. We present a process model depicting this make-or-buy choice in management practices and provide insights into why and when organizations may choose one of these routes over another one.