Reproducing the firm: Routines, networks, and identities

Firms exist because jointly people can produce goods that they cannot produce individually, or they can produce these goods much more efficiently. People collaborating in firms can do so because of the social fabric that they create and maintain, somehow, inside the firm. The social fabric consists of the relations between individuals, in terms of a multitude of possibly overlaying social networks (Aalbers & Dolfsma 2015), as well as of routines that grow from these social relations. The social relations can, but need not be informal – indeed, a plurality of social relations between individuals potentially exists inside a firm. Routines, a concept similar to the concept of institutions, but best used in a more restricted manner, perhaps, referring to specific micro-level practices, must be supported by social relations. They can however develop to become independent of the social relations that support them, especially when routines are formal. Reproduction of institutions, including firms and the social relations and routines inside a firm that in part constitute it, is not self-evident (cf. Dolfsma et al. 2011). We argue, drawing on institutional economics and social psychology, that participants in a firm, individuals and groups, need a sense of purpose or identity in order to autopoietically reproduce (Luhmann 1995). In order for a firm to reproduce through actions of agents that are not fully and constantly monitored a sense of purpose must be shared. Without a shared purpose, the alternative would be full and constant monitoring, assumed sometimes, implicitly in principal-agent theory, but impossible per se in practice. A theory of the firm, thus, we argue, may imply not just that social relations are present and studied, that the activities of agents are somehow parsimoniously understood using the concept of routines, but also that it is recognized that a sense of shared purpose is required among participants. Even if social relations (largely) persist between the same individuals, and even if they continue to behave in accordance to the same routines, we argue, a firm may not be reproduced if there is no organizational identity that is shared by all involved.