Microfoundations In Strategy Research

The basic motivation for the microfoundations research agenda in strategy has been to decompose macro-level constructs in terms of the actions and interactions of lower level organizational members, understand how firm-level performance emerge from the interaction of these members, and how relations between macro variables are mediated by micro actions and interactions. The early calls for microfoundations in management research argued that strategy and organization theory focused on firm-level explanations of outcomes such as competitive advantage, profit, innovation, inertia, or absorptive capacity with too little attention to the entities and mechanisms at lower levels of analysis, notably, individuals and their interactions, and how these drove firm-level outcomes. Lippman and Rumelt (2003a) provocatively argued that properly accounting for the value appropriation of all factors of production implies that there is no firm-level residual called 'profit.' Felin and Hesterly (2007) very strongly emphasize the explanatory primacy in management research of individuals. An important motivation behind the micro-foundations research agenda is arguably the desire to engage in 'reduction,' which is often seen as a hallmark of scientific inquiry. Coleman (1990: 3-4) identifies additional reasons why micro-foundations are critical. Thus, Coleman suggests that macro-level explanation cannot discriminate between the many potential alternative lower-level explanations of macro-level behaviour because of a fundamental problem of unobserved mechanisms. Based on different psychological premises, Hodgkinson and Healey (2011) argue that such approaches need to be supplemented with insight into managerial emotion and affect, and building on recent advances in social cognitive neuroscience and neuroeconomics they demonstrate how doing this leads to additional insight in dynamic capabilities.