STRATEGY RESEARCH：
GOVERNANCE AND
COMPETENCE PERSPECTIVES
Written by: Oliver E. Williamson
Published in: 1999
Presented by : Orange 
STRUCTURE OF TODAY’S PRESENTATION
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Overview of today’s reading
Williamson 1999 paper:
The focus of this paper
The structure of this paper
The main contents of this paper
What is the future research from this paper
Discussions
Williamson’s work in Transaction Cost
The relationship among today’s papers
OVERVIEW OF TODAY’S PAPER
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Mahoney, 2005 --- Transaction cost theory
Original – Coase 1937
Development – Arrow 1974; Williamson 1971, 1979; etc
TC theory helps to describe, explain and predict governance based on comparative
efficiency criteria
Klein, Crawford and Alchian, 1978
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Governing cost high, seeking for long term contracts
Opportunisms and assets appropriation
Further study might consider Libecap 1989
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Williamson, 1991
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Contract law; Organization forms
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Zajac and Olsen, 1993
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Analyze inter-organization value through transaction value framework
Joint value maximization and the process to attain it
The paper can be related to Stakeholder theory and Property Rights Theory
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Williamson, 1999
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Governance and Competence in Strategy
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Bucheli, Mahoney and Vaaler, 2010
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Transaction cost Theory and the emergence of American firm integration
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WILLIAMSON 1999:
FOCUS OF THIS PAPER
Focus of this paper
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This paper applies the lenses of governance and
competence to the study of strategy.
Both perspectives contain reasoning of Organization theory
Governance perspective – greater prominence to economics;
TCE involved
Competence perspective – greater prominence to
organization theory; “process” oriented
WILLIAMSON 1999:
STRUCTURE OF THIS PAPER
Structure of this paper
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Six key moves of Governance perspective
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Six same key moves of Competence perspective
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Challenges of competence perspective for Governance
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Conclusions
WILLIAMSON 1999: MAIN CONTENTS
SIX KEY MOVES OF GOVERNANCE
Economists, TCE
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Human Actors
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In favor of bounded rationality to hyper-rationality; Incomplete contract
Self-interest; opportunism
Foresighted rather than nearsighted
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Unit of Analysis
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Commons: basic unit analysis
For operationalization, use dimensions: frequency, uncertainty and degree of asset specificity
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Describing the Firm
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In organization terms rather than technological term
To deal with Coasian puzzle, hypothesize “replication” and “selection” intervention
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Purposes Served
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The discriminating alignment hypothesis (See in figure 1 on next page)
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Empirical
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The theory and evidence display a remarkable congruity
Better empirical will be beneficial
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Efficiency Criterion
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More conceptual rather than operational
Efficiency is rebuttable
WILLIAMSON 1999: MAIN CONTENTS
SIX KEY MOVES OF GOVERNANCE
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The discriminating alignment hypothesis
--- according to which transactions, which differ in their
attributes, are aligned with governance structures, which differ in
their cost and competence, so as to effect an economizing result.
WILLIAMSON 1999: MAIN CONTENTS
SIX KEY MOVES OF COMPETENCE
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Human Actors
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Bounded rationality
Myopia rather than foresighted
Not mention trust, commitment, mind etc. (mentioned as opportunisms in TC)
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Unit of Analysis
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Routine is the basic unit analysis
Three routines(Nelson and Winter 1982): Short run; investment; long-run
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Describing the Firm
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Reject that firm is a production function
Emphasizes management and organization features
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Purposes Served
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Penrose 1959, the distinctive competence of the firm resides in making better use of its resources
To operationalize, first address: Which firms are more and which are less competent in deploying their
institutional capabilities to protect their knowledge?
Empirical
Much of the competence perspective entails ex post rationalizations for success and has been remiss in
predictive respects.
Williamson 1996: view transaction cost economics as feeding into the competence perspective in much
the same way as organization theory is grist for the study of governance
Efficiency Criterion
Claim that competence deals with dynamic efficiency --- essential about learning and innovation
But criteria about how to judge dynamic efficiency has never been posted
WILLIAMSON 1999: MAIN CONTENTS
CHALLENGES
Challenges from “competence perspective” for TCE
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Mistaken critiques – critiques the author focused on
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opportunism does not have the organizational consequences that have been ascribed to it
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transaction cost is a static concept and needs to be made dynamic,
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governance does not engage the issues of management.
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Opportunism
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zeroing out opportunism has different and pervasive organizational results
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initial conditions can be more consequential than they are usually treated by TCE
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Dynamic TCE
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TCE has been criticized as static since they deal with equilibrium
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Author: intertemporal complications are not merely incidental but are central to the
transaction cost economics project
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Easy to say than to do
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Management
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Significant provision for management does not imply adequate provision for
management
WILLIAMSON 1999: MAIN CONTENTS
RESEARCH OPPORTUNITIES
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Beyond Peace-meal
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Interaction Effects; need to redefine “transaction”
Aggregation: firm as a whole > Σ(all parts)
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Beyond Generic Governance: Strategy
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Rumelt, Schendel, and Teece 1991: Of all the new fields of economics,
the transaction cost branch of organizational economics has the
greatest affinity with strategic management
Allow competition
Assumes specialized investment
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Learning
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Relate learning to foresight and examine the ramifications for some of
the myopic biases to which learning is subject.
See in Table 1.
WILLIAMSON 1999: MAIN CONTENTS
RESEARCH OPPORTUNITIES
WILLIAMSON 1999: MAIN CONTENTS
CONCLUSIONS
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The competence perspective is attuned to good issues and
challenges both orthodoxy and the governance perspective
to be responsive.
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Competence and Governance – Rival and Complementary
(more complementary)
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Both of them are bounded rationality constructions and
hold that organization matters, so share much in common.
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Governance is more microanalytic (the transaction is the
basic unit of analysis) and adopts an economizing approach
to assessing comparative economic organization
competence is more composite (the routine is the unit of
analysis?) and is more concerned with processes (especially
learning) and the lessons for strategy.
DISCUSSIONS:
RELATIONSHIPS AMONG THE PAPERS
The first three paper looks at the TCE in the
firms and organizations. They are under the
assumptions of TCE and are more like theory
papers
 The fifth paper, is more like a “case study”,
instead of going to the theory, the paper applies
theory into cases and see how the theory works
 The fourth paper, unlike the rest of the paper,
compares two different ways of doing strategy
research rather than only focus on TCE.
 These five papers, are also complementary to
our study of TCE.
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