This dissertation represents perhaps the first empirical test o f Nelson and W inter’s
ideas on process routinization to be performed at the process level o f analysis. Further,
the test was conducted in a context in which the theory is least likely to be applicable,
where low task frequency and low task homogeneity heavily tax the power o f routine-
based explanations. In such extreme settings, the theory must be amended in some
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important respects, but it proves to be a strong and robust explanation for both
organizational decision-making and performance outcomes.
7.1.1 The Virtues o f Codification
The first adjustment pertained to the role o f knowledge codification in the development
o f organizational capabilities. Under “normal” circumstances, the creation o f written
tools embodying the collective understanding o f what is supposed to be done under what
conditions does not necessarily provide any material benefit to the performance outcomes
o f the process under analysis. A key finding o f the study is that, under conditions o f low
frequency and homogeneity o f the task, knowledge codification can actually be
particularly helpful. It can help explain how firms make decisions and, most importantly,
aid our attempts to explain the performance o f those processes. In particular, the results
on the performance implications o f codification under the condition o f high complexity,
namely that codification does not affect performance directly but through its interaction
with the level o f integration, are inherently interesting. Higher levels o f integration o f
acquired firms imply higher degrees o f complexity in the implementation o f post
acquisition processes, which would then enable the codification mechanisms to show
their positive effects on performance through the development o f an ad-hoc integration
capability. As outlined in Chapter 3, the rationale for that result depends less on the
protection codified tools provide against the decay o f organizational memory than on the
processes by which the codes are created. Those processes entail the production o f a
collective, coordinated cognitive effort, which constitutes a crucial element in our
understanding o f how organizational capabilities are created.
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The introduction o f the cognitive elem ent into the standard evolutionary
economics discourse, which has been built on tacit knowledge accumulation mechanisms,
is itself an important refinement o f the theory. Such emphasis is consistent with Gavetti
and Levinthal's (1997) simulation work on cognition in rugged landscapes, which models
the cognitive element as the reduction o f the num ber o f dimensions by decision-makers
during a search process in complex (i.e., where firm attributes are highly interdependent)
environments. In the context studied, the creation o f a post-acquisition integration
manual or a computer-based staffing model assum es a similar role: it simplifies the
reality o f a multidimensional decisional space and thereby facilitates the decision-making
and eventually the implementation process. It is intriguing to observe that, far from
swinging the agent away from the optimal decisional path, that process might actually
enhance the probability o f its success in search tasks, as well as in post-acquisition
integration processes.
7.1.2 The Limits o f Codification
The data analyzed in the study show some clear limitations to the effectiveness o f the
knowledge codification process. The degree o f knowledge codification directly affects
neither acquisition nor firm performance. Its influence on both dependent variables
comes in two forms; (I) through the effect on the type o f post-acquisition integration
decisions selected by the acquiring firm and (2) through the performance im plication o f
its interaction with the level o f integration. The interpretation that could be given to
those results is that the degree o f knowledge codification translates into a positive force
for task and organizational performance only under the condition o f high levels o f
activity or use o f the underlying knowledge. In other words, codifying an integration 129
process characterized by a low level o f integration is not only futile, but can actually
harm the performance o f the process itself, perhaps because o f the excessive bureaucratic
load put on the acquiring organization. At low levels o f integration, a group o f expert but
“non-codified” integration managers may well perform better than an equally expert
group that invests in and relies on a large set o f manuals and electronic support tools.
7.1.3 Limits to Tacit Knowledge Accumulation
As reported in Chapter 6 (Tables 6.9 through 6.12), acquiring firms appear to
benefit from the tacit accumulation o f knowledge from previous acquisition experiences.
Two findings are particularly relevant for evaluating the limitations o f tacit knowledge
accumulation in the context studied:
1) Tacit knowledge accumulation is highly “local.” Experience from previous
acquisitions completed in dissimilar contexts does not accumulate in an effective way
(i.e., it does not contribute to the construction o f an organizational capability). Only
the accumulation o f experience in homogeneous contexts, such as acquisitions in
similar geographic areas, can enable the firm to improve on previous performance
without the support o f a full-blown cognitive effort and independently o f how much
the tacitly developed practices have been codified.
2) Tacit knowledge accumulation is detrimental to performance when applied to
particularly sensitive decisions. The data show that in addition to having a negative
main effect on performance, the replacement o f the top management team is
associated significantly with lower quality o f outcomes when it occurs with high
levels o f tacit experience. Although the interaction effect between codification and
replacement is also negative, its smaller magnitude (see Table 6.13) indicates that the 130
cognitive processes underlying the degree o f codification afford some protection from
the errors associated with applying routinized behaviors where deliberate cognition is
necessary.
The last point introduces another important amendment to our current understanding o f
routinization and codification processes. There might be a set o f decisions that ought to
be considered neither routinizable nor codifiable. Many decisions, such as the degree of
integration, must be supported by a high level o f codification and routinization to
overcome the inherently negative effects o f structural and decisional complexity (see
section 4.1.1). Other decisions, the replacement o f the top management team might be an
example in point, should be driven primarily by deliberate considerations based on the
characteristics of pre-acquisition resources. When routinized, such decisions tend to have
a negative effect on performance. The difference between the first and second types o f
decisions is not at all clear and is beyond the scope of the study but the finding shows the
relevance o f the question and highlights it as warranting further exploration.
7.1.4 Routines and Capabilities
As a partial consequence o f that line o f reasoning, one could use the empirical evidence
uncovered in the study to speculate and attempt to pinpoint more firmly the relationship
between organizational routines and organizational capabilities. In dynamic contexts,
routines are to be seen as constituting both a positive and a negative determinant o f the
process o f creating organizational capabilities in dynamic environments. The elements
that determine which sign can be assigned to the causal relationship can be summarized
with the following list o f preconditions (Figure 7.1 is a diagram o f the arguments):
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