Inheritance and replication

If routines are part of the mechanism of adaptation and can potentially confer a selection advantage, it is useful to understand how the whole reproduction cycle works, where routines must be capable of producing copies of themselves and those copies must also be capable of reproduction.

Hodgson (2004) states that the replication of routines must involve the replication of generative structures and capacities above and beyond individual habits as well as some of the information embodied in the routine, including an element of any tacit knowledge. Such replication means the routine to be replicated may be only partially understood at source so that replication is costly and difficult and is an interactive process rather than a single directional transfer (Winter and Szulanski, 2001). Adding a performative view, it may be that the routinisation process is only truly successful when the change issues are out of the way and the routine is bedded in such that it becomes the perceived norm (Lazaric and Denis, 2001).

But, as Buenstorf (2006) asks, as part of the methodologically individualist versus collectivist debate, what is being copied, the disposition for conditional behaviour or only the behaviour it gives rise to and how do you tell the difference? Buenstorf also considers

that, given the inter-individual character of routines, the knowledge underlying them will be distributed among the involved organisation members, limiting their individual ability to successfully copy the routine.

There is a number of replication processes identified in the literature including replication through employees migrating from one firm to another, the activities of external experts (consultants) helping transfer routines from one organisation to another, and a process of imitation of what looks like good practice elsewhere (Hodgson and Knudsen, 2004). Nelson and Winter (1982) look at replication in terms of replica new plant from an existing one, especially in an expansion phase. Winter and Szulanski (2001) look at routine replication in firms that sequentially establish large numbers of similar outlets, the ‘copy exactly’

McDonalds or Intel approach. However, not all firm growth involves duplication processes that are so nicely divisible (Buenstorf, 2006) and growth may be just the up scaling of existing routines or their replacement by routines more suitable for larger organisations, rather than just the replication of existing routines.

Routines may also get also get progressively adapted through the process of converting tacit knowledge to explicit knowledge. In their model, Nonaka and Takeuchi (1995) show knowledge following a cycle in which implicit knowledge is somehow transmuted into explicit knowledge and this knowledge in turns takes on the aspects of implicit knowledge with use and familiarity. They illustrate the first part of the cycle with the example of Matsushita trying to develop a fully automated home bread-baking machine. When the designers couldn't perfect the dough kneading mechanism, a software programmer apprenticed herself with a master baker, gained a tacit understanding of kneading, and then conveyed this information to the engineers.

A similar model of knowledge asset development is proposed by Boisot (1998), in which knowledge assets can be located within the three dimensions of abstraction, codification and diffusion, labelled the ‘I-Space’. Boisot then suggests there is a Social Learning Cycle (SLC) that uses the I-Space to model the dynamic flow of knowledge through a series of six phases: scanning, codification, abstraction, diffusion, absorption, and impacting. Data is increasingly filtered to produce meaningful and explicit information and this information is then abstracted and codified to produce useful knowledge. As the knowledge is applied in

diverse situations it produces new experiences in an un-codified form that in turn produces the data for a new cycle of knowledge creation.

Applying the idea of such a social learning cycle to the variation and selection of routines and the adaptability of those routines, routines become increasingly explicit and flexible through the frequency of their implementation and as their merits are debated and tested, reaching a peak of explicitness as the cycle reaches the selection stage. Through the replication and retention phases, routines become increasingly embedded in behaviour, improve in effectiveness, and become generalisable to a wider range of situations. At the same time, paradoxically, they become in turn more un-codified or tacit as knowledge is absorbed and produces learnt behaviours (c.f. Zollo and Winter, 2002), reflecting the adaptability/inertia nexus discussed at 2.7.

As Knudsen (2001) points out, however, the polarisation of knowledge into explicit versus tacit may be better expressed as a continuum between the two. What matters are the costs of making knowledge explicit and he suggests that more insights can be gained from the view that the two ends of the spectrum are ‘knowledge-that-is-extremely-costly-to-articulate and knowledge-that-isn’t-at-all’. What is important is the cost of articulating, transferring, absorbing and integrating knowledge. Although many authors cite Polanyi (1966) as the originator of the distinction between tacit and explicit knowledge, Polanyi himself suggests that tacit knowledge cannot in fact be expressed because, in his famous phrase, ‘we know more than we can tell’. In other words, it may be hard for an agent to articulate in words knowledge of what he or she is doing because we are not fully conscious of all the knowledge we possess.

Hodgson (2004, p.4) emphasises that, however routines are replicated, by the transfer of codified and tacit information, by laws or rules or as a strategic initiative, routines replicate

‘on a substrate of organized and habituated behaviour’ and that inherent structural inertia is likely to make internal routine change hard. Hodgson also suggests that successful external duplication of routines depends on the capacity of the receiving organisation to interpret and implement them in the context of its own capabilities (creating a further source of variation).

What emerges from the literature is a lack of understanding precisely how the replication mechanism of routines works, how many types of inheritance mechanisms are viable, how

they differ and whether the differences matter (Becker, 2004). It is unclear if the mechanisms are different for small and large firms and what makes for successful rather than unsuccessful replication.

2.7.5 Variation

Variation generated by the search process may itself be the object of internal selection (Cyert and March, 1963), so that fitter variants - from a purely internal perspective - accumulate in collective stored memory (Levitt and March, 1988). This could be as a result of deliberate adaptive learning by management (Zollo and Winter, 2002) or from deliberate managerial choices about alternatives for the future.

Variation may also come about from uncertainty arising from differences of opinion and judgment (Alchian, 1950), from the trial and error of the innovation process recombining routines in novel ways, and from the process of searching for new and better ways of doing things (Nelson and Winter, 1982). Variation may also come about as the result of the almost inevitable incomplete copying or mimicking of routines by others, perhaps at start up or spin off (Hodgson and Knudsen, 2004), or just through the accretion of small slippages in cycles of repetition of a routine. Importantly, all these mechanisms permit the introduction of new variations that result in a range of different traits in the population of firms. Feldman and Pentland (2003), as mentioned, argue that the relationship between the ostensive and performative aspects of routines creates an on-going opportunity for variation, selection and retention of new practices and patterns of action within routines. This allows routines to generate a wide range of outcomes, from apparent stability to considerable change. The key point here is that all these mechanisms permit the introduction of new variations that can result in a range of different traits in the population of firms, echoing the ‘evo-devo’ debate.

2.7.6 Selection

In his comprehensive summary of routines, Becker (2002, p.29) notes: ‘While many studies allude to routines and variation, the area of the selection of routines is virtually untouched.’

At one level, interaction with the environment (the market) selects firms by the goods and services they produce, the methods of production employed and the associated bundle of

routines involved in animating and effecting the whole process (Metcalf, 1998). Routines thus selected ought to confer some advantage, making the firm more profitable, or giving it a relatively larger market share, or improving survivability than firms with routines that do not confer the same advantages for the given environment. Over time, repeated cycles of replication, variation and environmental interaction result in differential selection of firms (phenotypes) through their interaction with the environment (c.f. Hull et al., 2001) and the survival or not of their associated routines (genotypes). However, if the market is the only selector of routines, competition should lead to some convergence of routines across firms so the differences in firm practices suggest that some selection must also occur at the level of the firm itself (Plunkett, 2005).

Routines themselves may not be optimal as the learning process involves ‘imperfect adaptation and mistake-ridden discoveries’ (Dosi and Nelson, 1994, p.159). In addition, as Metcalfe (2000) notes, from an evolutionary standpoint the outcomes of competition are always contingent on the nature of the selection environment and the characteristics of the whole population of firms that are being selected. On this basis, competition may not select in general the most efficient firm, as touched on in 2.6 above. Market competition can only select for behaviours made available for selection so that winning, at least in evolutionary terms, only requires the firm to be ‘the least foolish of the fools’ (Khalil, 2000).

Of course, the process is unlikely to be as mechanical as described, and Meyer (1994) suggests that organisations adapt rather more to internal managerial requirements than to responding to signals from the external environment, so that the selection process is also driven by internal competition for resources and power (Miner, 1994). Indeed, success can often breed less success rather than more because internal selection can come to dominate external selection forces (Miller, 1994). Routines may also not be without information costs and might be selected according to the ‘information environment’ and the costs of gathering information (Lorenzen, 1998). This might also explain the result that firms with lower-level routines that fit the environment well can perform poorly if the higher-level routines do not and vice versa (Sorenson and Stuart, 2000). Again, there is a low level of empirical evidence on how inherited traits affect the ability of routines or firms to reproduce themselves, either by survival or natural selection and selection may be better viewed in the whole context of the replication and inheritance cycle.

So the exact mechanisms for introducing new variations into the population are not yet well specified, nor is the extent to which they occur as the result of random or deliberate change.

Becker (2002, p.29) comments yet again that, twenty years after Nelson and Winter’s work, it is ‘astonishing how little progress has been made on the exact nature of the involvement of routines in the process of variation, selection and retention’.