Routines as a source of stability, inertia and change

Nelson and Winter (1982) identify three main roles for routines: as organisational memory, as a way of managing intra-organisational conflict (truce) and as a norm or target that keeps the routine on track so that sound replication can take place. Routinisation of activity is the locus of operational knowledge in an organisation, making routines a major source of reliability, speeding organisational performance and adaptability and avoiding the need to re-invent the wheel each time (Cohen and Bacdayan, 1994).

As a store of operational knowledge (Miner, 1990; Hodgson, 1998; Zollo and Winter, 2002), routines are also the link between the structure of the firm and the processes of the firm (Pentland and Reuter, 1994). An empirical study by Knott and McKelvey (1999) of franchises and company-owned stores found that the value of professional managers

16Felin and Foss’s argument is extrapolated from a linguistics view that claims natural language grammar is unlearnable given the relatively limited data available to children learning a language, and so this knowledge must be supplemented with some sort of innate linguistic capacity.

implementing tried and tested routines was more important for efficiency and profitability than the profit maximising behaviour of entrepreneurial franchisees. This work demonstrates not only that routines contribute to efficiency but also that tacit knowledge is hard enough to pass on within an organisation, let alone trying to franchise out such knowledge (Becker, 2001).

So routines as organisational memory embody tacit knowledge – the knowledge that people carry in their minds and that, by its very nature, is difficult to access. People are not aware of the knowledge they have garnered, how valuable it can be to others and the extent of personal contact and trust the effective transfer of such knowledge generally requires (Winter, 1994; Hodgson, 1998; Lazaric, 2000). Cohen and Bacdayan’s (1994) empirical psychological study suggests that procedural memory, a memory for how things are done that is relatively automatic and inarticulate, may help explain how routines arise, stabilise and change and so act as a source of both adaptability and stability.

Building on the ideas of Coase (1937), Simon and March (1958) and Williamson (1975), Nelson and Winter (1982) devote a whole section of their book to the idea that routines must be taking account somehow of motivational considerations and intra-organisational conflict.

Routines become patterned in ways that reflect implicitly a truce in the internal politics of a firm or organisation, thus contributing to its stability. Stability here is the state or quality of being stable, with the strength to stand without being moved or overthrown. Inertia, by contrast, is the inability to move or, more weakly, an inability to shift from current momentum. Routines as a source of such stability are a feature of the literature (Hodgson, 1993; Nelson, 1994), although the organisational ecologists insist that most organisations are so structurally inert that adaptation is hindered when the environment changes (Hannan and Freeman, 1989). Again, there is little empirical evidence or theoretical reasoning to explain what generates more or less inertia or more or less change.

Routines can also be a source of change, especially through interactions with learning (Aldrich, 1999) and through the interaction of both the ostensive aspect that enables people to guide, account for, and refer to specific performances of a routine and the performative aspect that creates, maintains, and modifies the ostensive aspect of the routine (Feldman and Pentland, 2003). The dynamic relationship between the two aspects potentially permits a wide range of outcomes, from great stability to considerable change. But again, there is

scant empirical evidence or theoretical reasoning to explain the conditions that generate more or less inertia or more or less change and the boundary conditions between change due to adaptation and change due to selection.¹⁷

Routines certainly generate flexibility by making decision-taking easier through economising on cognitive resources and reducing complexity and uncertainty (Egidi and Narduzzo, 1997), as learned habits lead to more automatic responses and guide decision-making (Becker and Knudsen, 2001; Betsch, Hohle and Habestroh, 2002). As Nelson and Winter (1982) note, keeping existing routines running is hard enough and managers strive just to keep routines under control or to replicate them properly in new situations. The importance of this co-coordinating and controlling aspect of routines (Dosi and Malerba, 1996; Cyert and March, 1963) is seen when routines are interrupted (Weick, 1990) and Knott and McKelvey’s (1999) empirical study on franchises demonstrates the advantages for firms of such well-controlled systems.

To sum up, the empirical evidence on what routines do is still thin and analysis is difficult if routines are hard to measure dispositions rather than actual behaviours. And there is the consideration that routines in a firm should be examined at their different functional levels.

This would need to include routines for production and marketing, routines for daily and strategic management and routines for changing routines, taking in the likely conflicting and paradoxical mix of routines that arises from such a multi-level of analysis (Nelson and Winter, 1982; Sorensen and Stuart, 2000). In one empirical study, Sorensen and Stuart (2000) find that firms with lower-level routines that fit the environment well can perform poorly if the higher-level routines do not fit (are too inwardly selected), and vice versa. This is an interesting echo of the evo-devo debate at 2.5.1 and is followed up in Chapter 5.

There is also scope for empirical work that blends the ‘top-down’ approach of imposing an abstract framework on evolutionary economics with a ‘bottom-up’ approach that looks at the detailed processes underlying the acquisition and transfer of knowledge within and across real-world organisations (Buenstorf, 2006).

17In game theory terms, routines might even be seen as specific outcomes of beliefs about how other players, both internal and external, play the game (Holzl, 2005).