Building micro-foundations for the routines, capabilities, and performance links

Abstract

Micro-foundations have become an important emerging theme in strategic management. This paper addresses micro-foundations in two related ways. First, we argue that the kind of macro (or “collectivist”) explanation that is utilized in the capabilities view in strategic management ⎯ which implies a neglect of micro- foundations ⎯ is incomplete. There are no mechanisms that work solely on the macro-level, directly connecting routines through capabilities to firm-level outcomes. While routines and capabilities are useful shorthand for complicated patterns of individual action and interaction, ultimately they are best understood at the micro-level. Second, we provide a formal model that shows precisely why macro explanation is incomplete and which exemplifies how explicit micro- foundations may be built for notions of routines and capabilities and for how these impact firm performance.