Behaviours, Learning, and Organizations in Complex and Evolving Environments

Abstract In modern capitalism, business firms are a central locus of technological advance, employ most new technologies, produce and market new products, and operate new production processes. Modern firms operate in environments that are changing over time in ways that cannot be predicted in any detail. Technological advances are one of the primary forces causing permanent uncertainty, but other causes concern the complexity and evolution of markets and competition more generally. In this chapter, we present a capability-based theory of the firm, seen as a problem-solving entity characterized by distinct internal distributions of knowledge and power and patterns of division of labour. From that perspective, analyse ‘what firms do’ and ‘how well they do it’. Distinctive organizational capabilities are also important in that they persistently shape the destiny of individual firms—in terms of, for example, profitability, growth, and probability of survival. Together, we offer a general interpretation of the behaviour of agents in complex evolving environments in terms of routines, heuristics, and higher-level rules apt to change these agents.