2. Knowledge and organizational routines – what role for the individual?

To set the stage for a discussion of the functionality of routines with regard to the organizational goals, it is useful to first recall the context in which these routines operate. This is the continual flow of physical and mental efforts which the members of the organization undertake in their specialized, but mutually dependent, activities. More specifically, the mental effort is the expression (application) of individually held knowledge: knowledge that is useful in solving problems, knowing how to do a job, factual and procedural knowledge relating to organizational purposes etc. In fact, wherever knowledge needs to be expressed in an organization, i.e. activated or put to use, it is ultimately done by human agents who have to generate or acquire the relevant knowledge beforehand (Postrel, Reference Postrel2002).

There are also passive, extra-somatic forms of human knowledge, stored in documents or embodied in artefacts and tools and machinery. But even these forms of knowledge presuppose an individual knowledge expression, namely in the act of encoding that knowledge in documents or tools and machinery in the first place. Moreover, extra-somatic knowledge encoded in documents or embodied in artefacts can only be activated by virtue of the ability of the individual mind to interpret them; and knowledge embodied in machinery and automats can only be deployed in conjunction with someone's handling and maintenance know how. In short, it can thus be stated:

1. Proposition 1 All productive human activity implies an expression of knowledge that has previously been acquired by, and is held and processed in, the minds of the involved human agents.

From Proposition 1 it follows that, strictly speaking, organizations as such (i.e. without contracting external sources) cannot command any knowledge independent of that of their individual members. The knowledge expressed in and by an organization – the core of its capabilities – consists of knowledge expressed by its members in a collective action. In part this is shared knowledge; in part it is private knowledge. Knowledge of organizational routines (which is procedural knowledge, see Cohen and Bacdayan, Reference Cohen and Bacdayan1994) is no exception. It is shared by several members of the organization, though not necessarily in a completely identical form. It emerges in a way to be discussed later. Once in existence, the experimentation and interactive learning processes of the organization members involved, particularly also those of newly entering members, can transform that knowledge over time. This may be dubbed an ‘organizational’ learning process, because the transformations are jointly experienced by the members of the organization or by a subset of them.

As the procedural knowledge of routines is collectively shared, the pursuit of an organizational routine does not depend on the behavior of the individual organization members who may come and go – provided that a sufficient number of members who have that knowledge remain in the organization. When this proviso is not met, e.g. because of substantial turnover of personnel, organizational routines break down and are lost – and so in this case is the organization's ‘repository of productive knowledge’ (Winter, Reference Winter1988). To prevent such a loss, a managerial option is to document (encode) the corresponding procedural knowledge as far as possible and to transmit it in that way to newly hired personnel. Another option is the ‘hard-wiring’ of procedural knowledge into production equipment. The handling instructions of the equipment can then automatically ensure that the new staff reproduces the stereotypic behavior associated with the routine desired (Bradach, Reference Bradach1997).

It can be argued that the procedural knowledge associated with routines that have emerged within an organization is specific to that organization and is a potential attribute of its capabilities, and hence of a competitive advantage (or disadvantage). But sometimes it is further claimed that organizational routines and the corresponding procedural knowledge are attributes of an organization as a whole and, as such, are not reducible to what the single organization members know (see the discussion in Nelson and Winter, Reference Nelson and Winter1982: 63). This additional claim seems to challenge the individualistic view of the human knowledge technology suggested by Proposition 1. In a broader perspective, the apparent contradiction relates to a controversy about the role of methodological individualism in organizational research (Felin and Hesterly, Reference Felin and Hesterly2007). At the core of that controversy is, it is claimed here, the question of whether the behavior of an organization should ultimately be seen as a collective action of its individual members. If so – as we suggest – the capabilities and performance of an organization would have to be explained in terms of individual behavior contributing, or not contributing, to the collective action. Some contributions to organization theory reject this idea (e.g. Kogut and Zander, Reference Kogut and Zander1992; Spender, Reference Spender1996; Cohen et al., Reference Cohen, Burkhart, Dosi, Egidi, Marengo, Warglien and Winter1996; Nahapiet and Ghoshal, Reference Nahapiet and Ghoshal1998; Brown and Duguid, Reference Brown and Duguid2001) by recourse to the argument that organizational behavior and knowledge are attributes of an organization as a whole that cannot be reduced to individual behavior (see also Abell et al., Reference Abell, Felin and Foss2008).

To clarify the point (and, in passing, to assess the limits that an individualistic methodology faces here), it is helpful to be more specific with respect to what precisely are the features of organizational behavior and knowledge that are supposed to be irreducible. It seems that what is deemed to be more than the sum of the actions of, and the knowledge expressed by, the organization members is exactly the shared factual and procedural knowledge of routines. This is knowledge held in common and transformed jointly by the members of the organization. It usually rests on a joint socially constructed meaning. Shared knowledge like this, and the behavior that follows from it, are indeed specific to each particular organization. Moreover, the fact that knowledge is shared, and the fact that its meaning is often a socially constructed one, indicates that the individual agents are not acting entirely autonomously. These facts require an explanation of their own.Footnote ¹ Such an explanation goes beyond an isolated decision-making calculus, but does not conflict with the individualistic view underlying Proposition 1. Its advantage is that it can account for cognitive and motivational factors and the causal influence they have on the emergence of deficient routines which ultimately dilute the capabilities and performance of an organization.

It has occasionally been claimed that we do not need to know these individual contingencies as long as organizational routines are subject to external (market) selection forces that wipe out firms with deficient routines–; however they have come about. Support for this argument can be derived from ‘evolutionary’ organization theory (Nelson and Winter, Reference Nelson and Winter1982: chapter 6).Footnote ² Yet, from the managerial point of view, such an argument is of little help. It would be of vital interest to identify deficient organizational routines and find remedies for them before the selection process wipes out the own business. With the quest for managerial intervention into deficient routines, the causes of the deficiencies are, of course, back on the analytical screen and with them the underlying behavior of the organization members.

3. Cognitive and motivational aspects of the coordinating function of routines

By Proposition 1, all productive activity involves an expression of knowledge that the producing agents command. When productive activities are organized in the contractual form of a business firm, an essential part of making the necessary productive resources available is therefore managing distributed knowledge (Tsoukas, Reference Tsoukas1996; Loasby, Reference Loasby1999). The agents contracted need to be motivated to make suitable efforts in bringing to bear their individually held knowledge. And they need to be coordinated on a joint pursuit of the organization's goals. Hence, there is a twin problem of coordination and motivation. Identifying and hiring people expected to command the desired abilities is one thing, coordinating their specialized productive activities is something else. As was mentioned above, the latter requires creating concerted sequencing and timing in the (interactive) expression of individually held knowledge – a core function that is served by organizational routines. Yet the functionality of the routines in that regard can differ significantly: first in how effective they are in tuning together the actions of the organization members involved; second in how much the resulting coordination is indeed oriented towards attaining the organizational goals rather than towards the pursuit of private interests, such as convenience, effort minimization, competence disputes, and the like. Both aspects have a cognitive dimension.

Consider first the problem of effective coordination. The fit in the composition and timing by which the organization members express their individual knowledge can be conjectured to be the better, the better the organization members understand the mutual contingencies between them when interacting. In the case of routines that merely ensure a suitable inter-locking of basically independent individual actions, it may be sufficient to know some relevant procedures. More is required in the case of routines serving the collective (interactive) productive effort. Coordination of own contribution with that of others works better the more one knows about the tasks and problems of the others. This is not achieved only with procedural knowledge. Considerable factual knowledge is also necessary for mutually compatible task perceptions.Footnote ³ Task perceptions are intuitively formed and correspond with the mental model the organization members have of the organization and their role in it, with the affective valence of tasks and interactions, and other motivational forces.

An instructive example is the collective productive action required in the performing arts, e.g. in an opera performance. (An opera house is after all a sophisticated organization.) The literally concerted knowledge expression that largely rests on specific organizational routines observable in this example reveals the influence of factual and procedural knowledge of the own task and that of others, of the mental models of the artists and the technical staff, and probably also of the differing affective valence which their engagement has for them. Mutatis mutandis this also holds for the collective production process, whether in other service industries or in manufacturing. (In the latter case, synchronization of the individual knowledge expression is mediated and supported by underlying machine processes.) Hence, the following can be stated:

1. Proposition 2 The interactive expression of individual knowledge in the organizational production process can the better be coordinated by organizational routines, the better the mutual fit in the individual task perceptions and the underlying mental models of the organization members involved.

The mutual fit of the organization members’ task perceptions and their underlying mental models can vary from organization to organization and organizational unit to organizational unit. In some cases, there may be no cognitive commonalities except the minimal knowledge of procedural modalities when interacting. In other cases, the cognitive commonalities may reach as far as including a shared mental model of the organization's purpose and the individual members’ role in achieving it. This can happen because communication with, and observation of, other organization members is a major factor in guiding selective attention processes. Hearing and seeing what (certain) other agents do and think is a most prominent source of information and offers opportunities for learning without own effort. A concomitant of intense and lasting communication and observational learning is that the agents involved tend to develop similarities in the mental models and common tacit knowledge. In part, these cognitive commonalities result from the fact that the agents’ selective information processing is occupied with much the same issues – and, of course, there are also similarities with regard to what issues are disregarded. In part, cognitive commonalities, particularly mental models in which identification with the organization ranks highly, emerge intuitively from the tendency to avoid dissonances between own views and those of peers.

When, over time, the organization members develop a considerable mutual fit in their task perceptions and their mental models, this promises more effective coordination via organizational routines. In contrast, in the case of a minimum of cognitive commonalities between the organization members, misfit between their individually expressed pieces of knowledge and the corresponding frictions are likely to be more frequent. And the more frequent this is, the more it tends to undermine the coordination, coherence, routine-based uncertainty reduction, and the reliability of organizational memory contained in the routines actually practiced. From Proposition 2, it thus follows by reverse conclusion that the less well task perceptions and mental models fit together, the more managerial attention is required to make sure, in often extensive communication and supervision processes within the organization, that the desired kinds of (inter-)actions indeed take place.Footnote ⁴

Proposition 2 refers to the cognitive underpinnings of the coordination problem and their influence on the functionality of organizational routines. Consider now the twin motivational problem. It comes into play here because the way in which the organization members cognitively frame their role in the intra-organizational interactions also affects their work attitude. In order to achieve the organizational goals, the members of the organization need to continue to acquire, improve, and apply their individual knowledge at a high effort level. If, in an organization or an organizational subunit, the members share a mental model in which the identification with the organization ranks highly, it is likely that they see themselves contributing to a common goal. Successfully contributing to the attainment of the common goals is then an intrinsically rewarding experience. Simply because the own role is framed in such a way, opportunistic (extrinsically motivated) thought about how to free-ride by reducing the own effort level receives less attention (Witt, Reference Witt2000).

All this is very different in organizations or organizational units in which a shared view of collectively contributing to a common goal is missing (see Osterloh and Frey (Reference Osterloh and Frey2000) for a similar argument). The work attitude is then likely to support only formal, managerially controlled (inter-)action requirements – achieving common goals is not something intrinsically rewarding. The task perceptions of the organization members correspond with an extrinsic work motivation. Single organization members with an intrinsic work motivation and high task commitment tend to be frustrated and usually adapt their attitudes. In such a situation, the organization has to rely much more, if not exclusively, on material incentives and controls to elicit a reasonable level of effort on the part of its organization members. The consequence is that moral hazard problems crop up: if the material reward can be obtained independently of the effort level (because it is not controlled or not observable and, hence, not controllable), the organization members tend to reduce their level of effort.

Whatever the nature of a work attitude, if it is commonly shared by the organization members, it tends to develop into a ‘social model of behavior’ (Bandura, Reference Bandura1986) with normative connotations. This means a standard of individual commitment and effort that is socially approved by the organization members – be it a low one or a high one. Newcomers quickly recognize this standard and tend to make it the basis for their integration into the organization. Conformity with, or deviation from, that unofficial standard is usually more easily accomplished within the group of organization members than by the officially responsible managerial hierarchy. Deviations from the social model of behavior tend to be informally sanctioned by social ostracism against the deviator.

The argumentation just developed can be summarized as follows:

1. Proposition 3 The extent to which the members of the organization share a mental model in which the identification with the organization is ranked highly, an intrinsic work motivation and a high task commitment can develop as a normative social model of behavior. If such a favorable social model fails to emerge, an extrinsic work motivation and a tendency to lower the level of work effort is likely to prevail.

The general relevance of Proposition 3 for the actual capabilities and the performance of an organization is evident, independent of whether routine-based behavior of the organization members is considered or their deliberate choices. But the proposition is also significant for understanding when and why a routine can be more or less functional with respect to the organizational goals. This will become apparent once the question of how organizational routines emerge – and what cognitive and motivational factors play a role – is explored. This question will be addressed in the following section.

4. How organizational routines emerge and why they may be dysfunctional

Keeping in mind the connection between mental models and work motivation highlighted in Proposition 3, we can now turn to the question of what happens at the level of the individual organization members when something goes awry with a firm's organizational routines. This is not to deny that in many cases organizational routines may indeed ensure coordination, reduce uncertainty, raise organizational coherence, and function as a repository of organizational knowledge. But, recalling the criteria mentioned in the introduction by which the functionality of routines can been assessed, it is not difficult to also find many cases in which organizational routines fall short of such accomplishments. The inherent properties of a routine may not suit its function so that, for example, ineffective, improvised interim practices and perfunctory going-by-the-rule result, or a foul modus vivendi that hides unresolved conflicts, or stereotypy that is mistaken for safety and coherence. Apart from inherent dysfunctionalities, conflicts between different organizational goals can be evoked even by organizational routines with suitable properties. An example is when the stereotypically iterated use of the procedural knowledge encapsulated in the pursuit of routines forestalls innovations and the creation of improved procedural knowledge. Instead of elevating a firm's capabilities, routines may then make the organization unable to cope with a changing, probably even turbulent, environment (Lazaric and Raybaut, Reference Lazaric and Raybaut2005).

Finally, and center stage here, there are the problems with routines whose functionality for the organizational goals is hampered by divergent interests of the organization members. As will now be discussed, whether difficulties are pre-programmed or not depends on the conditions under which organizational routines emerge. These conditions have so far not been the subject of much research (see Miner et al., Reference Miner, Ciuchta, Gong and Becker2008). However, it will turn out that they are to a large extent contingent on the cognitive and motivational attitudes of the organization members explored in the previous section, so that the insights summarized in the last two propositions can be put to use here. Organizational routines can originate in different organizational contexts and in organizational sub-groups of quite different natures (see Cohendet and Llerena, Reference Cohendet, Llerena and Becker2008). These differences notwithstanding, one major distinction that can be made in all cases relates to the extent to which management is formally involved in the emergence of organizational routines. The involvement can range from the complete design and implementation of a routine by the management to an entirely unplanned, spontaneous emergence of a routine where the management acts, if at all, as only one agent among others. Since the latter case is in several respects the more basic one, it is convenient to start with a discussion of this limiting case.

Organizational routines can emerge informally without anyone designing them. This happens when the members of an organization or an organizational sub-unit – managers not excluded – spontaneously, and sometimes by chance, choose sequences of interactions and then stick to them in recurrent situations.Footnote ⁵ The key to routinization is here the stereotypic iteration that emerges spontaneously. The reason for keeping to precedent procedures is usually the fact that the organization members involved find them working in a way that fits their interests or does not compromise them. What precisely the interests of the organization members are when they stick to a spontaneously emerging interaction pattern depends on their work attitude discussed in the previous section. If, in an organization, the organization members share a mental model where identification with the organization, and hence intrinsic work motivation, ranks highly, the interest may be to improve procedures that are conducive to the joint pursuit of the organizational goals or, where such procedures are absent, to establish them. In organizations that lack such a culture, and in which the work attitude is therefore dominantly an extrinsically motivated one, the interest is likely to be different. Spontaneously emerging routines may then mean that the members of the organization coordinate on interaction procedures that minimize their individual effort at the expense of achieving organizational goals (where this is not controlled by the management).

Due to its spontaneous nature, the influence of management on the process of the emergence of such informal organizational routines tends to be marginal. Once established, these routines are complied with by the organization members, either because they are incentive-compatible and, hence, self-enforcing,Footnote ⁶ or because compliance is enforced informally, e.g. by forms of collective social ostracism. What is enforced in the latter case is not necessarily conducive to the pursuit of the organizational goals – the compliance enforced may reflect a low standard of individual commitment and effort rather than a high one. If the routines are not outright dysfunctional, their functionality with regard to the organizational goals is then likely to be low.

In principle, such deficiencies in routines that have emerged spontaneously can be subjected to managerial intervention, and an attempt can be made to design and implement more functional routines. This requires managerial attention for checking, planning alternatives, instructing and supervising firm members – in short, a considerable input of managerial resources. However, the necessary resources may be difficult to make available, given that routines that emerge spontaneously govern a large part of the small-scale interactions in the organization. They occur in many different places and are usually of only minor strategic importance. Unless an organization is generously endowed with managerial resources, a trade-off is therefore likely to arise that may often prevent managerial interventions. The same managerial resources needed for checking a multitude of minuscule, potentially dysfunctional, routines could alternatively be allocated to designing, implementing, and supervising functional routines that regulate the strategically important interactions within the organization.

Furthermore, even if the managerial resources can be made available, a successful switch to more functional routines cannot be guaranteed. The reason becomes clear when we turn now to the other limiting case where organizational routines are deliberately planned and formally implemented by management (whether of strategic importance or not). These routines, and the stereotypical behavior underlying them, are based on detailed directives that prescribe how to pursue particular tasks or how to proceed in particular situations. Such formal directives can frequently be found in an organizational hierarchy, sometimes documented in written form. However, formal directives alone do not automatically translate into practiced routines (Cohen and Bacdayan, Reference Cohen and Bacdayan1994). If compliance is not effectively controlled, the organization members may instead resort to behavior that deviates from, and perhaps conflicts with, the directive. The reason may simply be that the organization members are disoriented and/or lack information about the practical meaning of the directive; or there may be lack of acceptance of the directive, e.g. because of conflicting interests, or because a directive is inadequate for an assigned task.

When routines originate from managerial design, there are thus two factors that are likely to affect the routines’ functionality: the appropriateness of the design and the degree of compliance on the part of the organization members involved – both not necessarily mutually independent. If the management creates a poorly designed organizational routine, the functionality is likely to be low even if the routine is highly complied with by the organization members. (If not complied with, the behavior actually chosen by the organization members can, under conditions to be addressed in a moment, result in a spontaneously emerging, different routine that better suits the intended purpose.) If the management creates a highly appropriate routine, but compliance is low – e.g., because of a predominantly extensive work motivation not sufficiently kept in check by managerial controls – the functionality of the routine is also likely to suffer. In any case, deficiencies in either the design of, or the compliance with, organizational routines designed by the management point to managerial shortcomings.

Such shortcomings may be due to a lack of managerial competence. However, they can equally well be caused by the cognitive and motivational factors discussed in the previous section – this time relating to the managers’ task perceptions and work motivation. The remedy for managerial shortcomings is therefore not necessarily to allocate more competent staff to designing and implementing organizational routines, but rather, if possible, to change the task perception and work motivation of the existing management staff. However, given the large number and great diversity of designed routines operating in a firm organization, constrained managerial resources – this time those of higher management – may again prevent sufficient attention being paid to all of them in order to identify dysfunctionalities and managerial shortcomings. The structure of causation repeats itself here at a higher level. Recognition of the dilemma arising from the allocation of scarce (higher) managerial resources at all levels of the organizational hierarchy may often be the rationale of attempts of organization leaders to create total quality management meta-routines (see Hackman and Wageman, Reference Hackman and Wageman1995).

Given its complexity, the coordination of the sequencing and timing of intra-organizational production processes is regularly based on formally designed organizational routines that interlock with informally emerging ones. Informally emerged routines complement the formally designed ones, because the latter are either not sufficiently fine-grained to cover all details of the interactions, or because management resources are not sufficient for planning and supervising all interactions. Over time, informal and formal routines – once established – do not remain unchanged. Particularly if firm organizations operate in rapidly changing environments in which it is impossible to anticipate all newly occurring requirements in the design of managerially implemented routines, adjustments in both formal and informal routines are likely to occur. Much of what has been said for the emergence of organizational routines also holds for their changes over time. The extent and frequency of checks and changes necessary to overhaul continuously the organizational routine practice can easily exceed the available managerial resources of the firm. The gap that can arise between partly outdated formally designed routines and the current coordination needs is likely to be filled spontaneously by supplementary informal routines that are newly created on the job by members of the organization.

Whether the ensemble of deliberately planned routines that were originally designed to be efficient and avoid frictions and tension is thus watered down or, to the contrary, whether they are spontaneously optimized, depends, as before, on the attitude of the organization members when they start to improvise. If their interests are dominated by an extrinsic work motivation, the routines are likely to reflect a low level of effort and task commitment and may well degrade the functional value they have for improving or complementing managerially designed organizational routines. The organization then risks suffering from a widespread small-scale dysfunctionality in its factual routine practice that has a negative effect on its profitability and represents a competitive disadvantage.Footnote ⁷ This is different in organizations in which, in contrast, a widely shared mental model and a cooperative social model of behavior prevail; attempts by single organization members to resort to procedures that would undermine the collectively pursued goals can face social sanctions by other organization members.

However organizational routines originate, whether spontaneously or by managerial design, and however they change over time, their functionality is likely to be affected by the task perceptions and work motivation of the agents involved in their emergence. The main hypothesis of this paper can thus be summarized in:

1. Proposition 4 The social models of behavior held within the organization crucially affect the conditions under which organizational routines emerge. The routines’ functionality for coordinating the firm members on the organizational goals can therefore be expected to be the higher the more the prevailing social model of behavior emphasizes identification with the organization, intrinsic work motivation, and task commitment (to tasks consistent with the organizational goals).

The causal chain from the cognitive and motivational underpinnings of the intra-organizational interactions to the (dys-)functionality of the spontaneously emerging organizational routines eventually also impacts on the capabilities of an organization and its performance. An important question is therefore whether and how the ultimate causes, the organization members’ task perceptions and work motivations, can be influenced in a way that is favorable to the pursuit of the organizational goals. The answer hinges on how the organization members arrive at those mental attitudes. Obviously, these attitudes are not an object of deliberate choice, since deliberation already presupposes the existence of such disposition. In fact, mental models and the cognitive attitudes resulting from them at a certain point in time are not even consciously formed, but emerge spontaneously in the human mind. Consequently, organization members cannot be ordered by managerial directives to adopt a certain task perception or work attitude. As explained in the previous section, the formation of these attitudes is strongly affected by social-cognitive learning processes, which leave only indirect influence on managerial action.

Within these social-cognitive learning processes, informal opinion formation among organization members as colleagues and peers is a crucial dynamic. Formal order, directives, promises, and threats by the management are likely to have an effect on those collective opinion formation processes. But these are only some of the influences that determine the outcome of the process, and even these influences are highly dependent on the social skills of the management. In relation to these skills, the managers’ informal behavior – via the other firm members’ observational learning – is also influential. Falling short in their own conduct, may discredit managers’ orders, directives, promises, and threats. Conversely, performing at the informal level as a shining example is likely to enhance both the credibility and the influence of the managers. Regarding the influence that managers can assert by ordaining formal measures, a deliberate use for forming a strong system of organizational goals seems to be a strategy with favorable effects on work motivation and performance (see Greve, Reference Greve and Becker2007). The goals need to be communicated in a comprehensive way. To ensure a high acceptance among the organization members, the goals should be realistic in what they demand so as to allow the organization members to have achieving experiences.