Abstract
There are new directions of economic science that can deal with the knowledge factor and there are new directions that concern internal business organization and the development of external markets, but neither kind of scientific inquiry deals with professional knowledge and markets for professional services. In organization theory, there is a rich tradition in the study of complex and professional organizations, but this theory does not encompass the market transactions of professional services. Nonetheless, these directions in economics and organization science do provide us with conjectures that assist in the development of a specific theory of the professional services economy. In this chapter, these conjectures are discussed and used to construct a conceptual framework for the role of professional knowledge in business.
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References
Among the many studies about technical knowledge, innovations and bussiness behaviour that followed the work of Schmookler and Freeman, those of Kamien & Schwartz (1975), Nelson & Winter (1973, 1977, 1982), Rosenberg (1976, 1982), Mensch (1979), Dosi (1982), and Teece (1982, 1987) could be mentioned as being particularly important for the study of business administration.
The great organization theorist Herbert Simon underlined the role of routine in organizations, but added that organizations also develop standards for these routines (Simon, 1965).
The concept of complexity is important in the argument of this chapter. I differentiate between ‘mechanistic complexity’ and ’voluntary complexity’. The latter concept is typified by plural, willful, uncertain and ambivalent human action, whereas the former is only typified by logical interconnectedness. This conceptualization is further elaborated on page 29.
This differentiation of the complexity concept is partly inspired by the philosohers Jürgen Habermas, who made a distinction between instrumental action, in case there is only one purpose, and communicative action, in case of different, yet integrated human volitions (’Theory and Praxis’, 1963), and Wittgenstein, who showed the voluntary complexity in language (’Philosophical Investigations’, 1953). A further elaboration of the difference between mechanistic and voluntary complexity would certainly take another book, as the issue involved has been so basic in the philosophy of science and the great debate on methods within the social sciences (for an enlightning view on this matter, see Peter Winch, 1958 ). Although I regard this matter as a crucial context regarding professional work, it is also extremely complex and reaching far beyond the scope of this book. Earlier, I published an article on the relevance of Habermas’s theory for the service economy in general (Tordoir, 1987 ).
Some of the theories and concepts discussed in this section, that were developed in the ‘classical’ organization literature, are currently revived in the recent management literature, although with different labels and often presented as ’new’. The now popular concept of the ’learning organization’ is a good example (Dow, 1990; Senge, 1990; Stata, 1989 )
Blau and Lorsch confirmed with their research Weber’s theory that hierarchy and bureacracy are a result of the professionalization of work, although they did not expect these results (Weber, 1947; see also the discussion in paragraph 2.1 of this book).
Notable contributions are those of Gouldner (1954); Parsons (1960); Freidson (1970, 1986); Wilensky, (1964, 1969); Larson (1977); Edwards (1979); Tuma & Grimes (1981); Organ & Greene (1981);and Fligstein (1987). Most research in this respect concernes the sociology of the professions, a branch of sociology focussed on subjects such as professional career development, professional institutions and codes (see for an overview of the literature, Saks, 1983, and Shaw, 1987 ). Studies that focus on the subject of professionals and power from an micro-administrative or managerial perspective, instead of a sociological perspective, are much more scarce. Galbraith (1973) and, again, Mintzberg (1979) and Perrow (1986) made substantial theoretical contributions from an organizational point of view.
According to Mintberg (1982), organizations that are mainly based on professional expertise tend in fact to have a very decentralized and flat powerstructure, however shielded this structure may be from the outsider’s view by the many official hierchical levels that large professional organizations have to develop in order to reach small spans of control (Mintzberg, 1979 ). In less complex organizations, characterized either by standardized operations or by an entreprenerial style of management, the official hierarchy reflects better the real powerstructure, but such organizations tend also to employ few professionals at most. But then, my own research shows that things are even more complicated. In the next chapter, we will see that the power structure in professionalized producers (’high-tech firms’) is indeed usually decentralized, whereas large professional services firms often have a rather centralized power structure.
n fact, economies of scope are extremely important for all services that can not be stored in order to smoothen out peaks and slacks in demand, the assets generating the services being fixed in a sense that they can not be decreased or increased without considerable costs (De Jong, Tordoir & Machielse, 1990 ). Some claim that the prime asset of professional services is labour (which is in neoclassical theory typically a flexible factor), but in reality professional labour is far from being flexible in this regard. A well-trained and experienced pool of professionals is indeed a fixed and highly capital intensive asset demanding a long gestation time. Hiring and firing professionals is a most strategic affair. This is further elaborated in chapter five of this
n this respect, transaction costs theory is closely related with ‘agency theory’, which regards forms of economic organization in terms of their efficiency to prevent cheating ( Alchian & Demsetz, 1972 ). The principle of agency theory is that independent agents, engaged in a project and therefore in mutual transactions, will use any possibility to cheat on each other (no one will ignore a free ride). Therefore, another agent (the ’principal’) will be necessary in order to supervise the group and prevent cheating. Other agents may then be necessary to supervise the supervisors, etcetera, so leading to hierarchical organization.
rhe only element that is missing here is that of asset specificity, which is in my opinion the only source of transaction costs that is indeed only applicable to market relations and not to internal relations. I would even state that the economic considerations of the new theory of the industrial organization of professional support functions are mainly based on the principle of asset specificity that is always present at the interface between professional and lateral knowledge on the one hand and vertical firm knowledge on the other. It is on account of asset specificity that this interface can not under any circumstances be externalized on the grounds of economic efficiency. But then, economic efficiency remains only one reason to externalize professional work.
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Tordoir, P.P. (1995). Theories and conjectures. In: The Professional Knowledge Economy. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-8437-1_2
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DOI: https://doi.org/10.1007/978-94-015-8437-1_2
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