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Some thoughts on microfoundations of entrepreneurship: emergence, aggregation, and supervenience

Wednesday 27 August 2014

I have posted recently on the microfoundations of entrepreneurship, particularly of collective entrepreneurship. This latter term is used to denote the superset of team entrepreneurship or group entrepreneurship – whether as a startup or within and existing organization – and entrepreneurial ventures that are a strategic alliance of (usually small) firms, as in the wine trails and food hubs I am studying with my colleagues. For me, the context of the collective as a stand-alone new venture or a team venture in a large corporation is less important than the phenomenon of this particular form of collective action. That is, how do these groups form and act jointly in new venture creation?

In one post, I looked to the discipline of philosophy. I highlighted the work on social ontology as one lens to study group intention (to act) and group agency – the ability for a collective to act. This is truly a microfoundational approach to the study of the inception of collective ventures. I intend to see in the next two years whether the theories of group agency from the social ontology literature can be linked empirically to the model of relational demography proposed by Martin Ruef. Ruef is concerned with the “glue” that holds entrepreneurial teams together. There is no obvious reason to believe that mechanisms that permit group formation and initial agency will remain as the group/firm evolves over time. In fact, one of the most interesting subjects to research might be the process of defections from startup teams and firms as the venture matures. To what extent are defections a result of the changing context of the venture, thus violating the initial conditions for group intention? To what extent are defections caused by significant changes in the group ethos from the startup to the established enterprise? And, is the changed ethos necessary to maintain the group agency inherent in the established firm – Ruef’s glue?

This brings me to a post today on the Organizations and Markets website. Nicolai Foss points to an essay in Strategic Organization he co-authored with Jacob Lyngsie on entrepreneurial activity in the established firm. The paper takes on the construct of the entrepreneurial opportunity as a useful explanans for entrepreneurial activity. See my wholehearted agreement with this issue here. But the paper caused me to think more about the relationship between two issues near and dear to Professor Foss’ heart: entrepreneurship as a function distinct from firm founding and the microfoundations of organizational theory and strategic management. See, for example, these posts on microfoundations at Organizations and Markets (here, here, and here).

There is a troubling term in the microfoundations project: emergence. If the microfoundational models of actions within and at the interface with the market are necessarily grounded in individual action, as the micro-fundamentalists aver, then there must be something that links individual intention and individual action to group intention and to group action. One often sees this described as emergence of the higher-level phenomenon from the lower-level phenomenon. I will leave aside the social fact that emergence is the sine qua non of the claptrap known as critical realism. Even social scientists that are wary of critical realism will invoke emergence, or aggregation (see Barney and Felin, 2013). Aggregation would seem easier than emergence, as “adding up” is an easier thing to do than describing an emergence process. But, anyone who has taken a graduate course in price theory has seen the aggregation problem with something as (seemingly) simple as aggregating individual demand functions into a market demand function.

Emergence as a research phenomenon provokes me to ask two questions. What explains emergence? That is, emergence is an explanandum, a phenomenon that must be explicable. If one cannot explain how group action emerges from individual action (save for “adding up”), then it is mysterious – the same argument that reductionists have made against holistic explanation for centuries. And, of course, this is the reason that the micro-fundamentalists express a reference for micro-level explanations. The second question follows. What does emergence explain? Obviously, we are meant to see that emergence explains the micro-macro linkages. But to do so requires that emergence must be understood as a phenomenon in sufficient detail to show how it explains macro phenomena. It is not enough to declare that it explains; one must confirm the explanation with empirical research. See a paper that André Ariew and I wrote for the Strategic Management Society Special Conference on Microfoundations held in Copenhagen 13-15 June 2014. The paper describes in detail the issues of explanatory reduction in following a microfoundations project.

Ariew and Westgren Microfoundations and Reductionism

The other word we can consider at this point is supervenience. This term is closely aligned with emergence, but has a more concrete definition. One may say that a set of facts supervenes on another set of facts. This works with social facts as well as physical facts. That is, a supervenience relation may exist between the attitudes and actions of a group and the attitudes and actions of its individual members. This, I believe, is the essence of the microfoundations project: discovering how group actions supervene upon group members.

I point you to one of the books I noted in my introduction to social ontology: Group Agency by Christian List and Philip Pettit. In this book, List and Pettit discuss supervenience with particular regard to the group agent (i.e. the firm-as-agent) and the members of the firm. This is a very careful analysis of the propositions that must hold for us to say that the actions of the group agent truly supervene on the attitudes and actions of the members of the group. In their analysis, they show that no voting rules are sufficient to support supervenience, but they claim that robust group rationality (a set of necessary conditions) will support what they call holistic supervenience – not tied to particular propositions or sets of propositions that we might call decisions of group ventures. Then they spend the bulk of the book describing the desiderata of organizational structures that permit individual attitudes to be aggregated, including incentive alignment and control. Management scholars will recognize these phenomena are part and parcel of organization theory. List and Pettit just bring these to light within the context of organizational design to permit group agency.

Just like what Foss and Lyngsie wish to see in corporate entrepreneurship research.

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