Description
Worker takeovers have attracted the attention of scholars from many sciences and research traditions.
From coal to diamonds: A human resource-based view of worker takeovers
Jorge Coque
Department of Business Administration – University of Oviedo
EPI – Campus de Viesques – Wifredo Ricart - 33203 Gijon – Spain
[email protected]
Nuria López-Mielgo
Department of Business Administration – University of Oviedo
EPM – Gonzalo Gutierrez Quiros – 33600 Mieres – Spain
[email protected]
Enrique Loredo
Department of Business Administration – University of Oviedo
Facultad de Comercio – Luis Moya Blanco 261 – 33203 Gijon – Spain
[email protected]
Abstract
Worker takeovers have attracted the attention of scholars from many sciences and research
traditions –sociology, economics, history, politics, law, psychology and anthropology, among
others. However, mainstream strategic management has almost ignored this phenomenon.
This is a remarkable gap because both corporate turnaround policies and employee ownership
are frequent research topics of this discipline. According to the competence perspective of
strategic management, sustained competitive advantage depends on effectively combining
valuable, rare and inimitable resources that deliver superior capabilities. On the contrary,
firms experiencing severe commercial /financial distress are short of these strategic resources
and tend to accumulate value-destroying ones, due to previous managerial decisions. It is
widely acknowledged that most worker takeovers arise from this type of unbalanced
situation. Relative to starting anew and considering path dependencies, the challenge of
rebuilding from deficit appears formidable. Therefore, the rationale for worker takeovers
needs to be explored. The paper develops a theoretical model for analysing successful worker
takeover processes under the lens of the competence perspective. Four key issues at the
firm/macro level are discussed: (i) initial situation; (ii) adjustment capability; (iii) resource
acquisition and development and (iv) resource recombination and integration. Beyond these
four elements, the model also incorporates the psychological micro-foundations of strategy.
For this purpose, the distinction between ownership as an objective state and as a
psychological state is introduced. The firm (macro level) will benefit from enhanced human
capital -in terms of flexibility and motivation- only if workers individually (micro level)
assume their role of collective entrepreneurs. Thus, the hidden cornerstone of the competitive
advantage of worker takeovers relies on an elusive psychological transformation. Such
transformation can be nurtured, so governance, culture, human resource management and
external support act as enabling devices. All in all, a diamond is merely a lump of coal that
has perfected under pressure.
Keywords
Capability; Co-operative; Micro-foundations; Reconfiguration; Resource; Worker takeover.
Introduction
In the past one hundred years, workers have occupied workplaces and formed self-managed
enterprises in almost all regions of the world and under all forms of government (Ness and
Azzellini, 2011). So it is not surprising that worker takeovers (WTOs) have attracted the
attention of scholars from many sciences and research traditions –sociology, economics,
history, politics, law, psychology and anthropology, among others. However, this vast body
of literature is incomplete. Management studies have only paid superficial attention to WTOs.
Even the most systematic and comprehensive pieces of research – for example Paton (1989)–
tend to be descriptive and suffer from insufficient theoretical foundations. Moreover,
mainstream strategic management has almost ignored the WTO phenomenon. This is a
remarkable gap because failure (Ooghe and De Prijcker, 2008; Thornhill and Amit, 2003;
Heine and Rindfleisch, 2013), corporate turnaround policies (Robbins and Pearce, 1992;
Trahms et al., 2013) and employee ownership (Wang et al., 2009; Kim and Ouimet, 2014) are
frequent research topics of this discipline.
According to the competence perspective of strategic management (Nelson and Winter, 1982;
Wernerfelt, 1984; Barney, 1991; Grant, 1991; Peteraf, 1993; Teece et al., 1997; Foss and
Knudsen, 2013), sustained competitive advantage depends on effectively combining valuable,
rare and inimitable resources that deliver superior capabilities. But these resources and
capabilities are, by definition, the exception. Commodity-like or pedestrian resources
constitute the majority of the asset base of most firms. At the very end of the scale are value-
destroying resources (Mosakowski, 2002) and core rigidities (Leonard-Barton, 1992). It is
quite clear that firms experiencing severe commercial/financial distress are short of strategic
resources and tend to accumulate (at best) pedestrian and (more frequently) value-destroying
ones, due to previous managerial decisions. It is widely acknowledged that most worker
takeovers arise from this type of unbalanced situation. Relative to starting anew and
considering path dependencies, the challenge of rebuilding from deficit appears formidable
(Montgomery, 1995). Therefore, a mainstream strategic management rationale for worker
takeovers needs to be explored.
This paper develops a theoretical model for analysing successful WTO processes under the
lens of the competence perspective. Specifically, we are going to focus on those labour
managed firms that emerge after a situation of severe internal crisis of an existing capitalist
enterprise.
The structure of the paper is as follows. Firstly, the concept of WTO will be discussed, in
order to differentiate it from other related situations. Secondly, the WTO will be analysed as
a reconfiguration process that involve removing, adding and recombining resources.
Nevertheless, this strategic dialogue between the firm and its environment is unable to
explain how human resource commodities are transformed into diamonds. So in the next
section the micro-foundations of strategy and the corporate enabling devices are incorporated
into the model. Finally, conclusions close the paper.
Worker takeovers and related phenomena
Broadly speaking, we can divide the causes of appearance of WTOs into two categories. On
the one hand, there are causes that can be labelled as purely external to the existing firm.
They include the entrepreneur’s retirement, conflicts of interests in family-owned businesses,
going private transactions of professional firms, spin-offs from larger firms, privatizations
and public sector competitive tendering processes, among others (Vickers and Yarrow, 1991;
Spear, 2006; Erdal, 2011). In these cases, the transmission of property rights is primarily
seeking continuity or increased efficiency of an already viable firm or activity.
On the other hand, WTOs also emerge as a collective entrepreneurial response in situations of
severe internal commercial/financial crisis of the existing organization (Ben-Ner, 1988).
Workers form these self-managed firms with the primarily goal of maintaining jobs and
preserving the value of human capital investments (Bradley and Gelb, 1983). Equalitarian
values and enhanced participation are normally present in these undertakings (Jensen, 2011).
WTOs that appear after an internal crisis may suffer from temporal discontinuities, as access
to ownership rights sometimes takes place after complex bankruptcy procedures, contested
management lockouts, entrepreneur’s desertion or workplace occupations.
It is clear that he challenges facing both categories of WTOs are completely different and
therefore demand differentiated analyses. As mentioned in the introduction, this paper
focuses on WTOs that arise after an internal crisis (dotted area 1 in figure 1). As Paton (1989:
1) describes them: “workers who had the initiative and determination to take over failing and
bankrupt enterprises, usually when no one else was prepared to. (…) Moribund organizations
have been transformed”.
WTOs are just an extreme case of employee ownership and employee participation.
Management, financial and economics scholars have looked extensively to the causes and
effects of employee ownership and participation. Within the WTO field, causes external to
the firm has captured most attention from these fields of the academia.
Figure 1. WTO and related phenomena
A precarious initial situation and the complex legal Gordian knot of liabilities make the
taking-over of the firm a difficult undertaking. A professional judgment is essential in order
to establish ex ante if there is a real case for a recovered enterprise as a going concern. If the
WTO is finally established and is able to operate in the market, it could evolve into different
organizational types. Firstly, it can survive as a participatory worker managed firm. Secondly,
it will evolve internally into a capitalist firm, if the cooperative principles degenerate and the
initial owners retain the control. Thirdly, it can be acquired by a third party as an on-going
business –i.e. the external evolution into a capitalist firm. Finally, the firm will be closed or
sold if it is not able to pass the market test. Therefore, the WTO process has not a
dichotomous outcome, as success could be interpreted in different ways (figure 2).
1. worker
takeover after
internal crisis
2. worker
takeover
3. employee
ownership
4. employee
participation
workplace
occupation
Figure 2. The WTO process in perspective
WTO as a resource reconfiguration process
Resources, routines and capabilities are the cornerstones of the resource-based view of the
firm. However, the competence perspective has been enriched with a far-reaching stream of
literature on dynamic capabilities (Amit and Schoemaker, 1993; Teece et al, 1997). A
dynamic capability is the firm’s potential to systematically solve problems, formed by its
propensity to sense opportunities and threats, to make timely and market-oriented decisions
and to change its resource base (Barreto, 2010). According to Karim and Capron (2015),
reconfiguration itself is a dynamic capability that encompasses the corporate development
activities in which firms engage to align resources with their strategic goals. To put it simply,
these activities involve removing from the current stock of resources, adding to this stock and
recombining what is within this stock.
WTO can be interpreted as a resource reconfiguration process. Therefore, successful WTOs
would be associated with superior firm/macro level reconfiguration dynamic capabilities.
Williamson (1999) correctly argued that this line of reasoning could be tautological. So, the
rationale or WTO needs to be explored from the competence perspective. Four key issues at
the firm/macro level will be briefly outlined: (i) initial situation; (ii) adjustment capability;
(iii) resource acquisition and development and (iv) resource recombination and integration.
External
Crisis
Internal
Crisis
Non-Viable
Firm
(ex ante)
Viable Firm
(ex ante)
Worker Takeover
(reconfiguration process)
Other takeover
- Worker managed firm
- WTO internally evolved
into a capitalist firm
- WTO taken-over by
a capitalist firm
- Closure
The group of workers promoting a WTO will control a set of resources that come from the
previous capitalist firm. These resources will normally be unbalanced. As history matters, the
previous situation of crisis would have sent to the factor markets the most valuable resources
with lowers exit barriers –for example, the highly qualified but flexible human capital. In
addition, in severe crises, managers of the capitalist firms could have sold other less mobile
resources but with greater potential to generate income (Dierickx and Cool, 1989; Makadok,
2001), despite the fact that these decisions might contravene the long term firm viability –for
example, the sale of premises that provide a location advantage. Therefore, it can be
expected that the capitalist firm accumulated in its last stage of life a greater proportion of
resources that do not generate any advantage, whether they are undifferentiated pedestrian
resources or even value-destroying ones.
The configuration of the group of promoters will determine the level of unbalance in the
initial resources and if the attempted takeover makes sense. On the one hand, it will configure
the initial human capital of the WTO; on the other hand, it also will establish the remaining
physical, financial and intangible resources to be inherited from the capitalist enterprise.
Workers normally get control the remainder resources after a negotiation with the original
owners or as a result of a bankruptcy procedure. In addition, the configuration of the group of
promoters can be wide-ranging –a full or almost full recovery of the firm– or restricted –
partial recovery. In principle, wide-ranging recoveries will allow to get a full set of operating
resources, although the likelihood of inheriting value-destroying resources is high. Restricted
recoveries will allow an initial purging of the resources of the WTO, though the subsequent
effort to complement and integrate the resource profile will be higher.
The dynamic capabilities approach has been prolific in analysing the capabilities that create
and extend the firm resource base. However, the ability to adjust, dispose or divest resources
has received little attention (Moliterno and Wiersema, 2007). Given that the WTO arise out
of a business crisis, it seems clear that the deployment of this dynamic capability of
adjustment will be critical to the recovery success.
In addition, the firm must get the necessary complementary resources through internal
development (make), in the factor markets (buy) or through cooperation. The recovery
process is characterized by the lack of financial resources, so development and procurement
actions will heavily use bootstrap, bricolage and “DIY” formulas (Baker and Nelson, 2005).
Very importantly, the recovery project could benefit from external support and resources
from public administration, trade unions and social economy entities. Knowledge, interim
management and finance are typical complementary resources the group of promoters get
from non-market providers (Evans-Klock et al., 1999). This support is normally justified if
the avoided social cost of closure is substantially greater (Bradley and Gelb, 1983).
Finally, the firm will also have to recombine and integrate the full inventory of resources
(Uhlenbruck, Meyer and Hitt, 2003). The new strategy may emphasize either increased
efficiency or innovation and entrepreneurial goals (Smith and Graves, 2005).
Micro-foundations of WTO
The interpretation of WTOs as resource reconfiguration processes is unable to fully explain
the granularities of these turnaround situations. Hence, the firm level explanation must be
complemented with an individual level view. The micro-foundations of strategy should be
called on for support.
Micro-foundations is a hot topic in the strategy field. As Foss (2010: 12) puts it, “micro-
foundations has emerged as an important theme in management research (…). Thus, special
issues have been explicitly or more implicitly devoted to the micro-foundations theme, it has
figured prominently at the major management conferences and an increasing number of
papers grapple with micro-foundational issues”. Moreover, micro-foundations has
successfully fertilized the competence perspective. In their introduction to an special issue of
the Journal of Management on the future of Resource-based Theory, Barney et al. (2011)
identified micro-foundations as one of the research lines that were already revitalising the
competence perspective.
Foss and Pedersen (2015) state that the basic motivation for the micro-foundations research
agenda in strategy has been to decompose macro-level constructs in terms of the actions and
interactions of lower level organizational members, understand how firm-level performance
emerge from the interaction of these members, and how relations between macro variables
are mediated by micro actions and interactions. Specifically, micro-foundation research has
focused on anchoring higher-level concepts like dynamic capabilities on lower levels.
The theoretical and empirical literature on the relationship between employee ownership and
performance offers contradictory insights. High-power incentives and motivation are
frequently confronted to increased monitoring costs and free-riding. The reason for this
inconclusive evidence is that ownership is a multi-faceted concept that has to be examined at
the individual level. At this point, the distinction between ownership as an objective state and
as a psychological state is introduced. Ownership can be conceptualized as a dual creation. In
addition to the traditional formal/legal perspective of ownership existing as an objective state,
ownership can also be treated as a psychological state. Psychological ownership is related to
a number of important organizational behaviours, among them feelings of responsibility,
stewardship, the assumption of personal risk, personal sacrifice, organizational citizenship,
the promotion and resistance to change, and performance (Pierce and Rodgers , 2004).
Our model incorporates the psychological micro-foundations of strategy, descending to the
individual level (figure 3).
Figure 3. WTO from the competence perspective
The firm (macro level) will benefit from enhanced human capital -in terms of flexibility and
motivation- only if workers individually (micro level) assume their role of collective
RECONFIGURATION PROCESS
(1) Removing
(2) Adding
(3) Recombining
(4) Integrating
(5) Role of collective
entrepreneur
Resource
stock
i
Resource
stock
i+1
MACRO-LEVEL:
FIRM
MICRO-LEVEL:
INDIVIDUAL
entrepreneurs. Thus, the hidden cornerstone of the competitive advantage of WTOs relies on
an elusive psychological transformation. Such transformation can be nurtured, so governance,
culture, human resource management and external support act as enabling devices.
Conclusions
The competence perspective –encompassing the resource-based view of the firm and the
dynamic capabilities approach– provides a mainstream theoretical base for analysing WTOs
through the lenses of strategic management. WTOs can be interpreted as a resource
reconfiguration processes. The group of workers promoting the recovery delimitates the
initial stock of resources at their disposal. From that point on, the firm will interact with its
environment removing resources from the stock, adding/developing new resources and
recombining and integrating all of them. However, the granularities of WTO can only be
explained if the psychological elements of the individuals are incorporated into the analysis.
Individual and legal ownership per se does not provide the required reinforced motivation for
a situation of severe crisis. The powerful psychological change is associated with the
adoption of the role of collective entrepreneurs. Therefore, a psychological transformation is
the key for explaining WTO success. The micro-foundations of strategy clearly enrich the
competence perspective in this case.
The implication for management is clear. Empowered human capital has been identified as
the key factor for WTO success. Legal ownership has to be supported by an individual
psychological transformation. Nurturing the process –rather than assuming that it is going to
emerge– would be the task of the leaders. Corporate governance, organizational culture and
human resource management practices are the internal tools. External support could also have
a say. The final message is that pedestrian human resources can be transformed into the
strategic resources of the firm. All in all, a diamond is merely a lump of coal that has
perfected under pressure.
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doc_475840198.pdf
Worker takeovers have attracted the attention of scholars from many sciences and research traditions.
From coal to diamonds: A human resource-based view of worker takeovers
Jorge Coque
Department of Business Administration – University of Oviedo
EPI – Campus de Viesques – Wifredo Ricart - 33203 Gijon – Spain
[email protected]
Nuria López-Mielgo
Department of Business Administration – University of Oviedo
EPM – Gonzalo Gutierrez Quiros – 33600 Mieres – Spain
[email protected]
Enrique Loredo
Department of Business Administration – University of Oviedo
Facultad de Comercio – Luis Moya Blanco 261 – 33203 Gijon – Spain
[email protected]
Abstract
Worker takeovers have attracted the attention of scholars from many sciences and research
traditions –sociology, economics, history, politics, law, psychology and anthropology, among
others. However, mainstream strategic management has almost ignored this phenomenon.
This is a remarkable gap because both corporate turnaround policies and employee ownership
are frequent research topics of this discipline. According to the competence perspective of
strategic management, sustained competitive advantage depends on effectively combining
valuable, rare and inimitable resources that deliver superior capabilities. On the contrary,
firms experiencing severe commercial /financial distress are short of these strategic resources
and tend to accumulate value-destroying ones, due to previous managerial decisions. It is
widely acknowledged that most worker takeovers arise from this type of unbalanced
situation. Relative to starting anew and considering path dependencies, the challenge of
rebuilding from deficit appears formidable. Therefore, the rationale for worker takeovers
needs to be explored. The paper develops a theoretical model for analysing successful worker
takeover processes under the lens of the competence perspective. Four key issues at the
firm/macro level are discussed: (i) initial situation; (ii) adjustment capability; (iii) resource
acquisition and development and (iv) resource recombination and integration. Beyond these
four elements, the model also incorporates the psychological micro-foundations of strategy.
For this purpose, the distinction between ownership as an objective state and as a
psychological state is introduced. The firm (macro level) will benefit from enhanced human
capital -in terms of flexibility and motivation- only if workers individually (micro level)
assume their role of collective entrepreneurs. Thus, the hidden cornerstone of the competitive
advantage of worker takeovers relies on an elusive psychological transformation. Such
transformation can be nurtured, so governance, culture, human resource management and
external support act as enabling devices. All in all, a diamond is merely a lump of coal that
has perfected under pressure.
Keywords
Capability; Co-operative; Micro-foundations; Reconfiguration; Resource; Worker takeover.
Introduction
In the past one hundred years, workers have occupied workplaces and formed self-managed
enterprises in almost all regions of the world and under all forms of government (Ness and
Azzellini, 2011). So it is not surprising that worker takeovers (WTOs) have attracted the
attention of scholars from many sciences and research traditions –sociology, economics,
history, politics, law, psychology and anthropology, among others. However, this vast body
of literature is incomplete. Management studies have only paid superficial attention to WTOs.
Even the most systematic and comprehensive pieces of research – for example Paton (1989)–
tend to be descriptive and suffer from insufficient theoretical foundations. Moreover,
mainstream strategic management has almost ignored the WTO phenomenon. This is a
remarkable gap because failure (Ooghe and De Prijcker, 2008; Thornhill and Amit, 2003;
Heine and Rindfleisch, 2013), corporate turnaround policies (Robbins and Pearce, 1992;
Trahms et al., 2013) and employee ownership (Wang et al., 2009; Kim and Ouimet, 2014) are
frequent research topics of this discipline.
According to the competence perspective of strategic management (Nelson and Winter, 1982;
Wernerfelt, 1984; Barney, 1991; Grant, 1991; Peteraf, 1993; Teece et al., 1997; Foss and
Knudsen, 2013), sustained competitive advantage depends on effectively combining valuable,
rare and inimitable resources that deliver superior capabilities. But these resources and
capabilities are, by definition, the exception. Commodity-like or pedestrian resources
constitute the majority of the asset base of most firms. At the very end of the scale are value-
destroying resources (Mosakowski, 2002) and core rigidities (Leonard-Barton, 1992). It is
quite clear that firms experiencing severe commercial/financial distress are short of strategic
resources and tend to accumulate (at best) pedestrian and (more frequently) value-destroying
ones, due to previous managerial decisions. It is widely acknowledged that most worker
takeovers arise from this type of unbalanced situation. Relative to starting anew and
considering path dependencies, the challenge of rebuilding from deficit appears formidable
(Montgomery, 1995). Therefore, a mainstream strategic management rationale for worker
takeovers needs to be explored.
This paper develops a theoretical model for analysing successful WTO processes under the
lens of the competence perspective. Specifically, we are going to focus on those labour
managed firms that emerge after a situation of severe internal crisis of an existing capitalist
enterprise.
The structure of the paper is as follows. Firstly, the concept of WTO will be discussed, in
order to differentiate it from other related situations. Secondly, the WTO will be analysed as
a reconfiguration process that involve removing, adding and recombining resources.
Nevertheless, this strategic dialogue between the firm and its environment is unable to
explain how human resource commodities are transformed into diamonds. So in the next
section the micro-foundations of strategy and the corporate enabling devices are incorporated
into the model. Finally, conclusions close the paper.
Worker takeovers and related phenomena
Broadly speaking, we can divide the causes of appearance of WTOs into two categories. On
the one hand, there are causes that can be labelled as purely external to the existing firm.
They include the entrepreneur’s retirement, conflicts of interests in family-owned businesses,
going private transactions of professional firms, spin-offs from larger firms, privatizations
and public sector competitive tendering processes, among others (Vickers and Yarrow, 1991;
Spear, 2006; Erdal, 2011). In these cases, the transmission of property rights is primarily
seeking continuity or increased efficiency of an already viable firm or activity.
On the other hand, WTOs also emerge as a collective entrepreneurial response in situations of
severe internal commercial/financial crisis of the existing organization (Ben-Ner, 1988).
Workers form these self-managed firms with the primarily goal of maintaining jobs and
preserving the value of human capital investments (Bradley and Gelb, 1983). Equalitarian
values and enhanced participation are normally present in these undertakings (Jensen, 2011).
WTOs that appear after an internal crisis may suffer from temporal discontinuities, as access
to ownership rights sometimes takes place after complex bankruptcy procedures, contested
management lockouts, entrepreneur’s desertion or workplace occupations.
It is clear that he challenges facing both categories of WTOs are completely different and
therefore demand differentiated analyses. As mentioned in the introduction, this paper
focuses on WTOs that arise after an internal crisis (dotted area 1 in figure 1). As Paton (1989:
1) describes them: “workers who had the initiative and determination to take over failing and
bankrupt enterprises, usually when no one else was prepared to. (…) Moribund organizations
have been transformed”.
WTOs are just an extreme case of employee ownership and employee participation.
Management, financial and economics scholars have looked extensively to the causes and
effects of employee ownership and participation. Within the WTO field, causes external to
the firm has captured most attention from these fields of the academia.
Figure 1. WTO and related phenomena
A precarious initial situation and the complex legal Gordian knot of liabilities make the
taking-over of the firm a difficult undertaking. A professional judgment is essential in order
to establish ex ante if there is a real case for a recovered enterprise as a going concern. If the
WTO is finally established and is able to operate in the market, it could evolve into different
organizational types. Firstly, it can survive as a participatory worker managed firm. Secondly,
it will evolve internally into a capitalist firm, if the cooperative principles degenerate and the
initial owners retain the control. Thirdly, it can be acquired by a third party as an on-going
business –i.e. the external evolution into a capitalist firm. Finally, the firm will be closed or
sold if it is not able to pass the market test. Therefore, the WTO process has not a
dichotomous outcome, as success could be interpreted in different ways (figure 2).
1. worker
takeover after
internal crisis
2. worker
takeover
3. employee
ownership
4. employee
participation
workplace
occupation
Figure 2. The WTO process in perspective
WTO as a resource reconfiguration process
Resources, routines and capabilities are the cornerstones of the resource-based view of the
firm. However, the competence perspective has been enriched with a far-reaching stream of
literature on dynamic capabilities (Amit and Schoemaker, 1993; Teece et al, 1997). A
dynamic capability is the firm’s potential to systematically solve problems, formed by its
propensity to sense opportunities and threats, to make timely and market-oriented decisions
and to change its resource base (Barreto, 2010). According to Karim and Capron (2015),
reconfiguration itself is a dynamic capability that encompasses the corporate development
activities in which firms engage to align resources with their strategic goals. To put it simply,
these activities involve removing from the current stock of resources, adding to this stock and
recombining what is within this stock.
WTO can be interpreted as a resource reconfiguration process. Therefore, successful WTOs
would be associated with superior firm/macro level reconfiguration dynamic capabilities.
Williamson (1999) correctly argued that this line of reasoning could be tautological. So, the
rationale or WTO needs to be explored from the competence perspective. Four key issues at
the firm/macro level will be briefly outlined: (i) initial situation; (ii) adjustment capability;
(iii) resource acquisition and development and (iv) resource recombination and integration.
External
Crisis
Internal
Crisis
Non-Viable
Firm
(ex ante)
Viable Firm
(ex ante)
Worker Takeover
(reconfiguration process)
Other takeover
- Worker managed firm
- WTO internally evolved
into a capitalist firm
- WTO taken-over by
a capitalist firm
- Closure
The group of workers promoting a WTO will control a set of resources that come from the
previous capitalist firm. These resources will normally be unbalanced. As history matters, the
previous situation of crisis would have sent to the factor markets the most valuable resources
with lowers exit barriers –for example, the highly qualified but flexible human capital. In
addition, in severe crises, managers of the capitalist firms could have sold other less mobile
resources but with greater potential to generate income (Dierickx and Cool, 1989; Makadok,
2001), despite the fact that these decisions might contravene the long term firm viability –for
example, the sale of premises that provide a location advantage. Therefore, it can be
expected that the capitalist firm accumulated in its last stage of life a greater proportion of
resources that do not generate any advantage, whether they are undifferentiated pedestrian
resources or even value-destroying ones.
The configuration of the group of promoters will determine the level of unbalance in the
initial resources and if the attempted takeover makes sense. On the one hand, it will configure
the initial human capital of the WTO; on the other hand, it also will establish the remaining
physical, financial and intangible resources to be inherited from the capitalist enterprise.
Workers normally get control the remainder resources after a negotiation with the original
owners or as a result of a bankruptcy procedure. In addition, the configuration of the group of
promoters can be wide-ranging –a full or almost full recovery of the firm– or restricted –
partial recovery. In principle, wide-ranging recoveries will allow to get a full set of operating
resources, although the likelihood of inheriting value-destroying resources is high. Restricted
recoveries will allow an initial purging of the resources of the WTO, though the subsequent
effort to complement and integrate the resource profile will be higher.
The dynamic capabilities approach has been prolific in analysing the capabilities that create
and extend the firm resource base. However, the ability to adjust, dispose or divest resources
has received little attention (Moliterno and Wiersema, 2007). Given that the WTO arise out
of a business crisis, it seems clear that the deployment of this dynamic capability of
adjustment will be critical to the recovery success.
In addition, the firm must get the necessary complementary resources through internal
development (make), in the factor markets (buy) or through cooperation. The recovery
process is characterized by the lack of financial resources, so development and procurement
actions will heavily use bootstrap, bricolage and “DIY” formulas (Baker and Nelson, 2005).
Very importantly, the recovery project could benefit from external support and resources
from public administration, trade unions and social economy entities. Knowledge, interim
management and finance are typical complementary resources the group of promoters get
from non-market providers (Evans-Klock et al., 1999). This support is normally justified if
the avoided social cost of closure is substantially greater (Bradley and Gelb, 1983).
Finally, the firm will also have to recombine and integrate the full inventory of resources
(Uhlenbruck, Meyer and Hitt, 2003). The new strategy may emphasize either increased
efficiency or innovation and entrepreneurial goals (Smith and Graves, 2005).
Micro-foundations of WTO
The interpretation of WTOs as resource reconfiguration processes is unable to fully explain
the granularities of these turnaround situations. Hence, the firm level explanation must be
complemented with an individual level view. The micro-foundations of strategy should be
called on for support.
Micro-foundations is a hot topic in the strategy field. As Foss (2010: 12) puts it, “micro-
foundations has emerged as an important theme in management research (…). Thus, special
issues have been explicitly or more implicitly devoted to the micro-foundations theme, it has
figured prominently at the major management conferences and an increasing number of
papers grapple with micro-foundational issues”. Moreover, micro-foundations has
successfully fertilized the competence perspective. In their introduction to an special issue of
the Journal of Management on the future of Resource-based Theory, Barney et al. (2011)
identified micro-foundations as one of the research lines that were already revitalising the
competence perspective.
Foss and Pedersen (2015) state that the basic motivation for the micro-foundations research
agenda in strategy has been to decompose macro-level constructs in terms of the actions and
interactions of lower level organizational members, understand how firm-level performance
emerge from the interaction of these members, and how relations between macro variables
are mediated by micro actions and interactions. Specifically, micro-foundation research has
focused on anchoring higher-level concepts like dynamic capabilities on lower levels.
The theoretical and empirical literature on the relationship between employee ownership and
performance offers contradictory insights. High-power incentives and motivation are
frequently confronted to increased monitoring costs and free-riding. The reason for this
inconclusive evidence is that ownership is a multi-faceted concept that has to be examined at
the individual level. At this point, the distinction between ownership as an objective state and
as a psychological state is introduced. Ownership can be conceptualized as a dual creation. In
addition to the traditional formal/legal perspective of ownership existing as an objective state,
ownership can also be treated as a psychological state. Psychological ownership is related to
a number of important organizational behaviours, among them feelings of responsibility,
stewardship, the assumption of personal risk, personal sacrifice, organizational citizenship,
the promotion and resistance to change, and performance (Pierce and Rodgers , 2004).
Our model incorporates the psychological micro-foundations of strategy, descending to the
individual level (figure 3).
Figure 3. WTO from the competence perspective
The firm (macro level) will benefit from enhanced human capital -in terms of flexibility and
motivation- only if workers individually (micro level) assume their role of collective
RECONFIGURATION PROCESS
(1) Removing
(2) Adding
(3) Recombining
(4) Integrating
(5) Role of collective
entrepreneur
Resource
stock
i
Resource
stock
i+1
MACRO-LEVEL:
FIRM
MICRO-LEVEL:
INDIVIDUAL
entrepreneurs. Thus, the hidden cornerstone of the competitive advantage of WTOs relies on
an elusive psychological transformation. Such transformation can be nurtured, so governance,
culture, human resource management and external support act as enabling devices.
Conclusions
The competence perspective –encompassing the resource-based view of the firm and the
dynamic capabilities approach– provides a mainstream theoretical base for analysing WTOs
through the lenses of strategic management. WTOs can be interpreted as a resource
reconfiguration processes. The group of workers promoting the recovery delimitates the
initial stock of resources at their disposal. From that point on, the firm will interact with its
environment removing resources from the stock, adding/developing new resources and
recombining and integrating all of them. However, the granularities of WTO can only be
explained if the psychological elements of the individuals are incorporated into the analysis.
Individual and legal ownership per se does not provide the required reinforced motivation for
a situation of severe crisis. The powerful psychological change is associated with the
adoption of the role of collective entrepreneurs. Therefore, a psychological transformation is
the key for explaining WTO success. The micro-foundations of strategy clearly enrich the
competence perspective in this case.
The implication for management is clear. Empowered human capital has been identified as
the key factor for WTO success. Legal ownership has to be supported by an individual
psychological transformation. Nurturing the process –rather than assuming that it is going to
emerge– would be the task of the leaders. Corporate governance, organizational culture and
human resource management practices are the internal tools. External support could also have
a say. The final message is that pedestrian human resources can be transformed into the
strategic resources of the firm. All in all, a diamond is merely a lump of coal that has
perfected under pressure.
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