The Nature of the Firm – A Social Cybernetic Analysis

Abstract

In 1937, Ronald Coase published ‘The Nature of the Firm’ [1], addressing the question of why firms exist. He concluded that firms emerge to reduce costs of transactions. A ‘transaction’ is defined both as the action of conducting business, as well as an interaction between people. Both senses of the term prompt the present social cybernetic analysis of the nature of the firm. Social cybernetics focuses upon the reciprocal feedback control and feedforward interactions between two or more individuals in a group or organizational setting, a process termed social tracking that involves dynamic linking of the social behavior of two people, of multi-person teams of people, or of larger groups of individuals engaged in intra- or inter-institutional transactions. From the perspective of social cybernetics, the potential for continued market success of a firm thus is equated with the degree to which the fidelity of social tracking among transactional participants is developed, maintained and refined through organizational design and management.