A Cognitive Theory of the Firm

Abstract

This paper reviews and criticizes existing theories of the firm, which take a technical or a governance perspective. One point of criticism is that they do not offer an adequate treatment of learning and innovation, while such treatment is of high priority. With some exceptions, existing governance theories, in economics, neglect the importance of trust. This paper offers a cognitive theory to deal with learning, innovation, and trust. It also incorporates technical and governance perspectives, but emphasizes a competence perspective, in "dynamic capabilities" of innovation and learning. On the basis of a constructivist theory of knowledge, it offers the notion of "cognitive distance", and proposes that the boundaries of the firm result from the determination of "optimal cognitive distance". This is achieved by a "cognitive focus", yielding the notion of a firm as a "focusing device".