Actor-Based Approaches in Business Administration Research

Abstract

This essay argues that the research questions of business administration as an academic discipline has to deal with can be classified into three types: first-order problems concern problems occurring in the daily operations of firms, for instance, how to correctly calculate the net present value of an investment project. Second-order problems concern how institutional settings in the firm must be designed in order to assure that solutions to first-order problems are actually applied by the actors in the firm. For instance, how to design a decision support system in order to avoid costly decision-biases known to occur in managerial decision-making. Third-order problems concern the question, why some firms install such advantageous institutional settings, while others do not. Economics typically assumes that solving first- and second-order problems constitute a competitive advantage for the firm which is able to do so, which implies that competition will force all firms to do so. However, entrepreneurial practice indicates this to be not the case: first, some institutions, for instance for surveillance, are costly to operate and the operating costs of such institutions may well exceed the costs arsing from the problem itself. Second, organizational changes are costly too, both in terms of installing a new organizational setup and in terms of overcoming the resistance of persons with vested interests in the existing institutional setting and general organizational inertia. While first-order problems constitute the traditional domain of business administration research and in particular teaching, the behavioral turn, the inclusion of psychological elements in the research agenda and “explanatory toolbox” of economics and business administration, is accompanied by a shift of the focus on second- and third-order problems. This raises the question, what methodological basis is appropriate for introducing explanations originating from an individual-level focused discipline like psychology to the research agenda of business administration research, which is concerned with collective entities, like firms and markets. This essay is about how actor-based methodological approaches from sociology can contribute to solving second- and third-order problems, using the cases of decision biases and the choice of institutional settings as examples.