Building microfoundations for the routines, capabilities and performance links

Micro-foundations have become an important emerging theme in strategic management. This paper addresses micro-foundations in two related ways. First, we argue that the kind of macro (or ‘collectivist') explanation that is presently utilized in the capabilities view in strategic management—which implies a neglect of micro-foundations—is incomplete. There are no mechanisms that work solely on the macro-level, directly connecting routines and capabilities to firm-level outcomes. While routines and capabilities are useful shorthand for complicated patterns of individual action and interaction, ultimately they are best understood at the micro-level. Second, we provide a formal model that shows precisely why macro-explanation is incomplete and which exemplifies how explicit micro-foundations may be built for notions of routines and capabilities and how these impact firm performance.