We borrow Wittgenstein's concept of ``languagegames'' to create a theory of action. Thelanguage-games framework integrates theeconomic model of rational maximizing and thesociological model of rule following. Languagegames are subject to a process of naturalselection. Strong competition creates a``tight'' evolutionary filter. When it does,agents are constrained to act as if they wererational. Traditional economic logic applies. When it does not, agents are free to chooseidiosyncratic actions. Sociologicalunderstanding is required. We combine thelanguage-games framework with the concept of``modular system.'' In a modular system, partsare grouped to minimize interaction betweengroups. The parts in one module interact withthose of another module only through relativelyformal ``interfaces.'' Large firms are modularsystems, and so is the larger social system,including the division of labor. Combining thelanguage-game framework with the idea ofmodular system helps us explain firm growth. Acharismatic leader founds an enterprise andplaces his interpretive framework in aprivileged position within it. The firm is nota modular system; it is not ``decomposable.'' Firm growth leads to a greater division oflabor within the enterprise and to a moremodular organization. Modularity helps thelarger enterprise function smoothly, even whenemployees have conflicting mental models. Success in transforming small firms to largefirms depends on finding the right modularstructure for the enterprise. Copyright Kluwer Academic Publishers 2001
