Mechanisms for firm coordination
To develop core competencies or dynamic capabilities (capacities for developing, producing and distributing goods and services profitably), firms need to establish high-quality relationships internally with their own employees and externally with a range of other parties that includes suppliers, clients, collaborators, trade unions, business associations, governments and other stakeholders. Developing these relationships and ensuring effective cooperation which continues over time is a core problem for firms.
The varieties of capitalism approach focuses on five different spheres in which firms must achieve effective coordination with other parties, and considers the different ways in which different national systems address these problems:
- Industrial relations: how to coordinate bargaining over wages and working conditions with the labour force, the organisations that represent them and other employers. This will determine the wage levels and productivity that underpin the success of the firm.
- Vocational training and education: how firms can secure a workforce with suitable skills and how workers can decide how much to invest in which skills. This is important both to outcomes for individual firms and workers but crucially also for skill levels and competitiveness in the overall economy.
- Corporate governance: where do firms go for finance and how are investors assured of the protection of their interests and returns on their investments? This is important in determining the availability of finance for projects and the terms on which firms can secure funds.
- Inter-firm relations: how do firms coordinate with suppliers, collaborators and clients? How do they manage transfer of technology and knowledge and protect proprietary information? How do they manage common standards (e.g. technological standards for interoperability of software, systems and devices, quality standards, environmental standards)? The answers to these questions determine the capacity of firms to remain competitive and progress in the economy as a whole.
- Employees: how do firms manage relationships with their own employees so that they have the necessary skills and collaborate effectively with others to advance the objectives of the firm? The answers to these questions affect firm capabilities and the character of national approaches to organising production.