Organizational capability is increasingly believed to be a critical — perhaps the critical — source of competitive advantage. The new internet firms are held up as models for the “old” economy, and firms everywhere are advised to use aggressive incentives, to be fast, to be flexible, and to be networked. At the same time we are in the midst of the largest merger wave in history. The large firms are getting larger. Their CEOs talk of “building small-company spirit in large-company clothing,” but the analysts talk of scale, routine, and regularity.

What is going on? When should organizations outsource and when should they produce internally? When should firms diversify or merge? How can one maintain the creativity and enthusiasm characteristic of a small firm inside a large one? When should one even try? How do the answers to these questions change as one manages across boundaries, across industries, and over time?

This course attempts to provide the tools necessary to answer such questions. To do so, we utilize, deepen, and integrate three courses listed below: microeconomics, organizational process, and strategy. For example, from microeconomics we take the ideas of incentives and game theory, from OP organizational structure and culture, and from strategy industry structure and core capability.

Much of our discussion will explore the important two-way street between a firm’s “external strategy” in its product market and its “internal strategy” regarding organizational issues. One direction on this street is widely appreciated: an optimal external¬ strategy decision frequently requires complementary internal-strategy implementation. We will frequently emphasize the opposite direction: some external-strategy decisions are driven by internal-strategy considerations. The course is therefore appropriate for those considering management consulting, as well as for general managers who seek to understand and influence the design and performance of their organizations.