Austrian economics is a disequilibrium-based understanding of how firms interact in markets. Using basic concepts from Austrian economics and the market dynamics implied from them, this paper presents a dynamic view of fitting as one of the implications for organization studies and highlights other critical areas including entrepreneurship, innovation, information processing and organizational learning and change.
'Fit' has long been a central focus in the strategy and contingency literatures (Van de Ven and Drazin, 1985; Summer, Bettis, Dulhaime, Grant, Hambrick, Snow & Zeithaml, 1990). Generally, fit has been conceptualized as end-goal implying an attainable fit is possible (i.e. fit measured against an ideal or best performer, (Doty, Glick & Huber 1993)). This conceptualization implies the following: 1) that clear links exist between cause and effect (otherwise fit could not be the specific end-goal), 2) that conditions present in the environment will continue (otherwise what is useful now may not be in the future) and 3) that the use of negative feedback enables the determination of the set of requirements needed for fit (otherwise the distance from any specified set of requirements is useless). These assumptions correspond to those needed in an equilibrium-based market economy (Stacey, 1995; Hunt, 2000).
Recently the usefulness of the foundational assumptions of equilibrium-based economics has been questioned (McWilliams and Smart, 1995). Austrian economics (Kirzner, 2000; Scarth, 1988; Stacey, 1995;) or ideas based in Austrian economics (Peteraf & Ferrier, 2002; McWilliams and Smart, 1995; Hunt, 1995; 1998, 2000) have been offered as an alternative. Yet there are implications for organizational studies, if we switch the assumption base, which have not been addressed. Austrian economics is a disequilibrium-based system that has characteristics that mirror those of complex systems (Stacey, 1995). Such characteristics include: 1) causal links are nonlinear, 2) results are partially planned and partially emergent, and 3) specific predictions of outcomes are problematic. This implies that we need to revisit our concept of fit because, as this paper develops, under these conditions, fit becomes an apparition that organizations chase. This paper presents the dynamics of the fitting process in a complex system based on the underlying explanation provided by Austrian economics. It finishes with outlining some critical areas of research arising from exploring a disequilibrium-based understanding of market forces.
Fit, Fitting and the Impact of Market Dynamics
When using a system that has a stable structure, it is possible to determine a stable end point, a goal at which to aim. The agent taking aim has to handle the uncertainly that is inherent in any future oriented action, but coping with that uncertainty is doable. This is the basis for decisions from an equilibrium-oriented system. Uncertainty that is present is a result of an error. Certain actions lead predictably to an erosion of supra-normal returns and ultimately to equilibrium return levels (Hunt, 2000).
Unlike in equilibrium systems, the existence of uncertainty is a base assumption of Austrian economics (Kirzner, 2000, 1982; Mises, 1949; Hayek, 1948b; Schumpeter, 1934). Under Austrian economics imperfectly implemented plans contribute to uncertainty about the future (Mises, 1949). People as economic agents cope with this uncertainty (Kirzner, 1982; Mises, 1949). Reasonable people will still make mistakes, be inefficient and even fail, but this does not mean that they acted irrationally (Mises, 1957). This view accords all action as being future oriented (Kirzner, 1978); by this is meant that people see their actions as linked to a possible future result. This being the case, they will try to place themselves in the 'best' of equally available positions (Kirzner, 1978). …