Managerial Meta-knowledge and Adaptation: Governance Choice When Firms Don’t Know Their Capabilities

Nicolai J. Foss, Henrik Jensen

Research output: Contribution to journalJournal articleResearchpeer-review


How well do managers know the capabilities of the firms they manage? Such knowledge, which we refer to as managerial meta-knowledge, has not been systematically addressed in the management and governance literature—which is problematic, as managerial meta-knowledge influences governance choice. In fact, transaction cost economics, the dominant theory of governance choice in management research, assumes that managers perfectly know the capabilities of their firms. However, micro-level research streams on resource cognition and transactive memory, as well as the knowledge-based view of strategy, suggest that this assumption is not in general warranted: Managers’ meta-knowledge is in general imperfect. We therefore examine the implications of imperfect managerial meta-knowledge for governance choice. The key mechanism we highlight is that imperfect managerial meta-knowledge leads to surprises and frictions in contractual relationships, negatively influences the ability to engage in coordinated adaptation, and is a driver of ex post transaction costs. For these reasons, managerial meta-knowledge holds implications for governance choices, which we summarize in four propositions.
Original languageEnglish
JournalStrategic Organization
Issue number2
Pages (from-to)153-176
Number of pages24
Publication statusPublished - May 2019
Externally publishedYes


  • Capabilities
  • Interorganizational coordination
  • Knowledge management
  • Managerial cognition
  • Resource-based view
  • Transaction cost economics

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