We discuss the microfoundations of routines and capabilities, including why a microfoundations
view is needed and how it may inform work on organizational and competitive heterogeneity.
Building on extant research, we identify three primary categories of micro-level components
underlying routines and capabilities: individuals, social processes, and structure and design. We
discuss how these components, and their interactions, may affect routines and capabilities. In
doing so, we outline a research agenda for advancing the field’s understanding of the
microfoundations of routines and capabilities.
For decades, the literatures on firm capabilities and organizational economics have been at odds with each other, specifically relative to explaining organizational boundaries and heterogeneity. We briefly trace the history of the relationship between the capabilities literature and organizational economics and point to the dominance of a “capabilities first” logic in this relationship. We argue that capabilities considerations are inherently intertwined with questions about organizational boundaries and internal organization, and use this point to respond to the prevalent “capabilities first” logic. We offer an integrative research agenda that focuses, first, on the governance of capabilities and, second, on the capability of governance.
