Organizations and language games

We borrow Wittgenstein's concept of "languagegames" to create a theory of action. The language-games framework integrates the economic model of rational maximizing and the sociological model of rule following. Language games are subject to a process of natural selection. Strong competition creates a "tight" evolutionary filter. When it does, agents are constrained to act as if they were rational. Traditional economic logic applies. When it does not, agents are free to choose idiosyncratic actions. Sociological understanding is required. We combine the language-games framework with the concept of "modular system." In a modular system, parts are grouped to minimize interaction between groups. The parts in one module interact with those of another module only through relatively formal "interfaces." Large firms are modular systems, and so is the larger social system, including the division of labor. Combining the language-game framework with the idea of modular system helps us explain firm growth. A charismatic leader founds an enterprise and places his interpretive framework in a privileged position within it. The firm is not a modular system; it is not "decomposable." Firm growth leads to a greater division of labor within the enterprise and to a more modular organization. Modularity helps the larger enterprise function smoothly, even when employees have conflicting mental models. Success in transforming small firms to large firms depends on finding the right modular structure for the enterprise. © 2001 Kluwer Academic Publishers.