Today’s technologies have prompted firms to re-organize and relocate for competitive advantage:  the joint forces of ICTs and globalization have prompted a geographic redistribution of intra-firm activities and inter-firm relationships (e.g., increased firm presence in more distant geographic markets, and increasingly distant outsourcing and cooperative relationships, both domestically and abroad).  But, while firms are exploiting cost advantages from this physical reorganization, firms are also grappling with administrative and strategic tradeoffs (e.g., coordination and control challenges associated with dispersion). 

While it is known that the physical organization of economic activity affects economic performance, very little is known about general trends in the physical patterns of firms, contemporary trends, trends in non-manufacturing sectors, or trends at the firm-level (this is because economic spatial studies have tended to focus on successful industrial districts, and because studies with a broader scope have tended to focus on historical manufacturing patterns).  Furthermore, the managerial and strategic implications of these patterns have received relatively little attention in management research. 

Issues related to the physical organization of firms are relevant to a large and diverse population of economic players.  A large proportion of firms manage across distance both internally and in relationships with other economic players - for example, there is a trend toward increased outsourcing and cooperative relationships, both domestically and abroad, and an increase in multi-unit firms operating in several distinct geographic markets.  To give a sense of the numbers, there were over 17.6 million business locations (“establishments”) and over 7.2 million firms with employees in 2002 in the U.S. alone (U.S. Census Bureau; Economic Census), which are likely engaged in distance-spanning cooperative relationships; a rough estimate of all multi-unit firms in the U.S., based on a 5-8% frequency¹ would be 360,000 to 576,080 U.S. firms.   

Management inquiry into this connection between physical organization and firm outcomes is not new - in fact, it is of central concern in some of the key theoretical antecedents of modern management and strategy research.  For instance, in terms of strategy, the importance of physical organization is recognized in foundational thinking on administrative control, firm structure, and growth/capabilities:  Simon (1945) wrote of “place” as one of the bases for organizing for efficient administrative control, and argued that office layout is one of the important formal determinants of organizational communication systems; also, in his classic work on firm structure, Chandler (1962) made numerous references to the connection between geographical and administrative organization, illuminating problems arising when the two are disconnected; also, Penrose (1959) described how firms’ physical assets play an important role in the value creation process, via an interaction with human resources.²

Relevance for Economic Production & Performance

• First, physical organization is strategically  relevant:  various scholars have noted that the physical context can affect key organizational activities and processes (such as routines, social networks, coordination, worker productivity, financial market response, cultural climate, and innovation activities) which are linked to firms’ capabilities and competitive outcomes. 
• Notwithstanding these strategic effects, firms’ physical organization is financially important:  physical assets (i.e., Property, Plant & Equipment) represent a sizable portion of the balance sheet (Johnson & Keasler, 1993) and are typically the second-highest operating cost, after human resources (Veale, 1989).  Thus, research generating insights into the efficient and effective use of this capital-intensive organizational resource is an important area of inquiry. 

Relevance for Economic & Social Policy

• Firms’ physical organization is also relevant for policy.³   For example, insights into firm organization trends will help to better inform local and regional policies for attracting and retaining businesses; these insights can also help to inform policies on the geographic allocation of social spending and predictions of future infrastructure needs. 
• Furthermore, a better understanding of how firms’ physical organization is affected by globalization and outsourcing trends, and how this in turn affects firm competitiveness, provides a more nuanced picture of the competitive implications of participating in the global economy, and can help policy-makers better assess the impact of international investment and trade.

Relevance for Management Research & Theory:  Improving our understanding of organizations 

Despite the economic and strategic relevance of the physical context outlined above, management scholars have tended to not pay much attention to questions of physical organization and design (Pfeffer, 1997).  In contrast, other research streams (e.g  design/behavior, environmental psychology, architecture, and geography) have explored the relevance of physical context to organizational processes and business phenomena.  The time is ripe for building bridges between strategy research and these other research communities: 

• First, in academia in general, there is growing recognition that the integration of knowledge across disciplines is important and indeed vital, and one can find growing support within management academia for studying the physical context, as illustrated by the 2003 volume of Advances in Strategic Management (Baum & Sorenson) which is devoted to geography and strategy. 
• Also, exploring the physical context of organizational activities and how this impacts value creation is consistent with contemporary views on studying strategy and firms.  For instance, there have been recent calls for a situated understanding of strategy and a behaviorally-based understanding of the value of firm resources (e.g., Kogut & Zander, 2003).  Also, a strategic firm geography perspective responds to calls for a multi-level, intra- and extra-firm approach for studying firm strategy and organizational capabilities (e.g., Henderson & Mitchell, 1997).

As mentioned above, management inquiry into the connection between the physical context and organizational processes & outcomes is not new - in fact, it is of central concern in some of the key theoretical antecedents of management research.  For example:

• the scientific management approach, which was the dominant theory appearing in management articles in the early twentieth century (Guillén, 1994), viewed work activity as inextricably rooted within a physical work environment and had as a central component time-and-motion studies, which were focused on understanding and overcoming the constraints presented by the physical work context. 
• in socio-technical systems theory (e.g., Trist & Bamforth, 1951; Fox, 1995) organizations are modeled as interdependent social and technical systems, and this theory explicitly recognizes the physical environment⁴ as an important component of the technical system. 
• this interaction between human and material resources has been explicitly discussed by scholars interested in the sources of firm heterogeneity and advantage - indeed, Penrose (1959) identified this interaction as a fundamental source of value creation, and this idea has been reiterated in later discussions on individual and organizational knowledge (e.g. Nelson & Winter, 1982; Langlois, 1992).  Despite these theoretical underpinnings, recent reflections on firm theory (e.g. Jacobides, 2006) suggest that there has been a general lack of theoretical and empirical development in terms of the mechanisms and dynamics behind this value creation

______________________________________________________________________________________________________________________

1. The proportion of multi-unit firms varies by industry sector - for example, in Information services sector (NAICS 51), 7% were multiunit firms in 2002, 8% in Wholesale trade (NAICS 42), 5% in the Health care and social assistance (NAICS 62) sector, and 6% in Retail trade (NAICS 44-45). 

2. This idea has been reiterated in later discussions on organizational knowledge (e.g., Nelson & Winter, 1982; Langlois, 1992) and diversification (e.g., Farjoun, 1998). 

3. Indeed, Audretsch (2003) argues that the strategic management of places will gain increasing prominence in public policy.

4. In addition to machinery, this includes the work setting layout and ambient conditions (e.g. Emery, 1959).