This doesn't explain "Theory of the firm" - https://en.wikipedia.org/wiki/Theory_of_the_firm.
Employees shouldn't theoretically exist - everything should just be subcontracted, but for some reason firms that employ people (with fixed time contracts) usually do better than some kind of virtual company that just subcontracts everything out (essentially managing by KPIs).
Companies don't have perfect plans, contracts, and KPIs, and never will, unless someone like Jeff Bezos manages to turn the extraction of profit from human assets into an exact science in the company.
Fixed time employees have to hit their deadlines and also have some slack time to use their initiative. KPIs effectively means a much more rigid adherence to a plan, rather than trusting employees to invest their time at work on things that the employee (not their boss) thinks is valuable, with minimal friction. I guess this will be changing though, since employees with slack time can no longer be trusted to hopefully work on something that's beneficial for the company.
> since employees with slack time can no longer be trusted to hopefully work on something that's beneficial for the company.
This is firmly the fault of the company(ies). When raises are so few or so little that the only way to help yourself is to change companies, or when despite your "dedication" to the company you are afraid of layoffs at anytime, you aren't going to care about the benefit of the company and are solely looking after your own interests.
Companies expect loyalty but give none back in return anymore, and employee attitude now is a direct result of the company's behavior.
> for some reason firms that employ people (with fixed time contracts) usually do better than some kind of virtual company that just subcontracts everything out (essentially managing by KPIs)
I think you'll find plenty of real world reasons if you listen to the experiences of employees and contractors.