Customer Reviews

The Modern Firm: Organizational Design for Performance and Growth

5 star:		(7)
4 star:		(1)
3 star:		(2)
2 star:		(1)
1 star:		(0)

 

 

This book nicely mixes perspectives from economics, organization theory, and strategic management. The writing style is lucid and accessible, unlike many books by academics. It is clear that Dean Roberts has been thinking about these issues for many years.

Even though he was trained as a classical economist, he seems to have shed some of the baggage that the neoclassical paradigm imposes. That is important to the relevance of his ideas in this age of the resource-based view of the firm (see the collected readings edited by Nicolai J. Foss), the importance of entrepreneurship and innovation (Schumpeterian/Austrian economics), and evolutionary economics (An Evolutionary Theory of Economic Change by Richard Nelson and Sid Winter, 1982).

In contrast to the traditional notion that firms within an industry are homogeneous and compete only on price, a stream of empirical research going back to 1991 (Richard P. Rumelt in Strategic Management Journal) has found that rates of return vary more within industries than across them. That makes the case for heterogeneity, not homogeneity. It also speaks to the importance of differentiation among firms. Most important, it opens up the discussion to such vital topics as a firm's unique capabilities, its routines, its culture, and its architecture, all of which Dean Roberts addresses in this remarkable book.

His perspective is not the final one, of course. What we know about that miraculous black box called the firm continues to evolve. But Dean Roberts has made a stunning contribution to what we know. In our own work valuing private equity, we use key precepts of this book every day. I recommend The Modern Firm without hesitation or qualification.

whilst there is certainly wisdom in the pages, the book could be much better edited and organised, e.g., some sections go 8 - 9 pages without any sub-headings, which could surely have made reading easier, a glossary will certainly help too, e.g. some words need to be reminded of their meaning: complementarity, risk-neurality etc etc., some footnotes are not neccessary, sometimes the footnotes are just some counter-examples or elaboration and should be included in the main body, and having footnotes at chapter end instead of bottom of page is always silly,

at places this book is hard to digest, i wonder if those at the Economist are already academics conversant with the subject, if real managers are to choose, i doubt if they would pick this as book of the year

The Modern Firm discusses the interrelations between organizational design, competitive strategy, and the business environment. This book is a very very difficult read. If you have read Good to Great and expect the read to be anywhere as easy as that then you are mistaken. This book is very dense and most of the readers will not be able to finish it. Economist reviewer perhaps has a wonderful background to read such stuff with ease (for having given the book of the year award) or should have atleast known the author and his ideas well. It could be good college text book for detailed read or a week long course by the author - but as a self-read I would rate it very low.

*** Update: 21 Jan 2011 ***

I had originally rated this book 3 stars. I have upgraded it to 5 stars now. Why? This book is difficult reading and needs time to read and understand. Only in my second reading did I really start 'getting' it all together. The systems based approach - think through every act you do for consequences (something I learnt the hard way in my business - where giving incentives in the wrong way hurt the company way too much). The author examines the relationship between organizational designs, strategy, and external environment and how organizations that are successful will establish patterns of fit among these elements in a holistic manner. Towards the end the author confesses that he doesn't have any 'best practice' fits all solution but that we (the practitioners) need to carefully listen to our business and respond appropriately. The book provides you the intellectual framework to approach the organizational design aspect along with the inter-relationship with strategy and environment - but we will need to apply it intelligently to our business. An absolute masterpiece!

The modern firm debates around the theme of organisation of companies.
Though not a long book it is rigorous and densely written taking more
time to read than just flipping through the pages.

The book has a simple structure in 7 chapters. The first two chapters
are a mere introduction to the book and to some general concepts. 3
and 4 are devoted to the core theory, and the last 3 are the practical
examples.

The two main topics of the book are: the nature and purpose of the firm
and the motivation of the firm. The first, discusses from a variety
of perspectives what is traditionally known as "make-or-buy", should
the company be more or less integreated; relating to the agency
problem and the Coase-theorem. Prof. Roberts does not give any
solution but a framework to decide depending on each ones case. Since
some activities cannot be externalised in a simple manner, the second
tackles the issue of motivation, exposing the main factors to be
accounted into motivating employees and linking those to the design of
a firm structure.

5 and 6 are the practical part of the book where the author divides
companies in two camps: those organised for performance and those
organised for growth. Whilst there are not that many examples nor
statistical relevant data, the author makes a strong point that both
goals cannot be achieved with the same structure since control
mechanisms, goal-setting, etc. might be completely different in each
onset. The last chapter reminds the role of management in the decision on
structure and its reponsibility.

The book manages in its last chapters to make a good balance between
readibility and structure analysis to bring its points home. Readers
prefering a more scholastic view on the subjects of chapters 3 and 4
might prefer a book like "Economics of Strategy" from Dranove et al.

There is almost a whole chapter in this book that discusses BP's organizational design and system of performance contracts as a great implementation of Roberts' ideas. John Browne, former CEO of BP, endorsed the book. Browne and other executives have interacted with Roberts in sessions of executive training at Stanford Business School, where Roberts is based.
BP, as everybody is well aware now, has been prone to major failures, the most recent of which was the Gulf of Mexico oil spill, but also the explosion of a refinery at Texas City in 2005. The US based Chemical Safety Board and academic Andrew Hopkins ( in his book Failure to Learn) have convincingly argued that the organizational structure of BP, and in particular the system of performance contracts put in place at BP, contributed to the Texas City disaster.
In view of these facts, the claims made by John Roberts in this book should be read with caution.

Roberts is going one step further than gathering scattered literature information
and compile them to a structured book. He provides his own concepts and ideas
on how to change the current traditional organizational design and modernize it
to suit the needs of an evolving and innovative firm that competes in a market
that changes every year.

I really enjoyed his book although, I found the publication style, pages and fonts
like reading a novel. I would prefer it to have had a sense of better quality when
it comes to its design as this would contribute to better reading.
Nevertheless, these are just cosmetic stuff and the essence is that really counts.

To put it simply - a good mix of what every firm needs to do and how firms can do 'stuff' that makes them unique.

I suppose that this book would hardly require a review being rated by the Economist as the best business book of 2004. Having not read as widely as the writers of that esteemed publication I cannot confirm the rating. What I can say however is that this is a book with some really good ideas about how to think about company organisation which is the topic of this book. The initial parts of the book do include some economic theory which some readers may find quite dry. I would urge you to persevere as it does get more interesting as you go along. Some of the concepts are pretty obvious - others not quite so. All in all an excellent book.

Roberts presents a useful primer on the modern business firm. In particular the chapter on "The Nature and Purpose of the Firm" gives a solid overview of the standard arguments and theories. The problem is that by sticking so closely to standard thinking Roberts misses an opportunity to broaden the discussion about what we call the firm. For instance: he hints at a disatisfaction at the severe limitations neo-classical economics places on anyone trying to integrate business strategy with broader economic theory [e.g. his brief critique of Alchian and Demsetz], but then quickly falls into line and refuses to break ranks with it. As a result the book becomes more a review of business school case studies than an attempt to theorize about the firm.

Even with this criticism the book is worth reading: because it is a solid introduction it highlights just how far we have to go to get a theory that can tie in with practise.

This work sums up most of the salient advances in management theory and microeconomics of the last decade. Before you read it, you should have some understanding of game theory and strategic management, otherwise you may miss the significance of the arguments put forward. For the prepared reader this book is a compendium of thinking on creative management at the cutting edge of this discipline.

I have the habit of marking my books in two ways. First; I highlight passages to make important concepts easier to find again. Second; I mark my books with tags so that the most important of these can be accessed rapidly without having to page through the volume. The exercise of thinking about the choices I shall make for highlighting and tagging is a way of helping to consolidate the material in my memory; and - ironically - this exercise at times makes the highlighting and tagging redundant.

Now, what am I to do when the book is so rich in material, when it is comprised of such fertile intellectual soil, when so pregnant with insights and meaning, that almost every paragraph needs to be highlighted, and every second page tagged? Of course, I lower the threshold for highlighting and tagging. And, to ensure that much rich material is not forgotten for its quantity, or buried for its density, I read this book a second time.

Only one negative note: Roberts is given to outlandish Americanisms. Anyone sensitive to good English usage will find it difficult to prevent the occasional grammatical shocks from spoiling their reading pleasure. For example; "Absent efficient Coasian bargaining or complete contracting, coordinating across business to handle the externalities will require cooperation in the sense used in Chapter 3..." What he means is: "In the absence of efficient Coasian bargaining..." 'Absent' is not a prepositional phrase. It is an adjective. What a pity it is that the copy editors of the Oxford University Press didn't repair these mistakes. They give rise, however, to aesthetic problems for the most part. Once the reader becomes aware of Robert's idiosyncratic linguistic lapses, his meaning becomes clear.

For its content, the book is strongly recommended.