The Modern Firm - Organisational Design for Performance and Growth

John Roberts (OUP 2004)

Firms may be considered as structures or as living organisms. Most organisational theory has tended to follow Alfred Sloan’s “strategy and structure” model, often leading to breakdown in the face of external forces eg IBM or as a result of human frailty, as at Enron. The firm as a living organisation develops along Darwinian lines, is reactive and adaptive rather than the creation of a blueprint. It obeys the laws of biology rather than those of physics. Firms are organisms – they are born, evolve and die. Most last fewer than forty years. However much their founders seek to design them and protect them, they only survive by adaptation and are exposed to predation and internal decay.

John Roberts has produced a very thorough compendium of the best organisational theory, supported by some well analysed case studies, eg BP and Nokia, and focussing on performance and growth. His thesis is that the effective use of economic principles and practices, reducing transaction costs and increasing efficiency, are potentially as important in improving performance and generating growth as strategic leadership, particularly in competitive markets. The key to success seems to lie in creating “fit” between organisational design and the strategy to exploit it, rather like tailoring a racing car to a gifted driver to produce a winning combination.

There is considerable discussion about the purpose of the firm. Many models are explored but the “primary answer” remains one of co-ordinating and motivating “people’s economic activities”. The idea that there may be a societal, even political, purpose – such as that underlying “Tomorrow’s Company” – is little in evidence. John Roberts’ firm is primarily an economic machine.

Leadership is seen to involve strategic recognition, vision, communication/persuasion and courage. Strategic recognition is the ability to recognise the need or opportunity for change. Vision is the ability to see and articulate a better future. Vision encompasses the essence of a better future – like the medieval stonemason who saw himself building a cathedral and not just chiselling stone. Vision needs to be communicated to be received, and shared to be persuasive. Courage is needed to undertake a distant and difficult task and to see it through vicissitudes to completion.

One difficulty with the concept of organisational architecture is the Darwinian nature of markets and the accelerating pace of change in modern society. Firms are increasingly adopting an open architecture to enable them to interact with customers, suppliers and a succession of partners. Outsourcing is but one new way of creating amoeba-like structures. Multi-skilling and multi-tasking, plus temporary employment are needed to meet fluctuating workloads. Firms survive through constant change and innovation, obsolescence is endemic and anticipation trumps adaptability.

Looking ahead we may see firms becoming more virtual, hiring assets and staff when needed, operating in consortia on projects, or pooling products and services to meet fluctuating demands. As retailers have captured market access for consumer goods, banks may come to dominate major projects (as the World Bank does already to some extent). The Internet will favour new models of user, with customers and suppliers doing most of the work (as with e-Bay). Business models will change with alarming frequency so that firms will be built like Japanese houses to reflect impermanence.

John Roberts has produced a very thorough model of the 20th Century firm, which is already obsolete. The firm of the future will be built round reputation and brands, not structure, and will constantly evolve to survive in a world which will no longer have the luxury of forgetting Darwinism.

Adrian Davies 6 September 2006