How Firms Really Work
A Social Sciences Perspective
1st Edition
Published on 30. March 2026
XXV, 350 pages
978-3-11-222625-4 (ISBN)
Description
To perform effectively in any leadership position in a firm you need to first understand how firms actually work. This book, built on three decades of thinking, researching, and engaging with practitioners, sets out an integrated social science perspective that takes as its starting point that all firms are complex open systems.
How Firms Really Work explores a wide range of topics related to
- The firm's value system, transformation risk and the role of knowhow in the value creation process
- The firm's lifecycle including co-evolution of firms and markets
- Managing hybrid configurations
- The impact of technology on value creation and value capture
With its extensive use of figures and case examples to illustrate its points, this book offers a comprehensive yet broad perspective on the reality of modern firms. Scholars, researchers, and students will find the bringing together of previously unconnected bodies of knowledge into a coherent account of the birth and development of a firm to be very insightful, while professionals armed with the book's perspectives will be able to assume leadership positions with more confidence.
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Cliff Bowman , BA (Econ), MBA, PhD Emeritus Professor of Strategic Management at Cranfield University in the UK. He has been researching, teaching and consulting in the strategy field for over three decades and has published fourteen books, forty refereed journal articles, and presented fifty conference papers. He has held leadership positions in three UK business schools and had non-executive director roles in two academic publishing firms. He co-founded Stratevolve, a strategy consulting firm, with Paul Raspin in 2000. Prior to entering academia Cliff was an economist with the UK Civil Aviation Authority working on airport provision, route licensing and air fare regulation.
Content
- Intro
- Preface
- Contents
- Chapter 1 What is Value?
- Why Does Someone Buy Your Bread?
- Value Creation and Value Capture
- Transformation Risk
- Transformation risks, and attempts to reduce them, shape the way firms work
- The Quest for Control
- Asset Access and 'Capital'
- Value Forms and Value Processes
- Quadrant A: Use Value Creation
- Quadrant B: Use Value Capture
- Quadrant C: Exchange Value Creation
- Quadrant D: Exchange Value Capture
- What Drives Action in a Firm?
- The Plan of the Book
- Chapter 2 Complex Systems and Structuration
- What is a Complex System?
- Process Complexity
- What is an Open Complex System?
- The Features of Complex Open Systems
- Emergence
- Firms as Complex Systems
- Implications for a Theory of the Firm
- Complex Responsive Processes
- Structuration: A Theory of Social Action
- Cognition and the Structuration Process
- Discursive Consciousness
- Practical Consciousness
- Unconscious Motives
- Reflexive Monitoring of Action
- The Nature of Flow
- Rules
- Key Characteristics of Rules
- Role of Rules in Structuration
- Structuration and Power
- Material Resources
- Authoritative Resources
- Routines
- A Value System Self-organizes
- Organizational Becoming
- Organization as a Process
- Key Concepts
- Implications
- Chapter 3 The Birth of a Firm
- The Scope of the System
- So What is a Firm?
- Most Start-ups Fail
- Entrepreneurs
- Chapter 4 The Value Capture Process
- What Determines the Price in a Deal?
- Anticipated and Realized Use Value
- Connecting PUV, Price and Cost
- The Firm's Value System
- Power and the Firm
- The Value Capture Process
- Power and Dependence
- Emerson's power dependence theory
- Resource Dependence Theory
- Deals
- Dependence Relationships
- Four Types of Dependence Relationships
- Deals Are Complex Processes
- Power over Employees
- Supplier Value Capture
- What Affects the Bargaining Power of Employees?
- Chapter 5 Power Relationships
- Power Over Suppliers
- Power Over Customers
- Changing the Scope of the Firm
- The Next Best Deal
- An Absence of Competition
- Power over Suppliers and Customers
- Valuable Outcomes from a Deal
- Perceived Use Value: Extending the Concept
- Competitive Capabilities
- Case A
- Case B
- Case C
- Chapter 6 Value-Creating Knowhow
- Forms of Knowhow
- Entrepreneurial Knowhow
- Professional Knowhow
- System Knowhow
- Interactive Knowhow
- The Knowhow Reservoir
- How Knowhow is Created: Codified and Tacit Knowledge
- Enablers of Knowhow Development and Performance
- How the Pace of Learning is Reduced
- Chapter 7 Assets and Capabilities
- The Resource-Based View
- A Systemic View of Competitive Advantage
- Entry Assets and Capabilities
- Strategic Assets
- Tangible Assets
- System Assets
- Knowledge Assets
- Relational Assets
- Cultural Assets
- Assets, Capabilities and Power Relationships
- Chapter 8 Managing Assets
- Context and Asset Use Value
- Asset Malleability
- Asset Appreciation and Depreciation
- Intended Development
- Unintended Mutilation
- Luck
- Creative Destruction
- Competitive Disadvantages
- Activity Configurations
- Valorizing Activity
- System Maintenance Activity
- System Renewal Activity
- Four Activity Configurations
- Asset Transfer
- Transparent Assets
- Transparent Asset, Ambiguous Context
- Complex and Ambiguous Assets
- Value Retention
- Chapter 9 Controlling Action
- Control Through Mutual Adjustment
- Control Through Direct Supervision
- The Effects of Growth
- Routinization
- Standardizing the Work Process
- Standardizing Skills
- Emerging Configurations
- Complexity in the Core Task
- Combining Task Complexity and Environmental Dynamism
- The Entrepreneurial Organization
- The Project Adhocracy
- The Machine Organization
- The Professional Organization
- Project-Network Organizations
- Emergent Capabilities
- Control Mechanisms and Knowledge
- Mutual Adjustment
- Direction from the Middle Line
- Work Process Standardization
- Target Setting
- Standardizing Skills and Norms
- Controlling Action: A Continuum
- Strategic Decisions
- The Costs of Control and Resilience
- Chapter 10 The Life Cycle of the Firm
- Holling and Gunderson's Adaptive Cycle
- Growth
- Conservation
- Release
- Reorganization
- The Adaptive Cycle of a Firm: an example
- Self-Organization
- Self-regulation
- Lock-in
- Control Mechanisms over the Life cycle
- Knowhow Evolution
- Business Priorities over the Cycle
- Mix of Action Over the Firm Life Cycle
- Renewal Loops
- The Transition to Lock-in and how to avoid it
- Changing Configurations
- Summary Table
- Chapter 11 Market Life Cycles and Panarchy
- The Adaptive Cycle of a Market
- The Adaptive Life cycle and the Quest for Control
- Entry Capabilities over the Market Life Cycle
- The Renewal Loop: Mobile Phone Market
- Isomorphism
- Co-evolutionary Interactions Between the Firm and Market
- Coevolutionary Lock-in
- Connectedness vs Resilience
- Disruptive Innovation
- Co-evolution over the Market Life cycle
- Chapter 12 The Renewal Loop and Hybrid Configurations
- 'Natural' Firm Trajectories
- Firm Renewal
- Ambidexterity
- Augmenting 'Entry' Capabilities
- A Machine+Project Hybrid
- Professional+Project Hybrid
- Renewal in a Professional Configuration
- Renewal in a Project Organization
- Hostile Markets Can Drive Out Hybrid Configurations
- Can a Firm Adopt any Hybrid?
- Chapter 13 How Firms Change
- A Complex Systems Perspective on Organization Change
- 'Deep' Structure
- Panarchy and Change Processes
- 'Snapshots' of Change Situations
- Structure
- Incremental Change
- Hostile Market
- Benign Market
- Strategic Drift
- Crisis
- External Appointment to CEO
- 'Punctuated Equilibrium'
- Change Dynamics: The VSR Process
- Variation
- Selection
- Retention
- Structure and Action Variation
- Emergence
- Change Dynamics
- The Start-up Situation
- Response to Crisis
- Destabilizing a Locked-in System
- 'Owned' and 'Unowned' Change
- Chapter 14 Cognitions, Context and Action
- Frames and Schemas
- A 'VUCA World'?
- Context: Complexity and Volatility
- Cognitions: Uncertainty and Ambiguity
- Causal Ambiguity
- Linkage Ambiguity
- Characteristic Ambiguity
- Developmental Ambiguity
- Deliberate Ambiguity
- Combining Cognition, Context and Action
- Action
- Aligned Action
- A+1 Low complexity, low volatility
- B+2 high complexity, low volatility
- C+3 low complexity, high volatility
- D+4 high complexity, high volatility
- Misaligned Action
- B+1 Errors
- D+1 Errors
- A+4 Errors
- Disruptive Action
- Cognitive Complexity
- Some Further Managerial Implications
- Chapter 15 Experience and Decision Making
- Who Replaces the Entrepreneur?
- From Overseer to Entrepreneur?
- Ascending the Hierarchy
- Who Wants to be a CEO?
- Knowledge in the System vs Knowledge of the System
- Cognitive Inertia
- Decision Making as a Complex Emergent Process
- Tensions Between Different Forms of Knowledge
- The Role of Experience in Decision Making
- The Power of Ideas vs Power + Ideas
- Management Fads and Fashions
- Theory X Assumptions
- Theory Y Assumptions
- 'Heathrow' Books
- Chapter 16 Strategy Processes
- Contrasting Strategy Processes
- Strategic Management: Mode A
- Strategic Management: Mode B
- A Narrowing Scope of Choices and Options
- Imprinting
- Path Dependence Theory
- Preformation Phase
- Formation Phase
- Lock-in Phase
- The Forces that Shape Action
- Managers' Intentions
- Evolutionary and Invasive Change
- Strategic Plans can be Path Dependent and Invasive
- What Do We Need to Know to Manage Strategic Change?
- Strategy Processes as Alignment Mechanisms
- How Strategic Intent Can Change Over the Life Cycle
- Turnaround Strategies
- What is the change?
- The Change Process
- Cause of Decline: Firm or Market?
- Type X and Type Y Firms
- Guided Emergence: A Strategy Process for a Complex World?
- Chapter 17 Executive Pay: Is there a problem?
- Causal Ambiguity and the Identification of Value Contributions
- The Rewards Paid to Executives
- Governance
- Power Relationships and Executive Pay
- Executive Pay: Four Types of Deal
- Causes of Remuneration Inflation
- The Social Construction of a "Market" for Executive Knowhow
- The Determination of Executive Remuneration
- The 'Real' Value of Executive Knowhow
- The Social Construction of the Value of Executive Knowhow
- CEO Performance: Mergers and Acquisitions
- Are Executives Entrepreneurs, Agents or Stewards?
- CEO Commitment to the Status Quo
- Executives as Stewards of the Business
- The Nature of Managerial Work
- Founder-led Companies
- The Knowledge Requirements for Effective Leadership
- Problem-solving through Understanding the Past and the Present
- Chapter 18 The Role of Technology in the Creation and Capture of Value
- The evolving technology of pin manufacture
- Coordination: Market Transactions or Mutual Adjustment?
- Sources of Efficiency
- Asset interactions
- Technology Evolution
- Technology, Power and the Emergence of the Firm
- The Market Efficient Unit of Interaction
- Asset Leverage
- Technology, Coordination and Value Capture
- Technical Efficiency and Value Efficiency
- The Impact of Artificial Intelligence on the Firm
- Technical Efficiency and the Scope of the Firm
- Chapter 19 Corporations
- The Multi-Business Context
- Synergy Strategies
- Diversifying and Decentralizing
- The Costs of Synergy
- Comparing the Seven Synergy Strategies
- The Default System
- Co-evolutionary Dynamics in Multi-business Corporations
- Role of Variation, Selection, and Retention
- Reciprocal Influence
- Four Co-evolution Engines
- Naïve Selection
- Managed Selection
- Hierarchical Renewal
- Holistic Renewal
- Vertical Scope: Make vs Buy?
- Hold-up
- Vertical Scope Choices
- Extending Vertical Scope
- Corporate Renewal
- Mergers and Acquisitions
- The Acquisition Process
- Corporate Venture Capital Units
- Alliances and Joint Ventures
- The Separation of Ownership and Control
- 'Managing' the Share Price
- Leveraged Buyouts (LBOs)
- The golden age of leveraged buyouts
- The Impact of Debt
- Modelling The Evolution of Corporate Configurations
- Chapter 20 A Capital Perspective
- What is Capital?
- Capital as an Institutional Power Relationship
- Capital consists in a configuration of institutions that enables group B to capture value created by group A
- Value Creation, Value Capture and Value Distribution
- The Value Distribution Process
- Concentration of Capital
- Firm vs Capital Perspectives
- Capital Strategies
- The Capital Strategy Process
- Impact of Capital Strategies
- We're All Capitalists Now?
- Deploying the Capital Perspective
- Ownership and Involvement
- Employee Involvement
- Alternative Forms of Ownership
- Route A: From Profit Seeking to Partnership
- Route B: From Public Service to Profit-Seeking Firm
- Concluding Comment
- Appendix 1
- Theories of Profit
- This appendix explores theories of profit and explains the approach to profit that underpins the book
- Theories of Profit
- Payments for Entrepreneurial Acumen
- Profit as Payment to 'Capital'
- Scarce Resources
- 'Commodity Inputs' that Create, or are Scarce Resources
- Asset Access Payments
- Asset Access Payments and Perceived Dependence
- Summary and Conclusion
- Appendix 2
- Dansk Transcription
- Appendix 3
- Modelling The Evolution of Corporate Configurations
- Findings
- Conclusion
- References
- List of Figures
- Index
