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 / Spring 2007 / Issue 46(originally published by Booz & Company)


Books in Brief

In his introduction, James underlines the ongoing importance of family businesses to capitalism. The rest of the book is organized into five phases, or “ages,” in the development of these enterprises: those of the individual, the corporation, “organizationalism,” the postwar miracle, and globalization. Within each of these ages, James traces the history of each family enterprise, weaving together the economic and political conditions that they encountered. This makes for a complex narrative construction, and, as the cast of characters grows in each family, it can be difficult to keep track of who is who. Fortunately, this does not interfere with the author’s central themes.

James finds no evidence for the so-called modernization model. As proposed by Alfred Chandler in The Visible Hand: The Managerial Revolution in American Business (1977), this model views the family firm as an early childlike stage in an organization’s life that will eventually give rise to a multidivisional public company managed by a technocratic elite. Instead, we should think of the family firm as capitalism’s “default condition,” the institution to which it reverts when states stumble and markets fail. As the author shows in the histories of all three families, the crises that accompany such events also create family solidarity, quelling more fractious elements at a time when organizational cohesion and focus are most important. Certainly there are constraints on the kinds of businesses in which families may be most comfortable — generally growth industries without very high capital requirements — but there are also businesses in which the commitment and tradition that a family brings to a firm resonate with customers who want a relationship, not just a transaction.

Reinventing the CFO: How Financial Managers Can Transform Their Roles and Add Greater Value
By Jeremy Hope
Harvard Business School Press, 2006
272 pages, $29.95

In his last book, Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap (Harvard Business School Press, 2003; reviewed in s+b, Winter 2003), management researcher Jeremy Hope made a persuasive case that in most firms, the traditional annual budgeting process is a powerful barrier to fundamental change. He recommended that the two prime functions of budgeting, financial forecasting and performance management, be separated, and that fixed performance contracts based on internal targets be replaced with stretch goals based on relative improvement measured by external benchmarks.

In Reinventing the CFO: How Financial Managers Can Transform Their Roles and Add Greater Value, Hope explores the implications of this advice for the chief financial officer. He begins by outlining the pressures that limit today’s CFOs: Corporate success is no longer driven by physical assets and financial capital but by intellectual assets and human capital; the new regulatory environment is adding pressure even as shareholders become more demanding; and internally, CFOs are being overwhelmed by too much detail and complexity, so they cannot forecast accurately or deduce exactly how to cut costs. Systems designed to track transactions do not lend themselves to supporting frontline decisions. The author contrasts two visions of how to improve the situation, dubbing them “A” and “B,” perhaps in tribute to Douglas McGregor’s Theory X and Theory Y, which they resemble closely. The first, Vision A, is based on assumptions of individual self-interest and the efficacy of “carrot-and-stick” management; it is a centralized model with stability and control imposed from the top. Vision B, on the other hand, is rooted in greater trust and cooperation; it encourages frontline operators to continually improve processes in order to increase value for customers and shareholders alike. Vision B’s emphasis is on adaptability and growth rather than stability and control.

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