Bartley J. Madden - Value creation principles: The Pragmatic Theory of the Firm Begins with Purpose and Ends with Sustainable Capitalism

1. Chapter 1
2. Chapter 2
3. Chapter 3
4. Chapter 4
5. Chapter 5
6. Chapter 6

In Value Creation Principles, Madden introduces the pragmatic theory of the firm that positions the firm as a system fueled by human capital, innovation, and, at a deeper level, imagination. He challenges us to understand how we know what we think we know in order to better discover faulty assumptions that often are camouflaged by language. His knowledge building loop offers guideposts to design experiments and organize feedback to facilitate early adaptation to a changed environment and to avoid being mired in ways of thinking rooted in knowledge of what worked well in the pasta context far different from the context of today. His book explains a way of being that enables those who work for, or invest in, business firms to see beyond accounting silos and short-term quarterly earnings and to focus on capabilities instrumental for creating long-term future and sustainable value for the firm's stakeholders. I can't recommend this astounding book enough especially given its deep and timely insights for our world today.

John Seely Brown, former Chief Scientist for Xerox Corp and Director of its Palo Alto Research Center (PARC); co-author with Ann Pendleton-Jullian of Design Unbound: Designing for Emergence in a White Water World

In contrast to existing abstract theories of the firm, Madden's pragmatic theory of the firm connects management's decisions in a practical way to a firm's life cycle and market valuation. The book promotes a firm's knowledge building proficiency, relative to competitors, as the fundamental driver of a firm's long-term performance, which leads to insights about organizational capabilities, intangible assets, and excess shareholder returns. Value Creation Principles is ideally suited to facilitate progress in the New Economy by opening up the process by which firms build knowledge and create value, which is a needed step in revising how neoclassical economics treats the firm.

Tyler Cowen, Professor of Economics, George Mason University; co-author of the popular economics blog Marginal Revolution

Bartley Madden rightfully points out that both textbook and more advanced economic theories of the firm fail to address the concerns of top management and boards of directors. He offers a tantalizing pragmatic alternative that directly connects to quantitative changes in the firm's market value. His framework gives recognition to the importance of intangible assets, and his pragmatic approach is quite complementary to the Dynamic Capabilities framework that strategic managers implicitly and sometimes explicitly employ.

David J. Teece, Thomas W. Tusher Professor in Global Business, Faculty Director, Tusher Center for the Management of Intellectual Capital, Haas School of Business, University of California, Berkeley

Drawing upon a long history of experience and research, Madden integrates management theory and firm valuation in Value Creation Principles. He hypothesizes the foundational importance of managerial processes to sustain knowledge building proficiency and demonstrates its relevance through case studies of important firms. Absent a culture of purpose, respect, experimentation, and learning, innovative processes degrade and hinder firm competitiveness. He convincingly deviates from traditional accounting standards and bedazzling quantitative methods in developing the pragmatic theory of the firm that is well suited to the New Economy's reliance on intangible assets and human capital. Underlying the entire exposition is Madden's clear understanding of market-oriented choice and the limitations of rigid hierarchies and bureaucracies, particularly in the complex systems that we call firms.

Brian Singer, CFA, Partner, William Blair, Dynamic Allocation Strategies and former chairman of the CFA Institute

In Value Creation Principles, Madden applies a holistic, systematic view of the firm to connect finance to the broader issues of managing firms through the creation of intangible assets. He provides a life-cycle lens that reveals the economic logic that drives levels and changes in stock prices over the long term. Management priorities need to be attuned to a firm's life-cycle position. He explains excess shareholder returns at a much deeper level compared to the popular factor studies in finance, while offering a blueprint for future research. The key to excess returns is shown to be intangible assets, and especially unique brands, that favorably contribute to a firm's long-term, competitive fade of profitability. The book should be read by anyone concerned with expanding the contribution of finance to business.

Bobby J. Calder, Kelstadt Emeritus Professor of Marketing, Kellogg School of Management, Northwestern University

Bart Madden has written an important book rooted in systems thinking. Understanding a systems approach to value creation by business firms is at the heart of his Pragmatic Theory of the Firma theory that is focused on the practical tasks of knowledge building and value creation. An important insight from this book is the ongoing and dynamic connection between a firm's knowledge building proficiency, long-term competitive fade of a firm's profitability, excess shareholder returns, and the concept of firm risk that differs from CAPM's investor risk. Firm risk, in Madden's words, is about obstacles that interfere with achieving the firm's purpose, which includes broad stakeholder advancement. Value Creation Principles provides insightful guideposts for managements, boards, and investors, as well as providing new thinking on academic research regarding the purpose of the firm.

David R. Koenig, author of Governance Reimagined: Organizational Design, Risk and Value Creation and The Board Member's Guide to Risk

Value Creation Principles takes a holistic approach to how firms create value and maintain a competitive advantage. Knowledge building, systems thinking, and a strong sense of purpose hold the key. Bartley Madden's wide-ranging command of the evolution of the theory of the firm leads to an inevitable conclusion: knowledge building proficiency rooted in sustainable capitalism leads to progress for the firm and for the economy.

Michele Wucker, bestselling author of The Grey Rhino: How to Recognize and Act on the Obvious Dangers We Ignore

Bartley J. Madden

Copyright 2020 by the Bartley J. Madden Foundation. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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