Breaking the industrial mould

INFORMATION AND ORGANISATION: A NEW PERSPECTIVE ON THE THEORY OF THE FIRM. By Mark Casson. Clarendon Press, Oxford, 314pp, Pounds 40.00. - ISBN 0 19 829232 5.

This is an ambitious book. Mark Casson's aim is nothing less than to recast economic and industrial analysis in terms of an information system, to counterbalance the more conventional view of the economy as a system of material flows.

The traditional view of the economy is one where flows of factor inputs (land, labour etc) are used by firms to produce goods for households. Casson's view is that of an economy as a system of structured information flows effected by institutions and firms which specialise in processing the information needed to allocate resources properly.

Of course, the role of information in the economy and in firms has long been examined by economists, and Casson's review of this literature is his starting point.

Casson's thesis is that economic structures are not given but change continually, and that external shocks and shifts in demand and supply require efficient information processing systems at the level of the economy. He argues, for example, that the organisation of the firm must be designed to provide early warning of problems, to diagnose faults and to respond as quickly as possible. As Casson puts it, "both households and firms need to maintain homeostasis in a stochastic environment".

Developing these ideas and putting the quantity, quality and cost of information at the heart of the analysis, Casson throws new light on old issues, including the nature of the firm, labour contracting, business strategy and location issues. Firms are seen as specialised decision-making units whose function is to improve co-ordination by structuring information flows. Accordingly, sustainable competitive advantage rests on a comparative advantage in handling information of uncertain quality. To illustrate, he suggests that where supply conditions are more volatile than demand then the firm may be "production" rather than "market-led".

Casson's analysis mirrors similar debates in business strategy studies. "Knowledge-management", and the ability to develop distinctive strategies from information that is available to all businesses is an increasing focus of study. The issue for firms is whether they can interpret the information to develop new business goals faster than their rivals.

While the book is written for a general audience it comes largely from an economic perspective. Students of industrial economies and economic history will find it particularly interesting, although there is much that will be useful for students of organisational behaviour and marketing.

The book is both stimulating and persuasive. It shows how the costs of collecting and communicating information internally structure institutions, and shape their positioning and strategies externally.

Tim Walsh is director of international affairs and business strategy, Royal Mail International.