Book review: a cultural theory of industrial organisation
Borges meets ACX
A Cultural Theory of Industrial Organisation by Luis Pedro Coelho is an interesting book. On the one hand, it is long (897 pages, although that over 200 pages of appendices) and detailed (see the afore-mentioned 200 pages of appendices); on the other hand, it does not exist.
The reason it does not exist is not because it could not exist. The reason is does not exist is that Luis has a day job and kids. The reason that it could exist is that its thesis is fundamentally correct.
Since it could exist, it does, in a platonic sense, exist.
In fact, I borrowed a copy from the Library of Babel and this blogpost is a review of A cultural theory of industrial organisation by Luis Pedro Coelho.
The central thesis is stated right at the start, in the table of contents, in the form of chapter titles:
Organizational culture differs between organizations
Organizational culture primarily follows organisational boundaries
Certain activities are best matched with certain cultures
Complex products that we want from our economies often require multiple steps
These individual steps may best be served by different cultures
The conclusion is that the best outcome is when production is split into organizations where organizational culture can be kept cohesive and inter-firm negotiations control the boundaries between them.
The book is a mix of hard science and airport-style narrative, as if the author could not decide whether he was writing for academics or the airport business lounge. The result is a bit incoherent and two books would probably have been better: write one book for academic gravitas and the other for the business lounge and the speaking invitations that bring in the money.1
Organizational culture differs between organizations
This seems like a simple enough proposition, even obvious in retrospect. Even in nearby industries, there are companies that will obsess about high quality and others that will obsess about low prices, like how McDonald’s can never be Mugaritz even though they are both restaurants. The author recounts how big pharma tries to recruit by bragging about their pension plan, while biotech recruits by bragging about all their cool science.
This chapter is clearly more business-lounge, full of cute, badly-sourced anecdotes. Perhaps the author felt he didn’t need to really research the subject, but a few quantitative studies would have really fleshed it out.
Organizational culture primarily follows organisational boundaries
I feel that this is crux of the thesis and the book. It is the one element in the thesis that is non-obvious and every conclusion depends on it.
It is a bit more theory-heavy. It cites and heavily borrows from René Girard, which in 2025, no longer feels as fresh as when the book was written. Nonetheless, it is true that it becomes very hard to have parallel status hierarchies in a single organization. Companies exist for centralised control and that is in deep tension with decentralised status.
Certain activities are best matched with certain cultures
This is again, full of anecdotes, because the author is—again—making a uncontroversial point. Mugaritz will never be able to sell you a full meal for $15 and no McDonald’s will get even a single Michelin star. They both excel at what they do, but they are doing very different things.
Complex products that we want from our economies often require multiple steps and it may be better to produce them in different cultures
This chapter is back to theory, now even mathematics. The author shows a simple mathematical model, where there are transaction costs (the ones that firms reduce, per Coasean theory) and costs related to cultural mismatches (i.e., asking a McDonald’s franchise to produce fine dining). The model is enhanced with some empirical in identifying the cost of cultural mismatches.
This leads to a simple model for when acquisitions and merger will go well: if the transaction cost is greater than the cost of cultural mismatch, then the merger of the two institutions will work!
Returning again to the examples of biotech and pharma. In the author’s model, the separation between the nimbler, smaller companies who do most of the early-stage development and the big players who then produce and market the final product at scale (which requires incredible efforts at regularly compliance).
My personal example would be that I would like the local chef to be creative, while appreciating that the logistics cold chain that delivers to their restaurant be run with a focus on boring, repeatable, reliability.
Summary
Overall, A Cultural Theory of Industrial Organisation is a thought-provoking book. While some sections feel incomplete and the empirical evidence preliminary, the central idea—that cultural compatibility significantly impacts industrial effectiveness and that this should serve as a guide—is compelling enough to shift how we view mergers, innovation, and specialization. Despite imperfections and its non-existence, it does give readers a valuable intellectual toolset. Next time you browse the Library of Babel, you might want to borrow a copy.
As the saying goes, academic prestige does not pay for groceries.