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Monday, December 14, 2009

Alfred Chandler

Life is an empty canvas on which the invisible morphs into the visible and visible dissolves into invisible, and so repeats the cycle of growth even in businesses.
Alfred Chandler
(1918 – 2007)
Alfred Du Pont Chandler, the noted global business historian and the former professor of  business history at the Harvard Business School, died of cardiac arrest on May 9, at the age of 88, in Cambridge. He wrote extensively – 25 books, written or edited – on management theory with an exclusive focus on innovation and generation of wealth. It is the chance discovery of the papers of his ancestor, Henry Varnum Poor of the Standard & Poor’s Corporation, who extensively analyzed the important industry of his day -  the railroad - that paved the way for young Chandler to take up studying history of big business organizations and in the process map the birth of “a new economic institution, the managerial business enterprise, and a new subspecies of economic man, the salaried manager.” His exploration of business history is so intense that a popular journalist in 1990 iconizes him: “B.C.” means “Before Chandler”.
In his Pulitzer prize-winning book, The Visible Hand: The Managerial Revolution in American Business, Chandler traced the emergence of the modern vertically-integrated, multi-unit enterprise operating under a single management in the US.   He convincingly argued in it that it is the “visible” hand of the American managers that has effectively managed raw material flows, production, marketing and new product development which have led to spectacular growth in sales, and profits, for that matter the very businesses, and in the process this newfound professional management   has replaced Adam Smith’s “invisible hand” of markets that was accredited as the coordinator of the economic activity.
In this book, Chandler has divided American business history into two distinctly different phases: One, pre-1850 and two, the post-1850 phase. According to him, the first phase represents the market economy where perfect competition was noticed; while the second phase, which continues to the present, represents ‘managerial capitalism’, and the beginning of it is the emergence of the railroad in America, which was the first modern enterprise that facilitated the development of other businesses by providing reliable, and dependable transportation, because of which mass production and mass retailing of goods across the country became feasible. It thus acted as a catalyst for the managerial revolution – vertical integration of a number of factories, sales offices, purchasing units, sourcing of raw materials, mass transportation, mass production using large batch processes, and mass distribution, all into a single business managed by full-time salaried managers. In the process of detailing the managerial revolution, he avers that “in making administrative decisions, career managers preferred policies that favored long-term stability and growth of their enterprises,” and in this regard the managerial “hierarchy” – proper division of responsibilities, conferring matching power to fully carryout the assigned responsibilities, putting in place a mechanism that checks if responsibilities are faithfully executed, prompt reporting of derelictions, if any, for immediate correction, collection of such information via daily reports without, of course, embarrassing the principal officers, etc., which as a whole constituted a system of general superintendent to ensure that the business is running smoothly without the delinquent – afforded a sort of “permanence”, and “power” to aim at continued growth. He cites the emergence of railroad, telegraph, and steamship that have all jointly made it possible for Rockefeller building the Standard Oil Trust by combining Standard Oil and 39 allied companies as a classic example of the post-1850 managerial revolution.
His other book – Strategy and Structure: Chapters in the History of the American Industrial Enterprise – is considered as the most important work ever written  by a business historian. Through the Harvard’s case method, he narrated the story of how Ford Motor, Standard Oil, General Motors, Du pont, Sears, and other familiar American corporates have become what they are – leaders, who mostly happened to be engineers graduated from MIT, wrestling to manage the growth and diversification of their businesses so effectively by creating systematized organizational structures rather than “management through chaos”. Chandler’s central argument in the book hovers around the Mobius loop of strategy driving the organizational structure, while the structure drives the strategy of an organization. He stresses the importance of seasoned leaders to instill an “espirit de corps” even in its non-technical staff.
Although Chandler’s argument of visible hand of management coordinating businesses to grow into giant-sized corporates through a process of vertical integration is vanishing in today’s digitized world, where modular and disintegrated model of production is slowly gaining prominence, his central idea of “ technological changes” broadly affecting  the relative efficiency of different modes of organizing economic activity” cannot be wished away. At best it can only be reinterpreted.
- GRK Murty


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