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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