Modern Business in Comparative Perspective - Essay Example

Modern Business in Comparative Perspective Table of Contents Introduction 3 Managerial Enterprise 3 Personal Capitalism 6 Business Groups and Networks 6 Chandler’s Concepts to Explanations of Chinese Business 8 Comparison Between Chandler’s Core Ideas And Concepts Of Porter 9 Conclusion 10 References 11 Introduction Alfred D. Chandler’s has developed the model of “business enterprise”. The model is related to strategic management and so has resulted in the development of the large-scale industrial enterprises. The business enterprise model focuses on organisational innovations that in turn results success of the organisation in the long run. The paper analyses the extent to which the model developed by Chandler explains the competitiveness of the economies. The concept of competitive advantage suggested by Porter and Chandler has been presented in the paper. According to Porter, a firm develops competitive advantage in producing a good or service that determines the extent of success of the respective firm (Asif & et. al., 2015). On the other hand, according to the managerial concept developed by Chandler, firms use marketing and production skills to gain competitive advantage and to gain success in long run. According to the business model developed, the success of an organisation also depends on organisational capabilities as well as technology and marketing techniques used efficiently (Chandler & et. al., 2009). The concept of personal capitalism has been explained in the paper and its impact on British industries. Managerial Enterprise The managerial enterprise concept has been evolved from the “Theory of Firms” as proposed by Chandler. The theory of firms is linked with various managerial concepts as used in the organisations. The theory is developed with respect to large firms to explain the reason behind success. The Chandler’s model comprises of economic components that explains the causes behind the existence of large managerial enterprises. In order to develop long-term success it is essential to expand organisational capabilities with respect to professional skills. According to the “Visible hand” concept developed by Chandler the large firms exists because of increased investment in managerial hierarchy of the organisation. Such investments results into productivity gain that in turn results success for the organisation (Bucheli & et. al., 2010). It has been further stated in the theory that managers of an organisation face difficulties in predicting the market demand. The theory also analyses the natures of investment made by the firms. According to the concept proposed by Chandler the firms should invest in production facilities to exploit the economies of scale. Apart from the need for technological development, it also focussed for the success of the large firms in the long run. A further investment in marketing and distribution of product is essential to raise the volume of sales with respect to the production capacity of the firms. The higher authority of the organisation takes the investment decisions for greater effectiveness. Therefore, it becomes essential to invest in managerial hierarchy. The model states investments in organisational hierarchy are essential to develop further plan to increase future sales and increase sustainability (Chandler, 1997; University of Leeds, n.d.). Strategy can be defined as the direction that helps an organisation to determine the goals as well as objectives in the long run. Strategy also defines the measures and actions taken by the organisation to achieve the concerned goal and objective. On the other hand, structure defines the level of hierarchy in an organisation along with its effectiveness. It is worth mentioning in this context, that structure of an organisation is equivalent to a network that involves communication between employees and the higher authority. Chandler’s statement “Structure follows strategy” means that strategies are developed according to the structures of the organisation that comprises of human resource, process of working, technology and many more (Kavale, 2012; Wolf & Egelhoff, 2001; Mathews, 2000). According to Chandler’s concept of business enterprise, 20th century was marked by the development, which implies more number of industrial sectors was flourishing. Increasing industrial growth was the key factor for the actively transforming economic patterns and for its growth (Chandler, 2003). Chandler’s concept of business management focuses on the development of management widely for sustainability. Subsequently, a ‘nationally integrated market’ was developed in the United States in 20th century. Moreover, in order to meet the market demand ‘vertically integrated strategy’ along with changes in functions of department was implemented. A centralised structure of department was framed and adopted by business, which was named as U-form as stated by Chandler. The development and segmentation of new markets in early 20th century resulted in the implementation of new business strategy for example product diversification and ‘multi-divisional form’. The implementation of new management structure has resulted in the development of corporate structure. Moreover, the division between management and ownership has influenced the development of new managerial hierarchy along with group of new professional managers. The US business firms has adopted the multi divisional form and new form of investment that has resulted rapid growth since 20th century (Lazonick, 2010; Smith, 2006; Baumol, 1994). According to the Chandlers concept of managerial development, the implementation of the system of management in the business throughout the world further assist to develop the concept of managerial capitalism. During the period of First World War, the large-scale business enterprises were developed throughout Germany and the United States. The organisational structures were diverse in different nations. For example, in Britain, the business enterprises were centrally coordinated following a pattern of H-form and in France; the industrial groups were financially integrated. Managerial capitalism was introduced in different economies but was successful in the United States and Germany, and was more efficient in Japan (Zurndorfer, 2006). Personal Capitalism The personal capitalism concept was introduced in the 20th century when the British industry was performing below standard. During the period, the concept of managerial capitalism was prevalent in the United States along with Germany. The personal capitalism can be defined in terms of ‘corporate governance’ that is a system in which the owners of the organisation has the entire control over the activities related to the allocation of capital (Langlois, 1992). Apart from this the owners is also responsible for taking various essential decisions regarding the daily activities of the organisation. During 20th century, the British entrepreneurs transformed but failed to bring success to organisation with respect to ‘manufacturing’, ‘marketing’ and ‘management’ (Lewis & Lloyd-Jones, 2013; Baumol, 1994). Business Groups and Networks Organisational structure was different in Germany and Japan. The Chandlers model of business enterprises focuses more on the administration rather than market coordination. In Germany, ‘cartels’ were organised more tightly with respect to administrative coordination as compared to the United States or Britain. H-form of organisational structure was followed in business enterprises of Japan. The organisational structure was centrally coordinated as compared to the United States and Britain. According to the Chandlers, concept of capitalisation includes shift from market coordination to administrative coordination that further includes synchronization of inter organisational activities. Japan business enterprises were based on export so this was the reason behind the rise in economic power of the firms. During the period of Second World War, the Japan based business firms were under the control of ‘zaibatsu’ that is a group of firms from different sectors following common leadership pattern. Due to war outbreak, these corporate groups had diminished. However, the group managed to develop again, and was more autonomous as compared to previous group and was so called keiretsu. By the time, competition has increased as a result of which Germany based firms were willing to invest in domestic market. This has resulted in the development of new concept that is ‘alliance capitalism’. The difference between the two economies was that in Japan competition was regulated by ‘keiretsu’. On the other hand, in Germany competition was regulated by konzern (combine) for building a strong network (Windolf & Beyer, 2010). Both konzern and keiretsu keiretsu implies different forms of corporate networks. These networks are responsible for regulating competition in the market and further facilitate coordination between companies. The corporate network of Britain and the United States is more competitive as compared to that of Japan and Germany that is more likely to be cooperative. The corporate networks of German cartel are modernised as it covers limited variables for example ownership and its type followed in business and many more (Windolf & Beyer, 2010). With regard to holding company, it can be stated that it was gaining its importance in the early years. However, in the United States and Germany the businesses were formed using inter firm network along with the support of the holding company. Chandler, with regard to the failure of holding company in Britain stated that although the board of the two companies were combined but it operated separately. This led to the disadvantage for the company and could not utilise the advantage of the holding company. Chandler’s Concepts to Explanations of Chinese Business Chinese business was mainly related to small business and so this gives a reason to explain the difference between the Chandlers concept and business pattern followed. Chinese businesses were mainly confined to family business, national business and many more. The Chinese business were different from the one followed in the United States, because the activities were mainly related to managerial creativity. Chandler believed that internal managerial characteristics are crucial for growth of large business enterprises. On the other hand, a national factor was ignored that is essential for further development of management. Apart from this, the business management concept proposed by Chandler does not include factors regarding labour, financial condition and many more. According to the concept developed by Chandler for the success of an organisation, it is essential for the managers to permit communication between different levels of hierarchy. It was further analysed that the success of the organisation also depends on technological innovations implemented. One of the limitations of the Chinese organisation is that the relation between the owners and control affects the growth of organisation. Apart from this, lack of professional management skill, lack of loyalty among the employees as well as research and development activities were the factors identified responsible for the temporary and small structure of the Chinese firms (Hamilton & et. al., 2006). According to Chandler’s model technology is the crucial factor that can transform the family firm business of Chinese into ‘corporate management hierarchy’. Furthermore, it was analysed that technology led to transformation of the economy but has not resulted capitalism. Chandler model is linked with growth of capitalism, whereas a Chinese firm focuses on non- development of capitalism (Gardella & et. al., 1998). Comparison Between Chandler’s Core Ideas And Concepts Of Porter According to Chandler, business enterprises are successful because they are engaged in mass production with respect to the demand for the product. To implement the concept of managerial enterprise it is crucial for the organisation to develop a structure that is capable of managing complex firms. On the other hand, Porter states that success of an organisation; depend on competitive advantage with respect to price, product or technological innovation. A firm with competitive advantage is likely to gain more success as compared to other firms because it adds more value to the former organisation. Moreover, successful organisation has a tendency to attract rival firms as well as more number of buyers and suppliers. This results in the formation of industrial cluster (Karlsson & et. al., 2005). Cluster offers more benefit to a firm, as it is likely to gain increase in access to technology, infrastructure, skilled labour and many more. The “Diamond model” developed by Porter represents the factor that is responsible for specialising in a particular industrial sector with respect to a nation. A firm with competitive advantage can enter into export market and so can maximise the profit margin. Apart from this, when multinational companies invest in industrial cluster it improves the competitive advantage of the respective firm. On the other hand, the managerial concept developed by Chandler mainly focuses on the multidivisional models, according to which the allocation of responsibilities take place. A firm’s organisational capability depends on managing manufacturing and production activities (Porter, 1980; Ankli, n.d.). Conclusion The paper links the concept of competitive advantage developed by Chandler and Porter. Competitive advantage implies the position of the organisation at which it can gain maximum profit. Development of industrial cluster leads to growth and success of the organisation because it improves access to new technology along with manufacturing and production techniques followed by other firms. The relationship between strategy and structures has been discussed in the paper that suggests that organisational strategies are framed in such a manner to attain the objectives of the organisation in long run. The pattern of managerial enterprise in Germany, Japan and other nation has been presented in the paper. Personal capitalism implies the allocation of capital and related activities, handled by the respective owner of the organisation. Chandler concept of business enterprises focuses on the internal features of organisation and managerial hierarchy. Despite the fact business groups and networks was considered essential for competitive advantage of the organisation. The paper analyses the business network in Japan and Germany. Chandler’s concept has been compared to China based business enterprises. Chinese firms were slow to adopt the concept of managerial enterprises because of small size of firms and family based business. Apart from this, the Chandlers model ignores labour and financial factor that is also crucial for the success of the organisation in the long run. References Asif, R. & et. al., 2015. Alfred D. Chandler, Jr.: His Work On Business History And Its Impact On Management Thoughts. Journal of Business and Management Research, Vol 8, pp. 220-223. Ankli, R.E., No Date. Michael Porters Competitive Advantage and Business History. University of Guelph. [Online] Available at: http://www.thebhc.org/sites/default/files/beh/BEHprint/v021/p0228-p0236.pdf [Accessed March 10, 2015]. Baumol, W.J., 1994. Convergence of Productivity. Oxford University Press. Bucheli, M., & et. al., 2010. Chandler’s Living History: The Visible Hand Of Vertical Integration In Nineteenth Century America Viewed Under A Twenty-First Century Transaction Costs Economics Len. Journal of Management Studies, Vol 47, Iss. 5, pp. 860-883. Chandler, A.D., & et. al., 2009. Scale and Scope: The Dynamics of Industrial Capitalism. Harvard University Press. Chandler, A.D., 1997. The Visible Hand. Harvard University Press. Chandler, A.D., 2003. Strategy and Structure: Chapters in the History of the American Industrial Enterprise. Beard Books. Gardella, R., & et. al., 1998. Chinese Business History: Interpretive Trends and Priorities for the Future. M.E. Sharpe. Hamilton, G.G., & et. al., 2006. Commerce and Capitalism in Chinese Societies. Routledge. Kavale, S., 2012. The Connection Between Strategy And Structure. International Journal of Business and Commerce, Vol. 1, No. 6, pp. 60-70. Karlsson, C. & et. al., 2005. Industrial Clusters and Inter-firm Networks. Edward Elgar Publishing. Lewis, M.J., & Lloyd-Jones, R., 2013. Personal Capitalism and Corporate Governance: British Manufacturing in the First Half of the Twentieth Century. Ashgate Publishing, Ltd. Langlois, R. N., 1992. The Capabilities Of Industrial Capitalism. Center for Independent Thought, Vol 5, No. 4, pp. 513-530 Mathews, D., 2000. The Visible Hand? The Economics Of Alfred Chandler. Abstract. [Online] Available at: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0CFAQFjAG&url=http%3A%2F%2Fwww.ebhsoc.org%2Fjournal%2Findex.php%2Fjournal%2Farticle%2Fdownload%2F167%2F161&ei=vtH-VPeJAofIuAT5zICwCg&usg=AFQjCNFQTJcEgA5OOxuKO_0HqmnrcE2BNQ&sig2=Py0ThbMYb-ozdkVOCWbt5Q&bvm=bv.87920726,d.c2E [Accessed March 10, 2015]. Porter, M.E., 1980. Competitive Strategy Techniques For Analyzing Industries And Competitors. Simon & Schuster Inc. Smith, M.S., 2006. The Emergence of Modern Business Enterprise in France. Harvard University Press. University of Leeds, No Date. Chandler and the Theory of the Firm. Abstract. [Online] Available at: http://eprints.whiterose.ac.uk/79455/1/Chandler%20and%20the%20Theory%20of%20the%20Firm-1b.pdf [Accessed March 10, 2015]. Wolf, J. & Egelhoff, W.G., 2001. Strategy And Structure: Extending The Theory And Integrating The Research On National And International Firms. Schmalenbach Business Review, Vol. 53, pp. 117–139. Zurndorfer, H.T., 2006. Social Networks, Legal Loopholes, and Innovating Enterprises—the Successful Chinese Family Firm in the Late Qing and Republican Era (1890- 1937): A Rebuttal to Chandler. International Economic History Conference, pp. 21-25. Bibliography Chandler, A.D., 1994. Scale and Scope. Harvard University Press. Carney, M. & Gedajlovic, E., 2001. Corporate Governance and Firm Capabilities: A Comparison of Managerial, Alliance, and Personal Capitalisms. Asia Pacific Journal of Management, Vol 18, pp.335–354. Chandler, A.D. & et. al., 1999. Big Business and the Wealth of Nations. Cambridge University Press. Cohendet, P. & Llerena, L., 2012. Routines and the theory of the firm: the role of communities. Preliminary Draft. [Online] Available at: http://www.druid.dk/conferences/nw/paper1/cohendet_llerena.pdf [Accessed on March 10, 2015]. Fandel, G., 2003. Modern Concepts of the Theory of the Firm: Managing Enterprises of the New Economy. Springer Science & Business Media. Langlois, R.N., 1997. Personal Capitalism as Charismatic Authority: the Organizational Economics of a Weberian Concept. Introduction. [Online] Available at: https://web2.uconn.edu/ciom/charisma.PDF [Accessed on March 10, 2015]. Nelles, H.V., No Date. Chandlers Three Faces of Capitalism. Labour/Le Travail. [Online] Available at: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=17&cad=rja&uact=8&ved=0CEQQFjAGOAo&url=http%3A%2F%2Fjournals.hil.unb.ca%2Findex.php%2FLLT%2Farticle%2Fdownload%2F4823%2F5696&ei=5NH-VOrXCMPjuQSBqoDYDQ&usg=AFQjCNEG09KUFJedw6k_FBwxHauc21Anzw&sig2=3zswVKlsmldnboUCx4BqAQ&bvm=bv.87920726,d.c2E [Accessed on March 10, 2015]. Orts, E.W., Business Persons: A Legal Theory of the Firm. Oxford University Press. Rowe, J.E., 2009. Theories of Local Economic Development: Linking Theory to Practice. Ashgate Publishing, Ltd. Teece, D.J., 2010. Alfred Chandler and “Capabilities” Theories of Strategy and Management. Industrial and Corporate Change, Vol 19, No 2, pp. 297–316. Temin, P., 2008. Inside the Business Enterprise: Historical Perspectives on the Use of Information. University of Chicago Press. Read More