Managerial Enterprise Theory Presented by Alfred Chandler - Essay Example

To what extent can Chandler’s model of large-scale, integrated managerial enterprise explain the long-term competitiveness of leading economies? Contents Introduction 2 Discussion 2 Analysis 2 Comparison 3 The United States 3 United Kingdom 5 Germany 6 China 7 Japan 8 Conclusion 8 References 10 Introduction The report includes an analysis of the extent to which the managerial enterprise theory presented by Alfred Chandler has been able to explain the rate of competitiveness of the leading economies across the globe. The possibilities of implementation of the Chandler’s theory of integrated large scale management enterprises is studied through the analysis of the way the managerial economies have functioned over years in the different nations of the world including China, the United States of America, the United Kingdom, Japan and Germany. The report starts with a short description of the theories proposed by Chandler followed by a discussion of how the theories proposed by Chandler are applicable in the modern corporate setting. The relationship between the strategies proposed according to the theory and the structure of modern economies are identified and explained. Also, a section of the report includes drawing references from the national patterns of management enterprises so that a parallel can be drawn between the theory proposed by Chandler and the importance of these theories in the 20th century corporate and managerial enterprises. The advantages as well as the shortcomings of the theories proposed by Chandler are identified and analyzed in detail. The report is concluded by drawing suitable inferences from the analysis and by proposing suitable arguments in favour of the views as per the analysis. Discussion Analysis The theory postulated by Chandler deals with the functioning of managerial enterprises. As per the view of Chandler, the managerial enterprises refer to the big scale industrial companies in which the crucial investment and operating decisions are taken in a hierarchical manner in which a number of salaried executives and managers propose the basic decision propositions and the final decisions are taken by a governing body which is the board of directors of the company (Chamberlain, 2010). The key logic behind the Chandler’s theory of managerial enterprise is that the necessary investments in the production, management and distribution of the enterprise are made with the aim of achieving economies of scale and benefitting from the learning curve for organizations. The main strategic intent of investment decisions are based on creating a dominating presence of the enterprise within the industry in which it operates. In this context, the economies of scale refer to the benefit of a company that the cost of production per unit decreases as the production output volume of the enterprise increases (Bedeian and Wren, 2001). The economy of scope refers to the fact that the large manufacturing houses and units are able to use some of the common raw materials and processes that are required for predicting a wide range of different products. The achievements of economies of scope and economies of scale are based on the pre requisites of the consistent flow of materials so that the capacity utilization of the enterprise is done in the most optimal manner. The primary objective of this kind of strategic management is to improve the productivity of the enterprise in terms of volume, time as well as performance efficiency. Comparison The United States The aspect of competitive managerial capitalism can be studied by considering the example of the chemical industry of the United States of America. The basic characteristic of this industry is that it is an oligopolistic industry in which there is an intense level of competition between the large dominating enterprises. The key influences for this industry include the Sherman antitrust act which was implemented in the year 1890. The establishment of this act ended the existing era of the horizontally structured organizations and led to the evolution of single dominant companies which were capable of employing rational decision at the individual unit levels (Fligstein, 2008). The centre of focus of an organization functioning in this segment shifted from the control of the prices to the maximization of throughput and outputs for the firms. Thus, the Chandler’s theory of managerial enterprises which proposed the importance of economies of scale and economies of scope for the strategic aim of maximizing the outputs a volumes and efficiency of a managerial enterprise found wider application in the chemicals industry of the United States of America in the 20th century (Upton and Petty, 2000). Also, as the inherent complexities of running a big enterprise increased, the owners and the stakeholders of the companies started assuming more profound role and the hierarchical form of decision making became more appropriate for competing on an international platform (Chandler, 2005). The emergence of the vertical integrations like mergers, acquisitions and joint ventures also highlighted the need for increasing productivity through hierarchical decision making formats rather than the prevailing horizontal decision making formats followed in the chemicals industry till the 1890s (Zey and Swenson, 2001). Thus, it can be identified by studying the role of the Chandler’s theory of managerial enterprises in the chemicals sector of the United States of America that the importance of the three pronged investment structure proposed by Alfred Chandler has found wider application in the background of the changing dynamics of the chemicals industry. The three pronged investment pattern includes investments in distribution, production and organizational functionalities of a managerial enterprise which has become highly significant in the global chemicals industry because of which the investment options are also finding higher importance in the chemical industry of the United States of America. The multidivisional managerial and organizational structure has become more prominent across a number of industries in the United States primarily because of the complexities of the decision making processes (McCraw, 2008). United Kingdom The aspect of personal capitalism can be studied through the consideration of the example of the industrial materials sector of the country (Zeitlin, 2008). As per Chandler’s theory, the sectors of the United Kingdom could be divided in two main categories which are the stable categories of industries like the textile, oil, industrial material and rubber industries and the dynamic segment which include the industries like machinery, branded products, chemical and packaged consumer goods (Usselman, 2006). The term personal capitalism is widely applicable in the industrial materials segment of the United Kingdom. This term refers to the fact that the companies functioning in this segment of the UK are managed in more personal or individual decision making formats as compared to their German or American counterparts (Chandler, 2005). The main companies in this sector were family owned businesses in which the main decision makers were the primary owners of the company and in which the owners of the enterprises preferred to take out their earnings in the form of dividends (Toms and Wilson, 2003). This way of functioning and managing the enterprisers was seen as a major driver of the reason behind the United Kingdom entering into the second industrial revolution at a later phase as compared to the other large economies of the globe (Whittington and Mayer, 2000). The owners of the companies in the industrial materials segment of the UK were always interested in taking out profits through dividend paying patterns due to which the managerial style of decision making did not found much application in this segment (Aupperle, Acar and Mukherjee, 2013). The use of economies of scale and economies of scope as the competitive weapons do surviving in a continuously shafting corporate platform was one of the main reasons behind the fall of the rank of the UK in terms of production efficiency. The enterprises in the industrial materials sector of the UK paid less attention to the hierarchical organizational structure and believed in investing in a stable income pattern rather than in investing in risky domains. However, the deteriorating performance of the British firms in this sector in terms of operational and production efficiency suggested that the companies were facing an immediate med of creating and managing competitive capabilities so as to ensure higher productivity and sustainability in the future years (Acar, Keating, Aupperle, Hall and Engdahl, 2003). Germany The industries of Germany are featured by the aspect of cooperative managerial capitalism in which there are large scale integrated companies which manage mainly oligopolistic markets through collaborative ways of functioning. As per the theory proposed by Chandler, the industries in Germany can be divided into two categories which are lesser industries like synthetic alkaline, rayon, light machinery and explosives and the great section which includes the iron and steel, heavy machinery, fibres and other types of industrial materials (Lamoreaux, Raff and Temin, 2008). The pre World War 1 period of heavy machinery industry in Germany was dominated by the use of flat form of decision making. However, in the post WW1 phase, the companies in this industrial section were forced to adopt the hierarchical form of managerial decision making in order to ensure competiveness and achieve economies of scale in their production processes (Lecuyer, 2001). China There has been a complete indifference noted to the Chandler’s theory in the business history of China. All the industries of China have functioned in an anti conventional manner through years. Though, initially the closed form of operating was much criticized, yet China emerged as a main economic power through the changes that were brought about in the economy after the reforms of 1978 (Sturgeon, 2002). The manufacturing industry of China can be taken as the best example of evaluating how the Chinese firms have always managed to make the Chandler’s theory of managerial enterprise to become redundant (Teece, 2009).The framework of the businesses in China represent a segregated collection of practices including the flat business structures, the cooperation links between the private enterprises and the state owned enterprises, the reticular market patterns and the nationalistic enterprise approaches. Secondly, the predominance of the local enterprises and the small scale businesses in the nation did not allow for the development of managerial decision making approach. Tenacity and flexibility have worked as the main drivers of achieving production efficiency in the Chinese manufacturing industry while the achievement of economies of scale and managerial control had negligible roles to play in the same (Mowery, 2010). The essential features of the Chinese companies like the use of social networks, restricted control and ownership, personal relationships etc. remain constant. In this way, the theory of Chandler does not seem to have much importance in the manufacturing industry of China. Instead, the vitality, tenacity and flexibility of the industry seem to be more crucial influencers of the success of this segment. Japan The companies in Japan have always managed to achieve growth and consistency through a hierarchical decision making approach because the trend of family owned businesses ensured that the working decisions of for the investment and functions of the enterprise are controlled through the use of a simplified organizational structure (Cohen and Harcourt, 2003). The Japanese automobile industry is one example in which the role of Chandler’s theory can be easily recognized. This industry has been a centrally managed and controlled industry in which economies of scale and scope and efficiency of production were achieved only after the hierarchical and managerial form of control was established (Chandler, 2005). The role of the suppliers in aching higher production efficiency was starkly noted in this industry, especially after the advent of globalization. The concepts that were primarily introduced by Chandler as the basic features of strategic management like the role of technology and suppliers, the need for production efficiency and the vertical decision making structures found higher importance in the Japanese automobile sector in the era of globalization and are identified to be the critical success factors for the industry. Conclusion Thus, it can be identified that though the role of the Chandler’s theory of managerial enterprise has been profound across the major economies in the globe, yet the need for more integrated and innovative approaches of managing a firm have arisen with the changes in the global corporate world. In order to create more efficient organizational capabilities, the contemporary enterprises have to focus on diversified business functions and not only on the production processes. Some of the complexities that are present in the globally integrated business environment have been neglected by Chandler. 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