Chandlers Managerial Enterprise - Case Study Example

CHANDLER’S MANAGERIAL ENTERPRISE by Introduction Chandler’s model of integrated managerial enterprise regardsnot only the traditional leadership of a firm-entity by the CEO, but rather pertains to the whole system of methodology/ techniques utilized, as well as corporate structure and middle management. This is influenced by various human improvements i.e. enhanced production and commerce; railroad, sea and air transport logistics and scientific and technological development. Adding to this is the contribution of statistics, financial and accounting knowhow, which have enabled better business management. Above all, has been the core aspect of integrated production and distribution, en masse. This has resulted in not only increased mergers and acquisitions, but also the creation of giant industrial corporations by the 20th century (Chandler, 1977: 47). However, its weaknesses are systemic in nature, because of the large-scale nature of contemporary global corporations. This is in terms of corporate governance with regard to accounting information distribution, monitoring costs and the shareholders’ demand for company information. The latter regards the aspect of shareholders combining with other stakeholders, in order to form a voting bloc. This is aimed at influencing the directors and management present. It may inadvertently, have the negative effect of influencing appointments of directors, or the enactment of company resolutions. Through provision of accounting information, directors and firm management are monitored by the firm’s financiers through financial accounts (Alfred, 1988: 77). There is thus the possibility of financial reporting imperfections causing ineffectiveness of corporate governance. On the flip side, there is a barrier to shareholders, with regard to cost/ expenditure monitoring. This is brought about by the processing costs, especially to minor shareholders. They therefore rely more on the efficient market hypothesis (EMH). Excessive technological inclination and utility is also another weakness, due to the fact that technology is the main driving force behind Chandler’s concepts. However, evidence provides that there is dependence on social factors towards determining how such technologies will or will not be drawn upon selectively. This is in terms of the overall production of goods and services, where social factors prove favourable to prevailing methodologies utilized (Clarke, 2007: 32). Managerial Enterprise: A Concept In regard to the concept, it pertains to the prevailing nature of current markets experiencing the emergence of bureaucracies superseding market structures. This is in regard to the concept of the ‘invisible hand’. This has drastically changing from that influenced by market mechanisms, to contemporary contexts where managerial direction has taken charge. This is in regard to the coordination of market flows, in addition to resource allocation procedures within core modern industries. Distinguishing factors are majorly divided into two i.e. the presence of a hierarchical order, from the middle to top management and the distinction of operating units within a given global enterprise (Eugene & Michael, 1983: 256). Regarding the latter, is the presence of each operating unit having its own complete setup i.e. accounting data, managerial positions and administrative offices. These are critical in the overall identification of the cost expenditure, and profit realization processes associated with the given unit’s operation. Of importance to note is that there is the cultivation of a form of independence, within global enterprises, where subsidiaries are encouraged to function and subsequently succeed on their own. This concept holds true for modern business enterprises, which according to Chandler’s view could be able to operate more profitably and efficiently (Don, 1998: 43). This would be through utility of a managerial hierarchy that is centralized, as opposed to the decentralization of market mechanisms. This is fundamentally influenced by economic logic, where management is supposed to figure out the best possible organizational structure in terms of profitability. In addition is the crucial aspect of such structural organization enabling these firm entities become dominant by way of their structural formation. The logic behind this concept is based on the need for enterprises to make necessary investments, in terms of production, distribution and overall management. This is towards achieving economies of scope and/or scale, in addition to benefiting from the resulting learning curve. The aim is towards gaining the strategic intent of industry domination or at least a segment of the same. This pertains to the crucial aspect of modern large-scale firm-entities’ growth, aimed at taking the existing advantages of national and global market arenas (William, 1991: 44). In addition, is the influential aspect of efficient production techniques, which were fundamentally subjective (initially) to the existing railway network present. Thus, prosperity was because of higher profit realization, due to the lower costs involved and higher productivity achieved. Economy of scale advantages proved to be key variables in enabling such firms operate on a global scale. This led to the need for, and subsequent creation of the ‘managerial class’ within the U.S., with the aim of coordinating effectively, the increasingly interdependent and complex system present. The ability to undertake various venture opportunities, and realize efficiency by way of proper coordination, has enabled the American industry witness higher levels of concentration, than other markets (Robert, 2014: 40). It is able to explain long-term competitiveness of various nations, through provision of different advantages gained with respect to trans-national venture operations. Through enhanced managerial efficiency, in terms of both economies of scale and scope, American enterprises have been able to gain a greater share of existing markets. In terms of scale, this is enhanced by the fact that there is the presence of a drop; in terms of cost per unit, as the volume rate of output rises. In addition, in terms of scope, larger firm-entities can utilize existing materials for the production of varying products. In both types of economies, the presence of continuous supply of raw material, as a constant, has enabled, and subsequently assured the optimal utilization of capacity; with the core aim of improving overall productivity (Ludwig, 1983: 54). Competitive Dynamics Competitive dynamics are created, when such systems work i.e. all organizational elements contributing effectively, to the satisfaction of society’s varying needs. Through the learning curve, firm-entities, which have made the requisite investments, are able to subsequently succeed by way of domination of their specific market industry. In the context of the U.S., such firms as GE (General Electric), Microsoft, Google and MacDonald’s amongst others, have successfully employed such structures. This has been part of their strategic expansion measures, especially in other Western nations. While growth is a vital aspect of firm-entity growth, the manner/ way of achieving such growth is also important with the best avenue being by way of product development and enhancement (Monks, & Minow, 1991: 67). Through economies produced by core investments, there was an increase in size of results; by way of distribution systems present, creating both national and international markets. The management cadre present, enabled the firm gain both control and coordination crucial in achieving geographical expansion, as based on economies of scale present. Thus, the expansion witnessed in product markets, was based on scope, where all the four functionalities of a given organization worked together in tandem. Management: Chandler’s 8 Propositions Through his propositions, Chandler was able to display how the invisible hand of market forces could not only be surpassed, but also replaced by the visible hand of contemporary management. These propositions are vital in understanding the current business concept, prevailing within the U.S. First, many multi-unit businesses did replace the small, traditional enterprises. This was because of administrative coordination enabling better profits realization, as opposed to market mechanisms. There is also the fact that managerial hierarchies were created for these forms of multi-unit business enterprises (Thomas, 1988: 24). This form of enterprise appeared when the existing volume of economic activities was high enough to warrant the preference of administrative coordination over that of market coordination. In the event of such a system being successful in implementing the functions of administrative coordination, it becomes a source of not only continued growth, but also permanence and power. This inadvertently results in the careers of managers becoming more technical and professional in nature. Because of the growth of such enterprises, in both diversity and size there has been a divergence of the owners, from the entities’ management. This is in tandem with the enhanced professionalism of the managers present. Pertinent, is the fact that the management teams present, preferred policy measures, which favoured long-term growth and stability to the maximization of prevailing profits (Clarke, 2004: 88). Thus, as large firm-entities grew and became dominant in core sectors of the economy, they altered the basic foundational structure of these sectors as well as that of the global economy as a whole. Microsoft Corporation, as an American multinational, engages primarily in the development, manufacturing, licensing, support and sale of different consumer electronics, personal computers, computer software and auxiliary services amongst others. It raised to dominance, because of its MS-DOS, personal computer operating system, to be later on followed by Microsoft Windows. Through enhanced output, a greater share of the global market, and a wider array of products and services, there was need for the entity’s segmentation. This is in terms of divisions, where work is distributed into the following: - the production of the operating system, the development of online services, the server and tools programming, IT consulting and the Micro-soft Press. Adding to the above is the presence of the devices and entertainment division, which seeks to capture internet users, through applications compatible with embedded systems and smart phones. The corporate governance present, in charge of administration of the entity, is under a board of directors, in addition to committees. Shareholders do have a say in the running of the entity’s affairs, through their annual meetings, where elections are held to elect individuals for various posts on the board of directors. In addition, the presence of middle management is also an aspect, which is in charge of the various types of divisions present. This is about both the American segment, as well as other segments/subsidiaries throughout the world (Jonathan, 1986: 27). Toyota Motor Corporation is a successful global Japanese automotive manufacturer, with various offices and branches throughout the world. In terms of product output, it is the largest globally. Its product range is diverse, with all these being encompassed around five brands. Its management philosophy has gradually evolved, from the firm’s origins, best reflected by the phrases: - Just-in-time production and Lean manufacturing. These were instrumental in the development of its business methods and managerial values; thereby enabling it expansion and gain of a greater share of the global market. It is based in Japan, but has various subsidiaries around the world, where products are specifically made according to prevailing market choices. There is the distinctive nature of each subsidiary being under middle management, with the top management only being involved in greater matters of global importance (Douma & Hein, 2013: 112). Otherwise, each of these different divisions are usually given their independence, to chart the best way forward in terms of sales, product output and service delivery. Different factories ensure continuous manufacture or assembly of different vehicle brands, for existing local markets. The two firm-entities, as showcased, do reflect on some, if not all of Chandler’s ideals, with regard to integrated managerial enterprise. There is the presence of top management, which is usually in charge of global affairs, policy formulation and subsequent enactment. However, they do have and effectively utilize the existing middle management, with regard to specific regional contexts. This is informed by the fact that different regions have unique specifications, tastes and likes. The independence provided to these affiliates or subsidiaries is however neatly combined to form a complex, centralized hierarchical structure, where top-down rules and regulation making is carried out (Crawford, 2007: 57). In conclusion, Chandler’s model is crucial in enabling individuals get a better understanding of contemporary prevailing business practices. Current practices are uniquely different from initial small-scale business venture because of expanded markets, increased output capacity, technological input and product diversification. Of critical importance is that as opposed to Adam Smith’s ‘invisible hand’ with regard to market dynamics, contemporary firms are driven on Chandler’s ‘visible hand.’ This pertains to the present nature of firm entities being under that leadership and command of specific individuals who compose the management structure present. Reference List Aglietta, M & Antoine, R 2005, Corporate Governance Adrift: A Critique of Shareholder Value. Cheltenham, UK, and Northampton, MA, USA: Edward Elgar. Alfred, C 1988, The Beginnings of Big Business in American Industry. In Thomas K McCraw, The Essential Alfred Chandler, (Ed. (67-92). Boston: Harvard Business School Press. Bowen, WG 2008, The Board Book: An Insiders Guide for Directors and Trustees. New York & London: W.W. Norton & Company. Chandler, A 1977, The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Belknap Press/ Harvard University Press. Clarke, T 2004, Theories of Corporate Governance: The Philosophical Foundations of Corporate Governance, (Ed.). London and New York: Routledge. Clarke T 2007, International Corporate Governance. London and New York: Routledge. Colley J, Doyle J, Logan, G & Stettinius, W 2004, What is Corporate Governance? McGraw-Hill. Crawford, C J 2007, Compliance and conviction: the evolution of enlightened corporate governance. Santa Clara, Calif: XCEO. Denis, D.K. & McConnell, J J 2003 International Corporate Governance. Journal of Financial and Quantitative Analysis, 38 (1): 1–36. Don, M 1998, Management vs. The Market: An Exaggerated Distinction. The Quarterly Journal of Austrian Economics, 1(3): 41-46. Douma, S & Hein, S 2013, Economic Approaches to Organizations, (5th Ed.). London: Pearson. Eugene, F & Michael, J 1983, The Separation of Ownership and Control. Journal of Law and Economics, 4: 245-67 Goergen, M 2012, International Corporate Governance. Prentice Hall, Harlow. Jonathan, RT 1986, The Vital Few: The Entrepreneur and American Economic Progress. New York: Oxford University Press. Khalid, AM 2011, Ethical Theories of Corporate Governance. International Journal of Governance, 1 (2): 484–492. Ludwig, M. (1983). Bureaucracy. Grove City: Libertarian Press, Inc. Monks, R A & Minow, N 1991, Power and Accountability. HarperBusiness. Robert, EW 2014, Corporation Nation. Philadelphia: University of Pennsylvania Press. Schmidt, R & Marcel, HT 1997, Financial Systems, Corporate Finance and Corporate Governance. European Financial Management, 3(3): 333–361. Shleifer, A. & Vishny, RW1997, A Survey of Corporate Governance. Journal of Finance, 52 (2): 737–783. Sun, W 2009, How to Govern Corporations So They Serve the Public Good: A Theory of Corporate Governance Emergence. New York: Edwin Mellen. Thomas, K M 1988, The Essential Alfred Chandler, (Ed.). Boston: Harvard Business School Press. William, L 1991, Business Organization and the Market Economy. Cambridge: Cambridge University Press. Williamson, OE 2002, The Theory of the Firm as Governance Structure: From Choice to Contract. Journal of Economic Perspectives, 16(3): 178–92. Read More