Analysis on Chandlers Theories - Coursework Example

ANALYSIS ON CHANDLER’S THEORIES By: + The business world is one that operates on a couple of principles many of which are based on theories developed by individuals who critically analysed the industry. A failure in application of these principles could see a well-established business go down. Alfred Chandler was a Harvard Business school professor whose analysis and subsequent of business theories revolutionised the business world. Chandler asserted several theories in relation to business management and subsequent growth. For instance, emphasizing the importance of innovation, business performance and managerial acumen. Chandler’s models of large scale and integrated managerial enterprise have tremendously transformed the leading economies. This paper will describe and critique some of the theories by Chandler, analyse how national patterns arise, investigate if chandler’s analysis suits the US among other related topics. Description of theories As implied above, Chandler could be credited for much of the success being witnessed in many businesses. Additionally, Chandler’s insistence that an organisational trend eventually forms the national one can be clearly seen in many countries. In fact, some countries whose economic status are stable, have to some extent, applied Chandler’s theories. This section will briefly describe some of the theories fronted by Chandler that became a phenomenon in the business world. Further, it will also highlight how these theories are now applied in the modern setting, and results. One of the theories included the visible hand where the professor implied that it had replaced Adam Smith’s invisible hand. In this theory, Teece (2010) reported that Chandler vocally emphasized the need for organisations to centralise/decentralise operations. In other words, organisations ought to plan everything centrally but once individual duties are assigned, they are to be left alone to work on their own. Coordination of strategic planning was to be done in a central place but individual business units were not to be interfered on daily basis. While at first this was not fully embraced, in the modern setting it has beneficial to business owners albeit with minimal negative results. Currently, a significant number of business organisations plan their strategies in their headquarters but the plans are passed on to other units. However, the day-to-day operations do not necessarily interfere with the business seniors. As earlier reported, Chandler urged organisations to embrace innovation, which was not to be limited to sale strategies alone but also product innovation. This was the theory that came to be popularly known as the Firm theory. Then, Chandler insisted that when it came to production, the old method entailed increasing resources in order to have an increase in sales. Conversely, the new approach would innovation that would reduce human resource due to the increase in machines. According to Wilson (2014), it is due to embracing the theory that a majority of companies today are thriving. Finally, Scale and Scope was yet another theory that Chandler developed where it was asserted that “investment in production facilities helped in the realisation of scale and scope economies which are embedded in the development of technology” (Schmenner, 2012). Secondly, investing in a network dedicated solely for distribution and marketing delivers sales, which are often equivalent to production capacity. In addition, in this theory Chandler argued that investing in managerial hierarchy is imperative to enable coordination of the production and subsequent sales as well as planning for the investment. Analysis While these theories seem to fit the business world, there are still areas, which are of great contention especially concerning the visible hand. Though some organisations have witnessed success in the relevant areas, the theories have been criticised severally. For this reason, this section will analyse these arguments. The first two of Chandler’s theories that are often criticised involve the corporate governance and agency theory. According to Judge (2011), there is ample evidence suggesting that corporate governance sometimes works against the shareholders’ interests. This normally occurs when the decisions made by the employed managers are detrimental to the organizations. Critics of this theory demand that the governance structure ought to be overhauled and replaced with external disciplinary devices. Secondly, the popular ‘Structure follows strategy’ saying by Chandler has been critiqued recently where a number of scholars have argued about this notion. Apparently, some argue that a strategy is often developed depending on the structure rather than Chandler’s assertion (Judge, 2011). Others contend that due to unseen forces of economies, these theories are no longer functional, thus cannot always be seen to be valid (Spender, 2011). Further, the challenges encountered by business vary thus cannot always be handled using one theory. That is to say, this theory by Chandler cannot be universal at all times because businesses encounter differing forces. Relationship between strategy and structure This is not in itself a theory but rather is incorporated in the one of the theories developed by Chandler. This is called Scale and Scope where three major issues are highly emphasised by the author including learning, capabilities and evolution (Clatworthy and Peel, 2007). Even though this is one of the most criticised theories, other organisations have embraced it. To some, structure determines the strategy while others argue in the contrast. Chandler argues here that a manager’s shared knowledge is vital to an organisation, and that learning ought to continue and improve on the strategy. For this to happen, the organisational structure ought to be flexible enough to ensure that a manager’s expertise is beneficial to the organisation. How national patterns of managerial enterprise arise Perhaps one of the most contentious of Chandler’s theories is the one that implies that a country’s management outlook could be traced back to organisations. Chandler argued that this originates from managerial enterprise, which in essence refers to investment and operating decisions made through a hierarchy of manager who are employed. Often, these managers last in these organisations for some time before being involved in businesses. By employing these standards, managers end up influencing the national outlook (Lazonick and Teece, 2012). Normally, this happens when managers keep leaving institutions, and influencing them as per the previous knowledge. Chandler stated that managerial enterprise starts with economics and cost advantages that are dependent on technologically advanced industries. Economies of large scale are profitable because the production of goods is done at a lower cost in comparison to small ones since the cost-per-unit normally drops with the output volume rising (Lazonick and Teece, 2012). Even thought this was based on a business entity, it is replicated when it comes to national outlook. Whenever a government is producing particular goods, it is normally done in large volumes. For this reason, it is matches the organisation’s. Economies of scope also help in the determining the rising of managerial enterprise nationally. When large plants use similar raw or semi-finished materials in the making of a variety of products, this refers to the economies of scope. Chandler was quick to point out that the benefits of economies of scope would only be realised if materials flowing through the plant are kept flowing constantly (Clatworthy and Peel, 2007). By applying this theory, organisations have benefitted because the materials are used in a number of ways. Similarly, nations imitate this principle, and help in the rising of managerial enterprise. The importance of this trend in the 20th Century As already indicated in the previous section, there are a number of benefits that have been witnessed in improving organisations and the country economies. Most of the Chandler’s theories would greatly benefit many sections in the society. First, the 20th century saw the emergence of some of the most sophisticated machines. Unlike in the past when the production of goods required a similar number of staff and machines, this century had machines capable of producing various goods without requiring many operators. Consequently, the production cost goes down while an increase of volumes is evident. In light of the above, when volumes of products increase the next step is to have innovation where the increased volumes have the market ready. Once production innovation is developed, the selling of these products becomes a bit easier. The reason for this is that it outlines the strategies to be applied in the sale (Nelly, 2009). As a result, an organisation’s volumes in sales increase exponentially so long as the product innovation and strategies fit the market. Therefore, this trend is vital in today’s market as it could greatly influence the sales of not only the business world but also a country’s economy. Maximisation of profits is normally witnessed in applying the theories of Chandler especially due to cost minimisation. Usually, when the cost of product is below the final output, profit then is inevitable. While this theory has its fair share of weaknesses, it could prove to be important to many of the current economies. According to Janowitz (2008), applying these theories has seen a number of countries benefit through profit from many of the businesses. Additionally, countries that embrace it in the production of exports witness similar results. Chandler’s analysis and the US The US is one country that could benefit a lot from Chandler’s work given the advancement of technology. Currently, the US is one of the countries with the most companies in the world courtesy of the friendly business environment. Further, technological advancement is evident in the country as is the growth of economy. Concisely, the number of exports vary, and there vast market for almost every product. Therefore, the US would greatly benefit if it applied the theories suggested by Chandler, and this would have positive results on the economy. Mostly, the US would benefit because of possessing the latest technology plus ample supply of qualified personnel to handle all these equipment. However, a closer analysis of the analysis by Chandler in pre-80s, many of them would not be applicable. The major reason for this assertion is that the theory revolves around the cost of production cost, which has to be lower, thus an increase in volumes. Before this period, there were not many machines that could be used in production of a variety of products unlike is the case today. Moreover, the expertise lacked meaning that organisations needed to have duplicated workforce. Since the production had to be in large scale with minimal cost, the scenario in the specified period did not match this recommendation. Important variations Management trends keep changing, and this has not been exceptional recently with others emerging and having different results. Corporate governance is one of the topics that have variations where contexts vary with countries. Because of different business environment couple with other external factors, corporate governance varies with countries. Many times, this occurs because of different approaches, which are often determined by previous experiences as well as cultural factors. Also, it could be a result of experimented strategies, which are tested on various occasions by different organisations. Concerning Chandler’s one-best way approach, contingency theory has been critiqued for a couple of times. The theory argues that there is no precise way to organise; instead, one; response is dependent on the task one faces and environment one is handling (Edwards, 2013). Further, this theory is based in arguments that organisations are often open systems, which require careful management in order to balance and satisfy internal needs as well as ensure adaptation to relevant environmental circumstances. Analysing this notion fronted by Chandler reveals that it ignored different contexts. Confirming this assertion is Miranti (2008) who argued that some business environment and tasks are predictable thus; one could develop a strategy to handle any rising difficulty. Personal capitalism Of all Chandler’s theories, perhaps personal capitalism was the most controversial especially when it comes to assertions made in respect the British way of running businesses. Chandler attributed the decline of industries in the UK to the persisting of family-run firms. In cementing the argument, Chandler stated that this approach normally hinders new forms of managerial hierarchies thus having a monotonous outlook (Capshaw, 2012). Nonetheless, Pearson (2013) contested this notion by providing empirical evidence that seemed to invalidate Chandler’s argument. It was noted that in Sheffield for instance, some family-run firms were doing perfectly. In conclusion, of their study, it was reported that there are that factors determines a firm’s outlook. These include the size of the firm, the methods applied in doing business and the relationship between the management and the human resource. As noted earlier, between the 80s and now, a lot has changed, and in this case, more flexible as well as segmented markets need a different business structure. Because of the ever-changing technology, the systems used in the 80s cannot continue to as effective as was the case then. Sabatier, Craig-Kennard and Mangematin (2012) argued that with the markets evolving at a tremendous pace, the technologies needed in today’s markets differ from the ones used in the past. Sharing these sentiments is Xu and Chen (2011) who stated the technological advances have made the operations in the business world a little complex today than was the case earlier. Chinese firms vs. Chandler’s model Earlier, it was noted that Chandler’s model tends to ignore the very essential context of variance in different locations. The Chinese business environment cannot be equated to that of UK or US because these two have relaxed regulations unlike China. While Chinese firms have developed in the recent years, the adopting Chandler model has proved a bit hard. Mainly, this trend has been a result of the country’s tendency to focus on foreign technologies and cost competitiveness (N. Richtner and S. Richtner, 2013). Conversely, the US, Germany and UK rely on their technological innovations and multinational corporations which are usually strong. Conclusion Chandler’s theories have undoubtedly transformed how organisations approach the way of doing business. Besides, these theories are vital to the economies in the current century because it corresponds to the advancement of technologies. Unlike in the past machines and human resources were needed in equal measure, today’s scenario presents a different one which fits perfectly to Chandler’s theories. Nonetheless, theories like the Contingency are subject to further analysis because the principles may not be applicable to all environments. As noted, other factors contribute to a business environment. Furthermore, personal capitalism is another, which seems too erred in describing the UK situation without considering the factors and approaches applied by different individuals. Bibliography Capshaw, R. (2012). Chandler’s Complexities. American Book Review, 33(6), pp.25-25. Clatworthy, M. A., & Peel, M. J. (2007). The Effect of Corporate Status on External Audit Fees: Evidence From the UK. Journal of Business Finance & Accounting. 34, 169-171. Edwards, R. (2013). Personal capitalism and corporate governance: British manufacturing in the first half of the twentieth century. Business History, 55(2), pp.322-323. Janowitz, A. 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