From the ancient times, people came up with several ideas and theories for the development of trade. As trade is the largest business area of daily life, it has significant role for cash flow and business. However before business, trade has another very significant role which is fulfilling the daily necessities of human being. The simple and general definition of business comes from this role; business is the organization that supplies goods and services to the households so that trade becomes easier with the increasing business firms. Numbers of business firms are increasing with developing technology and this creates competition between the firms. In order to be the winner of the competition, business firms form their own strategies. The purpose of these strategies is to increase productivity, labour force, yield, profit and etc. In business life, all these ways and ideas to provide managers a better work out is called; management theory and firms use management theories to achieve their goals. Therefore, management theories are the ideas or rules that show how to manage an organization or business and how to reach goals of firms in a very short way. If literature of management is considered, it is possible to say that there are many theorists whose theories are using by managers and business firms in order to increase their production quality. Although the general name is management theories for the strategies to improve productivity in business, the theories cover different parts of management. In this essay; Alfred Chandler’s contribution to the literature of management will be explained.
Alfred Chandler and Management
Alfred DuPont Chandler was born in Delaware, which is the one of states of USA, in 1918 and he is a specialist historian about business history. He is graduated from Harvard University and his degree was professor. He wrote books about his specialized branch, business history, and business people. In 1944, he married with his wife, Fay Martin and from this marriage he had four children. Chandler earned his degree of Ph.D. in 1952. However, Alfred Chandler began to work in Massachusetts Institute of Technology (M.I.T.) as a research associate in 1950 and he gave lessons until 1963 after he had his doctorate. While he was teaching in M.I.T., he wrote his first book Henry Varnum Poor: Business Editor, Analyst, and Reformer in which this book represents Alfred’s dissertation and interest to the business history his first meeting with business history is done with that book. After he published his first book, he wrote his second book which’s name is Strategy and Structure: Chapters in the History of the Industrial Enterprise. This second book was a turning point in Alfred’s career because he handled the topic of organizational behavior in his study. With the help of this book Alfred Chandler won an award and he got famous and won respect in his specialized business history branch. In 1963, Alfred Chandler left M.I.T and he started to study in the faculty at Johns Hopkins University. After he started his study in there then he became the director of Recent American History study. Within the same period Alfred Chandler wrote his next book, Giant Enterprises: Ford, General Motors, and the Automotive Industry which is about the growth of automobile industry in America. Chandler’s books and his development on history provided him to be chairman in different departments because in his books he handled different topics of management so managers had chance to see different perspectives of business life. In the time of 1970s, Alfred Chandler became members of different universities, firms and committees such as National Advertising Council’s Committee, Thomas Henry Carroll Ford Foundation, Oxford University and Harvard University. In 1977, Alfred Chandler published The Visible Hand: The Managerial Revolution in American Business, which is his most popular and known book. What is handled in the book can be seen from the article which is called “THE VISIBLE HAND? THE ECONOMICS OF ALFRED CHANDLER” and is written by Don Mathews. In his article, Don Mathews explains the theme of the book with this sentence: “The theme of The Visible Hand is that ‘modern business enterprise took the place of market mechanisms in coordinating the activities of the economy and allocating its resources. In many sectors of the economy the visible hand of management replaced what Adam Smith referred to as the invisible hand of market forces.’” (Mathews, s. 163) In this quotation Don Mathews nourishes from Alfred Chandler’s own book and he refers original book in order to define the theme of the book. According to the quote; local and traditional American business firms are enough to fulfill the necessities of people who live in small areas however modern businesses are monitored and are enough to fulfill many customers’ wants and wishes from all around the world. So that, modern businesses increase productivity with coordinated work outs, they lower the costs of goods and services and they get higher profit. These are the reasons why modern business firms are more likely to become perfectly competitive markets. Then Mathews explains how book is related with management and competition between firms in a detailed way. As Alfred Chandler lays the foundations of economy in management, this book is very important for modern business firms because the book examines basic economy in management. Chandler’s researches and writings about business and economy continued in 1980s. Next, his next book is come in 1990, which’s called Scale and Scope: The Dynamics of Industrial Capitalism. This book also has significant role because Alfred Chandler evaluates history of important firms and he examined 600 firms from USA, UK, and Germany. These firms’ histories are very important for all managers as top 600 firms are included in the research. With the help of Chandler’s examination other small or large firms create their own strategies and methods by looking at the other firms’ management style. Other than books, Alfred Chandler also wrote many articles about the organizational behaviour, industry, perfectly competitive markets, business structures etc. Chandler’s workings continued till the end of 20th century and he is died in May, 2007.
Alfred Chandler Researches
As stated before Alfred Chandler did researches about organizational behaviours and he mentioned organization in his books. However, before explaining Alfred Chandler’s examinations about organization, first the meaning of the organization should be defined. Organization refers a group of people that gather and coordinate to achieve a common goal. Since organizations need to be structured to reach their aim, every organization needs a management structure which covers all the relations between the members of the organization and their duties. Under the light of organization, organizational behaviour refers actions of people in organizations. As organizational behaviour covers motivation, leadership, interpersonal communication, personal values and etc., organizational behaviour is the study of “whole”. This means relationship between organization and people is taking as whole social system. So that in this part of the essay, Alfred Chandler’s approach to individual level analysis in the organization and his approach to the organization as a system will be analysed. Alfred Chandler’s approach to the organization can be seen from his most popular book The Visible Hand: The Managerial Revolution in American Business. In this book, he explained his views about organizational structure and organizational behaviour. According to him, there is a direct correlation between organizational structure and strategy of a firm. Organizational structure provides strategies to a firm for further expansion after the firm’s first birth and growth is completed. Chandler supports that without organizational structure economic efficiency cannot be achieved and this kind of growth will only lead to economic inefficiency which may cause bankrupt or distrain of the firm. Moreover, he claims that organizational structure brings about strategy because changes in technology and markets lead to new strategic plans and this is possible with reorganization.
Mark Rhodes, who is a blog writer on the website called Free Management Library, explains Chandler’s view with this sentence: “The way that you organize your company or organization to optimize the pursuit of strategic objectives is an important part of organizational design” (Rhodes, 2011). So, the first thing that should be considered is to decide organizational structure for the strategy. Other elements that are needed for design must be adapted to the structure. Therefore Chandler believes that strategies and methods of a firm determines and plans organizational structure with growth. Chandler’s approach to the organization and his theories about organization provided managers and members of firms to see whether management should be done in a coordinated structure or not. Neil Fligstein, who is a sociologist from University of California, explained Alfred Chandler’s organization view in his article called Alfred Chandler and the Sociology of Organizations. Fligstein says that: “Chandler viewed the purpose of the firm as an organizational device to bring products to market.” (Fligstein, 2007, s. 6). This means, firms need to be structured in order to increase their productivity and labour force. Neil Fligstein also interprets in similar way; he believes that: “If managerial hierarchies
had not been built, the needs of these markets could not have been met. Simply put, without managers to coordinate production in hierarchical organizations, mass production was impossible.” (Fligstein, 2007, s. 6). For this reason, managers need to set their own strategies to solve the problems of finance, security, supply, production etc. another issue that is important is the approach to seeing organization as a system. This approach is actually coming from system theory. Carter McNamara, who has taken his PhD and writer of Free Management Library, defines system theory like that: “Systems theory has brought a new perspective for managers to interpret patterns and events in their organizations. In the past, managers typically took one part and focused on that. Then they moved all attention to another part.” (McNamara). Therefore, organization should be considered as a whole since organizational behaviour covers all the parts and departments of business. Alfred Chandler supports similar view; he believes that organization should be considered with all its elements otherwise modern and developed businesses cannot be formed. In Don Mathews article Chandlers opinion for organizational structure and system can be seen from this sentence: “Through managerial coordination, industrial corporations were able to develop the combined productive capabilities of human and physical resources in ways that market coordination, with its unplanned interaction of specialized producers was unable to do.” (Mathews, s. 5). This sentence indicates that organizational structure brings planned and coordinated economical order in businesses with all elements of business. Unplanned and one-way managers cannot reach modern businesses and yield. The first condition to achieve a good economic plan, economic efficiency and productivity is to see everything related to business world as a system. This will provide a broader perspective including patterns, events, and work outs, structures to both employees and managers otherwise managers would only be able to see events and this would lead to economic inefficiency as Alfred Chandler stated. Therefore Chandler believes that in order to see the real consequences and causes of events, whole picture should be seen.
Alfred Chandler and Management
In the last part of the essay, Alfred Chandler’s approach to the macro environment of the organization and his theory in relation to management in general will be explained. Before explaining Chandler’s approach about macro environment of the organization, the meaning of the term needs to be explained. Macro environment refers to the factors, which are external and cannot be controlled, that affect decision making process of any firm or organization. Decision making includes strategies, method and management. However, as macro environment refers external factor it can be said that weather, competition, cultural features, government policies etc. are all can be counted as macro environment. As stated before Alfred Chandler claims that organizational structure follows strategy and strategy is the plan that controls the management way of any firm or business. Since modern businesses are increased with the industrial revolution, the external factors that affect business strategies are also increased. First, competition increased as number of business firms is raised. Then other factors started to change depending upon the number of firms. Alfred Chandler supports that competition between business firms creates perfectly competitive market. In perfectly competitive market firms both challenge and negotiate with each other. They challenge for revenue and to be the most popular firm however, they need each other since their existence in the market determines market price equilibrium. Their “produce and sell” process creates equilibrium. If there would be only one business firm that has market power then it would be monopoly and would have power to charge price. Since perfectly competitive market do not have that power, their existence or bankrupt affect each other in term of management because external factors cannot be controlled and they can shape the way of any firm’s growth. Jay R. Galbraith, who was a professor at the International Institute for Management Development, explained Chandler’s view about organization in his article, which is called The Evolution of Enterprise Organization Designs, with this sentence: “Chandler (1962) described how the strategies of vertical integration and diversification led to the single-business functional structure and the multi-business divisional structure.
Following Chandlerian logic, I described how the multidivisional structure was expanded to organization by including management processes and HR practices.” (Galbraith, s. 9). As it can be understood from the quote too Chandler did not directly talk about macro environment but his words and his other researches show that Chandler believes macro environment can change the way of any firm’s management because multi-business divisional structures need controlled and planned strategies to prevent any unexpected mistake but external factors cannot be controlled. Therefore, Chandler’s approach to the macro environment is that external factor can alter the growth of business firms. Apart from macro environment the last issue in the essay is Chandler’s theory or theories in relation to management. As stated above Alfred Chandler had done many researches about modern business, business people and business history. His books are used by many managers and Chandler won awards from his books. But, what was the thing that made the books that much special? This thing was; his “capabilities” theory. The origin of this theory is capability management which refers to a management firm or an organization with capability collections to earn profit in the market. With this “capabilities” theory, Chandler indicated and emphasized the significance of organizational structure, motivation and business management strategy. All the ways to increase productivity in a business firm explained with this theory by Alfred Chandler. “Capabilities” theory comes from the theory of firm. Alfred Chandler contributes to the theory in his books, especially in the The Visible Hand. In the article called Chandler and the Theory of the Firm, which is a book section actually, Wilson explained Chandler’s theory with this sentence: “Chandler’s theory of the firm was developed from detailed empirical observation rather than formal model building and provides a commentary on the rise of the large managerial corporation.” (White Rose , 2012, s. 1).
This means large business corporations need to be planned with detailed observations. His theory of firm indicates how and why large firms are successful ben compared to local and small firms. As his theory is about large modern business firms, organization of the businesses and structures are explained with this theory. That’s the reason why modern businesses are more likely to bring economic efficiency. Therefore, Chandler’s theory is universal since it covers all the management methods of large firms and their ways to reach success. So that, Alfred Chandler’s works and his theory created major changes and his methods for organization used by large firms in order to increase productivity.
Alfred Chandler was a great economist, and business historian who wrote many book and article about organization in management, business history and large firms. In his books, he compared small and local firms with large business firms to emphasize the significance of modern business. According to him, large and modern businesses increase productivity and yield and lower the costs of the goods and services. However, he explained- in his works- how to be more successful as a large firm.
The key point of business success is hiding in its organizational structure. Chandler believes that planned, structured and coordinated strategies of organization lead to successful business management. Without structure, he supposes, mass production is impossible and economic inefficiency would appear. His works and theory inspires new entrepreneurs and managers for better work and also inspires other researches to search for new way to improve business enterprise. As a result, Alfred Chandler’s research have significant role to reach business success and organizational structure in order to increase productivity and profit.
Chandler, Alfred Dupont.” Gale Encyclopedia of U.S. Economic History. 1999. Retrieved May 21, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3406400151.html
Fligstein, N. (2007). Alfred Chandler and the Sociology of Organizations. University of California, Berkeley, Ca. 94720, 6.
Galbraith, J. R. The Evolution of. Professor Emeritus, IMD, Lausanne, Switzerland, 9.
Mathews, D. THE VISIBLE HAND? THE ECONOMICS OF ALFRED CHANDLER’. Coastal Georgia Community College, 163.
McNamara, C. Thinkin about Organization as Systems. Free Management Library: http://managementhelp.org/organizations/systems.htm
Rhodes, M. (2011, January 23). Blog: Strategic Planning. Free Management Library: http://managementhelp.org/blogs/strategic-planning/2011/01/23/194/
White Rose . (2012). Revisiting Chandler on the theory of the firm. University of Leeds, 1-11.