Managerial business

Junior (College 3rd year) ・Business ・Chicago ・7 Sources

Managerial Enterprise and National Economies. Presentation 1 Chandler's integrated managerial business model provides an explanation for how countries might remain competitive in the long run. The presentation is organized as follows: an overview of Chandler's theory/model integrated enterprise; a comparison of the model's use in various economies; and a conclusion. The weaknesses of the aforementioned model are also addressed, and in the conclusion, a personal assessment of the study will be made to determine whether the model improves the long-term competitiveness of nations in terms of business performance (Du Preez and Reid, 2012). In an effort to explain industrial advancements and Alfred Chandler's integrated management business model is used second industrial revolution between mid-19th and 20th century (Reich, 1989). This model is divergent from Adam Smith's theory of ‘invisible hands' (where persons worked to benefit oneself in a free market but ended up benefiting the society unknowingly) (Wang, 2015). Chandler, ideally explains the means of strengthening and intensifying a firm's capital.

Arguably, Chandler points out that industrial enterprises developed through a stage of fundamental phases namely; first, initial investment in the production processes especially ones capable of embracing technology, hence enjoy the economies of scale advantage. The second enshrines economies of scope (factors that simplify and makes the production of a wider range of goods less costly as compared to production of the same goods independently). Notably, of a great importance aspect argument by Chandler is measure of raising investment through networks of marketing and distribution. He pinpointed patterns through which corporations' organization transformed in different industries and nations. Chandler emphasized the importance of well-functioning and performing top management of organizations for the benefit of both the firm's incomes and the nation's economic performance (Reich, 1989). He highlighted that the scope of management could give an organization the brain power and propulsion to innovation, invention and an advancement performance at the enterprise level.

The Economic Aspect of the Chandlers Model

The basis of chandler's analysis was corporate America, examining four well-established organizations. Most of his development was theoretical. However, his elaborate findings into the managers feedback to the most possible and evident problems of market and technology resulted in growth and developments firms in America (Reich, 1989). As such, he formed a solid thesis that an organizational structure is to a considerable extent determined by how such a company strategizes on its products and markets (Brancato, 2009). Alfred's argument of ‘the visible hands' elaborates the origin of an organization and its sequential growth and subsequent performance.

According to Chandler, Firms prevail because they can coordinate more efficiently and effectively than the market (Chandler, 1992). As a result, investment in managerial hierarchy realizes more productivity gains especially when there are ample economies of scale in the market for the firm's produce (Brancato, 2009). Decentralizing decision making in different management levels plays an important role in achieving such gains. More effectively organizations embrace multi-divisional form commonly referred to as M-Form. This kind of a structure entails first, centralizing and controlling important investment decision making on markets and produce (Williamson, 2012). Further, the course revolves around delegating operations on decision-making sub-departments monitored as profit centers.

In strategy and structure, chandler indicates how heads of organizations of the best performing enterprises of the late 19th century realized and advanced their responsibilities in determining firm's long-term decisions (Chandler, 1992). The executives then changed the investment and business structure to create best means of function strategies. This strategic management resulted in an exceptional performance of these firms. Additionally, Chandler highlighted organizational structural change processes that entailed strategically shift directions instead of just adjustments for simple effectiveness and efficiency. According to Chandler, firm's executives and business success need realization of the scale of production and market scope through expanding, dominating and streamlining resources (Chandler, 1992). The success of firms and favorable competition primarily involves making a brave and bold investment (Du Preez and Reid, 2012).

Various sound capital intensive businesses are well informed that corporate extension into new market and locations exudes great long-term expansion and more profit fulfillment. As such, enterprises tend to embrace chandlers concept of multi-divisional structure as it is one of the most effective strategy to enhance business growth and expansion (Dietrich, 2014). This is especially most effective when coupled with a decentralized managerial structure. Chandler, shows that more often than not successful growth management of an organization occurs by two means; first through horizontal expansion, that is, engagement with competitors in similar production levels and stages. The second is vertical integration by securing a consistent and stable supply of raw materials and at the same time controlling the buyer (Chandler, 1992).

Chandler, emphasizes that for a firm to utilize and harness economies of scale and a market scope and dominate the economy, three fundamental investment projection areas are critical (Chandler, 1992). These include; manufacturing, marketing, and distribution and management which has both short term and long term effects of raising volume of sales. This should be in line with recruitment and training of skilled managers and employment of the most modern technology. Economies of scale lower cost of production which has a great advantage towards expanding firms (Reich, 1989).

United States

Some United State firm, for example, the Standard Oil and General motors amongst all other large and successful companies embraced Chandler's multi-divisional form of structure in early 20th century. The move enabled such companies to grow, diversify their markets and operations and expand rapidly (Williamson, 2012). Du Pont, which is also a US-based firm dealing with chemical production, gunpowder to be precise, employed a three-projected investment plan as advocated by Chandler. The outfit has tremendously grown. For instance, in 2014 it (DuPont) was ranked amongst the top four largest chemical company regarding market capitalization.

Also, Standard Oil Company was pronounced one of the best and largest American oil generating refining and distributing company to an extent of being declared a monopoly. This company was became effective as a result of embracing horizontal integration as advocated by Chandler's model of integrated managerial enterprises to regulate, control and compete favorably with major competitors (Reich, 1989). Equivalently, International Business Machines Corporation (IBM) also inherited three projection investment plan for its diversified products to obtain merit of being considered a first mover. The integration had an impact on making IBM the leading computer industry. It had gained over seventy percent in computer accessory production and distribution in the world market by 1969.

Germany Case

Most of the companies adopted ‘a cooperative, coordinated managerial capitalism' reciprocated to the rising demand of extensive and large-scale firms and businesses by developing an expansive selection of managerial hierarchy and at the same time adopting the economies of scope (Brancato, 2009). This was in line with what Chandler had advocated. However, it is worth noting that, different from America, Germany organization depended on inter-organization collaboration and advanced banks financial support. These internal organizational possibilities of Germans especially after the Second World War enabled German firms gain roots from the first mover advantage. Additionally, majority of German businesses successfully employed ‘'the three investment projection'' as highlighted by Chandler (Reich, 1989). Such companies included; BASF Group. Feldenkirchen supported the fact that law appears to promote trade associations and highly anchors market-discussion agreements, for example, encouraging cartels in a certain number of industries in the 1930's Nazi regime.


The inter-organizational framework of coordinating and management of business and firms as well as pioneering enabled Japan become a major competitor to America by 1960's. For instance, Zaibastsu almost dominated the entire economy of Japan when they commanded over half of all the machinery and equipments market. Similar to Germany, the move promoted good relationships with financial institutions including banks coupled with grounded inter-organizational structure of coordination and effective ways managing businesses (Du Preez and Reid, 2012). This structure encompassed factories to firms and between firms strong network linking forms. The majority of Japan's capital intensive industries were developing rapidly during the Second World War.

Most firms substituted kinship with competent and salaried managers. Notably, by the end of world war two, Japan was moving hand in hand with America regarding organizational capabilities enhancement. Japan started incorporating multi-divisional managerial structure into their pronounced firms. In 1950, the capital law was established in Japan (Dietrich, 2014). Japanese companies to a large extent revived equipment related investment because, the law allowed Japan to access, import and interchange technology with United States and Western Europe (Williamson, 2012). Overall, the enhanced equipment investment allowed a controlled and balanced international trade. For example, Toshiba, Toyota, iron, and steel from Kawasaki commenced implementation of Chandlers ‘three projection investment' just like Western nations with the aim of regulating and managing export promotion after growth in investment (Reich, 1989).

United Kingdom

In the named country, a family used to run business errands individually. Chandler termed this as ‘' personal capitalism''. As such, there was little or no training nor additional investment but rather consumption of realized profits. According to Chandler, this was the main reason why most UK organizations were unable to take up and dominate majority of industries or national markets (Dietrich, 2014). This was majorly attributed to UK's failure to take up managerial enterprise structure or model as it was the case with Japan, Germany, and America. The failure of UK to establish proficient managerial hierarchies and deficient interventions of intermediaries including banks could have separated the organization's control and ownership. Chandler also relates the lack of the three projection investments decisions with UK inability to compete favorably. The overall effects of all the aforementioned outline that the market for production industries which is domestic and subsistence in nature is small and undiversified. Notably, with such a market, it is arbitrary difficult to neither produce nor distributes in mass locally.

Conversely, General Electric and Westing House plundered British markets and surpassed competition. It was the most prominent British firm after creating enormous investment in both production methods and distribution means (Du Preez and Reid, 2012). It is also worth noting that, even the pronounced organizations in United Kingdom did not enjoy economies of scale advantage due to inadequate entrepreneurial skills and poor family policies regarding businesses (Dietrich, 2014). The level of management was far much lower and efficient relative to the United States. More illustratively, British after being the mastermind of dye industries, was unable to face and succeed in stiff competition from United States and Germany which adopted critical and crucial investments.


China has transpired to be among the most futuristic nations as far as development is concerned in terms of Gross Domestic Product (GDP). The basic question people ask is whether the growth was attributed, to Chandler's managerial enterprise. To a larger extent, it is not the case. This is attributed to the fact that, typically Chinese firms are persistently subsistence, small and unstructured. The mode of decision making is also centralized. According to Dietrich (2014), to a smaller extent, organizational hierarchy is practiced with partnerships and mutual obligation in responsibilities. It is however evident that, China's economy has exploded following mergers and conglomeration and which is not in agreement with Chandler's argument. In addition, impact of government support in former China communist cannot be overlooked. There exist, a cordial relationship between government policies and Chinese organizations. This is a boost to business and economic growth and development (Du Preez and Reid, 2012). Typically China embraces spirit of joint ventures and mergers and tactical associations which is crucial and critically towards securing a competitive edge.

The flaws of Chandler's Managerial Enterprise Model

However applicable, the model may be ineffective. The paradigm has several weaknesses. The major flaw outline that Alfred based his arguments on historically related business perspectives that were majorly up to the end of Second World War Two. Certainly businesses most successful in those times are still the most competitive lately (Dietrich, 2014). Also, the concept of externalities was hardly taken into account in the concept. Such include government roles in business which is a fundamental aspect of corporate success since a government may function as an entrepreneur, an investor or even an advisor.

Summary and Conclusion

It is worth noting that lately, focus on firms performance, growth and expansion have shifted focus from hierarchical traditions to market, business connections and partners. It can be argued that such network structures have developed from Chandler's multi-divisional form. As such, the two may not be treated as mutually exclusive (Williamson, 2012). It is evidenced by the analysis above, and with success of large firms including General Motors of the United States. This prosperity can be traced back to the fact that GM inherited Chandler's multi-division form of investment. Another pronounced and favorably competing firm to date include is International Business Machine (IBM). Conversely, UK Initially stagnated and failed to flourish in industrial development to a larger extent because of failing to adopt Chandler's investment and integrated enterprise model but rather opted for unprofessional and persistence family operated firms (Williamson, 2012). Therefore it is proven that this model offers a strong basis of competition among the nations undertaking business investments (Du Preez and Reid, 2012). Therefore, in spite of the few flaws, Chandler’s model evidences nation’s competitive economies.


Brancato, E. (2009). Markets versus hierarchies. Cheltenham: Edward Elgar.

Chandler, A. (1992). Organizational Capabilities and the Economic History of the Industrial Enterprise. Journal of Economic Perspectives, 6(3), pp.79-100.

Dietrich, M. (2014). Handbook on the economics and theory of the firm. Cheltenham, UK [u.a.]: Elgar.

Du Preez, N. and Reid, J. (2012). Integrated product and enterprise design for global competitiveness. The South African Journal of Industrial Engineering, 9(1).

Reich, L. (1989). The Essential Alfred Chandler: Essays toward a Historical Theory of Big Business. Alfred Chandler, Thomas K. McCraw. Isis, 80(1), pp.149-150.

Wang, H. (2015). Are Invisible Hands Good Hands? An Extension. SSRN Electronic Journal.

Williamson, O. (2012). Managerial discretion, organization form, and the multi-division hypothesis. [S.l.]: [s.n.].

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