Comm 210 notes
Chandler:
• Economies of scale: Cost per unit drops as the volume of output increases (geographical expansion)
• Economies of scope: Use same raw and semi finished materials and intermediate production processes to make a variety of different products (move into related markets)
• Functional divisions
• First movers: companies that quickly dominated their industries by making large investments and gaining competitive advantage. (high market share) - created national and international marketing distribution organizations - recruited teams of managers
• Management hierarchy: - lower and middle managers: coordinate products though production and distribution - top managers: coordinate and monitor current operations and to plan and Allocate resources for future activities
• Research & development: to improve products and processes. Innovation and strategy is more important than price.
• Diversification, related & unrelated: - Unrelated diversification: when managers acquire businesses in which they have few if any organizational capabilities to give them a competitive edge (ignore logic of managerial enterprise)
This leads to:
• Separation of top vs middle managers: - Top managers have little knowledge of or experience with the technological processes and markets of the new acquisitions - Overload in decision making at the corporate office
• Stock market pressures: loose profits and market share if: - Entrepreneurial enterprises fail to become managerial enterprises - Managerial enterprises fail to maintain their competitive capabilities
• Short‐term thinking: making a quick buck and trying to gain competitive edge through unrelated diversification
Chandler’s major claims
• Logic of Managerial Enterprise: Successful firms capitalize on economies of scale & scope, create management structures and invest
• Economies of scale: Cost per unit drops as the volume of output increases (geographical expansion)
• Economies of scope: Use same raw and semi finished materials and intermediate production processes to make a variety of different products (move into related markets)
• Functional divisions
• First movers: companies that quickly dominated their industries by making large investments and gaining competitive advantage. (high market share) - created national and international marketing distribution organizations - recruited teams of managers
• Management hierarchy: - lower and middle managers: coordinate products though production and distribution - top managers: coordinate and monitor current operations and to plan and Allocate resources for future activities
• Research & development: to improve products and processes. Innovation and strategy is more important than price.
• Diversification, related & unrelated: - Unrelated diversification: when managers acquire businesses in which they have few if any organizational capabilities to give them a competitive edge (ignore logic of managerial enterprise)
This leads to:
• Separation of top vs middle managers: - Top managers have little knowledge of or experience with the technological processes and markets of the new acquisitions - Overload in decision making at the corporate office
• Stock market pressures: loose profits and market share if: - Entrepreneurial enterprises fail to become managerial enterprises - Managerial enterprises fail to maintain their competitive capabilities
• Short‐term thinking: making a quick buck and trying to gain competitive edge through unrelated diversification
Chandler’s major claims
• Logic of Managerial Enterprise: Successful firms capitalize on economies of scale & scope, create management structures and invest