The Managerial Enterprise

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In my opinion, the model of the large-scale ‘managerial enterprise’ as put forward by the famous business historian Alfred Chandler has not been followed completely by all of the world’s leading economies. This essay will therefore be structured as follows: first I will briefly explain Chandler’s theory of the large-scale managerial enterprise, putting it into context of time and place and pointing out the major flaws of his theory. Then, I will attempt to justify my opinion by using the Japanese enterprise system, paying attention to the role of external influences such as the government and the availability of finance, as well as the role of business networks. Then, I will try to explain that Chandler’s theories of ‘personal capitalism’ and entrepreneurship are not inherently British features, but are also displayed in businesses in countries such as America. I will also use business examples to demonstrate that businesses which display such features are not doomed for competitive disadvantage. Finally, using the steel industry as an example, I will show how large-scale managerial enterprises are no longer competitive in modern business. Alfred Chandler (1990) defines the managerial enterprise as, “Large industrial concerns in which operating and investment decisions are made by a hierarchy of salaried managers governed by a board of directors.” (Chandler, 1990: 132). Chandler argued that the large managerial enterprise was the driving force of economic growth and transformation in any country. These large-scale managerial enterprises were formed in the United States and Germany before the First World War, in Britain in the 1920s and 1930s and in France after the Second World War (Abe, 2009). Advances in technology and communication enabled capital intensive firms to engage in mass production (Helper and Sako, 2010). Mass production subsequently led to economies of scale and firms could therefore produce more at much lower costs per unit, provided that production remained continuous. Continuous production is facilitated by a continuous supply of raw materials and as such, firms were encouraged to vertically integrate to ensure that the supply of raw materials was always available; if maximum capacity was not utilised, then the cost per unit would begin to increase. Firms over time were eventually able to diversify into the creation of other products that had similar production processes as their core product-they exploited economies of scope. Therefore, the combination of economies of scale and scope lead to the formation of large-scale businesses. However, as these businesses grew larger through mass production and vertical integration, as well as through product diversity, there was a need for a hierarchy of managers to coordinate the flow of materials, information and processes in order to maximise the business’s potential-the formation of the large-scale managerial enterprise. Finally, mass production is also facilitated by mass consumption; businesses would then have to invest in a marketing department to push its products through to consumers to ensure increased demand and consumption. Therefore, the most competitive businesses, according to Chandler, were those that were the first to make the three pronged investment in manufacturing, management and marketing. ‘Personal capitalism’ as described by Chandler, was the use of private finance and entrepreneurship to facilitate the running a business. Entrepreneurship and personal capitalism, inherently British features says Chandler, are forms of business structure that could not compete with the force of the large-scale managerial enterprise. Family run firms tended to put their personal short term interests before the strategic, long term interests of the business, thus resulting in a decline in competitiveness. This is why many British businesses were unable to compete against large-scale managerial enterprises from Germany and the US. Chandler’s analysis of the...
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