Lecture 12: Chandler: Organizational Economy

what is the importance of forming of communities of engineering practice and corporations?

it was a key difference between the US and Britain as the US takes over economically

corporations are focused on increasing

efficiency to remain profitable

organizational capabilities

the learned routines and coordinated activities that happen within a company

what question was Chandler trying?

why is there a need for a formal organizations when markets are supposed to coordinate activities

what are the four key characteristics of a firm as identified by Chandler?

it is a legal entity: that can enter into legal contracts

it is an administrative entity: that needs management to organize its activity

its a pool of resource: a concentration of resources to produce something

instrument for production and distribution: it is about making and selling things for a profit

what kicked off the boom of firms?

advances in transportation technology and communication networks

what paved the way for the Second Industrial Revolution?

infrastructure boom

how did the large-scale companies operate differently from smaller companies in the past?

the new firms were more capital-intensive and could exploit economies of scale and economies of scope

throughput

the volume of things being processed

In capital-intensive industries, what does throughput need to be?

throughput cannot drop otherwise cost per unit go way up

the potential for economies of scale and scope is a matter of _______ ______ but actually realizing this is ________

physical capacity, organizational

the firms that organized for ______ _______ production gave them a cost advantage

large scale

what is the three pronged investment strategy that allows firms to organize for large scale production?

invest heavily in large-scale, specialized production facilities (factories)

create national and international marketing and distribution organizations (sales and logistics)

developing internal managerial hierarchies (need teams to coordinate and oversee the complex activity)

how did the challengers compete with the first movers?

competition became more about functional and strategic efficiency

constantly improving processes to lower costs and improve product quality

investments in R&D to find more efficient ways of producing things

securing reliable and cost-effective suppliers

developing marketing and better customer service

differentiation of products through branding and advertising

creating value beyond price

what led to the creation of organizational capabilities?

constant drive to improve production processes and become better

how did American and German firms outcompete Britian?

American and German companies invested in capital and in building sophisticated organizational capabilities in production, distribution, and management

why was Japan able to rise economically after WWII?

absorbed western technologies and built their own organizational capabilities allowing them to compete on a global scale

why did the Soviet system fail?

centralized control stifled the development of organizational capabilities- managers could not gain the hands on experience needed, lack of decentralized organization learning led to the collapse

evolutionary theory

views firms as dynamic entities that are constantly learning and adapting

more about building something internally

what does Chandler see as the core of long-term success?

ability to learn, adapt, and build on existing knowledge

vertical integration

company owns suppliers and distributors; necessity for success for the first movers

true or false: vertical integration is a good idea for all firms

false

how did competition drive home the need for organizational capabilities?

the real measure of a company’s success is its ability to gain and maintain market share, especially in global markets

German and American companies outperformed British companies

even though British firms had a head start, why did American and German firms outperform them?

American and German firms invested in large scale production, efficient distribution, and continuous R&D

British firms did not make the long-term investments to build up their capabilities

after WWI, how did growth patterns change?

expansion into new geographical markets and diversification into related products became the dominant strategy

leveraging organizational capabilities in new areas

what is the key takeaway from Chandler’s work?

a company’s most valuable assets are constantly evolving through learning and adaption

the dynamism of the firm and building/adapting organizational capabilities