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Chandler - Strategy and Structure Summ1

Chandler - Strategy and Structure Summ1

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07/24/2013

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Preliminary Exam Summary; Section: OrganizationsBy Eileen Bevis
CITATION:
Chandler, Alfred Dupont.
Strategy and Structure: chapters in the history of the industrial enterprise.
Cambridge: M.I.T. Press, 1962. Pages 1-51.
ABSTRACT:
While Chandler’s book is an institutional history of American industrial administrativeinnovation up to ~1960 and includes detailed case studies and comparative analyses, the twoassigned chapters include only an introduction with theoretical framework and a general background chapter surveying “changing patterns in the growth and administration of the largeenterprise in the United States, based on the experience of many of the largest companies” (4).The main thesis is that strategy (expansion of volume, geographical dispersion, verticalintegration, and/or product diversification) determines structure (especially a centralized,functionally departmentalized structure or multidivisional, decentralized structure).
SUMMARY:
I. Introduction—Strategy and StructureA. Motives and Methods (1-7)This book is a comparative history of business administration, with a focus oninnovation. [Justification:] Because administration is a hot topic and becauseadministrators do not change unless forced, studying administrative innovation[=”modern ‘decentralized’ form of organization” (4)] will “point to urgent needs andcompelling opportunities both within and without the firm” (2). It will examine [someof] the largest and most complex of American industrial enterprises.The structures used to administer these great enterprises are: multidivisional, a.k.a.,“decentralized”; i.e., a “general office plans, coordinates, and appraises the work of anumber of operating divisions and allocates to them the necessary personnel, facilities,funds and other resources” (2). Each division usually handles either a specific line of  products or a specific geographical region. For graphic representation, see chart page 10.The first “decentralized” companies were Du Pont, General Motors, Standard Oil (NJ),and Sears Roebuck, who all began major administrative reorganization in the 1920s.These Big Four are the main focus of Chandler’s study, though he also looks briefly atabout a hundred other large industrial companies’ histories for context, comparison,generalizability (3). Note: these four developed their new administrative structuresindependently of the others, though many other companies later imitated the structure(s)of one or more of the Big Four.[I’m skimping on a lot of the methods and justification because they relate to chapters wewere not assigned.]B.Some General Propositions (7-17)[Taking after Durkheim,] “the terms and concepts used in these [upcoming] comparisonsand analyses must be carefully and precisely defined” (7), and some theoretical propositions put forth for “conceptual precision” (8)…
 
Chandler 2
1.Industrial enterprise : “a large private, profit-oriented business firm involvedin the handling of goods in some or all of the successive industrial processesfrom the procurement of the raw material to the sale to the ultimate customer”(8); thus, transportation, utility, and purely financial companies are notconsidered industrial enterprises (8).2.Administration : “includes executive action and orders as well as the decisionstaken in coordinating, appraising, and planning the work of the enterprise andin allocating its resources” (8).3.
Proposition 1
: administration is an identifiable activity, differing from buying, selling, processing or transporting of goods, and is the main concernof executives in large industrial enterprises [their specialized, full-time job isadministration] (8-9)4.
Proposition 2
: the administrator must handle two types of administrativetasks, both (a) those concerned with the long-run health of the company and(b) those concerned with its smooth and efficient day-to-day operation (9).5.
Proposition [3]
: the executives in a modern, “decentralized” company carryout their administrative activities from four different types of positions, eachwith its own range of activities and level of authority that vary from companyto company (9). The four types of positions are (9):i.
General Office:
administers [i.e., coordinates, appraises, plans, andallocates resources] a number of quasi-autonomous, fairly self-contained divisions, each of which handles either a major product lineor a geographical region.ii.
Division’s Central Office:
administers a number of departments,each of which is responsible for a major function (e.g. manufacturing,selling, research)iii.
Departmental Headquarters:
administers a number of field unitsiv.
Field Unit:
runs a plant, sales office, engineering lab, accountingoffice, etc. Note: these are conceptual terms referring to activities and not office buildings(9-10). All four types exist in the most complex of industrial enterprises,though they can exist separately too (12).6.Formulation of policies and procedures (11)i.Strategic : concerned with the long-term health of the enterpriseii.Tactical : deal more with the day-to-day activities necessary for smooth and efficient operationImplementation of policies and procedures: involves allocation or reallocation of resources—funds, physical equipment and/or skills of  personnel (11, 14)7.Entrepreneurs : executives who actually allocate available resources; thedecisions made by these key men are entrepreneurial decisions (11)Managers: executives who coordinate, appraise, and plan with the meansallocated to them; their decisions are called operating decisions (11) Note: entrepreneurs may be powerful but they do not necessarily possess
 strategic
vision (12). According to Chandler, however, to be effectiveentrepreneurs, they should be paying attention to the long-term (12).
 
Chandler 3
8.Activities and responsibilities of an executive parallel activities andresponsibilities of the office in which s/he works (one of four types above, #5)(12).9.
Proposition [4]
: Since each type of position handles a different range of administrative activities, each must have resulted from a different type of growth (13).
Growth of volume or technical complexity
leads to specializedadministrative executive (somebody who does mostly/only admin);
 geographical dispersion
leads to new field units and a central headquarters toadminister them;
expansion into new functions,
a.k.a.
vertical integration
leads to new departments and a central office to administer them;
diversification
into new lines of business or great geographical expansionleads to new divisions and a general office to administer them (13, 14).10.
 
Strategy: the planning and carrying out of organizational growth; “thedetermination of the basic long-term goals and objectives of an enterprise andthe adoption of courses of action and the allocation of resources necessary for carrying out these goals” (13). E.g. “Strategy of vertical integration” or “strategy of diversification”; often not as clear-cut in reality as in theory here(16).Structure: the organization devised to administer these enlarged activitiesand resources; the design of organization through which the enterprise isadministered. Has two aspects:i. lines of authority and communication between administrative officesand officersii. the information and data which flow through these lines (13)11.
Basic THESIS
: Structure follows from strategy and the most complex typeof structure is the result of the concatenation of several basic strategies (14).i.But why doesn’t structure immediately follow from strategy?ii.And why does new strategy arise in the first place?12.
COMPLETE THESIS
: “Strategic growth resulted from an awareness of theopportunities and needs—created by changing population, income, andtechnology—to employ existing or expanding resources more profitably. Anew strategy required a new or at least refashioned structure if the enlargedenterprise was to be operated efficiently. The failure to develop a newinternal structure, like the failure to respond to new external opportunities andneeds, was a consequence of over-concentration on operational activities bythe executives responsible for the destiny of their enterprises, or from their inability, because of past training and education and present position, todevelop an entrepreneurial outlook” (15-16).13.
Corollary
: Growth without structural adjustment can lead only to economicinefficiency (16).14.So each case study’s administrative story has two parts: “the creation of theorganizational structure after the enterprise’s first major growth or corporaterebirth, and then its reorganization to meet the needs arising from thestrategies of further expansion” (17).II. Chapter 1: Historical Setting

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