You are on page 1of 8

The Visible Hand

A.D. Chandler, 1977

Luciana Silvestri
February 2, 2010
Goal

•Chandler examines the evolution of the processes of


production and distribution in the US, and they way
they have been managed.

•He is especially interested in the rise of the modern
business enterprise and of the professional
manager as a distinct class/profession

•Phenomenon: managerial capitalism.

Two types of organizations

Traditional Modern Business


Business Firm Enterprise
•Single business unit •Multiple business units;
• vertically integrated
• •
•Single product line •Multiple product lines
• •
•Single geography •Multiple geographies
• •
•Managed by owners; •Managed by professional
family active in business managers, non-owners,
• hierarchically ordered
• •
•Ended with change in •Self-perpetuating
partnership or death of
founder
Two types of organizations

Traditional Modern Business


Business Firm Enterprise

Too small to Enterprise size alters


influence market market structure
outcomes

Administrative
Market coordination coordination
mechanisms prevail mechanisms take
over some market
functions
How did the modern enterprise arise?

•Opportunity to attain greater productivity, lower


costs, and higher profits from administrative
coordination vs. market coordination.

•Presence of a managerial hierarchy to monitor and
coordinate activities / resource allocation.

•High volume of economic activity, advancing
technology, expanding markets.
Why did the modern enterprise continue to grow?

•“Entrenched” hierarchy; the enterprise survived


individual members.

•Professional management; selection and promotion
based on training, experience, and performance
rather than family relationship.

•High capital investments; management of the
enterprise became separate from ownership.
Why did the modern enterprise continue to grow?

•Search for stability; preference for long-term growth


versus current profits. 

•Domination of economic sectors; internalization of
the entire value chain; high concentration.
Conclusion

The modern business enterprise,


by virtue of administrative coordination,
brings imperfect competition and resource misallocation.

Still, it is the institutional response we have given to rapid


technological innovation and increasing consumer demand.