Alfred Chandler

Unless structure follows strategy, inefficiency results. Alfred Chandler American business historian Born 1918

Breakthrough ideas
Relationship between strategy and structure The multidivisional firm

Key book
Strategy and Structure The Ultimate Business Guru Book 38 Alfred Chandler (born 1918) is a Pulitzer Prize-winning business historian. After graduating from Harvard, he served A in the US Navy before becoming, somewhat unusually, a historian at MIT in 1950. Later he became Professor of History at Johns Hopkins University. He has been Straus Professor of Business History at Harvard since 1971. Chandlers hugely detailed research into US companies between 1850 and 1920 has formed the cornerstone of much of his work. In his 1990 book, Scale and Scope, for example, Chandler compared and contrasted the growth of the largest 200 companies in the US, the UK and Germany from the 1880s until the 1940s. In his earlier work, Chandler observed that organizational structures in companies such as Du Pont, Sears Roebuck, General Motors and Standard Oil were driven by the changing demands and pressures of the marketplace. He traced the market-driven proliferation of product lines in Du Pont and General Motors and concluded that this proliferation led to a shift from a functional, monolithic organizational form to a more loosely coupled divisional structure. (Interestingly, Chandler s family has historical connections with DuPont and DuPont is, in fact, Chandlers middle name. At the time DuPont also controlled General Motors.) Chandler was highly influential in the trend among large organizations for decentralization in the 1960s and 1970s. While in 1950 around 20 percent of Fortune 500 corporations were decentralized; this had increased to 80 percent by 1970. In his classic book, Strategy and Structure, Chandler praised Alfred Sloans decentralization of General Motors in the 1920s. He was later influential in the transformation of AT&T in the 1980s from what was in effect a production-based bureaucracy to a marketing organization. Chandler argued that the chief advantage of the multi-divisional organization was that it clearly removed the executives responsible for the destiny of the entire enterprise from the more routine operational responsibilities and so gave them the time, information and even psychological commitment for long-term planning and appraisal. Chandler has not followed the modern fashion for dismissing large organizations. Indeed he has challenged the conventional belief that small companies have a monopoly on innovation and dynamism. Alfred Chandler 39 While the multi-divisional form has largely fallen out of favor among thinkers at least another of Chandlers theories continues to raise the blood pressure of those who care about such things. Chandler defined strategy as the determination of the long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. He argued that strategy came before structure. Having developed the best possible strategy, companies could then determine the most appropriate organizational structure to achieve it. In the early sixties, this was speedily accepted as a fact of life

 no-one had previously considered strategy in such terms. More recently, Chandlers premise has been regularly questioned. I think he got it exactly wrong, says Tom Peters with typical forthrightness. For it is the structure of the organization that determines, over time, the choices that it makes about the markets it attacks.1 Others suggest that the entire process is far messier than Chandler suggested. In a perfect world, companies would hatch perfect strategies and then create neat structures and organizational maps. Reality however, is a mess in which strategy and structure mix madly. Contemporary strategist, Gary Hamel provides a more positive perspective on Chandlers insights. Those who dispute Chandlers thesis that structure follows strategy miss the point, Hamel argues. Of course, strategy and structure are inextricably intertwined. Chandlers point was that new challenges give rise to new structures. The challenges of size and complexity, coupled with advances in communications and techniques of management control produced divisionalization and decentralization. These same forces, several generations on, are now driving us towards new structural solutions the federated organization, the multi-company coalition, and the virtual company. Few historians are prescient. Chandler was. 2 Further plaudits come from Business Week: In the history of business, BC stands for Before Chandler. Chandlers theories also contributed to the professionalization of management. He traced the historical development of what he labeled the managerial revolution fueled by the rise of oil-based energy, the development of the steel, chemical and engineering industries and a dramatic rise in the scale of production and the size of The Ultimate Business Guru Book 40 companies. Increases in scale, Chandler observed, led to business owners having to recruit a new breed of professional manager. Chandler believes that the roles of the salaried manager and technician are vital, and talks of the visible hand of management coordinating the flow of product to customers more efficiently than Adam Smiths invisible hand of the market (see Chandlers 1977 book, The Visible Hand). The logical progression from this is that organizations and their managements require a planned economy rather than a capitalist free-for-all dominated by the unpredictable whims of market forces. In the more sedate times of the sixties, the lure of the visible hand proved highly