Posted on

Alfred Chandler: Business History

It’s just a few people who could claim to have invented an academic discipline, but one who could, with some justice, is Alfred D Chandler. He was a historian who studied business, and in so doing, he inferred large historical patterns that still inform our thinking.

Alfred Chandler
Alfred Chandler, 1918 – 2007

Short Biography

Alfred DuPont Chandler was born in 1918 into a Delaware family that had commerce in its blood. In one branch of his family was grandfather Henry Poor, of Standard and Poors, and in another was the duPont family. He studied for a Masters degree at Harvard College before the war, where he was a friend of John F Kennedy. After service in a non-combat role, he returned to Harvard to finish his Masters and earn his PhD with a study of Henry Poor and the coming of the American railroads..

An appointment to MIT allowed him to study more large corporations in depth. His analysis of duPont, General Motors, Standard Oil, and Sears Roebuck & Co led to the publication in 1962 of the first of his three most noteworthy books (among over 25 in total): Strategy and Structure.

He also worked for a while at Johns Hopkins University, before returning Harvard in 1970, as the Isidor Strauss Professor of Business History at the Harvard Business School. There, he wrote his second major work, 1977’s The Visible Hand: The Managerial Revolution in American Business. This exceptional work won Chandler the Pulitzer Prize for History, and was the first business book to be recognised with a Pulitzer Prize. The title is a deliberate reply to Adam Smith, whose ‘invisible hand’ is the market. We’ll see what Chandler was referring to in a moment.

In 1990, Chandler published the last of his three major books, Scale and Scope: Dynamics of Industrial Capitalism. In this he shows that it is not just scale of operations that bestows big economies and hence competitive advantage. It is also scope – capturing a diverse spread of markets early on. Uncharacteristically, Chandler looked to economics and borrowed the term ‘first mover advantage’.

Having retired from the Harvard faculty in 1989, Chandler continued to work, write and comment on changes in business, and was a visiting professor at numerous institutions. He died in May 2007.

Themes of Alfred Chandler’s Work

Chandler’s approach of wide-ranging comparative analysis to find historical patterns of evolution and change initially encountered a lot of resistance from the academic business community. These academics favoured using economic and quantitative analysis to build their theories, but Chandler was able to change many (though not all) attitudes. Today’s business school focus on case studies and the rise to prominence of academics and writers like Jim Collins.

Strategy before Structure

The primary thesis of Chandler’s ‘Strategy and Structure‘ is that strategy must come before (and therefore dictate) the structure of the corporation. His historical observations led him to conclude that market forces need to drive shifts in the way organisations evolve, and he was able to predict the increasing trend for decentralisation that continues, in the largest businesses, today.

More recently, academic and business commentators have disagreed. Tom Peters observes that it is structure that determines which strategy a corporation will select, and Richard Tanner Pascale argued that Chandler assumed that organisations act rationally. They don’t, and he also notes that organisational structures play a big role in shaping strategy.

Trust Gary Hamel to sort it out, by seeing the subtlety of the competing views. He notes that the two are intertwined: new challenges lead to new structures, and new structures present new challenges. He concludes:

‘Few historians were prescient. Chandler was.’

Arguably, Chandler is, along with Igor Ansoff, one of the founding advocates of the study of business strategy.

Professional Management

Chandler also charted the rise of professional management; first in Strategy and Structure and then, more fully, in The Visible Hand. He saw managerially led corporations in the US rise with the growth of the railways and the need for complex, geographically-spread, systems. These first arose within the railway companies, and then in the corporations that grew nationally, due to the opportunities that long-distance transport offered.

It was the visible hand of an organisation’s managers that replaced Smith’s invisible hand of the market as a major driver of the structure of a modern business.

Further Reading

I rarely cite another website for further reading about our Management Thinkers, but in this case, I am compelled by the excellence of the article at the Strategy + Business site. I have deliberately avoided borrowing from it. If you are interested in Chandler, this should be your next port of call.

 

Share this:
Posted on

Richard Tanner Pascale: The Honda Effect

… or Experiment, Adapt, and Learn

Richard Tanner Pascale is known as a subtle thinker who refuses to be seduced by easy models and trite explanations, preferring to take an enquiring view of the complexities of organisational challenges.

His two big contributions flow, first, from his association with the McKinsey 7S Model, and later from his championing of the concept of complex adaptive systems as a powerful metaphor for organisations.

Richard Tanner Pascale

Brief Biography

Richard Pascale keeps much of his life private – there is little I can find of his early life, between his birth, in 1938, and his education at Harvard Business School. In the late 1970s, he and fellow academic Anthony Athos collaborated with McKinsey consultants Robert Waterman and Tom Peters in the creation of the 7S model, which later became a central component of his and Athos’ book, ‘The Art of Japanese Management’. He spent 20 years at Stanford University n their Graduate School of Business and then became an independent consultant. He is now also an Associate Fellow of Said Business School, Oxford University.

Early Work

The McKinsey 7S model offered seven inner-related aspects of a business and became an important part of both Athos and Pascale’s book, and of Peters and Waterman’s: ‘In Search of Excellence’. Whilst Peters and Waterman focused on examples of US success, taking a fairly reductionist view of what it takes to succeed, Pascale and Athos focused on Japanese business and highlighted the importance of the ‘soft S factors’ rather than the ‘hard S factors’.

Soft S Factors

  • Style of management
  • Staffing policies
  • Skills
  • Shared Values

Hard S Factors

  • Strategy
  • Structure
  • Systems

In this book, he also started to identify how Japanese businesses were able to respond successfully to complex and ambiguous situations, where rational analysis was unable to create a clear solution. Instead of jumping to a final resolution of a problem, he advocated accepting the uncertainties and proceeding on the basis of an initial assessment, and then using the new information you gain as the basis of tweaking your approach. This leads to a step-wise, incremental approach, rather than a bold, decisive strategy.

In many ways, therefore, he was advocating an approach akin to the Deming (or Schewart) Cycle, or the OODA and CECA Loops.

Work on Agility

The Boston Consulting Group (BCG) had taken an interest in why Honda had been so successful in launching a business in the US, but it was Pascale’s response in a 1984 edition of California Management Review that stimulated debate and raised awareness of Pascale’s ideas. Whilst BCG attributed their success to a long term investment strategy and gritty perseverance, Pascale saw things very differently. After interviewing Honda executives, he saw a series of failures and setbacks, followed by learning and adaptation. He perceived Honda’s approach as one of experimenting and reflecting.

Pascale adamantly rejects the western approach of oversimplifying, decrying management and strategy fads, and disassociating himself from common terms like expert or guru. Instead, he prefers a process of testing and questioning, reflecting and learning, and adapting. He has constantly returned to the theme of agility as the core competence of an organisation in a complex and changing world.  He concluded:

  • Agility is a key source of competitive advantage
  • Organisational culture and attitude to uncertainty and change, rather than processes are what lend it agility
  • Four things determine how agile an organisation will be:
    1. Power: the power employees have to influence events
    2. Identity: the extent to which individuals identify with their organisation
    3. Contention: how creatively is conflict managed
    4. Learning: how the organisation handles new experiences and ideas

In item three, the four elements can lead to stagnation, so Pascale went further, in a Harvard Business Review article (Nov-Dec 1997) called ‘Changing the way we Change’. He listed  seven mental disciplines that drive agility:

  1. Building an intricate understanding of your business
  2. Encouraging uncompromising straight talk
  3. Managing from the future
  4. Harnessing setbacks
  5. Promoting inventive accountability
  6. Understanding quid pro quos
  7. Creating relentless discomfort with the status quo

Pascale views complexity and ambiguity as the drivers of change, and that constant change as the key to success. ‘If it ain’t broke: don’t fix it’ is a truism. Pascale would say:

‘If it ain’t broke: go break it’.

Complex Adaptive Systems

More recently, he has been thinking carefully about the science of complex adaptive systems and drawing somewhat fruitful analogies with organisations. The problem I see is that this has become one of the fads he has derided, and been subject to much over-literal interpretation by lesser thinkers. His Sloane Management review article ‘Surfing the edge of Chaos’ and his subsequent book, also called ‘Surfing the Edge of Chaos‘ showcase his thinking in this interesting area. However, as intellectually stimulating as it is; it is hard to see how directly managers can apply the ideas.

Share this: