Antecedentes nacionales

Making use of the research approach discussed above, Chandler examined the rise of big business in North America. In particular, he examined the significance of complex administrative structures that were introduced by large firms to manage their operations.

Chandler’s (1956) initial attempt was to examine the origins of ‘decentralized’ organisational structures whose importance was growing among American businesses (p. 111). In order to trace their history, Chandler investigated ‘when, how and why’ firms began to decentralize (p. 112). He cross-examined the structures of the fifty largest firms operating since the First World War. He found that growing complexities in the operations was the major factor which led firms to adopt a suitable organisational structure to control and administer their diverse activities. The kind of decentralized structure employed by firms depended on the extent to which they operated in diversified markets. Those operating in different markets adopted product based decentralization; whereas firms that limited their activities to a single industry were decentralized on a functional or geographic basis; and the market oriented firms whose operations spanned different regions were decentralized on geographic basis.

In a later study, Chandler (1959) examined the initial conditions prior to the First World War that had led to the subsequent growing complexities of business operations. He argued that five major trends could be identified easily in the American economy between 1815 and 1920: the expansion of population, rapid building of railroads; development of urban markets; growing use of electricity and internal combustion as new sources of power; and the institutionalization of research and development (p. 1-2). With rapid changes in the market and growing uncertainties, firms began to internalize many of their activities through vertical integration to ensure a smooth flow of raw materials and horizontal expansion to control the distribution networks necessary to distribute products over a large geographical region. Firms also

diversified and introduced new lines of products to meet the demands generated by the opening of new markets. With the growing complexity of operations, they were unable to coordinate their activities through their existing administrative mechanisms. Therefore by the beginning of the twentieth century these firms had large centralized organisational structures to manage their diverse activities.

Chandler (1965) argued that railroad companies were among the first to introduce the modern centralized administrative structures. It was not because they were ‘more perceptive, energetic or imaginative’ then the rest; rather it was because they were the first to face the administrative challenge of managing increasing complexity in their operations in terms of handling ‘large amounts of men, money and material’ within a single business unit which resulted from the expansion just after 1850s (p. 16). With the emergence of divisionalised organisational structures, came the need for specialized people to administer the units. Therefore, along with the adoption of the new structure, it also saw, for the first time, the introduction of salaried managers who had clearly defined roles and responsibilities (Chandler 1977).

Chandler (1962) argued that this transformation occurred in four stages. First, the initial strategy was for expansion and accumulation of resources (p. 386). The American economy witnessed an exponential growth in its market after the 1850s, which was triggered by the development of railroads that helped to connect the dispersed geographic regions. Railroads themselves were also large customers for the iron, steel and machinery industries. By the 1880s, firms were able to reach far flung areas which generated a huge demand for goods. In order to meet these demands firms began to expand their operations by increasing production and employing a larger work force. In order to reach the farther areas it became necessary to develop their own distribution networks which included warehouse facilities, transport and even retail outlets (p. 387). Consequently, it created a steady demand for raw and ancillary materials and in order to ensure a secured flow, many firms either acquired or built their own vertically integrated facility (p. 387).

Second, this phase was directed towards the rationalization of the accumulated resources (p. 387). As a result of the strategy of continued expansion, the turn of the century saw the emergence of large vertically integrated firms. In the majority of instances, their capacity often

exceeded the actual demand in the market (p. 388). Therefore, in order to ensure continued profitability, firms were faced with two ‘pressing tasks’ : a) a lowering of unit costs through rationalization of functional activities. This led to the reorganisation of the various lines of authorities in the existing administrative structure along with the streamlining of manufacturing operations and processes and b) a closer integration of the functional activities with the end- markets in order to gauge the fluctuations in demand. Consequently, the further allocation of resources to these units got tied to the ‘estimates of the market’ in the immediate future, whereas some ‘entrepreneurial’ firms attempted to tie them to the ‘forecasts in long-term changes’ (p. 390). Therefore, by the end of the second chapter, firms had reorganised their structures significantly in order to instil efficiency in their utilization of resources.

Third, rationalization was followed by the expansion into new markets and products (p. 390). As consequence of the strategy of rationalization and internal efficiency, there was a narrowing of cost differentials among firms. This in turn resulted in a reduced profit margin (p. 391). In order to sustain their profit levels, firms started to pursue aggressive marketing strategies in order to increase their volumes of their existing products. However, with markets becoming increasingly saturated, firms started to diversify by exploring other markets or leveraging their know-how to develop new products (p. 391).

Fourth, in this phase the emphasis was again on introducing a new structure (p. 393). The adoption of the diversification strategy led to new challenges for the efficient allocation of resources that could not be met by the existing structure, which was geared towards meeting the challenges of a limited product range (p. 393). With firms now operating in different markets, there was growing dissimilarity in operations such as procurement and production, and the corresponding trends in its input and output market. Consequently, separate managers were appointed who were given responsibility for the administration of autonomous units, divided along the lines of product or the geographic region served.

This generalization of the birth and development of the modern organsation has been widely termed as the ‘Chandlerian thesis’. However, it is apparent that such a wide-ranging framework would attract critical scrutiny. The following section discusses the counter arguments that were put forward to explain the growth of modern business enterprise in North America.