Strategies and structures of the company

Alfred Chandler, 1989, Strategies and structures of the company, Paris, Organization

Objectives of the opus

The work Strategies and structures are, primarily, a work of organisational descriptions. These comparative studies have four dimensions of vertical integration. Those are presented by organisational descriptions of large historical firms of the economy of the United States; they also exemplifient four dimensions of the problems suitable for management, during the development of a firm. It is, indeed, the office plurality of the functions and the organizations which obliges the managers: either to remain with their initial structure and not to develop, or to innovate a new organization. The organisational innovation is a manner of developing the company, so that the managers, such as known as so pertinently Brown, “see more clearly”. I.e. this aptitude to become aware of the inadequacy of the organization with respect to a better economy of the coordination of the goods.

For the managers of a company, the preoccupation with a visibility takes the form of a need for statistical data on the lines of business; the organization aims at fixing the perimeter of each functional entity and to strictly define each responsibility for operational management. We will see, in the visible hand of the managers, that each management tools correspond to its degree of foreseeability, of speed: to provide for knowledge with flows with the company. I.e. visibility of the bond between the production and the distribution of the product.

Problems of the author

By “industrial company”, Chandler understands to name “all large private company, directed towards the profit, which intervenes, at least partially, in the chain of the industrial operations undergone by the products, from the supply raw material, until the sale of the end products” (p.34). The company is a legal entity, but also an economic agent: “a subspecies of what Werner Sombart called which the capitalist company, as an independent economic organization is placed above the individuals who constitute it. This entity becomes then the agent in all the transactions and carries out, so to speak, a clean life, often longer than that of the men who composes it” (p.34).

In the middle of this concept of company, one of the characteristic of management appears, according to Chandler: it is this “function definite and independent” of the techniques - purchases, sale, production,… - which is “more administrative than technical” (p.36); this function is thus that of an activity of coordination, an improvement of the connections in the exchanges of goods and services. This definition cumulates at the same time two dimensions of improvement and supervision of the activities. It would be an art of administration of the structure - industrial company -, like its flows - provisioning with the distribution. Thus, the company is this accumulation of functions and specific trades; its objective is the development of a good; this science of the organizations is at the same time that of the “official channels and communication between the various levels and administration executives”; but also that “information and data circulating by the channel of these hierarchies and administrative levels ways” (p.42). So management can be seen like this interstitial movement: that of the established organization and the art of its development. Indeed, “one can deduce from these proposals which the organization is function of the policy, and which the most complex organization results from the office plurality of several basic political offices. The expansion in volume brought the creation of an administrative office responsible for an activity in a determined area, geographical dispersion required the installation of a departmental management charged to supervise several operational units. The fact of launching out in new activities asked for the creation of a central management and a departmental organization multi, while the new development of product or a progressive expansion on the national plan and international involved the formation of a multidivisionnelle organization having at its head an head office. The policy of integration is, for Chandler: the fact of launching out in new activities, and policy of diversification, the development of new products” (p.43). The question raised by Chandler is that of the passage between the “office plurality” of the functions of production, causing these “new administrative needs”, and the implementation of a “reorganization”. It is, for Chandler, this “aptitude to detect the crucial mechanisms” (p.44); he affirms it in a peremptory way, the reverse is unthinkable: the “expansion without reorganization can lead only to one economic dead end” (p.45).

Four dimensions of the organisational visibility

In Strategy and structure, Chandler retains four dimensions of the visibility, for a better management of the large firms: information of rigorous and quantified management, a centralization of the decision and thus an increase of this information, a company whose staff managements are coordinated between them, and then a decentralized distribution which answers the strategic function.

1° a visibility of the activities by the information of management. I.e. to undertake a centralization of the decision-making processes of the company; it is also the development of reliable measurements so that management has a satisfactory visibility of the lines of business. The figures transport information of the company. This in order to be able to rule of better decisions. This expansion of the visibility is a step of rationalization of decision makings; it requires, therefore, a great work of definition of the perimeters, a definition of the standards of management. All these indicators must be in conformity with the responsibilities for the intermediate executives; those must hold clear and accepted processes. The visibility thus supposes to replace the “personal” manager - of the senior in rank to the subordinate one - with the person in charge whose load first is the transmission of the figures of the line of business for its perimeter. All are persons in charge of decentralized operations, and must transmit synthetic information on those. I.e., the vertical integration of the firm thus operates a remote setting (and in fine a separation) of the responsibility for the activities: the leaders are nothing any more but responsible for the figures, syntheses of all the operations; with the functional chiefs the responsibilities for administration are moved. All the direction of the activities depends on the way in which this information is, at the same time rigorous, homogeneous and transparent.

2° a central function décisionnaire in search of visibility. The function décisionnaire is more efficient when it is centralized and of small number. From where the development of the questions of operational management, at all the steering committees of the large firms; this operational management tends to separate, more and more, of the strategic responsibilities: those of forecast, planning and budgeting of the operation of the company. However, the problems of this decision-making body were always the lack of vision of its decision makers. From where importance to structure clear information; this one must give a reliable visibility on the lines of business. For that, it is advisable to set up an organization, with a very particular care for the delimitation of each responsibility for the managers. For each person in charge, the duty is to transmit information to the top of the company. So that the authority decision maker, the head office, can make the most projecting decisions on becoming to it strategic company.

3° Of the direction to coordination: the multipurpose company. The objective of the reorganization of the company is to give the operational responsibilities to several functional divisions. This delegation of the activities aims to lighten the leaders of the responsibilities for production; they must concentrate in strategic missions. So great staff managements structure the company, by giving a full responsibility for their functions to their chiefs; by distinguishing the limits from the responsibilities and the functional persons in charge production. Those have the role of giving the necessary informations to the steering committee. The leaders coordinate the functions; the persons in charge of division manage the functions of the company. With final, it is a centralization of information, on all the company, which makes it possible to be able to give relevant figures, missions of framing to the persons in charge of the production; all the necessary informations are extended to the whole company, so that the operational decisions take into account the total operation of the company. Thus, the visibility of intermediate management on its activity is wide. Consequently, to direct is less one order of hierarchical decisions, that a chain of persons in charge, of which the leader managers must ensure good coordination.

4° the decentralization of the distribution This process became an crucial issue for the modern firms, so much they seek to lower their costs; for that, they is necessary for them a strong investment in infrastructures of mass production. In same measurement, it is a question of developing the marketing of the products. It is a question, consequently, of developing a sales network with an information system coordinating on all the territory of the subsidiary companies of distribution and sale. By the development of this information system of distribution, it is a question of centralizing the allowances of means. With the centralization of information, the networks of sale can be to decentralize. This centralization of information can disseminate relevant commercial information: that which makes able the local actors to have the organisational elements of their sales volumes. These actors then have a larger sight on the company; strong synergies can be arranged, to develop a knowledge of the customers and cause a drop in the price of the products.

Invariants of the “clear” searchs for organization more

Chandler thus posed, by this comparative historical study, the great principles of the innovations as regards organization. The question of the invariants of these processes of organisational innovation by the managers arises then, so that they have a better organization and vision on their organization.

The basic statement is that of the development of the firm. To find new forms of organization, the managers must solve the problems of office plurality of functions and organization. And of the invariants exist to include/understand these creative processes organisational. They are mainly founded on a reflexive attitude compared to the existing organization. Thus, of small groups of managers, highly positioned in the company, want “to see more clearly” on their organization. I.e. they require, generally, a vertical integration of the company: so that the decision makers can have wider information of the company. This centralization of the decisions answers a request for larger visibility on the line of business. It is a question of making structure, the innovation of a different news structure. And the role of the innovators is crucial, their personality influences much; the factors of emergence of reorganization are the analysis of a restricted small group, with a strong culture of engineers; those must encourage the managers to make the organisational studies most precise, in order to improve the range and nature of the existing organizations.

The invariants and the universal conditions of emergence are to be relativized, then there exist sectoral differences, there are successes, but also relative failures of these vertical integrations. In spite of that, Chandler believes deeply that this centralization makes it possible to have more reliable information, giving a greater visibility on the line of business; this one requires better organizations, with the definite and quantified objectives: in search of the rationality of its management, that of the modern company.

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