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The Visible Hand: The Managerial Revolution in American Business unknown Edition
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Chandler's book is a major contribution to economics, as well as to business history, because it provides powerful insights into the ways in which the imperatives of capitalism shaped at least one aspect of the business world―its tendency to grow into giant companies in some industries but not into others. (Robert L. Heilbroner New York Review of Books)
This very important work of historical synthesis by Harvard's premier business historian should be read not only by economists and historians, but also by middle and top managers of the modern, integrated corporation. (Library Journal)
The Visible Hand is a revolutionary work. Business history in the past was largely about entrepreneurs―either as 'robber barons' or 'industrial statesmen.' Chandler shifts the spotlight from the promoters to the managers… The Visible Hand is a superb book―a triumph of creative synthesis. (New Republic)
A monumental effort summarizing much of what is known about the rise of the managerial class… Chandler deserves a wide audience. (Susan Previant Lee New York Times Book Review)
Alfred Chandler has produced an extremely valuable account of the development of the large managerial firm. How―and why―did the visible hand of management supersede the invisible hand of market coordination? The study provides a rich empirical basis for work on the new frontier of industrial organization concerned with the determinants of the boundaries of the firm and the nature of interorganizational coordination in the large region between impersonal markets and complete integration. (Victor P. Goldberg Journal of Economic Issues)
Business historians have tended to be more attracted by the great entrepreneurs―the robber barons of industry―than by the institutions they created. Professor Chandler has corrected this bias by writing a masterly account of the rise of the modern business enterprise and the methods of running it. (Economist)
From the Back Cover
The role of large-scale business enterprise-big business and its managers-during the formative years of modern capitalism is delineated for the first time in this pathmarking book.
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The main themes addressed by Chandler are: 1) the rise of the railroads and the consequent development of modern management; 2) the creation of a national mass communication network, along with the rise of mass production in certain industries thanks to technology and process improvements; and 3) the appearance of mega-corporations, through horizontal (merger) and vertical integration, in those industries best situated to take advantage of combining mass production with rapid national and often global transportation networks.
Before the railroads, the author, Alfred Chandler, writes, there were no large organizations in American business, southern slave plantations included. The largest of private enterprises, such as the textile factories of Lowell, Massachusetts, were owner / operated and employed, at most, a hundred workers. The railroad changed everything. Enormous amounts of upfront capital was required to build them, which led to the rise of banks, the growth of the stock market, indeed, the birth of Wall Street. Workforces measured in the thousands were necessary, ushering in the long and steady shift from farms to industrial enterprises that fundamentally altered the national social landscape. And, most critically and wholly new to American business, to ensure that trains and passengers moved efficiently and safely, a network of specialized, salaried managers were vital, who over the years developed modern cost accounting and organizational principles to better manage the sprawling behemoths. In sum, from the development of the railroads and their management structure sprung the greatest economic colossus of recorded history -- the United States.
The speed and reliability of transportation and communication brought by railroads and the closely associated telegraph industry radically transformed the distribution of goods, Chandler argues. Beginning with the commodity trade, grain and cotton in particular, highly efficient and above all extremely rapid national transportation and communication networks were created. After the commodity markets came national wholesale operations, which were then trumped by mass retailers, such as department stores, like Macy's and Woolworths, then mail order houses, like Sears Roebuck and Montgomery Ward, and finally chain stores. In all of these operations, "economies of scale and distribution were not those of size but of speed. They did not come from building larger stores; they came from increasing stock turn." Sear Roebuck, in particular, reads like the Amazon.com of the late nineteenth century, suddenly offering unprecedented selection and customer service to a huge, rural and theretofore underserved customer base. The numbers tell the tale: revenue grew from $138,000 in 1891 to $38M in 1905, when they were fulfilling 100,000 orders a day, leveraging a core competence in packaging and shipping.
Next, certain industries experienced rapid and massive consolidation, but only those that could profit from capital intensive and energy intensive continuous process manufacturing. In short, speed mattered much more than size. All the revolutionary developments could be tied to the velocity and volume at which materials could flow through the economy. In industries where major increases in speed and volume were not possible for structural reasons, such as apparel, woodworking or leather, there was no revolution in production. These industries could always grow their factories bigger, but not faster -- and faster is all that really mattered. Industries that relied on continuous process manufacturing and/or required a lot of heat -- industries such as steel and other metals, chemicals, distilling and oil -- experienced huge jumps in productivity thanks to new and more reliable sources of energy (coal or electric) and new machinery properly configured in factories that maximized speed and throughput. It call came down to new machines, better raw materials and the intensified application of energy. Those firms that could profit from those innovations ultimately gained an upper hand by increasing volume and speed of production. In these industries, the first mover advantage proved powerful as an effective, national marketing organization -- advertising, sales and, where applicable, servicing -- was difficult to emulate and served as a powerful barrier to entry. Backward integration into raw materials production was often a result of ensuring supply rather than securing a lower price. Finally, Chandler writes that the competitive outcome in these industries was usually oligopoly rather than monopoly, largely because a few large integrated firms emerged simultaneously and/or large, integrated firms in adjacent markets branched out and competed with the entrenched leader (i.e. chemical companies expanding into soap).
Chandler's basic thesis is that managerial capitalism -- the growth of business and economic activity owing to salaried, professional managers -- is the primary explanation for the dramatic rise of the industrial enterprise in America and then the rest of the world. He maintains that economists and historians have long preferred to study entrepreneurial capitalism (the role of Robber Barons or creator/innovators, depending on your political viewpoint) and financial capitalism (the role of banks and finance), but that both of these matter much less than managerial capitalism, the expansive, vertically integrated enterprise serving a national or global market with mass production and mass distribution, usually with products that could be produced with continuous production technology. It's a powerful argument.
This is a frequently cited reference for economic history and should be required reading for anyone with interest in that field.