What Is Chandler'S Thesis

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Key influences: The complexity of the machinery industries made the manag­ers most influential; bankers and owners did rarely have much say in the strategy of the companies, except in financial difficulties.

Lessons from the American experience: The overriding importance of the “three-pronged investment” (production, distribution and organizational capabilities) stressed again.

Managerial capitalism (topic of Chandler’s The Visible Hand) refers to “a new type of capitalism–one in which the deci­sions about current opera­tions, employment, output, and the allocation of resources for future opera­tions were maid by salaried managers who were not owners of the enterprise”.

Scale, Scope and Organizational Capabilities (General theory of why and how industrial enterprises began and evolved).

The industrial enterprises grew by adding new units – dif­ferent in terms of geography, economic functions or prod­ucts.

These units were added because they provided In production, increased output in the old, labor-inten­sive industries came mainly by an increase in size (adding more ma­chines and people).

In the new, capital-intensive indus­tries in­crease in output came as a dramat­ic reduction in capi­tal/labor ratios, due to new machines and processes.

Thus, economies of scale were much more important in capital-intensive industries, whereas in the labor-intensive one the large firm did not have significant advantages over the small ones.

One reason for this was the increasing “product-specificity”; as prod­ucts became more complex, it was not cost-efficient to have a wholesaler handle the difficult transaction processes.

Another reason was competition; in the fierce battle for market share in an oligopolistic marketplace an intermediary who made his profit from handling products of more than one manufacturer became redundant.


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