- Historic Sites
Master of Business Historians
August/September 1985 | Volume 36, Issue 5
The organization builders—Sloan at General Motors, Pierre du Pont at Du Pont, Gen. Robert E. Wood at Sears, Roebuck & Co.—emerge as the heroes of Chandler’s chronicle. Wood came the closest, Chandler says, to being both an empire builder and an organization builder. Sloan and du Pont were analytical, systematic men who fashioned independently, in their respective businesses, the multidivisional, decentralized structures that have grown so familiar in our time. In case we are tempted to underestimate their achievement, Chandler reminds us that in 1920 no expert on management would have recommended a decentralized structure with centrally coordinated control because no organization had ever tried it or thought to try it. In their precise, methodical ways, Sloan and du Pont were innovators as bold as Picasso in painting or Stravinsky in music.
The Visible Hand is an even more ambitious book than Strategy and Structure. It examines the rise of big business in the United States, analyzes the extraordinary changes in the processes of production and distribution that have transformed our lives over the past two centuries, and describes the rise of a “new subspecies of economic man—the salaried manager.”
As late as 1840, Chandler reminds us, there were no middle managers in the United States—that is, no managers who “supervised the work of other managers and in turn reported to senior executives who themselves were salaried managers.” Yet by the middle of the twentieth century, the multiunit enterprise administered by salaried managers had become the “most powerful institution in the American economy,” and those managers had become collectively the most influential group of economic decision makers. “Rarely in the history of the world,” Chandler says, “has an institution grown to be so important and so pervasive in so short a period of time.”
Modern business enterprise came into being, Chandler argues, through the integration of mass production and mass distribution—that is, through the “internalization” of activities and transactions previously carried out by distinct business units. In effect, large business organizations “took the place of market mechanisms in coordinating the activities of the economy and allocating its resources.” Though the market has remained the “generator of demand for goods and services,” in many sectors of the economy the “visible hand” of management has replaced what Adam Smith called the Invisible Hand of market forces. (In the auto industry, for instance, why do we have annual model changes? It’s certainly not in response to the invisible hand of consumer demand.)
Much has been written about the empire builders, but historians have paid little attention to the managers who, says Chandler, played a “far more central role.”
Chandler’s argument poses a challenge to both economists and historians. In most of our colleges and business schools, economic theory is taught as if we still lived in a world of single-unit enterprises—that is, as if giant, vertically integrated industrial enterprises did not exist. Since administrative coordination has become the “central function of modern business enterprise,” any theory of the firm that neglects to analyze the role played by coordination is “far removed from reality.”
Historians, too, Chandler charges, have failed adequately to assess the significance of modern business enterprise. Much has been written about the empire builders, but historians have paid little attention to the managers who have played, in the long run, a “far more central role … than did the robber barons, industrial statesmen, or financiers.” John D. Rockefeller mattered, but the anonymous organization men who run the oil companies today may matter more.
If Chandler’s work has a weakness, it is that occasionally he seems to suggest (not intentionally, I think) that the rise of professional managers has banished irrationality from the world of American big business. Chandler shows us the visible hand of management, allocating and coordinating, but he does not display equal interest in the sometimes equally visible managerial ego. He rarely pauses to consider the possibility that, swayed by motives they neither recognize nor understand, rational men and women in business might make wildly irrational decisions. Nor does he pause to consider that systematic, calculating administrators might spend only part of their time deciding how best to fulfill the managerial tasks entrusted to them, and that their freshest and finest energies might be devoted to such vital questions as how to advance their careers, whom to flatter, whom to avoid, and how to discredit their corporate rivals.
Having completed two major studies of American business, Chandler has now taken the world for his stage and plans to publish next a book tentatively entitled Global Enterprise—a comparative analysis of the development of multiunit enterprises in Germany, Great Britain, Japan, and the United States.
Global Enterprise promises to be an impressive capstone to a splendid career. As much as he admires the organization builders, in his own work as a historian Chandler seems more like an emperor—the monarch of all the business he surveys.