Introduction
Managerial enterprises received the priority and governmental focus in the modern economic strategy that led to the fast and impressive growth of the economies of developed countries. Numerous countries have chosen the model designed by Alfred Chandler as the primary tool for changing the perspectives and visions to transform and grow to become powerful national economic enterprises (Gamble et al. 2013). The model is based on the economic logic (Besanko 2013).
The decisions made by managers based on this approach had a momentous impact on the path of economic advancement of Germany making this country one of the most influential players in the global arena, increasing production level in the United States, and helped Japan reach its leading position in the world. Adherence to the economic logic became the engine for the economic improvement. However, weak implementation of the Chandler’s model consequently led the United States to the decline in the competitiveness in machinery and electronics sector of industry.
The major purpose of the paper is to evaluate the role of the model of large-scale ‘managerial enterprise’ discussed by Chandler in the economies of the powerful and leading countries, namely the United States, Japan, Germany, Great Britain, and China. The assessment will be based on comparing and contrasting the economies in such areas of as effectiveness of management in guaranteeing high level of return on investment and organisational structure of an establishment.
The Fundamentals of the New Approach
According to the opinion of Alfred Chandler, American expert in the field of economics, enterprises should invest impressive sums of money to improve production and distribution and thus boost the industrial development and reach economic success and prosperity (Lazonick & Teece 2012). Decisions regarding production, financing, and distribution should be made on all levels of management based on hierarchy of organisational functions to contribute to progress and improvement.
This model was implemented by the leaders of religious and governmental structures long ago, but it was adjusted to the system of industry only in the nineteenth century. Starting with the sector of transportation and communication, the model was later used in the field of distribution (Harvey & Jones 2013). Business received big push towards development after the improvement of the railway industry that resulted in the establishment of hierarchy in carrying out organisational and decision-making functions of managers in the United States and Europe. It became evident that family-owners can no longer be responsible for such companies as it was before, so the enterprises understood that they should extend geographically and cooperate with different markets to make progress (Teece 2012).
It is where multidivisional structure developed by Chandler satisfied the needs of the managers. The implementation of multidivisional approach helped in achieving the companies’ aims and reaching sustainable levels of development. To turn the economies of the scale and scope to an advantage and to take the leading position among the competitors, the organisation had to follow the triple system of investment, namely manufacturing of goods, improvement of marketing and distribution, and management (Chandler & Hikino 2009). So, according to Chandler’s model, investment strategies and building up organisational structure on the basis of hierarchy are the determinants of successful managerial enterprise.
Triple Approach to Investment as a Primary Determinant of Management Effectiveness and Economic Growth
The triple approach to investment is what Chandler recommends stressing on while developing the company’s investment strategy to exploit the economies of scale and scope. In the case of the United States, the Standard Oil Company was one of the most successful organisations in the field of oil refiner using this paradigm. Rockefeller kept to the economy of scale with the implementation of the horizontal structure. Following the principles of the managerial enterprises allowed the IBM Company to take to the top position in the computer sphere in the world.
Chandler stresses that there is a connection between Germany and the United States. The fundamental difference between the way the countries view the system of business and industry is considered to be in the implementation of the model, namely ‘co-operative capitalism’ and individualism-centred Anglo-Saxon model. The specificity of the German economy is that the country invests an impressive amount of money in development and improvement of the educational system and training. This economy is a great example of the scope type. One of the features of the managerial capitalism is that it is centred on the development of the company rather than on the influence of banks and government. The United States, on the other hand, used the banks to support and expand the companies while they were believed to be mediators in Germany.
One of the essential characteristics of the German economy is functioning of cartels. Although Alfred Chandler was sure that cartelisation is an obstacle on the way of the company’s improvement, the economy of Germany proves that this statement can be argued. The companies in Germany realised the importance of investments into production and distribution, and that is what transformed the economy and helped reach prosperity. BASF and Bayer are great examples of how implementation of Chandler’s model impacts the development of business in a positive way.
Japan is another developed country that that demonstrated fruitful appliance of the triple approach to investment. The triple construction typically includes the “factory, the firm, and the inter-firm network with banks and trading companies” (Abe & Fitzgerald 2014). In the 1930s, every third of the largest organisations in Japan was ruled by financial conglomerates, Zaibatsu (Hirschmeier & Yui 2010).
Organisational Structure as a Key to Success
The rise of the manufacturing industry gave a push for the management to emerge. Those occupying leading positions of the countries with robust industrial potential realised that the only way to turn this sector into the economic growth engine was to use productive organisational structure. Nowadays leaders in the global economic arena were not an exception. A number of companies in the United States adjusted the system of multidivisional approach and experienced the intense progress. Among them are General Motors and Standard Oil.
One of the most successful examples of successful implementation of the system of multi-divisional organisational structure offered by Alfred Chandler is DuPont, American chemical company (Johnson 2013). The fundamental key was to separate the duties of managers of different levels. Consequently, it led to the decentralisation of the decision-making process and allowed the managers of the higher rank to concentrate on making strategically significant choices that followed the managerial revolution. One more example of effective implementation of the multi-divisional organisational structure is British Unilever that emerged in the first half of the 20th century (Coopey & Lyth 2009).
The experience of Western economies inspired Japanese enterprises to borrow some of the most effective initiatives so that the country could recover after the World War II and leave competitors behind. It should be said that Japan was the first Asian to exploit the European and American practice adopting it to the domestic economic environment. The companies came to a realisation that professional managers and hierarchical organisation of work and decision-making are the key to success.
The old zaibatsu system made a positive contribution to the economic growth, as it helped establish prolific relationships between the workers of different organisations (Abe 2009). Diversification was seen as the pivotal objective, and many companies, e.g. Mitsubishi and Fuji, reflected this principal. The development of business influenced the way new companies emerged. The companies typically combined the forces and received the support of the financial institutions to become stronger and guarantee growth.
China is a perfect example of hierarchy in organisational structure preached by Alfred Chandler. The system of the business decision-making is more centralised, as the major decisions are made at the top levels of management. The companies in China seek for governmental support and try to establish long-lasting relationships (Zhang 2014), and it is pure and simple implementation of Chandler’s model to practice.
That said, development of business in Japan was more close to the model exercised in Germany rather than that of the United States. Economic activities of the enterprises were centred on the cooperation between the related organisations and business groups, as in the case of Germany, were of significant importance. The multidivisional approach, however, in Japan was not as popular as in the US and Germany because the inter-firm connections could fulfil all the needs of the companies (Monden 2012).
Prompt reaction to the changes in the economic environment as the basis of becoming a leader
A perfect example of prompt reaction to the changes in the economic environment is the development of dye industry in Europe. Despite the fact that British companies were the first to witness the rise of the dye industry and offer high-quality production, they did not implement the triple system of investment, and that is why they lost leading positions. The reason for this outcome is the lack of trust regarding the involvement of banks in backing the process of development with funds.
Germany, on the other hand, was aware of the significance of this investment approach and got an opportunity to become a top performer in the dye industry. Another illustration of speedy response to the development in the economic environment is the choice to invest in human capital and the newest technologies made by Japan. In keeping with Chandler’s model, a great accent was laid upon the importance of nurturing human skills and building up scientific potential that is why R&D has become the key to the success of Japanese companies (Boardman 2014).
Even though these cases deal with the investment tools, they prove that the ability to analyse the needs of the time and the emergence of new industries is a key to economic success. Germany and Japan in these examples have shown that they have become leaders not thanks to the turn of events but because of the deliberate thinking of managers.
Conclusion
The implementation of the model of managerial enterprise designed by Alfred Chandler was significant for the economic growth of the United States, Great Britain, Germany, Japan, and China. Awareness that the engine for reaching economic prosperity is not the size of the country but its productivity consequently led to the improvement of managerial objectives as one of the most essential and significant parts of the governmental success (Taylor & Coates 2010). Keeping with the postulates of the model provided deeper understanding of the issue of successful economic growth with regard to the development of the companies and the effect they have on the economy.
As it was shown, the extent to which the developed economies implemented this model differed across countries. Germany and Japan focusing on investments have reached leadership while the United States and Great Britain reaching certain stages of development failed to follow the fundamental of the theory. China, on the other, hand has chosen to stick to strict hierarchy that works perfectly for the country in the light of the established political system. Nevertheless, some of the developed economies limited themselves in following the principles of Chandler’s approach, they still enjoyed many benefits emerging from exploiting it.
Even thought the success of the companies that exploited the model proves that Chandler’s ideas are effective and lead to economic growth and prosperity, the times have changed. To my mind, keeping strictly to hierarchy needs to be reviewed towards openness and trust. In does not mean that the companies should welcome anarchy on the working place. It just means that senior management should be open to listening propositions of those who are occupying lower ladders. The prerogative to make crucial decisions will still be within their competence but they might find some brilliant ideas on improving the company’s performance.
It is worth noting that the issue of implementing Chandler’s model and its influence on the enterprises and economy as the whole is well investigated. However, further study on whether it is still effective in the contemporary globalised world needs more attention.
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