Comm 210 Essay

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“The Enduring Logic of Industrial Success” – Alfred D. Chandler

cost advantages can be realized by placing a company’s different facilities under a single management

reduce production costs through economies of scale and scope

dominant companies are those whose managers and executives understand the logic of managerial enterprise – the logic of growth and competition

economies of scale: large companies can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises

economies of scope: large companies can use the same raw materials and intermediate production processes to produce a variety of different products

important to invest in creating national and international marketing and distribution organizations

first movers are the companies that quickly dominated their industries by making large investments and gaining a competitive advantage

once a firm loses the opportunity to be a first mover, it is difficult to regain competitive advantage

innovation and strategy are more powerful weapons than price

important for companies to: improve quality of products, reduce costs, create new markets, engage in systematic research and development to improve existing products and develop new ones, differentiate products from competitors, move into growing markets and out of declining ones, expand and enlarge plant size, keep a steady flow of information and material throughout the company, ensure proper communication between different sectors of the business

geographic expansion is based on economies of scale, while moving into related markets is based on economies of scope

ignoring the logic of managerial enterprise can be very costly, conforming to it keeps companies competitive

successful companies make the essential investments in production, distribution, marketing, and management = first mover investments

aggressively exploiting the cost advantages of economies of scale and scope encourages product and process innovation

many companies fail to invest, reinvest, and grow

managerial enterprise can stagnate and managers can make wrong decisions

when managers choose to grow through diversification, which means that they acquire businesses for which they have little, if any, organizational capabilities to give them a competitive edge, they ignore the logic of managerial enterprise

growth is a basic goal of managerial enterprises and can be done by moving abroad or into new markets in related industries

Many managers move into industries in which their enterprises have no competitive advantage. They believe that management is a general skill and so if they can be successful in their own industry, they can be just as successful in others. They invest in industries that have a greater profit potential than their own, even if those industries are unrelated to their companies’ core capabilities. Since they have no knowledge of the new industries, they acquire them through acquisitions and mergers.

Diversification leads to the separation of top managers at the corporate office and the middle managers responsible for operations and profits. This results from top managers having little knowledge of their new industries’ processes and markets and their lack of time since they have an overload of decision making at the corporate office. = managerial weaknesses

many companies must invest in widespread restructuring since they have lost control of their companies due to the purchase of shares by individuals and other companies who now have part ownership

business ownership patterns have diminished the likelihood of many firms’ long-term success

important to hire managers with experience and skills to understand the company’s products and processes, markets, and competitors

if entrepreneurial enterprises fail to become managerial enterprises and if managerial enterprises fail to maintain their competitive
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