Alfred Chandler’s Theories and Their Application to Modern Business

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Introduction

Alfred Chandler made a significant scholarly contribution to the research and practice of strategic management and economy in general. His theories related to the correlation between strategy and structure, managerial enterprise, and others have been influential in the middle of the twentieth century when they were introduced and remain relevant now. However, since the economic and business conditions have changed significantly since the 1980-s, Chandler’s theories require rethinking and contextualization for adequate application in modern business.

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Moreover, the local nationally influenced patterns in business management and organizational performance have not been properly addressed by Chandler, which obstructs the possibility of effective application of his approaches to business in their original version. The present essay is designed to discuss Chandler’s theories and analyze their application to contemporary organizations functioning in global markets.

Chandler’s Managerial Enterprise View and Its Weaknesses

When developing a theoretical approach to managerial enterprise, Chandler (1990) considered that centralized managerial enterprises emerged as large organizations which function under the supervision of a hierarchy of managers who make corporate and business decisions. In such a manner, managers guide the performance of all divisions of a given organization aligning their functioning according to the goals set by the board of directors.

In Chandler’s (1990) opinion, a centralized approach to managerial enterprise helps to sustain efficiency and competitiveness due to the alignment of all processes with the central goals. According to Chandler (1990), “the function of the administrator in the large American enterprise has been to plan and direct the use of resources to meet … fluctuations and developments in the market” (p. 383). Thus, the administration’s primary task is to conduct planning and distribution of resources, which is why managerial positions have been defined by Chandler as of similar importance to engineers and other specialists.

However, this approach ignores the specifics of national markets since managers working within a centralized system fail to recognize local particularities of economies in departments located overseas. Since many large international enterprises are now following globalization trends and expand geographically, it is essential for managers to consider applying different managing and decision-making methods depending on local markets. In such a manner, large industrial organizations will be able to ensure efficiency, effectiveness, competitiveness, and productivity.

Structure Follows Strategy

The theory developed by Chandler on the relationship between strategy and structure asserted a definite one-way process of developing organizational strategy and structure with particular dependence of the latter on the former. In other words, Chandler (1990) argued that for an organization to obtain a balanced capacity to compete in a market, it has to create a strong strategy first. After that, a structure should be developed to meet the requirements of the existing strategy.

Having analyzed four firms within the four case studies, including General Motors, Du Pont, Standard Oil, and Sears Roebuck, Chandler (1990) found that the development of these companies was driven by strong strategies preceding structure. Indeed, as the author of the theory stated in his book, “unless structure follows strategy, inefficiency results” (Chandler, 1990, p. 314). Thus, to be efficient, the analyzed enterprises aligned their decision-making regarding the structure of their organizations based on the strategic path they had created beforehand. Moreover, since companies evolve, grow, and change, any restructuring should be derived from strategic changes made before structure shifts.

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However, this principle might have been more applicable to the US, in particular, to businesses that existed before the 1980s. The business trends at that time were driven by less informational technology and globalization processes, which allowed for more linear planning of the organizational lifecycle. Nonetheless, the modern business world requires a more flexible approach to the creation of strategy and structure. Indeed, given that national patterns in the managerial enterprise are influenced by local cultures and economic processes, particularly for a given state, a generalized approach might not be practical for all nations (Khan & Law, 2018).

This tendency is validated by the differences in people’s cultural predisposition to lead their lives and behave at work, ultimately impacts corporate styles and decision-making. Thus, national contexts’ differences play a more significant role in the modern business world, which is why Chandler’s approach might require updating and alteration.

To exemplify how Chandler’s theory fails to address national business contexts, one might compare the automotive industry in China, Germany, Japan, the US, and UK. Indeed, with their large domestic economies, the US and UK might be able to implement strategic planning to guide structure. Since culture is essential to enterprise management, it predetermines strategic planning. As demonstrated in the example of General Motors, the US automotive industry is improvement-driven and competition-oriented, which is shaped by individualistic philosophy (Maiorescu, 2016). Indeed, since in the USA, the individualist approach prevails, the mechanisms of managing an enterprise would be different from the ones implemented in China, where collectivism prevails (Khan & Law, 2018).

As stated by Zhang, Chen, and Fang (2018), the quality of interaction between supply chain stakeholders in the Chinese automotive industry is vastly influenced by the structure of a company, which is why the strategy should be adjusted to the structural concerns. As for the Japanese automotive industry, it tends to employ suppliers from overseas, which requires integrating both structure and strategy simultaneously to manage the processes within the enterprise (Petricevic and Teece, 2019).

However, the German automobile industry is characterized by a higher level of dependence on local suppliers, which predetermines its structure and consecutively impacts strategy (Petricevic and Teece, 2019). Therefore, the particularities of each economy and nation play a pivotal role in the way an enterprise integrates structure, strategy, and management.

Conclusion

In summary, Chandler’s business theories have been influential on a global scale, guiding and theorizing the foundations of strategic management. On the one hand, these approaches triggered a qualitatively new trend in business management, leading companies to more efficient results in the middle of the twentieth century. On the other hand, they seem to require contextualization in modern business due to the changes in a global economy that emerged within the past half a century. A more sophisticated and complex relationship between strategy and structure is dominating the business field today. These two aspects of organizational performance are interdependent and should be considered simultaneously when planning operations’ diversification or any other change.

Reference List

Chandler, A. D. (1990) Strategy and structure: chapters in the history of the industrial enterprise. Cambridge: MIT Press.

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Khan, M. A. and Law, L. S. (2018) ‘The role of national cultures in shaping the corporate management cultures: a three-country theoretical analysis. In Organizational Culture. Web.

Maiorescu, R. D. (2016) Crisis management at General Motors and Toyota: an analysis of gender-specific communication and media coverage. Public Relations Review, 42(4), pp.556-563.

Petricevic, O. and Teece, D.J., 2019. ‘The structural reshaping of globalization: implications for strategic sectors, profiting from innovation, and the multinational enterprise’, Journal of International Business Studies, 50(9), pp.1487-1512.

Zhang, J., Chen, X. and Fang, C. (2018) Transmission of a supplier’s disruption risk along the supply chain: a further investigation of the Chinese automotive industry. Production Planning & Control, 29(9), pp.773-789.

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BusinessEssay. 2022. "Alfred Chandler's Theories and Their Application to Modern Business." September 4, 2022. https://business-essay.com/alfred-chandlers-theories-and-their-application-to-modern-business/.

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