Tag Archives: management

74 – Managing the Resource Allocation Process: A Study of Corporate Planning and Investment (Bower, 1972)


Bower, Joseph
Managing the Resource Allocation Process: A Study of Corporate Planning and Investment
Irwin, Homewood, Illinois, 1972 (Ch.1-3, 6, and 8-10)

Topic: The business and the investment planning systems.

Summary and citations:

Ch.1: Capital budgeting as a general management problem
o The corporate setting: The scope of the problem is relevant because clearly no one manager can be assumed to have the knowledge or the time to generate detailed programs to use these funds. – p9
o The value of quantitative measures: a project can be described as the net present value of all cash flows associated with a proposed investment.
o The kind of project: estimates of the benefits from cost reductions are far more accurate and less variable than those firm sales expansions, and these estimates in turn are more reliable than the estimates of the return from new products. –p12
o The Kind of Business: the objections to a quantitative summary extend beyond the kind of project to projects within a class, for it is certainly true that different businesses involve different levels of risk. – p13
o The Kind of manager
o The role of top management choice: the objective of management of a large corporation … are not in any way a sufficient description of the objectives which direct and motivate action at the critical, resource allocating levels of the organization. Hence, a model which prescribes procedure for resource allocation based on the maximization satisfaction of “management objectives” is not a complete picture. – p17
o The problem rephrased formally: 1) business planning process, 2) investment process; 3) these two processes as critical ; the principal observed change in a firm may be explained by a sequence of planning and investment decision. 4) a Business planning system; 5) An investment planning system; 6) Decentralization – p19
o New strategic ideas are developed at the business level. Such an idea is shaped as it proceeds up managerial levels until it emerges fully packaged as a request for capital or a business plan for consideration for corporate management. –p20

Ch 2: Findings
o The forms of specialization: raw material site/ Facility / Process / Product / Industry Market / Customer / Customer Location / The functions /
o The Business Plan is intended to present a condensed but critical review of the division’s current business position problems, and opportunities, its updated longer-term market and earnings objectives, and its plans for achieving them, the specific program and expected financial results for the ensuing year -1966:and a forecast for 1967
o Investment planning: Goals. 1) Plans should meet the demands for capacity, 2) Plant costs should not rise; 3) Product quality should be competitive or better
o Exhibit 2-2 p53
o The forces influencing definition –p54
o Impetus: the definer must get his project approved by his division general manager…. The source of a project’s impetus is the power of a general manager at the officer level of the division. The general manager must sponsor the project and shepherd it successfully
o The forces influencing Impetus. Quality of the project; …technical aspects are accepted to be technically qualified….during the definition process – p58
o Structural variables may be manipulated by top management – p59
o When managers that have taken the corporation into exciting new but unprofitable fields are promoted, it is clear that “creativity and imagination” are important bases for reward. – p59
o In short, both the group management committees and the executive provided a review of all CARs.

Ch 3: A process model of a project
o Definition: Definition is the process by which the basic technical and economic characteristics of a proposed investment project are determined. –p67
o The cycle of discrepancy, analysis, and choice, of course, is the basic format of all problems. -p67
o Impetus: Impetus, the force that moves project toward funding, has been defined as the willingness of a general manager at the division president’s level, or one level below, to commit himself to sponsor a project in the counsel of division officers and before the division general manager. In making the decision, he puts his reputation for good judgment on the line. – p68
o Context: Context has been defined as the set of organizational forces that influence the processes of definition and impetus… corporate structure; situational context; … structural context. –p71
o The purposive manager: … then is a manager to be pursuing corporate and personal goals guided by a structure that helps him relate the two. His personal goals are assumed to be: 1) economic wealth, and 2) power to influence affairs. –p73
o The phases of definition: … because the information requires for strategic planning is spread widely throughout a large organization, indeed because in some instances it cannot be comprehended centrally, the planning activity usually has to be delegated to product / market organized sub-units of the corporation. –p74
o Whereas financial planning implies measurement in terms of return on investment, strategic measurements may focus on market size and share, price, margins, operating efficiencies, technological competitiveness, and other qualitative as well as quantitative measures. – p75
o The phases of impetus: exhibit 3-2 p77
o The phases of determination of context –p78
o exhibit 3-4 p80 ; exhibit 3-6 p82

Ch. 6: Fireguard

Ch. 8: The projects compared
o The development of a proposal for a new facility:
o Exhibit 8-1: The four cases compared –p245
o In a world where uncertainty is great and men are judged by results rather than plans, a definer is in a better position to elicit impetus when the pressure of the market reinforces whatever problem he perceives from a technical point of view. – p254
o The process of developing impetus: the willingness of a general manager, performing the integrating level task, to provide impetus for a project was described as depending upon the measure which that manager perceived were being applied to his judgment and management skills. –p254
o The role of context. In discussing the way in which projects were defined and acquired impetus, it has already been necessary to consider the influence of the organization, the measurement and information systems, and the reward and punishment system – what has been called structural context. – p261
o Exhibit 8-3 p 262: It is evident that context often has negative effects on the projects. What does it mean? –p262
o One of the most significant aspects of structural context observed was the provision –or lack of provision. It made for interaction across levels of hierarchy and thereby for the bringing to bear on the capital budgeting problem of well-developed generalist skills. –p264
o A critical aspect of the information and control system, the capital appropriations procedure, seems to have had a minimum degree of influence. – p264
o Where systems of measurement and reward are not integrated with the planning and investment process, problems result: projects serve the needs of functions rather than businesses; their timing reflects politics rather than the market; and coordination among projects is lost. – p269
o The business planning and investment planning processes are closely interrelated. The degree to which they are coordinated in their delegation is critical to their usefulness. Where traditional financial techniques focuses attention on individual project plans separate from the businesses they are meant to serve, severe distortions in focus and timing can result, and coordination of business sub-units with the corporation is often list. The Planning and investment process are continuing and are substantially affected by a range of structural phenomena, two which are planning and capital budgeting procedures. – p279
o There are two components to the investment process: 1) definition, having to do with how the content of projects is determined, and 2) impetus, involving which projects are funded. – p280

Ch. 9: Implications for researchers
o The goal is to help management improve resource allocation by identifying components of the process – p281
o Two approaches…. One is to observe, in a clinical setting….A second approach, generally less successful, though potentially more powerful, is to begin with the construction of an abstract version of the problem which in turn permits one to prescribe the route to improved performance. – p281
o The financial model and the corporate phases of resource allocation: in almost all financial theory, the firm is considered to be a unitary monolith managed in the interests of its ownership – p282
o In the face of real-world uncertainties, there are difficulties in estimating both returns and costs. – p283
o The strategic model and the initiating phases of resource allocation: the concept conceives the task of general management to be a problem-solving process involving the direction of corporate competence toward opportunity in the environment by the vehicles of organization, measurement, and reward. – p285
o “What is the planning unit in the large decentralized company?”….most important idea. It is the notion that strategy should be developed in increasing detail at descending levels of organizational hierarchy…. Deductive cascade. –p286
o Moreover, the lines of today’s structural form also determine the rules by which managers will compete. – p287
o The integrating phases of resource allocation: It is the responsibility of those managers performing the task of “man in the middle” to use their understanding of the qualitative elements of product-market strategic considerations to evaluate long-range programs in a way that will ensure consistency between the initial definitions by product-market sub-units and the objectives of the corporate whole along the multiple dimensions of strategy. – p288
o The choice of organization, measurement, and reward play a role of central importance in the development of corporate strategy by shaping both the allocation of corporate resources through their influence on definition and impetus – and the future perceptions of those who initiate new business plans and projects. –p289
o Exhibit 9.1. p291
o The integrated company: … all three phases of task are preformed in the president’s office: this implies that the same individuals are responsible for perceiving environmental trends and defining responses in product-market terms, and for measuring their own performance critically in financial terms. – p291
o Exhibit 9.2. p295
o Structural shifts can be used to broaden the concept of the opportunity for useful influence among managers at the division and process levels of the company. –p296
o The manager in the middle must be sensitive to the inevitable imperfections in the strategy. –p297
o In a sense, life in the large organization has aspects of a “zero-sum” game….”winner” and ….”losers”
o “bureaucratic politics” by Graham Allison (Cuban missile crisis): Bureaucratic politics is the explanation or the content of the process of impetus. –p303
o …The two interrelated systems involved in the organizational process of resource allocation in these terms: the process of definition is technical-economic in content; impetus is political. – p303
o In a systematic attempt to have resource allocation serve strategy, top management should d use structure to influence those organizational forces that shape the technical and political processes at lower levels of the organization. – p304
o “Politics” is not a pathology, it is a fact of large organization. Top management must manage its influence on “political” processes and then monitor the results of its performance. – p305
o The integrating level must have the information necessary to transform strategic measures into financial ones. It must have and be able to use strategic measurements to qualify potentially misleading financial summaries. –p307
o Exhibit 9-6 p308; Exhibit 9-7 p311
o The problem is that virtually all measurement systems compare a process’s or product’s attributes against historical or other kinds of internal standards, Instead, what is needed is an external measure of the present and potential quality of an internal capability. –p315
o Use of context: There must be enough stability… but…rotation across functional and divisional lines helps to build a cooperative climate and contributes to the development of a generalist viewpoint. – p317
o Using structure to influence behaviour. … The hypothesis is that managements can manipulate those same structural forces in order to influence behaviour in desired directions. – p318
o While rotation prepares a manager to accept a generalist viewpoint, it does not directly train him for general management. –p319

Ch. 10: Implications for management
o In a large organization the same force that led the decentralization of product-market strategic planning – primarily the dispersion of specialized knowledge –in principal ought to lead to a similar decentralization do the investment planning that results in capital commitments in product-market sub-units. – p321
o Exhibit 10-1 p323
o There seemed to be important lessons to be learned concerning 1) the timing of the different phases of the processes; 2) the role of procedure in the processes; 3) the design of the structure, and 4) the use of the elements of structure by the several managers observed. –p323
o Diagnosis: general manager must look at a resource allocation in his company in the same way a doctor looks at circulation in a patient – as part of a complex system interacting in a whole variety of ways with an even more complex environment. – p324
o Like the body, an organization is a constantly changing mechanism…. The manager must constantly act is if he were a research scientists, testing his understanding of how the system operates. – p325
o The question of location: The first diagnostic question is “where in the organization are the initiating, integrating, and corporate phases of definition, impetus, determination of context, and measurement, being carried out?” – p236
o The question of quality: Standards are often lacking –p327. It is hard to evaluate anything that is not well understood. – p327
o The question of coordination: 1) The linkages across functions and levels; 2) the consistency of focus among those performing parts of the process, and 3) the timing of different phases. – p331
o The quality and timing of the planning processes: the use of formal procedure: … attacking the usefulness of traditional, formal procedure as a way of improving the content and pace of the resource allocation process. – p335
o Bottom-up is not enough… “bottom-up” is not necessarily correct. – p336
o But procedure is not the only useful tool for improving the quality, coordination, and timing of the definition process. It can also improve the relationship between the planning of investment projects and the planning of businesses. – p338
o The purpose of capital budgeting procedure is not a “go, no-go” decision on a project, bust instead 1) a review of the strategic assumptions on which a business is being conducted, and 2) an early scanning of the corporate information network to provide all relevant inputs for the project definition. – p 339
o The relationship between planning and the measurement of managerial performance emerges as soon as the issue of “results” is introduced. – p341
o Problems of rotation: 1) …boss wants a talented specialist, not a developing manager; 2) no one of whom really knows the details knows the details of the business; 3) … if a man is rotated every two or three years, he never has to live with the consequences of his own action…..On the other hand, without rotation, men become narrow and parochial in terms of product, division and function. – p343
o The general manager… must be able to diagnose complex systems of markets, facilities, and men….also able to use tools of the complex firm-the formal organization, the information system, and the reward system- to influence organizational behaviour. … balancing short and long-run opportunity, … and must take into account … requirements of the individuals….-p345

Personal comments, interesting issues and findings:

o “The principal observed change in a firm may be explained by a sequence of planning and investment decision” and also Bower underlines the trend towards decentralisation (p19): Bower might be referring to firms that base their activity by managing projects. There is a relatively new field of management called “management by projects” (see article “Management by projects’: the management approach for the future » R Gareis, (2002)). It seems a very interesting approach, mixing networks theory and project management.
o “New strategic ideas are developed at the business level” (p20): my experience in the industry (automotive sector suppliers) is that strategic ideas and new projects were mainly driven by actors external to the company, mainly by the customer (automobile brands) or by competitive pressure. It was not an idea from the business level.
o Can the definition / impetus / approval model be generalised? Many times, impetus come from the upper level (i.e. M&A), sometimes, from lower levels (i.e. projects to improve work conditions).
o Impetus is to take risk. If the project is not beneficial for the manager (see Bower’s “purposive manager”), he might be reluctant to promote it. Impetus will be reinforced in companies fostering creativity, as creativity and innovation is related to experimenting and experimenting involves a high risk of failure.
o I believe in the concepts expressed by Bower as “man in the middle” and integrated company. I think that if the project is initiated by the top management team or very near it (trust plays a major role), the approval will be easier and quicker. Initiatives from low levels of the structure will be difficult to reach top management. This case needs 1) a “man in the middle” able to coordinate all the process or 2) a very perseverant impetus (that is difficult to have).
o As Bower says, “bottom-up is not enough”. I think that each project has different origins and definition and impetus come from different sub-units, depending on the project, not the organization.
o Interesting video from Bower about the concept of “inside outsider” as a CEO that has learned inside the company but still has maintained his objectivity: http://www.youtube.com/watch?v=6taNjZCzQ1I

80 – The Practice of Management (Drucker, 1993)


Drucker, Peter F.
“The Practice of Management”
Harper and Brothers, New York, 1993
(Introduction, Parts 1,2, 5, Conclusion)

Topic: Comprehensive theory of the management tasks and responsibilities

Summary and citations:

• The first definition of management is therefore that it is an economic organ, indeed the specifically economic organ of an industrial society – p8
• Management is a practice, rather than a science or a profession, though containing elements of both. – p10
• Managing is not passive, adaptative behavior; it means taking action to make the desired results come to pass. – 11
• To manage a business means, therefore, to manage by objectives – p12
• Second function is therefore to make a prodctive enterprise out of humna and material resources. P 12
• It must be a genuine whole: a greater than –or at least different from- the sum of its parts with its output larger than the sum of all inputs. – p12
• The final function of management is to manage workers and work – p14
• Time dimension of management: has to live always in both present and future p 15
• The popular belief that the new technology will replace human labor by robots is utterly false – p21
• A business enterprise is created and managed by people. It is not managed by “forces”. P34
• Profitaibility is not the purpose of business enterpise and business activity, but a limiting factor on it. – p35
• There is only one valid definition of business purpose : to create a customer – p37. It is the customer who determines what a business is. P 37. Because it is its prpose to create a customer, any business enterprise has two –and only these two- basic functions: marketing and innovation. They are the entrepreneurial functions. – p37
• Innovation goes right through all phases of business – p40
• Innovation can no more be considered a separate function than marketing – p40
• Productivity means the balance between all factords of production that will give the greatest output for the smallest effort – p41
• First duty is to survive (p46), not maximizatino of profits but avoidance of loss (p47), creative rather than adaptative task (p47)
• What is business is not determined by the producer but by the consumer. – p50
• Business must be managed by setting objectives for it. – p60
• Developments may change objectives. This is one reason why all objectives have to be reexamined continually –p61
• Objectives are needed in every area where performance and results directly and vitally affect the survival and prosperity fo the business. P63
• There are eight areas in which objectives of performance and results have to be set: market standing, innovation, productivity; physical and financial resources; profitability; manager performance and development; worker performance and attitude; public responsibility. – p63
• Its performance is the performance of human beings. And a human community must be founded on common beliefs, must symbolize its cohesion in common principles. – p64
• There are three basic systems of industrial production known to us so far: unique-product production, mass production (old style and new style) and process production. – p96
• New-style mass production: It does not rest on uniform products. It rests on uniform parts which can then be mass-assembled into a large variety of different products. – p100
• Management must therefore develop new markets for any new products as well as maintinaa steady market for the old – p105
• Managers are the basic resource of the business enterprise and its scarcest … Are the most expensive resource in most business – p111
• Upward relations are properly a manager’s first concern. – p112
• Henry Ford’s misrule was a systematic, deliberate and conscious attempt to run the billion-dollar business without managers. – 114
• The first requirement in managing managers is management by objectives and self-control. ***– 119 – may legitimately be called a “philosophy” of management (p136)
• Story of the stone-cutters: p 122
• Emphasis should be on teamwork and team results. These objectives shold always derive from the goals of the business enterprise. – ‘126
• This requires each manager to develop and set the objectives of his unit himself – p129
• One of the major contributions of managemnent by objectives is that it enables us to substitute management by self-control for management by domination. – p131
• Authority…derives from knowledge rather than from rank – 138
• The span of control, we are told, cannot exceed six or eight subordinates – p139
• A team does not normally make a good superior manager – p140
• Every manager has the task of contributing what his superior’s unit needs to attain its objectives. This is indeed his first duty…. He has secondly a duty towards the enterprise…Finally, the manager has responsabilities downard, to his subordinate managers – p142
• The vision of a manager should always be upward –toward the enterprise as a whole. But his responsibility runs downward as well– p143
• It is performance, not conformance – p145 (constant improvement, neutralizae weaknesses of its members)
• The focus must be on strengh – p145 (not weaknesses)
• The danger of safe mediocrity: nobody learns except by making mistakes The better a man is the more mistakes will he make –for the more new things he will try. – p147
• Promotion decisions are what I call “life-and-death” decisions for managers.- p155
• Lack of character and integrity, …destroys people..spirit…performance – p158
• Leadership: making common men into uncommon men – p158 – but leadership cannot be created or promoted. It cannot be taught or learned.. But management cannot create leaders – p159. Leadership requires basic aptitude… but also requires basic attitudes.
• The chief-executive team alone can adequately solve the problem of succesion.- p169
• The much publicized divorce of ownership from control which makes it absurd that the business enterprise be directed by the representatives of the share-holders – p179
• The Board must also be detached from operations.- p181
• Sudden emergence of manager development as a major concern – p183
• No one can develop himself unless he works on the development of others – p189
• A manager has two specific tasks: 1) creating a true whole that is larger than the sum of its parts; 2) harmonize in every decision and action the requirements of immediate and long-range future. – p342
• 5 basic operations: 1) sets objectives; 2) organizes; 3) motivates and communicates; 4) job of measurement; 5) develops people p343-344
• 5 phases of decision making : definig the problem, analyzing the problem, developing alterante solutinos, deciding uupon the best solution, converting the decision into effective action.– p353
• It must create customers and markets by conscious and systematic work. Above all, it must focus continuously on creating mass purchasing power and mass purchasing habits. – p371
• 7 new tasks of the manager – p373
• The tasks must be simplified. … to convert into system and method what has been done before by hunch and intuitino… a logical and cohesive pattern. – p374
• … is neither education nor skill; it is integrity of character – p 378
• Private enterprises is an organ of society and serves a social function – p381
• The public responsibility of management must therefore underlie all its behavior (ethics of management) – p383
• The first responsibility to society is to operate at a profit, and only slightly less important is the necessity for growth. – p386
• The company is not and must be never claim to be home, family, religion, life or fate for the individual. It must never interfere in his private life or his citizenship. He is tied to a company through a voluntary and cancellable employment contract. – p387
• Business has the responsibility to make its best contribution to the defensive strength of its country. – 388

Personal comments, interesting issues and findings:

• One man show: Drucker writes about all aspects: strategy, functions, marketing, innovation, structure, competition (recalls Porter in p53), goals for each area, productivity, “instrument panel” (Balanced Scorecard?), production, two-way communication within the company, reports and procedures, authoritym, rank of control, constant improvement, compensation and reward, develop managers,…
• Drucker puts the manager as the one creating value for society and as the most important element in the company. Sees the manager as one person (the isolation of the CEO) in the whole the book, except when he talks of management teams. That shocked me.
• Interesting: the Ford story (p116). Strategy (on strong command) precedes structure (Centralisation) and it failed. “The greatest change perhaps –certainly the most visible- is in organization structure” p117. Confirms Chandler “structure follows strategy”
• Drucker has several first duties or tasks for the manager. Sometimes it seems as the last element is more important than the previous.
• Contrasting what MBA’s are told in BS, Drucker says that leadership can’t be taught.
• Drucker emphasizes the importance of integrity, which is the base for CSR.
• Conclusion is very pro-capitalism and pro-America.

77 – Strategy and Structure: Chapters in the History of the Industrial Enterprises (Chandler, 1962)

Chandler, Alfred D.
Strategy and Structure: Chapters in the History of the Industrial Enterprises
The MIT Press, Cambridge, Mass., 1962

Alfred DuPont Chandler, Jr.[1] (September 15, 1918 – May 9, 2007) was a professor of business history at Harvard Business School, who wrote extensively about the scale and the management structures of modern corporations. Chandler graduated from Harvard College in 1940. After wartime service in navy he returned to Harvard to get his Ph.D. in History. He taught at M.I.T. and Johns Hopkins University before arriving at Harvard Business School in 1970. He received a Pulitzer Prize for his work, The Visible Hand: The Managerial Revolution in American Business (1977). [Source: Wikipedia.com]

Topic: The creation and the spread of the multidivisional form of organization in American industry.

Main questions :
Thesis: Structure follows strategy
How multidivisional structures were created?

Data and Methods :
Analysis of 4 industrial cases. Chandler described how the chemical company Du Pont, the automobile manufacturer General Motors, the energy company Standard Oil of New Jersey and the retailer Sears Roebuck managed a growth and diversification strategy by adopting the revolutionary multi-division form

Summary and citations:

• “The initial proposition is then, that administration is an identifiable activity, that it differs from the actual buying, selling, processing, pr transporting of the goods, and that in the large industrial enterprise the concern of the executive is more with administration than with the performance of functional work” p9
• “A second proposition is that the administrator must handle two types of administrative tasks when he is coordinating, appraising and planning the activities of the enterprise” p9 (1-long-run health and 2-day to day operation)
• “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” p13
• “Structure can be defined as the design of organization through which the enterprise is administered”. P14 . Two aspects. 1) lines of authority and communication and 2) information and data that flow in these lines.

I – Historical settings
• “The more common road to the formation of the vertically integrated enterprise was by way of horizontal combination and consolidation.” P29
• “After 1890’s, administrative innovations [standardization of procurement and processes] were much more important to the development of American business than legal ones [i.e. New Jersey amendment]”. P31
• “And by 1900, some of the very largest of the new enterprises were already responsible for the administration of integrated multifunction subsidiaries as well as single-function departments” p38
• “After 1900…three types of strategies. Growth came either from an expansion of the firm’s existing lines to much the same type of customers, or it resulted from a quest for new markets and sources of supplies in distant lands, or finally it came from the opening fo new markets by developing a wide range of new products for different types of customers.” P42
• “…structure does follow strategy, and the different types of expansion brought different administrative needs requiring different administrative organizations.” P49

II – DuPont
• The Finance Committee was taken in charge by the top management, Pierre and Coleman DuPont.
• “From this time on [1914], the criterion for promotion was competence rather than family background.” p64
• “This strategy of product diversification was a direct response to the threat of having unused resources” p90
• “The structure accepted in Sept, 1921, has serve the du Pont Company effectively ever since. Losses were soon converted into profits… “p112
• “The strategy of diversification quickly demanded a refashioning of the company’s administrative structure if its resources, old and new, were to be used efficiently and therefore profitably” p113
• “And in transforming the highly centralized, functionally departmentalized structure into a “decentralized”, multidivisional one, the major achievement had been the creation of the new divisions.” P113

VI – Organizational innovation – A comparative analysis
• Importance of the financial department. DuPont introduced a 3rd role of this department. “Planning, coordinating, and appraising the work of other departments and the enterprise as a whole”. P288’. “Thus these departments became increasingly part of the central and even of the general office organizations” p288
• “The central office activities that tied the work of the functional departments to the changing market usually came about only after a slowing of market demand”. P291
• More attention was paid in bringing together departments to improve products than to coordinate product flow. P292
• “(Managers) had to be encouraged to concentrate on entrepreneurial rather than operational activities” p294
• “the initial awareness of the structural inadequacies … came from executives close to top management , but who were not themselves in a a position to make organizational change” p303
• “it took sizable crisis to bring action “ p303
• “the men who make the critical decisions in any economy can be defined as those who have the actual or real, rather than merely the legal, power t o allocate the resources available to them and who, in fact, determine the basic goals and policies for their enterprises. Clearly the general executive is such a man”…”stockholders and legal owners long ago abdicated this function” p312
• “The general executive of the large corporation is then a crucial and identifiable a figure mid-twentieth century economy as Adam Smith’s capitalist was in the late eighteenth century, and Jean Baptiste Say’s entrepreneur in the early nineteenth” p314
• “Unless structure follows strategy, inefficiency results” p314
• “the empire builder rarely became an organization builder” p315

VII – The spread of the multidivisional structure
Technologic changes and market diversity are the main drivers for companies to adopt multidivisional structures. Metallurgic companies (Steel, Aluminium, Copper, Nickel) don’t accept the new structure. Others (processors of agricultural products, rubber, petroleum) accept partially the new structure and other industries (electrical and electronics, machinery and chemicals) accept widely the new structure.
• Those who accept widely the new structure: “The leading companies in all these industries have increasingly developed new product lines sold in markets quite different from their original one.”p362
• “the fewer the markets and the simpler the marketing process, the easier will be the administration and coordination of functional departments” p343
• Family-firms have tended to be slower in changing both structure and strategy than the others. p380

• “Structure has been the design for integrating the enterprise’s existing resources to current demand; strategy has been the plan for the allocation of resources of anticipated demand”. P383
• “Thus four phases or chapters can be discerned in the history of the large American industrial enterprise: the initial expansion and accumulation of resources; the rationalization of the use of resources; the expansion into new markets and lines to help assure the continuing full use of resources; and finally the development of a new structure to make possible continuing effective mobilization of resources to meet both changing short-term market demands and long-term markets trends.” P385.

Personal comments, interesting issues and findings:

• P29: When Chandler says “marketing”, he is referring to logistics and distribution of finish products. Chandler’s marketing together with “the procurement of raw materials” would now be called supply-chain management (SCM). Chandler calls marketing “advertising”. Also, in the chart 1 p10, there are not represented the departments of Quality (came later, in the 80’s with the Japanese methods), Human Resources, Logistics or Marketing (included in Sales?).
• I think that the person makes the position. Some persons do less that what their position implies and in opposition, some people go beyond the responsibilities of their position. But I agree with Chandler (p290), multidivisional structure is needed in order that the character and training of the mid-executives matter.
• Ch VII: On the spread of the multidivisional form, the author focuses on technological and market diversity as the mains drivers for its acceptance in specific groups of industries. I think that now, the use of technologies and knowledge-based economies tend to collaborative networks organisations but it is true that industrial companies still adopt the multidivisional structure.
• A new book “The New How: Building Business Solutions through Collaborative Strategy” by Nilofer Merchant (2010) says that the multidivisional structure creates an “Air Sandwich” between top management and workers. This is the consequence of top management setting strategies and workers implementing them. According to Merchant, collaborative networks can bring a solution to this “gap”.
• A conclusion of this book is that to change, you need a crisis. DuPont implemented the new structure not in the “happy” years of the WWI but after the war, when sales decreased.
• As seen in the book, top management is initially against change (ie Irénée DuPont)