Emergence of modern corporations

Question 1

What are the 3 stages in the domestic system, pre industrial revolution ?

Answer 1

Businesspeople delivered raw materials to workers’ homes
Workers manufactured goods from these raw materials in their homes (typically articles of clothing)
Businesspeople picked up finished goods and paid workers wages based on number of items

Question 2

What replaced the domestic system ?

Answer 2

Factory system

Question 3

What did Alfred Chandler identify ?

Answer 3

¥ The multi-functional enterprise (from 1850s)

¥ The multi-divisional enterprise (from 1920s)

Question 4

What is managerial capitalism ?

Answer 4

This is when you start to get managers that don’t own the company but are employed by the company to manage.

Question 5

The second industrial revolution enabled new forms of transportation and communication to be developed. What did this allow with regards to companies ?

Answer 5

¥ Mass production on a huge scale, making owner-manager model difficult to implement with large workforces and wider range of tasks.
¥ Development of managers as employees and increased hierarchies
¥ Work organised into different functions (e.g. production, sales, finance etc.)

Question 6

Define a Modern Multi-divisional enterprise.

Answer 6

Separate semi-autonomous operational divisions or profit centres
responsible for a specific product, brand or geographical area, each run by a manager.
And
2. A general strategy office or HQ where senior managers are located, supported by general advisory and financial staff. People at the top of all the divisions don’t get involved with the divisions they just work on the strategy for the divisions

Question 7

What was the first Modern Multi-divisional enterprise ?

Answer 7

General motors

Question 8

How did GM adopt a multi-divisional structure ?

Answer 8

product differentiation - different divisions for different car brands, with each division led by a senior manager with high degree of authority over decisions.

Question 9

What distinction did Oliver Williamson make between two types of organisations ?

Answer 9

• U-form structures or ‘unitary’ organisation which have centralised control and authority (which would include Chandler’s ‘multi-functional enterprise’, but often relates to small firms with a centralised power structure)
• M-form structures – basically the ‘multi-divisional’ model identified by Chandler (1984).

Question 10

What are the advantages of U-form companies ?

Answer 10

¥ Increased specialization/functionally specialised departments (e.g. production, sales, research)
¥ Critical decision-making is centralized in one “peak” person/ board of directors
¥ Appropriate for standardised production below a certain size

Question 11

What are the disadvantages of M-form companies ?

Answer 11

¥ Cannot handle the complexity of multiple activities well/ excessive load on senior managers
¥ It becomes impossible for a small number of top managers to handle both long-run strategic and short-run operational administration
¥ Operational concerns can divert attention from strategic/competitive/entrepreneurial issues.

Question 12

What is the key difference between U and M-form ?

Answer 12

M-form decentralises operation decisions where U centralises them.

Question 13

Within M-form companies what are top managers required to be and do ?

Answer 13

¥ Are generalists not specialists, loyal to the whole organisation (rather than departments/divisions)
¥ Are removed from responsibility for operational activities
¥ Have time, resources, and are committed to ‘long term’ planning and financial appraisal

Question 14

What are the advantages of H-form ?

Answer 14

¥ Frees corporate to focus on strategic concerns
¥ Facilitates diversification and growth as it can operate in accordance with different geographical locations, demographics and markets

Question 15

What are the disadvantages of H-form ?

Answer 15

¥ Introduces additional levels of hierarchy
¥ Opportunism and information distortion problems
¥ Divisions may compete at the expense of cooperating

Question 16

What does the contingency theory assume ?

Answer 16

– organisations with the same set of contingencies will necessarily gravitate towards similar structures

Question 17

What are the key assumptions of structural contingency theory according to Clegg ?

Answer 17

Ð Environment: The more certain and predictable the environments in which organizations operate, the more probable it is that they will have bureaucratic structures
Ð Technology: As organizations adopt more routinized technologies – technologies with repetition and routines associated with them – they tend to become more bureaucratic
Ð Size: As organizations become bigger, they become more bureaucratic

Question 18

Define bureaucratic organisation .

Answer 18

specialization of labour, a specific authority hierarchy, [and] a formal set of rules

Question 19

What is a mechanistic organisation ?

Answer 19

A bureaucratic organisation most frequently to be found in stable environments (particularly in large organisations and those focusing on cost-reduction – modern example: McDonalds)

Question 20

What is a organic organisation ?

Answer 20

A much less bureaucratic organisation more likely to be found in firms that are smaller, that operate in highly uncertain environments, and are oriented to discovery and learning (modern example – Google?)

Question 21

What are the Mintzbergs five theories ?

Answer 21

1. Simple structure – power centralised in management who direct staff activities – small entrepreneurial company with simple products.
2. Machine Bureaucracy – mass-production of simple products - process standardization and low skill but high specialization – example: McDonalds.
3. Professional bureaucracy – standardized skills but not processes – requires staff autonomy (hospitals).
4. Divisionalized form – (the ‘m-form’ large enterprise)
   Adhocracy – Expert project teams in turbulent environments