Session 2 Flashcards
What is Chandler’s theory?
It is a theory of organizational success
What do successful firms capitalize on as described by Chandler’s primary claims?
Scale and scope
What is scale?
It is when large plants make products at a lower cost than small ones because cost per unit drops as volume of output rises
What is scope?
It is when large plants use many of the same raw and semi-finished materials and intermediate production processes to make a variety of different products
What occurs when large plants exploit economies of scale and scope according to Chandler’s primary claims?
The capabilities developed in exploiting economies of scale and scope encourage process and product innovation
What are Chandler’s primary claims?
For firms to benefit from these economies:
1. Flow of materials must be kept constant
2. National (and international) marketing and distribution functions must be created
3. Teams of lower and middle managers must be recruited
4. Firm must continually engage in R&D
What is a First Mover organization?
It is an organization that has entered the field before other organizations have the ability to participate in this new economy
What are the advantages of First Movers?
The advantage is the time where you can erect barriers of entry and benefit from proprietary information that you can develop faster so other organizations will have to chase you
What is the link between First Mover organizations and economies of scale and scope?
First Mover organizations take the opportunity to take advantage of the knowledge that they will exclusively gain by way of being the first producers in the market they have created. This allows them to understand how to capitalize on the economies of scale and scope before other organizations have the opportunity to learn this industry as they did
What are Chandler’s secondary claimes?
Entrepreneurial companies that do not make investments to create organizational capabilities cannot achieve long-term success
Once a firm loses the opportunity to be a first mover, it is difficult to regain competitive advantage
Growth through unrelated diversification is a poor corporate strategy
Business ownership patterns have diminished the likelihood of many firms’ long-term success
Is size important according to Chandler’s secondary claims?
It is not because organizations must have the ability to observe and understand when they are too big, when they are too small, etc. as the lack of this ability can lead to loss of money, resources, etc.
Chandler: Concept List
Economies of scale & economies of scope
Functional divisions, management hierarchy & geographical expansion
First movers & challengers
Research & development (innovation)
Related & unrelated diversification
Separation of top and middle managers (in the case of unrelated diversification)
Entrepreneurial enterprise (staying small)
Stock market pressure (due to ownership pattern)
Short-term thinking (due to market pressure)
What is related diversification?
It is when there is expansion into similar product lines/expansion in similar fields
What is unrelated diversification?
It is the kind of diversification that takes place when the products are very different from each other
