Alfred Chandler
MIT Press
1st Edition
Approaching a book that has found a place among the “classics” is never easy. Yet reading Strategy and Structure, Chapters in the History of the American Industrial Enterprise has been a pleasurable discovery. The main reason is not linked to the theory and the conclusion that it is at the core of the book but has to do with the approach of the author. Chandler was not a management expert, but a historian, and he wrote the book strictly from a historical perspective. He analysed the ventures of four large US corporations in their organisational transformation, through a dense study of internal documentation of each of the organisations. Internal memos, committee reports, letters, org charts, all have been analysed in detail.
The core message that we have all read about Chandler, i.e. that Structure follows Strategy, is therefore the result not of a managerial theory, but rather of a historical analysis based on some very successful corporations, that established following similar timelines, a very similar organisation model, that was quickly adopted by most large American corporations.
Chandler’s Theory
Chandler examined four case studies of American conglomerates that dominated their industry from the 1920’s onward. He 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 developed over time by identifying four sequential stages:
- Acquisition of resources such as employees and raw materials and the buildup of marketing and distribution channels;
- Establishment of functional structures to increase efficiency;
- Adoption of growth and diversification strategy: diversification into new markets and products to overcome limits of the home market;
- Creation of the then-revolutionary divisional form to manage large conglomerates.
The multi-division form (also often named M-Form) is an organisation model corporate federation of semi-independent product or geographic groups plus a headquarters that oversees the corporate strategy and coordinates interdependencies.
Although the organisational multi-division form was implemented independently by each of the organisations, Chandler showed that the need to restructure arose from a strategic shift driven by new technologies and market changes. This new form emerged because of the limits of purely functional structures when different products, different markets, different selling channels or different technologies (or a combination of these) where put under the same organisation. The multi-division form then emerged and co-evolved with the development of the transportation and communication industries, thereby creating the opportunity to manage across time and space.
Chandler describes strategy as the determination of long-term goals and objectives, the adoption of courses of action and associated allocation of resources required to achieve goals. For him, structure is the design of the organisation through which strategy is administered.
In simple terms, his theory is that changes in an organisation’s strategy led to new administrative problems which, in turn, required a new or refashioned structure for the successful implementation of the new strategy.
His three step approach designs an organisational structure to match a defined strategy:
- select a basic organisation design;
- modify the design as needed;
- supplement it with coordinating mechanisms & communication arrangements.
Conclusion
Chandler’s key addition to management theory was to connect strategy and structure. Since a restructuring effort is a result of a change in strategy, a company must first review its strategy, then pursue a different structure.
Of course, today, we know that the relationship between Strategy and Structure is more complicated. Since at least the work of Mintzberg, we also know that often the existing form of an organisation can be a limit to strategic change. But what is impressive out of Chandler’s work is the fact that he studied 4 cases of companies where the new organisational structure was almost entirely designed internally. And the consistency between this form of organisation and their strategy was visible. Too often after instead, we have seen organisational adopted purely out of fashion or due to benchmarking, creating issues.
Another critical lesson (today often forgot) is that professional management is essential to increase the chance of successful strategy implementation. And, above all, management must devote constant attention to develop the most appropriate organisation that is aligned with the strategy.
I found the book truly interesting and written in a fashion that is often forgotten today. His view of the relationship between Strategy and Structure might seem simplistic but is grounded in an era where this was the realm of managers, not (yet) consultants. I believe this fact was key in unleashing the consistency between these two dimensions.
Both of which are critical pillars in the suggested Organisation Evolution Framework.
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