CHANDLER - THE ENDURING LOGIC OF INDUSTRIAL SUCCESS
Major Claim:
Successful firms capitalize on economies of scale & scope, create management structures and invest in research & development
• Once a firm loses the opportunity to be a first mover, it is difficult to regain competitive advantage
Secondary Claims:
• Growth through unrelated diversification is a poor business strategy
• Business ownership patterns have diminished the likelihood of many firms’ long-term success
CONCEPT LIST
Economies of scale: Large companies can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises
Economies of scope: Large companies ca use the same raw
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Either the company is able to make those changes or it will not make it very far
5. Growth rate of the industry: It is related to the speed at which a company goes through the phases of evolution and revolution. When it is a fast growing industry, the evolution period tends to be shorter than in a slow growing industry.
Phases of Growth
Creativity: Creating and selling a new product
• Entrepreneurial
• Informal and infrequent communication among employees
• Long hours rewarded by modest salaries and the promise of ownership benefits
• Decisions highly sensitive to market, management acts as customer acts
Crisis of Leadership: Development of unwanted management responsibilities. Must find a strong manager with knowledge and skill to lead the company of out confusion, solve managerial problems and pull the organisation together.
Direction: Period of sustainable growth under able, directive leadership
• Functional organised structure introduced, manufacturing and marketing separated and jobs become specialised
• Accounting system for inventory and purchasing introduced
• Incentives, budgets and work standards adopted
• Communication becomes formal/impersonal, hierarchy grows
Crisis of Autonomy: Lowers level employees possess more information about markets and machinery than higher ups, so more delegation needed
Delegation: Application of decentralised organisational structures
• Greater responsibilities on
However this latter argument ignores the fundamental advantage that big firms enjoy over small firms: economies of scale. Given the capital intensive nature of the energy industry it is most likely that large firms enjoy cost advantages that smaller firms will be unable to achieve; we can predict that the MES of an energy firm exists at an extremely high output level and so has a downward sloping long run average cost curve as seen below:
Sending two to three trainees a day to the clinic should do the trick. When Carl contacts the trainees, he personally can receive their application and see to it that the trainees transcripts are on file. With Joe from technology services scheduling the training room for the whole month of June; Carl could simply move the Orientation to a different room on the grounds or move the orientation to a different location all together.
In the field of microeconomics, the market structure of an organization determines the performance of the organization within the industry. There are different types of market structures practiced today. Among these market structures include the perfect competition structure (Miller, Vandome, & McBrewster, 2009). In perfect competition structure, the competition happens between numerous small firms against each other. In this practice, there is optimum production by the firms socially at the minimum cost per unit possible. There is no barrier to entry in this structure, hence new companies and organizations can join easily. The
- The industry grow is staggered (less than 1%). This will result in a market share competition that will benefit the companies who have the means to survive, e.g. the means to lower their costs.
“That focus on growth includes a number of strategies CEOs are using in an effort to improve their companies” which are:- 1) Formal innovation processes. 2) Mergers & Acquisition. 3) Risk management. 4) Transforming operating models. 5) Increasing focus on customers.
According to Reverso (2003), theoretical principles refer to the study based on the ideas and beliefs related to a particular matter that rarely applied. Value and identity, and theoretical issues and are instances of the theoretical principles which the society and corporations should consider as the key to success. These theories will be illustrated and applied to Bittman’s article, “Good government puts people over business" (2015).
-Economies of scale are very important for a low-value product, which is more difficult for new entrants to compete with existing manufacturers
On the other hand, economies of scale occurs when firms expand their scale of production as they gain benefits in some aspects. Strategically, large firms can afford to advertise or even provide additional services such as free delivery. With a large output, the average cost of advertising and the provision of services per output reduce. Besides, when purchasing raw materials in bulk, large firms are often given discounts. Financially, large firms are well-established and reliable so finance is more accessible and interest rate is also relatively lower.
The efficient management of any organization is the central driver of the constant achievement of the business and it is influenced by both the internal and external factors of the organization. It is vital that the Top Management aims to display successful leadership & management in organisation concurrently and in view of other duties & responsibilities. The Report aims to enhance the understanding regarding leadership & Managerial skills. This report will discuss the practices and management principles, will perform the review regarding potential as prospective manager, display managerial skills in the business &
As a company grows, not all costs increase with it, and some may even go down. Incumbent companies who have economies of scale can hence have a significant cost advantage over new entrants and smaller competitors.
Stanford Business School professor, David Montgomery and his co-author Marvin Lieberman first popularized the concept of “First Mover Advantage” in a 1988 paper. This concept became the sole reason for out-of-control expenditure by start-ups in order to attain a monopoly like status. But there was just one problem - This concept was simply not true. Ironically, 10 years later, the authors of the paper backed off their claims but by then every other firm was using this phrase in justification of their reckless “Get big fast” strategy. In their paper “Pioneer advantage: Marketing logic or marketing legend?” Peter N. Golder and Gerard J. Tellis better explained the fate of “Early movers” entering new markets. Their research showed that Early Movers typically had a 47% failure rate. What’s worse was that their studies showed that the survivors had a lower market share than found in other studies. Furthermore, their research showed that long-term success was almost guaranteed to the second, third, fourth or even tenth entrant with a success rate of ~92% (Source -
Innovative production methods and techniques were developed. Capital intensity was increased, stocks were reduced. Service and production related activities were delegated to smaller firms, who managed their work force with greater flexibility. Employment was on the decline.
The industry is a driven by speed; constant introduction of new products. The profitability of depends on operational efficiency and speed of new product launches. Large companies leverage economies of scale in purchasing raw materials, components, and manufacturing equipment whereas smaller companies can compete effectively by specializing in niche products or
Large firms enjoy cost advantage under economies of scale; here they are able to reduce their average cost (AC) per unit as they increase total output. This basically means there is an increase in the cost of production for the large firm and an increase in output, promoting growth. As a result of cost advantage the large firms also enjoy managerial economies (Besanko et al, 2013). Under managerial economies, the firms can afford to hire specialists in different departments such as: human resource, marketing and finance within the firm. Additionally, large firms may benefit from market power, since they will have more control over their suppliers and customers. It is mostly assumed that economies of scale cannot be applied to small businesses since they are less likely to be involved in mass production. Certain studies show that it can be applied to small businesses in some cases. Small firms could benefit from economies of scale through buying of services. For instance, if a small firm hires an accountant to go through its account, the accountant uses only a small portion of his/her time and the firm pays only a small part of his or her time (Begg et al, 2013).
Surviving in a competitive market nowadays has become increasingly difficult. According to Kelly (2013), almost 90% of new start-ups fail and don’t make it to their second year. Some of those businesses have overly ambitious goals, while others are simple and just aim to survive. So what criterion do we use if we are to judge the soundness of the entrepreneurial decision? Do successful businesses have the distinct characteristic of achieving profits? And are the most successful of companies the ones that attain the highest profits? Or is it that we need to take other factors into account when assessing the successfulness of a company? These are the kinds of questions that this paper will be trying to answer in order to reflect on the different ways and approaches we go about assessing how successful a business or an entrepreneurial decision is.