From the late 1930s into the 1960s, no company matched RCA’s prowess in bringing new consumer electronics products to the mass market. Color television was a spectacular technological breakthrough and a very profitable commercial success for the company. But in the mid-1960s, RCA tried to get into computers, going up against the corporate establishment in that field, above all IBM. This new push came at the expense of consumer electronics, which got less funding just as Japanese companies were achieving breakthroughs in the field, particularly in video recording.
By the 1970s, the Sarnoffs had lost sight of their place in history. As innovators in consumer electronics, they had reaped huge profits from economies of scale in marketing these products. They then put the profits back into research and more innovation. But, “as Robert Sarnoff took command [in 1968], he was persuaded by Andre Meyer, a member of the RCA board of directors and senior partner at Lazard Frères and one of the most respected investment bankers of his day, to embark on a second strategy of growth. That was one of product diversification through acquisition of companies whose businesses were only distantly related, if related at all, to [RCA’s] learned technical, functional, and managerial capabilities,’’ as Chandler tells the story in his new book.
How could the Sarnoffs have known that becoming a conglomerate, for all its dazzle, was a doomed route for them to take, and that RCA would disintegrate? They could not have known, of course. But a greater acquaintance with history would have made them more aware of RCA’s potential problems. Plow through Chandler’s sometimes dense and often anecdotal prose, and you come away with a sophisticated appreciation of the historical forces that shape outcomes. Not answers, but an awareness that, in the Sarnoffs’ case, might have saved them from the advice they got on Wall Street.
As Peter Cappelli, a management expert at the University of Pennsylvania’s Wharton School of Business, put it in an interview: “What you are trying to develop in a manager is a kind of inductive skill in reading the terrain; of knowing intuitively when the paradigms are about to change or bust up — or endure.”
Insights of History
Like Chandler, Robert Heilbroner is an economic historian, but a far better writer. He offers wonderful anecdotal biographies of the great economists, starting with Adam Smith, and in the process takes the reader almost painlessly through Western economic thought. His message is blunt: The seminal economic theories sprang from the times in which they were conceived. When circumstances changed, every generation or two, so did economic theory. But not entirely. Each new worldly philosopher built on the theories of his predecessors.
Adam Smith, of course, described the dynamics of the Industrial Revolution starting all around him. Karl Marx, building on Smith, witnessed the unfolding plight of the new industrial work force and tried to give workers as important a role as capital in the new market system. As a byproduct, Marx was the first economist to describe a business cycle and to perceive that business cycles were inherent in capitalism. And so the evolution of economic theory continued. John Maynard Keynes explained the Great Depression to our parents, and Joseph Schumpeter became known for his descriptions of “creative destruction” in a market system — a bit of consolation for the bankrupt.
“The worldly philosophers,” Heilbroner writes, “taught us to see the evolution of society as a drama whose meaning could be grasped by individuals who would otherwise have felt themselves merely swept along by overmastering and incomprehensible forces. The ultimate objective of their economic thinking was social understanding.”