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 / Second Quarter 2002 / Issue 27(originally published by Booz & Company)


Professor Chandler’s Revolution

Professor Chandler doesn’t say what specific integrated learning paths would, in his view, be most useful in the near future. “I’m a historian,” he says, “and historians don’t predict.”

And yet the sense of forces that cannot be resisted runs throughout the body of his narratives. For example, biotechnology, consumer electronics, and the computer/Internet, in Professor Chandler’s view, all represent innovations that could shape the pattern of corporate triumphs and failures as profoundly as the railroad did. But that doesn’t mean that these innovations, like the railroad, will put industrial society through a sweeping infrastructure transition that changes the fundamental economic game. These new industries are still subject to the same forces of business reality, the same first-mover advantage and scale-and-scope economies, that shaped chemicals, automobiles, and steel.

Biotechnology, still in its infancy, already has two clear favorites for first-mover advantage. They are both Swiss companies, based in Basel, with long-standing American operations: Novartis and Roche Group (operating in the U.S. for more than a century as Hoffman-LaRoche). Both firms gained their advantage in part by acquiring pioneering American biotech research firms, Chiron and Genentech, respectively. If they succeed, they may be impossible to dislodge. Novartis and Roche “seem to understand that time is moving quickly, and this is their opportunity,” says Professor Chandler. Their ascent — and its contrast with older-line chemical companies like DuPont and Dow Chemical Company — will be the subject of his next book.

Professor Chandler agrees that the Internet is a “game-changing” new infrastructure — a source of sweeping changes in the pattern and flow of goods, services, and industrial relationships. But so is the bar-code reader. (“The bar code,” says Professor Chandler, “was as much a revolution as the post office.”) Like the railroads, the Internet was spurred by government investment, but depended for its growth on privately created technology — in this case, the personal computer, the server, and software. If it follows the same pattern as the railroads, then the Internet will continue to foster a volatile investment market, and it will continue to be seen as a “level playing field” promoting diversity and small enterprise. But in the end, the Internet will also make it far easier for a handful of first-movers to dominate their channels.

The Next Epic
What kind of strategy does the Chandler epic suggest in this business environment? The lasting companies will be those that act now, as Sony did in 1950 or Microsoft in 1980. Focus on some key set of capabilities — miniaturization or operating-system software — that interests you and that fits the larger trends you see. Cultivate your capabilities and relationships. Rather than looking for investment capital, look for opportunities to grow your business from revenues, learning ever more about your customers and distributors in the process. Respect the value of “tacit knowledge” — the profound understanding of the business that pops up in corridor talk and informal e-mail — rather than formal policies and procedures. (“I haven’t spelled that out in my books,” says Professor Chandler. “And I should.”)

Don’t be tempted into mergers, like the proposed Hewlett-Packard–Compaq merger, for primarily financial reasons. (“These rarely work in high-tech industries,” snorts Professor Chandler.) Above all else, resist cutting back R&D for your core businesses because the development of a high-quality research operation is a clear way to build your own learning path.

This is a hard message to hear, at least for those of us who see ourselves as facing a world of infinite possibilities, where we can do anything we set our minds to. Professor Chandler’s work, even down to the book titles — The Visible Hand, Scale and Scope — suggests that we are not nearly as free to act as we think we are. This is the kind of worldview that you would expect from someone who has spent his life racing sailboats and studying business. We live in a world of continually shifting winds and currents. We cannot go against them, nor can we predict their direction and force. But we can learn to catch them in our sails; and if we are lucky enough to be the first to catch one of them, we can move so far out in front that no one else will come close. At least until the wind shifts.

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  1. Richard R. John, “Elaborations, Revisions, Dissents: Alfred D. Chandler Jr.’s The Visible Hand after Twenty Years,” Business History Review, Summer 1997
  2. Alfred D. Chandler Jr., Inventing the Electronic Century: The Epic Story of the Consumer Electronics and Computer Industries (Simon & Schuster Inc., Free Press, 2001)
  3. Alfred D. Chandler Jr. and Stephen Salsbury, Pierre S. du Pont and the Making of the Modern Corporation (Harper & Row, 1971)
  4. Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Harvard University Press, Belknap Press, 1990)
  5. Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Harvard University Press, Belknap Press, 1977)
  6. Andrea Gabor, The Capitalist Philosophers: The Geniuses of Modern Business — Their Lives, Times, and Ideas (Times Books, 2000)
  7. Thomas K. McCraw, ed., The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business (Harvard Business School Press, 1988)
  8. Richard Tedlow, Giants of Enterprise: Seven Business Innovators and the Empires They Built (HarperCollins, HarperBusiness, 2001)
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