The Visible Hand.docx

7 Pages

Political Science
Course Code
Political Science 2211E
Adam Harmes

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The Visible Hand – “The Maturing of Modern Business Enterprise”  World War I marks the turning point of development of modern business enterprise in the USA  Three significant developments complete the history of modern business enterprise development: - Post-World War I economic recession  Revealed weakness in the organizational structures of large industrial enterprise - new large industrial and marketing enterprises introduced professionalization of management - Today’s modern businesses were shaped by institutional changes since World War I Perfecting the Structure:  The 1920 – 1922 recession indicated: - Lack of ability to adjust flows readily to fulfill changes in demand  Very few firms adjusted inventory quickly enough - Failure of top managers to plan effectively  Senior executives did not make plans to handle slump in demand and only focused on day-to- day operations  Ford passed the burden of slackening demand to the dealers by forcing them to buy and pay for cars they could not sell by threatening to cancel their franchises  Many corporations had to write down the value of their overstocked inventory (i.e. GM)  New innovations in response to inventory crisis: - Enterprises began forecasting future demand and adjusted flows based on it (i.e. GE & GM) - Created multidivisional structure: autonomous divisions continued to integrate production and distribution by coordinating flows from supplies to consumers in different clearly defined markets  Divisions, headed by middle managers, controls the activities of their respective departments  General office monitor divisions to make sure production flow match demand and have comparable policies in place in personnel, research, purchasing etc.  top managers evaluate the financial and market performance of the divisions and concentrates on planning and allocating resources  GM developed the a complex organizational innovation which became the standard model on which other enterprises exemplified: - Built general office from scratch - Many reorganizes came from du Pont which illustrated organizational techniques could be transferred from one industry to the other while meeting differing needs  Du Pont and Sloan created single centralized functionally departmentalized organization: - Autonomous operating divisions: car, truck, parts, and accessory enterprises - Defined a divisions activities according to the market it served and the market was set by price - Price Pyramid: each divisions sold in a single price class  Chevron: bottom of class with lowest price and highest volume  Cadillac: top of class with high price and lowest volume - Replaced president’s headquarters with general office consisting of powerful general executives and large advisory and financial staffs  Executives devise procedures to coordinate current output with existing demand  Required divisions to submit for each coming month the following 3 months forecasts of material, equipment and labour needed for each month’s production  General office had to approve estimates before divisions were permitted to make any purchases or production scheduling  Division indices also estimated rates of return on investment and prices to be charged for each product  Staff computed size of national income, state of business cycle, normal seasonal variations in demand and division’s anticipated share of the total market of each of its lines  Forecasts were constantly adjusted to actual sales and comparisons were made to sharpen forecasting techniques  Comparisons also used as a tool for evaluating divisional performance - Sloan, Dupont and associates worked on long-term planning and allocation of capital and managerial resources  A major innovation since top managers used to be preoccupied with day-to-day operations  Top management decisions were made in a four-man executive committee which later expanded to ten executives in 1924  Tasks: approval of divisional indices, evaluate divisional performance, set pricing and other general corporate policies on basis of evaluation, plan long-term strategy and allocation of its resources - Sloan formed interdivisional relations committee for major functional activities: product development, works management, power and maintenance, sales, and institutional advertising  Purpose: bring together staff, line and general executives  Had own salaried staffs  Chaired by a member of the executive committee - Sloan & Dupont were able to free top management of operating biases and responsibilities while keeping in touch with the corporation’s widespread operations - Policy was also formulated by general executives who had the time, information and psychological commitment to the enterprise as a whole as opposed to its divisions  Dupont and Sloan’s constructed organizational structure began to be adopted by large industrial organizational throughout 1920s and 30s - Was an effective organizational alternative for mergers (Allied Chemical and Union Carbide) - Organizational methods were constantly polished and adjusted:  coordination of product flow and marketing became increasingly complex due to exponential growth in sales and product development  Solution: managers specializing in coordination appeared (i.e. Project program managers) - Two basic organizational structure used in modern management of large industrial enterprises: 1) Centralized & functional departmentalized structure – GE & Du Pont before WWI  For Companies producing a single line of goods for a major product and regional market 2) Multidivisional & Decentralized Structure – GM & Du Pont post WWI  For companies producing several lines for a number of product and regional markets The Professionalization of Management:  Growing professionalization of the managers of large industrial enterprises contributed to the spread of new organizational structure techniques th  Early years of 20 century saw the emergence of professional societies, journals and courses in finance, marketing, production and general top managers  Modern accounting profession in USA had two roots: auditors & cost accountants - Accounting firms (i.e. PWC) helped to form American Association of Public Accountants  Included controllers and executives from accounting firms  Primary association for auditors  Association grew after merger movement which created demand for auditors and CPA - Both financial and cost accounting began to be taught extensively in colleges and universities in the 1920s  Marketing lagged behind finance and accounting in developing comparable professional activities: - Marketing Association founded in 1915 - Proceedings & Journal of Marketing were association’s publication material - Core marketing courses established in 1910  Professional organizations and journals grew out of status quo that it was only for engineers  General Managers also formed their own association – “American Management Association” - Large demand for System, a periodical on general business affairs led to the establishment of Management and Administration, journal designed for the needs of corporate management  Many leading experts on corporate managements and mangers of major corporations contributed to the journal  These publications were founded before the association  Modern business schools were central to the professionalization of management - Business education evolved from teaching strictly bookkeeping & secretarial skills in small specialized private schools of commerce to increasingly in public high schools in late 1800s - Beginning 1899 business education became part of the curriculum of nation’s most prestigious colleges and universities (i.e. University of Chicago, University of California etc.) - Industrial organization was one of the most popular courses - Harvard Business School began to use the case method of instruction derived from Harvard Law School and Business Policy became the core course of the curriculum  Appearance of management consulting gave evidence to professionalism: - Firms became primarily management rather engineering consultants  Professional societies, journals, university training and specialized consultants hardly existed in USA in 1900 but were flourishing two decades later - Provided channels of communication through which managers could review and discuss similar problems and issues - Give corporate managers a sense of self-identification Growth of Modern Business Enterprise between the Wars:  Advancing technologies and expanding markets gave multiunit firm a competitive advantage in the American economy  Operations and organization of the transportation and communication indus
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