Born in 1918, Alfred Chandler made exhaustive researches of the North American companies in activity in the period between 1850 and 1920, which were the base of the most part of his work and originated a new way to see management – contingency approach. After taking his degree in Harvard, he became an historian at MIT. Later, was a History professor at Johns Hopkins University and after 1971, Economical History professor at Harvard University.
Chandler was the first theorist to defend the creation of a strategic plan before the elaboration of an organizational structure, being, the strategy should precede the structure. Also theorized the decentralization concept in big companies, popular in the 60´s and 70´s, defending that the advantage of multidivisional companies was in fact that theses allowed that the top executives became to have more everyday responsibilities, gaining time to dedicate to other tasks and starting to assume the compromise of a long term plan.
Also defended the need to coordinate the strategic planning of the head-offices with the business’ units policies.
From his studies, performed in four big North American organizations (namely Du-Pont, General Motors, Standard oil Co. and Sears Roebuck & Co.), about organizational strategy and structure, Alfred Chandler Jr. concludes that “the organizational structure of big American companies was gradually determines by its market strategy” and summarizes:
1st Resources accumulation and productive capacity expansion (end of 19th century): the quick urban growth and the proliferation of railways a little around the world lead to the marked growth of the iron and steel. In this period, companies adopted strategies of productive capacity expansion through the accumulation of resources and vertical integration through the acquirement of raw materials’ suppliers, in order to take advantage of the benefits’ scale economies, and neglecting many times the channel distribution development.
2nd Rationalization of the resources use: the productive capacity growth strategy and vertical integration lead to the sharp expansion of the company’s size and, consequently, to the need of the cumulative resources organization. On the other hand, the productive capacity excess, notorious during the great depression in the 30´s, originated the need of costs contention through the creation of functional structures with authority and communication lines perfectly defined.
3rd Growth continuation: the rationalization of the productive resources use made possible a costs reduction and, consequently, an efficiency raise. However, the markets increasingly overrun and the progressive raise of the competitive levels forced the companies to diversify their business and search for new products and new markets. One of the direct consequences of this diversity was the forthcoming of research and development departments and industrial engineering and design.
4th Rationalization of the resources in expansion use: the increasing products and operations complexity lead to the creation of new organizational structures, namely the multi departmentalized divisional structure. This new organizational structure consisted in the creation of independent and integrated divisions, supported by the operations’ decentralization and administrative control centralization, forced the companies to place a bigger emphasis on the long term planning, goals definition and performance evaluation of each division.
In summary, Alfred Chandler Jr.s’ studies conclude that the environmental changes take the companies to adapt their strategies and to change organizational structures as a way to allow its fulfillment.