The corporate office let go of day-to-day operational responsibilities, instead focusing on performance monitoring of the divisions, planning and implementation of long-term corporate strategy, and specialist advice through corporate staff to the top and middle management of the divisions.
Key influences: The complexity of the machinery industries made the managers most influential; bankers and owners did rarely have much say in the strategy of the companies, except in financial difficulties.
Lessons from the American experience: The overriding importance of the “three-pronged investment” (production, distribution and organizational capabilities) stressed again.
The hierarchical organization was set up along functional line; production and marketing came first, then purchasing, R & D and finance.
Later came smaller departments like traffic (transportation), engineering, legal, real estate, and even later personnel and public relations.
The owners were more interested in stable income than reinvestment in competitive advantage, taking out profit as dividends rather than making the “three-pronged investments”.
Stabilization in the market was achieved by cooperation between competitors.
Such economies depend on knowledge, skill, experience and teamwork–on the organizational human capabilities essential to exploit the potential of technological processes.” (p.
24) The reason for the sudden appearance of the large hierarchical organization needed to exploit the economies of scale and scope around the end of the nineteenth century stems from modern transportation and communication (telegraph, railroad, steamship, cable) that were reliable and fast enough to maintain throughput.
Economies of scope came from producing many different end products with the same raw material and intermediate processes “The potential economies of scale and scope, as measured by rated capacity, are the physical characteristics of the production facilities.
The actual economies of scale or scope, as determined by throughput, are organizational.