The information society

Ewan Sutherland

The second industrial revolution

• automobiles,
• chemicals,
• electrical engineering

• managerial enterprise
• multi-national corporations

• mass production
• mass consumption

Managerial enterprise

• much increased minimum operating scale
• raising capital in a supra-national market
• dispersed ownership
• growth of a professional management cadre
• development of marketing

Capital intensive industries

New and enlarged minimum operating efficiency in:

• sugar and petrol refining
• iron, steel, copper and aluminium production
• grain and tobacco
• advanced industrial machinery

Growth of the USA

• geographical extent
• population

Growth of wealth: relatively even distribution of wealth

GDP per Capita in 1970 prices

Sectoral growth of the workforce of the USA

New communications infrastructure

• railways
• steamships
• telegraph

United States of America

The building and operating of the rail and telegraph systems called for the creation of a new type of business enterprise. The massive investment required to construct those systems and the complexities of their operations brought the separation of ownership from management.

Alfred Chandler (1990), page 1.

American railroad companies

• coordination on a truly grand scale
• shipping enormous variety of goods
• tracking goods and wagons across different railway systems

New economic order

• first mover advantage
• tendency for oligopoly
• competition for market share
• competition by product development
• expansion overseas to exploit advantages
• extremely difficult to challenge the dominant firms

Andrew Carnegie

• emigrated from Scotland aged 13
• sold out his business for US $ 480 million in 1901
• built bigger and bigger steel plants
• vertical integration to own coal and iron mines
• introduced new processes, such as Bessemer smelting, open hearth furnaces and direct rolling
• price of steel rails fell from US $67.50 per ton in 1880 to $29.25 in 1889 and down to $17.63 in the late 1890s

Growth by merger

• merger or acquisition of interests to achieve economies of scale
• horizontal integration
• vertical integration

Internationalisation

• to exploit resources
• to exploit production processes
• to exploit brand names
• to exploit ability to raise finance

German chemical industry

• plant
• large management teams
• worldwide marketing

du Pont de Nemours

The rise of the motor car

Development of technological capabilities:

• fuel
• car
• manufacturing

Caught public imagination

• manufacture
• sell

• Paris-Peking Rally
• Monte Carlo Rally
• Le Mans

Henry Ford

You can have any colour you want so long as it’s black.

• volume production
• interchangeability of parts
• production
• automation
• capital investment in plant
• driving the price down
• creation of new market
• failed as a manager in the long term
• over-ruled and drove out good staff

Frederick W Taylor

• 1856-1917
• lived and worked in USA
• used stop watches to measure time taken on work and adjusted piece rate accordingly
• wrote Principles of Scientific Management (1911)

The most serious of the delusions and fallacies under which workmen, and particularly those in many of the union, are suffering is that it is in their interest to limit the amount of work which a man should do in a day.

General Motors

In 1921 Ford had about 60 per cent of the total car and truck market in units, and Chevrolet had about 4 per cent. With Ford in almost complete possession of the low-price field, it would have been suicidal to compete with him head on. No conceivable amount of capital short of the United States Treasury could have sustained the losses required to take volume away from him at his own game.

Alfred Sloan (1963) page 69.

• could not compete on price alone
• impossible to achieve cost leadership
• chose instead product differentiation
• created a range of models
• added accessories and luxuries
• created the annual model
• invested in R&D

GM Divisions

• Buick
• Olds (later Oldsmobile)
• Oakland (later Pontiac)
• Cadilac
• Chevrolet
• GM Truck
• Frigidaire
• Holden (in Australia)
• Vauxhall (in UK)
• Adam Opel (in Germany)

Sears, Roebuck & Company

Miles of railroad tracks run lengthwise through, in and around this building for the receiving, moving ad forwarding of merchandise; elevators, mechanical conveyors, endless chains, moving sidewalks, gravity chutes, apparatus and conveyors, pneumatic tubes and every known mechanical appliance for reducing labor, for the working out of economy and dispatch is to be utilized here is our great works.

Marketing

Mass marketing

• Campbell’s Soup
• Ivory Soap
• cigarette machines
• breakfast cereals

• wrappers
• newspapers
• radio
• television

Thomas Alva Edison

A major inventor:

• stock ticker tape system
• multiplex telegraphy
• incandescent lighting
• magnetic iron ore separation
• storage battery
• sound recording

A major invention every six months, something significant every week. Thomas Alva Edison

American Telephone and Telegraph (AT&T)

Organisational structure:

• Bell Laboratories
• Western Electric (manufacturing)
• Bell Operating Companies

Industrialisation in the USSR

• a model of development
• consciously planned
• later ‘exported’ to other Marxist-Leninist states
• based on Henry Ford
• standard products
• long production runs
• take what you get
• forced by Josef Stalin
• exploitation of resources in Siberia

The cost

Though confined to a single state, the number dying is Stalin’s war against the peasants was higher than the total deaths for all countries in World War One.

Robert Conquest (1991) Soviet Studies

Universities

• Growth in Germany of scientific research
• growth in USA of business schools
• Tuck School founded 1900
• Harvard Business School 1908

United Kingdom

• smaller domestic market
• smaller firms than in USA and Germany
• smaller management teams
• continued influence of family and old-school ties

... on the whole the local and provincial business notables limited their influence to their trade and their locality. In their own cities and provinces they formed an elite of such high distinction and status that there was neither a need nor a wish to escape from it.

James (1990) page 121.

... by concentrating on lines that exhibited craftsmanship and individual character, consciously differentiated their products in order to secure a degree of monopoly power which permitted them to reap high profits on a relatively small capital and turnover. This, in turn, strengthened their resolve not to increase the scale of their operations beyond that which would have involved the recruitment of managerial talent and financial resources outside the family circle. This policy of product differentiation, sustained as it was by the lack of homogeneity in the domestic market depressed the national rate of economic growth and was partially responsible for the longevity of the small family firm and the slow adoption of corporate capitalism.

Peter Payne (1990) page 34.

Old school ties

... selection to senior positions and to the board depended as much on personal ties as on managerial competence. The founders and their heirs continued to have a significant influence on top-level decision-making even after holdings in the enterprise were diminished ... outside directors were selected as much for family connections and social position as for industrial experience.

Alfred Chandler (1990) page 242.

Socio-economic class

What Weiner has discovered is not so much a decline in industrial spirit as a reaffirmation of the stratified and hierarchical nature of British society. From an economic point of view, the significance of this is that the market confronting British manufacturers was similarly stratified.

Peter Payne (1990) page 34.

Pre-emption in electrical engineering

• technological lead in Germany and USA
• pre-emptitive penetration of UK market by foreigners
• foreign businesses were subsequently acquired by London-based financial interests

Information

• physical goods and messages
• individual to individual
• corporation to individual

R&D

• companies
• universities

Conclusion

Readings