Book Notes: The Visible Hand

The Visible Hand: The Managerial Revolution in American Business was written by Alfred Chandler and released in 1977. It’s a great history and study on business and why it exists the way it does today. For some books I read, I transcribe and summarize my highlights/notes in order to better learn the material and for future reference. Below you’ll find my (very long) summary of The Visible Hand. Some passages are direct quotes and others are my own paraphrasing/summaries. So if you’re interested in this sort of topic, send this baby to Instapaper, plop down on the couch, and enjoy.

The Visible Hand

Modern business enterprise is easily defined, having two specific characteristics: (1) it contains many distinct operating units and (2) it is managed by a hierarchy of salaried executives. Each unit has its own administrative office, set of books and accounts. Each could theoretically operate as an independent business enterprise. Such enterprises did not exist in the U.S. in 1840. By World War I this type of firm had become the dominant business institution. It was the institutional response to the rapid pace of technological innovation and increasing consumer demand.

This study is a history, moving chronologically. Before entering the historical experience, here is a list of general propositions to make more precise the primary concerns of the study:

The initial appearance of modern business enterprise:

  1. Modern multiunit business enterprise replaced small traditional enterprise when administrative coordination permitted greater productivity, lower costs, and higher profits than coordination by marker mechanisms. [This was due to both corporate efficiency and economies of scale.]
  2. The advantages of internalizing the activities of many business units within a single enterprise could not be realized until a managerial hierarchy had been created. An enterprise without such managers remains little more than a federation of autonomous offices.
  3. Modern business enterprise appeared for the first time in history when the volume of economic activities reached a level that made administrative coordination more efficient and more profitable than market coordination. It came with new technology and expanding markets.

Growth of the modern business enterprise:

  1. The hierarchy itself became a source of permanence, power, and continued growth.
  2. The careers of the salaried managers who directed these hierarchies became increasingly technical and professional. Training became longer and more formalized.
  3. The management of the enterprise became separated from its ownership. Stockholders didn’t have the influence, knowledge, experience, or commitment to take part in the high command.
  4. Career managers preferred policies that favored the long-term stability and growth of their enterprises to those that maximized current profits. For salaried managers the continuing existence of their enterprises was essential to their lifetime careers.
  5. As the large enterprises grew and dominated major sectors of the economy, they altered the basic structure of these sectors and of the economy as a whole.

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