The Entrepreneurial Enterprise

Many of the functions of the visible hand of management were first worked out in what I have termed the entrepreneurial enterprise. The entrepreneurs who created the first large industrial firms by building their own marketing or purchasing organizations had to hire a number of middle managers. Neither the entrepreneurs, their close associates, nor their families could carry on the multitudinous activities involved in producing, marketing, and purchasing a massive volume of goods for national and global markets. Yet because the growth of so many of the early integrated enterprises was internally financed—because both working and fixed capital was obtained from the massive cash flow generated by high-volume production and distribution—the founders rarely had to raise capital by issuing stock. So they continued to own and control their companies. They made the final decisions about the basic policies of operation and strategies of growth and allocated the resources necessary to carry out these plans. Because they continued to look on their business empires as personal property to be personally managed, they felt little need to recruit top managers or develop the systematic, impersonal techniques of modern top management. On the other hand, because their enterprises were the first to integrate mass production with mass distribution, they and their salaried executives pioneered in the new ways of middle management. They were the first to devise the means to administer the new processes of production and distribution and to coordinate the flow of goods between them.

The experiences of four entrepreneurial enterprises—James Buchanan Duke’s American Tobacco Company, Armour & Company, McCormick Harvesting Machinery Company, and Singer Manufacturing Company — have been selected as the case studies to describe and analyze the be- ginnings of middle management in the United States. American Tobacco is an example of the mass producers of semiperishable, packaged products who built their marketing organizations in order to assure effective ad- vertising and coordination of product flow. Armour & Company is an example of the producers of perishable products who built their own re- frigerated or temperature controlled facilities so as to assure a continuing distribution of high-volume output. The last two case studies tell of the experience of the makers of machines whose marketing required spe- cialized services if they were to be sold in the volume in which they could be produced. One—Singer—provided these services by building its own retail network, the other—McCormick Harvesting—did so by pioneering in the use of franchised dealers. Together these four cases give a detailed view of the function and structure of middle management in the nation’s oldest, largest, and most successful industrial enterprises.

Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.

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