Summary Review of Alfred Chandler's "The Visible Hand"

Bill Brown
FROM: http://www2.cddc.vt.edu/digitalfordism/fordism_materials/brown.htm In this book, Chandler argues that American business history can be separated into two separate phases: pre-1850 and post-1850 !e contends that the "irst phase represents the market economy#one characteri$ed by what economists call per"ect competition %he second phase, continuing to the present, represents what he calls managerial capitalism %he transition between these two periods constituted a re&olution in American business enterprise, "or it trans"erred operation o" a company "rom the owner or partners to a "ull-time, salaried manager It was necessitated by the re'uirements o" operating the "irst truly modern enterprise, the railroad (ith its &ast system and comple) operations, the railroads were compelled to de&ise new management methodologies *or Chandler, the railroad was the catalyst "or the managerial re&olution +usinesses prior to 1850, what Chandler terms ,traditional enterprises,- "ell into three primary models: the .outhern plantations, the /owell te)tile "actories, and the .pring"ield Armory %he .outhern plantations were the "irst enterprises that had to contend with the management o" people and production %hey operated on a age-old system o" work gangs assigned a speci"ic task %he plantation o&erseer0s main duty was to manage the gangs0 "oremen %he plantation0s accounting system was little changed "rom the time o" the 1edicis 2o cost accounting was used and neither the plantation owner or the o&erseer appeared to be concerned with this lack %he /owell te)tile "actories were a considerable step more ad&anced "rom the .outhern plantations in their comple)ity 1anagers were much more concerned with enhancing producti&ity and increasing output /owell0s managers not only had to super&ise workers, they had to ha&e a thorough knowledge o" the "actory0s production line and machines %hey kept detailed records o" past transactions, but showed no inclination to analysis o" these records to determine operating costs %he .pring"ield Armory, by "ar the closest to a modern business o" the three models, was one o" the "ew American businesses to ha&e an internal speciali$ation o" labor during this period It had three au)iliary shops that "ed material into a central shop, where the guns were assembled into a "inal product 3ach shop had its own manager, who was responsible "or only his workers and area 4ecords were meticulously kept and the Armory0s superintendent could re&iew the work o" each area in great detail !owe&er, cost accounting was not introduced and the superintendent did not use the in"ormation a&ailable to render the Armory more e""icient Chandler contends that the .pring"ield Armory was signi"icant "or "actory management, not multiunit business management

%he railroad, "or Chandler, is an especially signi"icant de&elopment in American business 2ot only was it the "irst modern enterprise, it also "acilitated the de&elopment o" other businesses because it pro&ided reliable, "ast transportation 4ailroads were the "irst organi$ations to ha&e multiple, geographically-dispersed units whose operations must be coordinated 5ob "unctions, long nebulous in earlier industries, became solid and well-de"ined6 organi$ational charts were created showing lines o" authority and communication 1ultiple layers o" management were introduced +y "ar, the most signi"icant organi$ational inno&ation introduced by the railroads was cost accounting 7tili$ing data only hours old, railroad managers could accurately track trains, estimate their cost per ton-mile, and determine whether rates should be changed based on this data It was a watershed in business management %he railroads also enabled other industries to e)pand, both by their pioneering e""orts in organi$ation and their reliable transportation system 1ass production and mass retailing could not ha&e come about without the railroads0 inno&ati&e management methods or their ability to ship goods cross-country 'uickly and reliably *or Chandler, the re&olution was not so much the e&ol&ing methods o" management as it was the creation o" management as such 8rior to the railroads, market mechanisms go&erned and guided the production process A"ter the railroads, skilled management took o&er that capacity