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Cited by 850Economic Theory and InstitutionsHistorical Economic and Social StudiesFirm Innovation and Growth

Organizational Capabilities and the Economic History of the Industrial Enterprise

Open access
Chandler, Alfred D·1992·Journal of Economic Perspectives
DOI 10.1257/jep.6.3.79
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Abstract

In my book Scale and Scope (1990), I focused on the history of the modern industrial firm from the 1880s, when such firms first appeared, through World War II. I did so by comparing the fortunes of more than 600 enterprises—the 200 largest industrial firms at three points in time (World War I, 1929, and World War II) in each of the three major industrial economies (those of the United States, Britain, and Germany). In this paper, I first describe the similarities in the historical beginnings and continuing evolution of these enterprises and then outline my explanation for these similarities. Next, I relate my explanation of these “empirical regularities” to four major economic theories relating to the firm: the neoclassical, the principal-agent, the transaction cost, and the evolutionary. Finally, I suggest the value of the transactions cost and evolutionary theories to historians and economists who are attempting to explain the beginnings and growth of modern industrial enterprises.

Integrity signals

Registry

Crossref · 10.1257/jep.6.3.79

Cites

255 of 255 references verified0 citation errors · 0 not checkable

Statistics

Nothing to recompute.

Claims the paper makes

0 of 49 cited sources checked · 0 supported · 0 flagged

  • Findingreasoning

    Only a few challengers appeared to compete with first movers in the new capital-intensive industries.

    “Such challengers did appear, but only a few of them.”
    Quote in the paperNot a substantial claim
  • Findingnone given

    The creation, maintenance and expansion of organizational capabilities permitted American and German firms in the two decades before World War I to drive British competitors from international markets and Britain's home market in most capital-intensive industries of the Second Industrial Revolution.

    “The creation, maintenance and expansion of such capabilities permitted American and German firms in the two decades before World War I to drive British competitors from international markets, and even Britain's home market, in most of the capital-intensive industries of the Second Industrial Revolution.”
    Quote in the paperNot a substantial claim
  • Findingreasoning

    These industrial firms first appeared as modern transportation and communication networks were completed.

    “These industrial firms first appeared as modern transportation and communication networks were completed-networks that themselves were built, operated, enlarged and coordinated by large hierarchical firms.”
    Quote in the paperNot a substantial claim
  • Findingnone given

    Firms grew by moving backward to control materials and forward to control outlets largely in response to short-lived business needs or opportunities.

    “Firms grew by moving backward to control materials and forward to control outlets (vertical integration); but, as will be described shortly, they did so largely in response to the specifics of the short-lived business needs or opportunities.”
    Quote in the paperNot a substantial claim
  • Findingnone given

    In the new capital-intensive oligopolistic industries, firms competed more forcefully through functional and strategic efficiency than through product pricing.

    “Although product pricing remained a significant competitive weapon, these firms competed even more forcefully through functional and strategic efficiency”
    Quote in the paperSubstantial claim
  • May combine two claims. 25
  • Classified as probably not a substantial claim. 11

  • May combine two claims.

    Findingreasoning

    Organizational learning permitted Japanese firms to transfer technology from the West and then develop organizational capabilities necessary for competitive advantage in international markets.

    “So too, organizational learning permitted Japanese firms, first, to carry out a massive transfer of technology from the west to Japan; then, as Japan's domestic market grew enough to permit building enterprises large enough to exploit potential economies of scale and scope, to develop organizational capabilities necessary for competitive advantage in international markets.”
    Quote in the paperSubstantial claim

  • May combine two claims.

    Findingnone given

    The first firms to make the three-pronged investments in manufacturing, marketing, and management essential to exploit economies of scale and scope quickly dominated their industries, and most continued to do so for decades.

    “The first firms to make the three-pronged investments in manufacturing, marketing, and management essential to exploit fully the economies of scale and scope quickly dominated their industries.Most continued to do so for decades.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based).

    Findingreasoning

    In the climate of oligopolistic competition, market share and profits changed constantly.

    “In this climate of oligopolistic competition, market share and profits changed constantly.”
    Quote in the paperNot a substantial claim

  • May combine two claims.

    Findingnone given

    Organizational capabilities made it possible for German enterprises to regain their position in world markets swiftly after 1914-1924 and again in the 1950s.

    “They made it possible for German enterprises to regain their position in world markets swiftly after a decade of war, defeat and inflation between 1914 and 1924, and to come back again in the 1950s after a far more devastating war.”
    Quote in the paperSubstantial claim

  • Probably not a substantial claim: may not pass S4 (based).

    Findingnone given

    A new type of industrial enterprise appeared suddenly in the last two decades of the 19th century.

    “A new type of industrial enterprise appeared suddenly in the last two decades of the 19th century.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S4 (based). May combine two claims.

    Findingnone given

    Throughout the 20th century, these industrial firms were created and grew in much the same manner and clustered in industries with the same characteristics.

    “Throughout the 20th century, these firms were created and continued to grow in much the same manner, and they continued to cluster in industries with the same characteristics.”
    Quote in the paperNot a substantial claim

  • May combine two claims.

    Findingcitation

    A new electrolytic process transformed and greatly reduced costs of producing copper, aluminum, and several chemicals.

    “Moreover, a new electrolytic process transformed and greatly reduced costs of producing copper, aluminum, and several chemicals.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Findingnone given

    William Perkin invented the first synthetic dyes.

    “An Englishman, William Perkin, invented the first such dyes.”
    Quote in the paperNot a substantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing).

    Findingnone given

    The world's largest market for man-made dyes remained the British textile industry until after World War II.

    “The world's largest market for man-made dyes remained, until after World War II, the huge British textile industry.”
    Quote in the paperNot a substantial claim

  • May combine two claims.

    Findingcitation

    By then Singer produced 79,000 machines annually in its Moscow factory with a work force of 2,500 wage earners and 300 salaried employees; its salesforce of more than 27,000 covered territory from the Sea of Japan to the Baltic.

    “By then Singer produced 79,000 machines annually in its Moscow factory with a work force of 2,500 wage earners and 300 salaried employees; while its salesforce of more than 27,000 covering the vast territory from the Sea of Japan to the Baltic.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Findingcitation

    After World War I, leaders in major capital-intensive, oligopolistic industries continued to expand existing foreign beach-heads and to enter new territories.

    “After World War I, leaders in these major capital-intensive, oligopolistic industries continued to expand existing foreign beach-heads and to enter new territories.”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Findingcitation

    The new electrical industry provided new sources of light and power that altered urban living and transportation, and changed the workplace.

    “The new industry provided new sources of light and power that altered urban living and transportation, and also changed the workplace.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Findingcitation

    New capital-intensive industries had a greater need to monitor high-level throughput than older labor-intensive ones, so firms in capital-intensive industries internalized distribution while labor-intensive ones relied on independent distributors.

    “For example, the new capital-intensive industries had a much greater need to monitor high-level throughput than the older labor-intensive ones.Therefore, firms in the capital-intensive industries internalized distribution, while those in the labor-intensive ones continued to rely on independent distributors”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Chandler, 1990

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

    Findingnone given

    Dyes are made from coal, and Britain had the largest supplies of high quality coal in Europe.

    “Dyes are made from coal, and Britain had the largest supplies of high quality coal in Europe.”
    Quote in the paperNot a substantial claim

  • May combine two claims.

    Findingcitation

    German chemical firms created a worldwide sales force, while the British continued to rely on jobbers to distribute the product.

    “While the British continued to rely on jobbers to distribute the product, the Germans created a worldwide sales force; for every user of dyes in the production of cloth, leather, paper, and other materials had to be taught how to apply the new products.”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Probably not a substantial claim: may not pass S3 (load-bearing). May combine two claims.

    Findingnone given

    The first major products of the chemical industry were synthetic dyes, and British entrepreneurs were the pioneers.

    “The first major products of this industry were synthetic dyes, and here British entrepreneurs were the pioneers.”
    Quote in the paperNot a substantial claim

  • May combine two claims.

    Findingcitation

    Nothing comparable to those investments occurred in Britain, even though Sir William Mather had obtained the Edison patents at the same time as Emil Rathenau at AEG.

    “Nothing comparable occurred in Britain, even though Sir William Mather, senior partner of Mather & Platt, one of the largest British textile machinery manufacturers, had obtained the Edison patents at the same time as had Emil Rathenau at AEG.”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Findingcitation

    During the war, German subsidiaries in Allied nations were expropriated and usually turned over to their competitors in those countries.

    “During the war, their subsidiaries in Allied nations were expropriated and usually turned over to their competitors in those countries.”
    Quote in the paperSubstantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

    Findingnone given

    The chemical industry was the most technologically advanced of the new industries and provided the widest range of new industrial and consumer products.

    “The chemical industry was the most technologically advanced of the new industries, and provided the widest range of new industrial and consumer products including man-made dyes, medicines, fertilizers, textiles, film, and other materials.”
    Quote in the paperNot a substantial claim

  • May combine two claims.

    Findingcitation

    In sewing machines Singer and in agricultural equipment McCormick Harvesting Machine (core of International Harvester) were the world leaders.

    “In sewing machines the Singer Sewing Machine and in agricultural equipment McCormick Harvesting Machine (it became the core of International Harvester, a 1902 merger) were the world leaders.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Findingcitation

    GE's subsidiaries in Britain and France were the largest producers in those nations.

    “Its subsidiaries in Britain and France were the largest producers in those nations.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Findingcitation

    GE held 25 percent of the stock of Germany's AEG and had comparable investments in leading electrical manufacturers in Mexico, South Africa, and Japan.

    “It held 25 percent of the stock of Germany's AEG and had comparable investments in leading electrical manufacturers in Mexico, South Africa, and Japan.”
    Quote in the paperNot a substantial claim0 of 1 sources checked
    • cites Scale and Scope

      Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  • May combine two claims.

    Interpretationreasoning

    If company-specific and industry-specific capabilities continued to be enhanced by constant learning, enterprises in capital-intensive industries were usually able to remain competitive and profitable; if not, they normally lost market share.

    “If these companyspecific and industry-specific capabilities continued to be enhanced by constant learning about products, processes, customers, suppliers, and other relationships between workers and managers within the firm, enterprises in capitalintensive industries were usually able to remain competitive and profitable.If not, they normally lost market share in domestic and international markets”
    Quote in the paperSubstantial claim

  • May combine two claims.

    Interpretationreasoning

    Learned skills and knowledge were company-specific and industry-specific, not patentable, and difficult to transfer from one industry or company to another.

    “Such learned skills and knowledge were company-specific and industry-specific.They were not, of course, patentable.They were difficult to transfer from one industry to another, or even from one company to another, precisely because they had been learned within a very specific organizational context.”
    Quote in the paperSubstantial claim

  • Probably not a substantial claim: may not pass S3 (load-bearing), S4 (based). May combine two claims.

    Interpretationreasoning

    In metals the British pioneered, but the Germans and Americans made the necessary investments that quickly drove the British from international markets.

    “In metals the British pioneered, but the Germans and Americans made the necessary investments that quickly drove the British from international markets.”
    Quote in the paperNot a substantial claim

  • May combine two claims.

    Interpretationreasoning

    The swift and dramatic success of German and American integrated companies over less-integrated British rivals before World War I demonstrates that creating organizational capabilities through initial investment in production and distribution permitted first-movers to conquer world markets and raise barriers to entrants.

    “If so, then the swift and dramatic success of the German and American integrated companies over their less-integrated British rivals in the last decades before World War I demonstrates how the creation of organizational capabilities through the initial investment in production and distribution permitted first-movers in the new and the transformed industries of the Second Industrial Revolution”
    Quote in the paperNot a substantial claim
    • Rests on an assumption: The ability to gain and maintain market share and profits tests the efficiency of a capitalist enterprise, particularly in foreign markets.

  • May combine two claims.

    Interpretationreasoning

    Transactions cost analysis is valuable in analyzing why volume producers rarely entered retailing and why mass marketers rarely entered manufacturing.

    “Thus, transactions cost analysis is of great value in analyzing why volume producers rarely entered retailing, and why mass marketers rarely entered manufacturing.”
    Quote in the paperSubstantial claim

  • May combine two claims.

    Interpretationreasoning

    The answer to why some American industries continue to be global leaders while others have fallen behind requires a consideration of how enterprises evolve their organizational capabilities and how their long-term competitive strength and weakness reflect these learned capabilities as well as those of competitors from abroad and related industries.

    “The answer requires a consideration of how the enterprises evolve their organizational capabilities and how their long-term competitive strength and weakness reflect these learned capabilities as well as those of their competitors from abroad and related industries.”
    Quote in the paperSubstantial claim
    • Rests on an assumption: The historical cases reviewed are representative enough to support general conclusions about the role of organizational capabilities in competitive success and industry creation.
    • Rests on an assumption: Differences in organizational capabilities and investments, rather than other unexamined factors, explain the observed competitive successes and failures of firms and national industries.

  • May combine two claims.

    Interpretationreasoning

    The evolutionary theory of the firm, which emphasizes continuous learning that makes a firm's assets dynamic, provides an understanding of why in the past new firms began through integrating production and distribution and why and how they grew by expanding into new markets.

    “This brief review of the beginning and growth of the modern industrial enterprise suggests how the evolutionary theory of the firm, which emphasizes continuous learning that makes a firm's assets dynamic, provides an understanding of why in the past new firms began through the process of integrating production and distribution and why and how they grew by expanding into new markets.”
    Quote in the paperSubstantial claim
    • Rests on an assumption: The historical cases reviewed are representative enough to support general conclusions about the role of organizational capabilities in competitive success and industry creation.
    • Rests on an assumption: Differences in organizational capabilities and investments, rather than other unexamined factors, explain the observed competitive successes and failures of firms and national industries.

  • Probably not a substantial claim: may not pass S4 (based).

    Interpretationnone given

    Two world wars and the intervening Great Depression weakened the competitive strength of U.S. firms' most powerful rivals, particularly the Germans.

    “Two world wars and the intervening Great Depression weakened the competitive strength of the U.S. firms' most powerful rivals, particularly the Germans.”
    Quote in the paperNot a substantial claim
30 of 30

  • The paper relies on this without support.

    The ability to gain and maintain market share and profits tests the efficiency of a capitalist enterprise, particularly in foreign markets.

    “The ability to gain and maintain market share and profits tests the efficiency of a capitalist enterprise, particularly in foreign markets where different laws, customs, working habits, and availability of supplies tend to favor domestic producers.”

  • The paper relies on this without support.

    The historical cases reviewed are representative enough to support general conclusions about the role of organizational capabilities in competitive success and industry creation.

    “This brief review of the beginning and growth of the modern industrial enterprise suggests how the evolutionary theory of the firm, which emphasizes continuous learning that makes a firm's assets dynamic, provides an understanding of why in the past new firms began through the process of integrating production and distribution and why and how they grew by expanding into new markets.”

  • The paper relies on this without support.

    Differences in organizational capabilities and investments, rather than other unexamined factors, explain the observed competitive successes and failures of firms and national industries.

    “The point of recounting this bit of history is to document that, unless investments were made essential to utilize the cost advantages of scale and scope, the enterprises and the industries and national economies in which they operated lost out in international markets to foreign enterprises that made them.”
3 of 3

Cites

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Research works printed but not linked: 1

  1. Winter S., 1988, Journal of Law, Economics and Organization, 4, 163

Cited by

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Authors
Chandler, A. D.
Affiliations
Harvard University (US)
Corresponding author
Chandler, Alfred D
Venue
Journal of Economic Perspectives
Publisher
American Economic Association
Published
1992-08-01
Volume
6
Issue
3
Pages
79-100
ISSN
0895-3309 (ISSN-L)
DOI
10.1257/jep.6.3.79
OpenAlex
W2031847699
Cited by
847
References
10
Citations by year
2026: 14 · 2025: 14 · 2024: 15 · 2023: 39 · 2022: 18 · 2021: 26 · 2020: 17 · 2019: 20 · 2018: 33 · 2017: 69 · 2016: 27 · 2015: 35 · 2014: 27 · 2013: 30 · 2012: 27
FWCI
33.48
Type
journal article
Language
en
Open access
Locations
  • The Journal of Economic Perspectives (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Theory and Institutions
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Historical Economic and Social Studies
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Firm Innovation and Growth
Keywords
industrial firm, organizational capabilities, history of the firm, transaction cost economics, evolutionary theory of the firm, agency theory, neoclassical theory of the firm, World War I, World War II

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