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Management Decentralization: An Historical Analysis

Published online by Cambridge University Press:  24 July 2012

Alfred D. Chandler Jr.
Alfred D. Chandler Jr.
Affiliation:
Assistant Professor of History at Massachusetts Institute of Technology
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Extract

This article deals with development of basic management structures of large American corporations. In general, the problem has been one of growing operational complexity; the solution commonly adopted has been operational decentralization. This solution, however, has raised difficult questions of control, and various administrative answers have been evolved. These have fallen into recognizable patterns, for an examination of case histories graphically illustrates the close connection between the nature of a company's business and its administrative structure. Those firms whose activities cross established industry lines have tended toward product decentralization. Companies producing a relatively restricted line have decentralized on a functional or a geographic basis. Market-oriented firms have tended to decentralize on a geographic basis. Among the fifty companies studied, however, other variations are discernible. Historical analysis of the decentralization trend also suggests the importance of management personalities in governing the timing of structural changes and indicates clearly the reasons why some companies have yet to find decentralization a meaningful answer for their prevailing administrative problems.

Type
Research Article
Information
Business History Review , Volume 30 , Issue 2 , June 1956 , pp. 111 - 174
Copyright
Copyright © The President and Fellows of Harvard College 1956

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References

1 Drucker, Peter, The Practice of Management (New York, 1954), 209Google Scholar.

2 Because of the need to keep this preliminary study to a manageable length, this article will say nothing about the legal organization and its relation to the administrative structure of the companies examined. Nor will it discuss the foreign operations of these firms, for management structures in foreign countries have to be adjusted to many non-economic and non-business factors. Neither will the article attempt to describe the techniques of co-ordination, supervision, control, and policy formulation. It will only consider the administrative structures in which these are carried out. Nor will it refer to comparable developments in transportation, utility and financial firms. Of these the most significant were those which took place in the railroad industry before 1900. Finally, it might be well to point out that condensing into a paragraph or two the developments in over-all management structure of a company over a period of years often requires overgeneralization. I hope that these generalizations are approximations of the truth; should they not be, the reader will do me a favor by indicating where they are wrong or misleading.

3 Brown, Donaldson, “Centralized Control with Decentralized Responsibilities,” American Management Association, Annual Convention Series, No. 57 (1927), p. 11Google Scholar.

4 Kaplan, A. D. H., Big Enterprise in a Competitive System (The Brookings Institution, Washington, D. C., 1954), pp. 153–54Google Scholar. I have not included Western Electric because it is, for all intents and purposes, an integral part of the American Telephone and Telegraph Company which not only owns it but takes nearly all its non-military production. The Brookings study did not include the Cities Service Company, undoubtedly because that firm was until 1944 a utility as well as an industrial concern.

5 This reorganization is described in the annual report of the E. I. duPont de Nemours and Company for 1921, p. 6. The annual report for 1939, p. 21, also comments on organization. Besides these and other annual reports useful information can be found in Fortune, Vol. 42 (Oct., 1950), 87 ff.Google Scholar; Mylander, William H., “Management by Executive Committee,” Harvard Business Review, Vol. 33 (May-June, 1955), 51–58Google Scholar; and Dutton, William S., DuPont, One Hundred and Forty Years (New York, 1942)Google Scholar, especially book IV, chaps. 1, 2.

6 The quotation is from Fortune, Vol. 23 (June, 1941), 126Google Scholar. This article, which begins on page 61 of that issue, is the best single source of information on Union Carbide. It can be supplemented by the company's annual reports and by an article on the chemical industry in Fortune, Vol. 16 (Dec, 1937), 83 ffGoogle Scholar.

7 These five companies included the Barrett Company (formerly the American Coal Products Company), the General Chemical Company, the National Aniline and Chemical Company, the Semet-Solvay Company and the Solvay Process Company. The best available articles on the company are Fortune, Vol. 1 (June, 1930), 81 ff.Google Scholar; Vol. 50 (Oct., 1954), 119 ff. Except for recent years Moody's Industrial Manual gives more information than the company's annual reports.

8 Fortune, Vol. 3 (April, 1931), 58Google Scholar; Vol. 45 (May, 1952), 104 ff.; and the article on the chemical industry in Fortune, Vol. 16 (Dec, 1937), 83 ff.Google Scholar provide the best information on Dow. Its post-World War II annual reports are also useful.

9 Fortune, Vol. 45 (May, 1952), 177Google Scholar. The quotation in the following sentence is from the Dow Chemical Company's annual report for 1954, p. 3.

10 The information on the Eastman Kodak Company comes more from the annual reports of the company than from an article on the firm in Fortune, Vol. 50 (July, 1954), 76Google Scholar ff. Particularly useful were the reports for 1945, 1947, 1951, and 1952.

11 Much has been written on General Electric. Fortune articles include Vol. 3 (Jan., 1931), 30 ff.Google Scholar; Vol. 3 (Feb., 1931), 39 ff.; Vol. 21 (Jan., 1940), 68 ff.; Vol. 25 (March, 1942), 65 ff.; Vol. 35 (May, 1947), 121; Vol. 45 (May, 1952), 132 ff.; Vol. 48 (July, 1953), 142; and Vol. 52 (Dec, 1955), 110 ff. A useful brief background can be had from the Harvard Graduate School of Business Administration's mimeographed case study on the history of the General Electric Company prepared by John Clark. The annual reports of the company suggest a good bit about the company's organization; those of 1951 and 1955 and the report to the stockholders at the annual meeting in July, 1946, mention organization specifically. There are also two detailed articles by Ralph Cordiner, the man most responsible for the company's major reorganization, one written before and one after the changes, “The Implications of Industrial Decentralization,” American Management Association, General Management Series No. 133 (1945), pp. 24–32, and “Problems of Management in a Large Decentralized Organization,” same series, No. 159 (1952), pp. 3–17.

12 This information on Westinghouse comes from its annual reports, supplemented by Fortune, Vol. 17 (Feb., 1938), 42 ff.; Vol. 48 (July, 1953), 142. Also useful was Facts and Figures for Stockholders — Westinghouse Electrical Manufacturing Company July, 1938 (Pittsburgh, 1938)Google Scholar. Fortune, Vol. 53 (March, 1956), 113 ff.Google Scholar, describes Westinghouse's current troubles but says little on organizational structure, except that a new post, Vice-President in Charge of Operations, has been created.

13 Facts and Figures for Stockholders July, 1938, p. 3.

14 The annual report of the Westinghouse Electric Company for 1934, p. 10.

15 The information on Sylvania comes largely from its annual reports (those for 1945, 1950, and 1953 are especially useful), from Mitchell, Don G., “Big Business in Small Plants,” Advanced Management, Vol. 15 (Dec, 1950), 2–5Google Scholar; and Fortune, Vol. 35 (May, 1947), 113 ff.Google Scholar Additional background data came from the Harvard Graduate School of Business Administration's mimeographed case study on the history of the Sylvania Electric Products, Inc. prepared by John Clark.

16 The annual report of Sylvania Electric Products, Inc. for 1945, p. 17.

17 Mitchell, “Big Business in Small Plants,” p. 4.

18 The annual report of the Sylvania Electric Products, Inc. for 1954, p. 13.

19 The annual report of the General Motors Corporation for 1921, p. 6. Other annual reports having information on over-all administrative structure are those for 1928, 1936, 1937, and 1943. Also useful were Donaldson Brown, “Centralized Control with Decentralized Responsibilities,” cited above, and Smith, Edgar W., “Organization and Operating Principles,” American Management Association, Handbook of Business Administration (New York, 1931), pp. 1474–88Google Scholar. Fortune, Vol. 17 (April, 1938), 73 ff.Google Scholar; Vol. 18 (Dec, 1938), 41 ff.; Vol. 32 (Nov., 1945), 125 ff., provided needed background information as did Pound, Arthur, The Turning Wheel (New York, 1934), pp. 199–202Google Scholar, Drucker, Peter, The Concept of the Corporation (New York, 1946)Google Scholar, Part II, chap, ii, and Dale, Ernest, Planning and Developing the Company Organization Structure, American Management Association — Research Report No. 20 (New York, 1952), pp. 98–106Google Scholar.

20 See especially the annual report of the General Motors Corporation for 1937, pp. 37–38.

21 Background information on International Harvester came from its annual reports and from Fortune, Vol. 8 (Aug., 1933), 21 ff.Google Scholar The 1928 report suggests the difficulties created by the changing nature of the company's market.

22 This and the following quotation are from the annual report of the International Harvester Company for 1943, p. 14. This report describes the reorganization in detail. Other reports that mention organizational changes were those for 1918, 1931, 1935, 1942, 1945, and 1946.

23 Fortune, Vol. 35 (May, 1947), 88Google Scholar. Other useful articles are Fortune, Vol. 45 (March, 1952), 97 ff.Google Scholar; Vol. 50 (Sept., 1945), 123 ff. I have also made use of a current organization chart of the company. Sward, Keith, The Legend of Henry Ford (New York, 1948)Google Scholar especially in chap. 14, highlights the business and management costs of the elder Ford's organization methods.

24 Information about Chrysler's history can be found in Fortune, Vol. 2 (Oct., 1930), 73 ff.Google Scholar; Vol. 12 (Aug., 1935), 30 ff.; Vol. 22 (Dec, 1940), 57 ff.; and Vol. 38 (Oct., 1948), 103 ff. The information on the current reorganization comes from the annual reports of the company since 1950 and from Fortune, Vol. 49 (April, 1954), 127 ff.Google Scholar; and Newsweek, Vol. 46 (Aug. 22, 1955), 75–77Google Scholar.

25 The annual reports of the United States Rubber Company provide quite detailed references to diversification and organization. The reports for 1910 to 1914, and 1916 to 1918 all have something to say on these matters. Information on the later reorganization can be found in the annual reports for 1929, 1930, 1934, 1935, and 1938, and in Fortune, Vol. 9 (Feb., 1934), 52 ffGoogle Scholar. For more current organizational matters see the annual report for 1945 and Business Week (Dec. 11, 1948), 83–84; ibid. (Sept. 19, 1953), 46.

26 Aside from its annual reports, some information on Goodyear's organization can be found scattered in Litchfield, Paul W., Industrial Voyage (Garden City, New York, 1954)Google Scholar. More useful was Allen, Hugh, The House of Goodyear (Cleveland, 1949)Google Scholar especially chaps. 7 and 22. The percentage of sales revenue from tires and tubes is from Allen, Edward L., Economics of American Manufacturing (New York, 1952), 191Google Scholar.

27 The annual reports of the Firestone Tire and Rubber Company have very little about organization. There is a bit more in Lief, Alfred, The Firestone Story (New York, 1951), especially pp. 243–19, 342–45Google Scholar; the issues of Business Week (Oct. 28, 1950), 65–67, and (July 4, 1953), 60, were helpful.

28 The annual report of the B. F. Goodrich Company for 1929, p. 4. Also useful were the annual reports for 1927, 1930, 1941, 1945; Fortune, Vol. 21 (June, 1940), 65 ff.Google Scholar; and Business Week (May 16, 1953), 140–12.

29 This and the following quotation are from the annual report of the B. F. Goodrich Company for 1953, p. 5. See also the annual report for 1952, p. 17, and 1954, p. 9.

30 I am using these terms — advisory, service, co-ordination, and inspection — as they are defined in Spriegel, William R. and Bailey, Joseph K., “The Staff Function in Organization,” Advanced Management, Vol. 17 (March, 1952), 2–6Google Scholar. Also informative on this point is Louden, J. K. “Line and Staff — Their Roles in Organization Structure,” Advanced Management, Vol. 14 (June, 1949), 76–82Google Scholar.

31 These very general trends are indicated by the annual reports of the large oil companies and are analyzed in part in McLean, John G. and Haigh, Robert W., The Growth of Integrated Oil Companies (Boston, 1954)Google Scholar.

32 The information on the administrative developments of the ten oil companies studied here came primarily from their annual reports. However, the information in these reports was often so limited that it had to be supplemented by referring to Moody's Industrial Manual. Because of the paucity of information, the generalizations made here are necessarily imprecise.

Additional data on Standard Oil Company (Indiana) came from Giddens, Paul H., Standard Oil Company (Indiana): Oil Pioneer of the Middle West (New York, 1955), especially chap. 17 and pp. 636–41Google Scholar; on Sinclair Oil Corporation from Fortune, Vol. 6 (Nov., 1932), 56 ff.Google Scholar; Vol. 53 (April, 1956), 117 ff.; on the Texas Corporation from A Statement to the Stockholders of the Texas Corporation from R. C. Holmes, a Director and Former President (n.p., c. 1933), and a printed “Letter of the Stockholders” signed by eight directors of the Texas Corporation dated Dec. 20, 1933; on Socony-Vacuum Oil Company from Fortune, Vol. 26 (Nov., 1942), 111 ff.Google Scholar; Vol. 27 (Feb., 1943), 117; on Gulf Oil Corporation from Fortune, Vol. 16 (Oct., 1937), 79 ff.Google Scholar; Vol. 49 (Feb., 1954), 132; Business Week (Oct. 8, 1949), 64-68; Swensrud, Sidney A., “Gulf Oil,” The First Fifty Years, 1901–1951, Newcomen Society of North America (1951), 21–23Google Scholar; Craig Thompson, Since Spindletop (n.p., n.d.), 51–54; on Shell Oil from Fortune, Vol. 6 (Oct., 1932), 33 ff.Google Scholar; on Phillips Petroleum Company from Fortune, Vol. 50 (Aug., 1954), 73 ff.Google Scholar; and on the Atlantic Refining Company, from Fortune, Vol. 48 (Aug., 1953), 128Google Scholar.

33 See particularly the annual reports of the Standard Oil Company (Indiana) for 1933, p. 4; for 1934, p. 6; for 1937, p. 5; and for 1954, p. 8.

34 The annual report of the Standard Oil Company of California for 1941, p. 18.

35 The annual report of the Standard Oil Company of California for 1954, p. 4; also the annual report for 1952, p. 3.

36 The annual report of the Standard Oil Company (N. J.) for 1927, pp. 9–10. See also the annual report for 1929, p. 8; for 1936, pp. 3, 6; Fortune, Vol. 21 (April, 1940), 49 ff.Google Scholar; Vol. 21 (June, 1940), 61 ff.; Vol. 44 (Oct., 1951), 98 ff.

37 The information for this paragraph comes from annual reports of these companies since World War II.

38 See particularly Fortune, Vol. 50 (Aug., 1954), 73, 120–24Google Scholar; and Business Week (Dec. 31, 1949), 22–24.

39 There is a brief summary of Bethlehem's history in Schroeder, Gertrude G., The Growth of the Major Steel Companies (Baltimore, 1953), 46–51Google Scholar. There is some additional information in the company's annual reports and a good bit more in Fortune, Vol. 23 (April, 1941), 61 ff.Google Scholar; Vol. 47 (March, 1953), 101 ff.

40 The annual report of the Republic Steel Corporation for 1937, p 4. Besides its annual reports and Schroeder, Growth of the Major Steel Companies, pp. 51–53, Fortune, Vol. 8 (Sept., 1933), 52 ff.Google Scholar, provides some data.

41 There is very little information in the company's annual reports. Schroeder, Growth of the Major Steel Companies, pp. 54-55, 59, has some data as does Newsweek, Vol. 38 (Nov. 12, 1951), 78Google Scholar; and Vol. 39 (Feb. 11, 1952), 66.

42 Besides the company's annual reports and Schroeder, Growth of the Major Steel Companies, pp. 59–60, see Fortune, Vol. 3 (June, 1932), 30 ff.Google Scholar; Vol. 35 (May, 1947), 219. The recent changes are mentioned in the annual report of the National Steel Corporation for 1954, list of officers and pp. 8–9.

43 The story of this mammoth reorganization is best summarized by Taylor himself in Annual Meeting of the Stockholders of the United States Steel Corporation. April 6, 1938. Remarks of Myron C. Taylor (New York, 1938), pp. 8–22Google Scholar. Also useful were the annual reports of the United States Steel Corporation for 1935, pp. 11–12; for 1936, pp. 12–13; for 1937, p. 15. The story of Gary's administration has been told many times in many different ways. The role played by the central unit is, however, fairly clear from the annual reports. A good brief evaluation of the corporation's management before and after the final reorganization can be found in Fortune, Vol. 13 (March, 1936), 59 ff.Google Scholar; Vol. 13 (June, 1936), 113 ff.; and Vol. 21 (March, 1940), 64 ff. Schroeder, Growth of the Major Steel Companies, pp. 37–39, 43–46, adds some interesting information and figures on operations.

44 This reorganization is mentioned in the annual report of the United States Steel Corporation for 1950, p. 18, and analyzed in some detail in Fortune, Vol.44 (Jan., 1956), 89 ffGoogle Scholar.

45 The Kennecott story comes from the company's annual reports and from Fortune, Vol. 44 (Nov., 1951), 84 ffGoogle Scholar.

46 The information on Anaconda is from its annual reports and from Fortune, Vol. 14 (Dec, 1936), 83 ff.Google Scholar; Vol. 15 (Jan., 1937), 71 ff.; Vol. 51 (Jan., 1955), 89 ff.

47 The data on International Nickel is from its annual reports and Fortune, Vol.42 (Nov., 1950), 93 ffGoogle Scholar.

48 These comments on Alcoa come from its annual reports and from Fortune, Vol. 1 (March, 1930), 68 ff.Google Scholar; Vol. 10 (Sept., 1934), 46; Vol. 33 (May, 1946), 103 ff.; and Vol. 52 (Oct., 1955), 114 ff. Carr, Charles C., Alcoa, An American Enterprise (New York, 1952Google Scholar) adds almost nothing.

49 This information comes from a company publication, International Paper Company, 1898–1948 (n.p., 1948), supplemented by company annual reports and Fortune, Vol. 1 (May, 1930), 65 ff.Google Scholar; Vol. 16 (Dec, 1937), 131 ff.

50 The term “full authority” is used by Fortune, Vol. 16 (Dec, 1937), 131 ffGoogle Scholar.

51 The data in this paragraph come from Beasley, Norman, Main Street Merchant: the Story of J. C. Penney Company (New York, 1948)Google Scholar, supplemented by the annual reports of the company and by Fortune, Vol. 42 (Sept., 1950), 101 ffGoogle Scholar.

52 The Woolworth story comes from its annual reports, Fortune, Vol. 8 (Nov., 1933), 62 ff.Google Scholar; Vol. 49 (April, 1954), 150; and Sixty Years of Woolworth (n.p., 1939).

53 The Sears' experience is described in Emmet, Boris and Jeuck, John E., Catalogues and Counters: A History of Sears Roebuck and Company (Chicago, 1950), 352–72Google Scholar. The administrative concepts and attitudes of the Sears officials are well expressed in Worthy, J. C., “Democratic Principles in Business Management,” Advanced Management, Vol. 14 (March, 1949), 16–21Google Scholar.

54 Emmet and Jeuck, Catalogues and Counters, p. 365.

55 The information on Montgomery Ward & Company is from its annual reports and from Fortune, Vol. 11 (Jan., 1935), 69 ff.Google Scholar; and Vol. 33 (May, 1946), 111 ff.

56 The recent changes at Wards are best described in Business Week (May 14, 1955), 30; (May 21, 1955), 34; and in Newsweek, Vol. 46 (Sept. 26, 1955), 84 ff.Google ScholarBusiness Week reasons that the large institutional investors who supported Avery against Louis E. Wolfson subsequently forced him out because of his ultra-conservative policies.

57 Fortune, Vol. 36 (Nov., 1947), 104Google Scholar. This detailed article was supplemented by data taken from Moody's Industrial Manual. The annual reports say almost nothing. In 1954, according to Moody's, the Atlantic Provision Company, Inc., was dissolved and became a company division.

58 In contrast to the A. & P. the annual reports or “yearbooks” of Swift & Company are full and detailed. Particularly good are the yearbooks of 1929, pp. 24–31; of 1932, pp. 20–22; of 1934, pp. 20–25, and 1949, pp. 12–13. Also helpful was Fortune, Vol. 46 (Sept., 1952), 102 ffGoogle Scholar.

59 The reports of Armour & Company (Illinois) were less full than those of Swift. The most important are those of 1945, inside back cover, and that of 1949, pp. 4–5, which describes the changes made in that year. Some additional information was available in Fortune, Vol. 3 (April, 1931), 49 ff.Google Scholar; Vol. 9 (June, 1934), 58 ff.; Vol. 51 (May, 1955), 129 ff.

60 The data on National Dairy Products Company came from its annual reports and from Fortune, Vol. 46 (Dec, 1952), 144Google Scholar.

61 The annual report of the National Dairy Products Company for 1949, pp. 6–7. The name, Executive Management Staff, appears to have been dropped in 1952.

62 The United Fruit Company story comes from Wilson, Charles W., Empire in Green and Gold (New York, 1947)Google Scholar, supplemented by its annual reports.

63 The information about the American Tobacco Company came mostly from its annual reports with a little additional data from Fortune, Vol. 14 (Dec, 1936), 97 ff.Google Scholar

64 The generalizations on both companies are based on their annual reports. Fortune, Vol. 3 (Jan., 1931), 45 ff.Google Scholar; Vol. 18 (Aug., 1938), 25 ff., are good on the R. J. Reynolds Tobacco Company.

65 The data on the Distillers-Seagram Ltd. are from its brief annual reports.

66 The Schenley story is also from the annual reports. Fortune, Vol. 13 (May, 1936), 99 ff.Google Scholar, provides some more information. Other important subsidiaries of Schenley Industries, Inc., are Canadian Schenley, Ltd., and Ron Carioca Distilleria of Puerto Rico.