Logic of managerial enterprise, that is, the dynamic logic of growth and competition that drives modern industrial capitalism.

The logic of managerial enterprise begins with economics – and the cost advantages that scale and scope provide in technologically advanced, capital-intensive industries – large plants can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises. (This is what is meant by economies of scale.) In addition, large plants can use many of the same raw and semi finished materials and intermediate production processes to make a variety of different products. (This is what is meant by economies of scope)

Cost advantages of economies of scale and cope

These cost advantages can only be realized if the flow of materials through the plant can be kept constant to assure capacity utilization. Leading to the investments of large plants.

Economies of scale – pushing costs down by expanding, forcing smaller competitors out of the market, taking control of the market,

Economies of scope – reducing production costs

First movers – those who first made these large scale investments and applied economies of scope and scale, as well as design a hierarchy system of managers, as well as rapid expansion into national and international markets all while making the proper investments into distribution plants , managers coordinate flow through distribution and production

Research and development – these first movers were dominating whole industries. In order to be competitive among the few that had the market share, innovation and strategy overpowered. Improving quality and creating new markets as well as by lowering costs. They located better sources of supply and provided more effective marketing services. They differentiated their products (branding, packaging, advertising campaigns. Their research led them to move rapidly into growing markets and out of declining ones. They were what we eventually were to call oligopolies, battling in oligopolistic markets. Market share and profits would change constantly.

Companies grew horiztonally (combining with competitors) and vertically (by moving backward to control materials and forward to control outlets)

Long term strategies imposed by management were based on the principle for continuing growth. Grow by moving into related product markets or by moving abroad.

Geographic expansion was usually based on economies of scale, while moves into related product markets more often rested on economies of scope. In both cases, the companies’ capabilities to be organized in this oligopolistic competition prevailed and provided the dynamic for continuing growth.

Companies grow by: direct investment, merger and acquisition, expansion overseas, expansion into new product lines and also by the company’s direct senior decision makers.

Recap: essential investments in production distribution and management

Choosing locations based on strategic shipping receiving points for raw materials and shipping out the finished goods.

Efficiency in productivity. For instance: steady flow of material from arrival through production to storage and shipment of the final products.

Investments in marketing, distribution and management.

Managerial Hierarchies

First movers don’t always make the best decisions. Although they are pioneers, they fall behind in innovation and application for continuing growth which leads to them being pushed out of markets they once controlled/international markets.

High-volume manufacturing/production process

Mergers/Acquisitions helped both parties survive and hope to take back a market share that they previously had or create their own space. These mergers would reorganize and rationalize the merged companies.

Centralizing its administrative structures, creating functional departments, selling off obsolete assets and investing in up to date machinery and technologies.

Capabilities developed by exploiting economies of scale ands cope encouraged process and product innovation.

Efficient management decisions and actions lead to continued growth. Essential in obtaining and maintaining a competitive position in World Markets.

Although the opportunity to make first mover investnments and create a managerial enterprise is present, it can be short lived if mismanaged along with a series of bad decisions and investments.

You can be pushed out of your own domestic market, as your customers are inclined to purchase product from your competitors to help maximize their output and profit.

Industrial Growth.

Failing to make long term investments, to create organizational capabilities and then continuing to reinvest, you stay small or sold out if not pushed out

Diversifying in closely related or unrelated product lines.

Growth comes primarily by moving abroad or into new markets in related industries.

Markets become saturated by increased competition leading to underutilized capacity, which push costs to rise.

Business machinery executives responded by reinvesting to improve their capabilities in their own and closely related industries.

Diversification by investing in completely unrelated markets through acquisitions and not direct investments. Managers were convinced they were skilled in any industry and would try and repeat the process in a market they knew nothing about.

Unprecedented diversification led to the separation of top management at the corporate office from the middle managers who were responsible for running the operating divisions and battling for profits and market share.

Top manager had little to no specific knowledge of or experience with the technological processes and markets of the divsions or subsidiaries they has acquired.

The second was simply that the large number of acquired businesses created an extraordinary overload in decision making at the corporate office.

Weaknesses appeared from the separation of top and operating management quickly led to another phenomenon the sale of operating units in unheard of numbers. Divestitures.

The coming of an institutionalized market for corporate control.

Intense competition forced senior managers to reinvest in reshaping and rationalizing operations to maintain or regain competitiveness.

Pursuing growth through economies of scope and developing markets that best fit their distinctive core production and research technologies.

Spinning off products by narrowing product lines.

Epxnading output in existing higher value added specialities and acquiruing pioneering companies in new areas

Reduce price, assure qulirt ands provide essential servies. If they fail to become managerial enterprises and fail to maintain and nourish their competitive capabilities they will lose markets and profits to those in other nations and other industries that do.