Alfred Chandler and the Importance of Organization

Alfred D. Chandler entered my professional life incrementally rather than dramatically. As a student of economic history at Cambridge University in Britain in the early 1970s, I barely encountered his name. British universities had their own long traditions in business and economic history, including a strong interest in entrepreneurship and in government policies toward industry. Most British scholars were not especially enthusiastic about ideas from across the Atlantic, whether the methodological approach of the new economic history of Robert Fogel, or Chandler's organizational synthesis. Cambridge was an especially closed academic world, with a strong assumption that little that happened outside its delightful campus could be really important. It was not until 1979, when I was recruited by the Business History Unit at the London School of Economics (LSE), headed by Chandler's (then) acolyte Leslie Hannah, that I read Strategy and Structure, nearly two decades after it was published.

The impact of Chandler's work on my own research was ambiguous during my years at the LSE (1979–1988). The reason lay partly in the industries I chose to study. My doctoral thesis and first book was on the oil industry during the first half of the twentieth century. This was a Chandlerian industry, but my own focus was on the international activities of firms, and the close relationship between governments and firms, about which Chandler had little to say. However, as I moved on after 1982 to study the growth of British-based multinationals more generally, and dug into the archives of large firms such as Dunlop and Cadbury, I was surprised to discover how poorly many of their foreign investments performed. By now familiar with, and sympathetic to, Chandler's framework, I explained such performance by suboptimal management. The British firms seemed to lack the professional management of their American counterparts, were devoid of organizational charts, and were often still owned and managed by families.

As I further extended my research into the history of British multi-national banks, however, it began to dawn on me that such bench-marking against American managerial practice might be misleading. My initial research was on the history of the Imperial Bank of Persia, a long-forgotten entity that had been acquired by the Hongkong Bank (now HSBC, Europe's largest bank) in 1959. The Imperial Bank had both an unusually interesting past as the state bank of Iran, and an unusually wonderful historical archive. It presented a puzzle. Between 1889 and 1914, the Imperial Bank had introduced modern banking into the extremely backward Iranian economy, issuing notes, servicing the government with loans, and creating a nationwide branch network. The London head office was tiny, consisting of a part-time Board of Directors and half a dozen clerks. The Imperial Bank lacked a large managerial hierarchy: indeed, it never had more than fifty expatriates employed at any one time in Iran. Moreover, these men were far removed from the professional managers emerging in America at that time. They had rarely received any college education, were chosen on various social criteria, and given implicit lifetime employment.

The Imperial Bank, therefore, was a deeply un-Chandlerian organization, which managed to function as a cross-border business remarkably well. There were no frauds or other serious problems, despite operating in extraordinarily difficult economic, communication, and political circumstances. In 1987 I presented a paper on the Imperial Bank at the Business History Conference in Wilmington, Delaware. Chandler was in the front row, and this was the first time I met him in person.

That early presentation at the Business History Conference evolved into a general history of British multinational banking between 1830 and 1990. In my new position as a tenured professor in the economics department at the University of Reading (1988–2000), I completed this project, and followed it with another on the history of British multinational trading companies over the same lengthy period, which was published in 2000. As I prepared these books, I became both more and less Chandlerian. Finally I really understood Chandler's fundamental insight that organization matters in the sense that if a firm lacked the...