BOOK Meryl Reis LouisREVIEWS Book Review Editor

Scale and Scope: The Dynamics of Industrial Capitalism, by-Alfred D. Chandler, Jr., Cambridge, MA: Belknap Press, 1990,860 pp., $35.00, cloth.

Reviewed by Huseyin Leblebici, Department of Business Administration,University of Illinois, Champaign, IL 61820.

In light of the overabundant theoretical arguments developed in recentyears on the nature of managerial business enterprise, it is refreshing toread Professor Ghandler's new book, which offers a needed historical per-spective. The book covers the evolution of modern industrial enterprises inthe United States, Great Britain, and Germany between the 1880s and the194Qs. It stands indep^endent of his earlier work on the evolution of themodern business enterprise. Nevertheless, an awareness of the argumentscontained in The Visible Hand (1977) will definitely help fhe reader becausethe author considers the modem industrial enterprise a subspiecies of themodern business organization.

The book offers impressive historical information detailing the growth andtransformation of the 200 largest manufacturing firms in each of the leadingindustrial nations of the world. The book, however, is not written only for anaudience interested in business history. The overall objective of this massiveundertaking is to pull together an indigestible mass of informafion andprovide a much needed historical map. This is done with an eye towardboth individual firms and pjersonalities as well as the social forces that havedrawn that map.

The book is composed of five major sections. Section I offers a generalizedanalysis of the evolutionary growth process itself and introduces the con-cepts, definitions, and a general explanatory theory that are necessary tomake relevant comparisons between nations, industries, and individualhistories of these firms. In one sense, this section represents the core of thebook through which the collective histories of the largest industrial enter-prises of the world are analyzed. In sections II, IE, and IV, the author pre-sents the historical information for the 200 largest manufacturing companiesin the United States, Great Britain, and Germany. In each of these sections.Chandler starts first with a chapter detailing the historical environment of thesenations and reviews the financial, educational, and legal contexts that

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were relevant for their evolution. The last section offers a conclusion sum-marizing the nature of the underlying dynamics in the evolution of modemindustrial capitalism and includes a brief discussion of the recent develop-ments in this history since World War II.

For each country, the collective histories of the largest manufacturingfirms are told using the same structure, which makes compxirisons possible.Even though different industries and players became more or less critical ineach nation, they all were faced with the same general problems. They hadto address new challenges produced by the changes in technologies ofproduction, in the locations and size of markets, and in the requirements ofdistribution. Each national history provides a detailed account of the inter-nal organization of these firms; the roles played by the financiers, foundingfamilies, and salaried executives in making critical choices; the nature ofcompetition and cooperation among firms; and the pattems of growth andexpansion through vertical integration, horizontal combinations, cartels,and other means of interfirm linkages. These sections amount to an aston-ishing performance both with respect to their attention to detail and withrespect to insights they offer.

What unifies and organizes these national histories of modem industrialenterprise and explains the critical variations among them is the way in-dustrial enterprises developied their organizational capxibilities. As Chan-dler describes them, organizational capabilities are the collective physicalfacilities, the human skills, and the way these resources are organizedwithin the enterprise. Only those firms which were able to coordinate andintegrate these critical resources were able to achieve the needed econo-mies of scale and scope necessary to be competitive m national and inter-national markets. Because they were able to make three sets of interrelatedinvestments, these firms gamed the first-mover advantages in their respjec-tive industries and maintained their momentum of growth. The first invest-ment was in new production technologies and facilities to exploit the px)ten-tial economies of scale and scope. The second investment was in nationaland international distribution networks to reach large markets compxitiblewith their production capxicities. And the third investment was in managerswho were responsible for coordinating, monitoring, and controlling theseactivities and for allocating resources for future production and distribution.These critical resource allocation decisions not only determined the successof these enterprises but also the competitive position of their resp^ectivenations.

Imbedded in the historical narrative, and also derived from it, is Chan-dler's main thesis: Whatever the contextual variations and idiosyncratichistories of individual firms, the type of managerial capitalism that evolvedin each nation partly determined the success of firms and nations alike.Chandler identifies three types of managerial structures to make his theo-retical argument: compietitive managerial capitalism in the United States,p)ersonal capitalism in Great Britain, and cooperative managerial capital-ism in Germany. In the United States, competitive managerial capitalism in

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which there was a distinct sepxiration of ownership and management wasrespxinslble for the phenomenal growth and compietitiveness of U.S. indus-trial enterprises. According to Chandler, neither mergers nor barriers toentry can fully explain the long-term growth of these giant enterprises un-less we take into account how salaried managers exploited the organiza-tional capabilities of these firms. The functional and administrative capa-bilities develop)ed by a large cadre of middle and top managers not onlyintensified the sepxiration between ownership and management but alsomade possible the sustained growth of their firms. Through compietitivemanagerial capitalism, major sectors of the U.S. economy came to be ad-ministered by managers who made op>erational and strategic decisions yethad little or no equity in their firms.

In Great Britain, on the other hand, personal capitalism, through whichfirms continued to be managed personally by the founders rather thanprofessional managers, was responsible for the inadequate growth of Brif-ish enterprises. They collectively failed to recruit salaried top- and middle-level managers and placed a smaller number of them on the governingboards where strategic decisions were made. In these personally managedfirms, growth never became a primary objective. Current income was pre-ferred to large-scale, long-term reinvestment of earnings in order to takeadvantage of economies of scale and scopie.

In Germany, cooperative managerial capitalism, through which coopier-crtion rather than compjetition among major players in oligopolistic manu-facturing industries became the rule, was responsible for both the growth ofindustrial enterprises and the national economy. What differentiated Ger-man firms from their U.S. counterparts was not the typie of roles played bythe salaried managers but the legal differences in continental law, whichallowed the enforcement of cartels and other interfirm agreements betweencompietitors, and the differences in the methods of financing the large inte-grated industrial firms. German entrepreneurs, like their U.S. counterparts,were willing to make the necessary investment in organizational capxibili-ties, including the needed investment in the development of salaried man-agers.

The short summary of this massive book provided here cannot do justiceto the wealth of information it provides or the critical insights it offers. Forany scholar interested in understanding the growth and competitivestrengths of industrial organizations, it offers a deeply contextualized theo-retical framework and critical insights. The book implicitly warns us that therecent theoretical arguments in economics, in finance, and pxirticularly inagency theory about the tension between management and ownershipshould be reevaluated carefully. As Chandler demonstrates, in p)ersonallyowned and personally managed enterprises, assured income rather thanlong-term appreciation of assets was usually preferred. He asserts that "theindividuals and families who managed these enterprises did invest to main-tain the existing facilities. But often they preferred to pxiy out eamings individends rather than using them to make extensive investments required

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to move into foreign markets or to develop new products in relatedindustries" (p. 595). Chandler also provides qualified support for a resource-based view of the firm. He fundamentally agrees with this view but pointsout that the pxittern of growth and diversification strategies of firms are afunction of the national context as well as the firms' commitment to developtheir managerial and organizational capxibilities.

Of course, there will be criticisms of this book. Historians will point out thatthe author did not cover the national historical contexts sufficiently. Econo-mists will argue about his failure to provide a distinct theoretical apparatusto explain the evolutionary process. And partisans will lament his avoid-ance of the charged debate over whether managers and their allies havebeen undependable agents who forgot the owners' needs. In my view,however, this book as its precursor. The Visible Hand, will indeed becomea critical resource for research and scholarly discussion for some time tocome.

REFERENCES

Chandler, Alfred D., Jr. 1977. The visible band: Tbe managerial revolution in Americanbusiness. Cambridge, MA: Belknap Press.

The Transformation of Corporate Control, by Neil Fligstein.Cambridge, MA: Harvard University Press, 1990, 391 pp.,$35.00, cloth.

Reviewed by Peter Kreiner, School of Management, Boston University, Bos-ton, MA 02215.

In The Transformation of Corporate Control, Neil Fligstein has made asignificant contribution to our understanding of the historical developmentof large American firms. The book fills what had been a vacuum in thatunderstanding by incorporating an explicitly institutional persp)ective. Thispjerspiective sheds particular light on the rise of large conglomerates in thelate 1960s and the corresponding finance-driven, short-term outlook of topmanagers that has been associated with America's declining compietitive-ness.

The book traces the emergence, rise, and transformation of four broadmeans, or conceptions of control, by which executives of the largest firmshave sought to control their competitors and markets to ensure stable, prof-itable growth. The central theme of the book is that the conceptions ofcontrol and the socially constructed organizational fields of large firms haveemerged through interaction with the political and legal system in theUnited States. As the strategic actions associated with an emerging con-ception of control became recognized as legitimate, they diffused withinexisting organizational fields and resulted in the exp)ansion of those fields. Inpxirt, the diffusion of a new conception occurred as individuals within ap-