American Business History
When examining American business history, it is important to pay special attention to those elements that contributed to the overarching success of the U.S. economy and to look at some of the trends in transaction cost emergence, plummeting transportation costs, and the various coordination mechanisms used by business people throughout U.S. history. It is also important to look at American Business History as a viable discipline, reviewing those who contributed to the early days of exploration in the new and rapidly changing field of study. This article will provide an overview of both.
Keywords: Branding; Chandlerian Business Theory; Chandlerian Firms; Chicago Board of Trade; Department Stores; Durable Goods; Five and Dime Stores; Industrial Districts; Long Distance Exchanges; N. S. B. Gras; Oliver Williamson; Ronald Coase; Trademarking; Transaction; Unions; Wholesalers; Wholesaling; Alfred D. Chandler, Jr.
Management: American Business History
The United States experienced its Industrial Revolution in the early part of the 19th Century, bringing with it less expensive methods of travel and transportation, an increase in factory production, and improved agricultural machinery. These changes allowed for greater production of goods and aided in the expansion of the population across America. Because communities were rural and typically comprised of small towns and farms, households previously functioned as small businesses, and due to the rudimentary and close-knit nature of business, the transactions were often handled in trade and paid down over time (Lamoreaux, Raff, & Temin, 2003).
As the population grew and spread out, the need for goods not readily and locally available increased. Business transactions began to take place over long distances and not just within small towns. To keep the cost of doing business--transportation and communication--down, transactions were often handled through arrangements built and maintained by businessmen in ports or larger cities and with family members or members of familial groups, such as religious communities, where letters of introduction were used (Lamoreaux et al., 2003).
As business transactions multiplied, local shop owners were finding it difficult to store expensive and infrequently used durable goods such as clothing and home furnishings; keeping an inventory became a real challenge. This predicament opened towns to the peddling trade--one of the earliest forms of mass marketing in America. Peddlers would travel from town to town, selling their products. However there were certain setbacks to peddling as consumers were not accustomed to buying from strangers and it was difficult for business owners to control how their product was sold, as well as the profits gained. Also, if there were issues with the products such as defects, the peddlers would be long gone and the business owner's distance would make exchange or credit nearly impossible (Lamoreaux et al., 2003).
When innovations in transport began to occur, (the steamboat, canal, railroad, and telegraph), peddlers started to disappear and the national distribution of goods improved, though that gave rise to other complications, especially as it concerned the distribution and sale of wheat from the Midwest. Farmers who once sacked wheat and paid to have it delivered from their door to the buyers' found it easier and less expensive to start pouring the wheat into railroad cars and grain elevators. While convenient, the combining of crops from different farmers allowed for some farmers to mix inferior grain, or even non-grain items, along with their crops in order to bulk up the weight of the grain and raise their profits. The grain degradation resulted in a lack of consumer trust and the need for a neutral third party. In 1859, the state of Illinois appointed the Chicago Board of Trade to intervene and ensure quality was consistently maintained and that prices were controlled. The Board of Trade implemented a grading process for wheat crops, and while this concept worked well in theory, the board, having power over farmers, allowed for undo influence to occur in wheat grading processes and oversight shifted from the Board of Trade to the Railroad and Warehouse Commission. While this new system worked well with commodities such as wheat, it didn't with all goods. This disparity gave rise to wholesalers, who, not tied to personal business relationships, established a network of national, regional, and satellite offices for the sale and distribution of various products (Lamoreaux et al., 2003).
As wholesaling grew and larger cities began developing during the late 19th Century so, too, did a variety of new business processes, like trademarking and branding, which added protection and familiarity to new business ideas and products. Wholesaling also gave birth to the five and dime and department stores where a variety of goods were sold and often purchased through wholesalers (though some of the larger stores had no need for wholesalers after establishing their own methods of purchasing goods).
Mail Order Businesses
As businesses gained more control of their sales, retailers, largely through buyers, were able to collect information on consumer shopping habits which were then used in the development of catalog mail businesses, such as Montgomery Ward and Sears, Roebuck & Company. With information on what consumers were buying, these larger companies were better equipped to tailor the shopping experience to its shoppers. These larger companies were also better able to utilize the railroad to distribute mail order products and large warehouses to maintain inventory (Lamoreaux et al., 2003).
Similar to America's present-day technological industry in Silicon Valley, California and the financial district in Manhattan, industrial districts (business areas containing similar industries with a variety of specialties) emerged. By offering a variety of similar items and services, these districts introduced the beginning of healthy business competition practices. Likewise, joint ventures were commonplace within industries. For instance, in the late 1800s, Philadelphia's textile industry was booming, comprising more than 600 companies, with many concentrating on just one step in the textile manufacturing processes. Companies found that they could each handle one aspect of the process--designing, dying, packaging, etc.--while collaborating on the finished, often unique and specialty, product (Lamoreaux et al., 2003).
Large-Scale Production/Chandlerian Enterprises
While small firms depended on the market for the sale of their product and the purchase of raw materials, larger firms were able to handle all of that internally. Noted business historian Alfred D. Chandler, Jr. wrote that this transfer of market power was a vast improvement to American business, in that the larger companies were now easily able to dominate in their business sectors as well as to diversify and dominate in other areas. Large-scale production machinery was introduced and, with it, mass production and distribution. These changes also led to the exploitation of certain worker groups and as a result, during the early part of the 20th Century, the federal government forced large companies to start recognizing and working with unions. At the same time, Chandlerian Firms (large, management-heavy companies with tiered structures so named for business historian Chandler) began to emerge. Because of their tiered management structures, these companies were able to operate at lower costs, allowing for lower pricing. But these companies, in order to maintain the lower costs and high output, offered only very standardized products, eliminating any product flexibility. Instead of meeting consumer needs and adapting to consumer habits, firms were then shaping buyers' tastes through their limited inventories (Lamoreaux et al., 2003).
In an attempt to inject some diversity into the mechanized, standardized development and delivery of goods that mass production brought to large business, more changes followed. By acquiring or merging with different companies, firms found that they could introduce a wider variety of products and services and a period of mergers and acquisitions began, dominating much of the next century. Much of the activity involved businesses eager to diversify and enter other lucrative markets which led to acquiring other businesses not related to their core products. This resulted in a merger frenzy that grew exponentially during the 1960s and 1970s. It was also at this time that Chandlerian enterprises amassed control over the U.S. economy.
A review of the business environment in the late 1990s indicated that the once strong Chandlerian-style enterprises had deteriorated. Of the 54 U.S. firms ranked in the top 100 globally, less than 20 remained and only 26 had greater capitalizations than at the beginning of that century. In addition to the unexpected chaos that resulted from acquiring too much too soon, international competition spiked during the 1970's. Also, rising incomes caused a shift in consumer habits from the lower priced, standardized products being offered by big business to more unique goods that were of a higher quality. Concurrently, transportation and communication costs dropped and markets became dense; the issues that caused vertical integration were all but eliminated. It now became cost effective for companies to buy rather than produce, making domestic high production business an outmoded form of business. And while company size increased in the 1990s, growth was apparent not in industry giants, but in moderate sized firms (Lamoreaux et al., 2003).
Chandlerian firms failed because the executives did not have intimate knowledge of the businesses they acquired and they were unable to properly conduct performance evaluations, interpret financial data, and measure any successes or failures. Managers turned to frequent short-term evaluations, eroding focus...
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