Wednesday, December 02, 2009

Round Three: Classic Leadership Books

Today, I would like to highlight two classics written decades ago. In 1962, the preeminent business historian Alfred Chandler, Jr. published Strategy and Structure: Chapters in the History of American Industrial Enterprise. He examined four companies in great depth: DuPont, General Motors, Standard Oil of NJ, and Sears. Chandler traced the evolution of the administrative structure of large American companies, and he argued that "different organizational forms result from different types of growth." Simply put, structure follows strategy. Of course, over time, many strategy scholars and consultants turned this descriptive observation into a normative statement: strategy should drive structure. Chandler's book proves to be quite profound because it shows us the challenges and weaknesses associated with various organizational forms, and it demonstrates that structure must be dynamic, adjusting to the market realities and the changing strategic objectives of the firm. At the same time, you can see that there is no "perfect" structure for a company; all organizational forms have their weaknesses.

Joseph Bower published his book, Managing the Resource Allocation Process, in 1970. In that book, Bower examined how companies make capital investment decisions. He provided great insight into how firms actually allocate resources; he demonstrated how the financial analysis is just a small part of the picture. He also showed how many new strategies emerge from below in organizations. Most importantly, he demonstrated how structure drives strategy at times in corporations - providing a great complement to the arguments put forth by Chandler. Bower defined structural context as more than just reporting relationships. It included the monitoring and control systems, as well as rewards and punishments, that a firm puts in place. He argued that the structural context shaped the types of investment proposals that emerged in organizations. In that way, structure shaped the evolution of strategy. Senior executives, thus, had to take great care in how they shaped the structural context, not only in terms of how it fit the current strategy, but in terms of how it might affect the emergence of new ideas, adaptations, and innovations over time.

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