Appunti lezioni Business History

Typically, the common was financed by local investors. Then, huge increase in

capitalization related to the size

• Development of financial markets

Antitrust movement: related with the railroad sector, started fighting against

agreements between firms about pricing discrimination practices. The Sherman act

challenged large corporations. Since antitrust law was against mergers in specific

sectors, companies adopted related diversification. Creation of M-form (multidivisional

form) is a consequence. DuPont was one of the first companies to adopt this

organizational structure. The main problem to solve was the excessive centralization

of decisional power. General Motors had the opposite problem: excessive

decentralization.

Alfred Sloan was hired by DuPont, he was trained at MIT, specialized in management

of the enterprise.

The Ford model was exported in Europe too: process of multidivisionalization.

The modern corporation by Berle and Means - focused on the different types of control

you can find in US companies. According to them, the main problem was whether the

management was accountable for all the objectives. The idea of the importance of

stakeholders came with the Great Depression.

Class 9

In Europe state intervention was fundamental for the creation of large-sized

enterprises. In US too, the Federal Government stimulated firms’ growth, especially

with the New Deal. The problem with General Motors was the distribution of power in

this huge company. New type of managerial control of the corporation, first time they

used ratios to measure performance.

Coordination was made through strategic committees, as explained in Sloan’s

biography: interdivisional committees with different strategic functions - main internal

coordination system. The financial committee had to design the financial structure. GM

clear example of multidivisional transformation of the company. The ‘20s were a

decade of growth and investments: overproduction lead to crisis, linked with this type

of transformation (Great Depression). Continuous flow of capital to the US. In 1933

Roosevelt became the new president (democrat). Crisis was due to speculators so he

wanted to reduce the power of huge corporations. New taxation for enterprises,

increase in tax for holding companies. This lead to new incorporations. Aircraft

industry was born in the first decade of the century but developed during the ‘20s and

the wars: creation of holding companies that controlled the production of aircrafts and

the services for that industry (airports etc). The main client was the US Post Office, for

the first time they used air transportation. During the ‘30s, Roosevelt approved new

regulation: enterprises active in airline industry could not incorporate 3 functions

together —> reduction in size of holdings, split of functions.

Europe: nationalistic policies in a lot of country, the recovery after war was slower,

lower growth, financial problems.

The role of the state in the European economy was important in every country, in

particular in sectors that were considered strategic for the country. For the first time,

direct involvement of the state in the industrial sector. In Italy, the main financial

institution was universal bank, which was very related to crises (could lead to crisis of

public debt, a great weakness). The government created a system of bonds to finance

the manufacturing sector. Italy created a special institutions to save banks in case of

crisis: IRI. It was a special institution that acquired the stock of enterprises and control

them (bail-out, reengineer). These companies were state-owned but not nationalized.

In Europe, strong bargaining process with unions. In US the unions were not so active.

European Business schools were more focused on accountability rather than strategy.

Movement to scientific management in the ‘20s through adaptation to the European

system. Bedot society: differently from Taylor, he thought of being able to increase the

productivity of the company through strong exploitation of workforce. The effects of

these differences of enterprises: smaller size, more centralized enterprise (division of

ownership and control not so clear-cut).

Advantages of the holding company (H-form): -when size of corporation is small and

antitrust law is not really active, you can preserve the traditional form

-you control different corporations through minority control, increasing the level of

debt.

Lever Brothers: created a huge multinational that followed the pattens of US

companies. Creation of a board of directors where each director had a specific role in a

function. After the WW1, growth through investments and diversification (in terms of

sectors and enterprises owned). They had a special committee who faced the problem

of coordinating the different product lines in that large amount of sectors. In 1925, the

structure evolved. The operating units were not involved in the organization. The

merger with a Dutch firm lead to the creation of a multidivisional enterprise organized

by product and geography: Unilever.

In Germany, smaller market size, small financial market. Siemens created a holding to

diversify, then invested in several holdings creating a complex structure—

>interlocking directors guided the strategy. Huge capability to control the sector, they

also created joint ventures

Class 10

The state played a key role in fostering R&D and technological development, since the

beginning of the 2nd industrial revolution. Shift of innovation process from large to

small enterprises, change in technological innovation process. High patent protection,

came with the consolidation and need to maintain a position in the market. In 20th

century, creation of a system of innovation. In Germany, mandatory cartels, universal

baks, technical schools by the government.

US: technological growth was due to increase in capital and labor force for only the

15%, the residual is technological change that cannot be really explained.

Relationships between enterprises and universities emerged, for the enterprise the

universities trained people in scientific fields. The universities were focus in basic

research (not applied). The majority of them were funded by the Government, but

these funds were small: incentive to be funded by companies. MIT created a

technological engineering department, the advisory committee was formed and

funded by managers of most important companies.

Huge amount of defense expenses until the end of the cold war. National innovation

system: relationship between state and scientific communities, coordination,

advantages is that it created spillover in the commercial use of technology, the

enterprise in the US were much involved in tech innovation. Large amount of expenses

in R&D by department of defense, for intellectual property rights the US legislature

was quite permissive. Antitrust law in US was rigid after the war, no creation of

dominant positions in the first year of tech development.

Class 11

In the first decade after the war, the US did not immediately start a reengineering

process. They lost advantage in steel production. International production invaded the

US market of cars, harsh competition. From the ‘60s: process of conglomeration and

diversification in unrelated sectors, investments in stock market for conglomerates.

Reduction of sectorial risk for the enterprise by diversifying the investment,

stabilization of the cash flow investing in less risky sector, high cash flow by investing

in riskier sectors with high growth. The conglomerate is linked to decrease in

productivity and competitiveness in international market because of short term

financial strategy, the technological dimension became less important than the

financial dimension. The sectors that weren’t affected by the decrease in productivity

were not subject to conglomerates. Fragmentation of managerial control due to

conglomeration: middle management focused on technology and operations, contrast

with top management. In some EU holding companies there was the same contrast,

but less diversification. This financial perspective lead to problems in long term

results. Corporate control became the engine of the investment strategy.

BCG Case: shift in managerial approach to the enterprise, role played also by

consultancy firms. Diversification was a common topic for consultancy, was the main

strategy at that time and instrument for growth after vertical integration of the past

period. The market of consultancy started to be saturated. The new product marketed

from the end of the ‘70s was corporate strategy. Till the moment, the focus of

consultancies was the development of structure. BCG main competitor of McKinsey

and Bain&Co. they invented the learning curve: cumulative process, at the beginning

large effort but then knowledge accumulates, similar to experience curve. Main

BCG matrix

objective of is to control the cash flows to make decision of investment or

divestment. You consider the market share and the market growth rate. Cash cows

don’t have high growth rates but use cash to reach stability. The main problem by

using only this instrument is that it’s just a financial analysis, lack of knowledge about

single business units and possibility of evolution of specific market. You look only at

the past results of your corporation but not at the future possibilities. End of the

conglomeration process: end of the ‘60s, rise in interest rates to stabilize the Bretton

Woods system. There was a devaluation of the dollar, so this increase created

recession in US and problem to conglomeration process. Nixon ended the BW system.

Deconglomeration started.

Lesson 16: Toyota case

Toyota became the main car producer in the world, it became a model. Before the

WW2 and the democratization of the Japanese economy by the US government, the

main form of enterprise was the huge conglomerate, the Zaibatsu. Toyota was not a

Zaibatsu, was an industrial firm.

Toyota was a family owned firm, it had connections with the government and the

military. Strong relation with the textile sector, active in textile machines, through this

they were able to become the main producers in the machinery sector. It had relations

with the Mitsui Zaibatsu, so when they were seeking resources for expansion, a large

stake was financed by Mitsui: the Japanese environment was characterized by an

independent firm focused on a particular industry that has relations with the

conglomerate.

Interwar years: connection with the government in terms of demand, protectionism

and regulation of national production. Huge growth in demand due to war.

After war: New plants: U-form, vertical integration, association of suppliers.

Transformation in a Kereitsu.

1930s: new plant, implementation of the just in time production (inventory—>

Kanban), reduction of waste/improve quality, self working. The limit of the forest

model was its rigidity, self working was very flexible. Creation of unions related to the