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THE 20TH CENTURY: EXPANDING SCALE AND SCOPE Large holding companies and functionally organized companies increasingly adopted multidivisional structures. At DuPont, increasing size and a widening product range strained its functional structure and overloaded top management. Pierre Du Pont’s solution was to decentralize: 10 product divisions were created, each with its own R&D, production, and sales; a corporate head office led by an executive committee undertook coordination, strategy, and resource allocation. Shortly after, in 1924, General Motors, a holding company built by acquisition, also adopted a multidivisional structure to solve its problems of weak financial control and a confused product line. During the next 50 years, the multidivisional structure became the dominant organizational form for large corporations. During the first half of the 20th century, large companies grew mainly through vertical integration and horizontal integration (i.e., increasing market share within existing markets). After World War II, diversification and international expansion were the main sources of corporate growth. By the 1960s, the increasing dominance of giant corporations pointed to the replacement of market capitalism by a system of managerial capitalism. However, by the 1980s, this trend went into reverse. Increasing emphasis on shareholder value and core competences resulted in a shift from vertical integration to outsourcing and from diversification to “core business focus.” Increasingly, companies used collaborative relationships with other companies to achieve the benefits of vertical, horizontal, and cross-border integration. Figure 10.2 illustrates the trends. Top 100 companies’ share of Consolidation through mergers and acquisitions Quest for scale and market dominance in both mature and hi-tech sectors Expanding Scale and Scope • scale economies from new technologies • new management tools • multidivisional structure • computers • international expansion 16 total employment 14 (%) 12 10 Railways, canals, and telegraph expand firms geographical reach Second Industrial Revolution: Growth of industrial giants assisted by electricity, the telephone, innovations in management and organization 8 Restructuring, Refocusing, and Downsizing: • Quest for shareholder value: focus on core competences and core businesses • Turbulent business environment: inflexibility of large, complex hierarchies • Digital revolution 6 First Industrial Revolution: 4 Mechanization and the factory 2. system 0 1820 1860 1880 1900 1920 1960 1980 2020 1800 1840 1940 2000
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