What Knowledge is Useful? > History
Video Clip — Alfred Chandler on Scale and Scope
Well, the next book was called Scale and Scope. And that took the story, I took the 200 largest companies from 1880s to World War II in the United States, Britain, and Germany to see how they performed, and how the economies performed. And the title of that was Scale and Scope. The economies of scale gave such powerful advantages, cost advantages; just enormous. Dropped the price way down. That created barriers to entry. So in all these high tech, the capital-intensive industries, and increasingly knowledge-intensive, a few firms quickly dominated, and almost until today continue to dominate. Although they competed not so much on price, but on good performance, on good dealer relations, and so on. So that—and they competed functionally, in other words.
And they—I found that the Germans and the Americans really just wiped the British off the map in a number of industries, because they’d already invested, as the first industrial nation, in small family firms.
So this—and I didn’t get very much into structure, except to always stress that as firms diversified, and as they went overseas, which they did quite early—mean, in 1914, in Imperial Russia, the two largest companies, by far, were International Harvester, and Singer Sewing Machine. They were big, big firms in Russia. So with that going into different geographical areas, on the basis of scale, or beginning to go into different product markets, related product markets on what I call scope, where you use some operation competitive advantage that you have in production or distribution to get you into a new industry.
And that’s what I was saying a little earlier. When the business industrialists forgot and went into something they didn’t have a competitive advantage for, well, they’re disasters.