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Management innovation in supply chain: appreciating Chandler in the twenty-first century

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  • Susan Helper
  • Mari Sako
Abstract
Alfred Chandler attributed the rise of the vertically integrated corporation in the twentieth century to improvements in transportation and communication. In contrast, many have argued that further advances in transportation and communication have made vertical integration obsolete in recent years, replacing it with modularity, outsourcing, and networking. This article unpacks this apparent puzzle by regarding technological improvements in transportation and communication as theoretically neutral with respect to the degree of vertical integration. We argue that the key concepts and issues in supply chain management that Chandler highlighted remain highly relevant today. We integrate Chandler's detailed historical perspective on the evolution of the "visible hand" of managerial governance with more recent theories from organization economics and from engineering, yielding the following insights. First, aligning incentives of buyers and suppliers is important in achieving throughput and assured supply, but asset ownership is neither necessary nor sufficient for this. Second, vertical integration (and disintegration) decisions affect the internal operation of the firm and its future path. Third, firms need to design their value chains in such a way as to achieve coordination without information overload. The article demonstrates the continuing power of these insights in three phases over the last century. In the first phase (with the rise of mass production), Chandler himself noted a subtle array of make- and -buy decisions. In the second phase (with the rise of lean production), several varieties of non-integration (e.g. exit vs. voice) persisted because of the specific ways in which firms combined incentive alignment and information flow. In the third ("New Economy") phase, management of information and material flows through the supply chain remains an important source of competitive advantage. In particular, disintermediation as a form of vertical integration, and successful outsourcing require investment in technical expertise over a wide range of technological fields and coordination of knowledge to manage suppliers (see for example, Brusoni and Prencipe, 2001; Brusoni, 2003; Clark and Fujimoto, 1991). By noting that neither externalization through outsourcing nor flattening of managerial hierarchy is the same as decentralization, the article provides theoretical and empirical bases for the continuing importance of Chandler's principles in managing supply chains. Copyright 2010 The Author 2010. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

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  • Susan Helper & Mari Sako, 2010. "Management innovation in supply chain: appreciating Chandler in the twenty-first century," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(2), pages 399-429, April.
    • Handle: RePEc:oup:indcch:v:19:y:2010:i:2:p:399-429
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    4. Susan Helper & Abdul Munasib, 2022. "Economies of scope and relational contracts: Exploring global value chains in the automotive industry," BEA Working Papers 0195, Bureau of Economic Analysis.
    5. Bernhardt, Annette & Batt, Rosemary & Houseman, Susan & Appelbaum, Eileen, 2016. "Domestic Outsourcing in the U.S.: A Research Agenda to Assess Trends and Effects on Job Quality," Institute for Research on Labor and Employment, Working Paper Series qt2fm4m444, Institute of Industrial Relations, UC Berkeley.
    6. Pasquale Pavone & Margherita Russo, 2017. "Clusters of specializations in the automotive supply chain in Italy. An empirical analysis using text mining," Center for the Analysis of Public Policies (CAPP) 0157, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    7. Sangcheol Song & Jeoung Yul Lee, 2017. "Relationship with Headquarters and Divestments of Foreign Subsidiaries: The Hysteresis Perspective," Management International Review, Springer, vol. 57(4), pages 545-570, August.
    8. Eileen Appelbaum, 2017. "Domestic Outsourcing, Rent Seeking, and Increasing Inequality," Review of Radical Political Economics, Union for Radical Political Economics, vol. 49(4), pages 513-528, December.
    9. Richter, Philipp Clemens & Brühl, Rolf, 2017. "Shared service center research: A review of the past, present, and future," European Management Journal, Elsevier, vol. 35(1), pages 26-38.
    10. Elsner, Wolfram & Schwardt, Henning, 2015. "The (dis-)embedded firm: Complex structure and dynamics in inter-firm relations. Adding institutionalization as a Veblenian dimension to the Coase-Williamson approach – An emerging triangular organiza," MPRA Paper 67193, University Library of Munich, Germany.
    11. Annette Bernhardt & Rosemary L. Batt & Susan Houseman & Eileen Appelbaum, 2016. "Domestic Outsourcing in the United States: A Research Agenda to Assess Trends and Effects on Job Quality," Upjohn Working Papers 16-253, W.E. Upjohn Institute for Employment Research.
    12. Pasquale Pavone & Margherita Russo, 2017. "Clusters of specializations in the automotive supply chain in Italy. An empirical analysis using text mining," Department of Economics 0116, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
    13. Herbert, Ian P. & Seal, Will B., 2012. "Shared services as a new organisational form: Some implications for management accounting," The British Accounting Review, Elsevier, vol. 44(2), pages 83-97.
    14. Richter, Philipp Clemens & Brühl, Rolf, 2020. "Ahead of the game: Antecedents for the success of shared service centers," European Management Journal, Elsevier, vol. 38(3), pages 477-488.
    15. Díaz-Chao, Ángel & Sainz-González, Jorge & Torrent-Sellens, Joan, 2016. "The competitiveness of small network-firm: A practical tool," Journal of Business Research, Elsevier, vol. 69(5), pages 1769-1774.
    16. Annette Bernhardt & Rosemary Batt & Susan Houseman & Eileen Appelbaum, 2016. "Working Paper: Domestic Outsourcing in the United States: A Research Agenda to Assess Trends and Effects on Job Quality," CEPR Reports and Issue Briefs 2016-03, Center for Economic and Policy Research (CEPR).

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