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Chapter 1The Evolution Of The Modern Firm

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The Word In 1840

Doing Business in 1840John’s DecisionWhat did impact John’s Decisions?InformationJohn’s risk attitude and ability (personal role selection)

The Determinants of Industrial Scale and Structure

Risk and information

Output uncertainty

1.The willing to invest by their own resource2.Banks’ willing to finance business expansion

Small firms

Conditions in Business in 1840 : Life Without a Modern Infrastructure

Transportations railroad (case 1. The Emergence of Chicago) waterwayCommunications post telegraphFinance

Production Technology unstandardized small firmsGovernment public infrastructure

The Emergence of Chicago Figure 1.1

Case 1

Summary

Infrastructure

Extended demand and technology development

High speed and high volume production and

distribution

Change organization and coordination

Transaction costs down

The Word In 1910

Doing Business in 1910

Integration

Large firms

Professional managers

Organizational hierarchy

Business Condition in1910: A “Modern” Infrastructure

Production Technology Vertical integration Scale economic Horizontal integration scope economicTransportation Infrastructure throughput production capacity expansionCommunications M-form firms division and professional managers

coordination and control problems (1)overexpansion: (2)bureaucracy

FinanceGovernment Professional manager demand education market

MBA/university

Case 2

Responding to the business environment: The case of American whaling

*No advantage from revolutionizing technology

*Demand and competition*Risk*No scale economic for production &

distribution

The World Today Doing Business Today *Market niche strategy *Diversity: Distribution channel, skill, and acquire

Antitrust *SBU *Matrix Structure coordination * Function outsourcing The Infrastructure Today

Transportation Automobile and Air Way Better coordination Communication Fax and Internet Finance Cost and managerial accounting Activity-based accounting Production Technology CAD/CAM: customizing, high quality, and low cost Government Relax the regulation Regional free trade zone

Case 3

Evolution of the steel industry*Early age: vertical integration

Competitive disadvantage: Specific assets

*Modern age: Heavy Light Competitive advantage: Minimill advantage

Infrastructure in Emerging Markets

Infrastructure in Emerging Markets

Economic gyrations and traffic gridlock

in Thailand

Case 4

Summary

Coordination Vertical integration

Three Different World:

Consistent Principles, Changing Conditions,

and Adaptive Strategies.*Make: 1910 1.Scale economic accessibility Firms

were willing to invest 2.Poor infrastructure Coordination

difficulty Hierarchy control

*Buy:1.1840 (1)No scale economic (2)Poor infrastructure Limited

market size2.Today Infrastructure coordination cost

outsourcing function

Case 5

Infrastructure and emerging markets:The Russian Privatization Program*Goal conflict between manager and

employees*No incentive

Example1.5

Building national infrastructure: The transcontinental railroad.

Example1.6

The risks of modernity :The Halifax .

Example1.7

Parties, Scandals, and DirectorsBehaving Badly: After the ball.

Example1.8

Blaming Wal-Market: The Prequel.