Military Inspiration

Soldiers have a surprisingly lengthy heritage as managerial exemplars – both in terms of practice and theory.  Look back to Hadrian, the enigmatic wall-building Roman Emperor from 117 to 138.  He was a champion of people power long before the advent of such niceties as human resource departments.  Pomp and circumstance were not for him.  His military reputation was forged on his willingness to share the same conditions as his troops.  One anecdote describes his refusal to wear his cloak or cap no matter what the weather.  Similarly, Hadrian was reputed to join his troops on lengthy marches in full armor.

A series of other humanitarian decisions cemented his reputation.  He prohibited castration, and was concerned about slaves.  Hadrian was also a globe trotter.  He didn’t seek to control his empire from Rome but traveled throughout it.  In modern parlance, he accepted the diversity of his Empire – coins issued during his reign celebrated the numerous provinces he had visited.  Hadrian also brought to an end the inexorable Roman expansionism.  He sought to draw a line around the Empire rather than engaging in endless foreign wars.  (Perhaps he realized that most corporations go bust in the midst of expanding.)

Hadrian was also reputed to have had an eye for financial management – though he started his reign by announcing an amnesty of all debts owed to the government.  While his predecessor frittered away the money in the treasury, Hadrian was more frugal and built up reserves to fund building projects and social welfare programs.  At the same time, he didn’t raise taxes.  (Modern politicians would no doubt like to know exactly how he managed to achieve the political equivalent of squaring the circle.)

Claiming similar credence as a path-breaking managerial practitioner was the Duke of Wellington (1769-1851).  Wellington can lay claim to managing by wandering around during the Napoleonic Wars.  Historian John Keegan has noted: “[Wellington’s methods] required a particularly intense ‘managerial’ style- ‘taking trouble’ with the battle, as Wellington himself would later put it. The general must make himself the eyes of his own army … must constantly change position to deal with crises as they occur along the front of his sheltered line, must remain at the point of crises until it is resolved and must still keep alert to anticipate the development of crises elsewhere.”

We digress, but the point remains that strategy and the military are inextricably linked. Indeed, the book which ignited the business world’s interest in strategy has military inspirations.  In 1954 Alfred Chandler (himself formerly of the US Navy) was invited to create and teach a course at the Naval War College in Newport, Rhode Island on “the basis of national strategy”.

“William Rietzal, who was at the College in another capacity, had become interested in the post second world war changes in military organizational structures, particularly those that came with the creation of the post-war Department of Defense. I was then developing my interest in the evolution of modern business structures. So we agreed that each of us would write a book on our respective intellectual concerns. Rietzal never completed his book. Mine came out in 1962,” Chandler later recalled.  The book was Strategy and Structure.

From his research into major US corporations between 1850 and 1920, Chandler argues that a firm’s structure is dictated by its chosen strategy – “Unless structure follows strategy, inefficiency results”.  First, a company should establish a strategy and then seek to create the structure appropriate to achieving it.  Chandler defines strategy as “the determination of the long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

Chandler observes that organizational structures in companies such as Du Pont, Sears Roebuck, General Motors and Standard Oil were driven by the changing demands and pressures of the marketplace.  He traces the market-driven proliferation of product lines in Du Pont and General Motors and concludes that this proliferation led to a shift from a functional, monolithic organizational form to a more loosely-coupled divisional structure.  (Interestingly, Chandler’s family had historical connections with DuPont — and DuPont was also Chandler’s middle name.  At the time DuPont also controlled General Motors.)

“The management structures whose evolution are described in Strategy and Structure were primarily adopted by enterprises in increasingly capital and knowledge intensive industries, as pointed in its concluding chapter,” said Chandler. “This is because the new multidivisional structure permitted the commercializing of new technologies producing products for different markets. For example, chemical companies were from the 1920s on producing a variety of chemicals, fibres, film, finishes, plastics, explosives and other things. The structure thus permitted them to lower their unit costs through the economies of scope as well as scale.”

Until recent times, Chandler’s conclusion that structure follows strategy has largely been accepted as a fact of corporate life.  The debate was then rekindled.  “I think he got it exactly wrong,” says Tom Peters with typical forthrightness.  “For it is the structure of the organization that determines, over time, the choices that it make about the markets in attacks.”

Another contrary view comes from Kathleen M Eisenhardt of Stanford: “The Chandler idea that strategy is set and then structure follows makes sense in clear, static markets. In ambiguous, dynamic markets, the two are much more intertwined. In my view, in the overall approach, structure and, more important, the processes by which structure changes are the constants while strategy changes.”

“Those who dispute Chandler’s thesis that structure follows strategy miss the point,” counters Gary Hamel. “Of course strategy and structure are inextricably intertwined.  Chandler’s point was that new challenges give rise to new structures.  The challenges of size and complexity, coupled with advances in communications and techniques of management control produced divisionalization and decentralization.  These same forces, several generations on, are now driving us towards new structural solutions – the ‘federated organization’, the multi-company coalition, and the virtual company.  Few historians are prescient.  Chandler was.”

While this debate rumbles on, Chandler’s place in the canon of strategy literature remains secure.  In particular, he was highly influential in the trend among large organizations for decentralization in the 1960s and 1970s.  While in 1950 around 20 percent of Fortune 500 corporations were decentralized; this had increased to 80 percent by 1970.  In Strategy and Structure, Chandler praises Alfred Sloan’s decentralization of General Motors in the 1920s.  He was later influential in the transformation of AT&T in the 1980s from what was in effect a production-based bureaucracy to a marketing organization.

The book also ignited the strategy-based consulting industry. Prior to the 1960s, McKinsey was not a strategy firm, since strategy as a discipline did not exist, but instead concentrated on restructuring organizations. Similarly, BCG, which was founded in the early 1960s after Bruce Henderson left Arthur D Little, also benefited from this new interest in strategy as a subject.

Strategy and Structure also contributed to the “professionalization of management”.  Chandler traces the historical development of what he labels “the managerial revolution” fueled by the rise of oil-based energy, the development of the steel, chemical and engineering industries and a dramatic rise in the scale of production and the size of companies.  Increases in scale, Chandler observes, led to business owners having to recruit a new breed of professional manager.

Chandler believed that the roles of the salaried manager and technician are vital, and talks of the “visible hand” of management coordinating the flow of product to customers more efficiently than Adam Smith’s “invisible hand” of the market (see Chandler’s 1977 book, The Visible Hand).  The logical progression from this is that organizations and their managements require a planned economy rather than a capitalist free-for-all dominated by the unpredictable whims of market forces.  In the more sedate times in which Strategy and Structure was written, the lure of the visible hand proved highly persuasive.

Resources
Interview with Alfred Chandler by Jorge Nascimento Rodrigues, 2002
Tom Peters, Liberation Management, Alfred P Knopf, 1992
John Keegan, The Mask of Command, Penguin Books, 1987

This was originally published in What we mean when we talk about strategy by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).