1. Chapter 13 “The Dynamics of Industrial Capitalism: Perspectives on Alfred Chandler`s Scale & Scope”
by David J. Teece

2. Introduction
This chapter reviews the work of Alfred Chandler on managerial capitalism in different countries.
Chandler examines the beginnings and subsequent growth of managerial capitalism in the US, the UK, and Germany.
Chandler’s implicit thesis is that firms and markets evolve together to shape industrial outcomes.
He recognizes that the modern industrial firm is basically an organization that has developed the capacity, through complex hierarchy, to make the activities and operations of the whole enterprise more than the sum of the parts.
The purpose of managerial hierarchy is to capture scale and scope economies within and among functions through planning and coordination.

3. Scale economies
Are the cost advantages that we have already discussed associated with scale, such as learning by doing and spreading costs over larger output.

4. Scope economies
Are the cost advantages that arise from the synergy between two activities: for example when it is less costly for one firm to perform two activities than it is for two specialized firms to perform them separately (e.g. if a car maker produces both cars and trucks). Scope economies can be achieved via merger between firm and through vertical integration.
Reduction in long-run average and marginal costs, due to the production of similar or related goods or services where the output or provision of an item 'A' reduces the cost of item 'B.'

5. Chandler claims that the competitiveness of firms depends not so much on the structure of markets and technologies as on the organizational strategies of managers: it is business organizations that shape markets and technology, not vice versa.
Chandler defines strategy as: the determination of the basic long-term goals and objectives of an enterprise, and the adoption of course of action and the allocation of resources necessary for achieving these goals.

6. What causes differences between firms to exist?
According to Chandler, differences arise not from differences in technology, but from differences in organizational structures, which are the results of specific investments.
In order to attain their long-term goals, Chandler claims that firms must invest in:
large scale production
product specific marketing, distribution and purchasing networks
Recruiting and organizing the managers needed to supervise and co-ordinate production and distribution (investment in management and people).

7. Chandler claims that firms are able to carry out these three types of investment before their competitors increase their chance of becoming industry leaders and maintaining that leadership over time.
Thus, these investments that will determine whether a firm can capture the technological and market opportunities available to all firms and transform these opportunities into sustainable advantages.
Chandler claims that making the three types of investments will give firms ‘first-mover advantages’, that is, advantages that allow an early lead to become a permanent one.

8. Competitive managerial capitalism in the US
Mainly because of the scale and scope: "Between 1850 and 1880s the transportation and communications network established the technological and organizational base for the exploitation of economies of scale and scope in the processes of production and distribution. The merger movement is to Chandler one of the most important evolutions in the US. The companies that were 'the first to make the essential, interrelated three pronged investments in (1) production (2) distribution (3) management

9. Personal capitalism in Great Britain
The story of the Cadbury Brothers Ltd. Chandler attributes that smaller size, family ownership, and less professional management of British firms to the smaller size of British economy, the greater importance of foreign trade to the British Companies, and the historical fact that Britain had industrialized and urbanized before the coming of the transportation revolution.
British entrepreneurs failed to grasp the opportunities the new technologies had opened up, precisely because they failed to make the necessary, interrelated three-pronged investment in production, marketing, and management. These opportunities were seized instead by the Germans and Americans.

10. Cooperative managerial capitalism in Germany
German universities and institutions were ahead of the United States in providing industrial enterprises with scientific knowledge and skilled technicians and managers and, unlike the US and Britain, the banks played a major role in providing the finance necessary to facilitate the investment needed to capture the economies of scale and scope inherent in the new technologies. Banks encouraged the creation of a wholly new financial intermediary .

12. The logic of managerial capitalism
The business enterprise as the central actor
Changing technologies and markets constantly make existing facilities and skill obsolete; industrial firms accordingly need to be in a process of constant organizational renewal. While new technologies provided opportunities, it was the business enterprises and their managers that determined whether those opportunities would be converted into sustainable advantages. Chandler is not saying that technology or 'precondition' or government policy are not important to industrial success. Rather, he seems to be saying that the new technologies in question were the main open to all

13. The logic of managerial capitalism
Determinants of the scale and scope of the enterprise
One of the main determinants of the size of a firm is the extent to which it can exploit economies of scale or scope". Explaining why different firms respond to and manage the opportunities afforded by new technology? It is firm size and market structure

14. The logic of managerial capitalism
The sustainability and sources of differential competitive advantages
Chandler claims that differential and persistent advantages arise from three types of first-mover advantages:
Preemption effects: scale economies achieved by more experienced, large scale firms allow them to become the most cost efficient. Preemption occurs when there is great potential for increasing returns.
Learning effects: first movers are able to reap the cost advantages associated with learning by doing.
Cheaper capital effects: biases in capital markets allow large firms to receive preferential treatment by lenders.

15. The logic of managerial capitalism
Technology strategy
The determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for achieving these goals".
Limits to the logic of managerial capitalism
"the passage of time has not made the logic of the managerial enterprise obsolete"

16. Chapter 15 “Strategic Thinking & Knowledge Management
by Ysanne Carlisle

17. Introduction
This chapter overview the theories that explain inter-firm differences with reference to imperfect markets (and imperfect information) and the theories that instead explain these differences with reference to firms’ different abilities to learn.
Carlisle introduces us to the field of knowledge management in strategy theory; that is, the study of how knowledge is created and maintained in organizations. Knowledge unlike information is dynamic and always undergoing change; information can be bought, but knowledge, used to interpret information, must be created over time.

18. Introduction cont…
Carlisle argues that although large firms may be in the best position to purchase quality information, they will not necessarily be the best at interpreting this information in creative and innovative ways if their size makes them bureaucratic and inertial.
The focus on knowledge instead of information has a clear implication for management strategies. Transaction cost economics claims that managers must monitor and control the opportunities behavior of employees

19. Introduction cont…
The focus on knowledge (instead of information) has a different implication for management: firms need to develop more horizontal, less controlling structure which allow more co-operative interaction and encourage the creativity of their employees to blossom
Carlisle considers the role of knowledge in the age of the information revolution. She points that what matters is not the investment in IT but the way employees are trained to use it. That is, what matters is an understanding of human nature, human relationships and internal organizational dynamics

20. Conventional and knowledge-based understandings of organization
This paper contrasts the understanding of organisation found in the conventional and the knowledge-based literatures. The paper moves on to describe how competitive advantage is created and sustained in both frameworks.

21. Knowledge-based understandings Conventional understandings Key issues
To create and exploit knowledge
To process environmental information
To deal with problems arising from informational imperfections
To reduce uncertainty
To meet shareholders needs
Why do organizations exist?
People are creative, visionary and collectively ambitious
People are rational, calculating and self-interested individuals
How do we understand human nature?
Commitment based upon shared visions, meanings and identities
Explicitly or implicitly contractual
What is the basis for human relationships in and between organizations?

22. The need for organizations
Why do organisations exist?
The answer is in the way it conceptualize strategic requirements for performance access. Conventional economic theories referred it to access to information "informational asymmetric" gives it competitive advantage over other firms. On the other hand, "knowledge-based" view is a wider approach. From this perspective firms exist to facilitate the acquisition, creation, exploitation and transfer of useful knowledge. This alternative response to the question "why organize?"

23. The need for organizations
Where firm is defined as "a social community specializing in the speed and efficiency of the creation and transfer of knowledge". Knowledge is a critical resource. Virtually all other resources depend upon some degree of knowledge exploitation for their value – including natural resources.
With the simple context of the simple model input-process-output, knowledge is more dynamic resource than many other inputs. The "stick to the knitting" of Penrose (1959) is that the acquisition of new knowledge is an essential element in the success of such strategies, It is knowledge that creates a cost advantage in enabling the organization to deploy its productive resources more efficiently

24. Organizations exploit knowledge by building capabilities and competencies:
Capabilities: enable organizations to manage particular types of resource-utilizing process especially well, for example manufacturing process.
Competences: are strengths in doing particular things especially well, such as manufacture engines

25. Human nature and the basis of human relationships
The presupposition is that human beings are by nature instrumental reasons who will adopt courses of action from which they can derive maximum benefit for minimum effort. Human beings are as 'utility maximisers' individually pursuing maximum personal utility. From this perspective agents may not always be motivated to pursue the best possible interests of principals by bounded rationality to avoid information overload.

26. Implications for strategies
The conventional and knowledge-based approaches to strategy carry different implications for strategies (see table 15.2).

27. Table 15.2: The Conventional and knowledge-based approaches to strategy
Conventional approach
Key differences
Achieve an ambitious strategic intent
Achieve a good strategic fit
Goals for Strategies
Value Creation
Value appropriation
Strategic focus
Unique competencies and capabilities which cannot be substituted, imitated, replicated or transferred, and are 'causally ambiguous'
Market imperfections providing opportunities for cost and differentiation advantages enabling firms to achieve favorable market positions
Sources of competitive advantage
Through capabilities in knowledge processes which can deliver new competencies for the future
By maintaining a favorable market position
How competitive advantage is sustained

28. The Conventional and knowledge-based approaches to strategy
The conventional and knowledge based approaches to strategy carry different implications for strategies.
Different in goals and strategic focus create a sustainable competitive advantage.
Managers have been encouraged to focus on developing strategies which achieve the best possible fit between the organization and its environment to secure a favourable and sustainable market position.

29. The Conventional and knowledge-based approaches to strategy
The knowledge-based view encourages scholars to explore the structural, social and relational aspects of organizations within which knowledge creation, exploitation and transfer take place. The conventional focus is on value appropriation which ensures the development and maintenance of effective and efficient means of appropriating value from available scarce resource which will add value to organizational outputs. The knowledge-based view leads them to stress process of value creation which implies a shift in the focus for strategic thinking away from traditional market concerns to issues of internal organizational dynamics.

30. The Conventional and knowledge-based approaches to strategy
Both conventional and knowledge-based approaches therefore seek to create and sustain competitive advantage in different ways:
The first in searching out costs efficiencies and differentiation advantages which can lead to unassailable market positions.
The other by investing in the creation and exploitation of useful new knowledge which cannot be readily appropriated by competitors irrespective of their market position.

31. Creating and Sustaining Competitive advantage
Resource-based theorists argue that capabilities and competencies are intangible assets which provide unique source of competitive advantage to the firm, Knowledge based theorist argue that firms which further develop unique capabilities in the management of knowledge process can build distinctive competencies based upon exploiting the growing knowledge these processes generate.
It can be argued that knowledge is a resource which meets these resource based criteria for sustaining competitive success

32. Conventional versus knowledge-based strategy
Three key limitations to conventional understandings of and approaches to strategy:
An over reliance upon an information processing model to understand and explain strategic decision making.
A partial and incomplete view of human nature and the basis upon which effective human relationships are built.
A neglect of internal organizational dynamics of change.