Evolution of industries By A.V. Vedpuriswar

The Evolution of the modern firm Business in 1840 Limited transportation and communications Small localised markets Informal arrangements Timely information usually not available Terms rarely set in advance or specified in a contract Best price determined according to current demand and supply Lack of knowledge about prices, buyers, sellers So considerable risk

Important role for brokers Small family-operated firms Individuals reluctant to commit their limited resources for business expansion Banks unwilling to finance business expansion. Poor transportation & communications infrastructure. Rudimentary technology prevented production from expanding much beyond traditional levels in local markets

Business in 1910 Large firms emerged in some sectors like chemicals, steel and transportation. Network of buyers, suppliers, service providers emerged In large firms, a new class of professional managers emerged Mass production technologies emerged. Eg., Bessemer process for making steel Need for more reliable supply and distribution network Large throughput needed to utilise capacity efficiently. Vertical integration became a preferred strategy for some companies – steel, chemicals, machinery. New production technology also allowed companies to exploit scope economies - DuPont, GM, Alcoa expanded by offering a wider variety of products.

Business in 1910 (Cont…) Divisional form of management emerged to cope with multiple product lines. Some industries saw consolidation and collusion. Systematic and scientific approaches to management emerged. Managerial hierarchies emerged as the “visible hand” to counter “invisible” markets. Improved infrastructure - Advances in production technology - Mass production → core cost high volume - Typewriters - Copying - Punched card tabulators - Consolidation and rationalization of railroads - Shipment over long distances became feasible - Mass distribution firms such as Sears emerged

Business in 1910 (Cont…) - National telephone system emerged - Finance - Communication - National telephone system emerged - Finance - Growth in securities markets - Credit bureaus - Installment financing - New accounting techniques - Innovation in cost accounting and disclosures - Government regulation - corporate law and governance - antitrust - workers’ safety - disability insurance - insurance for widows and children - mandatory secondary school education

Business today - Globalization - Advances in IT - Sea change in business landscape - Globalization - Advances in IT - Antitrust pressures and competition laws - Emergence of matrix structure - Automation and outsourcing - Weakening of traditional hierarchies - Decentralisation - Premium on ability of managers to anticipate shifts in market trends - Major improvements in infrastructure - communications - transportation - competing technologies

- Advances in accounting Transportation - Automobiles - Air travel - National highways Communication - Radio - Television - Fax - Modem - Optic fibre Finance - Development of capital markets - Globalization of financial markets - Advances in accounting

Production technology - CAD/CAM - High quality, low cost - Business process reengineering Government - Deregulation of many industries - Free trade zones - GATT/ WTO - Promoting R&D, Clusters - Environment, workplace safety But infrastructure in developing countries continues to be poor - Poor roads - Poor rail networks - Poor internet access The world today is smaller, flatter and more virtual.

The rise of Chicago Refrigerated train car to carry meat Chicago businesses took advantage of new technologies Refrigerated train car to carry meat Grain elevator to sort, store and ship grain Futures markets Rail and water routes Chicago emerged as the market leader among mid-western cities in the mid-1800s (Cincinatti, St Louis, etc)

Evolution of the steel Industry First half of the 20th century – heavy vertical integration Mining – Production – Marketing & Distribution In the 1950s, lighter products gathered importance. Strips, sheets, etc used in appliances, automobiles, Continuous casting – major innovation Availability of scrap – rise of Electric Arc Furrances Emergence of mini mills/thin slab casting Large integrated producers have declined in importance.

Industries today (Click links for Harvard Business School podcasts) Investment banking The Biotech business