Evolution of industries

1. Evolution of industries By A.V. Vedpuriswar

2. 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

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

4. 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.

5. 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

6. Business in 1910 (Cont…) • - 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

7. Business today • - 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

8. 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

9. 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.

10. The rise of Chicago • 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)

11. 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.

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