Visible Hand

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Visible Hand - short version

A term coined by Alfred Chandler of the Harvard Business School which describes a company's total control of the entire process from raw materials to the final product. The first example of the visible hand in the automotive industry was orchestrated by Henry Ford at the Rouge complex in Detroit. The "Invisible Hand" theory by contrast implies no financial or other relationships.

Visible Hand - long version

The Visible Hand is a term that comes from the book: The Managerial Revolution in American Business is a 1977 business book by Alfred Chandler. Chandler described the emergence the managerial layer of the firms, who could extend its domain of action by sheer desire to exploit the new found efficiency to domains of action for which it had not be designed for nor instructed to.

Chandler uses eight propositions to show how and why the visible hand of management replaced what Adam Smith referred to as invisible hand of the market forces:

1. That the US modern multi-unit business replaced small traditional enterprise, when administrative coordination permitted better profits than the coordination by market mechanism;

2. That a managerial hierarchy have been created for this multi-unit business enterprise;

3. That multi-unit business enterprise appeared for the first time in history in a time when the volume of economic activities reached a level that made administrative coordination more efficient than market coordination;

4. That once a managerial hierarchy has been created and had successfully carried out its functions of administrative coordination, the hierarchy itself became a source of power, permanence and continued growth;

5. That the careers of the salaried managers became increasingly professional and technical;

6. That the multi-unit business enterprise grew in size and diversity and as its managers became more professional, the management of the enterprise became separated from its ownership;

7. That managers preferred policies that favored long term stability and growth of their entreprises to those that maximized current profits.

8. That as the large entreprises grew and dominated major sectors of the economy they altered the basic structure of these sectors and of the economy as a whole.



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