This blog is focused on listing out three of the top management theories that became almost the predominant way of doing business in the post Industrial revolution period to almost 40 years after the second world war.
Management Theory 1 – Conglomeration – In very simple terms this is a still prevalent model where a firm expands by entering diverse areas of business that are not traditionally its areas of business. This model provides the obvious benefit of providing diverse revenue streams to a firm enabling greater competitive benefit of market spread and the ability to surmount periods of slowdown or recessionary trends in any particular area of business. Classic examples of this model are Samsung , Hyundai. These firms are also known as “Chaebols” in South Korea as power over all subsidiaries is consolidated with a single chairman.
Management Theory 2 – Horizontal Integration – This is a model where a firm acquires its competitors thereby gaining market share in its core areas of business simply by gobbling up its competition as much as possible. In the internet Age a strong trend towards horizontal integration is visible especially in the media space with individuals like Mr. Rupert Murdoch gaining a large share of media mind share via his diverse investments in media properties (newspapers, cable etc.) The main benefits here being the firm has the potential to acquire greater economy of scale and scope of business due to higher market share.
Management Theory 3 – Vertical Integration – This is almost a corollary of the earlier theory, here the firm acquires companies that would normally be suppliers (downstream) or vendors (upstream) with the aim to have greater control of the end to end delivery of their specific products and services. The great industrialist Henry Ford acquired ships, railroads and even rubber plantations to ensure he had end to end control on all raw materials for manufacture of his cars like the arguably greatest car that triggered the personal car revolution- the iconic Ford Model T. In modern times, Oracle Corporation has acquired a very large number of firms with the same philosophy in mind.