23 Jun 2003  Research & Ideas

Historically Speaking: A Roundtable at HBS

Harvard Business School faculty Richard S. Tedlow, Alfred D. Chandler, Nancy F. Koehn, and Debora L. Spar discuss the different research paths they took leading to their most recent publications.

 

Business History at HBS traces its roots back to 1927 when it was part of a course in business policy. But the golden age for this area of study at the School began with the arrival of Professor Alfred Chandler in 1970. Universally regarded as the world's greatest business historian, he attracted and mentored a bevy of other scholars who explored and explained the coming of managerial capitalism through their research, writings, and course development. Thirteen years after Professor Chandler's retirement, that tradition of excellence and influence remains strong among business history faculty, whose scholarship and teaching skills attract hundreds of Harvard MBA students to their classrooms each year.

Among the latest books by HBS historians are publications by Professor Chandler, Professor Nancy Koehn, and Professor Richard Tedlow. Leading Research gathered them together to talk about their work. Joining the discussion was Professor Debora Spar, a political scientist who recently traced the historical development of several pioneering technologies.

Leading Research: Let's begin by talking about what led to the writing of these books.

Richard Tedlow: The growth of business history among historians and scholars from other disciplines who are taking a historical approach to their work has demanded intellectual leadership. Al Chandler has provided that leadership for more than forty years.

Early in his career, he spotted the questions that needed to be answered about the development of the U.S. railroad industry in the latter half of the 19th century. Al went straight to the sources and expanded upon them in a series of important articles in the Business History Review. That work developed into his pathbreaking book Strategy and Structure, published in 1962. A succession of other extraordinary work followed, including The Visible Hand, which won the Pulitzer Prize in 1977.

In 1917, two-thirds of the CEOs of these companies were either Presbyterian or Episcopalian. If you were anything else, chances are you'd be turned down for the job.
— Richard S. Tedlow

The fact that Al's research has moved from railroads to giant corporations and now to computers and consumer electronics underscores his eminent position as the historian of industries at the center of national interest in each era he studies. All of us have taken our lead from Al and tried to build off his work.

Alfred Chandler: The road that led me to write Inventing the Electronic Century had a bit of a twist and turn. I originally planned a single study in comparative institutional history called "Paths of Learning: The Evolution of High-Technology Industries." Focusing on the United States, Europe, and Japan, it was supposed to examine two sectors: first, the chemical and pharmaceutical industries, which helped bring about the Second Industrial Revolution between the 1880s and 1920s, and second, consumer electronics and computers, which provided the infrastructure for the 21st century--the Electronic Century. Halfway through my research, however, I decided to concentrate completely on the latter topic and make chemicals and pharmaceuticals the subject of a separate volume. The rise of Japan in consumer electronics is truly an epic story. The Radio Corporation of America (RCA) led the way in this field from its beginnings in 1919 through the next four decades. But by the 1970s, Japanese companies such as Sony and Matsushita had taken over the market. Similarly, it was the Japanese firms, especially Fujitsu, that eventually became IBM's major competitors in computers and peripheral products. I wanted to explain in some detail how this happened.

Nancy Koehn: Reading Al's work, I was struck by the implications of technological change for the demand side of the economy. As a historian watching the Information Revolution unfold, I was impressed by the sheer number and variety of new goods and services being brought to market.

Most consumers in the 1980s had not even heard of e-mail or cappuccinos. Yet in less than a decade, millions of people not only became familiar with these and other novel products, but they made them part of their daily lives. I wanted to understand this phenomenon over time and what role companies played in translating a few buyers' initial curiosity into widespread consumer loyalty. Brand New examines these issues by focusing on six outstanding entrepreneurs.

Debora Spar: Several incidents led me to think about the creation and regulation of new technologies across several centuries. In 1994, when I first started on Ruling the Waves, an MBA student asked me to do a project with him about the emergence of the Internet. Since I'm a political scientist, I said I'd do it only if we looked at the role of government. He assured me at the time that as far as the Internet was concerned, the government was not involved. That observation intrigued me.

Later, I listened to a conversation between two FIBS historians regarding the enclosure movement in England between the 15th and 19th centuries. Through hundreds of enclosure acts, the British Parliament replaced common land with private property--a process that prompted better management and made Great Britain the leader in the Industrial Revolution. I then began to think about the relationship over time between new technologies, property rights, and government.

As a historian watching the Information Revolution unfold, I was impressed by the sheer number and variety of new goods and services being brought to market.
— Nancy F. Koehn

Finally, I heard a presentation on piracy in the 16th century--something that had been exacerbated by the invention of the compass, which enabled ships to sail the open sea rather than hug the coast. To solve that problem, governments responded by enacting laws of the sea. It then became clear to me that it was almost impossible to understand the Internet by thinking of it as something unique. I needed to look at the evolution of other technologies and the eventual creation of a regulatory structure to prevent entrepreneurial chaos.

LR: To follow up on that, Professor Spar, you've created a four-phase model of how companies develop along the technological frontier—from innovation to commercialization to creative anarchy as numerous firms jump on the new technology bandwagon to the coming of rules and governance. Would you elaborate on that?

Spar: Since Professor Chandler has mentioned RCA, let me use that as an example. In 1926, along with General Electric and Westinghouse, RCA formed the National Broadcasting Company (NBC) to turn radio, an innovation originally intended to transmit messages, into a platform for entertainment and advertising. While NBC was building lots of radio stations, a slew of individuals, mostly amateur radio aficionados, were also filling the sky with their own messages, music, and other programming. The airwaves were literally jammed.

In the face of such bedlam, NBC led a charge on Washington in search of regulation and the allocation of frequencies across the spectrum--the property rights I mentioned before. The result was the Radio Act of 1927, putting this new technology under the purview of the federal government. The same cycle of activities is evident throughout the history of commercialized technology.

LR: Professor Tedlow, what about the gestation of Giants of Enterprise?

Tedlow: These days people tend to talk about corporations as institutions embedded in the macro economy. That approach is obviously critical to an understanding of how businesses work, but equally important, as Professor Koehn has indicated, are the human beings who make the decisions that create and sustain enterprises. I wanted to use a biographical approach to focus on seven individuals from different times, backgrounds, and places to illustrate to a general readership the enormous variety of paths to leadership in business. Andrew Carnegie, for example, was an impoverished Scottish immigrant who made a fortune in Pittsburgh, whereas Sam Walton grew up in Oklahoma and launched Wal-Mart in rural Arkansas.

As I worked on Giants of Enterprise, I found to my surprise that my subjects all shared a number of traits, and these became the key lessons of the book. For instance, someone once said, "If you don't stand for something, you'll fall for anything." The leaders I studied stood for something in their company, in their industry, and in society. In addition, they all had a searing insight they were able to communicate clearly and concisely to others--like Henry Ford's observation at the beginning of the 20th century that what people in this country needed was an inexpensive automobile.

Spar: At HBS we think a lot about educating leaders for both business and society. I think this is another area where history can be really critical. When you think about leadership it's not all that useful to consider it in the abstract.

Tedlow: There's an adage among historians that if you can't count, admit that you're guessing. Al Chandler has always counted. Look at The Visible Hand. To some degree, it's an extended commentary on the large table in the book's appendix, which lists some 250 companies in 1917 with assets of $200 million or more.

In keeping with that tradition, I developed a database of the CEOs of the same companies to find out everything I could about them from a demographic and career management standpoint. What part of the country were they from? What was their age, income, and education by the time they became CEO? What was their religious background? In 1917, two-thirds of the CEOs of these companies were either Presbyterian or Episcopalian. If you were anything else, chances are you'd be turned down for the job. Religion may still be a consideration in some firms today, but more likely than not companies are looking for directors who will increase shareholder value. The door is more wide open for people of different ethnic and religious backgrounds from both genders.

Koehn: I kept running into the issue of leadership as I delved into the lives of the six individuals in my book: Josiah Wedgwood trying to create a market for china in 18th century Britain; Henry Heinz and Marshall Field building strong brands and companies in the nascent food-processing and department store sectors; Esteé Lauder working in prestige cosmetics; Howard Schultz building the burgeoning market for specialty coffee, and Michael Dell pioneering a new way to produce and sell personal computers.

They all learned the importance of being smart, effective stewards of themselves, their employees, and the opportunities and resources they controlled. They saw the importance of carrying out their responsibilities with integrity. They became teachers as well as managers. They quickly understood that world-class institutions can't be built by one person. Business is all about helping people do together what they can't achieve on their own.

LR: Since RCA and IBM figure prominently in several of your books, let's return to them in more detail. You point out, Professor Tedlow, that RCA is now "merely a brand name and not a terribly important one." IBM, however, has survived numerous challenges and is still, according to Professor Chandler, "the most important computer company in the world." What went wrong with one and right with the other?

Chandler: Having invented color television in the 1950s but then fallen behind Japanese manufacturers in the following decade, RCA decided it had to move into something else. In 1967, it settled on computers, a product the company had never produced or sold before. It gave up on this strategy in 1971 after incurring heavy losses.

But the deathblow to the company came when RCA followed the advice of Wall Street and spent millions of dollars turning itself into a conglomerate that included everything from frozen foods to rental cars. In contrast, its Japanese competitors were strengthening themselves by dutifully pumping all their profits back into the firm.

By 1986, RCA's balance sheet was in shambles, and its consumer electronics division and NBC were sold to General Electric. The company had been done in by the lure of the computer and the curse of the conglomerate.

IBM, on the other hand, kept putting its knowledge and profits from every new product back into the company. From manufacturing punched-card data processors, it progressed along what I call the learning path to make the System 360 in 1964 and the System 370 in 1970. Later, it was successful with minicomputers and peripherals.

But IBM's major achievement was its mass production and mass marketing of the personal computer, beginning in 1981. In less than a decade, the IBM PC and its clones had conquered world markets. Only Apple was still a non-clone producer. As a result, a windfall followed for two IBM suppliers in particular. Intel became a near monopoly in microprocessors, and Microsoft, which provided the operating system, is probably the most powerful regulated monopoly in the history of U.S. industry.

Tedlow: When I joined the HBS faculty in 1979, I taught first-year Marketing. I remember the course head telling me that the most important decision any company makes is what markets it decides to serve with what products. Founded in 1911, IBM was originally called Computing-Tabulating-Recording (C-T-R). Computing referred to scales used by merchants. Recording meant time-clock machines that employees used to punch in and out of work. Tabulating machines helped people count and keep track of things, and as such were the predecessors of the computer. When Tom Watson, Sr., became CEO in 1914, tabulating was the smallest part of the operation. By the Great Depression, it was the largest. Watson selected the market and the product and stayed focused on both. If you get that right, you can get a lot of other things wrong and still succeed.

Spar: RCA wasn't a company that grew the way IBM did. Instead, it was put together in 1919 with a lot of active intervention by the government, given the military significance of wireless technology, especially at sea. It was essentially the creation of the U.S. Navy and a General Electric executive named Owen Young to serve a combination of commercial and security purposes. RCA was a company conceived in sin—the sin of monopoly. Immediately after World War I, it was allowed to share patents with AT&T, Westinghouse, and United Fruit, which used radio to communicate across its infrastructure of plantations and transportation links throughout Latin America.

LR: What lies ahead for each of you in terms of research?

Koehn: I'm in the early stages of a book on how specific business leaders defined success for themselves, their organizations, and the societies in which they live.

Tedlow: I'm completing a book tentatively titled The Watson Dynasty: The Fiery Reign and Troubled Legacy of IBM's Founding Father and Son [to be published by HarperBusiness in 2003].The book analyzes the impact of this remarkable family on one of the most important companies in the world.

Chandler: I've completed my book on the chemical and pharmaceutical industries [Shaping the Industrial Century: The Creation and Evolution of the Chemical and Pharmaceutical Industries, to be published by The Free Press in 2004]. It includes a chapter on biotechnology, the next industry that will create a sea change in our lives.

Spar: And biotechnology will go through the same pattern of development we've discussed. The first phase is a race to figure out how to commercialize remarkable technological breakthroughs like the genome. There are also enormous questions about what the proper regulatory structure will be: Who owns a gene? Who owns the right to determine what I can do with my genes? These kinds of questions get to the core of what it means to be human being. There's a lot of work to be done in this area.

LR: Thank you all very much.

Reprinted with permission from HBS Leading Research Vol. V, No. 11.