An integrated learning base is not just core competence. Sony, for example, maintained the center of a network of Japanese production plants, testing laboratories, components developers, and suppliers “all within a three-hour train ride,” close enough to continually experiment and learn from each other. An integrated learning base does not center on mastering technology; the Swiss company Novartis AG, currently dominant in biotechnology, developed its base in part through a merger of two major players (Ciba-Geigy and Sandoz) and the subsequent spinning off of its old-line chemical enterprises to concentrate on biotechnology. Each line of business has its own unique puzzle to solve — its own combination of technological challenge, market profile, and distribution patterns to decode and manage. An effective management style for consumer electronics, which requires miniaturization and the right choice of software platform, will not necessarily fit a chemical company trying to choose whether to produce low-margin commodity polymers or high-risk genetically engineered pharmaceuticals.
A company that masters its integrated learning base has an almost natural ability to monopolize its niche. To Professor Chandler, that explains why companies like IBM, McDonald’s, Procter & Gamble, Microsoft, and DuPont stay dominant for decades. “That base, for those who get there first, becomes the barrier to entry for competitors,” he says. This natural tendency toward oligopoly appears as keiretsu in Japan, cartels in pre–World War II Europe, and “megamergers” in the U.S., with local variations stemming from differences in antitrust laws.
In the Chandler worldview, it’s inevitable not just that large companies get larger, but also that they become more beneficial to society. Their learning base represents the source of the accelerated industrial creativity of our times, from Thomas Edison’s laboratories (which became General Electric Company’s) to the research labs at companies like the Intel Corporation and the Nokia Corporation today. The real tragedies, to Professor Chandler, are not the monopolies, but the breakups and breakdowns. AT&T, pressured by the Justice Department, destroyed the learning base of the U.S. telephone system when it separated Bell Labs from the Baby Bells. RCA, pressured by Wall Street, squandered its learning base when it tried to enter the computer business. “They heard about stars and cash cows, and thought they were supposed to be a conglomerate,” says Professor Chandler. “So they bought unrelated businesses, including Hertz and some food manufacturers, to get the money to push into computers. But RCA didn’t know how to run these companies. By 1985, they were all destroyed or spun off, and RCA, it was gone.”
Some might argue that such views are outmoded in the Internet-driven New Economy. After all, when the boundaries between organizations break down, it becomes increasingly difficult to corner the market on skills and capabilities. But to Professor Chandler, the New Economy started not with the Internet, but with the railroads. Business is still adjusting to that transition, the one that started 160 years ago; until we understand its imperatives, we won’t succeed in any economy.
A Born Storyteller
The industrial transition from 1840 to now is, perhaps, the Great Epic of our time, and a story that, in an almost literal sense, Alfred Chandler was born to tell. Professor Chandler came from a patrician family in the du Pont country of Delaware. His maternal great-grandmother was raised in the du Pont family after her parents died of yellow fever. His maternal grandfather was chief engineer of the E. I. Du Pont de Nemours chemical company from 1903 to 1916. (The “D.” in Al Chandler’s name stands for DuPont). He is a former Harvard sailing teammate of John F. Kennedy’s; indeed, he comes from a family of passionate sailors. In the 1930s, his father took the entire family on a year-long sail on the route of Charles Darwin to the Galápagos Islands. He is part of a large, close family full of fascinating people in their own right. His wife, Fay Chandler, is a sculptor; one of his sons (Alfred) is a documentary filmmaker. His sisters are Harvard child psychologist Nina Murray and Sophie Consagra, a former director and president of the American Academy in Rome, a distinguished classics and fine arts institute.