Colin Barry

DuPont (CMC, Friday, Week 5)


New strategies require new organizational structure.

Stages of American industry development (until mid-20th century):
(1) Product/technology innovation (railroads, discovery of oil, etc.)
(2) Feeding frenzy/land grab (tons of small players)
(3) Ineffectual attempts to collude (cartels) => extract rents
(4) Consolidation: Horizontal integration => typically requires capital, professional management, innovation in organizational structure (centralized decision-making, accounting/control)
(5) Consolidation: Vertical integration => requires more innovation in organizational structure
(6) Regulatory/populist backlash

The monopolists' double-bind: so you think you want a monopoly...
Firms want to consolidate to gain scale economies, control prices, etc.
Lean, differentiated firms deter competitors; attractive industries invite new entrants.

Du Pont: the first multi-division firm --- dragged into it kicking and screaming by middle managers...
-- From one product-line (gunpowder) to many product-lines with manufacturing core competency.
-- Hard to measure performance? Devise the DuPont Formula...

Du Pont's initial attempt to expand into multiple product-lines: should yield tons of economies of scale --- actually yields remarkable diseconomies of scale and zero customer focus.
Solution: multiple divisions (each division with its own marketing, sales, purchasing, etc.).
Counterintuitive because the firm gains efficiency by adding redundant departments and increasing "bureaucracy."
And you need a ton of general managers (utility players, not specialists)...