A theory of the cultural evolution of the firm: the intra-organizational ecology of memes

Origins

The study of origins is necessarily historical. In his justly famous historical surveys of American business, Chandler (1962; 1977) suggests that the firm emerged at a specific point in history and for reasons that appear sharper and more poignant without modern-day taken-for-grantedness. Chandler's analysis lacks a global scope as he is focused entirely on the American case. This is a serious limitation. However, given the evidence that similar trends as were found in America, though at different times, were present in several western European countries, and given the richness of Chandler's data, his work provides a useful starting point for the study of the origin of the firm structure.

According to Chandler (1977: 17), the basic business unit prior to the 1840s was the small, family-run enterprise. These enterprises were highly specialized. The rapid growth in the economy from 1790 to 1840 led to increases in the number of enterprises, but not to an increase in their size or administrative sophistication. They 'relied entirely on commercial practices and procedures invented and perfected centuries earlier by British, Dutch, and Italian merchants' (Chandler 1977: 16). There were no managerial hierarchies and no integration of business functions or areas into one firm, that is, neither the characteristics of control or identity characterizing firm organization (Chandler 1977: 36-37). Chandler argues that this was largely because the production and movement of goods still relied upon traditional sources of energy (wind and animal power), which greatly limited the velocity of throughput of any single business. Therefore, 'the volume of business an individual enterprise was called to handle was not extensive enough to bring either subdivision within the firm or the internalization of several small units within a larger enterprise' (Chandler 1977: 49).

The move from these traditional enterprises that used the market to coordinate owner-directed production processes to firms that employed professional managers and administrative coordination occurred with the advent of steam and coal power, rail travel, and the telegraph. Why? The answer has to do with complexity. These new technologies, especially the railroads, opened new markets, but more significantly, they created the possibility for new production technologies with an enormous potential for increased throughput. As Chandler (1977: 236) puts it, the important 'economies of scale and distribution were not those of size but of speed'. To utilize these technologies to their furl required the absorption and maintenance of a large amount of new knowledge. Knowledge about new energy sources and production technologies was essential to capture the gains in throughput, while at the same time, rapid growth in knowledge was also required about how to distribute effectively these larger volumes of products and how to procure correspondingly large quantifies of supplies (Chandler 1977: 281). For the first time, there became too much for any one owner or director to know to run his business effectively. It became impossible for any single person to retain, with sufficient fidelity, the memes for all this new information and these new practices and to ensure effective coordination in their eventual expression in organizational behavior.