Around the mid-19th century, sole proprietorships were the predominant form of firm ownership in the United States. Corporate organizational forms existed but their use was limited to public works ventures (Hurst 1970). Most businesses were owned and managed by the same person who supplied much if not all of the investment capital (Berle and Means 1932).
The owner possessed a completely undiversified portfolio; return on capital was dependent on the success of their entrepreneurial venture.
The dominant form of employee organization was the inside contract (see Stone 1974; Littler 1982). Entrepreneurs would contract with individual craft workers to perform different operations associated with the production process. The craft worker would then hire assistants to actually perform the operations outlined in the contract. In sharp contrast to the entrepreneur, who was invested heavily in a single firm where ownership and management were lodged in the same individual, craft workers possessed vital human capital skills that were portable. While craft workers were never the dom- inant occupational group in terms of employment (Form 1987), their skills were critical to the production process (seeMarglin 1974;Stone 1974). Craft workers bore few transaction costs in transferring their skills to different employers (see Montgomery 1979). Entrepreneurs were invested heavily in specific firms. Craft workers were not.
Towards the end of the century, the capital demands of rapid industri- alization required larger investments than the individual entrepreneurs could manage. As a result, the corporate form was beginning to emerge as the preferred arrangement in for-profit enterprises (Berle and Means 1932).
Management Paradigm Change in the United States 127
Scientific Management Human Relations Management
Human Resource Management Neoentrepreneurialism
External shocks which lead to paradigm
Growing capital requirements with rising
industrialization
Great Depression Change in capital markets to promote stability and efficiency
Rising global competition Labor legislation Declining unionization Skilled labor diversification Immigration and
urbanization
Portfolio investment theory Steep declines in unionization among employees
Rise of top managers from finance backgrounds
Further investment diversification Management compensation ties
to short-term stock fluctuation Change in
managerial autonomy
Dependence on skilled workers and/or subcontractors
Legislation-sponsored increases in union bargaining power
Human relations approach is not isomorphic with portfolio investment theory
Rapid capital movement
Constraints on employment-at-will
Placated employee no longer necessary
Reduced environmental beneficence
Growth in collective bargaining
Competition for skilled workers
Management action
Time and motion studies
Greater focus on human behavior and interaction within the firm
Treating employees as human capital (similar to physical capital)
Hiring temporary workers
Job redesign Employee-centered supervision
Conglomerate is managed as a portfolio of investments
Contingent workforce Replacement of
skilled workers and/
or subcontractors with unskilled workers
Concern for employee needs
Performance goals are thrust on enterprise managers
Subcontracting Internal labor markets Parts of conglomerates are
acquired and discarded
Network organizations Outsourcing
BRUCEC.SKAGGSANDKEVINT.LEICHT
Bureaucratic employment practices Change in stake-
holders’ level of dependence
Loss of knowledge monopoly by skilled workers
An initial decrease in employee firm- specific uncertainty, though this becomes reversed with the onset of ILMs
Firm-specific risk rises for SBU employees
Greater firm-specific dependency for unskilled employees
Expanded pool of potential employees
Increase in investor risk due to uncertainties surrounding production Greater labor market
discipline Change in stake-
holder action
Rising support for unionization
Employees begin unionising at first, though union support declines as ILMs become more prevalent
Employees with marketable skills begin ‘‘opting-out’’ of traditional employment contracts
Skilled workers continue to reduce firm-specific dependencies by diversifying contractual ties
Investor incorporation
Investor diversification Lower employee
investment in human capital
ManagementParadigmChangeintheUnitedStates129
The corporate form of capital structure divided property rights, separating the suppliers of capital from those who acted on their behalf. This split produced the professional domain that came to be occupied by managers (Abbott 1988; Berle and Means 1932). The other effect of this particular shift in capital structure was a decrease in investors’ dependence on the performance of a single firm. The owners of the firm were able to reduce some of their dependence on the firm while continuing to maintain some control over the firm’s decisions (Fligstein 1990).
However, financial markets were in a rather embryonic stage of devel- opment. The free flow of financial capital that we take for granted was relatively nonexistent. The number of stocks available on stock exchanges were few (Berle and Means 1932;Hurst 1970). These environmental factors made the purchase of stock in a company rather risky. Though the cor- porate form did serve to reduce some investor uncertainty, individual in- vestors were still exposed to high levels of firm-specific dependence as they were affected by the market fortunes of particular firms.
On the shop floor, entrepreneurs possessed little or no knowledge of how jobs were performed. The skills required to perform necessary tasks were largely controlled by craft guilds or learned through apprenticeship from other craft workers (Wren 1994). Due to the almost proprietary nature of craft knowledge, employees possessed a great deal of freedom and mobility (Stone 1974;Littler 1982). Craft workers were independent entrepreneurial
Environmental Shock
Fundamental Change in Managerial
Autonomy
Change in Management
Paradigm
Change in Management
Action
Change in Stakeholder Firm- Level Dependency
Change in Stakeholder Action Fig. 1. A Model of Paradigmatic Change.
contractors. Owners’ reliance on skilled workers served to increase their firm-specific dependence.