Name: The Concept of the Corporation
ISBN: 9780451608253

What Hacker News says

parasubvertNov 2013

"What the hell, Forbes? Good god, if GM hadn't existed, nothing would have changed. Ford or Chrysler or AMC or whoever would have filled their shoes. Big deal."

That's a very ignorant statement.

General Motors and Alfred Sloan had a massive impact on the way that organizations were designed and managed for over 50 years - they were the first to ever systematically design and execute a managed, decentralized organization of that magnitude.

Peter Drucker's 1946 classic "Concept of the Corporation" was the first major study of a large corporation (GM) and a deep analysis of the implications that the new "society of organizations" would have on our culture, politics, and lives. Sloan's "My Years at General Motors" in 1964 was a management treatise that was blueprint through at least the early 80s.

Others would have filled their shoes, but history would be tremendously different.

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AnimatsMay 2026

The decline of programming books removed a constraint on programming language complexity. At one point, the basic set of books for Java was six volumes. That's when language books broke down from sheer complexity. The combination of Google search and Stack Overflow allowed programming to become more complex than anyone could keep in their head. C++ bloated to the point that people who used to be C++ language lawyers couldn't keep up.

This follows a general trend. Areas which used to be bounded by the limits of the human mind stopped being bounded that way some time back. This first appeared in corporate structure. Through the 1970s or so, there was an upper limit on corporate complexity. Beyond some point, connectivity problems started to choke the organization. There were classic ways around this, mainly dividing companies into sub-companies with their own profit lines. "The Concept of the Corporation" by Peter Drucker describes how General Motors did that. GM was at the time a group of loosely connected car companies under one corporate roof.

A few companies figured out scaling early. Sears was famous for having developed the "Schedule System", which reduced fulfillment overhead from O(N * M) to O(N log M). This allowed Sears to run a giant ordering plant out of Chicago to serve the whole country. But many companies didn't scale well, and choked as they grew. Westinghouse is a classic example.

As computers came in, the scaling problems receded. Airlines got their reservation systems under control, and seat utilization went up. Logistics went from warehouses to fulfillment centers, with much shorter holding times in inventory. Chains no longer were limited in size - WalMart, McDonalds, and the big banks could expand to planetary scale. The giant corporate paper-pushing plants disappeared.

So did forced organizational simplicity. Companies had, at some level, to be simple. Otherwise they became unmanageable. As computerization proceeded, that constraint was relaxed.

Finance achieved previously unimaginable levels of complexity. Until the 1980s, most financial products were rather simple. Now, there's no limit, and the tail wags the dog. Futures markets are far bigger than the volume in the underlying commodity, and zero-sum activity dominates.

AI will accelerate this. There will be businesses no human can comprehend or manage. This may not be productive but will be profitable for someone.

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lkrubnerDec 2023

Also, this is astonishingly ahistorical:

"Bureaucrats are also almost universally reviled for their lack of accountability and the lack of pride in their work. While there certainly have been great men; leaders who were great bureaucrats (Napoleon), they’re mostly seen as mostly a caste of sniveling eunuchs who flee from taking responsibility or attempting to make things better or taking any risks, even when that is in their job description."

This is very, very inaccurate. Criticism of bureaucrats starts with the 1960s. While you can find an occasional novel or story that critiqued some aspects of bureaucracy (arguably some of Kafka's work, also maybe Bartleby, the Scrivener, though that is mostly seen as a critique of alienation, rather than bureaucracy per se) the rise of the "bureaucracy sucks" as a genre can be dated to the 1960s.

Others often make this point, but you can really judge the cultural transition by the careers of leading business commentators, such as Peter Drucker. In 1946 he published his study of General Motors, the book Concept of the Corporation. In it, he examined the large bureaucracy at General Motors and celebrated it as the pinnacle of human civilization, the absolute peak of what the last 6,000 years of civilization had all been building up to.

Drucker was not alone. In 1958 John Kenneth Galbraith published "The Affluent Society." A part of the book emphasizes the idea that "If we want to accomplish big things then we need big organizations." Once again, the book implies that large bureaucracies represent our success as a civilization, and those bureaucracies are what enabled that success.

Starting in the 1960s, there is a tremendous cultural backlash against bureaucracy. We are still living with that backlash today. It is noteworthy that the cultural backlash has not had a real world result nearly as significant as the cultural result: that is, bureaucracies have continued to grow, even as they have faced relentless criticism for 60 years now.

In my own consulting work, I've seen multiple promising startups fail because the founders were afraid of "becoming bureaucratic." I've seen other companies survive but never live up to their full potential because the CEO never set out to build a beautiful bureaucracy. My own sense is that the backlash against bureaucracy must come to an end at some point soon, because too much potential is being wasted by the lack of bureaucracy. At some point, business leaders must again commit themselves to building big, ambitious, beautiful bureaucracies, so they can capture the full potential of the organizations they are running.

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AnimatsFeb 2017

This is an argument for automating top management. There are companies that choke on limited CEO bandwidth, and Google seems to be one of them. Apple under Jobs kept the product line so small that one person could manage it, which is one way to do it. Google, though, keeps trying to broaden their revenue stream beyond ads, without much success.

This is a classic management problem. The first person to really get a handle on it was Alfred P. Sloane, who headed GM and wrote "The Concept of the Corporation". He figured out how to organize a very large company effectively, and GM's management structure worked well for half a century. They beat out everybody else until Japanese competition appeared. (GM probably stayed with Sloan's structure too long, but nobody else really knew what to do.)

There's the argument that, rather than one company having a broad range of products, there should be many companies, each with a narrow product range. It's cheaper to run a fund than manage a conglomerate. The conglomerate concept was that "synergy" between the business units would reduce cost. In practice, this rarely works.

There are some successful companies with very broad product lines. Mitsubishi and Samsung are two of the biggest. General Electric was the classic US example, but they've backed off from most of their consumer products other than major appliances.

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parasubvertJun 2016

Decentralization doesn't mean complete lack of central control, or anarchy, it means that balance of power is in the periphery with the broader organization largely controlled by protocol and policy. Issuing an edict in a crisis doesn't necessarily imply centralization if the member nodes can ignore the edict.

In the history of organization structures, for example, Peter Drucker in 1946 wrote the "Concept of the Corporation", a study on General Motors, which was arguably one of the early detailed studies of Decentralized governance in an organization.

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AnimatsAug 2015

What's especially interesting is the mention of "joint-stock companies". There's a little more detail on that here: [1] It's not clear whether these were ongoing entities or shares in a venture.

"Venture" in this sense comes from shipping, where a number of people would put in money to buy shares in a single ship voyage. When (and if) the ship came back, the profits were divided in proportion to the investment. (This is the source of the phrase "waiting for (their) ship to come in".)

But it's not a corporation. It's not a permanent organization. This is significant. The Roman Empire, even though it had a legal system and a stable government for several centuries, never developed the concept of the corporation, or of a common carrier. They had rich individuals as sole owners, and family businesses, but not larger multi-owner organizations. Something like a multi-city merchant company was out of reach. Even a commercial delivery service comparable to Wells Fargo (the stagecoach operation) was never developed.

Did Kanesh get past that hump and figure out how to set up a big business?

[1] https://books.google.com/books?id=vYMmrenUywQC&pg=PA131&lpg=...

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