Introduction to Business History

Module 1 Summary
Prof. Dr. Shubhabrata Basu
Integrated Programme in Management
IIM Indore
π (notional) = SP/Rev (notional) – CP (real)
 π (notional) = SP/Rev (notional) – CP (real)

Business = Σf(FOP) Mercantile Phoenicians → Value Add

→ Output → $ Community Directly/Indirectly @ FOP
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge π = Industrialists
Workers π π
Land Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Rules, Laws, PEST, Infra., Real Estate
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Rules, Laws, PEST, Infra., Real Estate
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Richness of Crops, Trade in Ports, Ban on Bullion Payments,
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff
Exploit domestic resources Barriers
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Richness of Crops, Trade in Ports, Ban on Bullion Payments,
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff
Exploit domestic resources Barriers
Rich & Poor Divide↑, King Wasted Money on fruitless Wars
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff Reduce Superfluous Consumption, Let People Prosper as they are
Exploit domestic resources Barriers
Rich & Poor Divide↑, King Wasted Money on fruitless Wars
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff Reduce Superfluous Consumption, Let People Prosper as they are
Exploit domestic resources Barriers
Adam Smith: Theory of Moral Sentiments – How Emotions are
Rich & Poor Divide↑, King Wasted Money on fruitless Wars Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
Reduce Superfluous Consumption, Let People Prosper as they are

Cognitive
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff

Process
Exploit domestic resources Barriers
Adam Smith: Theory of Moral Sentiments – How Emotions are
Rich & Poor Divide↑, King Wasted Money on fruitless Wars Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide

Axiomatic Truths: Man can think independently, Left to himself he

can do more benefit to himself & society, Nature is Harmonious.
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
Reduce Superfluous Consumption, Let People Prosper as they are

Cognitive
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff

Process
Exploit domestic resources Barriers
Adam Smith: Theory of Moral Sentiments – How Emotions are
Rich & Poor Divide↑, King Wasted Money on fruitless Wars Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide
If Nature Balances → Man be substituted,
Labour Markets should clear, Man vs. M/C Let man be free Axiomatic Truths: Man can think independently, Left to himself he
Laissez Faire can do more benefit to himself & society, Nature is Harmonious.
No Restriction on Movement, Migration to
Colonies as Indentured Labour, a new
breed of rag2riches Industrialists born,
Some Munificent Conditions helped
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
Reduce Superfluous Consumption, Let People Prosper as they are

Cognitive
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff

Exploit domestic resources Barriers
Rich & Poor Divide↑, King Wasted Money on fruitless Wars
If Nature Balances → Man be substituted,
Labour Markets should clear, Man vs. M/C
No Restriction on Movement, Migration to
Colonies as Indentured Labour, a new
breed of rag2riches Industrialists born,
Some Munificent Conditions helped
Process
Adam Smith: Theory of Moral Sentiments – How Emotions are
Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide
Let man be free Axiomatic Truths: Man can think independently, Left to himself he
Laissez Faire can do more benefit to himself & society, Nature is Harmonious.
5 TTs and 4 Waves: Colony expansion → trade expansion → demand increase → supply
side constraints → from labour to automation → cotton → railroad → iron/steel &
petroleum, automobile, chemical & pharma, electrical & electronics → network centric world
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
Reduce Superfluous Consumption, Let People Prosper as they are

Cognitive
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff

Exploit domestic resources Barriers
Rich & Poor Divide↑, King Wasted Money on fruitless Wars
If Nature Balances → Man be substituted,
Labour Markets should clear, Man vs. M/C
No Restriction on Movement, Migration to
Colonies as Indentured Labour, a new
breed of rag2riches Industrialists born,
Some Munificent Conditions helped
Process
Adam Smith: Theory of Moral Sentiments – How Emotions are
Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide
Let man be free Axiomatic Truths: Man can think independently, Left to himself he
Laissez Faire can do more benefit to himself & society, Nature is Harmonious.
5 TTs and 4 Waves: Colony expansion → trade expansion → demand increase → supply
side constraints → from labour to automation → cotton → railroad → iron/steel &
petroleum, automobile, chemical & pharma, electrical & electronics → network centric world

Characteristics: Time saving, labour extending/stretching/multi-skilling, resource extending, capital increasing, energy conserving
Reasons for fast adoption: Technology diffusion, all users, no novelty, no source of competitive advantages, Darwinian Evolution
Success Factors: Existing base of supporting industry, large scale mechanization, easy scientific laws.
Problem: Slowing rate of Innovation, no radically new scientific discoveries, boundaries w.r.t. FOP getting blurred.
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
Reduce Superfluous Consumption, Let People Prosper as they are

Cognitive
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff

Exploit domestic resources Barriers
Rich & Poor Divide↑, King Wasted Money on fruitless Wars
If Nature Balances → Man be substituted,
Labour Markets should clear, Man vs. M/C
No Restriction on Movement, Migration to
Colonies as Indentured Labour, a new
breed of rag2riches Industrialists born,
Some Munificent Conditions helped
Process
Adam Smith: Theory of Moral Sentiments – How Emotions are
Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide
Let man be free Axiomatic Truths: Man can think independently, Left to himself he
Laissez Faire can do more benefit to himself & society, Nature is Harmonious.
5 TTs and 4 Waves: Colony expansion → trade expansion → demand increase → supply
side constraints → from labour to automation → cotton → railroad → iron/steel &
petroleum, automobile, chemical & pharma, electrical & electronics → network centric world

Characteristics: Time saving, labour extending/stretching/multi-skilling, resource extending, capital increasing, energy conserving
Reasons for fast adoption: Technology diffusion, all users, no novelty, no source of competitive advantages, Darwinian Evolution
Success Factors: Existing base of supporting industry, large scale mechanization, easy scientific laws.
Problem: Slowing rate of Innovation, no radically new scientific discoveries, boundaries w.r.t. FOP getting blurred.

Railroad: Tool for connectivity,

Expansion, Infrastructural Demand,
Land Acquisition, Spinoff Business,
Employment, Experiment with
Mgmt. Styles, Dev. of Capital
Markets & statistical tools, Time &
motion study, Standardization,
Politics-Business Nexus, Ethical
Dilemmas
 Steel Industry – Salient Features…
• Technology led innovations
• Cottage Industry – Earthen Crucible based smelting
of Iron Ore
• Large Industrial Process – Bessemer Process
• Open Hearth Furnace - controlled process
• Blast Furnace + Basic Oxygen Furnace (BF-BOF)
• Corex Process
• Direct Reduction – Induction Process
 Growth of Steel Industry…
• Eisen und Blut – Growth of Steel Industry associated
with WAR Economy
• During war – arms and armaments consume steel
• After war – infrastructure REBUILDING consumes steel
• Steel in Energy Guzzling Industry
• Cost of Energy → Steel Consumption
• Economies of Scale from (Hot Metal/Charge)
• Optimal Volume of Furnace → Higher Economy
 Steel Industry & TU Movements
• Because of Optimal Hot Metal per Charge – Steel
Smelting had always been highly labour intensive
• “COLDING” cannot be justified by shift change
• Long back breaking hours – standing in 52*C
ambient temperature – without protective gears
• Average life Expectancy = Roman Legionnaire
• Pay was not best in class
• Injury based unemployment – quite common
 Steel Industry & TU Movements
• First Industry to face organized resistance from Workers
• Workers soon organized themselves into TU
• Started demanding “fair wages and work hours”
• May Day happened – rest is history…
• Large Industries became Pioneers in Corporate Philanthropy
• In India – Gratuity as a concept was pioneered by the Tatas
and adopted by GoI via Payment of Gratuity Act – 1972.
“Making, Shaping and Treating” of Steel
 • Pittsburgh – where it all began – has become a
What center for Pharmaceutical Industry, Research in
Nuclear Power and Service Industry

happened to •
•
There are more white collared Jobs than blue
The “air” of Pittsburgh is purer than any average
US city of similar size…
Carnegie Steel
 Oil Industry – Advantage Petroleum
• Petroleum – Rock Oil/Asphalt/Bitumen was used as a sealant in baths and boats, mortar
additive, ingredient of “Greek Fire”, ingredient in Greek and Indian medicines (as laxative)
etc.
• Its use as fuel was a modern invention
• Petroleum has higher calorific value vis-à-vis coal/charcoal
• Substitution effect in Transportation Industry
• More cargo space for the same dead weight of ship/train
• Higher endurance and Greater Range
• Relatively Cleaner Fuel (less smoke)
• Less Labour Intensive
• More Byproducts => more money per ton of rock oil
• LONGER upstream and downstream => More value additions in intermediate steps
OIL & GAS Value Chain
 Importance of Standard Oil
• Rockefeller was an incremental innovator
• Novel profit = where p=first intervention batch, n=last designed batch (for a given year) and incr =
incremental improvement => incremental cost savings over large numbers
• incr => each part MUST be identical => STANDARDIZATION
• Larger the numbers => more the profit
• Larger numbers via horizontal integration => M&A
• Industry Consolidation => monopoly status
• Benign monopoly (lower price of goods) vs State Monopoly (PSU – higher costs due to capital &
labor inefficiencies)
• Ended up controlling 90% of US petroleum market and 80% of global trade in oil
• “The growth of a large business is merely a survival of the fittest”
• First man to really wield MONEY power – bargain with FED for rates
• Political Backlash – anti monopoly case – Standard Oil broken up
• Founded Chicago University, Rockefeller University and Central Philippine Univ
 Why Philanthropists…
• Both Andrew Carnegie and Rockefeller donated HEAVILY in education

• Chicago Univ, Carnegie Mellon Univ are frontline universities of world

• Both were R2R stories – semi-self educated entrepreneurs who were penalized for
NOT knowing the “other aspects of business – problem of Social Costs – e.g.
Transaction Costs”
• Focused only in managing Production Costs => social fallouts

• Devoted and donated their money in ENABLING OTHERS to learn from their
limitations
• That’s Philanthropy…

• Contrast this with a modern day investor – who siphoned out his fortune from
software industry to invest in medical research…
Auto Industry
 The Automobile Industry…
• Fallacy of Transportation - From Cargo and Business Transportation Perspective, it is
“Time and Cost” ECONOMIC to travel
• Shorter Distance by Road
• Medium Distance by Rail
• Longer Distance by Ships
• Short – Medium – Long is Regional Context Specific – e.g. 500 miles (800KM) in US is
motorable – but in the domain of trains in UK
• Given the Demand for Long Economic Drives, US cars must have 3 properties
• Sturdier – More/heavier structural elements
• Bigger – heavier structural elements => bigger Engine => Bigger Fuel capacity
• More Reliable – wont break down in the middle of NOWHERE => Standardization
Impact of Geographical Spread on Oil
Industry

More GAS Higher Demand on

(petrol/diesel) Gas => Early Dev. of
Consuming Vehicles Oil & Gas Industry

Ensure Dollar is the Need to FIX Oil prices

Currency for Trading Via Market => (Oil
OIL Bonds (Res-Cur) Politics)

Political Assurance of CHEAP Gas => Defined the

American Automobile Industry
 How does Ford & GM fit into this
Philosophy??
• Because of ABUNDANT supply of CHEAP Gas – due to (i)
Rockefeller and then by the (ii) Net Security Compact in the Gulf
• American Auto Majors could AFFORD to
• Build Bigger Cars (social status symbol) => (tangible) Aggregate
National Status = > We are the BIG Brother in the Block
• Build More Number of (STURDIER, BIGGER, more RELIABLE) Cars
for everyone to own
• Cheaper Car => Ford Model (Scale Economy)
• More Variety of Cars per Person => GM Model (Scope Economy)
 Japanese Challenge from Toyota, Honda
American Japanese

Sturdier Sturdier
WWII Losers
Bigger Smaller
WWII Victors

Statistics More Emotion Most

Based Reliable Based Reliable
Making $$ Smelling
Higher Fuel Savings
American Happier
Good is not always Good and Bad is Not always Bad – but they are a matter of Perspective
Ford’s Rouge River Plant
Rouge Plant
Ford’s Assembly Line
 Limitations of Ford’s Model
• Highly Optimized Time and Motion based Production Process
• Small Changes (Changing Colors) cannot be accommodated
• High specialization (limited breadth of specialization) – a pre-requisite for production
efficiency => (i) Job Monotony & (ii) Burnouts => Attrition
• Scale Economies => Cost Reduction => Attractive Pricing
• Focus on Cost Reduction => Vertical Integration (Reduce Transaction Cost) – Final Price of
Car determined at Showroom – internally its Transfer Pricing at Cost
• Contributions from Upstream Units – not fully understood/accounted for.
• Owned Forests (for Timber), Iron Ore & Coal Mines, Shipping Fleets besides the Core
Plant and also Financing Arms (Ford Credit)
• These were Non-core activities prone to dis-economies from wage revision
• Overemphasis on Production & Underemphasis on Product Portfolio => Unsold Inventory &
Stock Piling => Disaster, Losses from Depreciation
Indian Example – The Business Group Model
TISCO/Tata Steel

Excess Capacity - Excess Ancillary

• JRD Tata – the Aviator – losses Capacities
Entrepreneur par excellence
• Visionary Industrialist TELCO/Tata Motors ACC Company

• The Delegator of Authority and

Excess Ancillary Capacities
Responsibilities to Expert
Managers
TOMCO Financing Needs Tata Capital
• Inculcator of Leader Managers
like Russi Modi
• Limited success with Firm Accounting Needs Inspection Needs

Valuation & Stock Prices

TCS – accounting India Hotels –
division of Tata Sons TAJ, Vivanta,
Ginger
GM’s Model – Economies of Scope
• Make things that you are good/cost efficient
• Rest Outsource (antithesis of Scope Economies)
Chevy Opel Components GMC Components shared Common Unique to
Components shared across all across all higher up between Cadillac
shared across all higher up brands - brands - economies of Buick &
the brands - economies of scale is scale is achieved Cadillac
economies of scale achieved
is achieved Unique to
Buick

Unique to
GMC

Unique to Opel
 Advantages of Multi-brand Strategy
• The GM Multi-Brand Strategy
• Managed Cadillac ↔ Buick ↔ GMC ↔ Opel ↔ Chevrolet
• Each BRAND – in reality ACQUIRED companies – is only SLIGHTLY
different in Premiumness than its contiguous brand
• Thus, Opel and Chevrolet are slightly different in perceived
differentiation, but Cadillac and Chevrolet is significantly different
• Consumers would consider Chevy to be Cost Leader while Cadillac
as clear Differentiator

Buyers can buy different brands under the same holding/group

company’s umbrella
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
Reduce Superfluous Consumption, Let People Prosper as they are

Cognitive
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff

Exploit domestic resources Barriers
Rich & Poor Divide↑, King Wasted Money on fruitless Wars
If Nature Balances → Man be substituted,
Labour Markets should clear, Man vs. M/C
No Restriction on Movement, Migration to
Colonies as Indentured Labour, a new
breed of rag2riches Industrialists born,
Some Munificent Conditions helped
Process
Adam Smith: Theory of Moral Sentiments – How Emotions are
Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide
Let man be free Axiomatic Truths: Man can think independently, Left to himself he
Laissez Faire can do more benefit to himself & society, Nature is Harmonious.
5 TTs and 4 Waves: Colony expansion → trade expansion → demand increase → supply
side constraints → from labour to automation → cotton → railroad → iron/steel &
petroleum, automobile, chemical & pharma, electrical & electronics → network centric world

Characteristics: Time saving, labour extending/stretching/multi-skilling, resource extending, capital increasing, energy conserving
Reasons for fast adoption: Technology diffusion, all users, no novelty, no source of competitive advantages, Darwinian Evolution
Success Factors: Existing base of supporting industry, large scale mechanization, easy scientific laws.
Problem: Slowing rate of Innovation, no radically new scientific discoveries, boundaries w.r.t. FOP getting blurred.

Railroad: Tool for connectivity,
Expansion, Infrastructural Demand,
Land Acquisition, Spinoff Business,
Employment, Experiment with
Mgmt. Styles, Dev. of Capital
Markets & statistical tools, Time &
motion study, Standardization,
Politics-Business Nexus, Ethical
Dilemmas
Steel Industry: Technology
led innovations, Growth from
War Economy, Scale
Economies, Work hours, TU
unrest, selling business for
profits, Philanthropic Spinoff
of business research centres
to Universities
Oil Industry: Efficiency led industry
consolidation, Standardization,
Innovative Products, Industrial
Goons, Business – alternative
power centre, political backlash,
monopoly Anti-trust, Business
break up, TU violence,
Philanthropy, Creation of
Universities
Auto Industry: Work Flow,
Granularization, Time & motion,
synchronization, standardization,
scale & scope economies, low
cost mass market, rigidity, lack of
flexibility & innovation, efficient
labour market, Implicit Duopoly,
Assembly line vs. multi-brand
approach.
 π (notional) = SP/Rev (notional) – CP (real) King, State, Guilds, Individual Traders/ Industrialists

Business = Σf(FOP) Mercantile Phoenicians → Value Add Manufacturing

Entrepreneur Consultancy
→ Output → $ Community Directly/Indirectly @ FOP π π
Slave,
π = Landlords
Indentured, Labour Kapital M/C, Eqpt. $, Knowledge
Knowledge & Skill Transfer, Own Enterprise, World wide Knowledge π = Industrialists
Expansion vs. Exploitation, Degradation, Low Life Expectancy Workers π Land π Knowledge Economy, City
States e.g. Singapore
Agro-Economies
Value Created @ POS :Age of Mercantilism – Balance of Trade
Rules, Laws, PEST, Infra., Real Estate

Colonies – Indentured Labour, Ban on trade by Colonies, Staple

Physiocratic Reaction – Agriculture as source of Value Creation,
Richness of Crops, Trade in Ports, Ban on Bullion Payments,
Reduce Superfluous Consumption, Let People Prosper as they are

Cognitive
own ships (navy), Wage cuts, Export Subsidies, Non-Tariff

Exploit domestic resources Barriers
Rich & Poor Divide↑, King Wasted Money on fruitless Wars
If Nature Balances → Man be substituted,
Labour Markets should clear, Man vs. M/C
No Restriction on Movement, Migration to
Colonies as Indentured Labour, a new
breed of rag2riches Industrialists born,
Some Munificent Conditions helped
Process
Adam Smith: Theory of Moral Sentiments – How Emotions are
Generated – See → Evaluate → Benchmark against beliefs and
Biases → cost-benefit tradeoffs → Societal Reaction → Decide
Let man be free Axiomatic Truths: Man can think independently, Left to himself he
Laissez Faire can do more benefit to himself & society, Nature is Harmonious.
5 TTs and 4 Waves: Colony expansion → trade expansion → demand increase → supply
side constraints → from labour to automation → cotton → railroad → iron/steel &
petroleum, automobile, chemical & pharma, electrical & electronics → network centric world

Characteristics: Time saving, labour extending/stretching/multi-skilling, resource extending, capital increasing, energy conserving
Reasons for fast adoption: Technology diffusion, all users, no novelty, no source of competitive advantages, Darwinian Evolution
Success Factors: Existing base of supporting industry, large scale mechanization, easy scientific laws.
Problem: Slowing rate of Innovation, no radically new scientific discoveries, boundaries w.r.t. FOP getting blurred.

Railroad: Tool for connectivity,
Expansion, Infrastructural Demand,
Land Acquisition, Spinoff Business,
Employment, Experiment with
Mgmt. Styles, Dev. of Capital
Markets & statistical tools, Time &
motion study, Standardization,
Politics-Business Nexus, Ethical
Dilemmas
Steel Industry: Technology
led innovations, Growth from
War Economy, Scale
Economies, Work hours, TU
unrest, selling business for
profits, Philanthropic Spinoff
of business research centres
to Universities
Oil Industry: Efficiency led industry
consolidation, Standardization,
Innovative Products, Industrial
Goons, Business – alternative
power centre, political backlash,
monopoly Anti-trust, Business
break up, TU violence,
Philanthropy, Creation of
Universities
Auto Industry: Work Flow,
Granularization, Time & motion,
synchronization, standardization,
scale & scope economies, low
cost mass market, rigidity, lack of
flexibility & innovation, efficient
labour market, Implicit Duopoly,
Assembly line vs. multi-brand
approach.
Food Industry: Free knowledge
from assembly line, efficiency,
rigidity & flexibility, consistency,
modular innovation, brand loyalty
and resilience, tradeoffs (burger
vs. pizza, limited product line),
Franchise model of growth – high
authority, high profit, low
ownership, SKD delivery model
 Financial Meltdown in Capitalism
• Assumption: Entrepreneur/Agent (manager) can
– Assess Risk Correctly
– Convert Risk to Reward
– Investor Benefits from Profits
• 150 years Capital Market Success
– Norm: Risk → Reward → π
– Bred Complacency
Universe is a Huge Self
• Remember Correcting Entity!
• Recovery is round the corner 
Any Questions/Doubts!
 Questions from My Side – Sec-A
• How would you link (relate) (i.e. Identify the common threads in) the
evolution of American Business/Corporation from the Economic Principles
of Adam Smith to the rise of the Monopoly Businesses of Rockefeller,
Carnegie, Vanderbilt etc.
• How will you convert the rigidity of a scale problems to a scope advantage
(meaning the Model T limitations to Sloan’s Multi-brand GM Story)?
• From amongst Ford, Carnegie Steel (US Steel), Standard Oil, New York &
Harlem Railroads – who can be a precursor (w.r.t. Business Philosophy) to
Lehman Brothers and Why?

Total Time – 30 Mins.

Copying will Fetch – F Grade for the COURSE!!!
 Questions from My Side – Sec-B
• How would you link (relate) (i.e. Identify the common threads in) the
evolution of American Business/Corporation from the Indentured System to
the rise of Business Man cum Philanthropists like Rockefeller (Foundation),
Carnegie (University), Vanderbilt (University) etc.
• Compare and Contrast GM to Dominos Pizza and that of Ford (Model T) to Big
Mac
• Why do you think US investors and bankers continued to depend on Mortgage
Lending – despite the lendings being sub-prime? What are the outcomes of
Whistle Blowing w.r.t. Lehman Brothers, Standard Oil and Carnegie Steel?

Total Time – 30 Mins.

Copying will Fetch – F Grade for the COURSE!!!