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This is an excerpt from our most recent Economic Outlook report. To access the full PDF, please click here.
I want to start this narrative — applying classic Business History — with one single chart.
The left side shows the Top 10 Nasdaq (NDX) stocks on March 10th, 2000
The right side shows the Top 10 Nasdaq (NDX) stocks on February 27th, 2024
Top 10 NDX Stocks in 2020, versus Top 10 NDX Stocks in 2024 12.6X the Revenues, 11.3X the Net Income
Image Source: Zacks Investment Research
You might think the year 2000 built a massive Internet technology-driven stock market bubble, built by the leading innovative U.S. companies. But with scant revenues and few profits.
You would be right.
However, 24 years later, using that same inference, along with updating those simple share fundamental facts? This thinking DOES NOT APPLY!
To the contrary.
The 2024 Nasdaq Top 10 list shows massive revenues and huge profits coming from the 10 largest Nasdaq companies today.
HOW CAN WE EXPLAIN WHAT HAPPENED?
Alfred D. Chandler Jr. (1918-2007) was a much-esteemed Professor of Business History at Harvard Business School, and at John Hopkins University
He was the great grandson of Henry Varnum Poor, whose firm evolved into Standard & Poor’s.
Here is a brief four-part exposition, of what is known as “Chandler’s Theory”—
Establishment of functional structures to increase efficiency
Adoption of growth and diversification strategy
Diversification into new markets and products to overcome limits of the home market
Creation of the then-revolutionary divisional form to manage large conglomerates
Does the latest revenue and net income data, from the Top 10 Nasdaq firms, show Alfred D. Chandler Jr.-style effects?
I think it does.
Many like to think. This 2000 to 2024 ‘Info Tech New World’ does not follow pre-set and long-standing business principles.
That — most likely — is NOT a valid proposition!
a. One classic first example: Moore's Law is the observation that the number of transistors on an integrated circuit will double every two years with minimal rise in cost.
Intel (INTC - Free Report) (which is in the 2000 table of Top 10 NDX companies, but is not one of the Top 10 2024 NDX companies) co-founder Gordon Moore predicted a doubling of transistors every year for the next 10 years in his original paper published in 1965.
This is nothing but Alfred D. Chandler Jr. scale effects, first acknowledged in chip making in 1965.
But these just show, once again, the nano application of scale effects.
In 2024.
In a different chip firm, just located down the street, from Intel’s complacent managers.
b. Meta Platforms (META - Free Report) shows the evidence of both scale and scope.
The wiki on Meta Mergers & Acquisitions shows 100 acquisitions that had been done, from 2005 to 2022.
That META activity timeline shows both conglomerate scale and scope. Personified!
c. Amazon (AMZN) shows the establishment of functional (partly-automated) structures to increase efficiency.
Consider this—
Excerpt from Amazon: This Company Built One of the World’s Most Efficient Warehouses by Embracing Chaos
“When Dave Alperson got his first job at an Amazon warehouse in 1997, as a temporary hourly employee, it involved walking around the warehouse with a list of where to find products—mostly books—that customers had ordered.”
“Twenty years later, as a regional director of operations for Amazon in Indiana, he oversees 18 warehouses that barely resemble where he started.”
“Amazon now sells millions of products; each of its 149 warehouses ship tens of thousands of them each day; and those warehouses now look like live-action games of Chutes and Ladders—whizzing with a meticulously coordinated system of conveyor belts, slides, and machines that do everything from attach labels to boxes to check weight for quality control.”
That article title makes it sound like Amazon did something ‘revolutionary’ aka ‘embracing chaos.’
The actual prose excerpt that led this article?
It shows Alfred D. Chandler Jr.’s first proposition: the establishment of functional structures to increase efficiency.
d. Tesla (TSLA) electric vehicles are ‘novel’? Really?
“Not an invention of modern times, the electric car has a long and storied history. Travel back in time as we explore the history of the electric car.”
“Around 1832, Robert Anderson develops the first crude electric vehicle, but it isn't until the 1870s or later that electric cars become practical. Pictured here is an electric vehicle built by an English inventor in 1884. Photo courtesy of Wikimedia Commons.”
In light of that, I want to share excerpts from a salient Alfred D. Chandler Jr. work.
This book won a Pulitzer Prize. Harvard University Press. Copyright 1977.
Click the hotlink to order this book on Amazon.
“The theme propounded here is that modern business enterprise took the place of market mechanisms in coordinating the activities of the economy and allocating its resources.
“In many sectors of the economy, the visible hand of management replaced what Adam Smith referred to as the invisible hand of market forces.
“The market remained the generator of demand for goods and services, but modern business enterprise took over the functions of coordinating flows of goods through existing processes of production and distribution.
“As modern business enterprise acquired functions hitherto carried out by the market, it became the most powerful institution in the American economy and its managers the most influential group of decision makers. The rise of modern business enterprise in the United States, therefore, brought with it managerial capitalism (from the 1850s to the 1920s).”
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In 2024, This Harvard Professor's Theory Lives On
This is an excerpt from our most recent Economic Outlook report. To access the full PDF, please click here.
I want to start this narrative — applying classic Business History — with one single chart.
Top 10 NDX Stocks in 2020, versus Top 10 NDX Stocks in 2024
12.6X the Revenues, 11.3X the Net Income
Image Source: Zacks Investment Research
You might think the year 2000 built a massive Internet technology-driven stock market bubble, built by the leading innovative U.S. companies. But with scant revenues and few profits.
You would be right.
However, 24 years later, using that same inference, along with updating those simple share fundamental facts? This thinking DOES NOT APPLY!
To the contrary.
The 2024 Nasdaq Top 10 list shows massive revenues and huge profits coming from the 10 largest Nasdaq companies today.
HOW CAN WE EXPLAIN WHAT HAPPENED?
Alfred D. Chandler Jr. (1918-2007) was a much-esteemed Professor of Business History at Harvard Business School, and at John Hopkins University
He was the great grandson of Henry Varnum Poor, whose firm evolved into Standard & Poor’s.
Here is a brief four-part exposition, of what is known as “Chandler’s Theory”—
Does the latest revenue and net income data, from the Top 10 Nasdaq firms, show Alfred D. Chandler Jr.-style effects?
I think it does.
Many like to think. This 2000 to 2024 ‘Info Tech New World’ does not follow pre-set and long-standing business principles.
That — most likely — is NOT a valid proposition!
a. One classic first example: Moore's Law is the observation that the number of transistors on an integrated circuit will double every two years with minimal rise in cost.
Intel (INTC - Free Report) (which is in the 2000 table of Top 10 NDX companies, but is not one of the Top 10 2024 NDX companies) co-founder Gordon Moore predicted a doubling of transistors every year for the next 10 years in his original paper published in 1965.
This is nothing but Alfred D. Chandler Jr. scale effects, first acknowledged in chip making in 1965.
Nvidia (NVDA - Free Report) does have the best chips. Now.
But these just show, once again, the nano application of scale effects.
In 2024.
In a different chip firm, just located down the street, from Intel’s complacent managers.
b. Meta Platforms (META - Free Report) shows the evidence of both scale and scope.
The wiki on Meta Mergers & Acquisitions shows 100 acquisitions that had been done, from 2005 to 2022.
That META activity timeline shows both conglomerate scale and scope. Personified!
c. Amazon (AMZN) shows the establishment of functional (partly-automated) structures to increase efficiency.
Consider this—
Excerpt from Amazon: This Company Built One of the World’s Most Efficient Warehouses by Embracing Chaos
“When Dave Alperson got his first job at an Amazon warehouse in 1997, as a temporary hourly employee, it involved walking around the warehouse with a list of where to find products—mostly books—that customers had ordered.”
“Twenty years later, as a regional director of operations for Amazon in Indiana, he oversees 18 warehouses that barely resemble where he started.”
“Amazon now sells millions of products; each of its 149 warehouses ship tens of thousands of them each day; and those warehouses now look like live-action games of Chutes and Ladders—whizzing with a meticulously coordinated system of conveyor belts, slides, and machines that do everything from attach labels to boxes to check weight for quality control.”
That article title makes it sound like Amazon did something ‘revolutionary’ aka ‘embracing chaos.’
The actual prose excerpt that led this article?
It shows Alfred D. Chandler Jr.’s first proposition: the establishment of functional structures to increase efficiency.
d. Tesla (TSLA) electric vehicles are ‘novel’? Really?
Read this Department of Energy quote from Timeline: History of the Electric Car
“Not an invention of modern times, the electric car has a long and storied history. Travel back in time as we explore the history of the electric car.”
“Around 1832, Robert Anderson develops the first crude electric vehicle, but it isn't until the 1870s or later that electric cars become practical. Pictured here is an electric vehicle built by an English inventor in 1884. Photo courtesy of Wikimedia Commons.”
In light of that, I want to share excerpts from a salient Alfred D. Chandler Jr. work.
(1) “The Visible Hand: The Managerial Revolution in American Business”
This book won a Pulitzer Prize. Harvard University Press. Copyright 1977.
Click the hotlink to order this book on Amazon.
“The theme propounded here is that modern business enterprise took the place of market mechanisms in coordinating the activities of the economy and allocating its resources.
“In many sectors of the economy, the visible hand of management replaced what Adam Smith referred to as the invisible hand of market forces.
“The market remained the generator of demand for goods and services, but modern business enterprise took over the functions of coordinating flows of goods through existing processes of production and distribution.
“As modern business enterprise acquired functions hitherto carried out by the market, it became the most powerful institution in the American economy and its managers the most influential group of decision makers. The rise of modern business enterprise in the United States, therefore, brought with it managerial capitalism (from the 1850s to the 1920s).”