Chandler uses his concept of the three-pronged investment when he explains the creation of organizational capabilities. The three-pronged investment is also referred to as the investment in the three M's (manufacturing, marketing, management). First of all, a company has to make investments in production in order to grow large enough so that it can achieve cost advantages of scale and scope. Secondly, the company has to build an integrative hierarchy by investing in it's marketing activities, including purchasing, distributing and R&D. Finally, it is of utmost importance to a company to recruit and train a team of managers who run and coordinate the different departments and units of the company efficiently.

Chandler points out the importance of first mover advantages, meaning that companies which first made the three-pronged investment became the industry's leaders. In most cases, the leading companies then dominated their industries for a long time, even for decades. Another opportunity to become one of the industry's leaders occurs directly after industry wide merger waves: Chandler emphasizes, that companies sho

When a firm had achieved organizational capabilities, it was easy to use the advantages developed by economies of scale to expand into either other geographical areas. Or expand into other products, which was made possible by achieving economies of scale (Chandler p. 38). By this Chandler means, that when a firm has made the investment in production and management / organization it is easy to use the advantages gained on this, to move into new markets - whether they are geographical or different products. The initial investment have been made and expanding is just a matter of either entering new markets (becoming multinational) or making product diversification. The organizational structure does not have to be changed; the only difference is that a few new units will be added to the structure. This gives the firm a big advantage compared to competing firms, who has not gone through the same evolution process yet.

By this Chandler means, that even though it might be possible to achieve economies of scale or scope, you will not succeed in this without organizational capabilities. If your firm does not have the organizational capabilities, then you will not be able to control the production, throughput and overall management of the firm - and hereby not achieve the economies of scale or scope.

While Ford had been at its prime after inventing the production line and profiting from economies of scale, their main competitor General Motors had been standing on the sideline. When the market changed, however, and the organizational capabilities of Ford dropped when they failed to adapt to the changed market, GM took over as the leading American car company. They started producing different cars like the consumers wanted and they turned a large profit while Ford's stagnated. GM's organizational capabilities were much more effective, and therefore better, than that of Ford Motor Company. When Ford finally realized effective organizational capabilities had moved from scale to scope, it took the two years to adapt to the new market, and, arguably, over six decades to recover from their mistake (GM was the market leader for six decades).

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Approximate Word count = 2008
Approximate Pages = 8 (250 words per page double spaced)