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^^ ' 353 East Main Street

S'.A Rochester. Ne» York 14609 USA

'^^ (716) 482 - 0300 - Phone

^B (716) 288 - 5989 - Fox

Modern Business

CANADIAN EDITION

k SERIES OF EIGHTEEN TEXTS. ESPECIALLY PREPARED

FOxi THE ALEXANDER HAMILTON INSTITUTE COURSE IN

ACCOUNTS. FINANCE AND MANAGEMENT

EDITED BY

JOSEPH FRENCH JOHNSON

DHAJf, !f«W

TOR. tH,V.W,TT «,HOOt Or COM««C ACCOl«T, *« r,KA««
KIW TOBE CITY

TitU

ECONOMICS OF BUSINESS
ORGANIZATION AND MANAGEMENT
SELLING
CREDITS

TRAFFIC

ADVERTISING

BUSINESS CORRESPONDENCE

ACCOUNTING PRACTICE .

CORPORATION FINANCE .

NiONEY AND BANI^NG
HANKING PRACTICE
FOREIGN EXCHANGE ...

INVESTMENT AND SPECULATION

{

INSURANCE

REAL ESTATE

AUDITING . . . .
COST ACCOUNTS
COMMERCIAL LAW .

Author
James Mayor
Lee Gallowat
R- S. Butler
Lee Gaixowat
S. J. McLean
Lee Gallowat
c b. h0tchki88
Leo Grbendunoer
WiLUAM H. Lough
Fred W. Field
Earl Dean Howard

W. W. SWANSON

Stewart Patterson
Franklin Escher
Stewart Patterson
Thomas Conwat
Albert Atwood
Fred W. Field
Edward R. Hardt
Fred W. Field
Walter Lindner
Walter S. Johnson
Setmour Walton
Stephen W. Oilman
Walter S. Johnson

Organization

and

Management

PART I: BUSINESS ORGANIZATION

PART II: BUSINESS MANAGEMENT
BY

LEE GALLOWAY

A88I8TAVT PROFEfWOR OF COMMERCE AND INDUSTRY IN THE NEW
YORK UNIVERaiTY SCHOOL OF 'X)MMERCE, ACCOUNTS AND FI-
NANCE: AUTHOR OF ■• ECONOMICS OF DOCK MANAGEMENT"

Modern Business

Canadian Edition

Volume II

ALEXANDER HAMILTON INSTITUTE
NEW YORK

Comtmvt. 1011. BT
ALEXANDER HAMILTON INSTITL'TE

CorraioMT, 1912, ar
ALEXANDER HAMILTON INSTITUTE

CorTMOBT, 1013, BT

.'LEXANDER HAMILTON INSTITUTE

CorTMOMT, 1014, BT

ALEXANDER HAMILTON INSTITUTE

Copthioht in Obbat Bmtain, 1914, it
ALEXANDER HAMILTON INSTITUTE

TABLE OF CONTEN'iS

PART I: BUSINESS ORGANIZATION

1.
2.
3.
4.
5.
6.

7.
8.

CHAPTER I

DEVELOPMENT OF ORGANIZATION

Orga„i„Uon, a Logical Arrangement of Part. . 'T

Early Economic Man . . • • • 1

Influence of New Economic ArtiviUes .* * * * ' f

The Town Become. . New Economic Unit .' .' * * t

Town Economy " Show, the Benefit, of A.«K.iati«„ ' g

10.

11.

12.
IS.
14.
13.
16.
17.

CHAPTER II
DEVELOPMENT OF ORGANIZATION (Con.)
Factory Syrtem

CodperaUon and Centralisation ." ff

Effect Upon the Laborer'. Statu. *:

Producer a. a BuaincM Man ; • • • • 85

Trust., or Union, of CorporaUon. '.'.''' II

Division of Labor ... ••••,. SO

Territorial Divirion of Labor **

Advantages and LimitaOon. . **

y . 8d

vl CONTENTS

CHAPTER III
OROASIZATION OF THE MARKET ^

MCTlON gg

IS. Fxtenilon of the Markrt

19. Primary Function of a Market • ' " * * ',

80. Market Prices a Bcaultant of World-Wide InHuenwt . 41

SI. Function of the Middleman

it. Market for Raw Material!

as. Market for Manufacture! ^^

i*. A Grain Market

83. Receiving and Storing the Supply ^

86. Inipectlon and Grading

87. SUte Bureauf of Inapectlon

88. Chicago and Liverpool Grade, of Wheat . ... HO

CHAPTER IV
THE EXCHANGE

89. A Typical Market

80. Chicago Boord of Trade

31. Two Claws of Buyer*

38. Speculation and Gambling

88. Defense of Speculation

84. Coune of an Order ^

Sa. Two Kinds of Traders ^

S6. Method of Payment ^

87. Margins

88. Clearing-House .' * / ' * <s.

39, Rules, Regulations and Management of the Exchange . 68

40. Complexity of the Market Forces 66

41.
48.
43.
44.
45.

CHAPTER V
MARKETING OF MANUFACTURED GOODS

Attempts to Develop a Special Market 68

Manufacturer and Middleman °®

Agency Methods of Selling ''"

Selling pirectly to Customers j' ^*

Selling Through Commission Houses — Brdter and
Converter

(ONTKNTS

fUS*

4ti. Mail-order Method 80

47. ManufactJKr's Ret il Store* .... . . . 8i

tfl. ReaaoM for the Declining Importance of the Middleman 84

49.
30.

K 1

as.

55.

57.

r>».

.-59.
60.
61.
62.

CHAPTER VI

ORGANIZATION OP EXPORT BUSINESS

Neceuity for Seeking Foreign Market* 88

Modern Method* oi Reaching Foreign Market* ... 89

Direct Relation* With Foreign Buyer* ... 9I

The Importance of Cleame** in Foreign Corre*|) ; . e 98

Quoting of Price* .96

Export Commission House* 100

C^uion* to be Ob*erved in Dealing With Commi**ion

Hou*e* 108

Evil of Substitution 104

Bonu* 105

Foreign Sale* Arrangement* 105

"Jobbing" Hou*<>8 ]o6

Foreign Commisstion Agent* 107

American Salesmen Abroad 107

Branch House* lOg

63.
64.
65.
66.
67.
68.
69.
70.
71.
72.

CHAPTER ,1
CONSL'i AR SERVICE

Purpo*e of t ''on*ul HI

Brief Hi*tory o/ the Amcricari Conaular Service . .Ill
Present Sy*tem Governing Con*ular Appcatmenti . .118
Grade* and Salaries in the Conaular Service .114

Consular Reports 115

Foreign Needs and Prejudices 118

Foreign Credits UO

Methods of Packing 120

Foreign Trade Opportunities Igg

Protection of Customs Revenues Igg

VIU

CONTENTS

CHAPTER VIII
ORGANIZATION' IN MAXUFACTUKIXG INDUSTRIES

SECTION P^nt

73. Specialization and Cooperation 124

74. Fundamental Principles of Factory Organization . .125

75. Predetermining a Business Enterprisf 12(j

70. Source of Raw Materials 127

77. Source of Power 127

78. Labor Market 128

79. Market for the Factory's Output 128

80. Transportation and Its Relation to Factory Location . 129

81. Physical Surroundings 130

82. Reorganization of F.xisting Plants 131

83. Comparative Advantages of the City and Country . .132

84. Design of a Modern Plant 134

85. Transmission of Power. Tool Room. Store Rooms . 136

86. Standard Equipment 137

87 Transportation Within the Plant 138

88. Conveyance of Internal Information . . . . .141

89. Summary 142

CHAPTER IX
DEPARTMENT FUNCTIONS AND ORGANIZATION

90. Basis of Departmental Divisions 144

91. Prime Functions of a Manufacturing Business . . .144

92. Duties of the Officers 152

93. Military Method of Organization 155

94. Functional Method of Organization 156

95. Foremen of the Planning Department and Their Duties 157

96. Shop Bosses and Their Duties 158

CHAPTER X
INTERDEPARTMENTAL RELATIONS

97. Course of an Order for Goods I6I

98. Drafting Department 164

99- Tool Room 166

100. Local Management Versus Direction from a Distance . l67

CONTEXTS

SECTION

101.

102.
103.
104.
105.

Character of the Controlling Authority and Its Relation '*""
to the Business jgq

Committee System ... ,»«

-, •' 170

Committees ._

Meetings of the Job Bosses and Foremen . . . .172
Work of the Committees .174

106.

107.

108.

109.

110.

111.

112.

]13.

114.

1 1 *).

116.

117.

118.

119.

CHAPTER XI

OFFICE SYSTEMS AND REPORTS

Basis of Office Organization 175

Planning the Administrative Offices 175

Office Appliances j«g

Standard Forms j-q

i'^""'' ^ ^ ^ : : : ! ! 180

factors Deciding Who Should Make the Reports . .181

Contents of the Reports jgj

Executive Report 184

Report from the Selling Department • ! 186

Factory Reports 188

"Progress Report" 190

Cost Reports . ! . 192

Period Covered by a Report .192

What Should be Done With Reports . . . .' . ,192

2.
3.
4.
5.
0.
7.

PART II: BUSINESS MANAGEMENT.

CHAPTER I.
PRINCIPLES OF MANAGEMENT.

Cardinal Elements of Management 195

Every Principle Implies a Force ...... 195

Nature of Business Forces . . . , * ." * ' jqq

The Manager Must Direct Forces .... . . 197

Human Engineering * * „

The Basic Principle in Management '. [ ] ] .* 20I

The Purpose of Management is Profits ... * 202

CONTENTS

ECTION PACI

8. Immediate versus Future Profits 203

0. Difference between Manager and Engineer . . 201

10. Specialization Complicates Management . . . 205

11. Specialization in Management • 205

12. Department Specialization 20G

13. Cooperation and Specialization Must Go Together . 207

1 !•. Is There a Science of Manapement? 208

1.). Scientific Methods of Investigation 200

I*i. Continual Study and Progress 211

17. What the Science of Management Involves . . . .213

18. Effect of a New Standard 215

19. Furnishing the Men with a Teacher 216

CHAPTER II.
MANAGEMENT UNITS.

20. Few Principles but Many Methods 219

21. Economic Units 220

22. Industrial Units 221

23. Distinctions Between Economics, Industry and Busi-

ness 221

24. Managerial or Busiuesis Uuits 223

25. The Manager's Cabinet 226

26. Analysis of Staff and Line Organization .... 227

27. Financial Department as a Unit 229

28. Sales Department as a Unit 230

29. Accounting Department as a Unit 230

SO. Production Department as a Unit 231

31. Management Units the Basis of Organization Charts . 232

32. Duties of the Management Units 233

CHAPTER III.
TYPES OF MArVGEMENT.

88. Basis for Selecting Types 235

84. Unsystematized Type of Management 236

S5. Majority of Industries Unsystematized .... 237

CONTENTS xi

SSCTIOM

30. Systematized Type of Management 238

37. Cost Records Highly Developed 238

38. The Efficiency Type of Management 239

S9. Standardizing Costs 2^0

40. Costs Come aj a By-product 240

41. Comparisons Which Afford a Deadly Parallel . . .241

42. Stock-taking under Scientific Methods 242

43. Staflf and Military Types of Managemen . . . .243
1'4. Army as an Analogy g^^

45. Functions of the General Staff ] 245

46. Organization of Military Staff 245

47. Organization of Administrative Staff 246

48. Succession by Seniority ^ 2^,^

49. War Develops Organization 247

50. Staff and Line in Business 248

51. Divisional and Departmental Types 248

52. Characteristics of the Departmental Type . , . .249
r>3. Comparisons of the Two Organizations . . . .251

54. Advantages and Disadvantages of the Two Types . 254

55. Compromises in Practice 256

50.
57.
58.
5!).
(■;().
til.

(;2.
(i.'j.
<:4.

ti5.
«(!.
<i7.
<i8.
f.O.
70.

CHAPTER IV.
TYPES OF MANAGEMENT (conlinued).

Undisciplined and Disciplined Management . . . J57

Undisciplined Type 2g»

Low Labor Efficiency 259

Disciplined Type of Management 260

Evidences of Discipline 200

Traditional, Transitory and Functional Types . . 202

Functional Type of Management 264

Work Planned Ahead 204

Planning Gives Control 264

Labor Efficiency under Functional Management . . 265
How Scientific Selection Aids Discipline . . . .266

How Training Helps Discipline [267

Proper Tools Must Be Furnished gQg

Best Discipline Gained by Proper Incentive . . .268
Taylor's Description of Functional Management . . 268

CONTENTS

SSCTION '*0«

71. Summary of Essentials in all Types 272

72. Two Corollaries of Management 274

78. Shape the Man to the Organization 275

CHAPTER V.
MODERN* AIDS IX MAXAGEMEXT.

74. Real Management is Concerned with Policies, not

Details 277

75. Organization Charts 278

76. Charts Clarify Ideas 278

77. Organization Records 281

78. Written Records a Bas.s for Standards .... 281

79. Planning Department 282

80. Planning is Specialized Management 284

81. An Example from the Machine Shop 284

?,2. Planning and Overhead Expense 280

83. Evolution of the Planning Department 287

84. '"houghtful Plans Make Valuable Records .... 888

85. Advantages of Planning in Advance 289

86. Proportion of Planners to Doers 289

87. Planning Room of a Manufacturing Concern . . 290

88. Coordinating Function of Production Clerk . . 290

89. Setting Sales Delivery Dates 291

90. Further Duties of Production Clerk 292

91. Qualifications of Production Clerk 294

92. Route Clerk 294

93. Method of Work for the Route Clerk 295

94. Qualifications of Route Clerk 296

95. Special-material (Foundry) Clerk 290

90. Duties of Balance-of-stores Clerk 298

97. Time-study Clerk 300

98. Instruction-card Clerk 300

99. Route-file Clerk 300

100. Order-of-work Clerk 301

101. The Eye of the Superintendent 302

102. The Recording Clerk 302

lOS. The Cost Clerk 303

104. Time-keeper .... 304

CONTENTS

Xll

SECTION p;»Cl

105. Planning Introduces no new Duties 305

106. Other Functions Associated with Planning Department SOU

CiiAPTER VI.
STANDARDIZATION AND EQUIPMENT.

107. Management a Process of Applying Correct Standards .-iOT

108. Standards of Labor Efficiency 308

109. Cautions in Adopting Business Standards . . .310

110. Standard Specifications 311

111. Monetary Savings due to Standard Materials . . .312

112. Stand \rd Office Material ... 312

113. Example of Standard Drawings 312

114. Standard Equipment 313

115. The Principle as Applied to Delivery Systems .311

116. Interchangeable Parts .315

117. Use of " Limiting Dimensions " 31t»

1 1 8. Use of Symbols 3 K;

1 1 9. Constructing a System of Symbols 317

120. A Working System 318

121. Use of Numbers in Symbol 320

122. Symbols ot Manufacturing 320

123. Standard Routine ^^22

124. Steps in Developing Standard Routine 323

125. Value of Printed Records . , 325

CHAP'i'^.R VIL
STANDARDIZATION AND WAGES.

126. Goal of Every Producer 327

127. Three Factors Conditioning Output 328

128. Determination of Handling Time 330

129. Principal Elements in Getting Efficiency .... 333

130. Wage Systems 333

131. Systems of Pay 334

132. Taylor Differential System 336

133. Efficiency System 337

134. Bonus Plan 389

XIV

CONTENTS

CHAPTER VIII.
CONTROL OF LABOR.

SBCTION

135. High Cost of Man Power ....... 3*0

136. Waste of Human Power 841

137. Periods of Rest and Relaxation 343

138. A Fair Day's Pay 344

139. Illustrations 8**

140. Special Factors Influencing Wages ... . . 34fl

141. Wages the Chief Incentive 348

142. Importance of Short-Period Records 348

143. Pleasurable Surroundings 349

344. Chilly Suroundings Develop Fear 350

145. Stimulating Self-interest ^^^

U«. Checks Against Injustice 351

147. Elimination of the Unfit ^^2

148. A Typical Case of the Use of Records . . . -353

149. Look for the Particular Bent of the Business . . .354

150. Permanency of Employment and Pensions .... 355

151. Hope of Advancement as a Stimulus 35t$

152. Three Examples of Promotion Policies 357

153. Selecting the " Right Stripe " 358

154. Make a Man Analyze Himself 360

155. Use of Written and Oral Tests 362

150. Testing for Physical and Moral Fitness . . . .363

157. Control by Education 364

158. Special Training for the Company's Work .... 366

CHAPTER IX.
INDUSTRIAL BETTERMENT OR WELFARE INSTITUTIONS.

159. Beginnings of Industrial Betterment ^70

160. "Welfare Institutions" . . • • 371

161. Safety Devices against Accidents and Fire . . . -372

374

162. Light

163. Ventilation '

164. Sanitation

165. Rest Hours and Lunch Rooms 377

879
160. Recreation

CONTENTS

•■CTIOM ,^,^

167. Effects of Welfare Instifuttons in General . . . 880

188. Suggestion System 381

169. Results of Suggestion System 882

CHAPTER X.
SOURCES OF ADMINISTRATIVE INFORMATION.

170. Use of Statistics S86

171. Graphs and Statistics 336

172. Indicating Influence of One Set of Facts on Another . 387

173. Comparisons of Time Periofis 388

174. Reports 333

175. Determining Facts by Inspection ... . . 390

1 76. Inspection of Work in Process 392

177. Questions as Guides 392

178. Qualifications of Inspectors 393

170. Information from the Outside 394

180. Various Kinds sf Inspection 394

181. Inspection and Research 393

182. A Large Rese!"rch Laboratory 396

1 83. Commercial ResuU , ^ 397

ISi. Time Study 398

185. Time Study Reduced to Formula 401

180. Written Aids, Books, Periodicals, Etc 40I

187. Study of Competitive Methods 403

188. Consulting Experts 404

189.
190,
191.
102.
193.
194.
195.

CHAPTER XL
SAVINGS IN TIME AND MATERIAL.

Time-saving by " Routing " 403

How a Train is Routed 4.->6

Essentials in Routing 407

Securing a Good Plant Layoit 408

Straight Line Between ^ erminals 409

Various Types of Manufacture 409

Analytic Manufacture 410

XVI

CONTENTS

SECTION
lOH.

107.

1 08.
lUO.
200,
tiOl.
-202.
203.
20J..

'2or>.

200.

207.

208.

209.

210.

211.

212.

213

2 It.

215.

216.

217.

218.

219.

220.

2,:.

222.
223.
221..
225.
220.
227.
228.
229.
230.
231.
232.
233.
234.

PAOB

Continuous Manufacture 410

Assembling Manufacture 410

Passageways Must Be Provided 410

Transportation 411

Growth Must Be Allowed for 4|2

Expansion not to Interfere with Flow of Work .413

Taking Advantage of Gravity 415

Time Element in Routing 413

Two Types of Routing 4nj

When Special Dispatching Is Necessary .417

How to Plan the Routing 4' ,

What the Route-board is 419

Planning Board Signals all Movements .... 420

Questions Answered by Route-board 420

Status of Work in Progress 420

How to Route Office Work 425

Time Schedule of the Clearing House 425

How Organization Saves Time 420

Substitute Power Equipment 426

Equipment " Tickler " 427

Other Methods to Avoid Slmt-downs 427

Stock-keeping System a Necessity 428

Three Rules of Store-keeping ....... 429

Receiving Supplies 420

Issuing Supplies 431

How to Use Requisitions 432

Bill-of-Materials 433

Combination Systems 433

Complete and Simple System 434

Single and Double Check System 43.5

Responsibility for Remainder on Hand .... i'Sr)

Stock-room Protects Goods 430

Classification by Kind 436

Si«e Materials When Checking 433

Stock Ledger and Inventory-taking 438

Provide a Surplus of the Less Expensive .... 439

Small Savings 441

Office Work 442

Unnecessary Shifting Involves Loss 444

CONTENTS ^^.jj

SRCTIOV

'2tir,. "Fill-in" Work . "-^c.

iiSO. Waste Alolion . **''

237. Using Supplies a Second Time "**"

447

CHAPTER XII.
OFFICK METHODS.
2"8. Function of the Office

241. Selecting and Handling Employes *'''^

2*2. Establishing Standard, ^ ' *''

III' f "*r ^'^P« »' Organization [ [ H'

244. Functional Type *^7

24.';. Semi-Functional Organization *^*

24«. Committee System . . *^^

247. Suggestion Systems *"'

I": cSr.-''-;'^:'"''/''**- '■'■'■■ -Z

404

BUSINESS ORGANIZATION

PARTI

CHAPTER I

DEVELOPMENT OF ORGANIZATION
I. Organization, a logical arrangement of mrU-

h-^'ilTJ "«•"'»«''" " the machine by meL, of
which the force, of industry n»ke thenMelves eflSti™

wltr "«"'"«<"'• '*e . sood m«*ine,11t
-vork with a minimum lo» of energy. Every oomd of
steam ujd«dy di»ip.,ed muat drtract (Z^J.
r*°^ 1 't ^"«'-' " « »™ of power. The^:^

1 \ u ^:V^ ^ """" "^ «•« locomotive e"
gme should not be expended in the carrying of super-
flou^ machinery and fuel, in climbing unnecesTry
grades, or m overcoming needless friction. Likewise
a business or^nization which is to direct the power of

should not pennit a dissipation of its energy. Many a
business, by car^-ing surplus stock, by assembling g„^'
under improper physical organization, and by ™Lng
under needless friction due to poor management of

prom's." * *°"*^ *^' '^'^^ ^ ""i*^ " the

ISif^io^ X *^°r"'""<»' through intern-
^«.t direction Tl,e principles of efficient management
are discussed m Part II of this volume.
Asamachineismoreeasily explained when the miture'

BUSINESS ORGANIZATION

of the power which it is to control is understood, so the
organization of any business is more readily understood
if the forces which the organization is to direct are fully
comprehended. Steam and electricity stand in the same
relation to the present mechanical world as capital and
labor to the modern forms of business. In fact, we
may say that just as a study of capital and labor has
reference to the activities of industry, » a study of
organization pertains to the forms of business.

A history of industrial systems is a record of the
growth of capital and the consequent division of labor.
The interrelation of these two forces of production arc
the cause of that industrial evolution which began with
the simplest form — that of private production for
private consumption, and has developed into our pres-
ent system of machine production for the world
market.

2. Early economic man. — Each stage in this long de-
velopment has had its own peculiar organization — the
typical business enterprise — this being determined by
the proportion of capital to labor and by the degree of
cooperation between these forces. The word "business"
originally meant "being busy" in making a living, which
the primitive man without tools wfcs compelled to do
with his bare hands. He was the first type of "busi-
ness" man in the original sense of th? word. Bodily
activity and insecurity were the main characteristics of
such a life since each individual depended solely upon
his own labor power to win from capricious nature the
immediate necessities of life. He had no stock of tools
nor of food, nor in a word — capital — whereby he might
make his labor power more effective, and thus secure
that leisure which depends upon a surplus supply of the
necessaries of life.

DEVELOPMENT OF ORGANIZATION 8

-J^.* »»?«* P'in»iti*^e man. as we know him, wandered
about with hw companions, who had mucfc the same de-
ffree of organization as a herd of cattle or a flock of

gation had about the same function as the aggre^ive
leader of the drove. Cooperation, which is the^urpose
of any organization, was absent in any economic sens^
and only in the presence of danger did the horde display

bine"d S "" '^'''"**^ *° *" ^'^•"^^ ^~- --

Not until the family appears do we find a new mo-
tne for the cooperation of the individuals of the society.
^ew motives alter conditions. Here for the first time
men began to work together for the common purpose of
making a living. This new organization ba^ on
economic activity still limited itself to securing "just
enough to hve^ It did not seek to add a surpluf to this
competence. The "household" was the unit of this in-
dustrial enterpnse. A circle drawn about each family
would have circumscribed all it activities. There were
no interrelations with other families. The business un-
dertakmgs of one household did not interfere with or in-
fluence those of the neighbors. As we might say. pro-

people of each particular family.

The benefits of cooperation under this form of eco-
nomic organization were soon displayed. The group
discovered that it could win from nature not only a com-
petence but something more. Within each community
tl^re was accumulated a stock of goods. This had the
effect of givmg the masters of the households more
leisure. As the surplus increased there would be not
only the disposition to exchange these goods for differ-
ent kmds possessed by other households, but the possi-

BUSINESS ORGANIZATION

bility for the master to let out any surplus labor fora
which might have resulted from a more efficient organ
ization.

Movements are always slow in the beginning, but as
soon as capital gained a lodging in the industrial systems
the cumulative effect of numberless small increments
became marked. Small bits of capital planted and
nurtured in thousands of families by this primitive co-
operation began to swell and expand until the bands of
these little isolated and exclusive industrial organiza-
tions wrre burst by the pressure, and the forces of pro-
duction were liberated. Capital and labor flowed in
many directions, seeking new levels, wearing new chan-
nels. Other lines of activity were furnished with fresh
streams of power, and production was not only in-
creased, but it resulted in varied forms of organization
as well. Capital, thus freed, began to seek introduc-
tion to other households, and the laborer, more inde-
pendent, sought to employ his skill by joining his serv-
ices now to this household and now to that. The in-
crease of capital in proportion to the labor force wrought
an entire transformation of the family organization,
since it allowed its members to step beyond its bounds
and engage in new forms of independent activities.

3. Influence of new economic activities.— Under the
family system there was no capital except in such aux-
iliary forms of production as the distaff, the handmill
and the ax. The laborer was not free. He was tied
to the land, and industrial skill was closely associated
with the care of the soil. Furthermore, there was little
or no commerce, as each group made all that it con-
sumed. But when production increased to the extent
that each group had a surplus, conditions were estab-
lished whereby trade was sure to develop. This sur-

DEVELOPMENT OF ORGANIZATION 8

plus generaUy consisted of the prime necessities of life
such as articles of f<x«l and clothing. But ™der the
isolated system of economy then existing therfw^^ „o
means whereby the surplus of one hou* holddu Z
exchang^ for that of another. Household economy
alternated between the extremes of want in one s^Zn
and waste in another. This brought men to ^^^
the value of trading their surplus. "^gm^

Commerce consists shnply of the exchange of the sur-
plus goods of one community for those of a di^e«nt
kmd m another community. Therefore, before E
dustnal organization of the world could receive a nlw
kmd of enterpri^ in the form of commereial rektion"
there must fe, have existed the surplus wealthX «-
ehang^ of which constitutes commeree. So the gr^^
of a stock of wealth not only transformed the relZn,
of the members of the household to each other, but U
changed the rektionship existing between d fferent
households and finally the relations between localitirto
he nation as a whole. In time the intenehtions of
nations themselves became dependent upon this surplus

At present, however, we are concerned with the
changes wrought in the business miit as represented by
the family. I is necessary to keep in mind that a ne^

hT„r" TJ'^^"" '^° "'•"^ ''•'ose reaction up^
the old methods of production must in a later period be
treated almost as an independent cause in the diaping
of economic organization. The itmerant workinJLan
gradually acqmred some surplus wealth of his o™ i„
the form of tools, and with this capital he was able to
sepaiate himself entirely f^m the family ^^^p^d L°
set up lor himself a permanent workshop. With the
aid of mcreasing capital this class of men in time be-

BUSINESS ORGANIZATION

came strong enough to effect a complete separation and
to establish a new organization in industrial society. In
their turn, these men became masters, not of agricul-
tural laborers and estates, but masters of crafts and arti-
sans.

4. The town becomes a new economic Mm7.— Under
this system of industry the typical business unit was the
craft or "trade." The man who made things by hand
was the "manufacturer," but he possessed all the means
necessary to that production in his own right. He
owned the tools and the raw material, and by his own
labor or under his direct supervision the article produced
passed through all the stages of manufacture. The
size of the representative firm under a system which com-
pelled the master to be a skilled artisan, a shrewd finan-
cier, and an able salesman, but insisted on each article
bearing the impress of his individual skill, must of ne-
cessity have been very small. That this type persisted
so long and became so general throughout the fields of
productive activity was due to the relatively small im-
portance of the master's capacity as a financier and
sales manager as compared with his ability as a crafts-
man. The proportion of capital to labor power neces-
sary for production was smaU. The master did, indeed
own th- raw material in addition to his tools, but there
was no need for great capital in either, as the variety of
the articles demanded was limited by the customs and
tastes of his own coramnnity which was still isolated and
secluded even though it now embraced within its bourd-
aries the "town" inst.:ad of the "family." The growth
of the economic unit which was now comprehended in
the town meant also a great advance in the productive
capacity of society and a corresponding increase of cap-
ital. Yet self sufficiency and isolation still kept com-

DEVELOPMENT OF ORGANIZATION 7

munities separated, and while one locality was suffering
for the lack of some article, another would be greatly
over-supplied with the same thing.

The town owed its development to the increased
specialization of industry. Tlie rise of the artisan class
divided the field of production. The landowner still
supplied the raw material, but the new class of artisans
furnished the finished product. The latter found it de-
sirable to congregate in small communities or towns, and
while the conditions of the market did not demand that
the artisan possess a large fixed capital in the form of
extensive machinery, nevertheless there again appeared
the advantages of social cooperation, and abundant
movable capital accumulated in the hands of this new in-
dustrial class. Then, too, the presence of more wealth
had the effect of changing the relations of members of
this handicraft system. It furnished the basis for more
specialization within the crafts themselves, and at the
same time stimulated trade between the farm— the
source of the raw material, and the town— the place of
its manufacture.

Then there sprang up a class of men who saw an op-
portunity to equalize the economic disparities between
locahties. They devoted themselves to trade. Like the
artisan class, these merchants furnished their own
trading capital, captained their own ventures and super-
vised the marketing of their own goods. The business
unit was small and the organization simple. But one
must bear in mind that a new business enterprise be-
comes clearly differentiated. The peddler of the transi-
tion period, during which the industrial unit shifted
trom the family to the town, became a merchant. So
by the end of the Middle Ages there were three distinct
classes m Europe, each devoting its energies principally

BUSINESS ORGANIZATION

to one branch of industry. The landowner in the coun-
try grew the /aw material, the artisan in the town pre-
pared it for the market, and the merchant, also of the
town, assumed the risk of finding a purchaser. Yet it
was in the hands of the manufacturer and the merchant
that movable property accumulated fastest, and more
especially was this true of the latter.

5. "Town economy" shorn the benefits of association.
— ii Ithough the conditions of production in agriculture
were decidedly better, especially for the laborer, than be-
fore, and although an increased productivity supported
a larger population and furnished a basis for the grow-
ing trade, still they failed to take on that development
manifested in the towns. The artisans and the mer-
chants, on the other hand, had long known the benefits
to be derived from close association. Each class had been
compelled in the absence of any other protection to form
societies for self defense. Cut-throats in those days
were not solely associated with business competition ^
Later, however, the crafts and guilds, as these societies
were called, adopted distinct business policies, and it is
for this reason that we mention them. Tested by its
policies, the nature of the guilds discloses itself in the
following summary:

1. The basis of association was men, not capital, or
division of profits. The men desired to regulate their
particular business independently of other crafts.

2. The purpose was efficiency of workmanship and
trustworthiness in products.

*• '"'"";7»]^'««',fi'-o<*«« fonned an organization modeled after that of
H.e Kn ghts Templars, for carrying on piracy; their motto was 'God's friend

«1« c "^f^^^ ™''"y-' "^^y ^"^ " st'onirhold at Gotland, in the
Baltic Sea, and were long a terror to traders and fishermen; their power

— CUve Day, " A History of Commerce."

DEVELOPlVfENT OP ORGANIZATION 9

8. The conditions of membership included at fir,t
al who bought and sold, as wall as all artisans ifte
mSr " them.e,ves to professional eransm::n':::d

coLl^iiZ *" *,' .1'"'™""=' "f "-^ regulations was
concerned, m general, they promoted fraternal relations
between members, fair dealing in the intereste of Z
trade as a whole; and in . spiial way. theTp^vided
times and places for holding particular markets^Ils^
upon the qualities of the g«5s, determh^d prlcTanl
decided upon methods of bargaining.'

5. In regard to competition, all rivalry among mem-
bers was denounced, while outside rivalsi-Ci™™'

eZ7r, '""" "7 """^^ *°™' "«- I«>™i"ed Sly to
»ter the town .nd sell their wares at Wholesale. They

Sl^r "^ «^ --''* *-= --P-P'e w»te1
6 In regard to the guild relation to the govermnent

and at t he'Tf ''^ "''"'"'"' °" «""■> "embe^™

ion rtt '"""u*'y ''""^ " !»«««" dom-
ination. The kmg gave the inhabitants of some towns

^pecial privileges, which meant that the guiUrse^Z

monopoly of the trade and that prices werreguS^v

municipal laws. But this had to be given up WdaUv

nduced an increase of supply. If the price was set t^
W for a staple w.«, the ware was no longer offerS^
Ihe government, finding it impossible to fix a prk^ for

bj «h ch the pnce and weight of a loaf was set by the

" Meager. " Introa.Uion to the Study of Economics," page 6.

BUSINESS ORGANIZATION

7. The staple handicraftsmen were the butchers,
bakers, brewers, blacksmiths, masons, shoemakers, sad-
dlers, carpenters, cabinet-makers, weavers, dyers, fullers,
tailors, goldsmiths, coppersmiths, harness-makers, tan-
ners and furriers.

6. Comparative importance of labor and capital in
the handicrafts system.— The long endurance of this
system of industry isaccounted for by the small amount
of capital necessary to enable a man to enter into a busi-
ness on his own account. Not only the master's skill,
but the power too, was furnished by man. The part
that labor took in production was much greater than the
part which capital furnished. But the same forces
which burst the bonds that confined industry to the fam-
ily, again broke through the limitations set by a local
town economy. Circulating capital accumulated in the
hands of some guilds faster than in others. It became
evident, too, that certain individual members of the
guilds were gathering to themselves greater quantities
of wealth than their brothers. At the same time labor
was becoming redundant. So while the richer members
of the town were looking for larger chances of invest-
ment and the poorer artisans were seeking for wider op-
portunities of employment, there arose internal bicker-
ings which gradually undermined the guild structure
from within.

At the same time a strong influence was having a sim-
ilar effect from without. This was the growing demand
for goods. The handicraftsman ma^e his wares ac-
cording to the tastes and orders of his customers. The
customers were men well known and were comparatively
few in number. Therefore the work of the handicrafts-
man was limited in variety and quantity and each factor
could be easily and constantly ascertained. The pro-

DEVELOPMENT OF ORGANIZATION U

ducer was relieved of the necessity for keeping large
stores of goods on hand, and also of maintaining a big
plant. From the point of view of the customer, who
reaUy determined the character and size of the business
unit, this system of industry is sometimes called "custom
production." The change in the character of the cus-
tomer's demands was the second cause for the gradual
displacement of a system whose production was by hand,
whose activities were so peculiar to the town, and whose
organization from a business point of view was so simple.
Before we begin to trace the changes caused by a
further growth of wealth and the extension of the
market, it may be well to summarize the principal facts
jjertaining to the handicraft system.' It will serve not
only to bring into contrast the conditions under the
earlier family system and that period >f transition from
the family to the handicraft system, but will afford, too,
a desirable point from which to trace the later industrial
developments. In the handicraft system we have what
many are inclined to believe a normal system of business
relations. There is a gradual advancement for the la-
borer, both sociaUy and economically. From the po-
sition of apprentice he gradually progresses to the posi-
tion of the independent master, receiving at all stages
an income proportionate to his services. As master he
produces with his own hand, directs his own capital and
supplies goods for a known group of customers, whUe in
return he gets an exact equivalent for his labor.^*

7. Second transitional period— domestic system.— So
closely allied are the meanings of *he words domestic,
household and family in the Anglo-Saxon languages
that much confusion has arisen in the use of these names
tor distinguishing different systems of industry. It is

' See page 12.

■' " Industrial Evolution." by Carl BUdier. page 160.

BUSINESS ORGANIZATION

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DEVELOPMENT OF ORGANIZATION

natural that the earlier writers should emphasize the
differences which were presented from the point of view
of labor. Accordingly we find the history of industrial
development divided into periods conforming to the
relative freedom of the laborer. Did the prevailing sys-
tem employ slave, serf or free labor ? Were the rights
of the laborer protected by custom or contract, etc.,?
Another way of distinguishing the epochs of economic
development was to characterize the periods according
to the place where the work was carried on. Therefore
we get the familiar division of "family," "domestic,"
and "factory systems."

From this point of view there is little distinction be-
tween the handicraft system and the domestic system,
but during the latter period there were other develop-
ments affecting the industrial organization which are as
necessary to be observed as the status or condition of
labor. From the view point of the capitalist and the
entrepreneur, this period marks the beginning of a new
differentiation in the employment and management of
ccpital. From the view point of labor, the period may
be called the domestic system only when contrasted with
the period which follows, that is, the factory system. It
is noticeable, however, that neither the capitalist nor the
laborer have their functions so clearly separated or so
closely united as under the factory system or the pre-
vious handicraft system; hence the appellation transi-
tional period is more significant and less liable to be
confused than the older expression — domestic system.

8. Extension of national government — appearance
of middle men. — It would be difficult to understand
the changes that the economic organi-ation underwent
in this period, if reference were not ni. 'e to the state.
Economically, this was manifested in the extension oi

BUSINESS ORGANIZATION

the national power over the domain of commerce and
industry. The national government had been growing
in strength and power. The protection it was able to
offer its citizens allowed them more time and energy
for the production of wealth. It permitted them to
live outside the barricaded towns and also allowed men
to spread out over the country in groups— not military
assemblages, but industrial clusters— which were the be-
ginnings of a national division of industry. As men or
groups of men engaged in different industries became
more separated, it was natural that a class of men
should arise whose chief function was to supply the
various groups with the products which each lacked.
The strengthened national governments helped this in-
terch^ nge of products as well as the growth of capital
They offered increased protection to both.

This transitional period comes at different times in
different countries but in England it extends from the
middle of the Fifteenth Century to the middle of the
Eighteenth. Defoe^ in his tour through Great Britain
(1724r-1726), describes the situation thus:

The land was divided into small inclosures from two acres to
six or seven each, seldom more; every three or four pieces of
land had an house belonging to them, . . . hardly an
house standing out of a speaking distance from another.
... We could see at every house a tenter, and on almost
every tenter a piece of cloth or kersie or shalon. ... At
every considerable house was a manufactory. . . . Every
clothier keeps one horse, at least, to carry his manufac-
tures to the market, and every one generally keeps a cow or two
or more for his family. By this means the small pieces of en
closed land about each house are occupied, for they scarce sow
corn enough to feed their poultry. ... The houses are
full of lusty fellows, some at the dye-vat, some at the looms.

DEVELOPMENT OF ORGANIZATION

others dressing the cloths; the women or children carding or
spinning, being all employed, from the youngest to the oldest.

The clothing trade was the most Iiighly developed,
and it is here that labor and capital in business began
to show their combined force under new relations to each
other. Besides the "clothiers" mentioned by Defoe, who
seemed to combine the double function of middlemen,
collectors and distributors, there was a class of "fac-
tors" who devoted themselves exclusively to buying
wool from the farmers and selling it to the "clothiers."
Another class of middlemen forwarded the goods to the
retailer after they were finished. This class consisted
of three types, each distinguished by the method pur-
sued in reaching the retail trade. First, there was the
wholesale dealer who attended the big fairs or markets.
He made larg** purchases and then traveled over the
country with his packhorse for the purpose of selling
to the retailers. Secondly, there was the merchant who
bought the goods and then sent them out of the coun-
try-. He was the exporter. Third, there was a com-
posite type of distributor, who, on the one hand, was a
commission, man who bought from the clothiers and de-
livered to their "factors" in London, and on the other
hand, acted as a warehouseman and looked after the
disposition of the goods to the home trader and foreign
exporter.*

So we see that although industry was still carried on
by hand in a small way, the functions of merchant and
workman were separated. Although the merchant was
not yet a capitalist nor the workman a manufacturer in
the modem acceptance of the terms, still there is a dis-
tinct line of cleavage between the men who furnish the

•The EvoluUon of Modern Capitalism." by John A. Hobson, page S9.

BUSINESS ORGANIZATION

capital and thme who give their labor. The merchant
class arose during this time and toward the end of the
period became the capitalists cf their day. At the be-
ginning of this period the workman owned his own
tools and conducted his work at his own home, but re-
ceived the raw materials from one middleman and de-
livered his goods to another; but he gradually lost con-
trol of his other capital possessions — his tools, which were
f umishc*d by the merchant also during the latter part of
the period. The gradual loss of the economic inde-
pendence of the laborer is noticeable.

9. Organization of capital investments by the use
of "joint stocks." — Although we see here the growing
importance of capital and its divorcement from the con-
trol of the laborer, still the business organization of
capital was very defective. Commercial banking and
credit systems were unknown. £ach merchant fur-
nished his own capital, and outside of the use of the co-
partnership principle, there wa.s very little capitalistic
cooperation in the field of productive industry. The
first appearance of the joint-ownership of large capi-
tals for business purposes came in the field of the mer-
chant's activities. The company form of organization
was adopted by the great trading companies of the Six-
teenth and Seventeenth Centuries. The East India
Con^pany and the Hudson Bay Company are familiar
examples of the early application of this joint-stock
principle to business enterprise. Men had so little ex-
perience, howe/er, with the manipulation of great capi-
talistic enterprises, that few would venture their wealth
unless their company was granted a monopoly by the
government. But with the opening up of foreign
markets and the demand thus occasioned for manufac-
tured goods, men began l.> seek new methods by which

DEVELOPMENT OF ORGANIZATION

these could be supplied. Toward the end of the Eigh-
teenth Century, therefore, we observe a tendency to
bring about an extension of the joint-ownership of cap-
ital and a more effective combination of labor units in
the business of manufacturing.

Mr. Cunningham cites the example of a company
wiiich in 1764 was formed with a capital )f £100,000
for the manufacture of fine cambrics, but which made
little progress on the whole until the next century, when
the joint-stock principle was applied to production.
The most important changr. were brought about in at-
tempting to apply capital more Ircratively by inventing
labor saving machinery and in bringing the labor units
into a more effective combination. The following ex-
tract from the report of a parliamentary committee on
the 'rvoolen manufacture in England in 1806 shows the
condition under which the domestic system was breaking
up on account of the new influences.

It niaj be expedient for your committee to state that there
are different modes of carrying on the woolen manufacture —
that of the master clothier of the west of England, the factory
and the domestic system.

In all th? western countries as well as in the north there are
factories, but the master clothier of the west of England buys
his wool from the importer, if it be foreign, or in the fleece, or
of the wool stapler, if it be of domestic growth ; after which,
in all the different processes through which it passes he is under
the necessity of employing as many distinct classes of persons ;
sometimes working in their own houses, sometimes in those of
the master clothier, but none of them going out of their proper
line. Each class of workmen, however, acquires great skill in
pf^rforming its particular operation. . . .

In the factory system the master manufacturers, who some-
times Dossess very great capital, employ in one or more build-
II-«

BUSINESS ORGANIZATION

IKI-:

ings or factories, under their own or their supeiintendent's
inspection, a number of workmen, more or fewer according to
the extent of their trade. This system, it is obvious, admits in
practice of local variations. But both in the system of the
west of England clothier and in the factory system the work,
generally speaking, is done by persons who have no property in
the goods they manufacture, for in this consists the essential
distinction between the two former systems and the domestic.

In the last-mentioned or domestic system, which is that of
Yorkshire, the manufacture is conducted by a multitude of mas-
ter manufacturers generally possessing a very small and scarcely
ever any great extent of capital. They buy the wool of the
dealer; and in their own houses, assisted by their wives and
children, and from two or three to six or seven journeymen,
then dye it (when dyeing is necessary) and through all the dif-
ferent stages work it up into undressed cloth.

Various processes, however, the chief of which were formerly
done by hand under the manufacturer's own roof, are now per-
formed by machinery in public mills, as they are called, which
work for hire. There are several mills near every manufactur-
ing village, so that the manufacturer, with little inconvenience
or loss of time, carries thither his goods and fetches them back
again when the process is completed. When it has attained to
the state of undressed cloth he carries it on the market day to a
public hall or market where the merchants repair to purchase.
Several thousands of these small master manufacturers attend
the market at Leeds, where there are three halls for the expo-
sure and sale of their cloths. . . .

Though the system which has been just described be that
which has been generally established in the West Riding of
Yorkshire, yet there have long been a few factories in the neigh-
borhood of Halifax and Huddersfield ; and four or five more.
. . . These have for some time been objects of great jeal-
ousy to the domestic clothiers. ...

Your committee cannot wonder that the domestic clothiers of
Yorkshire are warmly attached to their accustomed mode of car-

DEVELOPMENT OF ORGANIZATION

rying on the manufacture. It is not merely that they are ac-
customed to it — it obviously possesses many eminent advantages
seldom found in a great manufacture.

It is one po-u niv -scommendation of the domestic system of
manufactur*^ that, as it ha. been expressly stated to your com-
mittee, a yo ng man of g }od character can always obtain credit
for as much vo->' »is will enable him to set up as a little master
manufacturer, and the public mills, which are now established in
all parts of the clothing district, and which work for hire at an
easy rate, enable him to command the use of very expensive and
complicated machines, the construction and necessary repairs of
which would require a considerable capital. Thus instances not
unfrequently occur wherein men rise from low beginnings, if
not to excessive wealth, yet to a situation of comfort and inde-
pendence.

It is another advantage of the domestic system of manufac-
ture, and an advantage which is obviously not confined to the
individuals who are engaged in it, but which, as well as other
parts of this system, extends its benefits to the landholder, that
any sudden stoppage of a foreign market, any failure of a
great house, or any other of those adverse shocks to which our
foreign trade especially is liable, in its present extended state,
has not the effect of throwing a great number of workmen out
of employ as it often does, when the stroke falls on the capi-
tal of a single individual. In the domestic system the loss is
spread over large superficies; it affects the whole body of the
manufacturers ; and though each little master be a sufferer, yet
few, if any, feel the blow so severely as to be altogether ruined.
Moreover, it appears in evidence that, in such cases as these,
they seldom turn off any of their standing set of journeymen,
but keep them at woA in hopes of better times.

Happily, the merchant no less than the domestic manufac-
turer finds his interest and convenience promoted by the domes-
tic system. While it continues he is able to carry on his trade
with far less capital than if he were to be the manufacturer of
his own cloth. Large sums must be irrevocably inveited in

BUSINESS ORGANIZATION

1|!

extensive buildings and costly machinery ; and, which is perhaps
a consideration of still more force, he must submit to the con-
stant trouble and solicitude of watching over a numerous body
of workmen. He might then often incur the expense of manu-
facturing articles which, from some disappointment in the mar-
ket, must either be kept on hand or be sold at a loss. As it is
he can agree with his customer, at home or abroad, for any
quantity of goods; and, whether on a long-expected or a sud-
den demand, he can repair at once to the market, and most prob-
ably purchase to the precise extent of his known wants; or, if
the market happens not tc furnish what he wishes to purchase,
he can give out his sample and have his order executed imme-
diately. . . .

It would not be difficult *.o prove that the factories, to a cer-
tain extent at least, and in the present day, seem absolutely
necessary to the well-being of the domestic system, supplying
those very particulars wherein the domestic system must be ac-
knowledged to be inherently defective ; for it is obvious that the
little master manufacturers cannot afford, like the man who pos-
sesses considerable capital, to try the experiments which are
requisite, and incur the risks, and even losses, which almost
always occur in inventing and perfecting new articles of manu-
facture, or in carrying to a state of greater perfection articles
already established. He cannot learn by personal inspection
the wants and habits, the arts, manufactures, and improvements
of foreign countries; diligence, economy, and prudence are the
requisites of his character, not invention, taste, and enterprise;
nor would he be warranted in hazarding the loss of any part
of his small capital: he walks in a sure road as long as
he treads in the beaten track ; but he must not deviate into the
paths of speculation. The owner of a factory, on the contrary,
being commonly possessed of a large capital, and having all
his workmen employed under his own immediate superintendence,
may nake experiments, hazard speculation, invent shorter or
better modes of performing old processes, may introduce new
articles, and improve and perfect old ones, thus giving the

DEVELOPMENT OF ORGANIZATION

range t > his taste and fancy, and thereby alone, enabling our
manufacturers to stand the competition with their commercial
rivals in other countries. Meanwhile, as is well worthy of re-
mark, many of these new fabrics and inventions, when their suc-
cess is once estu lished, become general among the whole body
of manufacturers; the domestic manufacturers themselves thus
benefiting in the end from those very factories which had at
first been the objects c ' their jealousy. The history of almost
all our other manufactures in which great improvements have
been made of late years, in some cases at an immense expense,
and after numbers of unsuccessful experiments, strikingly illus-
trate and enforce the above remarks. It is besides an acknowl-
edged fact that the owners of factories are often among the
most extensive purchasers at the halls, where they buy from the
domestic clothier the established articles of manufacture, or are
able at once to answer a great and sudden order; while at home,
and under their own superintendence, they make their fancy
goods, and any articles of a newer, or more costly, or more
delicate quality, to which they are enabled by the domestic sys-
tem to apply a much larger proportion of their cftpital. Thus
tlie two systems, instead of rivaling, are mutual aids to each
other, each supplying the other's defects and promoting the
other's prosperity.

This extract is interesting in showing how clearly the
committee saw the general principles of business in their
application to commerce and trade; but how little were
they able to foresee the effects that were about to be pro-
duced in the field of industry by the adoption of the
joint-stock method of financing enterprises, and the ap-
plication of steam power, and the factory method of
handling labor in manufacturing processes.

The dates marking the changes during the last part
of the second transitional period and the important in-
fluences which brought about the disintegration of the

BUSINESS ORGANIZATION

domestic system may be summed up as follows for the
textile industries. Other industries soon followed.

(1) Before 1770, early experiments with inventions.

(2) 1770-1790, development of great mechanical in-
ventions.

(8) 1790-1880, application of steam power.
(4) After 1830, development of transport facilities
and growth of the market.

CHAPTER II

DEVELOPMENT OF ORGANIZATION (Continued)

10. Factory system. — This is the system under which
the modern industrial world moves. It is hardly saying
t(x) much to credit it with giving color to modern
civilization. When we speak of our times as heing the
industrial age, or say that our religious, political and
social institutions are dominated by the commercial
spirit, we have reference to the conditions and influences
that have been brought about under the "factory sys-
tem."

The changes that began to take place under the do-
mestic system during the latter part of the Eighteenth
Century were carried on during the Nineteenth Century.
The substitution of steam power for man power in the
production of goods was equivalent to an increase of
productive efficiency that would have been brought
about by increasing the population several thousand
times. So great was the output that the consuming
capacity of the population has not yet been able to over-
take the productive capacity of the people. For this
reason, each of the great manufacturing nations is striv-
ing to protect its home market and to push its surplus
into those countries where modem industrial organiza-
tion has not yet penetrated. That is, the problem of
modem business organization is to maintain and win
new markets for its product. Nations were able during
the period of the domestic system to win new markets
by conquest and colonization. They held these markets

BUSINESS ORGANIZATION

by a policy of colonial administration which compelled
the colonies to consume and to export only those goods
that permitted the "home country" to dispose of its sur-
plus stock most advantageously. England's attempt
to enforce this policy in America brought about the War
of Independence, and the influence of its outcome
. brought a change in colonial administration throughout
tlie world. Although much can still be done by a nation
in advancing its foreign trade, yet in its last analysis
the success of the business man must depend upon his
resourcefulness in producing a cheaper and a better
article than his competitor.

11. Cooperation and centralization.— The first great
advance in the direction of cheapening production was
the invention of a machine that would do the work of
several men. The next step was the improvement of
these machines, and much is still being done in this line,
but the technical efficiency of a machine may be counter-
balanced by many other considerations. The machme
may be situated at so great a distance from the source of
power that the cost of conveying the fuel or other
medium may be greater than the sum saved by using
mechanical contrivances. So business men saw the ad-
vantage of moving the machine near to the coal fields
and water falls. And then too, they put the machines
under one roof instead of having them scattered about
in the homes of the working men. This brought the
laborers under one roof. The accumulation of a large
amount of capital and the assembhng of a numerous
body of workers under the direction of a central man-
agemei constitutes the essent'al part of the reorganiza-
tion whicw business underwent in shifting from one sys-
tem to another. These form the foundation upon which
the modem industrial organization was to rear itself.

DEVELOPMENT OF OKGANIZATION 25

The use of machinery was accompanied by a greater di-
vision of labor and hence, greater cooperation. The
business unit considered as a combination of capital and
labor has increased in size, and 'the two components have
assumed such entirely new relations to each other that
many of the most pressing problems of to-day depend
for their solution upon a method which will make them
cooperate more effectively and harmoniously.

12. Effect upon the laborer's status.— In order that
this relation may be seen clearly by the modem employer
of labor, the present laborer's position may be compared
with the earlier handicrafts-man. Before the introduc-
tion of steam power, the workman owned his own lathe,
or hand loom and so on, he applied his own muscular
force, and he guided and directed the implements or
tools according to his skill and sentiments. By a series
of economic changes he lost possession of the tools but
still furnished the skill and muscle necessary in the pro-
duction of goods. The next step in the divorcement of
the laborer from his work was to supply an independent
source of motive power which removed the tool from the
direct guidance of the individual and made him a "ma-
cliine tender" rather than a craftsman. This is an im-
portant step, for the relation of the laborer to the work
is changed from a direct to an indirect relation. He still
cooperates but neither the skill of his hands nor a feeling
of proprietorship in the machine or the product is left
to give him a personal interest in the outcome.

With the shifting of the machine from the home to
the factory there was a still Turther break in the interest
of the laborer in his work. As the business unit grew in
size, the laborer felt his growing insignificance. Not
^nly was he separated from any direct interest in the
machine, but the increasing of the productive process

mmmtrnt^^^—

«6

BUSINESS ORGANIZATION

v/as putting him farther and farther away from any
contact with the men who were directing the business
policy of the concern.

As the early handicraftsman was forced from the
market by the increase and growing complexity of the
demand for goods and grew suspicious and rebelled
against the middleman who furnished the capital and
assumed the risks of marketing the products of his
labor, so the artisan to-day is forced from a direct con-
nection in production. Other men furnish the capital,
direct the business policy and manage the processes of
production. The laborer feels his dependence and
looks upon his coiiperator capitalist with suspicion and
distrust. To meet the power which capital exerts in
the business, the laborers have combined into "trade
unions," and after a long struggle they have estab-
lished their right to speak as a body in the interests of
the individual members. They have made great prog-
ress along this line by substituting the method of "col-
lective bargaining" for the old method in which the in-
dividual laborer stood alone 'n bargaining for his wage
with the employer. At present the unions support the
claims and demands of their members.

To restore some of the advantages which existed un-
der the simpler forms of industrial organization, many
of the large establishments of to-day are adopting
methods of payment such as profit sharing, as well as
plans for the better housing of their employes, and vari-
ous devices for improving their condition while at work
which is termed "welfare work." The object is mainly
to regain that personal touch between employer and em-
ploye which was lost in the complex business organiza-
tion of to-day. These will be treated of later tin 5<, part
of the business policy of an enterprise. It is mentioned

DEVELOPMENT OF ORGANIZATION

here simply to show how these modern problems of busi-
ness are connected with the larger industrial develop-
nient.

The increase of production due to a better organiza-
tion of the essentials contributed by labor was accom-
j)anied by a continual improvement in the character of
the maclnne.

The economic advantage of the early machines consisted
chiefly in the economy of working in combined action a number
of similar tools by the agency of a single motor.

The more highly evolved modern machinery generally repre-
sents an orderly sequence of processes by which mechanical
unity is given to labor once performed by a number of separate
individuals or groups of individuals with different sorts of tools.
But the economy of the earlier machines was generally of a
different character. It consisted, for the most part, not in the
harmonious relation of a number of different processes, but
rather in a multiplication of the same process raised sometimes
to a greater size and more speed by mechanical contrivances.
So the chief economic value of the earlier machinery applied
to spinning consisted in the fact that it enabled each spinner
to work an increased number of spindles and performing with
each the same simple process that he formerly performed with
one. In other cases, however, the element of multipHcation was
not present, and the prime economy of the machine consisted in
superior skill, regularity, pace or economy of power obtained
by substituting mechanical direction of the tool for close and
constant human direction. In modern machinery the sewing
machine illustrates the latter, as the knife-cleaning machine
illustrates the former.*

13. Producer as a business man. — The chief direc-
tions in which the business manager applied his energies
in order to reduce the costs of production and to increase

1 Hobson, " The Evolution of Modern Capitalism," page 46.

BUSINESS ORGANIZATION

his output was as mentioned above. But non-human
power and the machine called for large outlays of capi-
tal. This was supplied by the constantly increasing sur-
plus due to more efficient production under the factory
system. The capital, however, was scattered and men
were not as yet experienced in the ways whereby these
capitals in various forms and in sundry places might be
brought together, thus affording a large accumulation
under a single management to be used in some one indus-
try. This was the problem set for the business men of
the last century. In 1800 the principal form of a busi-
ness enterprise whereby the capital of more than one man
might be used in the promotion of industry was the part-
nership. This form was fitted to the conditions of
earlier systems although its limitations were manifest
V n the great commercial and trading companies were
Oiganized in the seventeenth and eighteenth centuries.
Many men were willing to invest a part of their capital,
provided by so doing they did not endanger the re-
mainder of their possessions through the risks of the
venture or the peculations of the partners. The part-
nership form of organization did not permit such men
to dispose of their capital, since the essential principle
of the partnership is that each member is liable to the ex-
tent of his whole possessions, and is bound by the actions
of his partners.

The increasing wealth of both nations and individuals
forced the business man into a consideration of means
whereby it might be used as capital in further produc-
tion. He saw that increased production and cheap-
ened costs which depended simply upon new inventions
and the application of a non-human power would soon
reach their limits if there were not combined with these
the advantage of "large scale production." Under this

; DEVELOPMENT OF ORGANIZATION

method the business man utilizes his space and time lo
the fullest advantage. The more goods he can tu;ii out
upon a given space and in a given time, the less heavily
do the ground rent, the interest charges, and so on, fall
upon each unit of goods. He saw also that the same
policy applied to his wage costs. If a laborer could at-
tend four machines with the same effort that he could
watch two machines, then the costs per unit of output
would be lessened very materially by providing more
machines and increasing the output. But a business
policy of this kind called for the accumulation of larger
<'apitals. It could not be suppliecl by one individual
nor by the joint-stock of a few individuals which the
partnership form of organization permitted.

It was evidently time to extend the operation of the
joint-stock principle as found under the partnership by
removing the restrictions of unlimited liability imposed
upon business associations of this kind. Accordingly
joint-stock companies were permitted to organize under
the law. Each member was limited in his liabilities to
the amount of his capital investment. In England,
these companies were known as "limited companies,"
while in the United States they are spoken of as cor-
porations.

Although according to the recent researches of Deloume and
Wi'ber the commercial corporation probably existed in the later
centuries of the Roman Republic, in its modern shape it dates
from the early medieval Italian cities. The earliest form was
that of a so-called "bank," individuals associating their capital
to form a joint-stock, loaning it to the government on a pledge
of certain revenues, and participating in the profits according
to their holdings. Tlius the beginnings of public credit and of
corporate enterprise are found intimately associated. The next
important development of the joint-stock principle was in the

BUSINKSS ORGANIZATION

;ie

trading companies of the sixteenth tentury, which were at first
mere Icmitorary HssociMtions for the purpoHC of a single voyage,
but whi» gradually asHunied a more permanent form. It was
not, however, until the predominance of industrial over connncr-
cial capital in the nineteenth century that wc find the immense
expansion of corporate enterprise which marks modem life.*

To the above economic advantages may be added that
of perpetual life. Unlike the individual firm or the
partnership which must be changed with the death of a
member, the corporation never dies until the business is
Hquidated. "The shareholder may disappear but not
the shares." This permanency of life enables it to
plan for the future. The "to-morrow departments" of
large industries of the present can plan with the as-
surance that there will Ix; a business successor or in-
heritor who will carry out its plans with ability, or if
needs be, who can wisely adjust the policy to altered
conditions.

14. Trusts, or unions of corporations. — During the
last half of the Nineteenth Century the advantages of
united capital became so apparent that large scale pro-
duction developed into gigantic scale production. In
order to meet the demands for immense accumulations
of capital, it became expedient to form corporations
whose membership was made up of smaller corporations.
Although there were other motives than those of econ-
omizing production through increasing the size of the
business unit, yet this is still a strong argument in favor

I the modern form of organization known as the trust
So important has the financiering of modem corpora-
tions become that it is separated from the productive
end of the business and given a distinctive department

iSeligman, "Principles of Economics," page 96.

DEVELOPMENT OF ORGANIZATION

The niisitig of capital by the niarketinj^ of securities
is treated in the volumes ot this scries entitled Corpoba-
TioN Finance and Investmknt and Specuijvtion.

In no country has the increace in capital been so rapid
and vast as in the United States. Hence it is here that
we should exjiect to find the greatest tendency toward
the organization of industry in large establishments.
Ik'ginning in 1812, we find some concentration on a
large scale, hut it was not until 1850 that the machine
supplanted hand work, and not until 1865 that large
scale production bee une the prevailing type of industry.

The following diagrams from the Reports of tiie
Twelfth United States Census Statistical Atlas will
^nve some idea of this vf "oital increase during the
second half of the 19th ceu.. y and also a comparison
of the cost and value of products. The next table of a
few important industrial companies shows the growth of
combination.

Itoe

f.O
»

IINV

•

ISTEO AT tUM CCNSUSi m TO IMl
oMDs or MujoM w eeium

• w « «

•

"**

tiTO

tllO

S. VALUE OF PRODUCTS AT EACM CCNSU& IIM TO IMO,
wMowas or muwns or eoujm

ii2

BUSINESS ORGANIZATION

4.
5.
8.
7.
8.
9.
10.
II.
12.
13,
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.

When
IfofM founded or

norganized.

United States Steel Corpora, jii 1901

American Telegraph & Telephone Co 1885

American Tobacco Co. (Old Company) 1904

International Mercantile Marine \902

American Smelting and Refining Co 1899

Amalgamated Copper Co 1399

International Harvester Co 1902

Pullman Co jggg

Central Leather Co 1905

American Agricultural Chemical Co 1913

United States Rubber Co i892

Mackay Companies 1903

American Sugar Reflping Co 1891

Com Products Refining Co I90(j

American Can Co \qq\

Pittsburgh Coal Co •. . . . jggg

General Electric Co 1893

Colorado Fuel & Iron Co 1912

Lackawanna Steel Co 1902

Westinghouse Electric & Mfg. Co 1872

Republic Iron & Steel Co 1899

American Car & Foundry Co 1999

American Woolen Co isgg

International Paper Co iggg

National Biscuit Co iggg

American Locomotive Co 1901

Deere & Co. jgu

Capitalizatio*

Outstanding

Stocktand

Bonds, 1915.

$1,49«,«70,578
504,186,900
07,644,70«
178,092,457
160,534,500
166,387,900
70,000,000
120,000,000
108,762,231
62,240,600
128,932,800
01,380,400
90,000,000
88,445,367
96,466,800
90,226,0M
113,532,800
81.393,500
70,000,000
28.070,250
66.184.000
60.000,000
60,000,000
55,466,500
54,040,500
57.729,000
62,217.000

15. Division of labor. — The mass production which
was possible only with the advent of tiie machme has
been furthered by the specialization of labor. Mass
production is thus correlated to labor as closely as it is
to capital. From the point of view of industry this
division of labor has manifested itself in four direc-
tions.

First, there was the differentiation of the process of
making a living between man and woman. The di-
vision of society into social classes is a result of the

DEVELOPMENT OF ORGANIZATION 83

worldng of this principle. The military class, the
priesthood, and the industrial classes are examples of
these social groups.

Second, it took ages for this elementary division of
labor to take place, but the efficiency gained by society
was so great that the same force has been operativ'e
withm the various classes themselves. The great in-
dustrial class is the only one in which we are at present
interested, and it is here that we find the best examples
of the division of labor, especially among the textile in-
dustries. It was in this field that the earliest of the in-
ventions was applied. This start in industrial develop-
ment has been maintained and the operation of the great
mdustnal force can be clearly discerned. For instance
certam mills manufacture yams; others do only the
weaving; and stiU others dye and prepare the cloth for
the trade.

Third, we find within each of these branch indus-
tries a stiU further refinement of this speciahzation.
i.ach business has its technical processes divided into
separate classes. This means that certain groups of
workmen apply themselves to one machine process while
other groups are likewise limited, each to some one kind
ot labor. Thus the modem factory discloses perhaps
'Hindreds of separate processes all working to tum out
a completed article which in former times was made en-
tirely by one man. To make a shoe in some factories
requires neariy two hundred operations each conducted
hy a separate class of operators. In the manufacture
ot a high grade watch there are more than one thousand
■vUKis of machines each with its different set of laborers,
llie advantage of this kind of specialization is obvious
hut the extent to which it is carried in the manufacture
ot the commonest articles is often overlooked. For ex-

BUSINESS ORGANIZATION

ample, the horse-rake has three hundred parts, the mower
is made up of six hundred, and the binder contains
8,800 parts. If we compare this with the old reaping
tool of two pieces — ^the handle and the blade— the de-
velopment of the machine and the consequent division
of labor are very evident. The close connection be-
tween specialized labor and increased output is also il-
lustrated by the manufacture of reapers. In one year
the McCormick Company turned out 56,000,000 cast-
iiigs. This company devotes one department solely to
the making of chain-links, and the output runs to nearly
sixty million a year. Another department makes more
than 400,000 linch pins per day.

This great output can only be accomplished because
of the specialization of labor and the use of special ma-
chinery. The laborer, through greater familiarity with
one process, increases his dexterity while the machine
supplies a tireless energy and precision which man alone
cannot give to it. A boring instrument in this same fac-
tory can make five holes in a casting in six minutes. It
took four hours to do the same work by hand. In the
paint shop one unskilled workman can paint four hun-
dred reaper fra > s a day by dipping them into a grer*
tank of paint.

The saving in the cost of production is well illustra u
in the same connection. In 1845 the inventor of the
reaper paid four and a half cents for one bolt. These
were made by hand. To-day the company makes bolts
at the rate of fifty for one cent. It was the same with
"guard-fingers." Only fifty years ago these cost 24
cents each. At present, Tjy machine and the assist-
ance of one man, 1,800 guard-fingers can be turned
out in one working day at a labor cost of six for 1 cent
Perhaps the carpenter shop offers the best illustration

DEVELOPMENT OF ORGANIZATION

of the saving which mass production is capable of
giving as a result of the substitution of hand methods
by machinery, and the improvement of technique
through division of labor. Here, a machine that cost
$2,500 performs the single function of shaping poles.
It saves only one penny a pole but this means $8,000 a
year on the 300,000 poles which it turns out.

16. Territorial division of labor. — There is also a
fourth division of labor which is characterized by the
location of the industry. Labor is applied to industry
to greater advantage in some localities than in others.
Ill large cities like New York and Chicago, the various
lines of wholesale business gather in districts by them-
selves. This fact is so well known bv New York work-
ingmen that they can tell with a fair degree of accuracy
the prevailing wages, the number of hours of labor per
day, the business habits of opening early in the morning
or of giving a half hoUday on Saturday if they know
within what section the business is located. For in-
stance, a book-keeper who wished to stop work early in
the afternoon would feel that his chance for getting
such a position would be very poor if he applied in the
district bounded by Fourth Street on the south and
Twenty -third Street on the north; Fifth Avenue on the
west and Second A. venue on the east.

Tlie reason why industries are gathered in certain
localities in cities, or on a wider scale of the nation is
lecause some places or territories are better fitted to
some industries than others. Some of the peculiar
characteristics pertaining to the territorial division of
labor are as follows :

1. Natural characteristics :

(ai Proximity to coal, water power, or raw mate-
rial.

BUSINESS ORGANIZATION

(b) Favorable climate.
2. Business characteristics:

(a) Nearness to markets.

(b) Cheap labor supply.

(d) Good credit facilities.

17. Advantages and limitations.— That there have
been many advantages which the business world has
gained through its increased wealth due to the division
of labor cannot be gainsaid, but the business man would
go far astray in many respects if he did not recognize
the hmitation of the application of this principle.
Many of the remedies which advanced thinkers are try-
ing to apply to the industrial organization of to-day
have to do with the evils caused by too great specializa-
tion and production on a large scale. Diversification
must be supplemented by cooperation. It is in the third,
division of the mechanical division of labor that the
business man is treated from the point of view of the
business enterprise. If machine work and labor spe-
cialization simply bring to the laborer greater intensity
of work, then the basis for the prosperity of the em-
ployer IS unsound. The laborers of a country are also
the greatest consumers. Increased output by the in-
dustries of a nation without a corresponding growth
in the capacity to enjoy, and an increase in the purchas-
ing power so that these goods may be procured on the
part of the labor force, will avaU the individual pro-
ducer httle in the face of restricted or stunted markets
even with cheapened costs of production. Therefore
the pnnciple of cooperation must be adopted as a com-
plement to the division of labor. Herein lies the great
role of the employer ' f hbor. He musx see not only
the smaU technical ad/antages, but also the advantages

DEVELOPMENT OF ORGANIZATION 37

which come from a wider view of the results when the
whole process is considered. Organization in its
broader meaning is attention to cooperative as well as
to technical efficiency. First there must be cooperation
between labor and capital. Then there must also be
tliat technical combination of laborer with laborer.
"Team work" tells as effectively in the factory as on the
football field. Each man plays his individual part, but
at the critical moment the combined effort is necessary
if the result is to be of value. The great steel foundry
divides its work into many sections but all parts must
coiiperate simultaneously or the product is spoiled.*

rhus we see that the sunple business of early times
has evolved into the complex form of to-day in accord-
ance with the same laws which rule plants, planets and
political institutions. The prevailing form of organi-
zation of the present is still undergoing changes and
will no doubt manifest many new features as the years
pass by. It seems that the big business in the form
of the corporation will be of the type to give its name to
the twentieth century industrial organization.

' Principles of Economics," by E. R. A. SeUgman, page 183.

CHAPTER III

ORGANIZATION OF THE MARKET

18. Extension of the market. — Not only has the
growth of capital forced changes in the forms of the
productive system and in the forms of legal organiza-
tion, but it has also emphasized the importance of the
nation as an economic unit. Commercial interests can-
not follow state lines; and as the national surplus in-
creases, trade cannot be bound by national boundaries.
The foreign market is a necessary supplement to our in-
creased productive capacity. At first it was necessary
to dispose only of our surplus agricultural products
abroad, but now that the country is producing such
enormous quantities of manufactured goods over and
above our home needs, they too must be sold to foreign
consumers.

Speaking roughly we can say that business may be
divided into two phases. One phase consists of main-
taining a continuous flow of goods through the various
processes until completed. The raw cotton finds its
way to the spinners; and the cloth, after leaving the
manufacturer's hands, is conveyed to the warehouse,
from which it passes to the shops to replace the ever
dwindling stocks. The other phase is the distribution
of completed goods ready for consumption. The first
phase is dependent upon the second and the latter is
dependent upon the consumer. It is tiie strength of the
consumer's demand that draws on the raw material
through the various processes until it reaches the correct

ORGANIZATION OF THE MARKET

form and the right place at the most appropriate time.
It is very necessary, therefore, that the wishes or desires
of the eonsmner become known to the producer with as
little delay and confusion of information as possible.
On the other hand, it is quite as imperative that the
producer be able to deliver his goods to the consumer
with each ot the above attributes of form, time and place
in their highest degree of perfection.

The means by which the consumer expresses his de-
sires and makes his purchases and by which the producer
gathers the information and delivers the commodities,
is the market. The simplest form of the market is one
where the consumer meets face to face with the pro-
ducer. In this case there can be no deterioration in the
character of the goods while passing from one owner
to the other. Each one is able to foriu his judgment
in conformity with his own observations, and insofar as
this one transaction is concerned, the producer has
placed his goods at the most economical point in space
and time. Presumably, if this were not so, the place
and time would be changed.

19. Primary function of a market. — Under the early
systems of industrial organization this primary method
of purchase and sale predominated. In C^enoa several
hundred years ago, the buyers and sellers of grain con-
gregated around a certain stone near the docks. For
many generations this served as the only market, but
later something more systematic — that is, a better mar-
ket organization — seemed desirable. Accordingly an
association was formed, rules were adopted, and a build-
ing was erected. This was the beginning of the Genoa
Grain Exchange of to-day.

With all the changes that it has been necessary to
make in the organization of the market, this primary

BUSINESS ORGANIZATION

every market. The strong tem eiicy to keep thi, .™
pie organization where it ,s po.s»ih]e to stem m^ "'
fluence .s seen in U.e Antwerp grain mTrkT H

tZTZ- I "" °P*" »■"• ^«« -nafket and all the

S mel It^r R ' '" """^ "" "y "«'" ""«««'-.
wiij meet at the Bourse every week dav fr^.r. *

room IS crowded. AU business transacted here JT/I

£prorS^^T-^t:t-ri5

inat Antwerp stands unique among the great imiin
markets ,s largely due, no doubt, to her p^LVZ
other larger markets which have be - chanj^ 7^ jj
modern conditions, and so in . measuiTS ^"^
abled to us. the prices of other markets as a Sor Z

poss ble for each merchant in Antwerp to maintair»^

'^X2t'^-^'''°' '"« -"* " oZ to deC
mine t..^ chief price-making factors.*

ORGANIZATION OF THE MARKET 41

20. Market prices a remltant of toorld-mde influ-
ences.—The situation as it exists in the wheat trade is
typical of all forms of commercial and industrial activ-
ity. Each individual enterprise connected with the
wheat and flour industry has been affected by the
greatly extended areas over which wheat is grown, by
the improved mechanical processes, and by the organiza-
tion of labor and capital which have reduced the cost
of production. Men of the grain trade must watch the
world conditions in order to determine the supply. On
the other side, the consumer of wheat must keep in-
formed as to the demands of other countries. In other
words, the price of wheat is influenced directly and con-
tinually by world-wide influences on both the supply
and demand side of the market. No longer can any
local market be made up of buyers and sellers who can
directly investigate the conditions controlling the price
of wheat. The situation has become too complex, and
with complexity and extension have come uncertainty.
I If producers and consumers were to give up their time
I to solve all the commercial riddles which modern organ-
ization presents, they would have little time left for any
{other business.

21. Function of the middleman.— Accordingly there
jhas risen within the industrial system a class of men who
lare willing to devote their whole time to the gathering
|of information and to analysis of the conditions which it
jreflects. These men are willing to support their judg-
jments of the outcome with their money. They say to
Ithe producer, "We are willing to buy your goods to-
tjay at the prevailing price for the privilege of selling
ft m the future at the price which we believe will then
jexist " In other words they assume the commercial risk
for the privilege of making any profit that may arise

BUSINESS ORGANIZATION

from a change of price in harmony with their predic-
tions. The amount of these risks varies with the trade.
Some trades support a separate class of risk-takers called
speculators, others have a class of middlemen who do
not assume the entire risk, but owing to their training
and experience are in a position to aid both producer
and consumer in effecting exchange;^ of commodities.
These men are variously spoken of as commission men,
factors, jobbers, brokers and so on.

22. Market for raw materials.— The specialization
that has followed the development of industry has made
its appearance in the market also. Cotton, grain, cloth-
ing, machinery and many lines of business have each a
special market. The organizations of such markets
vary in accordance with the means by which the function
of buying and selling can be carried on most economi-
cally. The handling of the raw materials differs from
the distribution of the manufactured product. This dis-
tribution is based largely on the relation j? the Ho
classes of commodities to the consumer. The great bulk
of the agricultural products is not wanted directly bv
the final user of these commodities. The smoker of s
cigar seldom thinks of the tobacco plant or the dry lesf.
The wearer of a calico dress gives no attention to the
cotton field or the cotton bale. Neither of these con-
sumers wants more than a comparatively small amount
of cigars or calico at one time. Furthermore, the
qualities which the buyer demands in these goods are
produced by the manufacturer and these demands m
subject to sudden changes. The buyers of manufac-
tured articles seek to purchase their goods after a per-
sonal inspection and a series of bargainings. They da]^
not meet in competition at a given time and place.
Therefore, the organization of a market that is to

■nuiiiii

ORGANIZATION OF THE MARKET

meet the conditions here presented must be very differ-
ent from that in the field of agricultural products. The
latter are distributed to the manufacturer in great quan-
tities. It would be a great economic loss if he were
compelled to truvel over a territory large enough to
supply himself with the required amount and quality
of raw cotton, wheat or tobacco. The miller would lose
time and money if he were compelled to bargain with
the farmer for enough grain to keep a modern mill run-
ning. For example, the Pillsbury A Mill in Minneap-
olis grinds into flour the output of more than thirty
wheat farms of two hundred acres each in one day.
Such a business would naturally find great disadvantages
in drawing the grain from the country into a central
market. Another source of demand for wheat comes
from those foreign nations who wish to import gram.
If it were necessary for each importer to look to the
farmer dh'ectly for grain, there would be a greater
economic loss than in the case of the millers. Conse-
quently, we find the grain drawn from all quarters of
the grain belt to central points convenient for shipping.
Tn the case of the great primary grain market at Mm
neapolis, the demand of the local mills forms the basis
ivv that market, while the Ntn York market depends
upon the export demand for its support. The nature
of the commodity, too, aids in this method of marketmg.
It can be h: i.ed in bulk without injury under ordinary
precautions. It can be stored away for long periods
without deterioration. It lends itself readily to the busi-
ness policy of buying and selling in large bulk because it
is easily graded into different classes in accordance with
the demand for certain standard qualities. Further-
more, where the demand is extensive enough it becomes
subject to the tendency of the business men to buy and

BUSINESS OHGAMZATION

sell for future delivery. Hence the lominant feature
of all iDnrkets for the distrihuHon of agricultural prod.
W'\s like Krain, cotton, tobacco and product is the strong
tenden. , l< )ward sj>eculation. But in each of these spe-
cial markets the business man has turned over tfte spec-
ulation business wilh its profits and losses to the specu-
lator, n,„l h. ;ias received in return the . (.portunitv to
insure l.i.. se'i' against unforeseen lo os uliich aris^ in
this dir. ctM.n. The result of these many fa. .m. has
been t'< -rca c a nunil>er of exchisive oomjwtitive nmi
kets i)r .^ id, : with i.-Ies and re^alnt^uis and cntrulled
by a sprciai .uias of traders.

23. Jiarkrt /< >'• wanufactures.— The organization
of the market 1, r the distribution of manufactured
wares is the outcoiiM of a different set of influences.
It lacks the centra /at ion of m ires into a few great
competitive markets, although tiiere are weil-known cen-
ters where special lines of go(xis are sold. Ther. are
no general rules by which the t,aders are governed, for
they do not meet in an exchan^'e" to compete with each
other in the buying of liieir g^>ods. Articles like aia-
chinery, clothes, boots, automobiles, typewriters and so
on are sent to various joints at which they mi the
consumer. At these places will be found * <#kts .t
the manufacturers, the jobbers and tiie comr ssi.." i.
The organization of the first kind oi' m^. ^et n ^
briefly stated to conform to t te necessities gathc g
the raw materials from mar scattered so .•es for 'he
purposes of mass production. Tliis gives us central
markets wh< re the dealers can con^rregate a, compete
for the raw materials. T! e second -lass ( marked i
must meet the conditions *" a vet^ i.aturc. TIr
problem of the manufacture is to distribute ti eir wr-
from largf centers of pr i tin? imor * *^r ss

^r^

OHG.\. IZaTION ( I- THE MARKET 44

pill chasers. 1 1 ii, more fn-nxu „uical to breal up the rrar-
' t into small distr thdin^ 'xmiis, and aa a conse(,ut„ce,
til. ianutuct-irtr is mnfroiited with the romplcx prob-
kn f flcvisiri^ means i'or reaching tK purchasers.
Tl arious s eps ;.sen In this process giv us t\ > dis-
timt metJi Kis, I" nnolesaJe and retail.

•-'I. ./ giun marWt— The an ual receipts of grain
at Cli , dffo a mount o j totai of 2 *u,OnO,0('0 1 -100,000,-

nst itt s from 25,000,000 to

tl tot^iJ grain receipts. This

U;»t LT iui center in thf orld.

'• a

In-

.rket '
al tr

V the nuni of

^e figures «io not

actions in wheat

' ' oiisjiels. ^''ht i(
)000 .H) b,. els . !
niuK^'s = hicago he ^
If. l»"\vt er, W( me.f
traiisiK'ti s whicli ik
rcprf". nt H,e ^fa- :et.

''^'" f -r . .eed oro or tlie who country', and to
; IS (1 sc I .1 hu,.dre(l million bushels fn- com

Of" .u. tctivity as these figures represent as-

sure I ,1( tie- t, e world over an opportimi't- .t aU
»'"" ^ " huy or lispose of any quantity of gr . .-heat
• ^ lily.

A ^,u'u^H ac^eristic of the market is that )t

wessary sh.p ^. at here for delivery on ever
""'• to tn leat ( , every purchase. It is not even

n< vary to take ( ,r deliver a warehouse receipt on every
trar . t.on. Contracts may "set off" other contracts
'"' nee this peculiarity. The method has its coun-
'■'•"art M thr hanking system, v here checks and drafts
otlu r checks and drafts.

-a nfl

■ ^.rt of the United States holds that "set-off has all
'verj'. In the decision of May fl, 1904 the following

Thr Si
•if f.Tcrfs

rifcision was rend.-red.
"When the Chicago Board of Trade was incorporated w. can-t doukt

-"'rdy as places whel IT ' '^ '^"""''* ^"'"^ *»"»* ♦»>« P't^.

y places where future sales are made, are forbidden by the Uw!

BUSINESS ORGANIZATION

25. Receiving and storing the mpply.— Although il
is not necessary to make or to take a delivery of actual
wheat in every transaction, nevertheless there must al-
ways be present within easy reach a large supply of
wheat. It is necessary, therefore, to divide the market
into two parts, (1) the place where the transactions of
buying and selling take placs, and (2) the departments
and facilities for receiving and trans-shipping, or the
storing, inspecting and grading of the grain. We will
treat of them in inverse order. Chicago receives the
larger part of her grain from the states to the south-
west and west as far as Kansas and Nebraska, and
north as far as southern South Dakota and southern
Minnesota. Although the greater part of this grain
comes by the railroad, yet there is a considerable volume
of grain brought in by way of the lakes. Immense
quantities leave Chicago for the eastern markets of the
United States for Europe either by way of the rail-
roads or in boats down the lakes.

Much grain is stored in this market by means of im-

But again, the tontraits iimle in tlie pits are contracts between the mem-
bers. We must siii)po.se that from the beginning as now, if a member
had a contract with another member to buy a certain amount of wheat at
a certain time and anotlier to sel! tlie same amount at the same time, it
would l)e deemed necessary to cxcliange warehouse receipts. We must
suppose that then, as now, a settlement would be made by the payment
of differences, after the analogy of a clearing house. This naturaUy
would take place no less that contracts were made ii. good faith for
actual delivery, since the result of actual delivery would be to leave the
parties just where tlicy were before. Set-off has all the effects of dellf-
ery. The ring settlement is simply a more complex case of the same kind.
These settlements would be frequent, as the number of persons buying
and selling was comparatively small.

"The fact that contracts are satisfied in this way by set-off and the
payment of differences detracts in no degree from the good faith of the
parties, and if the parties know when they make such contracts that they
are very likely to have a chance to satisfy them In that way and fntesi
to make use of it, that fact is perfectly consistent with a serious bvaUMt
purpose and an intent that the contract shall mean what It says."

ORGANIZATION OF THE MARKET

mense elevators. The combined capacity of all the
storage facilities is estimated at from 60,000,000 to
70,000,000 bushels but from this total must be sub-
tracted all those storage facilities that are not used for
receiving and shipping • .d are consequently not a fac-
tor ill the grain-handling business. Not including such
elevators in the list, there are still about twenty-four
private elevators with a capacity approximately of 21,-
000,000 bushels. These are really factors of the receiv-
ing and shipping business. Besides there are fourteen
public elevators with a capacity of 23,000,000 bushels,
making a total storage capacity of 44,000,000 bushels.
These are the "terminal" elevators and their function is
to receive grain for storage. They are spoken of as
"public" or "rejular" if they serve the public generally;
and as "private" if they are devoted to the interests of
their owners solely.

Chicago is also headquarters for many line elevator
companies, some of which have lines of houses extending
throughout the Central States, and west through Illi-
nois, Iowa and Nebraska and southwest through Kan-
sas and Oklahoma. The grain houses consist of the
terminal elevator companies, the line elevator companies
and the commission companies. The last may be di-
vided into four classes: (1) those that transact a cash
grain business only, (2) those that do both a cash grain
and a "future" business, (8) those whose deaUngs are
confined to the future markets, (4) the buyers for such
interests as the big mills and for export.

The interests of the mills and exporters in the market
are quite different from those of the elevator compan-
;es The former are always buying in the open market.
1 hey never buy in the country. The line elevators buy
'n the country and sell in the market. The terminal

BUSINESS ORGANIZATION

elevator companies buy in the market and sell again in
the market to the mills, to the exporter or to the grain
men of other cities. The commission men merely seU
the gram that is shipped to them to the best customer
they can secure.

26. Inspection and grading.— The efficiency of the
systems of mspection and grading of commodities in a
market largely determines the size a:A Drosperity of
that market. The inspection must be carried on by re-
liable and competent men and the grading must be hon-
estly done. Unless a commodity which is not unifonn
m quality can be graded into classes according to
those quahties there can be no organized market of
wide dimensions. In the first place, the commod-
liy cou d not be sold, by sample; and in the second
place, all future buying and selling would be eliminated.
Men wiii not contract to buy a commodity for future de-
hvery unless they can be sure of getting the kind and
quality which they bargained for. The difficulty of
grading tobacco so that a definite contract grade could
be estabhshed upon which trades for the future might
be made has limited the organization of a tobacco mar-
ket. It IS nearly impossible to keep track of individual
lots of this commodity and guard it against mixture
with inferior lots in the warehouse. Therefore no one
will accept a certificate of inspection indicating a cer-
tarn lot.

27. State bureaus of inspection.— To give as broad
a confidence as possible to the inspection of great staple
commodities, many states have established bureaus where
the inspection is done by public officials. This is true
especially of grain inspection. In Illinois the State
Board of Railroad and Warehouse Commissions has
supervision over this feature of the business. Minne-

ORGANIZATION OF THE MARKET

sota has a similar commission. A certificate of inspec-
tion under such circumstances is a guarantee of tL.
grade b> the state. This is important in the export
trade of Duluth since its grades are higher than the At-
lantic seaboard grades of the same wheat. European
exporters, therefore, watch with care all shipments from
Duluth to see that the same grain goes through the ele-
vators at Buffalo and is loaded on the steamers in New
York City without losing its identity.

The method of inspection is much the same in all
markets. All cargoes loaded with grain coming into
Chicago from country points are promptly reported by
the railroad companies to the grain inspectors. These
men visit the cars and secure samples of grain that fairly
represent the grain in each car. Every car so inspected
is then sealed by the inspector. The samples are turned
over to the grain merchants to whom the cars were con-
signed from the local shipping center in the country.
The grain merchant displays his samples in the market
place of the exchange building and the grain is sent to
the elevator. A warehouse receipt is issued upon the
acceptance of the grain by the elevator company. This .
receipt together with the sample of grain becomes the
basis for the sale and purchase of this pai-ticular amount
and grade of grain. When the grain is sold, the ware-
house receipt is delivered instead of the actual grain, each
new owner endorsing the receipt when he receives it.
If the holder of the warehouse receipt wishes the actual
grai an obtain the same by presenting it to the ele-
vate, .pany. Only those firms, however, can issue
warehouse receipts that have been declared "regular,"
that is only such firms as conform to the Board of Trade
Hiles covering the inspection, handling and storing of
tne grain. The warehouse receipt thus becomes a very

BUSINESS ORGANIZATION

important instrument of trade and a heavy responsibilitj
rests upon the superintendent of the warehouse who hai
"barge of the grain and must keep it from deterioratioii
either by natural or fraudulent means. The various
grades must be kept distinct, although the identity of
any particular lot may be lost.

The object of grading is to separate a commodity into
grades based on differences of soundness, color and free-
dom from impurities. This applies to grain especially,
but other commodities may offer other characteristics
which it would be necessary to take into consideration.

Each market has its own standards and as a conse-
quence there are many different grades. There have
been many attempts at establishing a uniform grade for
wheat that would apply to aU markets, but without
much success. The tobacco grades are perhaps the most
local of the great staple products while the grades of
cotton are the most uniform.

28. Chicago and Liverpool grades of wheat— 1\k
following grading for wheat in a few of the large mar-
kets will illustrate the foregoing statement:

Chicago's "contract grades" of wheat or the basis for
transactions in the pit, are No. 2 red winter wheat. No. 1
northern, and No. 2 hard winter. In Minneapolis the
contract grade is No. 1 northern. In the Duluth mar-
ket No. 1 northern is the contract grade, but No. 2 north-
em may be delivered on contracts at 5 cents a bushel
under the price of the former. The contract grade in
the Kansas City market is No. 2 hard winter wheat of
not less than fifty-nine pounds, but No. 2 red may be i
dehvered at the seller's option.

There are at least nine varieties of wheat deUverable
on contracts in the Liverpool market. The wheat
commg from aU parts of the world as it does makes the

ORGANIZATION OF THE MARKET

work of establishing uniform grades very diflScult.
This important business of inspecting and grading de-
volves upon a special committee of fifteen members
elected by the directors of the Liverpool Corn Trade
Association. There is perhaps no position in the busi-
ness world where a man's judgment counts for more than
it does in that of inspector and grader/ It is the
grader's judgment that decides by what standard the
various products shall be measured. When one consid-
ers the millions of bushels and millions of pounds of
products that are entering the market— their selling
power in large part predetermined by the inspector's
judgment— it is easily seen what great opportunities lie
in his hands for changing the purchasing power of large
quantities of grain, cotton and other products— through
assigning them to one or the other of a number of
grades.

>The fundamental principle underlying aU grading of comn <ye» is
to discover the dominant cl.aracteristics that give the commodity Tarvin.
commercial values.

CHAPTER IV

THE EXCHANGE

29. A typical market— We have thus far been treat-
ing of the external side of the market and of the various
factors upon which a market of modem times must be
organized. Taking Chicago as the example, we find
that the various market interests not only center in one
city but are focused here in one building— the Chicairo
Board of Trade. Technically, the "market" is at that
pomt. "The country miller of Illinois, the grain buyer
of Iowa, the elevator manager of any center, the big
Mmneapohs miller, the terminal elevator company of
Chicago, the exporter of New York, the exporter of
Argentma, and the importer of London, Liverpool.
Amsterdam and Antwerp— all come here to buy or seU
wheat as a 'hedge' against transactions in their regular
busmess activities." ^ To this center too come those men
who wish to speculate. The market machinery is thus
made use of for other than legitimate trading. At
times this speculative trading is of enormous propor-
tions. '^

80. Chicago Board of Trade. —We must now turn to
the inner organization of the market— or that part
where the transactions take place. The Chicago Board
of Trade is generally spoken of as the Chicago market,
but they are not the same thing. The Board of Trade
IS a corporation with officers and a definite business pur-
pose. It owns an exchange building for the use of its

iRollin E. Smith, "Wheat Fields and Markets of the World," page 30a

fi2

THE EXCHANGE 53

members and the corporation is empowered to make and
enforce rules concerning the buying and seUing within
the exchange, but it is in no way connected with the suc-
cess or failure of the members. The original objects
of the association are thus defined: to maintain a o-- -
mercial exchange; to promote uniformity in the cu!-
and usages of .erchants; to inculcate principles of jr
tice and equity in trade; to facilitate the speedy adjust-
ment of business disputes; to acquire and to disseminate
valuable commercial and economic information; and
generally to secure to its members the benefits of co-
opeiation in the furtherance of their legitimate pursuits.
Ihe Board of Trade was organized in 1848, and in
1859 by a special act of the legislature it was given a
charter By section 4 of the act. "The said corporation
IS hereby authorized to establish such rules, regulations
and by-laws for the management of their business, and
the mode m which it shall be transacted, as they may
think proper." ^ ^

The membership numbers between 1700 and 1800 and
mcludes a representative of nearly every important
gram commission and elevator company in the country.
many of the big millers, some of the New York Stock
ii^xchange members, even a few European importers
several hundred local grain commission men, eWor

ZZr^' ^'°^'''' ''^''"^ ""P'**^^*« *"d b«"kers. and
owners and representatives of the packing houses

teT'^^ have sold as high as $4,4(1^, and^as wTs

camiotT ''*'\' u "°* "^'"^^ «^ *^^*^ B°"d of Trade
ZZ^IT^T,''"'''''''' °" **^^ ''^^ «^ *»^^ -change
C^dJ.' J "^ '""'' '"^P^°-^' « ^••"'^^^ ^ho is a mem-
' '"^ °^"«* P«y a commission for his services.

BUSINESS ORGANIZATION

The rules of the exchange limit the time of trading to
the hours between 0:80 a. m. and 1 :15 p. m. Any deals
outside of these hours cannot have the protection of the
exchange.

The transactions on the exchange are of two kinds,
though there are many subdivisions. There are the
"cash grain" business and the "future" business. Un-
der the former come all the dealings which pertain to
the actual grain — wheat, corn, oats, etc.— selling it by
sample and transferring it to some elevator for storage.
One side of the exchange room is given up to this
"cash" business. Here the samples are laid out for the
inspection of the various buyers.

The rest of the exchange floor is given over to the
future markets. The four points about which the buy-
ers and sellers habitually congregate are called "pits."
There are the wheat pit, the corn pit, the oat pit and the
provision pit. During the busy time the combined mar-
kets present "a scene of activity, intenseness, seriousness
and often excitement that gives the impression of im-
pending tragedy, and which is seen nowhere else except
on the floor of the New York Stock Exchange, or in the
Paris Bourse. During a very active market the whest
pit is crowded with some 850 struggling, shrieking men
endeavoring to execute '^heir orders; and at such a tinw
everyone in the exchange room seems to have a realizing
sense of the importance of the momentous volume of
business that is being done. It is a time hen moments
are % iluable, and a few seconds suflice to complete trans-
actions. This necessitates the greatest possible rapidity
and alertness that human beings are capable of, physical
and mental, and the aid of all the mechanical appliances
that may be had. Orders are continually coming to the
floor by telephone and by wire, and messengers, im-

THE EXCHANGE

pressed with the demand for speed, are delivering them.
A large force of telegraph operators occupies one
cferner of the exchange room. From the time the gong
sounds at 9:80 a. m. until it announces the close at 1:15
p. M., when there is an active market there is no time
or thought for anything but the business of the moment.
What happened a minute ago is past, and that which is
to be done a minute hence will be attended to when it is
reached." '

The pit traders are chiefly made up of representatives
of the numerous commission houses. There are also in-
dependent traders who act as brokers and will execute
orders for any member on a commission basis. Others
still trade only for themselves — they are spoken of as
"scalpers" or "floor traders." They are speculators.
The unit of transactions in the pit for wheat is 5000
bushels. When a trade is made without any mention of
the amount, this number of bushels is understood. All
trades of greater amounts are done m multiples of the
uuit. If a broker offers or bids "10," "50," or "100"
it is understood that 10,000 bushels, 50,000 bushels, or
100,000 bushels is meant.

31. TiDo classes of buyers.— The orders received by
tlie brokers in the future markets come from every con-
ceivable source. Broadly speaking, however, these
orders may be divided into two classes. (1) Those
which are sent by men who intend to receive or deliver
the actual grain at sometime in the future. They take
advantage of the market which offers them an oppor-
tunity of insuring themselves against loss of profits due
to a change in the price of some commodity upon which
their business depends. This method of insurance is

1" Wheat Fields and Markets of the World," Rollin E. Smith, page 908.

iiiiiaiii

BUSINESS ORGANIZATION

termed "hedging" ' and is generally conceded to be a
legitimate business act. (2) There is another class of
orders received, however, which the senders never in-
tend shall be filled by receiving or delivering of the
actual grain. They expect to get rid of either obliga-
tion by selling on a basis of "differences." That is, in-
stead of delivering the actual commodity which the con-
tract calls for, the seller, for example, gives the buyer
the difference between the price of the commodity on
the delivering date and the price agreed upon when the
contract was made. This class of orders is called specu-
lative, as it is sent in by men who buy and sell without
expecting to use the grain or even to see it. They hope
to "sell out their trade" at an early date and to reap a
profit by a change in price. I

82. Speculation and gambling. — It would perhaps be
unprofitable to try and classify the various grades of
speculation. In one sense every trading transaction
is a speculation, and the line between the "legitimate'"
trade and the gambling transaction is no more distinct
than that which separates a bad from a good act. Much
depends upon the intention, and only the man himself is

» A "hedge" is a sale of a commodity for future delivery in order to
avert an anticipated loss through a change of price. An English miller
needs wheat in February. He buys his supply in Duluth at 80 cents a
bushel. The time between the purchase date (say September 1st) and
the date when the wheat has been turned into flour and sold is a loiHr
one. The price of the raw material may go down to 70 cents before then,
and with it, of course, goes the price of the flour. He would be compelkd
to seU flour made of 80-cent wheat in competition with other millers who
could buy at 70 cents. To protect himself against such loss, the miller
sells in September upon the Chicago mai^et for February deUvery, the
same quantity of wheat perhaps at the same price as that at which he
bought— 80 cents. When February arrives, he again enters the CHcago
marlcet and maltes good his delivery contract by buying the wheat at ^
market pr! • of 70 cents. His profits in this deal equal his losses to the
other, and by this process of "hedging" or "covering" (as It is sometiiBH
called) he eliminates all risk In price fluctuations, due to raw mateiisL
He is satisfied to make his profits from the milling buaincas, and does not eiK
to speculate in the fluctuation of prices.

THE EXCHANGE

in a position to analyze this, while at times he is doubtful
as to his own intentions. Still society has certain prac-
tical standards which help one in deciding what is apd
what is not right, and also what is and what is not gam-
bling. In certain stages of economic development there
are more necessary risks to be taken than in others.
The men who take these risks by investing their capital
are not generally condemned or branded as gamblers.
Sotiety l)enefits through tl»e efforts of these men. The
early insurance companies assumed the risks in connec-
tion with long sea voyages. Very soon, however, a class
of risk takers arose who did not make good the losses
due to accidents on the sea but simply used the sailing
of a ship as an incident upon which "to make a bet."
These men assumed unnecessary risks. What was one
bettor's gain was the other bettor's loss and the fate of
the ship only supplied the incident. Society gained
nothing from the betting of these persons, and they were
justly condemned. Many persons follow the same
method to-day in assuming unnecessary risks. They
simply l)et on the outcome of the price movements of
various commodities or securities. They do not study
the business conditions or the crop situations. They
simply "take a chance " blindly and ignorantly. Risks
are taken which do mt help society and they are con-
(lenmed and branded as gamblers. These gamblers
take advantage of the market machinery of the great
stock and produce exchanges and thus often bring these
latter into bad repute. Every purchase and sale in the
pit affects prices. If the gambler supports a price
which is not in accordance with the economic conditions
he will ultimately lose, but his ignorant buying or sell-
ing has in the meantime given artificiality to the market,
and all unnaturalness is bad. Especially is it con-

■lidlBliilhiiM

■^liiiaitf^

BUSINESS ORGANIZATION

deiiined when such activity gives uncertainty as to the
future bread supply. Sentiment of this kind has vir-
tually eliminated this I'eature of future trading from the
I^ont! m wheat n.-,ii..,t

88. DefeuHi of speculation.— The exchanges have
been rrilicised for not abolishing gambling from their
midst, but the brokers reply that they cannot distinguish
between the orders which they receive. Their orders
are to buy or sell. If an order is supported with the
requisite capital, the broker does not pretend to discover
either the intention or the business method of the cus-
tomer. The economic argument in support of the fu-
ture trading in the wheat markets has its basis in the
hedging operations of the elevator companies and the
mills and other grain interests. The local elevator com-
panies, for example, place their hedges as soon as they
begin u, -u tunmlate stocks of grain. In the Northwest
this h?^^ppeii^* about the first of September. Having
paid cash for their wheat and put it in the elevator they
order their broker to sell for December delivery. lif
some of this wheat is delivered by the elevator company
when December comes round the hedge of course is not
bought in; but the wheat that must be carried still
further into the year must again be provided for. The
December sale is bought in the pit and an equal amount
sold again for May delivery. The number of these
hedging transactions based upon elevator companies are
considerably increased because ot the organization of
the elevator business. There are two kinds of elevator
companies. Beginning with the "out-of-town" ele-
vator companies which are buying or selling against
their cash transactions in grain, there is a steady volume
of hedging sales running through the months from
September 1st to January 1st. But these hedges aw

THE EXCHANGE 09

agiiii: bought in when the wheat is sold to the ele« \tors
in tiif big markets. Now when these tenninal eie ator
companies buy the cash grain they go through the same
pn)ce«is of hedging as did the out-of-town elevator OMn-
paiiies. They sell in the pit against purchases of cash
grain from the country elevator and buy in the pit as
they sell the cash grain to millers or exporters. It is
now the miller's * • rn to use the conveniences of the pit.
Having bought the wheat in the open market from the
elevator company, supposing that flour has not as yet
l)eeii sold against it, they protect themselves until such
a sale is made by immediately reselling the wheat in the
pit. Then when flour is sold the hedge is bought in
a^'iiii.

The exporter follows the same methods of insuring

his purchases, and the amount of such business is very

large, but owing lo the manipulations practiced by cer-

lin powerful speculator in some of oar large markets

ti, s class of business ha . < " ''^ly declned.

34. Course of an nrd >" v out-of-town orders are
sent to conunission houst^ •<■ J ire executed by the pit
traders who represent the latter on the floor ' f th'' cc-
change. To facilitate this business many col mission
houses have branch offices and agents in other cities
where orders are t-nken and 'i^vt to the vjutra! . ffice
over private wires. The Q'ux'figo Board of Trade
offict , have private wires running to Winnipeg and
Miiiutapolis and Duluth on the north, to New York
City and many intermediate points to the east, and to
Kansas City, St. Louis and other pc lits to the west
and south. Orders from such sources are generally re-
ceived directly by the commission house and sent to the
exchange Hoor imn.vd lately.

35. Two hinds of traders. — The pit traders may be

A^nm^igjii

ritt

mttL

BUSINESS OBGANIZATION

divided into two very natural classifications — (1) those
who buy with the expectation that there will be a rise in
prices in the future and (2) those v/ho sell with the hope
that when the time comes to make delivery the price \dll
have fallen, and thus enable them to fill their contracts
at a lower figure than the one stipulated. These two
classes are respectively called "Bulls" and "Bears."

36. Method of payment. — The methods of payment
in the board of trade are made to conform to the system
of future trading. It would be a bungling system in-
deed if every purchaser had to make payment in full
every time the price changed during the time the con-
tract was running. It is possible, however, by a system
of differences to make only partial pfl^rments until the
final delivery is made. The amount ^.aid over each day
would therefore depend upon the price fluctuaticHi.
This is shown in the following supposed "ase quoted
from Professor Sparling's excellent chapter on the Ex-
changes in his book on "Business Cx-ganization."

Suppose on March 10th A* sells B 5,000 bushels of wheat for
May delivery at 95 cents. On each day thereafter this price
fluctuates, and as the price rises bove 95 cents, B, having the
wheat, would thus be the gainer as the market advances, and A
the loser; so A would pass checks to B for differenc^a h: value
figured on the basis of the closing market prices each day. Ai
market prices lower, B would pass checks to A for differences
shown. Let us suppose that by April 20th the price had gone
up to 97^/2 cents per bushel. Then A would have paid to B a
total of 21/^ cents per bushel, and B decides to sell to C, who
finds on May 1st fhat the price is still 97 V^ cents. A would
then deliver the wheat to B in the form of warehouse receipt*
which call for the actual wheat, and for these C would give A
payment for the total on a basis of 97^^ cents per bushel; bat

^ In this illustration, A might be designated a " bear " and B a " bnU.'

THE EXCHANGE

he lias already paid B £1/2 cents a bushel, so, while the wheat
costs C 97 V^ cents, A realizes but 96 cents for it, B having
taken the difference. B is in this case purely a speculator, hav-
ing judged that conditions of supply and demand would bring
about higher prices, and acted on his judgment. B may have,
however, sold to D, and D to C, and C to K, and K to X, of
the same wheat between March 10th and April «Oth, each of
these traders having gained or lost as the market price fluctu-
ated from day to day. These various parties, whether trading
directly for themselves or through brokers, were thus specula-
tors, though not one of them in selling knew whether or not he
was selling to C the actual receiver of the wheat, or the genu-
ine speculator. When B sells to D, he closes accounts, and
withdraws from the transaction except as shown by the records.

37. Margins.— This method of settling differences
gives rise to trading on "margins." The broker who
transacts the actual business in the pit requires of each
customer a deposit of a sum of money sufficient to
cover the ordinary price fluctuations. This is on the
basis of so many cents per bushel or other unit of prod-
uct. The broker does this because he is personally re-
sponsible to the clearing house of the Exchange, and if
he would avoid losses he must compel his customer to
keep up his margins. The books of the broker and
those of the Clearing House record the transactions un-
til closed. Another method sometimes employed for .
making final settlement is that of "ringing out."

Let us suppose that A sells to B a given quantity of a com-
modity of contract grade at a price of 90 cents per unit. The
ownership of th's is evidenced by a warehouse receipt. The
future market closes that night at 91 cents, so A passes to B a
check for one cent per unit. The next day B may seil to C,
and he, through others, to K, and the market closes that night
at 901/, cents. Checks are passed between all parties for differ-

m^igug^mjitmtMU/^^

as BUSINESS ORGANIZATION

ences between prices at which purchases and sales are made^
with K having paid V^ cent to J. The process continues up to
X, who buys when the market is at 95 cents. Differences hare
been passed, until X has had to pay to W, from whom he made
purchase, 5 ceni<i per unit, and to A 90 cents per unit. In thii
way the ring is made complete, each trader intervening between
A and X being able to secure his profit or pay his loss promptly
and obviating the necessity for the clearing house.*

88. Clearing-house, — This is the most improved
method for facilitating the settlement of contracts. It
resembles bank clearing-houses in large financial centers.
The economic importance of the clearing-house system
rests in the saving of time and friction which arise in
the settlement of a large number of accounts by afford-
ing a central office and an organization of trained offi-
cials where the numerous transactions can be cleared.
The clearing-house is an independent organization with
its own set of officers, rules and regulations. Its func-
tion is to keep a record of the sales and to open up ac-
counts with the exchange members.

In order to facilitate the operation of settlement of
contracts by offset each member is required to keep s
"settlement book," in which shall be entered the names
of parties with whom settlements have been made, and
the dates and terms of the trades included in such set-
tlements, and the terms of such settlements, and the
prices at which the commodities were originally sold or
purchased, and the amounts due to or from him or them
on each separate settlement, also the net amount due to
or from him or them on all settlements.

When the business day ends the members go to the
clearing house and pass in tlieir accounts or "reports."

»8. E. Sparling, "Business Organisation," page 140.

THE EXCHANGE

If bhe clearing house sheet as made up shows a credit to
the owner of the "report" a draft for the correct amount
is drawn on the clearing house. If the day's deahngs
have netted the member a loss he passes a check for that
amount to the clearing house. The clearing house per-
forms the settlement and obviates the necessity of each
member hunting out those with whom he has made con-
tracts during the day. In the above supposed case.

When C traded with B, then C's name appeared at the close of
that day's business on the clearing-house records, and when C
made an opposite trade with D, then D's name appeared on the
clearing-house records, but C's obligations were closed and his
name dropped. This process continued, showing always the or-
iginal trader A and the last trader up to X, who, on dehvery day,
was shown to be the actual purchaser of the commodity. The
clearing-house clerk would pass these promptly to Mr. X, and
instruct him to make full payment to Mr. A, and thus become
the new owner of the commodity.*

39. Rules, regulatiom and management of the ex-
change.— So far in the discussion we have been es-
pecially concerned with the organization of the exchange
from the point of view of function. It will be of in-
terest, however, now to examine the organization's rules
and regulations and management. The examples and
ilhistrations have been those belonging to the produce
exchanges, but the same general outlines apply to the
stock exchanges.

The distinction between the two is only in the char-

acter of the trading. Each is cpmposed of a group of

tra.lcrs who agree to abide by rules and regulations gov-

! ernu.^r the sale and purchase of agricultural products

or securities. The following are the chief produce ex-

»SparUng, "Business Organliation," page 190.

BUSINESS ORGANIZATION

changes in the world: in the United States — Chicago
Board of Trade, Minneapolis Chamber of Commerce,
New York Produce Exchange, New York Cotton Ex-
change, New York Qoffee Exchange, Duluth Board of
Trade, New Orleans Cotton Exchange, Live StotV. Ex-
change of Chicago, Merchants' Exchange of St. Louis,
and Richmond Tobacco Exchange. In Europe are the
London Com Exchange, and the "Baltic," the Liver-
pool Corn Trade Association, the Liverpool Cotton Ex-
change, the Manchester Cotton Exchange, the Liver-
pool Tobacco Market, the London Wool Market, the
Bourse de Commerce of Paris, the Bourses of Berlin,
Hamburg, Amsterdam, Antwerp and Budapest.

The organization and methods of these various ex-
changes differ in different countries, but those of the
United States are all similar. The associations are in-
corporated under state laws. They are given power to
enforce their rules and regulations in disciplining tlwir
own members. Some exchanges have powers of a
judicial nature. Their charters permit them to acquiie
limited property. Among their most important pow-
ers is that of selecting, inspecting and grading those
commodities admitted to the exchange. The certificates
of such inspection are binding upon all members.

The officers who are to carry on the business manage-
ment of the association and who enforce the rules and
regulations consist of a president, vice-president and di-
rectors. Together these constitute the board of direct-
ors. These officers are elected by the members of the
association. In the United States memberships are
limited in number and are exclusive. In some of the
European exchanges, however, membership is open to
anyone who wishes to trade.

The president is limited in his power as the executive

THE EXCHANGE

head, but he can suspend temporarily any member for a
violation of the rules. The board of directors is the
chief authority. With them rests the responsibility for
the business and financial policy, the chief appointments,
the framing of the rules and regulations and the fixing
and supervision of the grades. The appointments sub-
ject to the board are those of the secretary and assistant,
the treasurer, the inspectors, weighers, measurers and
gangers together with the necessary working staffs. In
addition to the president's power of suspension the
board can expel any member for violation of the rules
covering the settlement of contracts or for being guilty
of "unmercantile" dealings. Any member in regular
standing subjects himself to the rules if he accepts
orders and acts for a suspended member. It is to this
board that the warehouses must apply in order to obtain
certificates of regularity.

The board appoints many committees, but only one
can be mentioned here. This is the committee on arbi-
tration. Disputes over contracts and settlements are
bronght before this committee. The parties to the
complaints may take an appeal to the committee on ap-
peals, where the case is reviewed. Its decision is final
if the parties to the controversy have signed an agree-
ment to abide by the decision. If not, then an appeal
may be taken to a regular court.

There are also a few rules protecting the traders *
which it is necessary to mention. (1) A member is
held liersonally responsible until the principal for whom
he acts is made known. (2) A broker cannot designate
the name of any person or firm as the principal unless
the member is in regular standing. (8) The rates of
commission are fixed. Of course they vary with the
commodity. JSIembcrs get a rate which is one-half that

11 — 5

BUSINESS ORGANIZATION

paid by outsiders. In order to keep non-members from
getting the benefit of the member's rates, a rule pro-
hibits any member from "clearing" any trade not for
his own account. (4) No person can represent two
firms in the same transaction. This is to prevent the
"crossing" of orders.

40. Compleacity of the market forces. — In studying
the market, its function and its organization, one is
struck by the great number and the complexity of the
influences which center here. One may well wonder
how any concrete expression may be given as a resultant
of all these commercial forces. Nevertheless, every
moment during the trading hours, the resultant of these
influences may be traced by the movement of the price.
To-day, therefore, the most perfect organization for the
registering of prices is found in the exchange. It is
here that the keenest minds and the most recent methods
of gathering and disseminating news are concentrated.
That there is still much room for improvement is evi-
denced by the prominent place which speculation holds
in the transactions, for speculation thrives on uncer-
tainty, and uncertainty is simply another expression
i or lack of knowledge. The advantage that one
speculator has over another rests in his more ac-
curate knowledge. Therefore the attempts of spec-
ulators to use every means available for gathering
information tend to eliminate speculation. This may
be a long process, but in the meantime the pro-
ducer and consumer have the advantage of timely
information pertaining to the great economic factors
of supply and demand. It is largely due to the
speculator that modern commerce has made such large
gains in those important qualities of certainty, regu-
larity, economy and sensitiveness. The market reflects

THE Exchange 67

any change from the standard set at a particular time
for any one of these qualities. The telegraph and the
Atlantic cable have made the markets what they are to-
day. By their introduction the old standards of cer-
tainty and sensitiveness had to be changed. Before the
first Atlantic cable was laid it cost about 8 per cent to
get cotton through the hands of the commission man and
the broker; but within a dozen years the charge was re-
duced to 1 per cent. The old consignra-^nt system was
destroyed. So sensitive has the commercial world be-
come that a cent's difference on a bushel of grain or a
sixteenth of a cent's difference on a pound of sugar,
will change the course of commerce in those commodities
Irom one side of the globe to the other. It is only
through the organization of the market that such slight
changes can be so accurately registered.*

iClive Day, «A History of Commerce."

CHAPTER V

MARKETING OF MANUFACTURED GOODS

41. Attempts to develop a special market. — Attempts
have been made to organize the market for manufac-
tured goods along the same lines as that of the produce
exchanges. The Manchester cotton goods exchange is
an example. Here is an attempt to put the marketing
in the hands of an organized body of traders holding
privileged rights as members of an association, that is,
an organization controlling the inspection, grading and
trading of a manufactured good. In the Manchester
exchange building the manufacturers and brokers meet
daily and by so doing a development of better standards
of grading and more uniform values is noticeable.
Philadelphia attempted to introduce a similar exchange,
but so far in America little has been done m this direc-
tion. The manufacturer has sought the customer
either through the wholesaler and jobber or directly by
establishing branch houses and ageiicies.

42. Manufacturer and middleman. — The earlier
method made use of the middleman, but the modern or-
ganization of production Isas compelled the manufac-
turer to look for means by which he may strengthen his
control over the market in order to keep his productive
force profitably employed. The selling organization
has therefore been changed. It is no longer left to the
sole control of the wholesaler. The manufacturer often
deals directly with the retailer or the consumer. He can
thus keep in touch with the market's demand and this

MARKETING OF MANUFACTURED GOODS 69

enables him to guage his factory output. The whole-
saler by his position has forced the manufacturer into a
dependent position. If the middleman found it profit-
able to change from one line of goods to another, the
manufacturer who had depended upon him for his mar-
ket was left helpless. I likewise the middleman often
forced unfavorable trade compacts upon the factory
management.

One of the first steps taken by the competing manu-
facturers was to curtail the losses due to competition
through a consolidation of their selling interests. Thus
one sales department took the place of several, or the
market was divided and all matters of common interests
of the several firms were determined according to a com-
mon policy. The factories retained their own identity
so far as all matters of production were concerned. Be-
fore 1903 the International Harvester Company was
one of the best examples of this policy. For fifty years
tjie harvester kings fought one another in the open mar-
kit. Out of two hundred companies whifh had fought
for market supremacy only a dozen were left in 1902.
The first consolidation in the harvester business was ef-
fcrted in 1867.^

Other examples of associations for division of terri-
tory are those of the former union between the Imperial
Tobacco Company of Great Britain and the American
Tobacco Trust, and the trade agreement between the
^Mglish Sewing Cotton Company, the American

After a severe reaper test in the grain field between William N. White-
~y and Benjamin H. Warder, the latter proposed to Whiteley that they
quit fighting and work in harmony.

" Give me the right to make your reaper and I'll pay you $5 apie<w for
all I can sell," said Warder. " It's a bargain," responded Whiteley. They
flid not merge their companies, but they divided the United States into
tliret' j)arts — one for Whiteley, one for his brother, and one for Warder.
— " The Romance of the Reaper," by H. N. Casson.

BUSINESS ORGANIZATION

Thread Company, an.i J & P. Coats, Limited— in the
case of the tobacco trust, each was to be left to exploit
its uwn country, while the thread combination was to
divide the cotton-thread trade of the world among
them. Tht weak points in this form of 'ssociation rest
in the charges and counter charges of encroachment of
the companies upon one another's territory.

Perhaps the highest organization of this kind is rep-
resented by the kartell <.f Germany. Here the asso-
ciated Hrms are left to themselves in matters pertaining
to production; the function of marketing the total prod-
uct is entrusted to a separate organization controlled by
a committee of the association. All orders are sent to
the sales agency, which distiibutes them among the
firms, reserving to each as far as possible its old clien-
tele and allocating new business in the same proportions
as the old.'

An example of this method is found in the association
called the Central Thread Agency, which marketed the
goods of Messrs. Coats, Chadwick, Clarke, and Broob
for some years before these firms amalgamated. After
the union of these companies the selling association was
still maintained. The relation of the association to the
manufacturers was changed, for now the agency be-
came a subsidiary company and the common ownership
of the capital became the controlling factor in the man-
agement. The Standard Oil Company, the Tobacco
Trust and the Sugar Trust all used this method for some
years but hostile legislation compelled them to reorgan-
ize this method of selling.

43. Agency methods of .wiling.— Apart from anv
connection with the process of cons^olidation both small
and large firms are extending their control over the sale

i«The Trust Movement in Great Britain," by Henry W. Macrosty.

MARKETING OP MANUFACTURED GOODS 71

of their output by efltablishing some form of agency.
It is the common practice for manufacturers to estab-
lish branch offices at some of the most important points
of distribution. These agencies may be supported
wholly or in part only by the factory. If the corpora-
tion is a large one and covers a large section of the
country by its sales, some central city, such as New
York, Chicago or St. Louis, is selected for the main
office, having as its function the supervision of the
agencies throughout its territory.

These agencies may l)e in the form of wholesale or re-
tail houses. The character of the trade must determine
wliich system is adopted. The large meat packers dis-
tribute probably 99 per cent of their dressed meats and
a ini-^e percentage of their packed goods through their
own wholesale houses, which are established in different
cities. The packers' wholesale branches sell only to
retailers and not to consumers. The outcome of this
policy has been to annex the local butchers to the sales
departments of the large packing concerns. There are
two exceptions to be noted in the above statements, and
they are important since they show how closely inter-
woven into the system of distribution is ^ach method and
form of reaching the market. The packers put some of
their packed goods on the market through wholesale
grocery stores which are not owned by them; and some
large buyers such as hotels are able to buy directly from
the packer's wholesale house and need not necessarily
buy through the retail butcher. Illustration of the
growth of this practice is seen in the cases of the three
largest packing houses.

The Armour Packing Company controls, all told,
one hundred and eighty-two branch houses throughout
the country. These are distributed over all but two
ot the states, and range in number from one in the

MicROCorr resoiution tist chart

(ANSI and ISO TEST CHART . io. 2)

1.0

I.I

15.0

2.8

2.5

1.8

/APPLIED IM^GE Inc

\6bi East Main Street

Rochester. New York 14609 USA

(716) 482 - OJOO - Phone

(716) 288 - 5989 - Fan

BUSINESS ORGANIZATION

states of Delaware, Idaho, Nevada, New Mexico and

«n^T/^ *° twenty-six in Illinois, thirty in Pennsylvania
and hity in New York.

In addition to its distributive branch houses, the Com-
pany operates car routes from its various packing
houses whereby the different sections of the states are
reached. These packing houses are located in Chicatro
Kansas City East St. Louis, South Omaha, St. Joseph,'
Missouri, and Fort Worth, Texas.

The Nelson and Morris Company likewise have a
number of branch houses distributed throughout the
country, just as Swift and Company, from its principal
centres, Chicago, Kansas City, South Omaha, South St.
Paul, and East St. Louis, controls a large number of
branch houses.

Such a system as this would have been impossible be-
fore the invention of the refrigerator car and the exten-
sion of the railroad to every center of meat consumption.
The route car has taken the place of the local slaughter
house and in most cases the local butcher shop has be-
come a distributing agent of the large packer.

Another example of direct selling, which goes a step
nearer the consumer, is furnished by the National Bis-
cuit Company.. This concern is an amalgamation of
several independent manufacturers, and seUs most of its
product directly to the retailers. They have distribut-
ing agencies in most of the big cities of the United
States and deliver their goods by means of their own
equipment. In this respect, however, the National Bis-
cuit Company is an exception to the general policy fol-
lowed m the marketing of grocery products. These
goods are handled through jobbers, and a very s%ht
control over the retail prices exists on the part of the
manufacturer.

The motives impelling the adoption of direct selling

MARKETING OF MANUFACTURED GOODS 73

by the National Biscuit Company ia interesting. A

I jolte s salesman can handle with considerable eaL ten

elhng 200 kmds an expert is needed. The salesman

must furnish much of the market experience thaHhe

merchant should possess himself, but owing Z Z,^

! demand and shifting tastes the g«x»r is dependeruZ

ta The National Biscuit Company's salesmen ^
k able to adv.se the grocer what line, he should keeT/n
I rtock and m what quantities, hence the salesman Ste
t "roughly acquainted with the popuUr demand and
afeo the keeping qualities of the biscuHs. ThTZp^v
ways stands ready to take back any excess stoTltf
the grocr may have left on his ha/ds »d in^™ ^^
*n,en in the art of "window dressing" in o^^^

M^yTotS. ''- -^'^ ''^- '" «-^""
^Wesaie houses i„te:LipIl'':it.r^^^^^

;«odr-btr-^^^^^

BUSINESS ORGANIZATION

tobacco in any one year exceeding in amount that boi

in the previous year. Unless he sells this stipuli

amount his profits are nothing, since these depend u

the rebates or discounts connected with the system.

another method the company allows the jobber to p

its interests upon the retailer. This is called

method of direct shipment. The jobber may obtaii

order, but the trust ships directly to the retailer; by I

means, especially if the order be a large one, the

penses may be reduced and the benefit given to the

tailer through a slight reduction of cost. Anot

phase of the quantity system is seen in the practice

the manufacturer establishing a jobber's list. Uik

this practice any retailer who can buy in wholes

quantities can secure jobber's rates. The effect

these policies has been to reduce the jobbing busine

To meet the attack upon their interests the jobbers ha

moved into the retail field themselves. They did it

establishing their own retail stores. The greatest fi

velopment in this direction has been in the cigar trac

the United Cigar Stores Company and the Nation

Cigar Stands Company being the present exponents (

this multiple store policy on a national and internation

scale. The origin of the latter was an outgrowth of tl

jobber's attempt to keep control of the market. II

object is to do the buying for the drug store and gei

erally to supervise the methods of buying and selli^

their cigars.

44. Selling directly to customers.— The organizatioi
of the selling business is not always impelled by the de
sire to control the market more firmly or by a wish t(
save the middleman's profits. The method of trans
portation or its costs sometimes influences the system oi
distribution. The chemical industries present sucbi

MARKETING OF MANUFACTURED GOODS 75

case. The proportion of weight and bulk to value in
this line of goods is often very large. Consequently
there is a saving in expenses if the goods can be put as
directly as possible into the consumer's hands.

Whenever the quantities ordered warrant it the manu-
facturer ships directly to the consumer. Consequently
I the jobber never carries a large stock. There seems to
be, however, a strong connection between dealers and
customers, and the manufacturer is compelled to keep
in touch with the jobber. The latter, therefore, receives
a commission for all the orders sent in, and the company
generally protects the jobbers by charging the outside
buyer the wholesale price plus the commission. If a
dealer has been appointed agent for a certain district
the company credits all orders to him though some buy-
ers may send orders independentl" of their agent.
However, there are exceptions to this policy in the
chemical trade. On the one side will be found, for ex-
ample, a large alkali manufacturer who appoints one
firm general sales agent, and this firm looks after the
sub-agents. On the other side, there is a big firm of
medicinal drug manufacturers in Philadelphia which
omits the jobber entirely and sells only to retail dealers.
A small reduction is allowed in the price on large
orders.

Another trade that shows peculiar conditions con-
nected with transportation is the oil business. The
newer method of distributing oil is by the use of large
tank cars. Only those dealers, therefore, can handle
the commodity who have the necessary tank apparatus
for tlie oil after it is removed from the car. This sys-
tem has helped to displace the middleman. To-day only
about 10 per cent of the dealers are outside the control
of the Standard Oil Company. The majority of these

BUSINESo ORGANIZATION

independents are wholesale grocery concerns supplying
oil in barrels to a few customers. In some cases the
Standard Oil Company undertakes the delivery of oil
to the household consumer by means of tank-wagons.
This method is adopted where local dealers are under
the influence of a rival company.

A special cause for -emoving the jobber and "going
direct" exists in the iron and steel trades. The conmiis-
sion agent, or jobber, was able, owing to the character
of the goods, to quote a price for future delivery below
that quoted by the producer. Of course, he counted on
a fall in prices b jfore it was necessary to cover his con-
tract and often he induced a fall by his attitude, if not
by his manipulation. This illustration is important in
another respect in showing that speculation attaches it-
self easily to si commodity that has standard grades and a
wide market, and a special market is not always neces-
sary to support speculation as a factor in trading. In
this case the manufacturer felt his control over the price
of his product growing very weak. The jobber by
quoting lower prices for a certain quality of iron set
other dealers to doing the same thing. It was only a
matter of time, therefore, when the manufacturer would
be compelled to revise his prices. To avoid this he re-
fused to sell the jobber and hence the latter have been
decreasing in numbers during the last twelve years.

In some lines of business where the jobber is still
thoroughly intrenched it becomes advisable for the man-
ufacturer to sell directly to the retailer. Hardware is
sold almost entirely through jobbers, but sometimes in
order to push a novelty or a new specialty the manufac-
turer assumes the expense of creating a market for it.
The jobber seldom objects to this, for as soon as it
"catches on" the retailer must buy his further supplies

MARKETING OF MANUFACTURED GOODS 77

throiigh the jobber. In the case of such mechanical
specialties as typewriters, cash registers, sewing ma-
chines, etc., the manufacturer generally estabUshes
agencies or branch houses throughout the country and
bv so doing brings i'^e goods directly to the consumer.

The boot and shoe industry has been under the domi-
nance of the middlemen so long that only in a few in-
stances have the manufacturers been able to break away
from their control and find a market themselves. Some
of the stronger firms have gone to the consumer directly
through their own retail stores; but where this has been
impossible they h«ve reached the retailers through their
own disbursing agencies. The boot and shoe trade also
illustrates a general tendency in the order of displacing
the jobber. It is the finer grades of shoes that the
manufacturer puts upon the market himself, the coarser
qualities being still disposed of through the jobber.
Thus a factory may put out a high class shoe under the
manufacturer's name, while the poorer grades of shoes
are placed Oi;< the market by the jobber, stamped with
the latter's name. Some brands of shoes have become
so well-known under the jobber's name that he can de-
mand from the manufacturer the surrender of his own
trade mark. This peculiarity has produced two inter-
esting developments. In one case where the manufac-
turer refused to comply with this request the jobbers
went into the manufacture of shoes on their own account.
Again, one large manufacturing firm adopted the plan
of doing its own jobbing because the jobbers refused to
handle shoes under the manufacturer's name.
This same method is also found in other industries.

Some of the independent manufacturers of tobacco
place their whole output on the market through some
large jobber who uses his own brands. Thus we have

BUSINESS ORGANIZATION

the manufacturer's brand and the jobber's brand
43. Selling through commission houses— broker and
converter.-The textile kidustiies display more varied
forms and methods of marketing their pioducts than
most other lines of business. Some of the principal
factors determining the organization of the sellinir
methods are the extent of territory over which the sal^
must take place and the method of financing the factory
operations. Cotton, woolen and silk factories show dif-
ferent degrees of appr h to the direct method of
marketmg goods. Th. .liddlemen in the cotton and
woolen trade are the commission men, the brokers, the
jobbers and the converters, the last having function^ be-
longmg both to the producer and the middleman. The
converter takes the rough weave or ay goods" and
converts them into grades. If he is buying on his own
account the goods are then turned over to some finishing
house where the bleaching, folding and coloring tak^
place. The converter generally has a New York office
as this IS the market for printed goods.

The commission men are supported in these trades
prmcipally for two reasons. In the sale of cotton goods
the buyers are so scattered and the distances so great
that It IS hardly possible for the mill to have its own
salesmen. In the sale of the yarn, the spinners, espe- \
cially m the South,* are financially weak and they rely i
upon the commission houses to furnish them with capi-
tal; and again, although yarn is a simple thing to seU,
nevertheless there is economy in having one firm of com-
mission men deal with a manufacturer of cotton goods.
The latter must buy more than one style or kind of yam
and he prefers to do this by dealing through one firm
rather than through several But the strong tie between
the spinner and the commission men is the financial one.

MARKETING OF MANUFAC lED GOODS 79

[However, as the spinners of yam become financially
stronger there is a tendency for them to break away
from the commission house and to employ brokers in
finding a market.

The broker's business is to bring the buyer and seUer
together; he receives for this a brokerage of ll/^ to 2
per cent. He is not as yet a strong factor since com-
paratively few goods are sold this way, and these are
chiefly of the kind that are of comparatively high
grade. The print cloths of Fall River are the chief
line of goods sold in this way.

The commission business, on the other hand, is a very
essential part of the system. In many of the textile
industries the manufacturers have had barely enough
capital to supply the factory needs, let alone the selUng
end of the business. They have relied chiefly on ad-
vances made by commission houses. This applied to
both the New England and the southern mills until re-
cently. The method of advancing money is done by
iilowing the manufacturer to draw drafts against con-

?nnents to the commission house, amountmg to from
J per cent of the value of the goods. The former
.»ow becoming more independent. In contrast with
the broker, therefore, we find the commission house per-
fornin.g several functions. They store the goods, ad-
vance money on them, sell them in their own name and
guarantee payment of the accounts to the manufacturer.
Ihe commission man's income is represented by a 5 per
cent commission, interest on advances, an allowance for
insurance and a bonus of one or two per cent in the
lorm of a discount.

In the silk business considerations are different. The
territory to be covered is not so extensive nor is the
trade so scattered. Accordingly it is possible for the

BUSINESS ORGANIZATION

big mills of Paterson and Jersey City to have the
own selling agencies in New York City, where tli
buyers of the country may come to make purchase
Wherever it seems advisable to put salesmen on tii
road, the companies do not find it impossible to core
the territory since the buyers of silk goods are limited ii
number as compared with the market for cotton gouds

The woolen mills stand next in dispensing with thi
commission house but as yet only the larger mills havi
established selling agencies of their own, and these likt
the cotton factories are for the disposal of the finei
goods. A change in the demand for ready-made cloth-
ing has helped the development in this direction sina
it concentrated the buying of woolen cloth. When
tailor-made or home-made clothing was the prevailing
kind of wearing apparel, the buying was scattered and
the market was difficult to cover. Now the output of
a whole mill can be taken by some of the large ready-
made clothing establishments. Similarly in the case of
carpets the manufacturers sell their own product directly
to the jobbers or the large retailers. This is especially
true in Philadelphia. One of the most notable exam-
ples is that of the American Woolen Company whidi
has dispensed entirely with the conmiission house and
sells directly to the wholesalers and the manufacturing
clothiers.

Other examples are those of the makers of textile
specialties, such as the shirt, collar and cuff manufac-
turers of Troy, N. Y. In the hat business several of
the largest firms have offices in New York and other
central cities. The J. B. Stetson Company also em-
ploys a force of traveling agents to visit the retail trad-
ers throughout the country.

46. Mail-order method. — In regard to the mechaman

MARKETING OF MANUFACTURED GOODS 81

of direct selling it is weU to remember that it is only one
of the means whereby the manufacturer attempts to
control the market. So far we have taken only the
various agency forms of going directly to the wholesaler
or to the final consumer. There is. however, another
method of reachmg th^ market directly from the fac-
tory, and that is by the "mail-order" method. In this
case the catalogue, the newspaper, the magazine and
vanoiis advertising schemes invite the buyer to send di-

1'"*!^/^ *^! ^^'Z*''^' ^^ *^^ manufacturer sends back
the hlled order through the post, by the express company
or by freight. In the list of industries following this
method may be found ready-made clothing manufactur-
mfr, furniture making and boot and shoe manufactur-
jng. This method is not confined to the manufacturer
but IS adopted by some of the largest distributing firms.
The largest of these are Sears. Roebuck & Company
and Montgomery Ward & Company, of Chi^go^
These houses deal m a large assortment of goods imd
their business is strictly retail by mail. No goods are
sold over the counter. '^^

St«?' ^'^^P";^'^* of th« system in both the United

tors Inl^^?f r^ ^:' *^^" ^""^'"'^ "^y -t«de fac-

n V Jo Jfi' Y'*'*'^ ^***"^ *^^ P'^'^J Po«* system has

nlj recent been introduced. In England the "cash

n dehvery" p^ctice introduced into this country by

md7tr,T^'''^'' ^""^ "^^^^ *^°^« established;

fficient a fl f ^P'^^'t**^' ^"^^^ ^'' ^' "°* half so
andTd i uV' distribution. This obstacle in Eng-

h tL * *° °^'"^°"^"' '^""^ i* i'^^olves changing

the trading custom of a whole nation. ^^

"PPosy bv tl"? i *^' "mail-oruer" business is also

dni """^ '''''^'' ^""^ ^" °^o«* <«ses it means
el mmation even more effectively than was the case

M BUSINESS ORGANIZATION

•

when the lar^e department store was introdiieed. But
the "mail-order" house must always be handicapped by
the distance to be covered and the consequent delay in
filling the orders, as well as its dependence upon the
strictly cash terms.

47. Manufacturer' 9 retail atorea. — In reviewing the
methods of direct selling by the manufacturer one is im*
pressed by the increasing growth of the retail stores
owned by or contn)lled by the manufacturer. It might
be well therefore to examine this development more
closely. In dealing with the subject it might be more
convenient if we classify the retail stores established by
manufacturers. In the first place it should be noted
that certain products are virtually excluded from this
method of selling. Such, for example, is sugar. The
character of the demand for this and like commodities
compel a system of distribution which meets the great
mass of consumers pt every point possible. This is
best done through the ordinary dealer. If on the other
hand the product is such that the customer will seek it
in some particular district, then the manufacturer may
be able to stand the expense connected with the estab-
lishment of branch stores for the retailing of the goods.
Specialty goods, such as the typewriter and others moi-
tioned above, come first under the classification. Ac-
cordingly we find these products sold in retail stores and
exclusive agencies owned by the manufacturers. Con-
nected with this method are the local repair depart-
ments. One large camera company markets its whole
product through the exclusive agencies.

In the case of boots, shoes and hats we have a dif-
ferent class of direct selling. The distinction is marked
(1) by the fact that the retail store is devoted solely to
one line of goods, and (2) by the fact that these stores
are located in shopping districts. The exclusive boot

MARKETING OF MANUFACTURED GOODS 8S

and shoe store v^as a feature of the distribution system
before the manufacturer rntered the retail field. He
simply carried the narrowing process a step further by
limiting the stock carried to his own brands, excluding
all other lines of shoes. The principal firms following
this method are the Walk-over, Douglas, Regal, Craw-
ford, Emerson and All-America Shoe Companies.
The \V. I,. Douglas Shoe Comprny maintains eighty
exclu^M stores and the Regal Shoe Company very
close tf) fifty, ^hese companies present only examples
of tendencies, for if the boot and shoe trade be taken
as a whole it will be found that the great bulk of the
business is done through jobbers scattered over the
Lnited States. One advantage which these large com-
panies gain by "going direct" is that the advertising
which they do on a large scale helps the company di-
rectly and permanently.

The acquirement of retail stores by the American
tobacco Company was the outcome of a policy to meet
eon.petition. At first the company sold to retailers with
eertam restrictions. For example, the retail was for-
bidden to handle certain competing goods ..ke cheap
cigarettes. He was also forbidden to quote his own
prices. It was not until 190: ^hat th. .Vmerican To-
bacco Company began to fight for the cigar market.
^P to this time they had left this trade to others. Busi-
ness policy forced the company to gain control of the
uban o„tp„t^ but they found the independent com-

CsfL n7T'''"" "^ *^" '""^^^* ^°^ ««"«• The

Zh T^^"" * P""^ °^ marketing its own prod-

bir^ Its retail shops and distributing houses. The

e te r '^7 **^'°"«^ ^^''^ *h^ celling was con-

dav ;r ™*^1^^^^ Stores Company, which

d«> has over mne hundred stores. It is now an

BUSINESS ORGANIZATION

independent company. Although its stores are care-
fully selected as to location — a corner or a frequented
business section — nevertheless many important sites for
this trade were already occupied by drug stores. To
reach these centers the American Tobacco Company
formed two smaller companies. The first was to pro-
vide drug stores with cigars and fixtures at a cheaper
rate than they could be obtained from competing whole-
sale companies. This was the National Cigar J^tands
Company. The second subsidiary company — ^the
United Cigar Stands Company — was to obtain posses-
sion of the small candy store, the newspaper stand, and
other minor points of distribution. Since the dissolu-
tion of the American Tobacco combination these sub-
sidiaries have become independent.

The chocolate and candy market is reached much
after the same method as that of the tobacco trade.
The manufacturers make use of their own retail stores
and also those of the general candy trade. Thus
"Huyler's" keeps a partial control over all its products.
It has about sixty stores of its own located in the larger
cities; but where it must go outside and distribute
through the general trade, the company sells its goods
only in sealed packages.

Sometimes large concerns keep a retail shop or two
going for the purpose of advertising, and sell the bulk
of their product through the ordinary channels of trade.
Large publishing houses often carry on a retail trade in
New York and other large cities; John and James Dob-
son own a shop in New York, where their carpets are
kept on display and for sale; the Gorham Company of
Providence, R. I., maintains a retail store in New York
City for the sale of silver and bronze ware.

48. Reasons for the declining importance of the mid-

■ttHHilll

MARKETING OF MANUFACTURED GOODS 86

ieman. — The movement of the manufacturer toward
emancipating himself from the control of the middle-
man is bringing several important changes in its path.
One naturally points to the decreasing importance of
the jobber and wholesaler in the distributing business.
This man who once usurped the title of merchant prince
is gradually giving place to the industrial prince. The
agents that have brought this about are advertising,
traveling salesmen, quantity buying (the complement
of mass production), financial policy, the agent and the
sub-agent and the mail order system. The manufac-
turer has found it necessary to supplement his mass
production with quantity selling. He was compelled to
relieve a system of continuous factory production by
means of a steady and constant absorption of the prod-
uct. The increasing capital outlays for the plant
made it essential that its value should not be put in
jeopardy by being separated from the source of that
value, i. e., the market. The manufacturer furthermore
was under the pressure of the same competitive system
which forced consolidation of interests in the productive
field and which now persists in forcing still further the
economies of combination by demanding a like con-
solidation in the field of distribution.

All these demands are met by the manufacturer by
attempts to reach the market as directly as possible.
By knowing and studying the market he could gauge
the production of his mill. By advertising, by estab-
lished trade marks and trade connections he secured a
firm hold upon his customer's good will, an asset often
more valuable than his patents. In passing around the
jobber, tlie wholesaler and other market experts, he is
'n a better position to ascertain the true nature of the
demand for his goods. A jobber by placmg a big or-

BUSINESS ORGANIZATION

der with the factory, in one year may induce the man-
ager to lay out large sums for the extensions and im-
provements; the next year the jobber may demand con-
cessions which if not met will result in his placing that
year's orders with a rival factory. Such uncertainty
places industrial capital of this kind in great jeopardy.
In a sense the way for this re-organization of the manu-
facturer's selling methods was prepared for him. The
retail establishments themselves had grown to large di-
mensions while the organization of transportation and
communication and storage made it possible to place
large orders without the aid of the wholesaler. Quan-
tity selling was met by a retail market capable of
quantity buying. The benefits of this direct connection
between the producer and large retailer are divided be-
tween them. The manufacturer establishes a jobber's
list and where the retail dealer can buy in quantities he
gets the advantage of the wholesale prices. It is nat-
ural that the jobber should make a struggle to maintain
his ancient position in the market. He is putting forth
efforts in two directions. In some lines the wholesaler
is maintaining a favorable advantage over the retailer
by forcing the manufacturer to grant him more and
better discounts. This is often done by powerful asso-
ciations of jobbers which dictate terms to the manufac-
turer. In another way the commission men are protect-
ing themselves by buying into the manufacturing busi-
ness and becoming producers themselves. This is es-
necially noticeable in the cotton goods business.

The effect of the competitive forces was first made
manifest in the establishment of agencies by the manu-
facturers. These, as we have noticed, were often sub-
sidiary concerns. Although they formed a necessary
function in the mechanism of direct selling yet this u

3iIARKETING OF MANUFACTURED GOODS 87

not the sole use to which such a subsidiary company
may be put. The subsidiary aspect of the agency
coupled with a name which did not disclose its connec-
tion with the parent company, gave the big corporation
an opportunity to escape taxation by arranging that
the subsidiary company which had branches in different
states should have only a nominal capitalization and in
case a question of monopoly should arise, the subsidiary
company would act as a buffer to successful investiga-
tion ()!i the part of the government. Again, as has
been pointed out, a central selling agency enables a
number of nominally independent concerns to market
their goods jointly or it enables a combination of firms,
which had made reputations before the consolidation to
market the old brands as before without the usual fear
<'f competition or loss of identity.

The marketing of manufactured goods, although
lacking the security and economy given by the organized
exchange, is showing the effects of the universal ten-
dency in the business world, the elimination of un-
necessary factors and the greater economizing of efforts
and costs through better organization.

CHAPTER VI

ORGANIZATION OF EXPORT BUSINESS

49. Necessity for seeking foreign markets. — Busi-
ness problems in the United States have usually been
limited to those connected with home trade. But with
the rapid growth of our manufacturing surplus Ameri-
can business men are becom' ig interested in foreign
markets. Most American manufacturers know very
little of this kind of trade and much provincialism is
displayed by those who attempt to enter a distant for-
eign market for the first time. On the other hand,
some of our exporting houses have built up organiza-
tions thai compare favorably with those of England or
other commercial countries of Europe. Such enter-
prise and organization as are displayed by the American
companies handling sewing machines, typewriters, talk-
ing machines and cash registers may well serve as ex-
amples, not only to other American exporters, but to
the rest of the world also. The Eastman Kodak Com-
pany has not only invaded European markets as a sell-
ing agency, but by adroit manipulation of companies
established in England, France and Germany, has made
large profits from its financial arrangements.

The progress of our methods in winning the favor
of foreign customers is illustrated by the agricultural
machinery business. The early method of introduction
of these goods was by means of a public test during
some exposition or agricultural show in London, Paris,
Berlin, Vienna, etc. Two of these tests will serve as

ORGANIZATION OF EXPORT BUSINESS 89

examples of all the earlier methorls. At one competi-
tion near Paris in 1879 three reapers were set to work
in fields of equal size. The French reaper led off and
finished in seventy-two minutes. The English reaper
followed and finished in sixty-six minutes. Then came
the American machine which completed its stretch of
grain in one-third the time of the English reaper. An-
other of these tournaments, which did much to advertise
the United States, took place in England in 1880. Th
American reaper sent over by the McCormick Com-
pany met with mishaps at sea that injured its appe- '--
ance and left it rusty and unfit for work. Cyrus H.
McCormick, Jr., who had it in charge, determined to
turn its forlorn aspect into an asset. Instead of im-
proving the machine's appearance., all the paint was
scraped off and the smallest and scrubbiest pair of
horses procurable were attached. However, the experts
did not fail to oil and adjust in a proper way all the
running gear. "The next day" as Mr. Casson rebates
the story, "five or six foreign reapers were on hand,
each glittering with newness and drawn by a stately
team of big Norman horses. The shabby American
reaper arrived at last and met a shoui of ridicule as it
rolled into its place. But in tl.e rac- 'Old Rusty' as
the spectators called it, swept ahead of the others as
tliough it were an enchanted chariot, winning the gold
medal and an enviable prestige among British farmers."
50. Modern methods of reaching foreign markets. —
To-day all this is changed and the American manu-
facturer of farm machinery disdains to consider exposi-
tions and trials, and if any attention is given to Ihem it
IS by agreement among the various firms, and any ac-
tion determined upon is decided by a flip oi the coin.
The American binder and reaper dominates the foreign

BUSINESS ORGANIZATION

market. The shipment of these goods is now in cargt
lots and the manufacturers have organized the agricul-
tural districts of Europe along the sam(j effective lines
that obtain in the United States. Their gei.jral agent
and their sub-agents, their block men and their mecha,ii-
cal experts, are to be found eagerly and intelligently
pushing for new business, developing the old, and
handling both with tact and with satisfaction.

How recent is the entrance into the foreign trade by
some of our largest corporations, is brought to mind by
the constant newspaper reports of the "trade agree-
ments" regarding steel imports and exports between the
United States Steel Corporation and some European
iron and steel company. It is only within the last few
years that the greatest iron and steel concern in the
world has taken an active interest in the foreign market
that would in any way compare with the farm machin-
ery companies.

The experiences of such well-known firms as those
mentioned and others, such as the large meat-packing
companies, certain steam pump, steam-heating and elec-
trical machine manufacturers, are not the only exam-
ples of American attempts to establish a;i export busi-
ness. But few American manufacturers have formed
a correct estimate of the difficulties to be overcome in
invading a foreign market. It should first be realized
that Europe's share in international trade is and always
has been immensely greater than the share of the United
States. It is for American merchants to fight for a
position already in the hands of competitors, and— which
is no less important — ^to meet in the open field new and
fast developing commercial nations. Russian shops re-
cently secured one-half of the contracts awarded by the
Italian government for freight and passenger cars, and

ORGANIZATION OP EXPORT BUSINESS 91

this, too, in competition with the home and German
bidders. Spain is selling in the Indian market, cotton
undershirts made of American cotton, while Japan
stands ready to monopolize the eastern markets the mo-
ment the cvommerjial spirit mnkes itself manifest in
Cliina and Eastern Asia generally.

51. Direct reluuons with foreign buyers. — It is the
opinion of successful export houses that it is not difficult •
to ol)tain sample or trial orders from foreign countries.
The real difficulty is in holding the relations once es-
tablished. The method by which a manufacturer
should approach the subject of exporting is outlined by
Mr. B. Olney Hough, editor of the American Exporter,
as follows :

(1) Secure a "paper acquaintance" with foreign countries,
capitals, seaports and commercial centers as a foundation for
a broad and thorough cultivation of export markets. These
i"ay be secured from a good atlas, mar, and a gazetteer, and
ifcidcntaliy with the aid of geographies, guide books, books of
travel, and even steamship folders. By such study certain
plOs.cal limitations will be suggested, but the manufacturer
should ahva.vs be open to conviction. The invasion of Europe
by Amer.can-made boots and shoes is an illustration jf a suc-
cessful venture which was undertaken in :he lace of very dis-
couragmg competitive conditions. Last year the exports of
tins line of goods amounted to over three million dollars.

(!i) Advice should be sought from other manufacturers in
the same hne of business and from professional exporters.
Ihese n.en have had practical experience in many lines and in
...any countries They have met the foreigner both at home

71a rtT '^" «'"' ""'"^^^^ information about the chief

n.arkets of the world.

(3) Having acquired a knowledge of the world's markets and
what other manufacturers are doing in exporting simi-

BUSINESS ORGANIZATION

lar goods, the next proolem is : In what markets will his goodi
have the best opportunity? He may gain this information in
three ways: (a) by sending a traveling salesman, (b) by adve^
tising, (c) by direct correspondence with possible foreign cus-
tomers.

(4) Names of merchants and importers in different cities may
be obtained from a variety of sources. For example:

(a) Directories are available — city, country and world direc-
tories. No foreign country has carried directory-making to
such perfection as the United States, and in foreign classified
trade lists many important merchants are likely to be omitted.
They may appear, however, in the book under another caption.

(b) Lists of dealers in a particular line of business may be
purchased from firms who make the compiling of such lists a
business, but lists of addresses more than a year or two old
should be discarded.

(c) Men who have traveled or lived in foreign markets can
often supply information about leading merchants and local
trade papers. The publishers of these sheets are often willing
to supply names of local dealers.

(d) "Rating books" are seldom found outside of the United
States. Only one English publication seems to enjoy the gen-
eral confidence of exporters. This book is sold only to bankers
and is limited in its scope.

(e) New York foreign bankers cen supply valuable credit
information and this is freely given after proper introduction.

(f) The various commercial agencies in the United States,
although their charges are high, are able to give information
leading to knowledge of a firm's financial position.

(g) The local "information bureaux" at the homes of the
foreign correspondents can often direct attention to the com-
parative importance of certain foreign merchants.

(h) Most of the larger importers in all of the world's princi-
pal markets have certain American connections established from
whom references are quickly obtained,

(i) The American consuls in foreign lands, althouf^ they

ORGANIZATION OF EXPORT BUSINESS 96

are neither drummers for American goods nor reporting agen-
cies, may nevertheless be in a position to advise a manufacturer
in the introduction of his goods.

(j) In a restricted sense the Bureau of American Republics
is an institution for supplying trade information about diifer-
ent American countries.

(k) The United States Department of Commerce, through
its consular and other reports, gives timely items concerning
foreign countries the world over.

In considering the above sources of information it is
well to bear in mind their limitations and the fact that
onlj' after long study can information so gained be util-
ized. One feature found in some parts of the world,
especially in the Far East, most parts of Central and
South America, and very frequently in Australia and
in South Africa, is that the greater part of the import
business is handled by general importers. They are
spoken of in the trade as "merchant" or "indent" houses.^
In the parts of the world we have just spoken of, the
smaller dealers do very little importing on their own ac-
count, but fill their orders through the general import-
ers. This is an important fact to be borne in mind.
The manufacturer attempting to make business con-
ii'^ctions in China or Central America would not make
progress by obtaining lists of names of the actual deal-
ers in his line of merchandise. The men to seek are the
general importers who are likely to be intt rested in his
goods.

52. The importance of clearness in foreign corre-
spondence. — The first essential in foreign correspond-

> A " Merchant house " is a concern that buys goods in quantity on Its
own initiative and then seeks to dispose of them to the trade. An "In-
dent house" takes orders for certain goods from dealers on sample or
othtrwise, then imports for the benefit of its customers.— B. O. Hou^
" Elementary Lessons in Exporting," page 6.

BUSINESS ORGANIZATION

ence is simplicity of style. The goods should l« de-
scribed and explained in a way that will be understood
by a person completely ignorant of them. For example,
a manufacturer of children's stockings quotes a cer-
tain grade and size at $1.05 per dozen, with a "riae
and fall of 5 cents" for every half size larger or
smaller. Outside the United States only a few deal-
ers would understand this. Prices are seldom quoted
by European manufacturers. The metric sizes rather
than the English are customary in most European mar-
kets. All names of goods and names of parts should
be examined before using the terms in a letter, since
it may be the case that the American name is purely a
local one and not generally understood. This applies to
catalogues especially. Clearness and simplicity from
the foreigner's point of view is to be aimed at. Help
may be had in doing this by a study of the literature
sent out by foreign manufacturers along the same lines.
Mr. Hough estimates that probably 50 per cent of our
machinery catalogues, and even more than that of our
special lines, are almost incomprehensible to any read-
ers outside the special trade to which they apply. He
cites the following instance: A trained mechanical en-
gineer, holding a diploma from one of our first, Ameri-
can technical schools, together with a thoroughly com-
petent American agricultural engineer, jointly studied
for two days over the directions for setting up an
American hay-press six thousand miles from the fac-
tory, and finally gave up the problem in disgust. On
appeal to the manufacturers, a sarcastic letter was re-
ceived, which gave no advice at all, necessitated another
letter and a further delay of six weeks before the ma-
chine could be made to work.

Another caution to b,; observed is in connection witb

ORGANIZATION OF EXFORT BUSINESS 95

the introduction by catalogue jf new goods. If cata-
logues are written from the American point of view,
they will be as so much "Greek" to foreign readers.
The export of cement block machines is an example.
The catalogue goes into great technical detail and reads
as if th author thought that the conditions in all coun-
tries were identical with our own. As a consequence,
a large percentage of this foreign correspondence is
without effect.

The importance of attaching a distinctive mark of
quality should not be overlooked in foreign trade.
These customers show far more respect for names and
marks than Americans. A trade-mark once established
needs little pushing thereafter. For a similar reason a
personal letter to a foreigner is always more effective
than a circular letter. Then, too, the best results are
obtained when letters or catalogues are written in the
language which the recipient uses. Imitation typewrit-
ten letters with names and addresses inserted are
so perfect nowadays that it is difficult to dis-
tinguish them as "process" letters. These form let-
ters can be put into several languages at a small charge.
In the case of catalogues it is well for the American
exporter to use at least one other language than the
English, preferably the Spanish. Furthermore, it is
I not necessary to have the foreign edition an exact dupli-
j cate of the domestic edition. It can be shortened by
leaving out all articles that have a home demand alone.
j Some large firms have two distinct catalogues. One is
large and complete and is meant for important and
regular aistomers, the other is a cheap booklet for gen-
I eral circular use.

The manufacturer should be careful to secure a com-
jPetent translator when addressing correspondents in a

BUSINESS ORGANIZATION

foreign language. Many men make this work their
specialty in the large export centers, and the cost of
their services is not high. The following list indicates
the country' and the language to be used in correspond-
ence with foreign houses. Spanish literature can go
to South America, Cuba, Porto Rico, the Philippines,
Spanish and Portugese colonies, such as the Canaries
and the Azores; French literature can be use'l in
France, Belgium, Italy, Greece, Turkey, Egypt, '•
geria, Portugal and Brazil; German literature in Ger-
many, Austria-Hungary, Switzerland, Scandinsvii,
Russia, Roumania and Bulgaria; and English and
Spanish literature combined will cover the rest of the

world.

58. Quoting of prices. — How prices sho^dd be quoted
in the export trade is a debatable question. There is i
general agreement, however, that the manufacturer
should make a study of his particular line of trade in
order to discover whether it is wise or not to quote prices
in his catalogue. It is well to remember that the one
price system in vogue in America and England is not so
highly esteemed in other countries. A graduated scale
of prices, therefore, may meet several contingencies that
arise in the export trade. There are (1) th^; prices of
the wholesaler and retailer; (2) the possible progres-
sion of trade from a retail to a wholesale business; (8)
the forced advancement of prices; (4) the j>ractical
question of "taking care" of export conmiission houses,
which is more easily solved if prices to the buyer m
elastic.

The revision of prices is considered very bad business
policy unless it is done with a great deal of care.
"Nothing," says one authority, "is surer discourage-
ment to foreign buyers than to tender orders on the

ORGANIZATION OP EXPORT BUSINESS 97

basis of manufacturer's quotations and have their orders
returned to them with the statement that prices have ad-
vanced. Tying a string to a quotation in the shape of
the provision that all prices are 'subject to change with-
out notice' is very far from meeting the requirements
of export business, where buyers are located sometimes
four and six weeks' mail time distant."

In this conn^tion it may be well to mention that
prices quoted in dollrrs should include the proviso that
exchange is for the account of the buyer, or that in-
voices will be drawn in sterling (or other foreign cur-
rency), conversion to be made "at day's rate of ex-
change when making shipment," and in case of ship-
ments to Latin American countries where "dol-
lars" are also used, quotations should specifically read
"gold" or "United States currency."*

Two other precautions to be particularly observed
have to do with quotations that specify conditions of
shipment, and underpaid postage. The abbreviations
C. I. F. and F. O. B. refer to "cost, insurance, freight"
and "free on board" respectively. The fir? is added to
the F. O. B. ocean steamer, but it should be quoted so
that C. I. F. includes the customer's nearest port.

Manufacturers in the interior of the United States
would avoid much friction if they observed the differ-
ence between the terms F. O.* B. New York and
"Freight paid to New York." The foreign correspond-
ent assumes that F. O. B. excludes all charges before the
goods are put on board ship. The transfer charges
from the railway station to the ship are often very high
and the exporter should specifically state that these are
to he paid for extra if he wishes the charge to be in-
cluded in the foreign merchant's bill. In this case the

1" Elementary Lessons In Exporting," B. O. Hough, page SO.

BUSINESS ORGANIZATION

term "Freight paid to New York" is the proper one to
use and not F. O. B. New York.

It is difficult for most Americans to realize that for-
eign business men are peculiarly sensitive to small out-
lays imposed upon them, such as extra expense for mail
matter delivered to them with underpaid postage. Per-
haps there is no surer way of never getting an order
from a foreign firm than to be careless in thus sending
out letters or catalogues. iMuch of this is due to careless
stamping by the office boy or stenographer. Some
firms avoid this by writing a large letter "F" in the right
hand corner of the envelope. This calls attention to its
character when going through the hands of the mailing
clerk.

In addressing foreigners, it should be remembered
that they are more accustomed to formality in corre-
spondence than Americans. Their practice should be
respected. It may seem cumbersome to substitute the
formal French and German termination of a letter, "ac-
cept, gentlemen, the assurance of our profound esteem,"
for the terse "yours truly," but it is business m the one
case as much as in the other. The Frenchman likes
formality, the American prefers brevity.

The following simple vocabularies of a few expres-
sions used in foreign trade names will aid the exporter
in filing and indexing names or in addressing foreign
customers.*

GERMAN.

Sohn (Singular) Son

Sohne (Plural) ^^

Bruder (Singular) Brother

1 Hough, " Elementary Lessons in Exporting," page 24.

ORGANIZATION OF EXPORT BUSINESS

Briider or Gebriider (Plural) Brothers

Aktieii Gesellschaft (abbrebiated A. G.)

Joint Stock Company

Handelsgesellschaf t Trading Company

FRENCH.

Frere (Singular) Brother

Freres ( Plural ) Brothers

Fils (both Singular and Plural) Son or Sons

Societe Anonyme (abbreviated Soc. Anon.) ....

Joint Stock Company

Compagnie (abbreviated Cie) Company

SPANISH.

Hijo (Singular) Son

Hijos (Plural) ^ Sons

Hermano (Singular) abbreviated hno Brother

Hermanos (Plural) abbreviated hnos Brothers

Sociedad Anonima (abbreviated S. A.)

Joint Stock Company

Compafiia (abbreviated Cia) Company

SWEDISH.

Son (Singular) Son

Soner (Plural) _ Sons

^;^^^^na Brothers

Aktiebolaget (abbreviated Akt. or A. B.)

^ Joint Stock Company

^""^P^"^^t Company

100

BUSINESS ORGANIZATION
ITALIAN.

Figlio ( Singular) .Son

Figli (Plural) Sons

Fratello (Singular) Brother

Fratelli (Plural) abbreviated Flli Brothers

Societa Anonima (abbreviated S. A.)

Joint Stock Company

Compagnia (abbreviated C.) Company

54. Export commission houses. — The prime economic
function of the commission man is to put goods where
they are most wanted at the most suitable times. The
changing organization of the other parts of the indus-
trial sj'stem outside the field of exchange has varied the
duties of the commission man from time to time. He
has generally usurped those parts of the distributive
system which the producer or consumer deemed too far
beyond their own time and energy to be considered.
Standing thus between the producer and consumer, the
eonmaission man's business partakes of the nature of an
agency. He sells for one and buys for the other. If
his interests are chiefly centered in finding a market for
the manufacturer, he is called a manufacturer's agent;
if his interests are devoted to the finding of goods for
a consumer or another firm in a foreign country, he is
termed an export comiiiissi n man. The importance of
the commission house depends largely upon the duties
which it performs as an intermediary. As has been
mentioned above, both the producer and consumer are
continually encroaching upon these functions as they
find it more economical to do so. To-day, however, the
export conmiission house may be defined as a buying
agent in America for foreign merchants. It combines

ORGANIZATION OF EXPORT BUSINESS 101

with this function the business of shipping the goods
and of financing such orders — that is, paying the manu-
facturer out of its own resources and in turn collecting
from the foreign merchant. These export houses sel-
dom buy any goods until they have received orders for
the goods from their foreign customers. With the de-
velopment of the export business there is a tendency
for these houses to extend their functions by going
into the foreign field for the purpose of inducing mer-
chants to buy through them. In such cases the export
house either sends its own traveling salesman or estab-
iishes its own branch offices in foreign markets, often
opening up a sample or sales room. In other directions
the functions of the commission house have been modi-
fied. Some manufacturers avoid the export commission
agent by sending their own representatives abroad;
others operate through agencies which take a limited
number of manufacturers usually in the same line of
trade. These agents act for their principals upon a sal-
ary or a commission basis, or the two combined.

The greatest encroachment upon the ^'mctions of the
commission house, however, has been from the direction
of the big foreign concerns which take large quantities
of American goods. Branch offices are maintained in
New York and other market centers, and through them
all orders for American goods are executed. This
movement toward personal representation has been very
marked of recent years and illustrates very clearly the
tendency manifest in all departments of industry, to
combine as many activities as possible consistent with
economy and efficiency under a central control.

In treating of the export commission house as gener-
ally accepted by the trade and as defined above, it is well
to distinguish lietween those who confine their opera-

10«

BUSINESS ORGANIZATION

tions to certain parts of the world and those who do not
so limit their operations. Each of these classes contain
some houses which do a special line of business and oth-
ers which receive orders for any sort of American
goods, from any foreign house of assured standing.

We have spoken from the American point of view
and have generally referred to New York City as the
type of a market center; but it should not be suppo cd
that export commission houses are not found in other
countries. In fact, London is the real home of the
world's commission houses. Here are found five times
as many as in New York City. All the big continental
market cities, such as Hamburg, Rotterdam, A.'werp,
are each as well supplied as is New York City, whidi
has about six hundred export commission houses.

There is little in the modus operandi of the export
conmiission house that is difficult to understand. They
do business only with foreign houses whom they know,
and, as a rule, ship goods subject to draft attached to
documents or against confirmed credits. In some cases
where the export house is also an import house, the ex-
change of commodities permits the commission firm to
arrange the financial settlement in a different manner.

The advantages, both to the buyer and the seller,
which are offered by this method of distributing goods
may be briefly stated. The advantages to the forei^
customer in dealing through a commission house may be
summed up as follows: (1) He can forward all or-
ders under one cover instead of dealing with a large
number of separate manufacturing concerns; (2) he
receives his shipments on one bill of lading; (8) his pay-
ments are to one person and not to many; (4) a foreign
firm may get longer credit extensions from a commis-
sion house, that is, the exporter being acquainted with

ORGANIZATION OF EXPORT BUSINESS 103

the trade and having a wider connection among foreign
banks, would not hesitate to grant longer term drafts.

The advantages to be derived by a manufacturer may
be similarly summarized: (1) The export house car-
ries out the shipping details; (2) the export firm is a
home concern which can be easily investigated if its
financial strength or commercial standing is at all m
question; (3) collections can be enforced according to
American laws; (4) the commission firm is in a position
to secure better ocean freight rates, or in any event to
avoid the excessive charges incident to small shipments
by individual manufacturers.

' 00. Cautions to be observed in dealing with commis-
sion houses.— CeTi&m cautions in dealing with commis-
sion houses should be observed, for there are not only
untrustworthy firms, but the character of foreign trade
itself breeds sharp practices and offers many pitfalls
to tlie ignorant and the unwary.

It should be recalled here that a commission house
does not originate orders and offers only a few facili-
ties for introducing a new firm's goods into foreign
lands, also that these export firms handle a great variety
of goods, in fact everything for which a profitable mar-
ket may be found. The representatives of the commis-
sion house must of necessity scatter their efforts and can
not know the "ins and outs" of every business. Among
those export houses that have foreign branches in many
markets there will be found great differences in ability
to handle special lines of goods. For ' cample, a large
export house has its own branches in Shanghai, Buenos
Ayres and Sydney. The Shanghai house deals in sta-
ples liV :• cotton piece goods and wire nails; the house in
Bu'^nos Ayres devotes itself entirely to engineering
lines <,i goods for constructional work, while the Sydney

104

BUSINESS ORGANIZATION

branch handles miscellaneous lines, such as hardware,
boots and shoes. While this concern would not refuse
to handle the goods of a boot and shoe manufacturer
through its Buenos Ayres establishment, a manufac-
turer could undoubtedly find a rival commission house
whose standing and influence in the same market would
be much greater in the boot and shoe business. A man-
ufacturer should satisfy himself first as to the business
which a commission house is doing in a certain market;
and, second, what the possibilities are of introducing
his wares satisfactorily. It is not enough to know that
the New York house has a big reputation ; this may have
been gained in lines of no interest to the manufacturer
in question.

Furthermore, in this connection an export house that
solicits the "exclusive agency" of a manufacturer should
be judged by the facilities it has in diff'erent markets
for handling this particular ware, and not by its claims
to a world-wide influence and connections. Many
houses will solicit an exclusive agency for the whole
world. No wise manufacturer wiU expect to get sat-
isfactory returns if he grants it. No commission house
can do justice to a line of goods covering so broad a
field. Not only should a manufacturer be on his guard
against extravagant propositions, but also against
downright misrepresentations of marketing facilities.
Letter heads are cheap, and vague representations sug-
gest great possibilities, but by never giving definite ref-
erences, or locations of their "numerous branches scat-
tered over the world," they are easily composed. Every
such solicitation and representation or claim should be
thoroughly investigated by the manufacturer.

56. Evil of substitution.— Perhaps the oldest evil coa-
nected with the export commission business is the prac-

ORGANIZATION OF EXPOR'" BUSINESS 106

tice of substitution. The commission house receives an
order from a foreign firm. Instructions are enclosed
showing from what American manufacturer the goods
are to be procured. Instead of filling the order with
the goods, the commission house selects another manu-
facturer of similar goods and ships a substitute. This
is done because the commission house can probably get
special terms from the manufacturer. The cure for
this practice rests with the principals in the transaction.
If a foreign house should send duplicate orders to the
manufacturer at the same time it orders through the
export firm, a sufficient check would be imposed against
this abuse. Manufacturers should urge all foreign cus-
tomers to do this.

57. Bonus. — Competition among commission houses
has given rise to another abuse. Business for foreign
clients is done on a 2^ per cent commission basis.
Commission men claim that this is too small. They
therefore supplement the buyer's commission by a

bonus" from the selling manufacturer. This division
of the expense between buyer and seller would assume a
different ethical aspect if it were surrounded by differ-
ent conditions. The commission house solicits private
discounts and commissions from the manufacturer.
This the export house appropriates to itself. Sometimes
the case is reversed and the manufacturer offers special
discounts in return for the export firm's good will.
These facts in themselves are not unjustifiable, but they
nave another appearance when taken in connection with
the claims of the export commission house that all dis-
counts, cash, selling and every other form of rebate shall
go to the benefit of the foreign customer upon the pay-
ment of the stated 21/2 per cent, or less, commission.

58. Foreign sales arrangements.— The export com-

106 BUSINESS ORGANIZATION

mission house is really the agent for the foreign buyer
in America. The American manufacturer seldom
trusts his goods to agents located in foreign markets.
He does, however, work through the export commission
house. This is done directly as has been abeady de-
scribed, and indirectly by maintaining his own agent, the
manufacturer's agent, who keeps in touch with the ex-
port commission house with hopes of receiving their
orders. Manufacturers located in the interior are
using this means more and more. Some firms more en-
terprising than the others are extending their activities
into the foreign market. Four methods are used in
putting their goods upon the market: (1) through
local merchants or "jobbing" houses; (2) through
foreign resident conmiission agents; (8) by means of
salesmen sent out by American manufacturers; (4)
through their own branch houscii established in foreign

markets. ,

59. "Jobbing" houses.— The first method has the ad-
vantage of securing a representative who is interested
in the manufacturer's wares because he has a persoM^
interest in the profits. The manufacturer should weigh
against this the practices that have grown up around this
form, especially where the merchant or "jobber has
been given exclusive control over any considerable ter-
ritory. Self interest has often induced the merchant to
take a competitive manufacturer's goods and push them
where a more favorable price could be obtained. Often,
where the American wares have attracted trade by their
novelty, the merchant has had a similar article made^
some home manufacturer at a cheaper pnce andfi^
graduaUy substituted the latter for the former. IW'^
ing an exclusive control over the American «tic^
can easily maintain the appearance of selling it by saw

ORGANIZATION OF EXPORT BUSINESS 107

ing in a few orders how and then, for the sake of keep-
ing American competition out of the field.

60. Foreign commisrion agents. — The second method
is not a favorite one with Americans. They hesitate to
intrust their interests to unknown agents. As a very un-
satisfactory class of agents has developed in this field,
manufacturers should examine the references of such
agents with care. In nearly every country except the
United States an order is a contract, and tiie agent ac-
cording to the laws is also authorized to collect moneys.
A manufacturer may provide that orders tendered by
agents be accompanied by bankers* references. This
will show the financial position of the customer and help
the manufacturer in forming a judgment of his credit
reliability; or he may demand that a draft be attached
to documents. Many houses use commission agents to
develop trade among the minor tradesmen. By having
a reliable agent on the ground many small individual
orders can be shipped and financed together. The man-
ufacturer in such cases draws directly upon the agent
who atteads to collections and the delivering of the
goods. Such drafts are generally dated so as to give
the agent time to make his collections before meeting
payment on the manufacturer's draft.

61. American salesmen abroad. — The third mode of
establishing a manufacturer's goods in a foreign market
embodies the personal representation principle. The
salesman should therefore be selected with much care.
His personality will be a strong factor in making de-
sirable and permanent trade connections. The Ameri-
can "drummer" type seldom succeeds. A competent
judge in this matter estimates that fully 80 p r cent of
American salesmen who visit foreign countries to intro-
WK* American goods return home complete and dismal

108

BUSINESS ORGANIZATION

failures, no matter how satisfactory a record they may
have established in or^r own country.

Personal representation in the foreign field is so im-
portant, however, that many manufacturers make fre-
quent trips themselves. Many foreign markets lie at
the manufacturer's door, as Canada and Mexico, but it
costs but little to visit the principal European markets.
Four hundred doUars will cover the expense of a four
v/eeks' trip abroad.

62. Branch houses. — In the larger markets where it is
necessary to keep up an established business as well as
to develop a new trade, the fourth method is considered
a very desirable one, even if it is confined to an estab-
lishment's sales agency. This method permits foreign
custome s to fill orders without delay or the formalities
connected with long distance ordering, and to order in
small quantities. The branch house also impresses the
customer with a feeling of security in the responsibility
of the distant firm. Mistakes and disputes are easily
adjusted and redress effected without the delay wbidi
a long tedious correspondence entails.

A modification of the above method is frequently
adopted by firms whose foreign trade does not warrant
the expense of maintaining a branch house alone.
Therefore several non-competing houses unite and put
their trade into the hands of a "combination" salesman.
This method is particularly popular in England and
Germany. When these agents keep stocks of goods
and collect money, the firms represented in iiie "combi-
nation" frequently require bonds of the salesman.

A still further adaptation of the branch house method
is to establish one main office in a centrally located mar-
ket and put it in charge of all the other sub-brandies.
London is naturally the great center for these houses

ORGANIZATION OP EXPORT BUSINESS 109

since it is in more direct touch with the different parts
of the world than any other city. Of course the more
indirect the connection between the consumer and the
manufacturer, the greater the expense and the greater
too is the opportunity offered for mal-practice which is
detrimental to both the manufacturer and the consumer.
If ow the line of dependence is organized may be seen in
tile following examples. Importers in Switzerland
order through an agent in Germany who has charge of
the continental business; he in turn orders through the
jLondon branch which has general charge of the Euro-
pean trade. The London agent finally places the order
in the hands of the American manufacturer.

How some of the prominent American manufactur-
ers work through their European branch houses is de-
scribed by Mr. Hough thus:

A large American manufacturer oi steam-heating apparatus
puts liis general European business under control of his British
branch. This branch, however, quotes prices in two different
ways. Carrying a stock of goods in England it quotes for
prompt shipment from England to European points, prices 10
per cent in excess of similar prices quoted for shipment direct
from tlie factory, which latter prices are invariably the same as
would he quoted by the factory itself. Ten per cent advance
demanded for shipment from English stock is thought to be justi-
fied by the expenses incurred in carrying stocks, and proves ac-
ceptable to many European buyers, especially when very prompt
delivery is required. A large American manufacturer of steam
pumps has agencies established in all the principal European
capitals. Stock is carried at each agency subject to th« general
control of the main branch in London. Once a month a stock
list IS pubhshed of al! goods on hand In each one of the different
agencies. This list is put promptly into the hands of each
«gent so that each one is not only posted as to goods in his own

110

BUSINESS ORGANIZATION

stock, but u to pumps of other sizes or descriptions which ut
available at other agencies, and in case a specie pump, not Id
the agent's own stock, is required at once, a telegram can bt
dispatched to the nearest brother agency, where the pump of
the desired description is available and the apparatus received
in the shortest time possible.

jiiBhi^^

CHAPTER VII

CONSULAR SERVICE

B3. Purpose of the consul. — Among the public trade-
promoting institutions we may include the consular
sen ice. A consul is really an agent for the promotion
of commercial intercourse between the country he repre-
sents and the one in which he lives aii cc>nsul. Consular
service is largely a business organization and should
therefore be managed as a business department. Until
recently the American people have been so busy with the
development of the vast home resources that they have
had little occasion to be interested in the representation
of their interests abroad. But the growth of foreign
commerce has given rise to a demand for a better con-
sular sen/ice. The United States is to-day an exporter
as well as an importer, and this fact has stimulated all
forms of business activity.

The consul is not necessarily a diplomatic officer, who
is concerned maii.ly with political relations. The con-
sul is a commercial agent acting in an official capacity.
Sometimes, however, the duties of the two overlap.
The consul may help greatly in administering the tariflf
law, particularly in certifying consular invoices and
sendnig out reports on conmiercial subjects. In 1856
annual reports were for the first time sent out, and in
1881 was begun the issue of monthly reports which have

been supplemented since 1897 by daily commercial re-
ports.

64. Bnef history of the American consular service.-^

Ill

112

BUSINESS ORGANIZATION

The American consular service was created primarily to
protect the lives and property of United States citizens
abroad. This grew out of a still more primary desire to
protect American shipping. The first consul was ap-
pointed in 1780, but no laws regarding this office were
passed until 1792. In this year (1792) consuls and
vice consuls were appointed, while in 1801 consular
agents appeared, and in 1856 consular clerks. In 1854
the title of consul-general was used for the first time
and since then the number of offices has increased stead-
ily. Until recent years little attention was given to the
fitness of appointees to the service. Politicians, unsuc-
cessful business men, or persons who wanted to give
their children a foreign education, were often given
consulates. The United States has come to realize
that she must improve her consular service if she is to
reap the benefits of a more wide-spread commercial
prosperity for her own people.

65. Present system governing consular appointments.
— In 1906 a new system was inaugurated for the pur-
pose of procuring more efficient consular officers. This
was amended in 1915. A Board of Examiners, consist-
ing of the Secretary of State, or a designated officer
of the Department of State, the Director of the Con-
sular Service, the Chief of the Consular Bureau, and
the Chief Examiner of the Civil Service Commission
hold examinations for admission to the consular
service. This is open only to applicants between the ages
of twenty-one and fifty, who are American citizens of
good habits, and who are qualified physically and men-
tally for this work. They nmst have been designated
by the President of the United States for appointment

CONSULAR SERVICE 113

subject to examination. The examinations are also for
student interpreters who are to be stationed in the
Orient, for the pi rpose of studying Chinese and
Japanese to aid the coi.sulrte in interpreting these
languages. Int.rp cters ii,.st be unmarried, and be-
tween the ages o^ n^ .vd 2d. They are to remain in
service tor ten years.

The examination is written and oral, and an average
of 80 per cent m-ist be obtained in both. The subjects
or the written examinations are: one modern foreign
language; the natural, industrial and commercial re-
sources of the United States in relation to foreign
trade; political economy; elements of international, com-
mercial and maritime law; American history, govern-
ment and mstitutions; political and commercial geogra-

he I ar East since 1850. The oral examination is for
tl^e pu pose of determining the character, alertness, and
gen al information of the applicant; his natural fi ness
elata™^ his command of English and his general

JnZt^t ?T.u' '''^^*"^^^ examination are ap-
pointed to the eighth or ninth grade of consuls or th^v

preters. Those ser,mg ,n the department of state

ful ra,„ii,lat», ,rc nI?L be efficiency. Success-

!■«■«. There isl ^^' ]"" ^''«"''« «»' f<" two

feg"ve , „™ jfrnT'^"" "^ '"'P^^ion which gives

g__ eminent detaded reports of eve.y United States

114 BUSINESS ORGANIZATION

consular officer. Besides, there is an efficiency record
which determines advancement.

66. Grades and salaries in the consular service.-

There are five classes of consuls-general a .d nine

classes of consuls. The distinction between the two

ranks is not sharply defined. The salaries of some con-

suls are greater than those of some consuls-general

The consul-general is placed at the head of a consular

district and he has supervisory authority over other con-

sular posts. This office s known as a consulate-general

and to it belong a vice and a deputy consul-general and

one or more consular clerks. Then there are consular

agents who report to their superior officers but make no

direct reports to the government.

There are at this time 276 consuls and consuls-
general with salaries from $2,000 to $12,000 each. No
consul is alloxNcd to engage in private business, nor is
he to practice law. He must, however, perform service
as a notary. All fees are to be paid into the treafflnj,
his salary being his only compensation. The foUo^
list of divisions and salaries is according to the present
law.

CONSULS-GENERAL.

Class L (8 in all) 'IJOJJ

Class II. (1« in all) JJJJ

Class III. ( 5 in all) «'«~

Class IV. (14 in all) [^

Class V. (2« in all) ♦^

CONSULS.

Class L (1 only) -^^

Class n. ( « only) '

Class in. ( 8 in all) "^

Class IV. (IS in all) YmO

Class V. (26 in all) ^^

Class VI. (44 In aU)

CONSULAR SERVICE

Clas' VII. (58 in all) 3,000

Clas VIII. (Si in nil) 2,500

Class IX. (20 in all) 2,000

115

67. Consular reports — ^About a half century ago,
following the example of France and England, con-
sular officers were encouraged to make commercial re-
ports. It was found that a good way to promote
foreign trade was to collect material abroad of a com-
mercial character in the interest of navigation, com-
merce, agriculture and manufacturing. The monthly
consular reports are sent to educational institutions,
libraries, and the general public, while the daily reports
are sent mainly to newspapers, commercial bodies and
exporting and manufacturing firms. Since 1890 a
series called "Special Consular Reports" has been pub-
lished. These are collections of articles on special sub-
jects prepared in the form of printed circulars for con-
sular officers. Some of the titles are: "Cotton Textiles
in Foreign Countries," "Malt and Beer in Spanish
America," "Insurance in Foreign Countries," and
"Streets and Highways." Some of these articles have
been distributed widely in the United States, where they
are occasionally in great demand. In the Commerce
Reports, issued daily, we find a greater definiteness
and exactness in detail. These concern foreign cus-
toms regulations and tariffs; local demands in various
j markets; local styles and habits; reports on crops; re-
ports on foreign business methods in respect to credits,
I means of sale and packing; and foreign food and patent
Following are some of the considerations dis-

laws.

cussed in the daily and monthly reports: Tobacco in

116

BUSINESS ORGANIZATION

France, The Mining Industry in Africa, American
Trade in Mexico, The Sugar Industry in Cuba, Flour
Milling in Italy, Seekmg Trade in Canada, Musical In-
struments in China, Reaping Machinery for India,
Olive Crop Reports, and so on. In the article on "Seek-
ing Trade in Canada," the following subheads are briefly
treated of: "How to increase American trade in the
Dominion," "Mail Orders and Advertising," "British
and German Trade Efforts," and "Prices of Farm Ma-
chines." In an article on "American Trade in Switzer-
land," the cause of the small number of sales in the
Republic is discussed, as well as what the commercial
traveler sells in Switzerland. In another article called
"Burma as a Trade Field," these subheads appear:
"Opportunities for Increased Sales of American Prod-
ucts," "Imports and by Whom Controlled," "American
Sales Methods at Fault," and "Methods for Increasing
American Trade."

A knowledge of foreign customs regulations and
tariffs is of great importance to the importer and ex-
porter. Recently the consular reports have referred fre-
quently to any new requirements. Besides helping out in
any formal difficulties that may arise, such as failure to
pack things separately and specifying exactly what is m
the packages, the changes in tariff schedules enable toe
exporter to figure out more exactly his margin of profit
For instance, the following bit of information found in
one of the later monthly reports would be of very prach-
cal interest to an exporter of sterling and plated silver
and gold ware to France :

Sterling silver is difficult to import from the United States on
account of the government control, as each piece of silvenrart
must be stamped by the government officers, and a tax ptf

CONSULAR SERVICE

weight is paid for control. Silverware that has not the stamp
of the government control cannot be sold, and none is permitted
entry from abroad unless it passes through the controle and
pays the stamp tax. The same may be said of all articles of

Then follow extracts from statutes in detail, giving
the exact taxes and requirements for the sale of this
class of articles.

The necessity of international protection of patents
is often emphasized in the reports. Often an American
article has been imitated by other nations and sold, which
practice has interfered greatly with the American trade,
as in the case of the sewing; machine in Brazil, where it
was sold by German manufacturers. Valuable service,
too, has been rendered by the consuls in protecting
American trade marks and patents when registered
abroad.

Nearly every issue of the reports has some reference
to the regulations concerning the preparation of foods
for foreign markets. Many of the laws restrict the im-
portation of American fruits and meats. Some of the
rules are only formal ones for the purpose of protecting
the local trade, while others are in reality intended to
protect the public health. In Germany there is a law
which prohibits the importing of fruit dried on zinc
frames wliich is probably simply a measure to restrict
the American competition. In Canada no patent medi-
cine is allowed to be sold if it contains cocame, or alcohol
m excess of the amount required as a solvent or preserv-
ative, or if it contains any drug, of a long list submitted
in the consular report, which is not printed conspicuously
0" the label and wrapper of the bottle. This latter
pleasure is probably really intended for the pubKc

118

BUSINESS ORGANIZATION

68. Foreign needs and prejudices. — One decidedly
important feature of the consular reports is the very
frequent reference to the demands of the local markets.
Upon the accuracy of this information depends mudi
of the success or failure of the American export busi-
ness. Until recently the exports from the United
States to Hong Kong were almost exclusively flour
and kerosene. But now that the local demands and the
methods of carrying on business in the East are better
understood, there has been a considerable expansion of
trade with these ccfuntries. Exporters are taking up
every suggestion much more seriously than before.
Some years ago, an exporter of tinned goods f ouna that
a good part of his shipment had been rejected appar-
ently without any reason. Upon investigation, it was
found that the rule in China was to open every case, re-
move the wrappers and examine every tin. If a label
was in the least blemished the tin was rejected. The
exporter must either comply with these rules or lose his
trade, for the Chinese guild listens to no argument and is
decidedly autocratic in carrying out its rules. This in-
stance shows the importance of having full and correct
information on such matters.

Americans have often been criticized for not pajdng
sufScient attention to local styles and prejudices in the
export trade, and for that reason have sometimes been
left far behind while Germany and England have suc-
ceeded admirably in introducing certain articles of ex-
port especially in many of the backward countries where
local preference is often groundless. It is not that tb2se
people ai prejudiced against American-made goods; it
is simply v»iat they do not know of them or that tiie
joods are not exactly what they want. The Germans
send reliable and capable salesmen who speak the Ian-

CONSULAR SERVICE

119

giiage and understand the customs of the particular
country to which they are sent, and these generally suc-
ceed in introducing some line of goods which conforms
to the native ideas. Report after report emphasizes the
importance of sending a good salesman who speaks the
language an^ who does not expect to succeed without a
strong effort. Too many houses expect to succeed in
introducing a new article by simply sending out cata-
logues and price lists.

To illustrate the conservatism of various countries we
may cite a few instances from the consular reports of
various years. It would do no good to attempt at
present to introduce mutton, or butter or cheese into
Japan, as the Japanese have no taste for these things,
while cotton seed oil would probably find a good markei
as would condensed milk. The Chinese and Japanese
want distinctive native patterns in cottons, and the Eng-
lish in conforming to their taste by actually copying de-
signs of old Japanese art upon their fabrics have suc-
ceeded admirably in this line of export trade. The Sa-
moans want gaudy patterns in cotton goods; in Hayti
mauve is popular; in West Africa the men wear flowing
white gowns and the women gay calicoes and velvets.
Ill Cuba there is a good market for cheap white canvas
shoes and low cut tan or russet high heeled shoes in
rather small sizes, as the Cuban has a small foot In
Asia Minor the people are gradually disposing of their
ancient costumes and there is now a market in Smyrna
for American ready made clothing, especially the
cheaper grades of men's suits. The Dominicans prefer
a good grade of dressy s^ft or vici leather shoes; the
women especially like low fancy strap slippers and san-
dal with beaded ornamcu' ' ::. There is no market
in France for American silver plated ware unless the de-

BUSINESS ORGANIZATION

signs are of a type familiar to the French pureluuer,
who desires classical styles, such as Louis XV and XVI,
Empire, and so on. In Getmany it would do no gooc to
try to sell American silver plated spoons and forks, as
the Germans favor a different style — narrower, longer
and more pointed bowls in the spoons, and longer and
more slender prongs in forks.

The consular reports sometimes mention shortage of
crops in foreign countries. Occasionally there are op-
portunities for starting an export trade on this account.
When the shipping is once started it is apt to go on in-
definitely. After the apple shortage in Tasmania not
long ago, large supplies of American cold-stored apples
were sold in Europe and Australia.

69. Foreign credits. — ^Another thing of importance
to the exporter is a knowledge of foreign business
methods. Consuls have furnished valuable information
as to local practices of granting credits as well
as to methods of collecting debts. This is a typical
paragraph found often in the consular reports: "A
manufacturer who demands cash m full at the port of

shipment should not expect much business in •

The European competitor gives credit and thus gets
most of the business. Of course he studies his customers
through his traveling salesman and knows whom to
trust and takes but few chances." Compliance with
this custom is essential in all trade with South America.

70. Methods of packing. — There is a veiy general
complaint abroad in regard to the method of packing by
American firms who have as a rule shown contempt for
this. The consul can be of invaluable aid in giving in-
structions to the merchant starting on foreign trade.
If the merchant disregards these instructions, he li:^
only himself to blame. American trade is often lost in

■I

CONSULAR SERVICE

121

the Orient for this reason. To illustrate: An Ameri-
can firm was selling a bottled relish in the Philippines
and sent it so badly packed that it often arrived in dam-
aged condition. When the local firms wrote to the
American house explaining that better packing would
remedy the condition for further orders, the house re-
plied curtly, saying that its men knew how to pack
goods. Later shipments arrived in as badly damaged
condition and as a consequence orders were transferred
to a foreign house which guaranteed the condition of
shipments.

It stands to reason that meats for hot climates must
be very especially packed, furniture must te sent
knocked down to avoid excessive freight charges,
leather should be shipped in strong thick boxes, with
zinc linings, bound with iron bands to keep out the
dampness of a long sea voyage, and flour in barrels
should have plenty of hoops to keep out moisture and
allow rolling. Freight is very roughly handled on the
Chilean coast, and in the trade with Chile poor packing
on the part of manv American exporters has been and
still is a great handicap to the advance of American
trade in these regions.

The consular reports are full of instructions in re-
gard to methods of selling in foreign countries. Often
catalogues and circulars are sent out by American firms
in a language which the local merchant does not under-
stand. It has been repeatedly pointed out that cata-
logues even in the local language cannot take the place
of branch houses and traveling agents who speak the
mguage and understand the customs of the country.
Some consulates have a complete directory of local busi-
ness houses and will file all catalogues and price lists re-
vived from the American houses, especially when in

BUSINESS ORGANIZATION

the native languages. They even encourage exhibi-
tions of samples of American manufacture, but export-
ers have not generally availed themselves of then
offers.

71. Foreign trade opportunities. — Of late the United
States government has followed the German method of
discriminating in favor of its own citizens by giving
them various classes of trade intelligence. In the daily
Commerce Reports there is maintained a department
entitled "Foreign Trade Opportunities." Here notice
is given of inquiries on file at the Bureau of Manufac-
tures. Each inquiry has a file number to which appli-
cants refer. Some of them give names and addresses,
but many are entirely confidential in the interest of pro-
moting *he American export trade exclusively. Among
the ik. ^s asked for are the following: mining ma-
chinery; celluloid for the manufacture of combs; dry
goods agencies ; cedar boards and machines for making
pencils; railway ties; machinery for making sickles,
scythes, straw cutters, and wood work ; supplies for con-
structing electric tramway lines; American coal; house-
hold and kitchen novelties; chewing gum; telegraph and
telephone supplies; American mirrors, and steel rails.
It will be seen that there is a great variety in the articles
called for. It will be well to quote a few of these trade
opportunities as found listed in the reports:

No. 3S46. American Machinery , and Furniture. — ^A
report has been received from an American consul in Latin
America in which he states that a business man in the city in
which he is located desires to place orders for the following
articles: Dental and surgical instruments, butter^making iM'
chinery, incubators, office furniture, and bread-making machin-
ery. American manufacturers interested in these lines an

■Hiiii

CONSULAR SERVICE

128

invited to mail to him at once catalogues illustrating their arti-
cles, as well as price lists and terms of payment.

No. 3S91. Cotton-seed Oil. — A report has been received
from an American consular o.;ce in a city of southern Europe
in which he states that advices have been received at his office
fniiii a local business man who desires to be placed in communi-
cation with American exporters of cotton-seed oil with a view
to importing the same.

72. Protection of customs revenues. — There is an-
other way in which the consuls help foreign trade.
This is the protection of the customs revei ue which, of
course, deals only with the import trade. All goods in-
tended to be imported into the United States must be
accompanied by invoices sworn to and certified by
the consul at the shipping port. The object is to help
verify the correctness of the invoice and to prevent
frauds upon the revenue. The system of ad valorem
duties invites the undervaluation of imported goods.
This gives an advantage to the foreign merchant. By
means of consular effort to prevent this practice, dis-
honesty has been greatly checked.

If the American consular service is to become as effi-
cient as it should, it must have a decidedly commercial
trend, and display the qualities of good business man-
agement. An ideal consulate should not confine itself
merely to attending to business, but should attempt to
create new business. This it cannot do unless the im-
portant manufacturing and mercantile houses are will-
ing to avail themselves of the consular services in spread-
ing their trade in foreign countries.

CHAPTER VIII

ORGANIZATION IN MANUFACTURING INDUSTRIES

78. Specialization and cooperation.— In the previous
chapters we have attempted to bring out the important
lines of development in the industrial world which have
influenced the organization of modern business. If we
were to examine the business of transportation or of
agriculture, the same tendencies toward mass produc-
tion, i. e., transportation in bulk, and farming on a large
scale, would be discovered. The machine has been as
potent an influence here as in other fields. Combina-
tion of technical departments, consolidation of financial
interests, cooperation among the working forces have
been the means whereby the possibilities due to the sep-
aration of processes, to individual initiative, and to
division of labor have been made to materialize.
Specialized machinery, specialized management and
specialized labor have made possible the present scale of
production, but friction and retarded etticiency would
have made these possibilities futile if cooperation had
not been introduced. The establishment of an equi-
librium between these two tendencies of specialization
and COO' ation is the problem of modem business or-
ganization.

Not only must there be a continual shifting, in order
to maintain a balance of the great divisions of produ^
tion, distribution and exchange, but the various units
within each division must likewise change their posi-
tions so that their efficiency will not be reduced through

1S4

MANUFACTURING INDUSTRIES

Its

mal-adjustment; furthennore, each business concern
must correlate the forces within its own organization if
its product is to be made economically.

It is to this last point in the industrial organization
that this chapter will direct attention. Whether the
business enterprise is represented by the wholesale
house, the department store, the small retail store, or the
factory, the organization must adjust itself to the sys-
tem of mass production. The organization of a manu-
facturing concern is chosen since certain problems per-
taining to capital and labor arise here that do not become
so prominent in the other enterprises.

It must become evident very so< , '■o one investigating
the essential principles underlying ? organization of
the manufacturing business that many forms of or-
jranization exist, and that any attempt to generalize
must he confined to the few basic principles according to
which the various forms are erected; and to a statement
of tendencies prevailing in representative industries.

74. Fundamental principles of factory organization.
—To maintain his profits under the prevailing con-
(liti(«!is of competition and mass production, the manu-
facturer is compelled to extend his control over the
market for the raw materials necessary for his product,
and over the market which takes his wares. Both of
these movements have increased his expenses and in
neither case could he do it profitably unless the extension
enabled him to produce more goods or permitted the
same bulk to be handled by fewer men or more efficient
nR'thods. The thing aimed at in either case is the same
—the reduction of cost per unit of output. This process
of integration has had important effects upon the in-
ternal organization of the manufacturing estabii >hment.
The key to the subject of factory organization is

126 BUSINESS ORGANIZATION

specialization, standardizati. duplication of standard
parts, and system. These terms simply reflect the
ideas embodied in the expressions— division of labor and
so on, which are prevalent in the larger fields of mdus-
trial activity. It is the vocabulary from the point of
view of the shop or factory rather than from the view
point of the economist.

75. Predetermining a business enterprise.— BdoK
taking up the application of these principles to the fac-
tory organization, there are certain features of the busi-
ness that need attention. Capital, when once put into
a manufacturing plant, becomes fixed. It cannot be
withdrawn at will. It becomes necessary so far as pos-
sible to predetermine the success or failure of an enter-
prise; and by so doing offer protection to these large
capital expenditures. The success of the business ven-
ture depends upon many conditions, but in general these
will be covered by a consideration of the sources of raw
material, of manufacture, of the sources of power, of
the market from which labor must be drawn, the market
for the product, the physical surroundings, the trans-
portation facilities, and in some cases the reorganization
of existing plants.

The necessity for establishing a business so that it
will hold the correct relation to all of the above factors
is pressing more and more upon every enterprise. The
ideal combination can seldom or never be attained. It
is these countless combinations which must be consid-
ered that stand as the greatest obstacle in the way of
managerial monopoly. The largest of modem tnistoa
continually on the alert to discover the shif tmg of these
relations so as to be prepared to meet the attack of some
capitalist who is ever ready to take advantage of any
weak spot in the existing organization.

1"'"^

MANUFACTURING INDUSTRIES

1«7

7G. Source of raw matenaU.—The location of the
raw materials of industry has always been an important
influence in deciding the building spot of a manufactur-
ing plant. Especially has this been true in those m-
dustries where raw materials must be handled m large
quantities. In the process of - manufacture the bulk is
reduced. Thus a gieat saving is made by using the raw
material as near as possible to the source of its produc-
tion. The advantage is in the difference in the cost ot
transporting the goods after their manufacture rather
than before. The great flour mills have followed the
wheat fields. There is a tendency for the steel mills to
gravitate toward the iron mines. The cotton mills are
seeking the cotton fields. Still this is not always a safe
rule to follow. It is claimed by some authorities that
the greatest flour milling company in the world went mto
the hands of a receiver because of the competition of
mills established, not on the edge of the wheat pro-
ducing belt, but in the midst of a region which was
made barren of wheat when the great northwestern
wheat fields and flour mills were opened up and estab-
lished. The explanation is simply that the relations of
the various factors in the organizatioa of the flour mill-
ing business have changed. It pays, therefore, to build
mills in London, Liverpool, Manchester, and in other
market centers. The price of flour and the price of the
hy-products have both risen, and the cost of transporta-
tion has steadily declined.

77. Source of power.— This, like the location of the
raw material, is a fundamental consideration; but it can-
not be considered by itself alone. It is often a difficult
question to decide whether to move to the source of the
raw material supply, or to the coal field and water-fall.
The location of the steel works in Pennsylvania seems

1«8

BUSINESS ORGANIZATION

to be ideal from the point of view of the location of the
raw material and the fuel supplies. The discovery of
iron mines in the northwestern states somewhat changed
the relationship of the factory to these two factors.
With the development of the market in the western
states, another element making for a disarrangement
ofHhe older relations was injected. The building of
the great steel plant at Gary, Indiana, was probably a
resultant of the effects of these various forces which have
only recently become active. It has divided the dis-
tance between the raw materials and the fuel supply
and has settled in the center of the greatest market of
the near future.

78. Labor market— Although this is one of the most
important considerations in determining the location of
a plant, yet it is a question which is more and more
coming within the scope of business policy to solve.
How far a business policy is effective in breakmg down
barriers of distance between the plant and the sou.ce
of the labor supply is illustrated in the case of the coal
mines and, steel i^'Hs. Neither distance nor previous
conditions of em- yment stand in the way, for it is a
remarkable fact that these great industries depend upor
agricultural lalyjrers drawn from a labor market sit-
uated thousands of miles away in central and southern
Europe. Still for the ordinary enterprise, the labor
question is the most difficult to solve. The cotton nulls
of South Carolina have not yet solved it, but the busi-
ness policies which are being put in operation are show-
ing good results. Business methods pertaining to labw
will be treated more specifically in the chapters on wage
systems and industrial betterment in Part II.

79. Market for the factory's output.— Here again
the factory is brought face to face with the transporU-

MANUFACTURING INDUSTRIES

1S9

tion question. If the policy of the company is to con-
trol a small or local trade, there will be a great saving
in expense if the middleman can be put aside and the
selling done directly to the purchaser. This control
and influence over the market is further desired because
it enables him to put his goods upon the market when^
the demand is ripe.

80. Transportation and its relation to factory loca-
tion.— This great conmiercial factor has re-distributed
the trade centers of the world. The transportation has
changed from the carrying of high-priced articles in
small packages to the transporting of low priced com-
modities of great bulk. The character of a business
should, therefore, be the determining factor in selecting
a method of transportation. The relation of the rail-
way to the market has such an important bearing upon
the success of an enterprise that no pains should be
spared in determining the question of rates of trans-
portation before starting a business. A location, there-
fore, which has several competing railroads and water-
ways, has the most essential dements established for
maintaining of low rates.

In deciding upon the location, transportation should
be looked at from two points of view.

(1) The character of the business may demand
water carriage, or it may require one or more railways.
The lumber business is best served by water connections ;
the cement business by several lines of railway. Most
businesses are best served when they have the heavy raw
material and fuel brought to them by canal, and the
manufactured product taken away by one or more lines
of railway.

(2) The transportation of labor to and from the fac-
torj' is the next consideration. Even in cities this is an

n-9

180 BUSINESS ORGANIZATION

important factor. Laborers often Uve at great dis-
tances from the works. Sometimes a certam location u
chosen because the land is cheap. Here there may be a
railroad line which delivers freight once or twice a week,
but no street car or other way of carrying the laborers
nearer perhaps than within a mUe or so of the works.
One business which had proved a failure presented these
transportation conditions exactly. It was found that
the men had to get up at 5 o'clock in the morning to rash
off and get a troUey which ran but once a day. At fte
end of the ride there was still a mile and a half to walk.
It resulted in tiring the men before the day's work be-
gan This particular case was complicated by the pres-
ence of a tavern which the men had to pass. Before the
factory could be put upon its feet, a stage line had to be
established between the trolley and the plant. This led
a better class of workmen to the shops and resulted m
improved workmanship, which justified a higher rate
of wages. The point to be observed here is that tte
whole reorganization depended for its success upon the
question of the transportation of the workmen.

81. Physical mrroundings.-ln treatmg of tbe
physical surroundings and of the reorganization of the
plant we are brought closer to the particular arrange-
ments in and about the factory itself. If the broader
relations of the location have been decided upon, there
still remains the local environment, and it is at thw point
that the business relations in the restricted sense become
the subject of our present study. The influences ex-
eried by these factors will be seen directly m the pro-
ductive efficiency of the plant. Many questions, ro(»
as the following, si iuld oe answered before a local^is
chosen. Can a proper system of sanitation be mstaU^
Is there good drinking water, and is the Wftter free irow

MANUFACTURING INDUSTRIES

181

acid or alkali for service in boilers or whatever other
service required of it in the manufacturing process?
Are there proper sewage connections and drainage
facilities? Is there plenty of room to care for waste
products? Is the ground upon which the factory is
put composed of quicksand, or is there a sub-stratum of
clay which prevents the water from running away?
These are only a few of the many things that may turn
an otherwise favorable location into a very undesirable
one. One has only to think of the many considerations
that arise when a meat-packing concern is to be built, in
order to see how varied and numerous are the problems
under this score.

82. Reorganization of existing plants. — In the es-
tablishment of an organization there are three consid-
erations in connection with the plant itself . (1) Is the
building to be used for a new business? (2) Shall the
new factory be built to accommodate an old business
that is already established, but is to move to a new loca-
tion, or (3) has the new factory to be made so as to
take over a business that has outgrown its old facilities
and opportunities?

In case it is a new business there is the advantage of
being free from old precedents and policies and old sit-
uations; but on the other hand, there is the great prob-
lem of the uncertainty attendant upon an untried mar-
ket for the product. Before a factory is built it is
well to test the demand for a new product. Many new
products find themselves supj,^ ited very early by a
coni[)etitive one. To lessen the risk incident to a new
venture, factories have been established in different
parts of the country which make it their business to t«ke
up a new mechanism and to make all the tools, draw-
uigs, molds and special machines that may be required

132

BUSINESS ORGANIZATION

for turning out a new product. Tliey will continue the
manufacture until the product has been standardized
and until there has been a fair test made of the public
demand for the output; then the company will turn over
all the tools, machines, etc., to the new company, which
in all likelihood has erected its building in the meantime.
88. Comparative advantages of the city and amn-

try. A manufacturer should not decide the question of

location for a new plant until after he has investigated
the various advantages of the city, the suburb, or some
locality which has probably offered inducements in the
nature of a bonus, or freedom from taxation for a period
of years. The city offers advantages in the way of
labor supply. To many employers this is the prime
consideration. They desire to be independent of the
laborers. If a man is discharged or leaves, the manager
knows there will be a long list, or perhaps a line at the
gate to select from the next morning. Then, too, the
city with its large number of interests can be counted
upon to act as a store house from which fuel or supplies
can be drawn at a moment's notice. On the other hand,
the laborers of the city are often strongly organized into
unions, ar d wages are kept high by the competition for
labor by many other firms. The factory which pays
the best wages gets the best help. There are many ex-
amples of successful firms that have established them-
selves in great cities. The Baldwin Locomotive Works
at Philadelphia is an illustration of this type.

The advantages of the small town or the country are
in direct contrast to those of the city. Larger and more
commodious works can be built; and "welfare" work
can be adopted on a more extensive scale. The eam^,
with its rural surroundings, offers many opportuw-
ties in these directions. Labor is generally cheaper, as

MANUFACTURING INDUSTRIES

193

many people prefer the country to the city with its
crowded and unhealthful tenements. But a strictly
rural location means that the company must provi'de
housing accommodations for its working people; and
thus many administrative difficulties arise. The posi-
tion of the factory surrounded by its own work people
puts the management in a hard place when labor dis-
putes arise. The discharged man has the sympathies
of his neighbors. It is hard to evict a person, as such a
course leads to scandal. The Pullman strike of 1894,
under such conditions, led to a lowering of wages but
not of rents, and the scandal did much to injure the en-
terprise.

As the population increases and the communi*^ "^ grows
older, the company will have to meet educational prob-
lems. Not only elementary schools but high schools will
be demanded. Social and religious questions and dis-
putes will affect the factory management; for the em-
ployes will not be of the same social ranks or beliefs;
and last, but not least, political capital will continually
be made of the company's position, and demagogues
will never fail to decry it as a great oppressor, which
"owns the men body and soul." Bickerings of this na-
ture disgust many of the better men and they go to the
city where the advantages of city life can be obtained,
and with it, independence. In England, the best ex-
ample of recent years of the tendency to desert the city
for the rural conditions is that of the printing plants;
but it is a well-known fact that when a printer who has
a country workshop wants the best work done he sends
to London.

Of course these considerations apply only in cases
where ji company has a choice of location and is not
bound l>y circumstances to build in seme specified place.

]84 BUSINESS OBGANIZAriON

In England it is not a matter of choice, and as Am«ric.

Xr aln new ventures. The old works may aband»
this entirely and move to the country or suburb,
SSf^^rtty old assocUtions and habits . ' mana^
Xt^Zme the considerations of econ. y oif«ed
W «mlvll, and although they suffer from a m«.»f^
Spoint of view, they seem successful m ca^
™^ their ooUcv. But this is generally a victory of mer-
:^«K!:^ent over the technical considera.„^

These works are of two kmds. (1) There is
«.e Sried %pe where the work is carried on
ta„"buMng of three or more stones «W
„,. not made for manufacturing purposes, hut was
Ci^nra factory through change °fci^mu*^
Then, too, these old buildings may have b^" T*™
^hL' manufacturing -diti- .--.^^.-J^::'
fmm those of the present time. (2) 1 ^'ere is xnc
SS^. which o'wes its development ^opport^^
to bmld around a lot or yard or ««den. When
KnTwas reached in this direction, new ^^^TTJli
Cs desired and the plant was e:rtended ^^^1
p^Vrty across th. ^^^J" ^^Un^^ sS
;:^':"mr:^t^elargeolder.«esor

"TZ.^ Of a ^-if---^:^::;^^:

MANUFACTURING INDUSTRIES

186

the small plant. The plan is to bring in the raw ma-
terial and let it pass through the factory without
doubling on itself during the successive processes of
manufacture. The extent of the plant will be the result
of many considerations, the size of the output, etc. The
allotment of floor space will be ni aile after a considera-
tion of the kind and number of buildings to be erected
upon a given space. In regard to the question of the
subdivision of the floor space a compromise is often
made in the case of engineering firms by adopting the
alcove or side aisle arrangement, whereby the big things
are located in the center, and on the sides the subsidiary
processes are carried on instead of in separate buildings.
In the lay-out of the plant the proper balancing of
the various departments is very essential. By this is
meant that the machines in one department should not
be so numerous as to produce more rapidly than the
other departments can dispose of its product. It is
only after a very careful analysis that the proper size
of rooms and balancing of the different departments
can be determined before hand. Yet it should be done
in order to avoid a subsequent rearrangement of the
whole interior. The older plan of making all the rooms
in the factory of about the same size has proved disas-
trous so many times after the factory was started, that
few men would think of following this method to-day.
An example of the old method is instanced in the
case of a certain watch factory. The arrangement pro-
vided for the complete making of a watch of a certain
si'e in one room, and of other sizes in another room.
The operatives in each room became expert in turning
out one particular style and size of watch. Failing to
make this plan pay, the factory was put into the hands
new manager. He rearranged the machinery

186 BUSINESS ORGANIZATION

throughout the whole factory. All the machinery do-
ing the same kind of work was put into one room. For
example, all drilling machines were put into one place,
all stamping machines into another, etc.

This brought about a new kind of specialization
among the operatives. Instead of turning out a par-
ticular kind of watch, each operative became a special-
ist in one kind of process. It also brought about a new
alignment of work. Where there had been one man in
each room who did the stamping for the machines in
that room, now all the stamping machines were grouped
together and it was found that one man could attend to
four machines. A little later it was discovered that a
girl could do the same work as well as a man, and indeed
it was not long before one girl was attending to six
machines with less effort than was formerly made by
the man with four machines. This was accompU-bf H
by putting a chair on wheels in front of a row of ma-
chines, so that the girl could be seated and still go from
one machine to another by pushing the chair.

85. Transmission of power. Tool room. Store
rooms.— If the factory uses electrical power it is consid-
ered the best arrangement to group the light machinery
together and put the heavy machines by themselves.
The latter should be placed on the ground floor, where
the heavy product can be brought in. The Ughter ma-
chines can be put on the upper floors.

. The plan of the factory should provide for a twl
room. Tools should not be left lying around to be lost
or stolen. This room ought to be placed so that ioois
can be easily supplied to the operative without loss ot
time. It should not be necessary for him to leave his
machine, but by pressing a buxton a boy from the tort-
room can be summoned with the required tool. Me-

MANUFACTURING INDUSTRIES

187

chanics do not as a rule supply their own tools. This
is done by the factory which keeps a caref uUy indexed
record of every tool, each man being charged with it
until he returns the tool to its proper place.

Storerooms should be arranged for in the preliminary
plans. Three classes of storerooms are desirable, each
to care for the product in its three principal stages of
manufacture— the raw material, the finished wares and
the partially completed goods. Rooms for housing the
partially completed goods may be called departmental
store rooms. Their chief function is to provide a place
for the inspection of the semi-finished product of each
department before it goes on to the next. A system of
inspection of this kind provides for the inspecting of the
goods lief ore they are fully completed and ready for the
shipping room. The work of each man is thus in-
spected as it passes from one to another, and when some
piece of work is found to be defective, the operations
upon it can be stopped until it is remedied; or if the de-
fect if5 a fatal one it can be cast out altogether. This is
'.v. important consideration, for if the inspection were
telayecl urtil the article was finished, all the operations
after the defect occurred would be a pure loss.

86. Standard equipment— Wlale the subjeqt of tools
and their arrangeiT'-ro is under consideration, it may
be well to mention another essential that should be pro-
vided for in the layout of a plant. Frequently there
will be found in a machine shop a number of similar
machines which differ from each other only in non-
essential parts, as they are products of different fac-
tories. Provided these machines all do the same work
there is a saving in expense if they are all alike. For
example, lathes are nearly a standard product, but
every manufacturer has his own ideas about the size

188 BUSINESS ORGANIZATION

.md style of screws, or the size of the countershaft,
etc. A shop which has a half dozen lathes from as
many different firms must keep in stock one or two
extra parts to pr vide against breakage for ach lathe.
By having si nt'trd machines of the same make in use.
the cost foj caiTving repair parts will be lessened and
often mu(' tirnr saved through avoiding shut-downs

It might be 'Mtd aljvo that the substt^ tial tool is the
most ecoiiouiicaj Ji! the long run. The r^ht and cheap
tool will produce inaccurate work and laus destroy the
very purpose lor which tlie product is designed. The
appointment of an expert purchasing agent before the
factory is fitted out, almost as essential as planning
the design of the floor space an«i transportation. He
will know the difference between a cheap macl me co^
ing a small sum and a cheap mai hine in anoti.r sense,
which, while costing a lit le larger sum at the beginning,
will more than make up fi • the extra cost by producing
better goods and lasting longer ui the service.

87. Transportation teithin the plant.— As the orig ml
location of the plant is largely a question ot -cr aoi «1
transportation, so the location of the machine.^ ithm th
plant is largely determined bv transportati' m
ments. The work should pro,rress in one di- c-tii n
tinuously and with as little 1 .ndling as p» >'We.

Transportation facilities ai the plant ma\ be divide*'
into external and internal. The buildings si uld be so
arranged as to facilitate tie bringir? in a I atonp
away of the goods, while tl. int. ■ al .ay-oit mM b*
such as to keep the goods lovii^g in one drect n m
harmonv " ith the outside anspo-^atioi a - ifiremt

The foi. ving chart w U illusi th ai * ^^^
of buildings for carrying * t Ac fc*« - * "*
movement i the samt diiectk»J m u*

ar-

MANUFACTURING INDUSTRIES

189

rangeni t of tht departments in order that the manu-
*acturi ^ pi<x.'e8j!i may harmonize with the iwine of

« I * " < ! -<»- -Wf^

*' ^^''^^^SOh

PIG IRON

BAR IRON

LUMBER

transportation in converging upon the ^pping and
loading side of the works.
As the raw materials arrive by way of the canal or

140 BUSINESS ORGANIZATION

other water conveyance they are taken into the store
houses. Then they pass through the various processes
in the foundry, in the smithy, and in the carpenter shop.
The products of the foundry and smithy meet in the
machine shop where the manufacturing processes are
taken up with the same progressive movement toward
the loading side of the plant. The machining processes
completed, the product passes to the assembling room,
where it meets the wooden parts all ready to be put
together. Other processes here turn out the article com-
pleted and ready for the storehouse and shipment.

This is one arrangement which of course would be
modified to meet conditions. The same logical arrange-
ment, however, would not change, for the continuous
forward movement without any retracing of steps, is
the basis of scientific organization. Even in a city
where space is scarce and the arrangement of the plant
is vertical instead of being horizontal, the logical order
of processing would be the same. Here the raw mate-
rial comes in down stairs and proceeds upward until it
comes out a finished good at the top. Other arrange-
ments are discussed in Chapter VIII of Part II.

For the transportation of the product through tne
plant it is customary to have narrow gauge raUways
connected with the track that brings the product to tte
plant. Various kinds of trucks convey the produci
from one department to another.^ ^'"^"'f ^ .^11^
overhead trolleys which obviate the necessity of having

iBoth iwltches and turntables are used. *»»* ^^'""^"j^^^tJl
get out of order. They are cheaper. »«^«!f J°^ "^Uy. In »«?
L of large wheels, claiming that the tructa W^« ^V ^^^
cases the overhead trolley with th« P"7™««%^ fj^d or unloaded
combination, especially if heavy '»«»"'*'•/" J^^eompreMed "i* *
Such an arrangement can be operated either byhM^ ^^^g aw-f

electricity. 11. syn^ of »»"'^':f '^•^^^'S j^Ill. ^S^ «-
the waste product from every machine. This waste » «

MANUFACTURING INDUSTRIES

141

a man to load and unload the truck. When a truck
comes to a man at a machine he takes out his material,
and when his work upo-: it is completed another truck
comes alongside an'', carries the product to the next man.
This system saves much time and work in the handling
of the material.

The transportation of small products is often pro-
vided for by the use of traveling belts. As the product
passes along it can be taken off by the men at the ma-
chines; as each man completes his work upon it, the belt
carries it on to the next. This is a favorite method in
the manufacture of food products.

88. Convey cice of internal information. — Transpor-
tation is not confined to the conveying of materials
alone. The question of carrying mtelligence is one that
must be solved also. There is no tune which the average
business man begrudges more than that lost in getting
information or conveying it to his subordinates and oth-
ers. The messenger service is the commonest form in
large concerns, although many firms use all the famUiar
means, such as the telephone and whistling tubes. One
unique method to call the superintendent or soms other
official, is to blow the whistle, which can be heard all
over a large plant, and by a schedule of signals— one
whistle for the manager, two for the foreman, and so
on-much time can be saved in caUing these men when
urgently wanted.

In some factories the messenger service provides for
the sending of a boy from one department to another
everj' hour or half hour. He takes messages and in-
quiries from one foreman to another on one trip, and
t)nngs back the answers on his return. This makes it

JorTcan'ZV:' l,' I" T ^"^ *'"' '"'"'^"^'^ "' *»'" "»" «» determined.
•t can be found out whether he is wasting the product or not ^^

14« ^ BUSINESS ORGANIZATION

unnecessary for the foreman to leave his department m

search of information. . . . i j j

89. Summary.-lvi summarizing the pomts mduded
in the preliminary determination of the location and
design of the plant, it will he seen that the first problem
to atUck is the determination of the nature of the pro-
duct to he manufactured, and to classify the vanous
raw materials that are to be used. When this has
been decided upon, and when it is known how the pro-
cesses necessary in manufacturing the article follow
each other in their natural sequence, the vanous de-
partments may be planned and the floor space as-
signed to each department. Finally, after it has
been set i.d how the space is to be equipped with ma-
chinery for the manufacturing processes and the
transportation systems, the walls of the building may

The basis for the organization has now been estab-
lished. There remains the classification of the vanous
activities as they are related to the f midamental pnt^
pies. The first function that naturally <i»ff««°*f ^.
itself is that of admmhtration: the second, ttat oi
manufacture; and the third, the commercial aebvi^
connected with the production and the disposal of tfte
product. The various systems of a«»«°*"»«^^ °'
gathering information will naturally be influenced by
consideration of these fundamental divisions.

The following outline will show the vanous prd^
aries in the procedure of preparing to manufacture

certain product: j^^««;ninff

1. The plans. These include the exact detenn"^

of whatever is necessary for efficient service m ftcp^
ductive operations, and their most effective arrange-
ment.

MANUFACTURING INDUSTRIES

148

2. The provision of the various things necessary in
the production of the product.

a. Buildings which are adapted to the desired

operations or the manufacture of certain
goods.

b. Appropriate machinery for this manufacture.

c. A power plant to drive the machinery and to

heat and light the factory.

d. Machines and tools which are needed in the me-

chanical operations or by the workmen.

e. Other apparatus and any other appliances be-

sides machinery and tools.

f. Patterns or designs or models to be used as

guides in the manufacture of the goods.

3. The operation of the power plant and the machin-
ery.

CHAPTER IX

DEPAHTMENTAL FUNCTIONS AND OEGANIZATION

80. Ban, of departmental diMon..-^ V'^
chapter dealt with the varicos f «*.rs to he considered m
S out a plant. It is.presumed that the meorporrt-
K the buMnes, under state laws, the Bn"^
ihf enterprise and the duties of officers pertamuig IhoA.
havtSheen properly attended to. It U now v^
sl^ ti^^L upon what basis the electmg and .p-
Sting of the various authorities shall be estabhAed^
C thf duties of each wiU correlate and workup
^^ny with the others. If friction between the h«^ «^
deoartments is to be reduced to a minimum, it must M
dXC scientific divUion of authorito b«ed on to-
'rfu'nctions. CcKiperation is Au^in-l-f ™^^5
The question of selecting the men f» *« I^^^
authori^ resolves itself to a ^fT"^^^.
them according to their natural or tr«ned aM*^ ^ *^
,ect the activities pertaining to a P*"*-^^! .'"""f^
toction. In order to make the proper divBion of .
'Jntfacturing business into dep-tmenU. -"^ ^^
playing the geographical «r«,gement »•* J »«
shown in the last chapter is -f**" j"^" t"°*^p).v
of chart is sometimes used by ^yf^^"J° ^\
the various primary funrtions of *e tasine».^^
show their comiections. For an ^'^f^^^^r^'
this kind and a further discussion of de^'^n.
tions the reader may turn to Cl»pter IIo* ?««
91 Prime function, of a manufactuwig !«»<«»••

DEPARTMENTAL ORGANIZATION

145

The prime functions of a manufacturing business are
discussed under the following twelve heads :

1. Controlling the supply of stock used in
M.vNuiACTURiNG. (baw MATERIAL.) This function is
divided into

(a) A general central control (main office).

(b) Territorial control (branch or divisional of-
fices).

The order of authority is from the main office down.
The sub-companies are organized individually to secure
stwk by mining, lumbering, local buying or other means
and then to ship the same to the factory.

2. Purchasing operating materials and supplies.

(a) Buying.

(1) Contracting.

(2) Direct purchasing.

(b) Ordering.

(1) Receiving requisitions.

(2) Approving requisitions.

(3) Placing orders to fill requisitions.

The department is controlled by a manager or general
purchasing agent, who is assisted by special buyers.
These have charge of certain classes of material. The
buying is done in some cases by making time and ap-
proximate quantity contracts — often by a purchasing
committee— with the sellers. Most oi the small pur-
chases which are in great variety are made directly after
securing competitive prices with the individual. The
receiving of requisitions includes the filing of them and
the acknowledgment of their receipt. The approving
of requisitions involves the checking of the same, if
made to replenish stores, against present inventory, past

BUSINESS ORGANIZATION

146

is against the works 0™*^ ' » of this U to prove
by the proper foreman TJ^e^^^ °f ^^ J,,,,.

t^"Xi^^eS:elr?of»ateriaU.t««
''t^ piaeing of orders - «! 3^^^?^.:

his assistants. tpofjnff are to estab-

Q TvRTrao - The functions of testing are lu

^o^Sr"^ S aep.rtn.ent e.«»nes^ -
pares the quaUty of n»ten. U ^..^ fJ^^'^Z^i. .p-
L quality of the P-^uct' °^ *^ o^^xtends to
proved standards. This 1 unction ^hiMry,

Lking trials or tests of fl"*"^^;^*^^ of
boilers, engines, apparatus, ^ 0™"^ » ^ p,o«s»es
manufacture. As a result "'-^'i "XI^ '^ *^
of —»<*-' --"r^^'of^I^gVe, ^
are developed. Ihe aeparuu ^^^ purchw

cial or periodical reports to the r°"^^;^its of
ing or other departments which «nb^y «^^ „,

its trials or tests, and «d"'«\"P°" *!,^«ct»-
rejection or the grading of -"f ""^"r^ le super-
i Employing. This ^ '»'*°° ^^^^^^ emP^is
^ion in general of all -^^^-Xr p^-
, of the factory other than the d««^^_

tive activities. These •"*«'" '"^'^ptoymo.t bw""
(a) Hiring. This is done by an employm

DEPARTMENTAL ORGANIZATION

147

which receives and files applications for work, and en-
gages laborers of the best ability and character obtain-
able for the foremen.

(b) Recording. The bureau records the main fa»
pertaining to eac* employe as a person and a workt .
Data are taken regarding name, age, experience, refer-
ences, occupations, rates of pay, dates of starting and
leaving, social and physical characteristics, and conduct
and efficiency as an employe.

(c) Instructing. This pertains to the duties that the
worker is to perform in order that he may secure profi-
ciency and efficiency as soon as possible, and that losses
through accidents and waste of material may be reduced
to a minimum. The bureau sometimes supervises the
instruction but most commonly the foremen or func-
tional bosses assume the responsibility.

(d) Rating. Wages are fixed by the bureau or un-
der their supervision on the basis of the specific occupa-
tion, by specific agreement between employe and fore-
man or in accordance with whatever special system of
wages the factory may have adopted, such as piece work
or premium systems.

5. Selling. The function of selling embraces the
securing of orders, estimating, ordering and advertis-
ing.

(a) Selling— i. e., securing of orders from customers
for production and shipment to them at specified times
of certain goods at agreed prices under stated terms.*

(b) Estimating— i. e., valuing by calculation and ex-
pert appraisal the cost of producing specific articles
desired by customers. This function comprehends the

'The reader's attention is especially directed to the chapter on sales in
tite o7r T ^"'•^'""^^ 1*^' *here the legal requirement of the stat-
^ Of fraud with regard to the sales exceeding the amount of $50 is

*■ ■:,

BUSINESS ORGANIZATION

148

fixing of a price at which the good, can be «.ld .t .

^t) O^dering-i. ^^'^^^J^'J^: ^
that the order is filled.

flers in various forms.
(2) Transforming and copying same to and on .

standard form.
SI SSjihe orders to the manuf aether's

department.
The various forms of orders are :

(1) Contracts covering a period of tune or a cer

(.)t;S^s on contract which may be per^^

(3) Tlal^ntT^^^^^^^^ orders filled generally
at one time. information to

ducts of the ompany, in order to ,e««e orto.
The selling department is """aged b^ « >^^ .,

Jjar^-rSrlTsali TheoJ^roCT^
ducted through the "«"" o*- ^' ^r^ve control,
managed by sales "gf »*'• T^,?*.f f " ger and tte
subject to the d'— . f ^^^ ^,S- with the
assistant managers, of the company
customers within a certain terntory.

DEPARTMENTAL ORGANIZATION

149

6. Warehousing. This function includes the stor-
ing of goods.

(a) The storing of parts or partially finished articles
as they are received from the foremen of certain depart-
ments but which will be required later on in other de-
partments.

(b) The storing of finished goods which are delivered
to the warehouse for immediate or subsequent shipment
to customers.

A system of checking and inspection may accompany
the function of warehousing. The partly finished
goods are checked against production orders and normal
requirements and they are accounted for in a similar
manner to stores. The system of inspection may fol-
low the goods into the intermediate store rooms.

The finished goods are located, inspected, checked
against orders, packed and shipped in accordance with
shipping orders and routing instructions. There are
many devices whereby proper stocks consistent with the
requirements of the sales department are maintained.

7. Transporting. This function pertains to the di-
recting and the forwarding of goods.

(a) Tlie department provides:

(1) Cars or boats.

(2) Unloading, transferring or storing facilities
and equipment, including the necessary help.

(3) Trucks and wagons for delivery of goods.

(4) Routing instructions to shipping clerks and
railroad agents.

(5) The department is responsible for the safe
and prompt delivery of goods at the proper
destination.

(6) In case of unsatisfactory service it makes

160

BUSINESS OBGANIZATION

con.pl.inU Md pushes the eUim, .gainH 4e

(7) U endeavors to secure the best tenns practo-
^ ' ble for special serviee, and at .11 «ne. to p«

tl^ «.m^ny the benefit of the lowest tr«»-

portation rales in fo"-"*"?^ P^"" „, tn^-

(8) The department approves all b.Us from tr»»-

portation companies. ^,.11 j-i.

(9^ In «cneral the department controls idl dal
^^ Lgs between the «.mpany and all transport.-
tion, lighterage, steamship, storage and tmt
r«,mpanies which handle the output of ti^
Zpany, or which ship the raw «.d operata,,
materials to the works.
B M*™tenance. This covers the upkeep of tie
pr^pert^S^ng repairs and renewals, both ordu-r,

and extraordinary.

(a) Buildings and grounds.

(b) M-w-^^t-l'-/«P„P^'^;„^„of«.,

9. IMP^^M.^•.. This aepartment^^b *e «■
placing of existing buUdings or ^^'^^
proved types and greater relative <f "'"^- *„;^„.
f, done in <»nnection with*e two dep^e^ of
tenance and of manufacture, ine »^ ' |^ ^
an equipment which wiU enable *i>^^J^"^ *,^
of production so as to meet ""P^f '^"'^ " "^
profits. The work is similar ^ 'T'J^Z.Uii^,.
I of such a nature ^^l<^J:;^,^i^
at least, at the ume, tu the expejwe "' f- ^

tory. The doing of ths-rk-a^^^^
based on a judgment as to *^J^^*^^^^ jj^ted by the
after the change. Such work is of ten imu

DEPARTMENTAL ORGANIZATION

151

financial ability of the company to incur the expense or
by the wishes of the stockholders for dividends instead
of an improved plant.

10. CoNSTBUcnoN. — This covers the work of provid-
ing the factory with buildings and equipment to start
with and then of providing properly constructed, ar-
ranged and equipped buildings of various kinds as the
business grows. This department may be complete as
a creative agency, or may only go as far as the planning
of the work to be done. The functions of maintenance,
improvement and construction are often performed by
one department, sometimes with and sometimes without
specialized divisions.

11. Executive. The function of financing and
planning the enterprise is given to the executive depart-
ment.

(a) The directors, elected by stockholders.

(b) The executive committee.

(d) The president.

(e) First vice president or general manager.

(f) Experts.

12. Administrative uepaetments.

(a) Secretary.

(b) Treasury.

(d) Accounting.

(e) Cost.

(f) Statistical.

(g) Real Estate.
(h) Legal.

The various types of organization and management,
found in the factories of the same and. of diflferent in-
dustries are the several combinations of these depart-

152

BUSINESS ORGANIZATION

ments and divisions. The general plans according to
which various nmnufucturing operations are carried on
vary f^risiderab'x- To such an extent is this true that
no generalization or grouping is practicable except to a
limited extent.

' The following list of activities together with two erf-
umns containing descriptive phrases embody the princi-
pal characteristics embraced in any scheme of organiza-
tion. It will be readily seen that any number of com-
binations may be made. For example, the control may
be exercised by the owners, but under a system of man-
agement which depends upon the local branch offices for
direct supervision. All kinds of production may be
combined with either the military or functional systems
of direction, etc., etc.

Actti'Uy.

Plan A.

FhxnB.

1. Co.urol

By owneis

By salaried einplojrAi

.?. Management

T^al

From main office

3. Superintendence

Personal

Impersonal

4. Output

Simple

Complex

5. Production

Similar

Varied

G. Processes

Specialised

Standardised

7. Business

Competitive

Monopoly

8. Direction

Military

Functional

9. Instruction

Formal (in

writing)

Informal (verbal)

10. F.mplayis

Organized, i

Unorganised

(Labor

Unions)

11. Wages

Piece or premium

Daily or iwurly rates

rates

■

12. Machinery

Hand

Automatic

13. Development

Progressive

Unprogressive

14. Evolution

Equal

Unequal

15. Growth

Systematic

Unsystematic

16. Methods

EJTectual

Ineffectual

17. Results

Profit

Lou

18. Conditions

Past

Present

19. Forms

Actual

Ideal

92. Buties of the ofllcer»,~The first transaction of »
business nature, as we have seen, is the selection of the

DEPARTMENTAL ORGANIZATION 150

gent rul officers of the company. The second is. logi-
cally, the choice of the heads of the three divisioiii. the
I executive, the seUing and the manufacturing. The
iiext step involves the selection of sub-heads for each di-
vision and the departments within each division. If the
planning of the organization has been done on scientific
lines these officers will settle into places, the principal re-
lations of which are already established by natural con-
ditions.

However, in cases where the activities of one depart-
ment come in contact with several other departments,
the practical problem of drawing a line that will define
the i.;;andary within which each authority shall be opera-
tive is a very difficult one. It is easy to see that the
making of a bolt or casting relates solely to the machin-
ery department, but the keeping of the factory accounts
IS not so easily allocated ^or it wiU reach into the selling,
'le financial and execui' . i visions.

In assife^ing dulies i. ... . rious officers, it is iiot
presumed that the folio ,,r classifications are a.A-
thing more than typical c&s,;.

The president is usuaUy the general supem In^ of-
heer of the company. He presides at all ueetings of
the stockholders and at all board meetings: -le si(T. all
stock certificates and sometim, > aU other papers. He
may, however, be chosen merely for the influence of his
name. ,n which case he is only a figure-head, and a man-
agmg (hrectc is appointed to do the work. This hit-
»»^head type is rarer in the United Stries than in Eu-

Z^A ""f ^-P^«'^«n* simply assume, the duties of the
resident when the latter is absent, unless as in the case

164

BUSINESS ORGANIZATION

The treasurer has custody of all the company funds
and securities; he has charge of the books, and he over-
sees the vouchers and makes up the financial reports.
In case there is an auditor, he is usually under the
treasurer, and he will have charge of the company's
books and will check up all accounts. There may also
be a comptroller who is the author of and is respon-
sible for questions pertaining to general accounting,
cost accounting, systematization and so on. His re-
lation to the board of directors, t^e executive commit-
tee and the president is the same as that of the general
manager in value and expression. He becomes the chief
authority in all questions relating to organization.

The secretary keeps the minutes ( Aie company; he
has charge of the company's seal, of the stock certificate
book and other books; he looks to the issuing, transfer-
ance and cancellation of the company's stoc*., and makes
regular reports.

The president, vice-president, secretary and treasurer
are directly engaged in the corporate works of the com-
pany, except in the case of the treasurer when he he
comes closely associated wlvu the business end of the
factory and has other duties than those connected with
the corporate finances.

The general manager is in charge of the active busi-
ness of selling and production. Under him are the
heads of the selling and manufacturing divisions, name-
ly, the sales manager and the factory superintendent.

From our point of view the general manager is the
chief authority in the organization. He is "the main
spring of the active business end of the companj ." He
must possess certain qualities, such as a strong individu-
ality, tact, resourcefuhiess, forccfulness, and at the same

DEPARTMENTAL ORGANIZATION

155

time he must have a knowledge of the principals of or-
ganization and management. On him devolves the
duty of selecting his subordinates, either personally, if
he is in a small organization, or through a department if
he is in a large one.

98. Military method of organization. — There are two
distinct methods of directing the organization below the
superintendent. One is the military form where the
manager is practically the general of the army; he has
under him, majors, captains and lieutenants who carry
out his commands. Under this mode of directing, the
staff must be trained to the manager's policy. The
advantages and disadvantages of this type of organiza-
tion from the manager's standpoint are discussed in
Chapter III of Part II.

Much depends upon the foreman's capacity to grasp
the larger problems of the manager's policy. In ar-
ranging for the work of the foreman, it has been de-
termined of late that the same process shall be adopted
in developing efficient specialists here as was done in
the case of the common laborer. Each foreman instead
of having charge of a number of men performing many
kinds of work, has now one thing to do. This was
found necessary because capable foremen of the broader
type were difficult to find. Such general work demands
of a foreman that he have a fair quota of brains, some
general education, fair physical health, some technical
knowledge and some manual dexterity. In common
with all administrative positions, his position calls for
tact and judgment. He must have a knov^ledge of ev-
er>' part of the product; he must see that the workmen
use their time for the best interests of the company.
He must be a "hustler" himself and he must know how
fast other men can work. His duties embrace the dis-

156

BUSINESS ORGANIZATION

ciplining of the man, the settling of disputes between
employes and the adjusting of wages in case of absence,
sickness and so on.

94. Functional method of organization. — The difficul-
ty of getting men of the proper caliber to take charge of
the departments has set managers to devising a method
or organization which calls for less ability in any one
foreman. Accordingly the functional method of or-
ganization is gradually supplanting the military
method. In an organization of this kind, a man possess-
ing three or four of the above named qualifications can
be trained to fill the position of a functional foreman.
He is required to do only two or three things, and in the
larger shops only one thing. This does not mean that
the same amount of ability, taking the shop as a whole,
is not needed under the functional plan, but that it is or-
ganized differently. All the ability which is needed for
planning is concentrated in a planning department
The shop foremen are no longer expected to do this.
In a fairly large factory there will be four foremen in
the planning department, and another set of four fore-
men will be constantly upon the floor of the shop in-
structing and helping the men. This division of labor
causes no confusion, for the workmen never see the fore-
men in the planning department. This illustrates how
all the functions may be separated, and whereas the old
system provided one foreman from whom a group of
men took their orders, the newer method permits my
workman to have as many as eight bosses.

Although the planning department is fully treated
under the head of "Management," it is necessary to give
here a brief review of its operations. In the first place
the men in this department are of a higher caliber than
the trained laborers who are foremen in the shop. The

DEPARTMENTAL ORGANIZATION

157

room itself is planned to provide for a series of panels
and pigeoa holes. Each section of a panel with its hook
and each pigeon hole represents a particular tool. As
the records of work come into the planning department
from the departments of the shop they are divided up
and put into the different pigeon holes. They are then
ready to be given to another department for another
operation. One man is in charge of this work and his
duty is to see that the incoming records are properly
distributed and that the work upon the machines is
cept going properly, for as a man finishes a job the
planning department sees that he is supplied with an-
other. This man in the planning room becomes very ex-
pert in filling up pigeon holes and seeing that there is
work in them all the time. If the work is not going in
and out, from one machine to another, as fast as planned,
the speed boss, of whom we will speak later, is called and
asked to explain the cause of the ielay. On the other
hand, if any of the pigeon holes become congested it
means that some machines are working too fast or
others are working too slowly and this calls for an
investigation.

95. Foremen of the planning department and their
rf«fjV«.— The foremen in this department are the (1)
route clerk, (2) the instruction card man, (3) the cost
clerk, (4) the time clerk.

The route clerk plans the course which each piece of
work is to travel on its way through the shop from one
machine to another. He informs the superintendent
of the various workmen, by means of written cards ex-
actly what each workman may expect to appear at his
machine at any particular hour during the day. Thus
are the various shop bosses kept in touch with the chron-
ological order of procedure and they know what must be

^aigititam^uMtmmu^imiimsAt

108

BUSINESS ORGANIZATION

done if the work is to be produced in proper routine.

The instruction card man draws up another set of
cards showing the number of the pieces of work whidi
the route clerk had directed on its course from u^achine
to machine. He supplies the cost order number on the
card and puts instructions on it pertaining to the various
tools and fixtures that are to be used on each piece of
work in carrying out every process.

This card also gives instructions to the foremen as to
what tools and fixtures it is necessary to supply the
men with, and hence there is no necessity for the work-
man to leave his machine for any purpose during work-
ing hours. The tools are brought to him and the raw
materials are delivered at his machine. By looking at
his instruction card he knows just how to set his machine
for the proper speed and proper feed. The thinking is
done in the planning room and the functional foremen
in the shop simply obey instructions.

The cost and time clerks formulate instructions for
recording the time which each man is expected to con-
sume in his work. For example: the cost clerk lays out
in advance the length of time which each workman is
expected to take in doing his piece of work. If, for
some reason, the workman is unable to do his task in the
time alloted to him, it becomes his duty to inform the
shop foreman that a mistake has been made in calculat-
ing the time. The speed boss then takes up the matter,
and if after examining the machine to see that no mis-
take has been made in its setting, he finds the workman's
statement correct, he reports the case to the planning de-
partment for correction.

96. Shop bosses and their duties. — In the shop there
are (1) the feang boss, (2) the speed boss, (8) the in-
spector, (4) the disciplinarian. These men can bese-

DEPARTMENTAL ORGANIZATION

159

lected without difficulty and their training provided for
if the manager has a clear idea of what he wants to ac-
complish.

The gang boss has no definite duties as such. He
simply carries out such work as the planning department
assigns him.

The speed boss sees that the work is carried out ac-
cording to the schedule sent out by the planning room.

The inspector looks after the quality of the work as
it comes from the machines. He must be able to in-
struct the men as to the type and quality of workman-
ship required.

The disciplinarian settles all cases of insubordination,
and passes judgment upon the disputes which arise be-
tween workmen and foremen.

There is a fifth boss in some factories whose duty it is
to keep the machines clean and in repair; and in addi-
tion he may be called upon to keep things in good order.

Functional organization is being strongly urged by
some of the best accountants and industrial engineers in
the country. Mr. H. F. J. Porter, one of the leading
authorities upon industrial organization, in a paper
upholding the above method, quotes the following in-
stance showing the results of this method:

In connection with a large foundry, we had men loading pig
iron on cars by carrying it up an inclined plane. It had been
customary to pay the men $1.15 a day for carrying 12 to 13
tons of pig iron.

The lowest grade of labor had been doing this work. If a
man applied for work, he was put into one of these gangs
The better men, as they proved themselves, were later taken out
«nd put into the shop as machinists, etc. That left in these
gangs only the young, untrained men, who were not particularly

DEPARTMENTAL ORGANIZATION

1S9

lected without difficulty and their training provided for
if the manager has a clear idea of what he wants to ac-
complish.

The gang boss has no definite duties as such. He
simply carries out such work as the planning department
assigns him.

The speed boss sees that the work is carried out ac-
cording to the schedule sent out by the planning room.

The inspector looks after the quality of the work as
it comes from the machines. He must be able to in-
struct the men as to the type and quality of workman-
ship required.

The disciplinarian settles all cases of insubordination,
and passes judgment upon the disputes which arise be-
tween workmen and foremen.

There is a fifth boss in some factories whose duty it is
to keep the machines clean and in repair; and in addi-
tion he may be called upon to keep things in good order.

In connection with a large foundry, we had men loading pig
iron on cars by carrying it up an inclined plane. It had been
customary to pay the men $1.15 a day for carrying 12 to 13
tons of j)ig iron.

The lowest grade of labor had been doing this work. If a
man applied for work, he was put into one of these gangs
The better men, as they proved themselves, were later taken out
snd put into the shop as machinists, etc. That left in these
gangs only the young, untrained men, who were not particularly

160

BUSINESS ORGANIZATION

strong, or the old men who were incapacitated for any other
work.

The functional foremanship plan was introduced into these
gangs and the laborers were taught how to handle the pig iron.
A careful study was made covering a period of several weeks
to determine just how fast the men ought to be able to handle
the iron, pick it up, carry it a certain distance, get to the car,
drop it, and come back again.

The work was divided into several processes and the men were
encouraged by the prospect of increased pay provided the out-
pat was larger. A good many of the men resisted. They
could not be speeded up. These were weeded out and othen
put in their places. They were urged not to overworic, but
simply to do a fair day's work.

The result of all this was that instead of a man getting $1.15
a day for carrying 12 to 13 tons, he averaged in a short time
$1.85 a day for loading from 45 to 48 tons — but these were
an entirely different set of men from the ones we had started
with.

CHAPTER X

INTERDEPARTMENTAL RELATIONS

97. Course of an order for goods. — Let us now con-
sider the system by which the orders secured by the sales
department from customers are converted into finished
goods and how they are sent back to the purchaser. We
shall assume that the sales department is located at the
main office with a sales manager in charge and a corps
of clerks as assistants. Under the manager come the
district sales offices, each having a certain territory
within which are located the traveling salesmen, the local
stores or other means by which the company's product
is disposed of.

Let us assume that the main office is located in Phila-
delphia and the district sales offices in various cities; one
in Boston to take care of the New England states; one
n Albany covering the territory of New York and per-
haps that of northern Pennsylvania; another in Cleve-
land to care for the Ohio, West Virginia and Western
Pennsylvania territory.

The district managers have under them the "drum-
mers," who are either located at some important centers,
or travel over the territory at regular intervals. Each
branch office may keep on hand a small stock of goods
to be used as samples, or may run a store of consider-
able size. This branch system is also used in the in-
struction of salesmen, which is treated of under "Sales-
manship" in a succeeding chapter.

We are now interested in the course which an order

161

ii-u

lOatt

16S

BUSINESS ORGANIZATION

takes through the factory and how it reaches the pur-
chaser by whom it was given. We will suppose that thf
salesman has overcome all difficulties and secured his
order. Various forms are used in sending the order to
the factory, depending upon the character of the goods.
The following will serve as a sample:

Date

The A. B. Company,

Philadelphia, Pa.
Gentlemen :

Please furnish to 'he Purchaser Company at 100 Blank
Street, Chicago, the following :
Quantity. Quality. No. Further Detaib.

Method of Shipment Mail Express Freight.

Terms when shipment must be made-

The orders received every day in the order depait
ment of the branch house are sorted. A i^reful record
is made showing the number of sales, the various kinds
of products and the different sales m^iriagers under
whom the goods were sold. If the branch has the prod-
uct in stock it will fill the order directly; if not, the order
goes to the home office, where orders are grouped and
the factory notified as to what should be manufac-
tured.

When the order is received by the order department,
it will be sent immediately to the shipping department,
a duplicate going to the stores department. This dupl'-
cate senses as authority for the delivery of the finished
goods by the stores department to the shipping depart-
ment. When the goods are turned over for shipment

INTERDEPARTMENTAL RELATIONS 168

an inspector sees that the packing is done properly and
that the final shipment is made in accordance with the
order department's instructions.

In ease the required goods are not in store but must
be manufactured, the direction of the order takes an-
other course. A copy is sent first to the superintendent
of the production division. If the order calls for
standard products he decides upon the number of parts
that must be made, and notifies the diiferent depart-
ments concerned in their production.

If, however, the order is for a new style or new prod-
uct, the engineering department is consulted by the
sales manager. A design is made and a factory order
number is assigned to it, which number is retained until
thf liiiished article appears in the store room.

As an illustration let us take an ordinary steam valve.
The parts of this article are one wooden handle, two
brass discs, one cast iron body, two screws. The super-
irttndent will order these different parts from the store
room to the assembling room. The washers will be or-
dered from the press-room, the steel stems from the
machine shop, the wheels for the valves from the car-
penter shop, the brass discs from the brass foundry and
the iron body from the iron foundry. If the screws are
not in stock the purchasing department will be ordered
to buy them. The order will go through the shop bear-
ing ne order number which has been given it. Each
d'. .tment will turn out its part of it and send it to the
stores department. Perhaps there may be departmental
store rooms; if so, then the inspector examines it at that
stage of manufacture before the workmen get their
pay. The stores department then turns the parts over
to the assembling department. Having been put into its
final form, the valve is returned to the stores department

INTERDEPARTMENTAL RELATIONS 168

an inspector sees that the packing is done properly and
that the final shipment is made in accordance with the
order department's instructions.

In ease the required goods are not in store but must
be manufactured, the direction of the order takes an-
other course. A copy is sent first to the superintendent
of the production division. If the order calls for
standard products he decides upon the number of parts
that must be made, and notifies the different depart-
ments concerned in their production.

As an illustration let us take an ordinary steam valve.
The parts of this article are one wooden handle, two
brass discs, one cast iron body, two screws. The super-
intendent will order these different parts from the store
room to the assembling room. The washers will be or-
dered from the press-room, the steel stems from the
machine shop, the wheels for the valves from the car-
penter shop, the brass discs from the brass foundry and

164

BUSINESS ORGAN IZATION

for fini«hed goods, and after a final inspection is ready
for the shipping department, the district sales manager
and the customer for wlioni it is made.

The forms that art used for carrying tlie work
through the various processes which have been referred
to are generally stock forms. They may vary in de-
tails in different businesses, but in general outline they

are very simple.

Thus instead of sending an order through the factory
calling for 200 valves, the order goes through calling
for these six different parts— namely, 200 washers, 200
wheels, 200 stems, 400 screws, 200 cast iron bodies, 400

brass discs.

98. Drafting department— "Rs^erencc was made to
the close connection between the engineering and sales
departments. There also exists a vital relation between
the engineering department and the shop itself. The
character of the design is important, since all the proc-
esses necessar>^ to produce the product will be shaped
by it. Hence a design should not be decided upon until
a thorough investigation has been made regarding its
fitness for the market and the factory conditions gov-
erning its manufacture. Among the latter factors to
be considered are the ease and cheapness of manufacture,
the use of standard and stock parts, and the working re-
lations between the several departmental authorities. One
of the great drawbacks to economy, efficiency and pro-
gressiveness in many organizations, is the hostility that
exists between the various departments. This hostility
can be broken down to a la.-e t:xtent by havmg tde
draftsmen mingle constantly vvitii the shop foremen, not
only to establish a personal touch between the t^vo ucpwv
ments, but that the draftsman nuy absorb all the shop
and foundry practice possible. Designs that prove

INTERDEPARTMENTAL RELATIONS IBS

practical success soon gain the respect of the mechanic.
Notliiug gives ji manager more assurance than to feel
that every design represents the combined knowledge of
the two departments. The shop men, from their shop
experience and knowledge of past mistakes, can offer
imich that is beneficial. Such conferences will also
lacilitate better routing of the work through the shop.
There may be a still further development due to this in-
ter-departmental intercourse, namely, a thorough and
profitable consideration of the re-design of the regular
product. Goods of special sizes and quality can often
be changed to a standardized product. Here again the
siales department must aid the engineering end of the
business by attempting to change public taste so that a
standard article will be accepted in place of the individ-
ualized sort. Again, if the draftsmen are in close
touch with the factory, they will be readily impressed
with the necessity of designing parts that can be easily
and cheaply machined and assembled, taking into con-
sideration the types of machine tools that must be em-
ployed.

The confidence and cooperation of the shopmen can
be further gained by having a rule that all drawings
must be O. K.'d by the shop foremen before they ar«
placed m the shop. The sustained interest of the fore-
men may be maintained by a system of reports which
hey must make based upon their actual experience while
the product is passing through their hands. These re-
ports may contain criticisms of the design or new suff-
gestions. ®

In order to give regularity and vitality to such inter-
^urse between the departments, some system of consul-

"Id successful manager appointed a committee consist-

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166

BUSINESS ORGANIZATION

ing of the head designer or draftsman, the head of the
tool room, the factory manager, the important machine-
room foremen and the head cost man. At times this
committee was aided by the presence of the foundry
man, the pattern maker and the stock man. Before
this committee came all ideas pertaining to the new de-
sign or re-design df an old product. "The experienced
shop manager," says Mr. Charles U. Carpenter, "has
only to consider the usual maddening program of errors «
in data, mistakes in design, faulty judgment regarding
economy of manufacture, lack of standardization of
parts, and last, but by no means least, the covert hostil-
ity of the shopmen to the new productions of 'that draft-
ing department,' to realize the possibilities which lie in
developing methods which will insure accuracy, econ-
omy, standardization, and the interest of the machine
foreman in the successful and economical production of
any particular design." Standardization of design, as
an important element in management, is treated in
Chapter VI of Part II.

99. Tool room.— The relation of this department to
the remainder of the factory is most vital. The tool
room has been termed "the heart of the shop." No fac-
tory, any more than the artisan, can do its best work
with poor tools. The tool room is therefore responsible
for the determination of what the maximum efficiency
of a factory is. Not until the tool room is in a rela-
tively perfect condition can there be established a basis
for the determination of all these individual standards
by which the efficiency of the various producing factors
can be measured. The possible output, the lowest cost
of production, a wage standard — all depend on the ac-
curate determination of the lowest possible time in which
each piece of work can be done. Upon the tool room
falls the burden of starting the productive forces.

INTERDEPARTMENTAL RELATIONS

167

labor and machines, at a ratt ; .isistent with the above
requirements.

To begin with, then, the tool room must meet cer-
tain tests. Has it a knowledge of the best results that
can be obtained from the high-speed cutting tool steel?
Does it know the proper shape and size of the cutting
tool? Has it a knowledge of the character of the steel
worked upon? Has it determined the greatest capacity
of the machine tool used with reference to maintenance
expense and depreciation ?

The tool room is in reality a factory within a factory.
It is a place for making tools that are to be used in the
building of the finished machine for the market. All
the methods, therefore, that apply to the organization
of the factory proper will apply to the production of
tools. Standardization, duplicaticn, subdivision of
labor — all apply here in principle as well as in the main
organization.

100. Local management versus direction from a dis-
tance, — The relations which have been considered so far
in this chapter have pertained chiefly to departmental
functions. The method of management as a system of
control has only been referred to indirectly by the men-
tion of branch oflices, etc. The changes which are go-
ing on in the method of management are in harmony
with the general tendency to concentrate the control of
industrial enterprises in the hands of a few. Local
management has disappeared in many large companies;
that is, the functions of management are largely per-
formed at a main office, more or less distant from the
factory, the latter being left in charge of a resident su-
perintendent, who carries out the instructions of the
main office and uses such equipment and materials as
are given to him.

168

BUSINESS ORGANIZATION

Local management exists where Jtc '-vfferent func-
tions are performed by departniv / ., and divisions
located at the factory. This condition of affairs is said
to exist until the balance of power has been absorbed at
a main office, which by the character of its orders show
that the directing authority has been changed from a
local to a centralized control. A main office may per-
form only a few of the functions or it may exercise all
of them. The practice differs with the different com-
panies. The advantages of this separation of the man-
agement from the factory lies in the fact that the busi-
ness transactions are more readily carried on at a busi-
ness center or a large city, and if the company owns
more than one factory, centrahzation and specialization
in management are to an extent productive of consid-
erable administrative economy. Many of the func-
tions can be as well performed away from the mill as at
the mill. The telephone, the telegraph and the mail
express have made this possible and easy. But, on the
other hand, main office management tends to become
formal and automatic. Indirect, impersonal and me-
chanical management has all the disadvantages mcident
to control on the basis of knowledge not obtained
through the senses and by contact

Some examples of separation may be seen in the
movement to a main office of those functions which
were associated originally solely with the factory.
Briefly these functions are: the supply of equipment
and raw material, the employment of labor, the manu-
facturing of goods, the storing, warehousing and ship-
ping of same, and the maintenance of the plant. While
it is not uncommon to find the executive and selling
functions located at the factory, these will be the first
to be moved when a separation is decided upon. The
following illustrates this separation:

INTERDEPARTMENTAL RELATIONS 169

I. Functions performed
at the factory:
Equipment.

Supplying raw material.
Purchasing.
Employment,
lanufacturing.
Stores and warehouse.
Transportation.
Maintenance.

II. Functions -performed
at factory: ^
Purchasing.
Employment.
Manufacturing.
Store and warehouse.
Maintenance.

III. Functions performed
at factory:
Employment.
Manufacturing (part).
Stores and warehouse.
Maintenance (part).

Functions performed

at main offi.ce:
Executive.
Administrative.
Selling.

101. Character of the con
relation to the business.— The

Functions performed
at main office:

Executive.

Administrative.

Selling.

Supplying raw mate-
rial.

Transportation.

Equipment.

Functions performed
at main office:

Executive.

Administrative.

Selling.

Supplying raw mate-
rial

Purchasing.

Manufacturing (part).

Transportation.

Maintenance (part).

Equipment.

trolling authority and its
control hy owners is much

170

BUSINESS ORGANIZATION

more frequent to-day than it was a few years ago. The
advantages of a control in which the owner feels a per-
sonal interest and pride are shown in the greater vigor,
freshnes<^ and energT of those concerns which approach
most nearly to this form of control. The organization
which is controlled by a salaried manager, to whom
profits and loss are only of an indirtjt interest, t ads
toward formality and unprogressiveness. A salaried
employe may have character, skill and ambition, but he
lacks the interest in the company which the owner has.
If the employe has a stimulus which calls forth his per-
sonal effort in addition to and distinct from his activity
due to a desire to advance in the company and to retain
his position as a means of livelihood, there is an approach
to the more desirable condition of ownership control.
Many forms of stimulus have been tried, few have been
rewarded by success. The prevailing tendency to-day,
aside from any disciplinary features of the organization
is to rely upon human selfishness, ambition and social
necessities to urge the employe to an exertion deemed
satisfactory to his employers.

102. Committee system. — One method that is proving
to be more and more a success is the committee system
of management. It is an attempt to apply the same
democratic principles of government to factory manage-
ment that have proved themselves so successful when
applied to the national and state governments. The
primary idea is to enlist the cooperation of the men in
the shop in forming plans and offering suggestions for
the good of the company. By frequent meetings and
a thorough airing of opinions an esprit de corps and a
feeling of responsibility for the success of the business
as a whole is established. In its method this system is

INTERDEPARTMEN'1'AL RELATIONS 171

the opposite of the military method of management.
The committee system is especially well adapted to fur-
nishing a means by which the discontented can give ex-
pression to their feelings, and affords a valuable aid to
the management in locating the cause of any disaffec-
tion. Furthermore, it is claimed for this system that it
provides a method of overseeing whereby an executive
totally ignorant of shop and sales processes is provided
with reliable data concerning any weak spot in the pro-
duction, buying or selling departments.

103. Committees. — The purpose of all conamittees is
to act as advisory bodies only. The members of the
committees should be composed chiefly of the foremen.
'^he chairmen of the most important committees should
in most, cases be the factory superintendents. In cases
where there are assistant superintendents, these may act
as chairmen of the less important committees. In prac-
tice it has been found that five or six men form the ideal
committee. Yet in some cases when it is deemed ad-
visable to have some of the superior officers or factory
experts present, the committee may be enlarged, but in
no case should the foremen be excluded.

The principal committee is the "main factory com-
mittee." Before this body come all the general ques-
tions pertaining to the shop. The superintendent acts
as chairman. The secretary should be a stenographer
and should be selected because of his ability to absorb
the knowledge of conditions and to express an intel-
ligent opinion upon them. Such a man will prove an
invaluable aid to the executive. Other members of this
committee should be selected because of their intelli-
gence and progressive tendencies. The following per-
sonnel has been proved to be effective by some sue-

BUSINESS ORGANIZATION

cessful managements: Thief designer of product, chief
designer of tools, head of the cost department, and two
or possibly three foremen.

One of the special functions of this committee is to
advise upon promotions. The superintendent, of
course, acts as a final authority in such cases but the fact
that no "boss" is to have a chance to recommend a rel-
ative or friend unquestioned by the management, frees
the minds of the workmen from feelings of unfairness
and injustice.

The meetings of the committee should be regular and
certain, and although the exact number depends upon
the nature of the business, yet in most cases meetings
should be held as often as twice a week.

The next committee, or rather set of committees, whidi
follow the main factory conmiittee in importance, are
the subsidiary committee or committees. These ap-
pear when a company makes not only a main product
but also some subsidiary product. Their duties will in
general be of much the same nature as those of the gen-
eral factory committee, but the scope of their work will
be limited to the line of production in which they are
engaged.

Each committee should be composed of the foremen
in that particular line of production together with some
of the main factory committee. It has been found ad-
visable to have the same secretary serve on as many com-
mittees as possible.

104. Meetings of the job bosses and foremen.— An
extension of the conmiittee system is seen in those fac-
tories where the foremen hold meetings at frequent and
regular intervals with their job bosses. Objection to
these meetings is raised by some authorities on the
ground that it takes the men away from their work and

INTERDEl RTMENTAL RELATIONS

17S

retards production. In reply to this objection sup-
porters of the sy-t-im propose that the meetings be
not too frequent (twice a month is sufficient) and that
they be short and to the point. They claim that any
loss due to slackened production will be more than com-
pensated through increased harmony and the depend-
ence whidi can be placed upon the bosses. In the last
analysis they say it rests upon these men to carry out
the plans of the management. The bosses control the
labor situation in the shop and strongly influence the at-
titude of the laborers toward their work. Furthermore,
these meetings not only afford a good schooling for the
bosses, but they offer the superintendent an excellent
opportunity for judging the men from whom he must
select his future foremen.

The general foremen's meeting is another of those
meetings which are thought by some to be unnecessary ;
on the other hand, many important firms consider it to
be one of the most important means of efficient manage-
ment. The purpose of this meeting is to furnish an ex-
pert body before which the various shop practices and
policies can be discussed. A foreman in defending
some act of his depahment which has retarded progress
will not be inclined to use falsehoods or extravagant ar-
guments if he knows his statements are to be listened to
by a body of men well acquainted with all the conditions.

The basis of discussions in the majority of such meet-
ings will lie in the consideration of the departmental
records. It is in the defense of these reports by the
(liiferent foremen that many new plans are suggested
which are later developed to the great beiicfit of the
company.

^lany devices might be suggested as aids in present-
ing matter to the various meetings of this kind. One

174

BUSINESS ORGANIZATION

method has been the use of a folding blackboard.
Orders from an executive officer pertaining to some
work which is especially desired to be developed under
certain conditions is outlined upon this blackboard ao
that each foreman knows exactly what is expected of
him in carrying out the plans. By this means the fore-
man is urged tu do his best for he know ', the next
meeting this bhckboard will stand as a mu.c .itness of
his success or failure in the presence of his fellow fore-
men and his superior officers.

105. Work of the committees.— The work which will
form the basis of each committee discussion must be in
harmony with the purpose of each committee. The fcl-
lowing, however, will be suggestive in shewing the
fundamental problems which must in some form or other
be considered:

1. Routine work and report of progress.

2. New designs and inventions.
8. Cost reductions and economy.
4. Plans to standardize products.

CHAPTER XI

OFFICE SYSTEMS AND REPORTS

106. Bam of office organization. — The two physical
factors in office organization are the number of people
to be employed and the space necessary for them. But
numbers and space are not the first things to be consid-
ered in planning an office system. Here, as in the fac-
tory, the natural functions that are to exist for the best
conduct of the particular business must first be de-
termined. The determining of the groups and the
work which each group shall do is the first step in the
office organization. Lay out the work to be done, de-
termine the number of persons to do it, assign to them
their duties and the requisite space to work in, and then
erect an "office" around them.

The common type of office organization is described
hereafter. Other types are treated in connection with
metliods of office management in Chapter XII o£

"t II.

107. Planning the administrative offices. — First
comes the department witlyn which the general one of
administration is to be exercised. This department wiU
embrace all the administrative offices without regard to
the fact that the officers may perform specific duties
connected w . a special department later on.

The divisions in this department must first provide
for the handling of all paj>ers and letters receiwd,
copies of all letters mailed, and the duties incidental to

175

176

BUSINESS ORGANIZATION

distributing, filing and mailir .. This department ii
known as the filing and mailing department.

Another department will have charge of opening and
assorting the 'iiail, the stenographic force and so on and
may be known as the correspondence department.

The accounting department embraces two separate
lines of work; (1) that connected with the commercial
end of the business and (2) that pertaining to the fac-
tory. Both are under one administrative head, however.

Next in order comes a series of departments which are
closely connected the factory organization. Still

in planning an t iystem the relations of these (de-
partments to the general administrative department
must be considered. These are the purchasing depart-
ment, the customers' order department, the producers'
order department, the shipping, the receiving and ihe
stores departments.

Under the administrative department which may have
a treasurer and an auditor or comptroller as the execu-
tive head, come the departments of cost, statistics, in-
voicing, credits, collections, claims, filing and mailing,
off » supplies and services, payrolls, customers' order
de, rtment and shipping department. Such an or-
ganization may be modified to suit the particular fea-
tures of a business, but in general outline it is fairly
typical.

The organization of the office has not as a rule been
subjected to the same amount of study as the factory;
yet there are many firms which have reduced their office
procedure to such a state of effectiveness (the activity
being so nicely balanced and proportioned) that one
may speak of their office methods as being standardi^.
Such firms have a written constitution and by-laws for
their office procedure. These rules are formulated in

OITICE SYSTEMS AND REPORTS

177

simple and direct language by the administrative head
for the guidance of the various departments. They are
tl.e standard and recognized rules of procedure.

Ill ()rd«r still further to promote intelligent coopera-
tion, other ilevices such as posting a list of departments
throughout tht cstablislunent, I Ik selecting of a com-
mittee upon office administration and ihe makmg of
charts of administration are employed.

The posting of a list of names that have been care-
fully chosen generally tends to secure an understanding
of the duties pertaining to each department. If all the
departments are numbered, as they should be, much time
may ^.e saved in sending orders and information from
one to another.

Charts of organization make clear the divisions which
exist between the different departments. They aid in
keeping the members of one division fro'-^ encroaching
upon the domain of another.

The committee system will obviate many troubles aris-
ing from a misunderstanding of duties. This system,
combined with the set rules for office procedure and the
written statement of each clerk's duties and routine
work, affords a means of instruction. The committee
makes it a part of its work to educate the clerks for
better positions and to receive suggestions from them
concerning better practice. Firms using such methods
make it a practice not to bring outside men to take
vacancies. Outsiders are only taken on as juniors in
subordinate places. The positions are filled by promo-
tions in tlie regular staff.

If, however, there seems to be no man among the em-
ployes capable of meeting the requirements of the posi-
tion It is better to go outside for the right man tha- to
change^he organization to fit the qualifications of some

178

BUSINESS ORGANIZATION

person. In order to keep the office force in touch with
the general policy of the management the committee
may provide for a series of examinations to test the
men's understanding of the organization. The em-
ployes will then have an opportunity to see the relation
of parts from the point of view of the chief executive.
Such tests furnish a good basis for judging the em-
ployes fitness for promotion.

In connection with the committee system there might
be mentioned a conunittee composed of executive of-
ficers for the fixing of the office salaries. The advan-
tage of this method is that it substitutes the experience
of several men for one in deciding what shall be the
monetary measure of each man's work. Injustice in
fixing compensation will do more to disorganize an of-
fice force than anything else. This can often be avoided
by referring all questions of salary to such a committee.
Likewise the charge of favoritism so commonly made
against the head of the department — and the staff is
continually studying the foibles of the chief executive
— is obviated.

108. Office appliances. — The office is pre-eminently
the place for the originating of orders, the receiving of
information and for the distribution and storing of the
same. This makes the method of internal communica-
tion of great importance. In most offices much time is
wasted by the running to and fro, from one desk to
another, of the employes in search of information.

One firm has a carefully planned mail system and it
illustrates what can be done in this direction in saving
time. On the desk of every principal executive officer
are three baskets, one for incoming mail, one for outgo-
ing letters and one for the mail that is to go directly to
the files. There is a messenger boy whose duty it is to

OFFICE SYSTEMS AND REPORTS

179

gather information and to distribute it. One of the
prime requisites of this messenger service is that it shall
be regular and frequent. Besides a gain in time there
is the added gain due to the habits of concentration
whicii are formed. The employe soon learns to depend
upon the system and he is not taken from his regular
work to run about, the plant.

This system of communication is aided by a pneu-
matic tube service and by a system which makes it pos-
sible to gain access to the files, to the office library, and
to the catalogues and other sources of information.

It cost a certain company $20,000 to put in the sys-
tem, but it was found that the service paid for itself the
first year. The office force of this company consisted
of 150 people and its factory employes numbered about
2,000 men. It was found upon investigation, before
the new system was put in, that there were twenty-four
places where letters were stored, and these were dis-
tributed over six floors of two buildings separated by a
distance of 100 yards.

Modern office practice has developed many tune and
labor-saving devices. Card systems and loose leaf sj-s-
tems in connection with the carbon copy have made it
possible to do away with duplicate entries of the same
information, and the modern voucher system has greatly
reduced the labor of book-keeping and other recording

devices for keeping information as to payments and so

on.

lOQ. Standard forms.— One of the most important
tilings IS the standardization of forms. This has refer-
ence to size, ruling, disposition of matter, the facts to be
put on the forms and the quality of paper. The first
consideration in designing a form is to decide what facts
are to be represented there. The size of the paper

180

BUSINESS ORGANIZATION

should depend upon the amount of information, and
the arrangement should not be forced into an illogical
form because of some preconceived idea as to size and
shape regardless of the nature of the Information.
Neither should the quality of the paper be left to the
printer. Current information can go on cheap paper
while that meant for permanent records should go on
the best quality. The question of uniform ruling is
very important in the matter of saving time. A clerk
can do fifty per cent more work upon forms that are
standardized because he becomes familiar with the spac-
ings and types.

Another feature of office method pertains to the selec-
tion of binders and card cabinets. Here again a stand-
ard type should be adopted which will apply throughout
the establishment. This provides for the shifting of a
cabinet from one department to another, and allows it
to be used for another purpose should an occasion arise.

Many devices might be named that are used in oflSces
to-day but most of them such as the addressograph, cal-
culating, listing and billing machines are too familiar
to need description. These mechanical devices are gen-
erally expensive, but in large oflSces they are almost in-
dispensable and effect great saving.

110. Reports. — There are two kinds of reports, spe-
cial or emergency reports and regular reports. It
should, however, always be remembered in their compila-
tion that nothing but information germane to the title
of the report should be included, and that no reports
should be made at all which have not some definite pur-
pose.

A report implies a maker and a receiver. The latter
generally represents someone in authority who is to use
and pass judgment upon the information contained in

OFFICE SYSTEMS AND REPORTS

181

it. Therefore, the function and purpose of the man
who receives the report should determine its character
and contents. It is not necessary, for instance, to give
the head of the selling department a report embodying
the detailed costs of production of the articles he sells,
nor is it necessary to give the superintendent or foreman
a number of reports that pertain chiefly to the value of
goods. ISIr. James N. Gunn, one of the leading authori-
ties upon office systems and practices, lays down the fol-
lowing rule: "To every man in the organization should
be given only that information thai his position deter-
mines he can use — not the information he may be cu-
rious about."

111. Factors deciding who should make the reports.
—In determining who should compile a report the exe-
cutive head who has the power to demand it should first
investigate the opportunities which each person has of
gaining the information which is desired at the office.
Much useless data is forwarded to the head office by fore-
me:. and superintendents because they are requested to
send in monthly or weekly reports without any consid-
eration of their fitness to secure reliable facts.

112. Contents of the reports. — It is diffi(!ult to gener-
alize, but two things should always appear when possi-
ble: (1) physical data, (2) financial data. Many
schemes for gathering statistics for operating purposes
fail because the reports contain financial data only. All
of the costs, whether for labor, material or overhead ex-
pense are expressed in terms of value. Then too the re-
port should contain facts that are comparable, and all
should relate to a central fact. Each report should
make a complete unit. The reports made to the general
manager of a large company manufacturing twenty-
five per cent of all the car wheels in the United States

182

BUSINESS ORGANIZATION

shows that he receives each month the balance sheet, and
loss and gain accounts, the costs of the various processes,
not merely in terms of money, but in physical terms,
showing the number of pounds of metal poured for
every good car wheel, or for every hundred pounds of
car wheels actually delivered to customers. In addition
he gets special reports bearing upon some particular
'diseases of car v/heels." Other reports showed that he
had a record of his men's efficiency as well as records of
his machines and the plant.

The purpose d source of any report should decide
the nature, the lorm and arrangement of its contents.
As the conditions which govern the purpose and the
sources vary m different businesses, it is impossible to
describe any one system of reports which will be applica-
ble to all enterprises. Nevertheless there are a few fun-
damental ideas which underlie the structure of the prin-
cipal reports which are meant for the eye of the execu-
tive as an aid in the determination of his biiainess policy.
The two main purposes, therefore, from the point of
view of the executive's business policy, will be the deter-
minption of tho conditions under which the factjry is
producing and iielling its goods. Before any manager
cad intelligently interpret the conditions as they are rep-
resented by actual operation, he must have some stand-
ard with which to compare these actual results. Such a
standard may be gained by first determining what must
be accomplished in the production and commercial ends
of the business in ord*. , net hiui a fair profit.

In arriving at a basis to be used as a standard of com-
parison in the process of production, the executive
should have reliable methods for determining the char-
acter, volume and regularity of the output, the progress
of inventions and new ideas which make • greater ef-

OFFICE SYSTEMS AND REPORTS

183

ficiency and lessening of costs, and finally the cost of
production. In determining a similar standard for the
commercial or sa^-^s department, methods must be
adopted for calculating the character of the market,
that is, what profit must be obtained and what volume
ol' business must be secured and what expense can be
allowed in order to make the profit. This would in-
volve considerations of each class of goods manufac-
tured, their sales in each territory and the expense con-
nected with the holding of supplies while they are being
marketed. The function of reports, therefore, should
not only aid the executive in arriving at the necessary
information which gives him a firm grasp upon the
technique of the business, but the compilation of the re-
port itself, should help in the accomplishment of the re-
sults. This last function will be best promoted through
some system in the collecting of data and the prepara-
tion of the report by which the men responsible for the
direct supervision of the manufacturing and selling de-
partments can be brought into intelligent and sympa-
thetic cooperation with the policies and ambit-ons of the
chief executive. Where the committee system has been
employed as one of the essential features in factory or-
ganization, many reports which would otherwise involve
much time and expense in their preparation can be
quickly and easily made out by using the various com-
mittees as the source of the information. The reports
under such conditions are made up whenever possible
by the committee handling the different branches of the
product. "You may be sure," says Mr. Carpenter,
former president of the Herring-Hall-Marvin Safe
Conipany, "that your committee, composed of enthusi-
astic men whce reputations are at stake, are going to
see that these reports represent the very best that they in

184

BUSINESS ORGANIZATION

the shop can accomp, ish, when they know that these will
be closely scrutinized by the heads of the company."

There are four general kinds of reports— (l) tho>e
cf the profit and loss, (2) those of the factory, (8) those
of the sales department, and ( 4) the cost reports. Gen-
erally speakir? these should be so arranged and timed
that each will serve as a basis for comparison with the
others. For example, the executive profit and loss re-
port when compared with the selling department reports
should prove a valuable index to business conditions,
and when considered in connection with the data in the
factory reports, a monthly balance sheet may be con-
structed.

118. Executive report—The profit and loss report is
of the greatest importance. Upon it are founded all
others. It is produced monthly and its data comes di-
rectly from the firm's books.

The data in the report should be so arranged as t
permit the ready comparison of those items which show
the relative standing of the different branch houses of
the firm. If the concern has branches in Chicago, New
York, and also in some of the minor towns, these names
might well head three separate columns under which
would appear the result in dollars and csnts of the
month's activities pertaining to the various items of in-
come and expense, cost and profit. The items should
be classified and each classification should be given its
total as well as itemized statement. Thus there should
be spaces J^or "deliveries" (classified) and total "deUv-
eries," for "factory costs," for "all other cost charges"
(classified e. g. freight, storage, etc.) and total "aU
other costs." All these costs may now be considered as
total "delivery co»ts," "Gross profit" will be next; and
*'ie two items of delivery— costs and gross profit— thus

OFFICE SYSTEMS AND REPORTS

185

standing together, are in the most favorable relation for
comparison. Continuing down the column the next
broad classification comes under '''selling expense" (das-

Salesmen, salaries and commissions.
(Dep'ts.)

(a)

(b)

(c)

Salesmen, expenses.

(Dep'ts.)

(a)

(b)

(c)

Managers, salaries

" expenses

Advertising

Total "selling expense"

The next general classification embraces:

"General expenses" (classified)

Office salaries

Rent, insurance, taxes

Postage, telephone, etc

Stationery

Light, heat, power

Maintenance

Adjustments and losses

Attorney's fees

Miscellaneous

Total "general expense"

The total selling and general expense may also be
given as embracing the last two related items of Dsts

186

BUSINESS ORGANIZATION

and finally tiie last item in the column will be the
"profit" or the "loss."

A careful analysis of the above report will show where
the greatest profits in the business were made and where
the losses occurred. Any change in the expense items
from the normal can be readily detected, and 1 > facili-
tate this, extra columns for percentages might easily be
constructed.

114. Report from the selling department— The pur-
pose of this report is frequently and regularly to put
the executive in possession of the chief business facts
connected with the selling division. He needs these re-
ports in order that he may push forward for more busi-
ness or perhaps that he may the better direct the credit
and collections. As a basis for judging the actual sales
made and the actual expenses incurred there should be
carefully worked out and included in each report the re-
quired sales necessary for the success of the business and
the expenses that can be allowed. The "required sales"
and "allowable expenses" should be calculated by a man
thoroughly acquainted with the business and after a
careful examination of the conditions under which the
firm must work in each territory; the profit which the
firm should make and the difficulties of getting business
will then stand in a truer relation to each other.

The same standard form embracing the same data
can be used in preparing the report upon the estimated
sales and expenses as that employed for showing the
actual sales and expenses. By so doing a comparison
of the business "realized" with the "allowable amounts"
is facilitated.

The items which will form the basis of the sales report
will be as follows:

OFFICE SYSTEMS AND REPORTS

187

1. Each branch of the concern will be reported upon
in regard to all items.

2. Percentage calculations for each item.

8. The volume of sales required or made (classified).

4. The factory costs allowed or incurred (classified).

5. Extra costs of every character, allowed or sus-
tained (classified).

6. Gross profits, required or made.

7. Selling expenses, allowed or incurred.

(a) Classified —

(1) Salesmen, salaries.

(2) Salesmen, commissions.
(8) Salesmen, expenses.

(4) Managers, salaries.

(5) Managers, expenses.

(6) Advertising e: ^ es.

8. Total selling expenses.

9. General expenses, allowed or incurred.

(a) Classified —

(1) Rent.

(2) Insurance.
(8) Taxes.

(4) Telegraph and telephone.

(5) Office salaries.

(6) Legal.

(7) Miscellaneous.

10. Total general expense.

11. Total all expense.

12. Net profit, required or made.

The advantage of th"* two reports ^'^ *he execu'.ve for
purposes of comparison, one showing -esul^ji desired
and the other the actual accomplishment w.fected by the
selling division, needs no conunentary. There are, hew-

188

BUSINESS ORGANIZATION

ever, other advantages gained. The sales manager ctn
see for himself without a special interview with the cx^
cutive what must be done, and by comparison he ob-
serves with what success or failure his policies have been
rewarded. These reports also furnish reliable informa-
tion as to trade conditions and such knowledge is of
prime importance to the chief executive in directing the
general poucy of the fii-m. Especially valuable are
these reports to a firm which does a business involving
long time contracts under which deliveries are made
long after the sales are recorded.

115. Factory report.— Reports from the factory
may be as numerous and as varied as the desires and
fancies of the executive may impel the factory manag-
ers or committees to prepare. We will, therefore, con-
fine ourselves to the description of such reports as fit in
logically with the reports selected from the other de-
partments. A report, for instance, that throws light
upon the executive's profit and loss report, showing the
source of certain gains or losses, is very desirable. The
production and efficiency report is such and may be
made a valuable guide in determining the efficiency of
the factory as a whole or of any department in the fac-
tory. This report should be so constructed that the re-
sults for various periods may be compared with each
other, either as a total or an average. In order to es-
tablish a normal or standard result the averages of a pre-
ceding period of, say, six months may be taken. With
these averages the present weekly or monthly results
may be compared.

The data which should be entered upon the efficiency
report will be as follows:

1. Date, week or month ending.

2. Number of employes.

"^Ss

OFFICE SYSTEMS AND REPORTS

189

8. Out put.

(i ) Number of machines.

(I Value.
4. Hoi. s worked.

(a Totcl.

(b) Overtime.
Payrdi.

(a) I'iece work.

(b) Day work.

(u) D otly.

(b Inu ectly.
nve iiory classified).
\IisLt lanei; s charges (classified),
r'actory balances (classified).

iO.

Material.

i jibtr (oiassified).
(.^'neral wages.
Total.

I -')(' f'Hso or decreases.
Where ?
b, W y?

^ -^ \g the results as recorded in the above

evious reports of the same kind, the pres-
%^ \ of the factory or any department may be
easuj leu lated . This comparison of present costs and
values with pre\ ious costs and values shows where each
gain or loss has })een sustained, while a comparison con-
fined t. items within the single report, although it may
show a total gain or loss, would not disclose the particu-
lar cases. For example, we may compare the figures
representing the number of employes, payrolls and ma-

190

BUSINESS ORGANIZATION

tcrial purchases with the value of the outpr * and the in-
ventories. Such a comparison would not show whether
the gain, if there were a gain, is due to greater efficiency
in the production or purchasing department. With this
report before him, the executive is put into possession of
a knowledge of the relative strength of the concern as a
competitor for business. That is, he wiU know hU
profit as a producer, and with this as a basis he can
gauge his strength in the commercial field. Normally,
there should be a considerable margin between the cost
of the finished product and its market value. Thus as
the product leaves the production end of the business
and enters the commercial field the v^-^-^nf^er by the sim-
ple process of subtracting the coKrt^ ' ^lOduction from
his estimated selling price, can ^ for the expenses
necessary to sell without deprivin^^ Mmself of his profit.
116. "Progress report"— Another report from the
factory is the "progress report." This comes to the
manufacturer weekly, and if the concern is one whidi
handles considerable contract work such information de-
noting progress, becomes of great importance. Given
the conditions under which the product is advancing to-
war 1 completion the manager can put pressure at the
right spot at the right time and so avoid threatened de-
lays and tardy deHveries. There is no support which
the factory can give the selling department that is more
important and more appreciated by the latter than the
setting of delivery dates which can be met. Some firms
in pushing a new product take orders ahead. But the
ability to meet delivery dates should be first carefully
considered.

The following form embod • . .- ':- items contained
in the report is given as a mo 'el :

1 Taken from "Profit-Making Manag. ,.»r; " hj C V. >rpenter, ftp

OFFICE SYSTEMS AND REPORTS

191

£: S

fl.

H
U
<

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""71 *
lb ^

_^ 8(3

(»dd|t|9 8| jBq.vi

iCq djqs »snw

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11^

192

BUSINESS ORGANIZATION

"Such reports," says Mr. Carpenter, "covering a very
wide variety of work, have for a long time been made
out by our factories on Saturday morning, arriving on
my desk the following Monday. Meetings with inter-
ested heads of financial and sales divisions immediately
follow, and as a result the closest possible touch between
the several divisions upon the one important point-
Production."

117. Cost reports. — These reports are treated in full
in Auditing and Cost Accounts, but as a part in the
general system of organization their importance should
not be overlooked. Not all manufacturers are willing
to go to the expense of gathering accurate cost and
stock data, yet all recognize the aid which fully analyzed
cost figures would give them in checking up the various
departments. Says one successful business man, "Let
one of the higher officers bring into a conmiittee meet-
ing, or a general foremen's meeting, a set of fully an-
alyzed cost returns upon some particular line of the
product, and begin to inquire of the diff'erent foremen
present why their share of the expense amounts to 'so
large an amount,' and there will usually follow a heated
discussion that will throw many a viduable side light
upon the cost of production."

118. Period covered by a report. — Two things must
determine this: (1) the kind of organization, and (2)
the sort of men in the organization. The operating re-
ports are generally made weekly i. e., the payroll period.
A statement such as the profit and loss account usually
appears semi-annually or annually although many con-
cerns favor a monthly report.

119. What should be done with reports. — It should
always be kept in mind that a report is for business and
not for historical purposes. "A good test," says Mr.

OFFICE SYSTEMS AND REPORTS

198

Gunn, "of the usefulness of any report is to see, after
that report is placed in the hands of the proper execu-
tive, whether anything happens as the result of action
he may take based upon the information contained in the
report." If the concern has adopted the committee sys-
tem there is no point in the organization where the bene-
fits of such a method will be better displayed than when
it is brought into use in a discussion of the various re-
ports. The reports having been made out and for-
warded to the executive, the makers of them are nat-
ually anxious to see what the outcome wiE be. Any
suspicion that a report may be put aside and forgotten
breeds a spirit of indifference that will invalidate the
correctness of eveiy succeeding one. But if the under-
standing is general that the heads of departments are
to be called into conference upon important reports, each
person concerned with the report will do his best to make
a good appearance. In considering any of the execu-
tive reports mentioned above the committee might con-
sist of the president, the treasurer or accountant, the
general manager, the factory superintendent and the
sales manager, together with such heads of departments
as may be immediately concerned with the results of the
discussion.

Such a committee meeting should proceed under due
forms and according to some definite program. The
president acts as chairman and the various reports are
considered in order of their importance. Generally this
will be in accordance with the ranking importance of the
officers. Accordingly the general manager presents a
critical estimate of the general business situation of the
firm. This may involve the sales manager, provided
there is a general faUing off in some direction, and he
will be called upon to explain. If the conditions are

194

BUSINESS ORGANIZATION

beyond his control, such as some new form of competi-
tion, it rests with the committee to suggest the best
means for meeting it. Each item of the report is taken
up and discussed likewise. The executive report is fol-
lowed by the reports of the sales manager. He may
su jgest an improvement in the product as demanded by
the trade or some feature of the expense items may need
to be defended. The same general discussion follows
this report as it does all others.

The factory superintendent must in his turn stand
sponsor for the reports pertaining to output and effic-
iency, progress of work and improved methods and in-
ventions.

If the treasurer heads the general financial as well as
the accounting department he will be expected to deal
with matters pertaining to credits and collections— es-
pecially where those matters are influenced by the rate
or date of delivery as stated in the "progress of work
report."

This immediate and definite action upon the reports
is supplemented in its eff'ect by the publicity given to
every item, and if human nature can be counted on to
s^'ght these reports where no notice or tardy notice is
1 iiven of them, it can be likewise depended upon to put
forth its highest eff*drts when due credit and importance
is shown to be attached to them.

PART II: BUSINESS MANAGEMENT

CHAPTER I

PRLXCIPLES OF MANAGEMENT

1. Cardinal elements of management—Management
implies three things— a force, a purpose or result to be
obtained, and a director of this force toward the desired
end. If any one of these three things is omitted in any
activity, no such thing as management is possible.

A baseball team illustrates this statement. The
members represent the force to be managed. Each
player is a human dynamo. The winning of the
game supplies the purpose and the captain directs the
general play to this end.

The extent to which the word "force" is used to name
the body or machine employing force is significant in
Itself. We often speak of the "police force," the "work-
ing force," etc., when we mean the body of men which
supplies the energy or force to be used in carrying out
any project.

2. Every principle implies a force.— The most im-
portant thing about management then is that it deals
with forces, i. e., energy. This fact alone raises busi-
ness management into the realm of those subjects
worthy of being treated scientifically. "Scientific man-
agement" would be meaningless jargon if forces were
not involved. And it is well for the business man who
has tnousands of dollars invested in plants, offices, men,
nxtures, etc., to realize this point at once. It wiU enable

196

BUSINESS MANAGEMENT

him to discriminate between the real efficiency engineer
and the fake systematizer. The latter knows nothing of
forces. He knows only of /or>n*. The man who knov.^
and realizes the nature of the forces working in a mod-
ern factory or mercantile establishment is conservative.
He realizes the consequences of getting in the way of
these forces. A fool will try to stop a flywheel with a
piece of pink cardboard. Yet, simply by reason of his
assurance born of ignorance, he may gain the ear of an
executive. The manager who thinks of his business in
terms of the forces which he is guiding can soon put to
rout the "business doctors."

3. Nature of business forces. — The promoting of a
business enterprise is at bottom nothing more or less
than an attempt to bring the forces of capital, of labor
and of land together in just those proportions and with
such effectiveness that the highest profits will result
from their combined efforts. There is no common busi-
ness name for the manager of such an enterprise in the
earliest or formative period of an undertaking. The
economist calls such a man an enterpriser. If the title
of "promoter" had not become so closely associated with
the raising of capital or effecting combinations of cap-
ital to the almost total exclusion of the other two forces
of business, this name would more fully express the
function of such a person than any other word. But
whatever his name, such a man is a manager par ex-
cellence. His plans involve the primary union of the
three business forces, capital, labor and land. Poor
management at this point means hampered production,
)oor distribution or lean markets after the business is
set going.

Let the reader adjust himself at once to this new
point of view that management is interested in forces

PRINCIPLES OF MANAGEMENT

197

and not alone in things, methods and forms. If the
idea seems abstract that management begins before the
money is raised or the factory started, the notion can
be given a concreteness by thinking of the number of
failures of managers of production whose eflForts and
plans were useless because some incompetent enter-
priser had started the business with too little regard
for his labor supply. Or it might be well to look into
the history of many managers of distribution, men who
were 'loomed to failure from the start because some en-
terpriser had overlooked the important part which loca-
tion bears in relation to freight rates or delivery advan-
tages. Or, again, the reader may find numberless exam-
ples of good sales managers whose efforts were handi-
capped for years because they could not develop their
markets through a lack of sufficient working capital.

Management, then, deals with the three sources of
force or energy — capital, labor and land. From the
very moment when these three agents are brought into
a business by the enterpriser until the producing, the
selling, shipping and recording of the results have taken
place, all of these factors are present. The manage-
ment should never lose sight of their unportant influ-
ence. A strike which involves trouble with the labor
force may mean ma.iy hours of anxiety for the manager
but the labor loss may be as nothing compared to the
capital losses in interest, depreciation and market disor-
ganization incurred during the shut-down.

4. The manager must direct forces. — The complexity
and extent of the workings of a modern factory are
forcing the question of management to the attention of
both stockholders and the public. The stockholders
are interested in their profits. The consuming public is
troubled about the high cost of living. Both are be-

198

BUSINESS MANAGEMENT

ginning to believe that their interests could be better
served if the managers of production were specialists in
management rather than composites of abihties ranging
from the requisites of a good office boy to the accom-
plishments of a mechanical expert.

A manager must direct forces. He cannot be tied to
the details of an office, of a department or of an organi-
zation. His special work is cut out for him by the
forces which he handles and the object which he must
attain in their direction or management.

The mechanical engineer, the electrical engineer, the
locomotive engineer, etc., have their own special prov-
inces. Each is a specialist in the control of his par-
ticular form of power. But it has often been expected
of managers of production that they be not only tech-
nical experts in various branches of an industry but
that they be expert handlers of men and judges of busi-
ness methods as well.

The liscussions and investigations of big business
operations during the past few years have so focused
attention upon the manager that we are able to see his
true relation to the organization in a better light than
ever before.

The Universal Audit Company of New York shows
the relationship of the two chief forces with which the
manager must deal in a very simple way in the chart on
the following page.

It will be here observed that the capital, land and
labor forces have taken the form of plant and equip-
ment, materials, supplies and men. The manager,
therefore, has jurisdiction over these things as well as
charge of the inspection of product and purchases. The
two ^ypes of physical energy which are most evident
in production and which the manager must control are

PRINCIPLES OF MANAGEMENT

19b

a—

S J3

1 1

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r I

"a -S t.S

•c • S S^

81
u

§"3 il

2 i

I-

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U Q

soo

BUSINESS MANAGEMENT

those produced by fuel in conjunction with a machine
and those which come from food when converted into
the muscle and brains of men. When the full impor-
tance of these factors in management is realized, it be-
comes evident at once how futile are systems and
schemes of control which only provide records of re-
sults, but ignore the forces which produce results.

5. Human engineering. — It has been supposed until
very recently that engineering had to do solely with the
intelligent development and control, of that energy
which depended upon fuel and the machine. Accord-
ingly, the mechanical engineer early became a recog-
nized aid in the management of a plant and factory.
But now that business men are beginning to analyze
their productive processes, the profession of engineering
has been extended to include the development and con-
trol of that energy which displays itself through the
minds and bodies of men.

A study of Figure 1 shows the main lines of activities
which these two forms of physical force follow. The
physical energy coming from the food which a man
eats shows itself in either bodily or mental activities of
the worker. In the factory we may thus divide the
workers into brain laborers and body laborers and so
throw into bold relief at once the basic problems of
management. These are the prime factors which lie at
the bottom of all permanent productive efficiency. The
managers must find the best way to develop this human
power and conserve its energy. Looked at in this light,
it is not a matter of indifference to the management
what the foremen, the laborers and others eat and drink
outside of factory hours. Nor is it compatible with tk
principles of business management to ignore the socio-
logical conditions which surround the workers at home

PRINCIPLES OF MANAGEMENT

fOl

or in the shop. Anything which dissipates the energy
of the worker is a handicap to the productive efficiency
of the factory. Welfare work, medical service, indus-
trial betterment are growing and spreading among the
world's great industries. This happens simply because
it is good business policj'. If welfare work succeeds, it
does so because it develops and conserves the human
working force. It pays for itself in productive effi-
ciency and not merely in its advertising possibilities.

6. The basic principle in management. — Little need
be said about the power which manifests itself through
the aid of machines. This force in production is very
evident and its utilization has been the point of attack
for over a hundred years or more. In fact, so much
attention was given to this factor that the managers of
great enterprises overlooked nearly all the other ele-
ments in production. To get a new piece of equipment,
a machine, a filing cabinet, an adding machine, seemed
to mark the climax of many a manager's ambition.
Concentration upon this single side of the proposition
has brought its penalties as well as its rewards. Man-
agers fixed their eyes upon the size of their output.
Bulk, production on a large scale, tonnage, became the
great words in managerial circles. To get this result
the machine was developed to the highest point. Me-
chanical invention was the only thing considered and the
mechanical engineer became the most important mem-
ber of the staff of managerial experts.

But finally the machines became so plentiful, the fac-
tories covered so much space, the output got so large,
the employes numbered so many thousands, that the
energy which was developed and directed by means of
the mechanical equipment began to be lost and wasted.
The old standards of achievement could not be main-

SOS

BUSINESS MANAGEMENT

tained and the management began to ask itself the rea-
son. The inquiry led to the basic principle in manage-
ment which deals with the conservation of en, rgy and
the correlation of the fcrces of production. When this
point was reached many problems arose which had not
up to that time intruded themselves. For example, the
question of fuel supply was no longer a question of
weigl.t but of heating power. The belting problem was
no longer a question simply of price per foot, but of
lost power through inattention to the proper belt ten-
sions, etc. And thus we might run through the whole
list of problems of management and find that in their
last analysis they all resolve themselves into terms of
power, force, or energy.

7. The purpose of management is profits. — Perhaps
this point does not need emphasis, but it is well to draw
attention, while so much is being said about the methods
of gaining productive efficiency, to the fact that the
ultimate purpose is profits. A saving of energy for-
merly lost or the institution of a frictionless organiza-
tion may have other purpc^es than increasing or main-
taining the profits; but unless these things bear upon
this element somewhere in the course of the firm's opera-
tions they should be counted up to the concern's philan-
thropies or advertising and not to its productive man-
agement. The manager or efficiency engineer or who-
ever he may be who cannot organize or reorganize a
system of management without sacrificing permanent
profits has not the faintest conception of the nature of
his work. Such a person is generally trying "to install
a system." However, it should be borne in mind that
a thorough-going plan of management may and, for
that matter, generally does involve an outlay of money
which may not immediately show returns. The con-

PRINCIPLES OF MANAGEMENT

208

struction of a suitable foundation for a building may
not show its advantages over a flimsy structure for sev-
eral years, yet a wise business policy would not sacrifice
the permanent profits for the sake of immediate sav-

8. Immediate versus future profits. — No one busi-
ness policy has caused the wrecking of so many firms
and the shattering of so many managerial reputations
as that of paying dividends regardless of the means or
source of income. A manager must gain the profits
by putting the materials and forces of production
through certain processes. The legitimate gains of his
activity as manager show in a product of higher value.
He starts, we will say, with a ton of iron ore and after
many smeltings and purifyings and temperings, thou-
sands of fine steel springs are produced. So long as
quality determines value, and value determines price,
the manager's duties are to shape his methods toward
meeting and maintaining that market, the judgment of
which passes upon the quality of all products. He,
therefore, turns out steel springs of a quality that satis-
fies the particular demand for that product. His influ-
ence upon the profits will show in maintaining the qual-
ity demanded by the customers and in his ability to ef-
fect economies in the use of the forces of production
and the handling of his productive organization.

But, being urged to show immediate results, many
managers have tried to short-circuit their forces of pro-
duction. Instead of putting the capital meant for ma-
terials, new machines, new roadbed, new cars, etc., into
these investments of production — investments which
would have brought profits in the future — some man-
agers have short-cut the process and put the capital di-
rectly into the dividends. The "skinning" of many rail-

204

BUSINESS MANAGEMENT

road properties and industrial plants by this "short-
circuit" process was too common a few years ago. It ia
not unknown to-day and it is a very alluring method for
a young or inexperienced manager when a short-sighted
directorate insists on "results."

This practice of sacrificing the permanent profits for
the immediate "showing" is not less fatal when applied
to the business organization of a company than when
used to "skin" the equipment. Poor routing of ma-
terials t!.rough the shops, stock timekeeping, persistent
soldiering, bungling storekeeping, etc., may mean a
very cheap organization for a certain period but the
effects of such disorganizing elements upon the output
of a plant will prove in the end to be even more damag-
ing than the mere skinning of the capital or equipment.

9. Difference between manager and engineer. — Man-
agement, therefore, in\ olves not only the forces of pro-
duction but careful consideration of the results to be
obtained, i. e., the profits. It is this latter purpose
which distinguishes the man with managerial ability
from the purely technical man. The mechanical en-
gineer may be able to control and develop the produc-
tive forces in a plant. In fact, a specialist of this kind
is absolutely necessary. But his point of view is nar-
rowed to the activity of the machine and the machine's
tender. He is interested in supplying power and ma-
chines for getting out articles according to certain di-
mensions and specifications. The manager must be
able not only to judge the mechanical necessity of this
activity but also to estimate its effect on the commer-
cial end of the business. Commercial appraisal must
supplement technical judgment. Many illustrations
of this difference in abilities might be cited from the
experience of shop men who have seen many a fine ar-

PRINCIPLES OF MANAGEMENT

ffOS

licle from the engineers' point of view sent into the
factory, only to be torn to pieces and ruthlessly changed
bv the manager who had to mer' commercial condi-
tions.

10. Specialization compUcatet management — Spe-
cialization is both a result and a cause of machinery;
therefore, we find the two developing side ' y side. So
far as the modern industrial organization is concerned,
it makes little ditferonce whether we speak of it in terms
of specialization or in terms of machinery. A stfidy of
any industry will soon show how complex its organiza-
tion has become, due to the number of specialties into
whicli every process is divided. Generally each division
requires a new machine or tool. If we compare the
present organization with the organization of a similar
Indiistrv of fifty years ago we discover that although
the nun ' r of men necessary to produce a given quan-
tity of product has greatly diminished, the quantity
put out under one management has itself so increased
that the number of employes has increased and the
number of machines has multiplied accordingly.

The manager has been engulfed in a see of indus-
trial specialization. The correlation of ail these spe-
cial activities has overtaxed the abilities of managers
for years, that is, where they have given this element
of management the consideration it deserves and not
simply stumbled along trying to meet ever^ difficulty
by adding a new machine — a method not unlike that
of a tired man urging his flagging energies to new
efforts by taking stimulants. They get him over the
present difficulty but they leave him not only debili-
tated but hindered by the addition of the drug ^^elf
which clogs his system.
11. Specialization in management. — Not so many

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BUSINESS MANAGEMENT

years ago it was the custom to defend tue advantages of
specialization against the virtues of all-round skill-
the expert against the all-round man. But there is
little argument to-day. The economic superiority of the
expert is too much in evidence to allow any argument.
The "jack of all trades" has disappeared. The change
makes for special dexterity and great saving in time
and money. Preparatory expenses are greatly reduced
and much time in changing from one job to another is
saved.

To-day there is a new form of specialization going
on, which being more difficult to represent in a concrete
form is not so easily understood nor so readily accepted
by the manager. We refer to the specialization taking
j^lace in the field of management itself. Some firms in-
stead of employing one foreman to look after a whole
department are breaking up the work into several parts
and are putting specialists in charge of each. Thus
there may be a gang boss, a speed boss, a disciplinarian,
where once there was only a foreman. As it is not
easy to figure the results of management specialization
in terms of a machine's output— a concrete thing which
can be shaped and handled and measured— many execu-
tives are backward in recognizing the same economies
here that they have so eagerly exploited in the field of
technical and mechanical specialization.

1-. Department specialization. — Between the two
extremes of specialization, that of the machine at one
end and that of the management at the other, comes an
intermediate type of specialization. This may be called
departmental specialization, and often serves as a step
to the more advanced form of specialized management.
This intermediate type is illustrated in the Fierce-Ar-
row jyiotor Car Works. Here all lathes are divided

PRINCIPLES OF MANAGEMENT

207

into groups and subgroups. The main groups are put
into departments by then 'selves and are there arranged
into subgroups according to the size, class of work, etc.
For instance, one section is known as the turret depart-
ment and is divided into subgroups of automatic chuck-
ing machines, automatic screw machines, flat and hexa-
gon, turret lathes and hand screw machines. The
larger turret lathes of the Gisholt type are not included
in the department, but form separate groups. The
hand and spur gear cutters form separate groups. The
millers are classified as vertical, horizontal, Lincoln type
and hand groups. The drillers are divided into radial,
heavy duty, medium and sensitive groups. The grind-
ers are grouped as internal, plain and surface. Special-
ized supervision is thus naturally induced to a limited
degree, for an assistant foreman is put in charge of each
subdivision of machines and is responsible to the fore-
man who has direct charge of the departmental groups.

The necessity for this growing practice of depart-
mental grouping is due to the great burden which ex-
tensive specialization in the agents of production has
put upon the manager. Departmental grouping is an
attempt to bring as many common factors as possible
into one group for purposes of supervision and thus
provide a more efficient means of watching the wastes
and coordinating the efforts of many individual and
highly specialized machines. The experiment of the
Pierce-Arrow Company shows a practical application
of the economic principle that coordination is a neces-
sary complement to specialization if the highest effi-
ciency is to be obtained.

13. Cooperation and specialization must go together.
—Just as the forces of a business must be correlated,
and the machine processes co-ordinated, so must the labor-

SOS

BUSINESS MANAGEMENT

ing force cooperate in order to let specialized employ*
ment and divisions of labor produce their full results.
The enormous product turned out by the factories and
transportation systems of to-day is possible because the
machine has developed into a specialist of the highest
type. However, specialization does not stop with the
factory processes, the warehouse, the bank or the trans-
portation system. The management of these various
business activities is dividing itself more and more
into specialties. Instead of one man trying to do all
the work of managing a factory he has called to his aid
superintendents, foremen, and bosses.

This is the predominant type at present but it is rap-
idly becoming modified. The machines, the men, the
departments, the responsibilities of a i xrge factory are
so nimierous that further specialization must go on if
this century is to keep up with the last in producing
goods.

The duties of the superintendents, the foremen, etc,
must be broken up into a number of specialties and eadi
given into the hands of men trained to guide and direct
these particular activities. We see the beginning in the
case of the superintendent who is no longer expected to
be an expert draughtsman, nor is it thou^t necessary
in some shops for the foreman to be an expert machin-
ist, a toolmaker and a practical psychologist in the hir-
ing and firing of men.

14. /* there a science of management? — There is no
word in the English language used with greater disre-
gard for exactness in meaning than the word science.
We speak of a science of astronomy and also of a science
of salesmanship. If astronomy, with its well determined
principles and its power of forecasting results by means
of them, is a science, then salesmanship can lay littie

PRINCIPLES OF MANAGEMENT

209

claim to such a title. But if we examine the nature of
salesmanship and discover that its propositions are
founded on the determination of certain mental forces,
then we know that the claim of salesmanship to be called
a science does not rest upon the progress which has
been made in the exact detennination of the forces and
their action, but upon the discovery that salesmanship
deals with the laws of force and energy. It might per-
haps be better if we did not speak of advertising, sales-
manship, etc., as sciences since the implication is that
they have rtuched a degree of exactness similar to that
attained in those physical sciences upon whose laws so
much of our modern industry depends. At present the
various branches of business activity have not been re-
duced to the category of exact sciences. About all that
should be claimed for them is that some parts of the
business field, such as salesmanship, marketing, manage-
ment, have adopted scientifit methods in their attempt
to study the nature of the problems before them.

15. Scientific methods of investigation. — So far the
discussion has grouped itself about the proposition that
all scientific knowledge rests upon one great underlying
principle — the conservation of energy and the correla-
tion of forces. There are, however, two ways in which
a subject may be studied. These may be called the
"speculative" method and the "practical" method. The
first of these has been largely instrumental in the de-
velopment of the sciences of astronomy and biology,
and the second has been chiefly employed for investi-
gations in chemistry. Sciences differ among themselves
in the extent to which one or the other of these methods
IS used: and it is essential that a new science adopt as
soon as possible the method most suitable for its devel-
opment. So far as management is concerned, both
ii-u

210

BUSINESS MANAGEMENT

methods are applicable to a certain degree, but the prac*
tical method, in which experiment is the basis of drawing
scientific conclusions, is the method which must pre-
dominate.

There are only a few deductions which can be em-
ployed in the science of management. Such as they are,
they are most important since they serve as goals toward
which the experiments in and analysis of factory, shop
and office conditions may work. This goal is the avoid-
ance of waste and the gaining of increases power by a
thorough knowledge of men, machines anc' conditions.
If investigators of management problems would only
keep this one idep clear, they would then be at least in
the right attitude to begin their study. With this goal
in view the investigator can then follow the practical
method and not confuse his principles with the mechan-
ism. Such an investigator will hold the factory or shop
at arm's length and not feel bound by traditions and
prejudices. He studies the departments as a whole and
compares them with his knowledge of other plants.
This method enables him to analyze the propof in into
units which permit of numberless experimental recom-
binations.

All this takes time and patience, for superficiality
has no place in any science. Mr. F. W. Taylor, for
instance, to achieve one result, performed 50,000 experi-
ments all of which were recorded, studied and classi-
fied ; they involved an outlay of material amounting to
800,000 pounds of steel and an expenditure of $200,000
in money. The same care and attention must also be
given where the data to be collected pertains to men and
not material. The laws of fatigue and rest are even
more complex than the laws of materials. It is not till
these laws have been discovered that standards of pw>*

PRTNCIPLES OF MANAGEMENT

211

duction can be established and methods set forth for
their accomplishment.

Having once got the general proposition in mind,
the management investigator can go after his facts.
These he will carefully select after observation and ex-
perinient and then formulate those laws by which he can
select his machines, material and men. Some laws will
become standards by which the working men in any
particular department may be scientifically selected.
The men who are physically or temperamentally unfit-
ted to perform the duties in that particular department
may be taken out and fitted into some other place more
congenial to their particular abilities. Redistribution
of men of this kind results in a total increase of effi-
ciency without drawing forth more labor energy from
men and machines. The results will show not only that
a scientific method was used but that a scientific object
was obtained.

16. Continual study and progress.— A first practical
rule in the application of this scientific method of adapt-
ing the instrument to purnose demands not only a redis-
tribution of responsibilities but the establishment of in-
timate cooperation between managers and men. This
may be called the rule of sympathetic cooperation in
which there is "mutual recognition of the possibility of
mutual helpfulness." An example of this practice is
seen in those shops where the chief distribution of func-
tions consists of dividing the purely mechanical and
muscular operations from those requiring brains and
planning, and then selecting men who are particularly
fitted for each kind of work. 1 's division and redistri-
bution of the functions necessitates a greater degree of
planned cooperation between the two groups than was
found under the old style of management. Under the

S12

BUSINESS MANAGEMENT

old system the workman is left to determine the method
of doing his work as well as the performing of the actual
job. Under the system where the function of planning
is separated from the performance, the method is given
into the hands of an expert body of planners and the
workmen are left free to apply all their energy to the
one thing — the doing of the work.

Scientific management, however, does not rest with
experiments alone. It requires that the facts having
once been obtained should be used for the continual ad-
vancement of the organization. The first rule for the
practical administration of the Jaws and principles
which have been deduced should be the selection of
proper instructors to teach the men upon whom the pro-
duction of the plant depends. Under this rule a work-
man once discovered and assigned to a duty to which
he is especially adapted is kept at his highest point of
efficiency by being continually helped and taught how
best to do his work. The factory thus ceases to be a
"mill" and becomes a school instead.

A law is limited by the circumstances which condition
it. Before any specific devices are discussed by which a
business enterprise may be changed from a "hit and
miss" sort of management to one under a system of
carefully studied control and direction, it may be well
to throw out this caution. Although a law once formu-
lated is fixed by the conditions which made it, there is
no assurance that the conditions will not change. In
fact conditions are ever shifting and as a consequence
new observations and new experiments will result in
the derivation of new laws. No manager should assume
that any conclusion he may reach is final. A rule of ac-
tion which may guide the organization to-day to higher
planes of efficiency may later be rendered obsolete by

PRINCIPLES OF MANAGEMENT

S18

a new set of conditions and higher standards of accom-
plishment. The manager who approaches his subject in
the spirit of a scientist never stops because a cost has
been reduced. Nothing is final with him but the possi-
bility of further reductions and the discovery of new
and important laws by which these reductions may be
made.

17. What the science of management involves. — A
science of management involves a natural force, an in-
ductive method of study and a distribution and group-
ing of activities accordmg to functions.

One of the great difficulties in getting business men
to see that management is anything more than just
"common sense" is their disinclination to listen to any-
thing which smacks of theory or principles. They as-
sume that common sense deals with concrete things while
theory deals with abstractions. The truth is that com-
mon sense is not disassociated from theory. The thing
which people call common s«?nse is simply the working
out of the theory or principle through concrete things.
The phenomena being familiar and the causes and ef-
fects being in harmony with ordinary experience, the
proposition is spoken of as simply common sense. The
trouble arises when the ordinary man mistakes the illus-
tration of a fact or principle for the principle itself and
thinks he has dodged all responsibility for thoroughness
of investigation and carefulness in recording and study-
ing data by calling the whole thing simply a question of
common sense. To the janitor the putting of salt on
an icy sidewalk is simply a question of common sense;
to the chemist it is a problem in chemical affi.ity. To
the ordinary "boss" the following example taken from
Mr. F. W. Taylor's experience will appeal only as a
common sense thing to do; to the manager looking for

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BUSINESS MANAGEMENT

truths by which he may guide his own endeavors there
will appear the great problem of the saving of labor
power, the inductive principle of investigation and a
never-ceasing struggle to attain new standards of effi-
ciency—there being no assumption of finality in the
derivation of laws.

Mr. Taylor was looking for the law controlling the
efficiency of shoveling. Accordingly, he first selected
the type of man who was best adapted to the work. He
did not, as he says, take a trotting horse as his standard
of animal to find out what a first-class horse should
do in hauling coal. So when he wanted to study the
science of shoveling he selected two men and spoke as
follows:

"You are good shovelers; we want you to work squarely.
We are going to ask you to do a lot of fool things, and we
are going to pay you double wages while this investigation is
going on. It will probably last two or three months. This
man will be over you all day long with a stop-watch. He
will time you ; he will count the shovel-loads and tell you what
to do. He does not want you to hurry; just go at your or-
dinary pace. But if either of you fellows tries to soldier on
us, that will be the end of it ; we will find you out as sure as
you are born, and we will fire you out of this place. All we
want is a square day's work ; no soldiering. If you don't want
to take that job, don't, but if you do we are very glad to pay
you double wages while you are doing it."

These men took the job and did a fair day's work
throughout the period of investigation. Mr. Taylor
continues :

"We began by taking the maximum load on the shovel and
counting the shovelfuls all day long and weighing the tonnage
at the end of the day. I think it was about thirty-eight pounds

PRINCIPLES OF MANAGEMENT

21S

to the shovel. We found how much those men could do when
the}' were shoveling at thirty-eight pounds to the shovel on
an average and then we got shorter shovels holding about
thirty-four pounds, and measured the tonnage per day, and
it was greater than when they were using the thirty-eight
pound shovel. They shoveled more with the thirty-four pound
shovel-loads than with the thirty-eight pound shovel-loads.
Again we reduced the load to thirty pounds and they did a
still greater tonnage; again to twenty-eight pounds, and an-
other increase; and the load kept on increasing as we dimin-
ished the shovel-load until we reached about twenty-one
pounds, where the man did his biggest day's work. With
twenty pounds, with eight<'en pounds, with seventeen, and
with fourteen, they did again a smaller day's work. Starting
with II thirty-eight pound shovel, they went higher and higher
until the biggest day's work was done with a twenty-one pound
shovel; but when they got the lighter shovel the load went
down as the shovel-load diminished."

The conclusion induced from this long experiment
was that the highest efficiency in shoveling depended
upon supplying the workiiigmen with a shovel which
would hold twenty-one pounds no matter what the
material might be.

18. Effect of a new standard. — But a standard es-
tablished in one department meant a change of condi-
tions in other departments. The principle of the distri-
bution of functions applies as well to departments as to
men and upon a correct balancing of them depends the
success of a management which would avoid waste
through a correct correlation of its productive forces.
This principle is well illustrated in the final outcome
of the experiments with the shovelers. First the man-
agement had to build a shovel-room for the common
laborers. Up to this time the men had owned their

S16

BUSINESS MANAGEMENT

own shovels, but now all this was changed, for it was
found necessary to equip the "shovel nwm" with eight
or ten different types. One shovel, for instance, would
be fitted tc : ice coal ; another would be suited for a
very heavy ore, etc., etc., but each would carry just a
twenty-one-pound load.

The establishment of a shovel room was a simple
thing in itself but it meant organization where before
there had been none. A good shovel is of little use un-
less the right laborer has it at the right place, and in a
yard two miles long and half a mile wide and employ-
ing 600 men doing all kinds of miscellaneous work the
working schedule is no small task. This meant more
organization and a redistribution of managerial func
tions from the foreman's point of view. In place of the
old-fashioned foreman who walked around with his men
and told them what to do, a large building was erected
containing a labor office under ihi charge of three highly
trained men who, with their ^^sistants, planned the
work of the shovelers at least one day ahead of the
work.

19. Furnishing the men mth a teacher.— The final
element in business management is also illustrated by
the methods employed in the above experiment. The
teaching element is no new t^^ing in management. It
has always been there, but generally it has been so
mixed up with other functions that' it has been lost
sight of in these days of big and complex business op-
erations. Every boss is supposed to be an instructor,
but he uses his authority more often than his knowledge
of the particular job to keep the laborer to his pace.

In some of the more recent attempts to discover the
principles of management the function of instructing
has been again emphasized. This is seen also in Mr.

PRINCIPLES OP MANAGEMENT

«17

Taylor's experiment with the shovelers. Having pro-
vided u physical organization for handling his 600 men
I or more, he made out a time table showing just how
! loii^ it took the men to do each kind of work. Then it
I devolved upon the management to inform the men each
(lay just what they had done the day before and just
I what they were to do that day. In order to do that

"as each man came in the morning he had to reach his hand
up to II pi^rtonhole (most of the men could not read and write,

I but they could all find their pig. nholes) and take out two
slips of paper. One was a yellow slip and one was a white
slip. If thiy found the yellow slips, those men who could not
rtiid luul write knew perfectly well what was meant. It was
just the general information: 'Yesterday you did not earn
the money that a first-class man ought to earn. We want you
to earn at least 60 per cent, beyond what other laborers are
paid around Bethlehem. You failed to earn that much yes-
terday; there is something wrong.' It was merely a notice to
the man that there is something wrong. The other piece of

I paper told liim what implement to use. He went to the tool-
room, presented it, received the proper implement and took

I it down to the part of the yard in which he was to work."

But tlie instruction of the men was not left with the
I simple information that they had "fallen down." This
^ part of the element of teaching is generally very ef-
fectively employed under the "boss" system of manage-
I nient. To show the workman in what respect he had
"fallen down" is the real instruction which we refer to
I in management. As soon as a sho e^i - was not making
p^'ood a record as he should, a tticlser was sent out
I to study the man's method and correcl the fault.

"In nine cases out of ten that teacher > uld find that the
■nan had simply forgotten something about . ae art of shovel-

gl8 BUSINESS MANAGEMENT

inir Time and again wo found that a man had forgotten hi.
ZJZ. and L throwing the weight of h« arm, mstead
of the weight of his body upon the .hovel.

The teacher would stand by the man as a friend and
show him how to earn his premium. Or ,f , for instance
heTou^them too Hght for the work the teacher ^u
recommend that the man be transferred to a job bette

•teTto his strength. Kindly and intimate person
study of the working man is the surest way to find the
work b St suited for each man. The mstructor ^^
Zates the work of the planning room with the work
dmates tne wor r facilitates the flow of

of the laborer and m tnat way mv
productive force in the business orgamzation.

^ ^v4i^

CHAPTER II

MANAGEMENT UNITS

20 Few principles hut many methods.— The princi-
ples of management hold true in every kind and branch
!f business. It makes no difference whether the busi-
ness unit is a billion-dollar corporation or a oreman s
department where pig iron is handled. But the meth-
ods of applying these principles "e as vaned as the
types of businesses themselves. We might say that each
business or each department has its own particular
method wM.h if found would best fit it. Businesses like
people have personal characteristics and no two axe
exactly alike. If each person were to be dressed in the
most appropriate style it would be necessary to put
bini i,i the hands of an expert and let the latter study
• out all the points of harmony so as to dress the customer
accordinglv. If such were the case, read made cloth-
ing would disappear and valets and ci:s:om tailors
would increase. So great, however, has sfxiiety found
the economies of adopting certain units such as hat,
coat and trousers, the use of which has been standard-
ized, that a tailor or clothing house which tried to elimi-
nate 01 seriously modify them would soon go out of
business. , .

Likewise economic society has adopted certain busi-
ness units for purposes of management. Roughly these
in its of management correspond to a natural division of
the anatomy of business enterprises. The hat is a unit
of clothing because the head is an anatomical unit. The

819

2S0

BUSINESS MANAGEMENT

legal corporation and the commercial organization are
units of management because the anatomy of a business
naturally divides itself into a head for ownership and
a body for production. A style of hat which obscured
the eyesight would sacrifice efficiency to vanity. A
method of corporate management which neglected the
stockholders would be sacrificing an ownership function
for a selfish reason worse than vanity. Now what we
wish to show by this comparison is this : Just as there
are many styles of hats so are there many methods of
management, and just as the best hat is determined by
the fitness to serve the purpose of a hat, so likewise is
that method of management best which carries out best
the functions of the department which it sei-ves. The
basic functions of a hat are protection and adornment;
the prime functions of management are control and
direction. Methods like styles must conform to the
purposes for which they were created.

21. Economic units. — ^We have seen in the chapters
on development of organization that the economic unit
starting with the family at length grew to include the
town and finally embraced the nation. But as nations
develop and extend their territorial ( ntrol, the lines
marking out the boundaries of the present economic
units become more and more arbitrary and only tend
to confuse instead of help clear thinking on economic
subjects. This economic fiction is being maintained
through the necessities of political policies rather than
by the demands of economic science.

The best units in a science of economics are not de-
termined by their size or weight, etc., but by the func-
tion which is performed. Thus we find that economic
science is divided into the four fundamental branches of
production, distribution, exchange and consumption.

MANAGEMENT UNITS

Each of these in turn is divided into units which de-
pend for their classification upon the function each per-
forms; thus production is considered from the points
of view of the three units of capital, labor and land.
Now each of these units is again divided into other
units ; hence, capital is spoken of as fixed or circulating
—depending upon the way it performs its function —
and thus we may go on subdividing and resubdividing
as long as a single shadow of difference in performance
of function remains.

It was b}' such rigid analysis and classification that
economics was reduced to a science of business relations.
It is only when these basic units have been determined
that true measurement or judgments can be made be-
tween the respective demands of labor and capital. We
must know the function of each before we can determine
the rights of each from the social point of view.

22. Industrial units. — Out of the broad field of eco-
nomics come the industries. Here again we search for
the unit of classification based on the function each in-
dustry performs and we find manufacturing industries,
transportation systems, banking or exchange houses,
etc. Each is an industry in that it uses the elements of
land, labor and capital to effect different objects. These
functions are sufficiently described by the names them-
selves.

23. Distinctions between economics, industry and
business. — The object of the two preceding sections is
to show how the search for the unit of economic and
industrial classification has constituted the main work
of the investigations in these fields. Business, in the
narrowest interpretation of the word, is made up of ac-
tivities designed to effect a specific purpose within the
field of each industry ; manufacturing is a broader term

222

BtrSINESS MANAGEMENT

than plant; transportation than railroading; exchange
than banking. Therefore, if we are to get a clear un-
derstanding of a business we must discover the basic
functions which give character to it or, as we commonly
say, determine the nature of an enterprise. This is a
somewhat difficult matter in the present stage of con-
fusion of thought concerning economics, industry
and business. But briefly the diflFerences are these:
Economics treats of land, labor and capital in their
relation to human wants. The social point of view is
emphasized. In industry these three factors become
parts of systems or processes by which society is fur-
nished with economic goods. In business these elements
are used for the purpose of producing revenue or divi-
dends.

Thus we see that in economics the point of view is
social. In industry it is partly social and partly pri-
vate. In business the social point of view is completely
submerged and that of private interest predominates.
These three points of view are clearly seen in the dis-
tinguishing phrases of each division. In economics they
are utility, value or price; in industry tttey are mass
production, transportation in bulk, or syndicating; in
business the great words are corporate control, centrah-
zation and money profits.

By keeping these three points of view in mind it is
possible to see more clearly the great political and busi-
ness problems of the nation in so far as they have an
economic basis. It will be noticed that the raUroad
problem, the labor agitation, the tariff question, etc.,
all lie largely in the field of industrial organization and
the chief point at issue is to determine where society's
rights begin and private privileges end. Society, for
instance, is interested in having the manufacturers of

MANAGEMENT UNITS

fStS

the nation turn out a maximum of goods. The business
man is not anxious primarily as to the quantity of com-
modities made but to the amount of money received for

them.

24. Managerial or bvMness units. — From the man-
agement point of view, the corporation is a form of spe-
cialization which puts the function of ownership and
policy control into the hands of a management dif-
ferent from that which directs the productive operations
of a business unit. The business unit became so large
and complex that it had to be subdivided into smaller
units for purposes of management. The corporate or-
ganization, therefore, forms one managerial unit made
up of stockholders, directors, committees and officers
for purposes of directing the financial policy of the busi-
ness. The other division which has been found neces-
sary to organize into a managerial unit is the operative
or production end of the business. This latter has be-
come further specialized into what may be called a staflF
organization and a line organization.

These management units and their relationship to the
general management can best be shown in the form of
the diagram on the following page.

An analysis of this chart will disclose that: (1) the
corporate unit by exercising its function of ownership
has delegated to itself the right of determining what
shall be done by the general manager; (2) the staff
organization unit has become a necessary part of every
large business for the general manager cannot know
hoxc everything can be done in the best way; (8) the
line organization gets its orders directly from the gen-
eral manager who has been advised by the corporation
and staff experts. Although the results of the manage-
ment issue directly from the line organization yet the

««4

BUSINESS MANAGEMENT

importance of the other units is not to be minimized.
The corporate management is controlled by a body of
specialists devoting thei. time to the consideration of
financial and conmiercial policies ; and the staff technical
experts concentrate their efforts upon the planning of
methods by which the purposes of the owners are car-

Fiotmis 2.— CoBPOBATB, Staff and Lnrai Oboahkatioh.

ried out through the line organization— the men who
obey orders and achieve results.

One important thing which shoidd not be overlooked
is the central position occupied by the general manager.
It has been sufficiently pointed out how closely spe-
cialization must be followed by a more comprehensive
organization for the purpose of developing coopeTs-
tion. With the specialization attendant upon the devel-
opment of the corporate and operative units of man•g^

MANAGEMENT UNITS

fS5

ment there grew up an overwhelming demand for a
coordinating managerial element in the business unit.
The general manager is being forced more and more
to assume this very heavy responsibility. It is his func-
tion to correlate the policies of the corporate advisors
with the methods of the technical experts, and then to
harmonize both of these with his means of production as
found in the line organization.

The details of management are therefore being
forced upon three sub-organizations which until very
recently have been given little consideration from the
point of view of management. As the pressure in-
creases, the necessity of further specialization in each
unit increases. Thus we see new points forming
through which managerial methods and policies are de-
veloped or directed.

Although the corporate organization and its work-
ings are fully treated in a later volume on "Corporation
Finance," nevertheless a brief presentment of its or-
ganization for management purposes is outlined here.

Stockholder!

I
Directors

Executive Committee

I 1 h \ ~i

President Vice-President General Manager Treasurer Secretuy
FiQUBE 3.— Analtbib or Cobpobate Obqanization.

j Corporate management begins with the stockholders
who own the business and consequently have initiatory
powers. It ends with the executive officer, who like
the other officers and committees derives his authority
from the board of directors who in turn look to the
stockholders. The president or vice-president presides
at all meetings of the corporate organization. The
n— 15

326

BUSINESS MANAGEMENT

treasurer is custodian of all funds which he disburses on
•presentation of the proper requisitions. The secretary
takes care of all corporate correspondence and keeps the
ccrporate records and the seal. The general manager
who is chosen by the executive committee acts as the
point of contact between the corporate, staff and line
organizations. The corporate officers may or may not
be members of the staff or line organizations.

25. The manager's cabinet. — The operation of a
plant, whether industrial or commercial, calls for exer-
cise of judgment upon many technical matters; accord-
ingly, it has been found necessary to aid the general
manager by forming an industrial cabinet made up of
experts. For many years the manager who was also a
skilled mechanic was able to conduct the operations of
production with marked success. This was due to the
part which mechanical equipment played in our indus-
tri ' operations. But at length other factors in the
making of goods became prominent. Chemistry he-
came as important as mechanics. Now it is being real-
ized that the organization of the factory, commercial
house, or bank, etc., must be given special attention. If
the size of any firm's business is commensurate with
the average American enterprise, few m u would con-
sider themselves capable of exercising the best judg-
ment on all these different specialties. Accordingly,
the management has been strengthened by bringing in
experts in these various lines.

It may be well to note that the history of industrial
development of the various nations shows that the coun-
try which has led the world at any particular period has
been one which developed first and most efficiently
some one of these special activities as aids to the man-
agement. England was first in the field with the use of

MANAGEMENT UNITS

%«7

power machinery. She became the "work shop of the
world." America adopted ronch of the English tech-
nique but she leaped to the front industrially largely
because of her corporate organization for controlling
large capital forces and concentrating them in the ex-
ploitation of our natural resources. Recently both the
supremacy of England and of the United States has
been threatened by the industrial technique of the Ger-
They have brought industrial chemistry to their

mans.

aid in the international strife for commercial supremacy.
The field of specialization which is still open for devel-
opment is organization. Few factories, railroads, or
banking institutions have placed among their technical
experts a special department for furnishing advice to
the general manager on productive efficiency. From
the \v idespread interest that is being displayed at pres-
ent, however, it does not seem likely that American
business men will permit this important function, man-
agement, to go undeveloped. The machine, chemistry
and corporate organization all reduced costs. The ex-
tension of the organization principle to the field of pro-
duction, transportation, selling, etc., will have a like ef-
fect. Many men believe that the addition of an organi-
zation expert to the cabinet of the general manager is
as imperative as was the creation of a cabinet advisor
on agriculture to the president of the United States
when the farmers' interests called for special attention.
26. Analysis of staff and line organization. — Next
to the corporate organization stand the staif and line
organizations as units in management. The following
chart (Fig. 4) shows various experts and their rela-
tion to the general manager; and also how these numer-
ous activities may be further subdivided into smaller
units for purposes of more specialized administration.

228 BUSINESS MANAGEMEKT

The various specialists belonging to the staff organi-
zation may be permanently or temporarily retained.
In either case their position holds such a relationship to
the manager that they ar not generally considered as
employes. The feeling is gradually growing that these
men should hold the same relationship to the general
manager that a lawyer does to his client. The lawyer
looks into the details of each case and reports to the

UaOM llOAl OH0AI.IZATI0M FlMANCIAt •TATItTlMl ""•J*"'**!-

•flCIAlilT •MClMJtT •PICIAIHT » >tCI«LI» T MICIAIWT

MICUUtT
AMMTANT*

OMiWOAL
mOUMT

MANAGER MANAGER

FINANCIAL. (ALES

DEfT OEF'T

MANAGER MANAGER

PROOUOTIOH ACCOONTINa

oErT otri

FtantB 4.— Staff and Line Obqantzation.

client. The latter accepts his lawyer's advice or rejects
it as he thinks best. By referring the investigation and
solution of the details to competent speciaUsts, the man-
ager is left free to assimilate their plans properly and
to correlate the activities growing out of their advice.

When we come to the line experts, the men who are
to carry out the orders of the general manager, we are
on familiar ground. These departments have been
closely connected with the management for many years.

MANAGEMENT XJNITS

tt9

But as the duties of the general manager have grown
it has become necessary to depend more and more upon
the managers of departments to look after the details.
Some confusion has arisen as a result of this depend-
ence upon the departmental managers. The latter in
many cases have absorbed the functions of the staff spe-
cialists. They have become not only the executors of
the work but act as special advisors in the planning of
the work. If, however, the functions of these depart-
ments are kept clearly before the mind it will be seen
that their activities should be confined to carrying out
orders given them by the general manager. This divi-
sion of function may not always be possible or neces-
sary in small plants, but the consideration of manage-
ment from the point of view of the units for carrying
out the functions of management require such a divi-
sion. It affords not only a clear comprehension of the
problems of management but indicates a modem ten-
dency which is striving to relieve the general manager
of as many details as possible so that he may be ready
to meet every emergency. The details of the adminis-
tration are, therefore, left in the hands of the manager
of production, manager of sales, manager of finance
and manager of accounting.

27. Financial department as a unit, — The manager
of the financial arrangement in connection with the op-
erative departments may have control of the cash,
credits and collections. He may also act as inspector
of all detailed financial offices. This does not constitute
the whole of the financial operations of a business. The
financial specialist in large concerns handles such
things as the marketing of securities. The position of
the financial manager where his fimctions are fully dif-

830

BUSINESS MANAGEMENT

ferentiated would appear as in the following chart _ ,
(Fig. 5) :

Mmnager

:i«dit

Man

Collector

Insp'

AauitanU AaiiiUnU As§iaUnti An m'j

Fia. 5.— Analysis of Financial Departmint.

Caahier

I
As§iatanti

28. tSales department as a unit. — The importance at-
taching to the marketing of goods has generally been
recognized but the peculiar conditions surrounding
American markets have, until recently, made the sell-
ing of goods a comparatively simple matter. The get-
ting of salesmen with a "good front" or a "personality"
seemed to be the chief problem in sales management.
To-day this is all changed. It is stated on good author-
ity that 80 per cent of the organization of the mer-
chandising departments of the country under present
managements is unnecessary and therefore an added
burden of expense. The manager of a sales depart-
ment must plan his selling campaigns with the thor-
oughness of a general of an army. To the sales man-
ager are referred all plans for the getting of new busi-
ness, problems of selling, competition, the making of
sales contracts, the reporting of sales data and the in-
spection of sales agencies.

Manager

Inspector

Advertising Agent Division Sales Agents

Assistants Salesmen Assistants

Figure 6.— Analysis of Sales Department.

29. Accounting department as a unit. — Here we find
a manager in charge of all raw material, worked ma-
terial and supplies. He likewise has charge of the in-

MANAGEMENT UNITS

S81

operative plant and equipment and of all finished
- product. He also investigates claims, and procures,
: wmpiles and distributes all necessary records of conver-

1^^ sion and operation. This department is responsible for

f the inspection of all rerord ,.

Head AccounUnt

udi

Commenial Bookkeeper Cost Bookkeeper

Auoitor

1
Helpen

Receiving Shipping Billing
Clerk Clerk

Clerk

I
Helpers

Storekeeper
Helpers

Timekeeper

I
Helpen

Stockke

Stockkeeper
Hdpen

Helpers Helpers

FioDRE 7— Analysis of Accountinq Departmbnt.

30. Production department as a unit.— The classify-
ing of the functions which belong to the production de-
partment and the sub-classification into still smaller
units has constituted the chief activity of the modern
efficiency engineer. According to him a redistribution
of these functions is very necessary, but without going
into the discussion at present let us see what natural
divisions we should find under any system of manage-
ment. The following chart (Fig. 8) will show that
the manager of production should have charge of and
jurisdiction over the plant and equipment, the pur-
chase of material, supplies and labor. He will also
supervise the inspection of purchases and output.

Manager

Purchasing
Agent

Aasislauls

Superintendent
Foranen
Various Bosses

Inspector
Asnstaats

Workers
Fia. 8.— Analysis of PRooccnoN Department.

BUSINESS MANAGEMENT

81. Management units the hams of organization
cha'-fs. — It has been said that 99 per cent. . f the enter-
prises now in existence have no such thing ah a chart
or diagram showing the es ential units of which their
orga/nzation is composed. It has been further stated
that 50 per cent, of the managers never heard of such a
thing. No doubt managers are n( ^ generally aware of
che ua which the constructing of such a chart would
be to them. First, it throws into bold relief the whole
oruanization; second, it shows in a form th' * can be
Vioualized, the weak or undeveloped parts of the man-
agement.

An )rganization that cannot l>e charted so as to show
the \ -defined relationships cannot be said to be scien-
tificali . managed. Mr. H. F. J. Porter has said,

Man.igemcnt is like a coaching outfit. The coach rau«t be
built right before its service is at its best. All its four wheeb
must be of the correct size and its body of correct proper-
< ions. The horses must be well matched and strong enouj^ to
pull t' coach. One must not be a dray horse and another a
tr i'he harness must be properly suited to the horses

the collars w'll not chafe and irritate them and the
tr;i »t be of the same length, so as to pull evenly and

not ;;- one horse to get his legs over the other horse's

trace iterfvre with him. If all of these requirements are

not met, there will be danger of not running straight. Merely
speaking to the horses kindly, or patting them on the neck,
or giving them sugar, or plying the whip, is not going to
reach the cause of the trouble. But when this organization is
properly arranged so that everything is in its right place,
without overlaj ping )r interfering, it is ready for the skilled
coachman to get up into the box, take the reins inf' Hrive the
coach over such roads as he may meet. T^ *»'

surance that it will stay in the middle of the
inherent tendency to go over into the di

MANAGEMENT UNITS

X8S

The man on the box is the manager and upon his general
knowlfdgc of conditions and hia skill in handling the organi-
zation will depend the efficiency of the organization. This
limn is an entirely different one, however, from the one who
'Jfsigni'd the coach or the harness, nlthoufh he should have
very much to say about the selection of the horses.

Without going into the details of organization which
this analogy suggests it will be sufficient for present
purposes to note, that, generally speaking, any organi-
zation has four basic departments which may be com-
parable to the four horses drawing the coach. They
are the financial, the sales, the production and the rec-
ord departments. Each of these should be as inde-
pendent in its action as any one of the horses, but aU
should be so thoroughly related by their harness as to
constitute a uniform and united force in pulling the
business. In other words, these units of management
should remain distinct, but their efforts should be so
coordinated as to bring about a unified result.

32. Duties of the management units. — The duties
of the corporate management, as we have seen, are to
furnish funds and determine the general conmiercial
policy of the business enterprise. The second group of
duties organize themselves into a imit to carry on the
prwluctive functions; this in turn divides itself into the
staff orpfanization, the chief duty of which is the ad-
vising of the general manager upon various technical
matters, and the operating unit, which is generally
called the line organization.

The operating unit is the one in which we are at

< ueculiarly interested. This unit, as we found,

''or purposes of more efficient management

apartments. The duty of the first of

sa4

BUSINESS MANAGEMENT

these departments is to collect and disburse the money.
The duty of the sales department is to obtain orders
for work by which the third or production department
is kept going. The third department then converts the
orders it has received into finished goods. It will be no-
ticed at once how dependent this department is upon the
second and the first departments for equipment and
then in turn how dependent these departments
are upon the production department. If mal-
adjustment is to be avoided, these three depart-
ments must be equally balanced and normally
independent. This then leads us to the fourth
or record department, which is intended to keep ac-
counts of all that happens in the other departments and
thus maintain an operative balance. It provides records
for the receipt of all raw material, holding it until it is
needed by the production department, keeping track of
what the latter does with it, taking it back as finished
products, handing it over to the sales department and
telling the financial department how much it has al-
ready cost, how much more it will cost before it is sold,
and how much should be added for profit in order that
all the departments may be kept in good condition con-
tinually.

CHAPTER III

TYPES OF MANAGEMENT

33. Basis for selecting types.— It is always helpful
to a manager if he is interested in improving his or-
ganization to know to what classification his own meth-
ods of management belong. It is important, then, that
some of the most clearly marked types of management
be described.

The basis for determining a type rests largely upon
the particular element in an organization which is rela-
tively more important than any of the others. In look-
ing at the problem of management from one point of
view, the system employed in keeping track of the men,
material, operations, etc., stands out prominently. Ac-
cordingly some authorities have divided management
into two types, i. e., unsystematized and systematized.
Others, again, who wish to emphasize efficiency of op-
eration as contrasted with formal organization or sys-
tem have added a third type to the above two and have
called it scientific or efficiency management. Other
authorities would establish still different types. The
efficiency engineers have been resj ■» .nsible for the clas-
sification of management into military and staff types.
This division is based largely on the methods by which
the orders of the general manager are carried out and
the methods by which he acquires advice and informa-
tion. A fourth classification is familiar to railroad
managers. The peculiar nature of the railroad business

286

SSe BUSINESS MANAGEMENT

has brought the element of efficient control into promi-
nence. Shall the managerial control be centralized,
that is, shar the working organization be spread out
from a central point so as to cover the entire system,
or shall the management be broken up and the responsi-
bilities of operation put upon the local division superin-
tendents, each unit or division being complete in itself?
These types are known respectively as departmental

and divisional. . ^ - •

Looking at the management from the pomt of view
of the control of the labor element— and many business
executives believe that in its last analysis this is the
principal que^^^ion of the manager— management m^'
be divided into three types; undisciplined, disciplined

and functional.

34. Unsystematized type of management -iht
chief characteristic of the management in an unsys-
tematized plant is the lack of a proper system of co«»
accounts and an inadequate method of keeping th. ac-
counting information in good shape. In so far as every
management must depend upon its cost and financial
records in order to meet market competition, the un-
systematized plam is at a distinct disadvantage. In-
adequate cost records are the causes of many losses and
failures. It is a frequent experience of certified pub-
lic accountants on being called in to examine bocks of
account to find that the firm is really losing money.
Not having kept sufficient cost records, the firm oi
course has been unconscious of its condition.

When a competitor discovers the fact that his rival «
not keeping close account of his costs, he is sometm«^
able to purchase the goods more cheaply -m ttie to^
which keeps imiccurate cost acfcounts than tomake torn
himself. It is related that a large department store.

TYPES OF MANAGEMENT

««7

which had for years done its cwn printing, finally
ceased this branch of work, because it discovered that
the printing trade in general kept very inadequate rec-
ords of its costs. 1 1 tb. n adopted the method of send-
ing for estimates t- i'.rge numb-r of printers when-
ever it had a job which it wished ,o give out. AU of
these estimates were to be base'. v.jK.n a printed sam-
ple which the store sent to the « avious printers. The
manager was safe in choosing the iowest bid submitted,
for without fail some of the bids v o.ild be below cost.

Under the unsystematized ^yp^ of management the
accounting generally consist"; of a statement prepared
sometime after the annual or semi-annual stock taking,
and shows the profit and loss, and the assets and lia-
bilities In most cases, however, such a record is chiefly
of his'.oiical importance. If the statement is bad, it is
too late to remedy the troubles of the previous year
because it shows merely the result of that year. If,
as is likely to happen where there is little system, the
yearly statement is delayed, the record becomes too an-
cient to be of much use. It frequently happens that
firms whose fiscal year ends in January do not know
the result of their year's business until six months later,
and then only in the form of profit and loss and assets
and liabilities statements. Some of the information is
eighteen months old and it all comes too late to stop any
oft! leeks.

35. Majority of indnsiriea unsystematized.— It is
probably safe to say that the great majority of the
firms of this country belong to the unsystematized type
of management. The prevalence of this type of man-
agement in America has been due in a great measure to
the large margin which has existed between the cost of
production and the selling price. Having a large mar-

2S8

BUSINESS MANAGEMENT

gin of profit, little attention has been paid to scientific
accounting; but conditions in this respect are chang-
ing and the number of systematized concerns is growing
every day.

86. Systematized type of management, — Under the
systematized type the managers are methodical and sys-
tematic; each department has been studied and sys-
tematized until, so far as records go, the firm knows
exactly where it stands at all times.

The distinction between the systematized type of
management and the unsystematized is seen in the dif-
ferent emphasis which is put upon the accounting. In-
stead of vague reports made once or twice a year, the
books of the systematic type of management show the
conditions of the business quarterly or monthly, and in
much detail. Four new features usually appear under
this form of management. 1. Reports showing last
year's costs with this year's costs. These may be made
on the basis of a department or of a certain product.
2. There will be costs, showing material and labor
value 8. In addition to the determination of these
direct costs there will also appear a. practical method
whereby overhead charges may be equitably dis-
tributed. 4. The results of the business are periodically
put before the manager in a simple but comprehensive
table or chart.

87. Coat records highly developed. — The cost records
give systematized management a distinct advantage
over the unsystematized firms. Correct cost accounts
are relied upon to establish the selling price, and to
point out excessive costs and indicate perhaps where
they may be reduced. Many managers, therefore, be-
lieve that when they have a systematized plant they then
have also an efficient plant. It is just at this point that

TYPES OF MANAGEMENT

289

the exponents of the new scientific management take
issue with them. They point out that system helps only
one function of management and that even under the
best systematized methods many things might be dis-
covered pertaining to the system itself, which would be
eliminated under the efficiency or scientific type of man-
agement. These critics point out, for example, that the
same general system of accounting under the system-
atized type does no. permeate the whole plant. To il-
lustrate, the clerical work in the diflferent departments
may not be included in the cost accounting. The close
analysis to which the unsystematized type of manage-
ment has been subjected recently has set a new stand-
ard of accomplishment before the management. To at-
tain these results new methods of management based
upon close analysis are proposed. As these contrast
sharply with the other, a new type has been established.
38. The efficiency type of management — The man-
ager of a business of the unsystematized type depends
for information regarding costs and income largely
upon his general impression supplemented by an ac-
counting system that also dea}«» more or less in general-
ities. The systematized type furnishes the controller
with comparatively accurate and detailed data as to
where, when and how the money was spent and gives
the manager a good idea as to how his business is going
as compared with other years. But this is only half of
the problem. The manager knows how, when and
where his money was spent, but he does not know
whether or not it was laid out in the best possible way.
He only knows that this year's operations were better
or worse than those of last year or of the year previ-
ous. But why take one year and compare it with an-
other? Does this method disclose the Cau9€$ of the flue-

940

BUSINESS MANAGEMENT

tuations of profits' "L^fc," says the efficiency engineer.
"The manager shoved kr.o\. that for every dime spent
a full standard equitalent is rendered." It is the set-
ting of standards that differentiates most distinctively
the efficiently managed ty/ es from the other types.
When standard times, standard materials, etc., have
been determined, it is then and then only that the cost
accountii item brings information that can be used
as a basi operative comparisons.

89. Standardizing costs. — When the times, qualities
and conditions of working have been standardized, then
costs can be obtained which can be considered as a
standard for measuring other costs. The amount of
money spent upon a standardi7.ed operation becomes
the common measure for determining the efficiency of
these costs at other times and under other conditions.
The cost accounting records which show the actual re-
sults obtained for each item of money, material or
service can thus be compared with the "efficiency rec-
ords" which show what should be obtained when these
items are standardized. Thus the efficiency of the op-
erations for the weekly, moni ily or yearly period is
determined. The system thus becomes a real aid in
gaining bigger results.

40. Costs come as a by-product. — Costs come as a by-
product of the methods for increasing efficiency. This
may be illustrated by following the course of a ticket as
used in a planl under the scientifically nianaged type of
organization. A ticket is made up in the central plan-
ning department and when used in connection with the
instruction card shows how the work is planned before
operations upon it begin. This ticket is next employed
to control the order of work by being placed on a bul-
letin or dispatch board. From this the workman gets

iidliiMHMii

TYPES OF MANAGEMENT

his job together with his instructions for carrying it
out. The ticket is :?tamped with the time when he takes
it and again stamped at the finishing of the work.
Having performed the function of directing the job
into the shop the ticket is now used to check off the
progress of the work as it passes through the shop.
This record is carried on a route sheet. When the job
is completed the ticket is sent to the accounting de-
partment to be used in making up the workman's
wages. This duty performed, the tickets are reassorted
for the cost accountant on the basis cf specific opera-
tions to enable the labor cost of the job to be deter-
mined. And finally, where total or departmental costs
are wanted, all of th?se cost-sheets on individual jobs
become the basis for the determination of total and ex-
perimental expenses and charges. The ticket has thus
been made to do its share in the work of produc* i, as
well as to stand filed as a record. The system has been
made subsei-vient to the real purpose of the organiza-
tion, the gaining of greater efficiency. This change of
emphasis from system to efficiency which the scientific-
ally managed business insists upon making shows a
clearly defined result. It is claimed that more econom-
ical ways of handling the system itself are found when
a systematized plant is subjected to efficiency methods.
41. Comparisons which afford a deadly parallel. —
All accounting systems base their chief argument for
existence on the comparisons which they afford. This
is very important. The "deadly parallel" is a method
not to be ignored when a manager wishes a short cut
fo the comprehensions of his subordinates. System-
atized management recognizes this spur to increased ef-
fort and efficiency. For instance, a well systematized
firm employing uniform accounting methods through-

11-16

gW BUSINESS MANAGEMENT

out all its numerous branches employed an account-
ant to gather the monthly reports of each branch.
After a careful study of the items in detail he prepared
a comparative table of results of all the branches and
sent a copy to each local district agent. If agent A did
a $10,000 business during the month and had $7,000
on hand in stock he was able to compare in detail his
expense items of labor, etc., with the results of agent B
who did $11,000 worth of business but had only $4,000
tied up in stock. Such comparisons are often enough
to induce agent A to find means of releasing the $8,000
capital which is lying idle. But c system of aecounting
that is based upon efficiency records furnishes results
based on standard accomplishments and these serve the
manager in place of a series of "deadly parallds
which are mere comparisons of one period of operation
with another. Comparisons with predetermined stand-
ards stimulate the manager as well as the subordinate.
Every deviation of his costs from the standard is clearly

^%2. Stock-taking under scientific methods.— Ano\iitr
example may show the gains of the efficiency type o
management over the others even more clearly. Annuu
stock-taking is an expensive operation. Freque'itlyrt
involves shut-downs as well as the usual charges.
Under the type known as efficiently managed these ex-
penses are usually eliminated. Here, as in the ewe of
the ticket issued by the planning department mentionetf
above, the accounting system performs its part m pro-
duction. The accounti. , actually controls the mov^
ments of materials in and out of the stores Hen«
its records show the amount in stores and if necess«y
its value equivalent can be computed when desired^ «
furnishes a continuous inventory, and daily balances cd

TYPES OF MANAGEMENT

be obtained where formerly weeks and months elapsed
before results were known. Firms taking stock on
January 1 sometimes do not know how much stock
they iiad at that date until six or seven months later.

Other examples might be taken to show the differ-
ence l)etween the two types of management, but suf-
fice it to say that the efficiency system keeps as close a
record of the amount of materials and labor in process
and the value of the manufactured goods as it does of
the stores.

43. Staf and military types of management. — Just
what distinction is to be emphasized in this classification
is not always made clear. The military organizations
of to-day undoubtedly employ staff methods and have
developed them to a high degree of efficiency. The con-
trast which most expounders of these types have in mind
when comparing the staff with the military type seems
to be the method of exercising control of the business,
or the execution of orders and commands. The mili-
tary type suggests a domineering attitude, an auto-
cratic method and promotion by seniority. The staff
implies specialized knowledge, conferences and ad-
vancement through proved fitness. The military type
is usually described as a one-man power having for its
ruler a despot who determines his actions by the stand-
ards of inherited information and manages his business
through rule-of-thumb methods. The staff type is pic-
tured as being just the reverse of this. Here the man-
ager is supreme in command but he is advised at every
step by experts whose information upon their special-
ties is the very latest that can be found. No snap judg-
ments and no empiricism are in control.

Since there is so much discussion on the subject to-
day it may be well to state this case somewhat more at

244

BUSINESS MANAGEMENT

length than the importance of the distinction calls for.
The distinction has grown up largely through the at-
tacks of industrial engineers upon the present system
of industrial organization. They found most of the in-
dustrial plant of the country poorly managed because
one man was trying to do it all. The manager finding
his powers limited in time and space put much responsi-
bility upon the superintendents. These in turn forced
the work of carrying out orders upon the foremen. The
latter becoming overburdened were compelled to rely
more and more upon the judgment and initiative of the
workingmen. This brought the burden of the work and
responsibility upon the very men who were least able to
bear it. Non-organization and great waste were the
results. Since the manager with his superintendents,
foremen, etc., suggested the army organization, the
name military was attached to it. But likewise this
military form became associated with poor management
and extravagant waste in production. Then came the
discovery that some concerns hf-d increased their effi-
ciency by hiring expert chemists, draughtsmen, stu-
dents of labor questions, etc. This at once suggested
the staff organization. The idea was then developed
so as to put most of the important functions of manage-
ment under the guidance of a body of speciilists. A
business, therefore, which had such an addition to its
managerial equipment was spoken of as organized on
the staff principle.

44. Army as an analogy. —So far as military organi-
zatioi is concerned, the army represents both the staff
and line principles m their highest form of development,
and a brief review of its part^ and functions will help
the business man to see their application to his own
system of management.

TYPES OF MANAGEMENT

S4A

Military organization has three main divisions:
The General or Military Staff,
The Administrative Staff,
The Fighting Troops.
45. Functions of the general Haf. — The general or
military staff is expected to supply information and
brains. Its work, therefore, divides into two distinct
branches, "intelligence" and "operation."* "Intelli-
gence" embraces the collecting of information about
the enemy and the seat of war, from every possible
source, and arranging for its transmission to headquar-
ters, where it is next examined and collated, and finally
laid before the commander. This branch also includes
everj'thiiig connected with maps and topographical in-
formation, press censorship, and provision for interpret-
ers and guides. "Operation" includes: (a) working
out details of the dispositions and movements of troops,
their vnitH and numbers, givmg especial attention to
place and time and to the security of the troops in move-
ment and at rest; (b) embodying; the commander's
plans in clear and concise "Operation Orders"; (c)
transmitting these orders with certainty and dispatch;
(d) watching and insuring their due execution by the
administrative staff.

46. Organization of military staf. — The military
staff of the commander of a U. S. Field Army con-
sists of: Chief of Staff; Adjutant General; Inspector
General; Provost Marshal, who has charge of army
police, is chief of the secret service, and oversees the
field post office; Chief Signal Officer, who has charge
f'^ the military telegraph signal stations and balloons and
is geticial eonmiander of all signal troops of the army;
and three aides with the rank of lieutenaiit'<x>loneI. Of

' Herbert roster, "OrguuMtiom." p. «8.

S46

BUSINESS MANAGEMENT

►II,

;!l

.^^>»i

>*'!.

course each of these is ussisted by one or more subc
dinates and the necessary clerical force.

Ther is an essential distinction between the action of Co
lnander^ md that of Staff Officers, however capable. It is tr
that St \tf Officers are not merely clerks or messengers. Th<
is oftei' imposed on them Uic duty of explaining to the inin
diate executive agents tht intentions of their chief, so m
solve ambiguities or remedy misunderstandings, and to crei
identical views on the situation, especially if it is rapid
changing. But it is outside the scope of the Staff to interfi
with the exercise of command, that is, on their own authorii
to urge, or approve, or condemn any particular action on t
part of subordinate commanders. To do so is to usurp tl
function of their chief and to form a lateral interference wi
the direct chain of responsibility. Such action commonly le«
to a struggle of conflicting temperaments, contrary to all di
cipline and tends to produce anarchy in the command.'

47. Organization of administrative staff.— The ui\
of the administrative staff is to supply each individu
in the force with all he requires to make it possible f(
him not only to live, but to move and fight. If the ma
is not rej^darly supplied with food, clothing and an
munition, be will not be in condition to fight,

Th< iidiiiinistrative staff of an American Fid
Anj V ^ jjnsists of a judge advocate at headquartei
-r ho supervises the proceedings of court martial, mil
*s»ry conimissions, courts of inquiry, etc.; a commissar
of musters charged with making all musters into an
out of military service, and who exercises general supet
vision over all musters and payrolls; a chief ordnanc
officer, charged with the supply of ammunition, arm!
artillery, carriages and equipment for the troops of th

» H. O. Arnold-Forater. "The War Office, the Army and the Empire." pt^eM*
* Arthur L. Wagner. "Organization and Tactics," paf^e SS.

*HJe^'

TYPES OF MANAGEMENT

S47

three armies; a chief quartermaster, responsible for pro-
viding the army with forage, tiunsportation, clothing,
camp and garrisc.ii equipage, and for the management
of trains; a chi-'f commissary of subsistence, charged
with providing food for the army; a chief surgeon,
charged with the hospitel and ambulance service.

48. Succession by seniority —The careful adaptation
of the means to the end has developed the chain of com-
mand in the line organization and succession by senior-
ity. The art of war is to concentrate the largest pos-
sible iorce at the right moment at the decir>lvi ^oint.
The chain of command makes everj- group, frc . :t sm-
gle soldier to a complete army, an independent unit and
this without any conflict of authority. This allows the
changing of the organization to meet the varying con-
ditions of the campaign without weakening the unity of
the whole at any time. All great authorities on army
organization emphasize the importance of having each
formation composed of not less than three subordinate
units so that no duplication of command can result if
one of the uiiits is dispatched on special duty. In or-
der to insure permanency to the organization, under
the trying conditions of war and to prevent the car-
nage wiiich results froni ^vnfusion during a battle, it is
absolutely necessary that the next in command succeed
autoniaMcally to the vacancy caused by a casualty.
Hence the lieutenant becomes captain when the cap-
tarns falls.

;o. Wur develops organization.— For our purposes
it is not neeessarj' t outline the organisation o- the
fighting troops. The business man can glean many a
good suggestion if this outline of the army organiza-
tion is carefully studied, for many striking comparisons
between it and our industrial and business methods wU

S48

BUSINESS MANAGEMENT

be observed. The necessities of war have developed
every organ in the mih'tary body to its highest degree of
effectiveness. When business executives come to see
that their organizations must likc«vise be developed if
they are to meet competition, both domestic and for-
eign, then they too will study their management prob-
lems from the point of view of function, rather thao
try to solve them by rule of thumb.

50. Staff and line in business. — One firm which uses
the distinction between staff and line officers is the
Sherwin-Williams Paint Company in the selling de-
partment. The main office experts, such as "Chief of
Motor Power" or "Varnish Sales Department Man-
ager," confine their attention to working out the best
methods and the adoption of the standards without hav-
ing executive control. This rests in the line or terri-
torial managers. The company holds that the technical
man is doing his best work when he is showing another
man how to do it. The specialist is needed in the period
when construction and installation is taking place. The
salesmen in the field should be instructed so that they
may meet ordinary business contingencies.

51. Divisional and departmental types. — The basis
for this classification rests upon considerations diflfe^
ent from those upon which the classifications already
mentioned were made. These terms are more familiar
to railroad men than to managers in other hnes of busi-
ness. The principle, however, on which this division is
made is just as applicable to other forms of business
organization as it is to railroading. But since the de-
scription of the conditions as they exist in the railroad
business will best bring out the principles underlying
these two types of management, this form of ente^
prise has been chosen.

TYPES OF MANAGEMENT

«49

One of the great problems of railroad manageiP'^nt
is to overcome the difficulties imposed upon it by the
great distances which separate the operating depart-
ment from the source of control. To look after the de-
tails of operation of any railroad four or five thousand
miles long would be beyond the capacity of any general
manager. Accordingly, the operating territory has
been divided into districts and its management put in
the hands of subordinates. The division may be long
or short, depending on circumstances. For example,
the Pennsylvania Railroad station in Philadelphia
forms one division, but the average length of the divi-
sions of this same line east of Pittsburgh, outside of the
big cities, is 150 miles. To manage the details extend-
ing over a territory so large as this considerable author-
ity must be vested in some local euthority. The divi-
sional superintendent under this type is, therefore, a
man of considerable importance. .4s Mr. Ray Morris
in his excellent book on "Railroad Administration"
says:

In the pure divisional organization this executive officer,
the division superintendent, is made a little ' ;ig over his
small domain. He does not solicit traffic nor does he collect or
disburse funds, nor is he a lawyer nor primarily an engineer,
but everybody actually employed on the division reports to
him on questions of current operation. In the strict divisional
organization nobody can question the orders which the division
superintendent issues to the gangs actually at work, or to
train crews, or to station agents; in case of persona] injustice
they have some right of appeal afterward if they want it, but
they must fi.st do what they are told.

52. Characteristics of the departmental type. — ^Al-
though the divisional type of management is predmni-

250

BUSINESS MANAGEMENT

nant in America, nevertheless, there are some conspicu-
ous examples of the introduction of the departmental
type. The word "department" has a somewhat differ
ent significance in the railroad man's parlance from
what it has in the language of the industrial manager.
When the railroad manager speaks of departments be
has in mind the functional operations which are per-
formed on any piece of work. The industrial manager,
on the other hand, generally thinks of the department
as a room in which certain operations take place. The
department in a store or factory thus corresponds to
the division on the railroad and hence the character of
the difficulties which arise under the control of the di-
visional superintendent are much the same in a general
way as those which develop under a general manager
in an industrial or conmtiercial establishment. No mat-
ter how capable a man the superintendent may be, he
caimot be an expert in several directions. If he is a
good operating man he is likely to be weak as a civil
engineer and as a mechanical engineer. Under the
departmental type of management, therefore, the good
operating superintendent confines his work to his spe-
cialty, i. e., to the operation of the trains, and is sup-
plied with experts in mechanical and civil engineering.
Under the departmental type the divisional superin-
tendent does not have absolute control over all activ-
ities. For example, if two engines are to be repaired
and the division superintendent wishes it done at once,
he must first take up the question with the superintend-
ent of motive power who is an expert in such mat-
ters. The latter officer, however, not being connected
with the local division staff, after having considered the
advisability of the repairs, would then refer the matter
to the master mechanic who is located in the divMJon

TYPES OF MANAGEMENT

261

superintendent's territory. In brief, quoting again
from Mr. Morris:

The departmental point of view is that it is economy to
have and to use the best in all branches of the service, and that
if the mechanical forces do all their work under the supervi-
sion of a $10,000 superintendent of motive power, the results
will be better than if they do half of it under the supervision
of the $2,500 superintendent.

The following chart (Fig. 9) will illustrate the line
of authority as it is displayed in the two types of man-
agement.

, 53. Comparison of the two organizations. — The fol-
lowing excerpt from an address by Mr. Arthur Hale
before the New York University students brings out
the V rkings of the departmental system when appUed
to large railroads:

No matter what the type of business a man may be engaged
in he can readily see the application if he simply substitutes
the names of the departments in his own particular industry
and the officers who have them in charge for those referred to
under railroad management. Every approach to the depart-
mental system on a one-division railroad weakens the superin-
tendent without strengthening the president, and for the
larger system every approach to the departmental system
weakens the superintendent without strengthening the general
manager.

Strength and weakness are best shown in emergencies, and
an actual emergency will best show how division and depart-
ment organization work. On a certain occasion it became
necessary to rebuild certain trestles near each other on paral-
lel railroads organized differently. The superintendent of the
raiirofid with the division organization got his carpenters to-
gether at once, bridge carpenters, and shop carpenters and

S5S

BUSINESS MANAGEMENT

all, and transported them by special train to the scene of the
accident, with all the heavy timber he could get together, ud

simply reported what he had done. The superintendent of the
road with the departmental organization could do nothing but
report the facts to his general manager. The superintendent

-^v^-^. .. t^

TYPES OF MANAGEMENT

26S

had no cortrol of the bridge carpenters or the shop carpenters
in his vicinity. It was Sunday, and, to tell the truth, he
did not know where they were to be found. The general man-
ager was not in much better plight, but he managed to organ-
ize a force composed of his general superintendent, his super-
intendent of floating equipment, and his engineer of bridger,
and he made very good time with his trestle. It would have
been better on a week day, but the organization went to pieces
on Sunday.

Or, take a more usual case, the investigation of an accident.
A car goes off the track ; is the trouble with the car, the tracks
or the speed.'' We must know, for it must not occur again.
With the division organization such a question goes to the
superintendent. He represents the three departments; he
knows the territory and will decide the case in short order.
Indeed, the mere fact that he will so decide frequently prevents
his department from urging doubtful claims. With the de-
partment organization there is no impartial authority on the
ground, and many investigations are closed without decision.
Of course they can be carried to the general manager, but he
cannot decide all such questions, more especially as his chiefs
of departments are quite likely to stand up for their own men.

From the side of economy and efficiency the division organi-
zation also has advantages. When a superintendent can be
held responsible for everything on his division he will see that
he has enough men, and no more, to keep his engines and
tracks in condition. Under the department system all the
work will be authorized and done on orders from headquarters
without so intimate a knowledge of local needs.

Of course, the division system has difficulties. The rivalry
IS here among divisions instead of amOng departments. This
means that a firm hand is needed at headquarters to keep the
rivalry healthy. The objection most often urged, however, is
that certain officers on the staff of the superintendent will
nave a divided responsibility. The division engineer, for in-
stance, must be responsible to the superintendent in certain
matters and to the chief engineer in others. The master

254

BUSINESS MANAGEMENT

mechanic must also serve two masters, the division supem-
tendent and the superintendent of motive power. And the
subject is dismissed with the dictum, "a divided responsibilitj
will never do."

The gentlemen who take this ground forget that our wholt
railroad system is based on divided responsibility. The agent
reports to four departments, so may the conductor, while the
enginemen and the firemen and car inspectors report to two.
If the firemen can safely report to both the trainmaster and
the road foreman, cannot two of his superiors be trusted to
do the same thing?

The only reason that it is safe for the firemen and the
enginemen to report to two superiors is that this responsibilitj
is carefully defined in the books of rules, and that the men
have been carefully disciplined in the matter. There is no
greater difficulty in defining the two responsibilities of diviiioD
engineer and the master mechanic.

It is obvioT's that these officers should report to the 8^pe^
intendent in matters of policy, discipline and expense. To the
chief engineer and superintendent of motive power they should
report on all technical matters. But perhaps the best way to
phrase this is to say that they should report to the diviiion
superintendent everything excepting matters relating to stan-
dard designs and methods. It has always been recognized that
standard designs come under the members of the general man-
ager's staff. Where there has been difllculty, it can be traced
to misunderstanding as to methods of doing work, and the
recognition of standard methods should give the staff offlcers
sufficient power as well as plenty to do, for these independent
superintendents are sometimes hard to handle. The depart-
ment type will make you splendid trainmasters and most ac-
complished engineers in the civil and mechanical brancbes.
The divisional type will give you all around railroad men.

54. Advantages and disadvantages of the two typei
— In order that the advantages and disadvantages of

TYPES OF MANAGEMENT

256

these two types may be closely compared the following
outline is given:

DIVISIONAL

ADVANTAGES

1. Develops all-round men.

2. Centralizes control, hence
promotes unity of purpose.

3. Promotes closer coopera-
tion, especially in times of
emergency, between depart-
ments, since all are under one
man's charge.

4. Hence quicker produc-
tion, and

5. Decreased clerical labor.

6. Increases individual in-
itiative and competition be-
tween similar units.

DISADV^. STAGES

1. Directing head is not a
technical expert in each field.

DEPARTMENTAL

ADVANTAGES

1, Develops specialists.
i. Exi)ert in charge of each
department.

3. Avoids duplication, and
so tends to increase the ma-
chinery floor space, and power
available for a given volume
of work.

4. Uniformity of method.

DISADVANTAGES

1. Danger that the heads
will work for the departmental
sliowing even at the expense of
some other departments. If
by spending $3 or $4 a de-
partment head can save $10 in
some other department, it is
to the company's interest to
do so even though his depart-
ment expenses are thereby in-
creased.

Which system is the better is for each business to de-
cide for itself. Adaptability to changed conditions is
largely a matter of temperament. On important ques-
tions there are usually two schools of opinions. The
general sentiment seems to be that the departmental is
preferable in small companies. Here control is com-
paratively simple and the departmental arrangement
makes the most efficient use of the available talent.

256

BUSINESS MANAGEMENT

Similarly where the technical feature is more important
than the executive the departmental arrangement is
preferable because it places a technical expert in charge
of each department. Where, however, the company is
large in numbers or covers a big territory or deals with
isolated units, such as battleships, separate contractors
or plants, the tendency is toward divisional organiza-
tion. Within the last few years the railroads have ex-
tended its application, the navy has consolidated the
engineering and line officers on its battleships, and the
Westinghouse Electric and Manufacturing Company,
after a careful study of existing methods and extensive
experimentation, has changed from the departmental to
the divisional and is more than pleased with results.
While under the divisional system each department may
not be administered so efficiently as by a specialist,
• this loss is made up through th? ♦'avi^ 7 resulting from
the closer cooperation between L'le r .pui tments.

55. Compromises in practice.- Ai^ an actual fact,
most organizations cannot be classed as being either
clearly departmental or divisional but are a mixture of
tile two. They attempt in various ways to secure the
increased control of the unit system without sacrificing
the expert council of the functional. This is sometimes
brought about by dividing authority as in the Penn-
sylvania Railroad. The master mechanic is accountable
to both superintendent of motive power and division
superintendent. Thompson-Starret's timekeepers arc
accountable to the job superintendent and to the head
timekeeper. When the scope of the several authorities
is clearly defined in the rule book and the gdministro-
tion is carried on with courtesy and go.jd ^-^'^^
demands of ordinary business arc mtt and this is prob-
ably the best solution.

CHAPTER IV

TYPES OF MANAGEMENT (continued)

56. Undisciplined and disciplined management. —
Reference Has been made already to the various points
of view from which the problems of management may be
observed. From an accountant's or a systematizer's
point of view, it ■ either unsystematized or systema-
tized; from the executive's point of view, his organiza-
tion is controlled either by staff or military methods;
if he happens to be a railroad manager, he may speak
of his control being exercised either under the divisional
or departmental type of management.

We may make a further classification into two
classes; namely, undisciplined and disciplined manage-
ment. The point of view here taken is that the labor
condition in a plant depends upon the nature of its
management. These conditions will enable the laborer
to use his time effectively or otherwise.

57. Undisciplined type. — A close study of the aver-
age workingman's day will show that a surprisingly
small proportion of the time is given to effective work.
The small proportion of effective time is the chief char-
acteristic of the undisciplined type of management. It
could not be otherwise in a plant where orders are
transmitted verbally from one source of authority to
another. Many of these firms permit their salesmen
jo give their orders directly to the superintendent; the
'fitter, without further instructions, transmits Jiis order
to the foreman, adding, perhaps, a few details which

ii— 17

257

■■41,

Sff8

BUSINESS MANAGEMENT

the latter may need for his enlightenment. It ii m* I
sumed that the superintendent knows his business and
that the foremen know theirs and that finally when the
laborer receives his orders, he will know what is wanted
or will ask questions when he is not sure. A working
force trying to get started upon a job on such inexact
information must necessarily lose much time.

But the loss does not end here. When the superin-
tendent, the foremen and the workmen have all studied
out the best way to do the work, the preparation for and
the execution of the work must still be done in the same
haphazard manner. The number of men and the
amount of work each foreman is expected to control is
only limited by the amount of details which he can
carry in his head. The more this detail increases the
more must he depend upon the men working under him.
When questions arise in the progress of the work, which
happens continually where there are no written orders
or instructions for the workingman, all progress on the
work stops until the foreman can go to the superintend-
ent, and the latter to the office to find out what is to
be done. Furthermore, in such a business, there are no
provisions whereby the workingman is supplied with
tools and appliances. He must hunt out and select his
own equipment. When the pay roll is examined, the
same lack of control is found here. If the piece-work
method of payment is used, it will generally be found
to be unequal. Rates, not being determined ^ any
exact method, are often subject to change and with
every change some discipline is lost.

This lack of control on the part of the management
by not planning the work at the start and by not issu-
ing direct instructions ^-esults in little or no cooperataon
among departments and hence a congestion of unfin-

-jumsiui^miiu^SMei^aauumim

TYPES OP MANAGEMENT

950

ished work at many points. Thousands of dollars of
capital are thus tied up in many plants and valuable
floor space which might be used to better advantage is
taken up with unfinished goods, the interest charges on
wiiich are every moment eating into the profits.

It would be impossible to name all the evidences of
waste which show themselves under the undisciplined
type of management, but three stand out prominently.
As might be inferred, it is difficult to secure a high
({iiality of work and to maintain a uniform quality.
Furthermore, the numerous mistakes which are likely
to (K'cur ill rush times are not always called to the at-
tention of the managers. Finally, if the cost records of
the concern were to be examined, it would be found
that tlie costs fluctuate much more than they should.

58. Low labor efficiency. — During duU periods the
ineffectiveness of the undisciplined type shows itself
most I learly. The output of the plant on the whole is
low and uneven; even among the departments there is
an easily traced variation. All this is due to the lack of
efficient control. It is the opinion of the foreman and
not an exact standard which determines the output of
a machine or of a man. And although some depart-
ments may be working efficiently, the accomplishments
of others are very low. Therefore, while the majority
of the men may be doing what they consider a fair
day's work, the ratio of the product?;. ' jne to the time
which is lost is very low.

One example will illustrate the loss of efficiency due
to a lack of control under the undisciplined type of man-
agement. In this case, the internal control was inter-
fered ^vith by outside factors. A workingman in a cer-
tain trade was able to make $8 a day, but he was limited
to $2 per day by "shop opinion." It cost the firm much

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BUSINESS MANAGEMENT

more by this method because the floor space occupied
could have turned out 50 per cent, more work if the
manager could have selected his man and encouraged
him to work up to a higher standard. In addition,
since the man's case was typical, the overhead charges
must be considered, for it was necessary to spread at
least 50 per cent, more of the cost over each unit of the
product than was necessary.

Perhaps the greatest loss is in the effect that such a
method has upon the workingman himself. If he is
well adapted to the work, he will be much happier where
he is permitted to do his best.

59. Disciplined type of management. — Under this
type of management the mistakes of the undisciplined
type are avoided. The managers are systematic and
methodical. The shp-shod methods of the first kind of
management are displaced by a complete set of order
cards directing the laborer by recording and transmit*
ting the orders. Even though he is not told how to do
it, he is at least instructed what to do. Each worker is
supplied with a time card upon which he is to record
the time for each job and although this does not show
the time taken getting ready to begin work, etc., neve^
theless, it does record accurately the direct labor cost

60. Evidences of discipline. — Most disciplined types
try to install uniform systems of wage payment. As a
nde, piece work is considered the most economical way
of doing the work. In short, instances of the disciplined
management show that such systems are remarkably
free from errors and bad work and often readi tii»
maximum output per man and per machine under me
conditions. Yet the standards for the output are sel-
dom any better than under the undisciplined tyP*'^
here, as in the former, the opinions of the bowei «»

TYPES OF MANAGEMENT

261

foremen serve as the standards of accomplishment.
Standards obtained by trained men and exact methods
are lacking, and little effort is made to study the work-
ers to find out whether or not they are fitted for their
particular tasks, or doing their work in the best possible

way.

Mr. Henry P. Kendall, manager of the Plimpton
Press, gives an interesting illustration of the necessity
for supplementing disciplined management by closer

study.

In book-binding there are different kinds of work. Laying
gold leaf calls for a girl with small fingers and a delicate touch.
Strength is not required. Another operation calls for a large,
strong girl, who can easily handle bundles of work weighing
seven or eight pounds. In proof-reading the time reaction of
seeing a word and grasping its meaning is a very important
feature. Other girls doing insj>ection work must have the abil-
ity to concentrate their minds on one particular operation.
The different kinds of work demand girls selected with special
reference to their aptitude for their particular work. In every
factory will be found workers in one department who cannot
successfully do their work, but who could successfully do
work of another kind.

When I think over the psychology of industrial workers, I
am reminded of my own experience in college. In the psycho-
logical laboratory tests were made on all my class. I had
the quickest time reaction from seeing a flash of light to mus-
cular action in pressing a button; I had the slowest time re-
action in the class in seeing a word, comprehending its mean-
ing, and then pressing a button which registered the time it
had taken me to see and comprehend its meaning. This ex-
periment showed the reason why I was the slowest reader in
my class and why on a given test in reading, in literature or
any oilier subject, I took longer than anyone else. While not
a sprinter, my record for the fifteen-yard dash has never

S6S

BUSINESS MANAGEMENT

been beaten — not because I was a fast runner, but simply
because the time reaction to muscular effort enabled me to get
off more quickly after the pistol shot than anyone else. I
never coulu have made a proof-reader or earned my salt as a
book-keeper, but I think I should have made a tolerably good
moturman.

There is much system and much method in the dis-
ciplined type of management but the scientific selection
of the worker is almost unknown. Primarily for this
reason the highest efficiency is almost impossible of at-
tainment.

61. Traditional, transitory and functional type*.—
No attempt has been made to explain the causes ot the
differences which exist among the various groups of
management. These groups or types have grown up
because business men have looked upon the business
field from different points of view. When analyzed it
will be found that the military type of the second clas-
sification corresponds roughly to the undisciplined type
of the last classification. Similarly it will be found that
a concern which uses the systematized type of manage-
ment is very likely to fall under the disciplined plan of
labor control. Before the recent discussions on the sub-
ject of business efficiency became so general, there were
three classifications covering the various types of man-
agement and they seem to cover the whole field in a
much broader way than the more recent classifications.
These types were the traditional type, the transitory
type and the functional type of management.

It will not be necessary to discuss 'the first two of
these types because they cover in a general way the
types already described. The old boss, military or
strenuous types of management would fall under the
traditional plan. When this plan has been improved

TYPES OF MANAGEMENT

26S

upon, by the adoption of more systematized dis-
ciplined methods, the type is spoken of as transitory.
However, there is a third type which lies in direct con-
trast to all of the previous types. In describing it,
therefore, it will be necessary to put it in contrast with
examples of management under each of the foregoing
types.

TRANSITORY TYPE

I. An rquipment properly
arrant for storage.

TRADITIONAL TYPE

1. Does not realiie that I)ro-
per space (or storage i» im-
portant.

t May be general atore- « (o). Varioiu departments of-
room but all the store* seldom ten have their own stores but
(\Mnd there no' "'«'"' "^nt™' fontro'- , .

'""""^ '""*■ (6). Everything arranged in

neat and orderly manner.

3. N„,vsten in piling stores. S. Everything b kept in its 3 Provision lor holding and
Generally put in place most con- place. P>"ng »tores.

venient at the time.

FUNCTIONAL TYPE

1. Physical appearance re-
sembles Transitory Type.

8 (o). Central control of de-
partment stores.

(6). Proper system laid out
in orderly way.

4 No person to assume and 4 (a). Storekeeper issues aU
csrry out responsibiUties for the stock, but no central office con-
order in which stores are kept. trol.

(6). Stores issued on requisi-
tion only.

(c). Storekeeper baa ,aasut-
ants for moving stores in and
out.

J Prooer records of stores 5 (a). Perpetual or "book" « (a). Ledger sheeU in cen-
nerX TssinT inventory kept in office but sel- tral planning office have ma«-

4 (a). Balance-of -stores clerk
controls all materials from cen-
tral office.

(6). Materials delivered on
requisition only when siraed by
stores clerk in central office.

(c). Storekeeper ha- assist-
ants. AU act on orders from
central office.

Ledger sheets in cen-

generally missing

dom predetermined maiimum mum and minimuni require-
and minimum requirements. menti for each kind of material.
(6) Office Book inventory (6). Balance-of-stores sheets
is balanced with stores and fledger sheets) kept in the cen-
once a year the balance checked tral office. Upon these the loca-
against an actual physical in- tion of material is shown,
ventory of stores. («)• ,AU bookkeeping for

store* done in central office.

6 Some kind of division and 4. Symbols used to designate
classification of stores will be different kinds of stores,
found.

7 (fl). Sometime* a central
planning station is found.

(6). In the station the o^ra-
tions for each process are written
out before work is started.

(e). Where planning station
is not in operation, materials are
often wanted before it is dis-
covered that some part or ma-
terial is missing.

7 (a). All work on materials
planned ^ead in planning de-
partment.

(6). All planning done before
operating department needs
them.

(e). Materials running low
noticed at once and a supply
obtained before operation: be-
gin.

R. Supply stores, such as 8. System coven all rapidr
belting, electrical appliances, stores,
etc., are not usually put under
the general system of stores.

0. Special men, called " move
vm," take and remove materials
to and from machines, thus re-
lieving workman and keeping
him from looking for or waiting
for his material*.

10. Fire Protection.

BUSINESS MANA EMENT

62. Functional type of management. — This type is
variously spoken of as scientific, efficient or functicnud
management. Let us now examine somewhat in detail,
but in the form of an outline, the various contrasts
which appear among the traditional, transitory and
functional types when applied to the management of
the stores department. The differences which arise
here will be typical of the differences which occur in
other branches of the business.

68. Work planned ahead. — Perhaps the broadest
contrast between the functional type and other types is
in planning all the work *or each workman ahead of
time. The principle by which it gains control of the
operating elements is by planning completely the
proper execution of the work before a single move is
made. A route sheet showing the names and order of
all the operations which are to be performed is made out
and instruction cards are clearly vn-itten for each opera-
tion period. Requisitions on the stores department
showing the kind and quality of the materials and where
they should be moved, and the list of proper tools for
doing the work in the best way, are prepared for eadi
operation; the very best methods for performing each
operation are determined in advance and embodied in
the instructions.

64. Planning gives control. — Mr. Henry P. Ken-
dall, before the Dartmouth conference on scientific
management, said:

By this means, the order and assignment of all work, or
routing as it is called, should be conducted by the central
planning or routing department. This brings the control of
all operations in the plant, the progress and order of th«
work, back to the central point. Information which eren w

TYPES OF MANAGEMENT

265

the systematized plant is supposed to be furnished by the

progress of the Ttorkmen or the gang boss or foreman is

I brought back to the planning room and becomes a part of the

instruction card.

In many unsystematized plants no attempt is made to change
the methods by which the workman performs his operations.
Plenty of time and money may be spent on special machinery,
but when that is installed very little time is spent in a close
analytical study of the time element and motions involved in
the operating, in order to make it possible for the workman
to work in the easiest and best way and to furnish a fair basis
of remuneration.

When the analytical study has been made, the probable
time of operation determined, and a sufficient incentive has
been added in the shape of a bonus for performing the work
in the time given and in the way specified, then work can be
much more accurately controlled from the central planning
room because it is likely to be done in approximately the time
determined and without lagging.

The execution of work which is largely repetition, where
the individual processes are simple, reaches a very high effi-
ciency in many systematizti plants. The difficulties in secur-
ing efficiency increase as the woik becomes more various with
a lesser proportion of repeat-work; and in proportion as
these difficulties increase, ordinary systems fail to produce
results in more intricate work. This can be obtained, however,
by the central planning room from the analysis and time
study which is put into all operations of work and reduced
instruction cards.

65. Lahf^r efficiency under functional management.
—In reading the literature of only a few years ago one
is struck by the emphasis which is put upon piece-work
as a means for reaching the highest efficiency and low-
ering costs to the minimum. But finally it dawned upon
some progressive managers that this system put all the

266

BUSINESS MANAGEMENT

responsibility upon the workman. Also it was found
that there were many kinds of work which were not
adapted to the piece-work system ; and even where the
system was fitted to the work the methods of fixing Wx
rates were generally unscientific. To grade a work-
man's wages, the means by which he lives, from the
snap judgment of some foreman or an imperfect test of
some single workman, was not considered just. Ac-
cordingly, the principles of scientifif management have
been applied to the problem of inr ling the efficiency
of the working man.

The eflSciency of the worker under functional man-
agement depends on five conditions: (1) The analysis
of the elements of an operation; (2) careful selection of
the ^ orker; (3) the proper training of the er )yes;
(4) proper tools and equipment; (5) an incentive to
work. The first condition which every exponent of the
principles of functional management demands is that
the manager shall analyze carefully arid thoroii^y
every operation into its ultimate elements. When this
has been done the elements shall then be rearranged in
their proper sequence. In order that the working man
may not fall back into bad habits and thus into many
useless and even harmful operations, written instruc-
tions are given to him to follow. This will include not
only the proper sequence, but the time elements which
have been determined. Mr. Gilbreth, the efficiency engi-
neer, it will be remembered, by a simple analysis and
synthesis which he calls motion study, eliminated six-
teen unnecessary motions from the operation of brick-
laying.

66. How scientific selection aids discipline. — The sec-
ond condition, that of the scientific selection of the
worker, is fulfilled after a careful analysis of the dif-

TYPES OF MANAGEMENT

267

ferent mental characteristics necessary to carry on a
given line of work. Dr. Katherine Blackford, in a
paper entitled "The Scientific Selection of Men in
Building up an Organization," mentions a firrn where
the average sales of the salesmen ranged from $16,000
a year to $200,000 a year and she pertinently remarks
I that by scientifically selecting their men this great dis-
crepancy might be reduced.

Although much of this work falls within the field of
the psychologist, nevertheless there are certain broad
types of men which can be easily recognized by any
manager. Generally speaking, there are certain types
whirh are speculative and optimistic in their disposition.
These men are inventive and like to create the ideas or
plans which someone else is to work out. They natur-
ally incline to aggressive forms of i^ork, such as sales-
manship, advertising and promotion. On the other
hand, there is the conservative type, the man who Is
serious minded and rather unsocial. As a rule, this type
prefers to work out and perfect a plan which other
minds have -onceived. But a scientific selection of the
workers i > . al only after a scientific analysis of
the oper&.. . as been made.

67. /Jew training helps discipline. — The third condi-
tion for getting the highest efficiency under the func-
tional plan demands that the worker shall be trained.
This method, therefore, provides for a functional fore-
man whose duty it is to train the workmen and help
them on each job. The manager under this system does
not assume that the workingman knows anything about
the work. The foreman is held responsible for seeing
that the work is done correctly and if it is not, it is his
duty to find out why the workingman fails and then help
him do it as it shoiUd be done according to instructions.

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BUSINESS MANAGEMENT

68. Proper tooU mutt be furnished. — The fourth
condition demands that the management shall supply
the worker with t]»e proper tools and equipment as and
when needed for each operation. And furthrmore it is
the management's duty to see that the machines are
maintained in first-class condition so that all belt and
tool failures be reduced to the minimum.

69. Best discipline gained by proper incentive— Tht
fifth condition makes it necessary for the management
to supply the workingman with the proper incentive.
It is not enough, however, for the management to show
the worker that it is to his financial interest to be indus-
trious, but the management must do everything in its
power to make it possible for the worker to increase his
earnings by increased industry. Various tests and
bonus systems of payment have failed because the man-
ager neglected this important incentive. Under the
functional system, however, the man who does not re-
ceive his materials promptly and on time, or whose ma-
chine is not in good condition, all of which brings about
many delays, does not hesitate to complain to the gang
boss at once. The latter is just as much interested as
the working man is in the latter's receiving his bonus,
for if the laborer does not get his increased pay, the gang
boss may lose his. Thus the spirit of cooperation is
induced, whereby both these men make it their duty to
see that the management's policy is promoted.

70. Taylor's description of functional management
—It may be weU at this point to see how the originator
of the system of functional management looks upon it.
This plan, in the judgment of Mr. Taylor, can be best
introduced by abandoning the military type of organi-
zation and establishing two broad and sweeping changes
in the art of management.

TYPES OF MANAGEMENT

t69

(1) As far as powible the workman, as well as the gang
bosses and foremen, should be entirely relieved of the work
of planning and all work which is more or less clerical m its
nature All possible brain work should be removed from the
shop and centered in the planning or laying-out department,
leaving for the foremen and gang bosses work strictly execu-
tive in its nature; their duties being to see that the operations
planned and directed from the planning room are promptly
carried out in the shop. Their time should be spent with the
men, teaching tlum to think ahead, and leading and instruct-
ing them in their work.

(2) Throughout the whole field of management the mili-
tary type of organization should be abandoned, and what may
be called the functional type substituted in its place.

Functional management consists in so dividing the manage-
ment that each man from the assistant superintendent down
shall have as few functions as possible to perform. If practic-
able the work of each man should be confined to the perform-
anc:^ of a single leading function. Under the ordinary or mili-
tary type the workmen are divided into groups. The men in
each group receive their orders from one man only, the fore-
man or gang boss of the group. This man is the single agent
through which the various functions of the management are
brought into contact with the men. Certainly the most
marked outward characteristic of "Functional Management"
lies In the fact that each workman, instead of coming in direct
contact with the management at one point only, namely,
through his gang boss, receives his daily orders and help di-
rectly from eight different bosses, each of whom performs his
own particular function. Four of these bosses are in the
I planning room, and of these three send their orders to and
receive their returns from ''\e men, usually in writing. Four
others are in the shop and personally help the men in their
work, each boss helping in his own particular line or function
only. Some of these bosses come in contact with these men
only once or twice a day and then for a few minutes perhaps,
while others are with the men all the time, and help each man

«70

BUSINESS MANAGEMENT

frequently. The functions of one or two of these boMci
require them to come in contact with each workman for to
short a time each day that they can perform their particular
duties perhaps for all of the men in the shop; while other
bosses are called upon to help their men so much and so often
that each boss can perform his function but for a few men,
and in this particular line a number of bosses are required,
all performing the same function but each having his partic-
ular group of men to help. Thus the grouping of the men
in the shop is entirely changed, each workman belonging to
eight different groups according to the particular functional
boss whom he happens to be working under at the time.

The following is a brief description of the duties of the fear
types of executive functional bosses which the writer hai
found it profitable to use in the active work of the shop:
"gang bosses," "speed bosses," "inspector," and "repair
bosses."

The "gang boss" has charge of the preparation of aL work
up to the time that the piece is set in the machine. It is hii
duty to see that every man under him has at all times at leait
one piece of work at his machine, with all the jigs, templets,
drawings, driving mechanism, sling chains, etc., ready to go
into his machine as soon as the piece he is actually working
on is done. The "gang boss" must show his men how to set
their work in the machines in the quickest time, and see that
they do it. He is responsible for the work being accurately
and quickly bet, and should not only be able but willing to
pitch in himself and show the men how to set the work in rec-
ord time.

The "speed boss" must see that the proper cutting tools are
used for each piece of work, that the work is properly driven,
that the cuts are started in the right part of the piece, awl
that the best speed and feeds and depth of cuts are used. His
work begins only after the piece is in the lathe or planer, but
he must see that they do it in the quickest time, and that
they use the speeds and feeds and depth of cut as directed on

TYPES OF MANAGEMENT

the instruction card. In mo - ewe. he i. called u^n to
demonstrate that the work can be done .n ♦he .pecified time
bv .loinK it hinwolf in the presence of hi« nen.

The "inspector" U re.ponsible for the quaKy of the
wo^Tand both the workmen and speed bo-se. must see that
he work is all finished to suit him. This man can o course
This work best if he is a master of the art of fim.hmg work

both well and quickly. .

The "rep air boHs" sees that each workman keeps his ma
chii^^lW^^n;^- dust an 1 scratches and that he o.U and
treats it properly, and thai xU the standards establ shed for
the care and maintenance of the --^-" ;"j,;^"7"!^
series are rigidly maintained, such a. care of belts and sh f t-
ers, cleanliness of floor around machines, and orderly pihng

and disposition of work. . ., # * ««_

The following is an outline of the duties of the four func-
tional bosses who are a part of the planning department, ai.d
who, in their various functions, represent this department in
its connection with the men. The first three of these send
their directions to and receive their return, from the men,
mainly in writing. These four representatives of the planning
room are, the "order-of-work clerk," "instruction-card man.
"time-and-cost clerk," and "shop disciplinarian."

Ordor-of-work or route clerk. After the proper man in r
planning department has laid "^ut the exact route wh,rl. each
piece of work is to travel through the sho- from r.-'-hine to
machine in order that it may be finisheu " the tune it is
needed for assembling, and the work done in the most econom-
ical way, the "route clerk" daily writes lists instructing the
workmen and also all of the executive shop bosses as to the
c:^act order in which the work is to be done by each class of
machines or men, and these lists constitute the chief means
for directing the workmen in this particular function.

Instruction-card man. The "instruction card," as its name
indicates, is the chief means employed by the planning depart-
ment in instructing both the executive bosses and the men in

278

BUSINESS MANAGEMENT

all the details of the work. It tells them briefly the general
detail drawing to refer to ; the piece number and cost numbtr
to charge the work to; the special jigs, fixtures, or tools to
use; where to start each cut, the exact depth of each
cut and how many cuts to take; the speed and feed to
be used for each cut; and the time within which each
operation must be finished. It also informs them as to
the piece rate or the premium to be paid for completing
the task within the specified time (according to the system
employed) ; and further, when necessary, refers them by name
to the man who will give them special directions. This instruc-
tion card is filled in by one or more members of the plan-
ning department, according to the nature and complication of
the instructions, and bears the same relation to the planning
room that the drawing does to the drafting room. The man
who sends it into the shop, and who, in case difficulties are met
with in carrying out the instructions, sees that the proper
man sweeps these difiiculties away, is called "the instruction-
card foreman."

Time-and-cost clerk. This man sends to the men through
the "instruction card" all the information they need for re-
cording their time and cost of the work, and secures proper
returns from them and refers these for entry to the cost-and-
time clerks in the planning room.

Shop disciplinarian. In case of insubordination or impu-
dence, repeated failure to do their duty, lateness or unexcused
absence, the shop disciplinarian takes the workman or bosses
in hand and applies the proper remedy, and sees that a com-
plete record of each man's virtues and defects is kept. This
man should also have much to do with readjusting the wages
of the workmen. At the very least, he should- invariably be
consulted before any change is made. One of his important
functions should be that of peace-maker.

71. Summary of asseniials in all types. — The kej^-
note in management is unity of purpose, the working

TYPES OF MANAGEMENT

873

together in mutual dependence for a single result. The
best organization is that which brings about the closest
cooperation among departments.

Although it is difficult to strike definite lines of cleav-
age between the various types of management there are
four principles underlying all organization, whether
functional or military.

1. Planning and performance are separate func-
tions. The management must have a head, be it one
man or a formal planning department. All planning
and designing should be done on paper. No one ques*-
tions the utility of the drafting room. Then why ques-
tion the utility of the planning department? It is much
cheaper to erase a line than to do a job over again.
The cut and dried method is the most expensive there is.
The establishment of a formal planning department
does not mean making additional work. It simply
means concentrating the planning, which must in any
event be done, where it can be done best. The danger
in separating planning from execution is that the de-
signers may get out of touch with producing conditions
and in time become pedantic. To prevent such a hap-
pening the Germans require staff officers to do regi-
mental duty after two years of staff service. Mr. Tay-
lor insists that instruction-card men be nble to justify
their allowance by doing the work themselves when
questioned. It is also now generally agreed that a
planning or drafting office should be placed in the cen-
ter of the shops, the office men encouraged to go out
and get acquainted with shop methods and the better
workmen encouraged to enter the offices.

2. The organization must furnish the information
neccssarj- to intelligent planning; it must get the facts.

3. Each workman in each part of the organization
II-I8

«74 BUSINESS MANACiEMENT

must be given all the conditions and facilities whidj
he needs to carry on its work.

4. The workmen must be secured, trained and han-
dled.

Organization is absolutely impersonal. Each one of
these principles applies regardless of who does the plan-
ning, who gets the facts, who furnishes the assistance.
In order to keep traffic moving in New York it was
found necessary to organize the traffic. When two
drivers meet in a narrow street it is immaterial as to
who backs out, but unless one does traffic is going to
stop. At this junction the traffic policeman does the
planning and the blockade is raised. It is not that he
has superior ability, but merely that to insure unity of
purpose, which is the distinguishing feature of organiza-
tion, planning must be distinct from execution. If
thirteen men are working in a ditch, some one, be it a
foreman or a plaiming department, must coordinate
the activities or they are not going to work together.

72. Two corollaries of management. — ^Let no man
become indispensable. Shape your man to the organi-
zation, not your organization to the man. Let no man
be able to become indispensable to the organization and
so by his absence through sickness or intent tie up the
work. Understudies are now the order of the day m
business as well as on the stage. Each officer even up to
the president is required to train a man who can take
up his work in an emergency.

Executives of the old school object to this practice.
The National Cash Register Company when a^oP^
it, after repeated requests of its higher officials to selat
understudies, found it necessary to intim.i+^ ?***^Z
that if the executive did not train the man it ^o"^** ?"

necessary to get some one else to do so. After tde

MiMBiai

TYPES OF MANAGEMENT

rts

system was once established, however, the very men
who had opposed it became enthusiastic because it gave
them more freedom. When occasion arose they could
devote themselves to special work, by temporarily let-
ting their understudies handle the regular routine.

73. Shape the man to the organization. — Shape the
man to the organization, not the organization to the
Organization dictates that the best men should

man.

be placed at the head to plan and organize the work for
less able men. When exceptional men assert them-
selves they should not be allowed to break down the
machinery and do the work bare handed but should
at once be given important positions where they can by
constructive work strengthen that machinery. In fact,
it is to such exceptional men that the rule applies with
special force: "Let no man become indispensable."
For if he does, the organization collapses with his exit.
He ruins instead of building up the company. The
notable movement of our time by which successful in-
dividuals are incorporating their companies, thereby
voluntarily subordinating themselves to their ideas,
shows that the really big men recognize this impersonal
nature of organization.

While these four principles contain no fundamentally
new ideas they sum up all the principles of "scientific
management." The method of the efficiency engineer
is distinct not because it enumerates new principles,
but because it applies in greater detail and in a more
systematic way principles which are well established
and in universal use.

The most primitive form of management and the
form which is still the most efficient in small matters is
observed in those cases where the owner carries his "of-
fice in his hat." This primitive owner or foreman per-

a76 BUSINESS MANAGEMENT

fonns each one of these functions. He plans the work
of the office, he digs up the information he needs, he
provides the necessary machines and materials and
hires and instructs his workmen. When the es-
tablishment grows beyond the capacity of one hat
some or all of these functions must be delegated to oth-
ers He hires a draftsman, and a bookkeeper and lets
his foreman hire and instruct the workmen. As the
work increases other departments are added as needed
and the organization becomes more complex. Perma-
nent progress in this world is after all a process of
evolution, not revolution. Steadily from generation to
generation the efficiency of manufacture, of agricul-
ture, of transportation and of all the many other activi-
ties which form a part of our complex civilization, has
increased. Though our methods are still far from per-
fect we may look forward to a similar or even greater
progress in the future. *

CHAPTER V

MODERN AIDS IN MANAGEMENT

74. Real management is concerned with policies, not
details.— Most managers will admit that they are handi-
capped because they must attend to too many details.
Foremen, superintendents and bosses will generaUy
admit that they are overworked Yet if a superior of-
ficer should suggest that some of their duties be light-
ened or removed, how many of these men would submit
without any protest? It is this factor in human nature,
which does not wish to surren:ler any element of author-
ity, that stands in the way of progressive management
more than any other. One frequently hears the remark
made that the head of the concern is the last one to be
convinced that his own organization might be helped
and his own effectiveness increased if some of his re-
sponsibilities were shifted to the backs of other men.
He is more likely to object because he has more author-
ity to surrender than the men below him.

However strenuous may be the objection in certain
quarters to any particular system of scientific manage-
ment, it is generally conceded that there are certain
aids which will help the manager to lighten his burden
and increase his efficiency without surrendering or les-
sening any part of his total authority. Not all of these
aids, of course, can be mentioned, but a few which have
been tried and found successful will be given. Perhaps
the simplest aid is that of a chart showing the form of
the organization, the effectiveness of which will be mu<!h

277

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BUSINESS MANAGEMENT

increased, if it fs supplemented by an organization rec-
ord. Other devices which are gradually being adopted
in whole or in part are the planning department, time
studies, standards, mnemonic symbols, bonus rewards
for labor and welfare work.

75. Organization charts. — A chart showing clearly
the line of authority and of responsibility of each in-
dividual in an organization will go far toward removing
many inter-departmental jealousies. The chart should
be so simple that it is self-explanatory upon inspection.
Each man's position is thus made perfectly clear and
he easily informs himself as to what course to take
when transacting business with other departments. If
applied to a factory, each workman will know to what
particular gang boss or job boss he is directly response
ble; each gang boss or job boss will know to what fore-
man he must report; and each foreman will know to
what superintendent he is responsible; and each super-
intendent will know where his authority begins and ends
with respect to other departmental heads. Further-
more, the chart should show who is responsible for ma-
chines and equipment. To be most eflFective the chart
should be hung in a conspicuous place. Each of the
manufacturing departments should have one as well as
the office; 24x€.6 inches is a suitable size. When made
in the form of blue-prints charts are inexpensive, but
they should be framed and protected by glass, to shield
them from pencil markings and other injuries.

76. Charts clarify ideas. — These charts will not only
prove themselves an aid in instructing the employes
in the workings of the organization, but they will be
found to be of great value in helping the manager to
clarify his own ideas and in adding to his information
regarding his own organization. Any manager who

MODERN AIDS IN MANAGEMENT «79

has never planned a chart of this kind wiU be surprised
to find how many gaps there are in his knowledge of has
own plant. Furthermore, the making of such a chart
compels the manager to look upon his orgamzation
fro n the point of view of functions and activities rather
thai" from the standpoint of .he persons who are run-
ning the business.

This elimination of the personal equation is one of
tiv first things which the manager must accomplish if
he would obtain absolute control of his business. He
can then look at his organization as though it were a
machine, and having studied the various parts and
their functions he can then take up the question of the
personnel and compare the qualifications of the men
who might run that particular part of the organiza-
tion.

The following chart (Fig. 10) brings out in a graphic
wav the elements mentioned above. Tliis particular
form of organization was taken for various reasons. It
is a good illustration of that type of orgarization in
which the departmental or functional principle is car-
ried out in a modified way to suit a small industrial
plant. Furthermore it shows the position of the plan-
ning department relatively tc the other departments.

It will be noticed on this chart (Fig. 10) tlujt the
press shop is divided into groups of men and machines.
Each group has a gang boss, who is responsible to the
press shop foreman. The departments other than the
press shop are all small and employ but few men, except
the tool room and die shop. The erecting floor is in
charge of the gang boss under whom are several assist-
ant gang bosses, according to the number of jobs or
different kinds of work in process on the flc rs as-
signed.

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BUSINESS MANAGEMENT

MODERN AroS IN MANAGEMENT Ml

It will be noticed that the planning department is
tlie medium through which the superintendent controls
the shop. All orders, designs, detailed drawings, super-
vision of new work, etc., emanating from either the
counting room or the engineering and drafting room,
pass through the superintendent's hands and the plan-
ning department before reaching the manufacturing
department.

77. Organization records.— The organization chart
will meet its f '11 possibilities only ^hen it is supple-
mented by the organization record. This consists of a
book of written instructions covering the duties of each
person shown on the organization chart. Copies of this
record are furnished to each employe or officer con-
cerned. Managers who add this important aid to their
equipment will promote their interests in three ways:
1. Oral instructions are often misunderstood, but more
often they are forgotten; 2. Writing out instructions
generally clarifies the ideas of the men who issue them;
3. It leaves a permanent record of all instructions which
have been issued, often avoiding, as a consequence,
many confusions and conflicts of authority. Verbal in-
structions leave no written record for future incumbents
I of the position. Employes who are removed to other
departments or who leave the employment of the firm
altogether often carry with them knowledge of impor-
tant details which the firm is likely to lose because the
foreman, not appreciating the importance of these de-
tails in the work, neglects to see that they are kept up.
Under proper written instructions, however, this could
not occur, for all important details are noted as being
a part of the whole operation.

78. Written records a basis for standards. — It should
be noted here also that a slip of written instructions is

882

BUSINESS MANAGEMENT

absolutely necessary if a manager wishes to adopt one
of the further aids mentioned later on, namely, prede
termined standards for the accomplishment of his work.
If such a record is properly kept up it will fumi^
the management a complete account of all the details of
the business. Such a record will also contain all the
forms from the accounting and other departments witii
full description and explanation of their uses.

It need hardly be mentioned that all changes of the
instructions should be written out and copies handed
to the persons affected and a duplicate posted in the
organization records. It may not be necessary to
record the duties of the manager, but beginning with the
assistant manager and continuing on down to the low-
est man in the organization, the record should contain
written instructions covering the specific duties of eadi
man. These instructions, if compiled in book form,
would make a good-sized volume, and the collection of
the data requires much time and labor. Even after the
information is gathered it has to be continually revised.
These are objections generally offered against adopting
it as an aid to the manager. If all this information
which is floating about in the possession of the em-
ployes, but unknown to the manager, is vitally essen-
tial to the accomplishment of the work, then it is well
worth while to have it put down in writing even though
it does require much labor and money.

79. Planning department— One of the commonest
sights in the ordinary machine shop is to see men run-
ning here and there looking for tools, materials or for
further instructions. To a greater or less extent this
is true in every business which has not adopted sonae
method of routing material or tools to the mechanic and
supplies to the clerks and operators whereby they may

MODERN AIDS IN MANAGEMENT «88

be supplied with everything necessary to carry out their
work. Such a condition denotes a lack of strict super-
vision. This situation has grown up largely because in-
dustries have increased so in size, that is, each business
has been adding to its equipment and to its labor force;
on the other hand, h- wever, it has not had a correspond-
ingly large extension in the departments of manage-
ment and administration.

A machine shop, for instance, employing a superm-
tendent and a foreman would be called upon to super-
vise the efforts of 123 men or more. They were per-
haps given clerical assistance to the extent of two or
three clerks; and such a situation might be considered
an ideal one by many managers. The so-called non-
productive labor has been reduced to the minimum.
Such managers, however, lose sight of the fact that the
brain energy, namely, the planning which must accom-
pany every operation, forms the greatest part of the
work. It is the same old story again of making the
brain save the heels; and in an office, shop or factory
when the heels of the employes are working, generally
some machine or important costly device is being left
unused and the output is being restricted by the unpro-
ductive activity of both men and machine. A flock of
"order chasers" running through a plant is a sure sign
that there is little direct supervision or centralized con-
trol of the productive process.

The motto of many business executives seems to be
"millions for machines and expert machinists, but not
one cent for supervision." Money spent for men who
would plan the work before it enters the operating de-
partment is looked upon as tribute. It appears that
one of the best aids in overcoming the handicap imposed
upon the manager by the extensive operations which

284

BUSINESS MANAGEMENT

must be urged on under modern business conditions ii
the establishment and maintenance of a planning (k-
partment.*

80. Planning is specialized management. — Planning
is carrying the idea of specialization which has been
operating in the production side of our industries for
the last hundred years into the supervising activities.
Specially trained men must plan and analyze all the
work, methods, etc., and prepare the way for the work-
ingman to produce at his highest efficiency. The work-
ingman is skilled in his trade; he is a specialist. The
man in the planning department is skilled in analysis
and he also is a specialist. The duty of the planning
department is to find "the one best way" for doing a
thing before a cent has been spent either in labor or
material. It designs the job, prepares proper details
and drawings, analyzes the work in its various elements
and routes it in its future progress through the office,
store or shop. When this is done it is easily seen that
the greatest part of the work has been accomplished,
for planning means brain work. The savings mad*"
after the introduction of such a department are not al-
ways of the spectacular kind, such as were effected when
the new tool steels were first introduced; nevertheless
the gains are important even though they are made up
of innumerable small savings.

81. An example from the machine shop. — Mr. H. K.
Hathaway, Vice-President of the Tabor Manufactur-
ing Company of Philadelphia, related an experience
before the Dartmouth conference on scientific manage-
ment which is very much to the point.

lit may be well for the reader at this point to turn back to Ch«pt«^
Part I and review the brief sketch of the organization of the plwuung *!»"•
ment there given

MODERN AIDS IN MANAGEMENT «85

In the aMcmbling department of the Tabor plant, at the
ti^ we .tarted to in.tall the planning department we had
eleven men acting a. erector., putting up machinery, and they
a^embUd about nineteen machine, a month on an average^
C w. have .ix men, and they a..emblc between ..xty and
seventy niachincs per month. ,t j -

It ,;,i«ht be interesting to know to what that - due U*,-
the ol.l scheme the assembler, were assigned a job by the fore-
man An assembler would come up to the foreman and wa^nt
to k>, vhat he should do, and the foreman, after looking
.round, would decide that he might as well start a-embhng a
.adune or a lot of machines. Apparently the materials were
all on hand. There were at least enough of the larger part.
,0 that it looked as if he had enough to start on. The man
would start to assemble a machine. He would Pr^"" j° f
certah, point and find some small part m.ssmg, without which
he could not proceed with his work. That, of ;"""«• ''""^f
necessitate his looking around to find where the part wa..
In a good many cases he would wait. He would go to the
machine shop and inquire from one man to -°*her until he
finally found whether it had been made or not. If it hadn t
been n.ade, he frequently would wait until it ^as, keeping out
of the way of the boss until he could proceed with hi. work.
So about 'as much time was spent, under the old scheme,
hunting up the materials and waiting for materials a. there
was in actually doing the work. Another source of delay at
that time was that a man would start to assemble certain
,arU, pvit them together, and find that they wouldn t go to-
get!. r. That would necessitate his chipping, filing, and
scr.ping, until he finally could make them go together; m
other words, correcting errors of the drafting department and
of the machine shop. Such conditions do not exist under the
new scheme. A man is never started doing assembhng work
,,„t;] wo ure sure he has all of the materials on hand which
are required to complete the assembling operation assigned to
him. The parts, as they are delivered h'om the machine .hop,
are placed in certain racks or bins. The part, from t'-e .tore.

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BUSINESS MANAGEMENT

are delivered at the proper time, and when all of the parti
which enter into a certain group of the machine, or the entire
machine if it is a simple one, are ready, we issue an order for
one of the assembling men to perform certain features of the
operation. In that way we eliminate the time wasted in hunt-
ing around for material for the job. We get away from the
chipping and scraping and filing finally necessary to make
things go together, to an adequate scheme of inspection.
There is no question in the mind of the man doing the machine
work what the requirements are. As soon as the job is put
on the machine, the inspector goes there and instructs the man
as to the degree of accuracy required, the kind of finish and
any other matters pertaining to the quality.

When the job has been finished, the inspector goes there
again and inspects every piece in the lot, with respect to that
operation, to see that no errors have been made. If there have
been, they are at once reported and corrected, before the ma-
terial arrives on the assembling floor. Formerly they were
not corrected, and were not discovered until the material a^
rived on the assembling floor. It is the case in many shopi
to-day, even comparatively well-run shops, that errors are not
discovered until the material has reached the point where it
is to be used. By eliminating those two sources of trouble
and by doing certain things to assist the workman, such as
having materials placed on his bench or on the floor for him
in advance, and having his drawings and his instructions de-
livered to him in advance, we have been able to increase the
output of the assembly from two machines per man per month
to nine machines per man per month.

82. Planning and overhead expense.— Th& chief ob-
jection offered by many managers to the introdfiction
of the planning department is the added overhead ex-
pense. They look upon all planning expense as non-
productive and when it means that there shall be one
man for the planning department for every three to five

MODERN AroS IN MANAGEMENT «87

men in the operating department the proposition ap-
peals to them as absurd. Besides this the outlay for
printed forms and office supplies is largely increased.
But before judgment is passed it is well to look at the
results. If the total net cost is not increased it makes
little difference whether the money is spent on pro-
ducers or the so-called non-producers. In the case pre-
sented by Ur. Hathaway the total number of men em-
ployed under the new system was not more than that
-mploved under the old system. They were simply dis-
tributed differently. Under the old system he em-
ployed 125 men in the operating end and two clerks m
the* office. With the planning department added he
now has 100 men in the shop and 25 in the planmng

room.

The overhead charges naturally increased but they
were far from being "non-productive." The product
turned out was three times what it was before this new
aid to the management was added. Such an outcome
simply puts the addition of a planning department on
the basis of any investment. It is in reality spending
money looking to future increased returns. Mr. Park-
hurst* claims that for a shop employing a few hundred
men only about six additional employes in the new
planning department were necessary. The cost for the
six additional men in wages totaled about $4,000 per
year. For additional stationery, office room, etc., this
sum was increased by $1,000. But this change brought
about a doubling of output, not to mention the perma-
nent assistance obtained by the manager through hav-
ing at hand a force of men investigating, collecting and
utilizing knowledge which he could not possibly get un-
aided.
83. Evolution of the planning department. — The

S88

BUSINESS MANAGEMENT

organization of the planning department is a natural
evolution of much interest to the student of manage-
ment. Under the traditional system of management
the foreman and workingmen after deciding in a gen-
eral way what was to be done put the job into the
shop and studied out how, when and where it was to
be done after the operation had been set in motion. It
is perfectly evident to most managers to-day that it is
not safe to trust the planning of what is to be done to
the men who are to supervise the execution of the work.
But it took many years before the establishment of the
drafting department was considered anything else than
an extra expense or burden. Just as the planning of
what is to be done before the work is put into the shop
was found to be even more economical when put into
the hands of special experts, so will there be even
greater savings when the planning of how, when and
where the work shall be done is taken from the shoul-
ders of the foreman and the men in the shop, and is
also put in a special department called the planning
department. It will be seen at once, therefore, that
nothing is done in the planning department that does
not have to be done by someone in the place under any
scheme of management. Some workmen are good at
planning their work, but ethers are not. Thus, it ap-
pears, if the best man in this respect is selected for the
position of planning the work, all the less efficient men
will get the advantage of his greator sagacity.

84. Thoughtful plans make valuable records.-— l^oi
long after such a man is put in full charge of the plan-
ning it is found that a greater force even than his intelli-
gence is developed. This is the classified and recorded
data which is gradually accumulated, and which be-
comes a source of knowledge in planning the best meth-

MODERN AIDS IN MANAGEMENT «89

ods greater than that furnished by any individual man's

experience.

85. Advantages of planning in advance. — It is easy
to show the advantage of planning ahead in order to
provide necessary materials, tools, etc., but to make men
see that it is just as necessary to plan the movements,
operations, etc., ahead is more difficult. However,
where this has been done further subdivisions of the
planning department are necessary. The work of the
planning department is divided into two general classes,
planning how each job is to be done and planning when
it is to be done, Under the first heading come the fol-
lowing specialists: route clerks, instruction-card men
and time-study men. Under the second heading come
the production clerks and the order-of-work clerks. It
was soon found, however, in shops making a diversified
product that further subdivision of the work in the
planning department must be made. Accordingly, we
find men performing duties such as recording clerks,
balance-of-stores clerks, foundrj' clerks, clerks who
write up the numerous details, make out orders, tags,
etc., time-keeping and cost-keeping clerks, and various
others.

86. Proportion of planners to doers.— The question
of how many of these men will be needed in the plan-
ning department depends entirely on the nature of the
specific business. Some businesses will require two or
more men for each of the positions, whereas in others
two or more of the functions may be put under the di-
rection of one man. In one shop, for instance, employ-
ing several hundred men, four clerks in the planning
department handle all the work, while in another con-
cern, employing only about one hundred men, twenty-
five clerks are necessary. The first concern manufac-

11-10

290

BUSINESS MANAGEMENT

tures a limited variety of products in large quantitiei
under standard designs; the second concern manufu-
tures a great variety of goods in small quantities and
with frequent necessary changes in their design. In
the first case a man at a machine may run on the same
job or a similar job for a month, whereas in the second
concern each workman is employed on three or four
different jobs every day. It will be seen at once, there-
fore, that a descrii^tion of any one planning department
will be incomplete, but for our purpose it is best to take
the more complex form where the duties of the various
men have been clearly differentiated and put into the
hands of individual persons. This will make it easier to
explain and much easier to comprehend, since each func-
tion will have an individual man to carry it out.

Perhaps the organization of the department can be
most easily understood if we take up the duties of each
clerk as they arise in planning for a manufacturing
order. Each man in turn will receive this order and
work out the plans which come under his jurisdiction.'

87. Planning room of a manufacturing concern.—
The example cited is that of a manufacturing concern.
Its planning department is composed of the follow-
ing: (1) production clerk, (2) route clerk, (3) foundry
clerk, (4) balance-of-stores clerk, (5) instruction-card
clerk, (6) route-file clerk, (7) order-of-work clerk,
(8) recording clerk, (9) mail carrier, (10) tickler
clerk, (11) time-and-cost clerk, (12) stenographers,
messengers, etc.

88. Coordinating function of production clerk.— Vi^
great problem of management as soon as the process of

1 It must not be assumed, however, that this sequence is absolutely necMWy
There are cases where several of these fu'«ctions may be performed at the imm
time; that is, two or more of these clerks may be working out their pUm •» *«
same time.

^.ODERN AIDS IN MANAGEMENT

291

specialization has taken the duties of one man or of one
department and divided them among several men or
several departments is to bring about an efficient co-
operation among the various parts which have thus been
separated. When an enterprise grows to anything like
normal proportions, it is necessary ta separate the sales
department from the manufacturing department. No
sooner is this division made, however, than difficulties
arise. The sales department sends in orders and ex-
pects the manufacturing department to get them out on
scheduled time. As every business man knows, these
expectations are not uniformly realized, and friction
arises as a consequence. A reducing of this friction
and the bringing about of a greater amount of coopera-
tion between these two departments is one of the chief
functions of the production clerk. He is in a true sense
a coordinator, the connecting link between the sales
force and the shop. The sales department depends
upon him for information upon which to base its prom-
ises of delivery. He is, in fact, responsible to the sales
department for making these deliveries at the time
promised.

89. Setting sales delivery dates.— To set his dates,
however, the production clerk must have information
other than that supplied by the sales department. He,
therefore, first consults the stores clerk and learns what
manufactured articles are required for stock. With
this in mind he then sets to work to prepare a schedule,
or, as it is called, an order of work. This order con-
tains a list of all orders in hand for each depart lent,
arranged according to their relative importance. The
relative importance of an order is, of course, deter-
mined by many onditions, but in general the classes
into wh= mr ' of the manuficturing orders may fall

29«

BUSINESS MANAGEMENT

are as follows: (1) the emergency class, (2) tools or
appliances, (8) manufacturing orders, (4) orders for
stock parts, (5) order for stock machines. As soon
as an order comes to the production clerk, he classifies
it under one of the above classes. It need hardly he
said that the emergency job has the right of way
through the factory in preference to any other job.
But the production clerk must first consult the man-
ager before an order can be placed under the emer-
gency class. An order in class 2 would have preference
over any of the others which follow it, for such an order
would arise oidy when the work under way was being
held up because of a broken tool or a lack of appliances,
etc. Class 3 comprises all those orders for products not
carried in stock but which must be made up after the
customer's order has been received. This class may be
further subdivided into definitely dated orders and or-
ders which can run on and be completed at the manu-
facturer's convenience.

At regular intervals whenever the need arises the
production clerk revises the order of work for each de-
partment.

90. Further duties of production clerk.— The sched-
ule having been made out, the production clerk must
now see that its requirements are observed in the draft-
ing room, in the planning department itself and in the
shop. In fact, his duties now are largely those of
"checking up." After having fixed a date for the com-
pletion of the job, and having placed it on the shipping
order, he files the memorandum away in the tickler.
When the date arrives for this job to be started, his
record appears automatically and he checks up the
drafting department by it. A like method is pursued
in checking up the planning and the delivery of ma-

MODERN AIDS IN MANAGEMENT «98

terials The tickler is to the production clerk what a
cab window is to an engineer on a locomotive; these men
must be constantly looking ahead to assure themselves
that the track is clear. If obstructions appear the pro-
duction clerk must arrange to have them removed m
plenty of time so as not to interfere with the general
order of production.

In watching the progress of the work through the
shop the production clerk has further aids to help him
in detecting things that go wrong or may go wrong.
These are the route sheet, the progress sheet, and the
bulletin board. The method by which the production
clerk eheeks up the progress of the work in the shop is
interesting because it differs so widely from the prac
tice in common use. His mind is continually on the
promise he has made to the sales department that upon
a certain date a certain delivery can be made. He
therefore begins his daily checking up of the progress
of work not by first looking up the orders due to be
shipped to-day, or those overdue, but on the contrary
he starts at the bottom of the list and makes sure that
everything necessary to the completion of the order just
received is on time and is being carried out to the let-
ter. He works up the list instead of down and the last
item to receive his attention is the order which is to be
shipped to-day. Mr. H. K. Hathaway in the Engt-
neeruuj Digest for July, 1912, says:

The principal cause of the failure to complete orders on
time is tlmt. little or no attention is given them on this score
until tlic ,l(ito of shipment approaches. In machine shops a
great deal of time is ordinarily wasted in getting drawings
an.l patterns made, and getting materials into the shop. This
time cannot be made up after the work is started, and the

294 BUSINESS MANAGEMENT

effort to do so results in confusion, decreases the efficiency of
the plant, and causes more or less friction among the individu-
als comprising the organization.

91. Qualifications of production clerk.— The pro-
duction clerk need not necessarily be a man trained in
the technique of the particular business which he
serves; however, if he is in the planning department of
an engineering concern, it will be much to his advan-
tage, and add to his efficiency, if he has had two or
three years' shop-practice experience* Of course, he
must be familiar with the processes of manufacturing,
for upon them depends when a certain operation is to
be done. It may also be well to mention here that the
authority of the production clerk, like that of all other
members of this department, is supreme in his field.
Even the manager or superintendent must respect his
authority. But when he has planned the time when
certain work shall be done, his authority ceases. He has
no right to say how or N.hat shall be done at any

time. ^11-

92. Route clerk.— The function of the route clerk is
to show how a thing is to be done. As soon as the
drafting department has shown what is to be done, the
planning of the work proceeds to the route clerk. It
is his duty to take the information which comes to him
in the form of drawings and bills of materials and plan
how the product shall be made. He must be able to
read readily the drawings from the drafting depart-
ment; he must understand machine construction,
so as to analyze it and put in writing or m chart
form the methods which show how the manufac-
ture is to be carried out in the shop. Furthermore, W
must be thoroughly familiar with the location of »u

MODERN AIDS IN MANAGEMENT «95

the machines and their capacity, so that his routing of
the material may be the most efficient possible.

93 Method of work for the route clerk.— In prepar-
inj, his outline or his diagram, the route clerk proceeds
ahout as follows: (1) Having analyzed the construc-
tion of the machine he divides it up into groups or parts.
(0) He studies the length of time it will reqmre to
cret the castings or various parts that require special
construction and the amount of time necessary to work
up the various parts and assemble them. This enables
him to decide the relative importance of these various
groups and with this scale or order of importance in
mind he is enabled to lay out the first draft of his chart
or diagram, which embraces only the various groups.
(3) Each group is now considered separately and a
special diagram or route chart is made for it. This
will include in their order of relative importance all
parts that go into the order, the operations to be per-
formed upon them, the machines that are to perform
the various operations and the material required for
each part indicating whether it is to be purchased from
the outside, made especially for the job, or to come from
stores. (4) He applies to each part a suitable symbol.
This identifies the part as it goes through the shop,
indicates what part of the machine it goes in and serves
as an operation order-number and an index to the in-
struction card which is made out for the several opera-
tions. In fact, this symbol is used in connection with
all the processes involved in the manufacture and plan-
ning of this job, at length serving the cost keeper in
keeping his records and finally becoming a basis for fil-
ing any data which may pertain to the piece that it rep-
resents. (5) Under instructions from the route clerk
another clerk prepares route sheets and progress sheet

296

BUSINESS MANAGEMENT

upon which the movement of the work through the
shop is recorded. In fact, it is here that the various
operation orders, inspection orders, stores issues, etc.,

originate.

The work of the route clerk in a very large plant b^
comes very involved, and requires that the duties of the
office be subdivided. Thus there will often be found
one expert who gives his whole time to the making of
route charts pertaining to the assembling alone. Other
experts will be engaged solely in laying out the various
machine operations for the various parts; others again
will compute the quantities of material required, etc.

94. Qualifications of route clerk.— When any man is
put in a position where he must show other men how
things are to be do ic, it seems unnecessary to mention
that such a person should be endowed with much tact.
Especially is this true with the route clerk who must
consult daily with the foremen in the shop, seeking their
advice as to the best method to be followed in machining
various parts and assembling them into groups, etc.
Even in the planning room itself he must be in contin-
ual conference with the various clerks of the depart-
ment. It is the time-study and instruction-card men
who can tell him which machines and what laborer can
perform the work in the most economical manner,
whereas the balance-of-stores clerk can inform him of
the condition of the material and supplies.

95. Special-material {foundry) derfc. — Concerns
that do a variety of work and do not keep all of
the materials on hand find it necessary to order
the special material from the outside. In cases wheit
this is done continually, a clerk is provided to look
after the special work in the planning department.
He is frequently called the special-material clerk, but

MODERN AIDS IN MANAGEMENT «9T

in machine shops where the special material referred to
is largely made up of castings which must be obtained
from some outside foundry, he is then spoken of as the
foundry clerk.

The duties of this office do not call for a man trained
in the technique of the manufacturing business, but he
must be a n 1)9 n who is wide-awake, for special work of
this kind, especially if it is in connection with the
foundry, calls for the care of a great number of pat-
terns. The first duty then of the "special-material"
clerk is to see that the patterns are stored and labeled
properly. He must know whether they are in storage
or whether they are at the foundry. The records will
further show the date the patterns were delivered and
the date they were returned. His next general duty is
to make out detailed orders on the foundry, which or-
der it is his further duty to follow up closely. Each
order, therefore, is carefully s,..ieduled showing the
amount wanted, when wanted and the number in each
lot. It has been found that the checking up of these
lots when delivered from the foundry is a very impor-
tant thing, since it requires the foundry to deliver the
full number in each lot to complete the job before any
order is begun.

Any one familiar with the common shop methods,
where special materials are permitted to be delivered in
broken lots, will easily see where a clerk of this de-
scription will soon earn his salary. Without him job3
are started when only a part of the material is on hand,
only to be dropped again when the supplies run out.
This often requires the machine to be re-set or to lie idle
for a lor time. Although this position is purely a
clerical one, it requires much energy, because the clerk
must see that this material is in the shop on time.

<98

BUSINESS MANAGEMENT

96. Duties of bdance-of-stores clerk.— The taking of
the "stores balance sheets" out of the storeroom ai.'
putting them into the planning department is one of
the unique features of the planning department. The
clerk who has charge of this department is called the
balance-of-stores cierk. His chief duty is to keep a
running inventory of each article carried in stock. His
records are kept on what are known as "balance sheets."
The chief items whici: this cleik must look after are in-
dicated on the sample sheet given below (Fig. H). In
br?f they are: (1) the maximum and minimtm quan-
tity, (2) the actual quantity carried in the stores,
(8) the quantity on order but not yet received in stores,
(4) the quantity required for orders for shipment or
manufacture to which they have been apportioned but
not yet issued. (5) the quantity available for future

requirement.

The detailed duties of the balance-of-stores clerk wUl
be indicated by these items themselves. He will have
various forms to make out, such as orders on the store-
room as soon as the route clerk hands to him his route
chart and bill of materials. Although these duties are
largely those of a bookkeeper, nevertheless there are
certain di.ties to perform, such as checking the balance
sheet against the actual stores, that call for considera-
ble expertness in the classification of the vanous orders
according to their symbols since the stores orders are
returned to him at the end of each day by the storeroom

clerk. , ■,

Of course it is this clerk's duty to inform the produc-
tion clerk as soon as stock parts are running low and
in case any of the materials are not available at the
time of the apportionment, he must also notify tw
proper authority in the planning d^T^rtment when tlie

MODERN AIDS IN BIANAGEMENT 199

soo

BUSINESS MANAGEMENT

material does arrive, so that orders may be issued for
the work to be started.

97. Time-study clerk.— As the function of time
studies will be taken up later, it will not be necessary
to say more here about the duties of the time study
clerk than to mention that he must make such elemen-
tary time studies as are necessary to determine the best
methods to be followed in the performance of each class
of work.

98. Instruction-card clerk.— The man who holds this
position should have a high appreciation of the impor-
tance of detail. This office is often combined with that
of the time clerk because so much of his work depends
upon knowledge obtained from the time study. His
duties are clearly indicated by his title, which is to pre-
pare instruction cards showing the method to be fol-
lowed in performing each operation, what tools to be
used, in what sequence the operation should be per-
formed, the time taken for each operation, etc.

99. Route-file clerk.— When the route clerk has fin-
ished his sheet and diagram, he passes them over to the
route-file clerk whose duty it is to transfer the informa-
tion from these route sheets to suitable sized slips of
paper, tags, etc., whereby the route clerk's information
can be carried to the storeroom, to the shop and to the
various other places connected with the performance of
the work. For example, there will be an order on the
storeroom for material from which the article is to be
made, a tag to be attached to the lot or part, an order
for each operation, for the inspection that takes place at
the start of each operation and for the inspection of the
work when it is completed on the lot and for movmg tde
materials from one place to another.

These forms are made out for each unit into whicH

MODERN AIDS IN MANAGEMENT

301

'he work has been divided by the route clerk. An en-
velope sheet btiring its appropriate symbol whereby
it can be easily recognized is then prepared. Into this
are placed the operation orders, etc., pertaining to that
unit The envelope sheet is th u filed for the record
clerk's use whose work begi i> as soon t the work on

this job starts. ^ i i

100. Order-of-work clerk. A Hhousrh the route clerk
has already shown how and where the work is to be
done, nevertheless it requires another man to adminis-
ter the order of work to the employes in the shop, and
the medium through which he does this is the buUetm

board. .

As soon as the job is ready to put into the shop
the record file is taken from its place and the various
operation orders removed and put into possession of
the order-of-work clerk. Being thoroughly famihar
with the work of the plant, he knows the capacity of
both men and machines. He sees that the various jobs
ahead of each machine are taken up and performed in
accordance with their relative importance. In decid-
ing this he is, of course, guided by the schedule fur-
nished him by the production clerk, already mentioned
al)ove. On the bulletin board will therefore be dis-
played each job and the machine to which it is assigned
Fn'rthermore, it can be seen at once whether the job is
being worked upon or whether it is to be done next, as
soon as the job under way has been finished, or per-
haps it may stand third, fourth, or fifth on the list.

This clerk, besides having a good memory, must also
be endowed with considerable tact, since much of his in-
formation must come from the various foremen and in-
spectors in the shop. In this way he is continually
posted as to the best workmen and the capabilities of

302

BUSINESS MANAGEMENT

the various machines, as well as the grades of work eadi
is capable of performing.

101. The eye of the superintendent. — ^Without going
into the shop, therefore, the superintendent can see in
advance what machine and what men are occupied. If
for any reason the order-of-work clerk does not find
work for any of the men, he must notify the superin-
tendent or the proper person at once. Likewise it will
be his duty to inform the proper authority in case there
are not enough men to handle the work already on the
floor or planned for during some particular period.
The bulletin board referred to is the most important de-
vice in the planning department, but it will be described
later when the routing of an order through the shop is
^aken up.

The order-of-work clerk is a very active person. He
must continually and systematically go over his bulletin
board. He must permit neither man nor machine to
run short of work if it can be provided for, nor must
he permit an important job to stand waiting while one
that is less important is being worked upon. The great
economy effected by the bulletin board is the saving
of the lost time between th« completion of one job and
the starting of the next, the rule being to have prepara-
tions made in the plant for two or more jobs ahead for
each workman.

102. The recording clerk. — On the route sheet each
step in the progress of the work to be done on a lot or
part is indicated, so that what has been done and what
remains to be done is always evident. Each step, there-
fore, is clearly indicated and the time indicated when
it is to be taken. Along with this information which
has been filed in the envelope sheet by the route-file
clerk also comes other important information, suoi

MODERN AIDS IN MANAGEMENT 303

as tool list, instruction cards, designs, etc. Upon the
information provided by these things the^^^^'^ ^^f^^
performs his functions which are mainly to record the
progress of the work, to issue and receive operation or-
ers, inspection orders, move orders, etc., at each phase
in the progress of the work. , . , ,, ...

103 The cost clerk.-This clerk is held responsible
for all cost records. A system of management which
employs a planning department use, its cost records for
two purposes: (1) for keeping the records of the work
which has been done over various periods of the past,
(2) to show the condition of the work at any particular
period when called for by the manager. The operation
orders and other slips which are used in the adminis-
tration of the operations in the shop, etc., at length
become the basis on which the record clerk rests his
work As a job is finished, these slips containing the
workingman's time, his rate of pay, his bonus, etc., come
directlv to the cost clerk. . „ i i

Thu's all cost sheets are kept up to date. Al labor
and other charges to the job at the close of work each
night must be posted on sheets up to and including the
progress of the day previous. The division of the cost
clerk's work, mentioned above, forms the basis for a
further duty, namely, managing the cost files. These
files are of 'two kinds: (1) the live file; (2) the dead
file. Only work in process must remain in the live file.
When work is completed, ready to be shipped, or the
job otherwise closed, the slips are removed from the
file as soon as the cost clerk is satisfied that all charges
that belong to them are posted. They are then put in
the dead files and stand as records for future refer-
ence. ^
The cost clerk generally has an assistant who figures

80 BUSINESS MANAGEMENT

up the pay roll and makes out the bonus rewards, etc.
The cost records as kept under a system of this kind
are very simple. All materials, requisitions from stores
or from outside places, all time expended in the shop
either as expense, or as work in process, will be posted
on the cost sheet. A second sheet, known as the distri-
bution sheet, will then show all the time as it is distrib-
uted daily. However, to describe the full duties of the
cost clerk would take us too far into the field of ac-
counting. A brief summary of the duties of the cost
clerk as laid down in the book of instructions of one
large company will suffice to show the cost clerk's du-
ties in general:

The cost clerk should make it a point to daily close all cost
sheets for work completed, after being sure that all the
charges for these jobs have been received and posted by him.
This cost includes material, labor and sundries, which totaled
represent time cost. To this opposite expense must be added
the prevailing overhead burden per hour. This burden, added
to the time costs, represents the total manufacturing costs.
Differential burden or machine hour is posted in each labor
operation column. Each month the cost clerk must make a
report to the general manager.

104. Time-keeper.— The first duty of the time clerk
is to regulate all the clocks in the shop. The tim^.^k^ks
on which the men register in and out, he is required to
watch closely. Each day the clock cards are checked up
and totaled, the total being checked against the indi-
vidual time card for each man and turned in by him or
the gang boss or foreman each day. This insures the
proper distribution of the exact amount of time whicD
is shown by the time-clock card and for which themen
wiU be paid. This time is totaled daily and distnbuted

MODERN AIDS IN MANAGEMENT

305

upon the distribution sheet mentioned above in connec-
tion witii tlie cost clerk's duties. This, of course, must
agree with the cost clerk's entry.

10.3. Planning mtroduces no new duties. — It is not
intended in the foregoing description of the various du-
ties performed in the planning department, to cover all
the ground that might possibly be included in a plan-
ning department. The description, however, will serve
to show that there are no new duties or functions car-
ried out in the planning department which have not
previously been carried on in the shop. Those duties
which could be easily separated from the purely opera-
tive fimctions have been taken and put by themselves.
One important feature of this form of management is
that the workmen have absolutely no clerical work
whatsoever to do and it is not necessary that they touch
a pencil or time stamp from the time they arrive at
work in the morning until they quit at night. As L. M.
Gilbreth says in a paper in Industrial Engineering :

Master planning is the last study. The best planner if. he
who — other things being equal — is the most ingenious, hhe
most experienced and the best observer.

The art of observing is founded upon a study of the mental
element. In order that planning may be done best, the entire
sequence of operations must be laid out previous to starting
the work, so that the ideas and values of every element of
every subdivision of the process of work may be corrected to
act most efficiently in relation with each and all of the subse-
quent parts and events that are to follow. This planning for-
ward and backward demands an equipment of time-study and
motion-study records such as can be used economically only
when nil the planning is done in one place, with one set of
records. The planner must be able to see and control the
whole problem in all of its aspects.
11-20

306 BUSINESS MANAGEMENT

106 Other functions associated with planning de-
partment-Tbe duties of the disciplinarian, gang bos»,
Led boss, repair boss and inspector have not been
touched upon here. The quotation from Mr. Tay or, m
section 70, was considered sufficient to cover the d>te,o
these men who are commonly spoken of as funchoml
foremen. Although these men may be ?"»;>'»*«
planning department, they are more closely allied mU.
the "performing department." The planning depart-
ment then, in contrast with the performing department,
classifies its work in seven gmeral functions, namely,
(1) what is to be done, (2) the sequence «» wh'ch 'tis
to be done, (3) the method by which it ^haU be done
(4) which men shall do it, (5) the tmie that it ^
take, (6) thee::act quality of product (7) the amoun
of additional pay that shall be given for doing it Th
workers are given standard tasks to do. Th^^^h^^
teachers to help them and they are f?™" « ~
wage according to the performance as a "ward^te
management, knowing what the planning dep«rtm»
is expected to do, is also in full possession of «^ wb.^
the men in the shop are expected to do Jhe woAe«
are expected: (1) to give their "^P*"*'™ '" ^J^^
out prescribed work, method and quabtyi W^J'f
cise Lir ingenuity in making -P"™"-^;^"''^
have learned the standard prescribed practice, ^»)
fit themselves for higher pay and promotaon.

CHAPTER VI

STANDARDIZATION AND EQUIPMENT

107. Management a process of applying correct
standards. — A sound judgment is the prime mental at-
tribute of a good manager. When a manager fails he
is criticised for not using good judgment. But to ac-
cuse a manager of exercising poor judgment is only to
say that he has used wrong standards in drawing his
conchisions. Judgments are the results of comparisons.
When comparisons are made we consciously or uncon-
sciously use one of the things compared as a standard
by which the other thing is measured. When the moon
rises from behind the hills we say it is as large as a
wagon wheel. When the moon rises overhead then we
say it is as large as a plate. In these cases we have
unconsciously compared the moon with the objects
standing on the horizon and as the moon moves from
one position to another our judgment varies.

A great economist once said that all economic activ-
ity in its last analysis resolved itself into the simple pro-*
cess of moving matter. It might with truth also be said
that the problem of management resolves itself into a
series of measurements. Every manager has some
standard. The difference between a progressive and a
non-progressive manager is largely determined by their
attitudes toward the standards which they use. Th^
oi.e having decided that a certain type of machine or a
certain kind of man or a method for performing an
operation is the correct one rests contented to use these
as standards year after year; the other is continually

807

308 BUSINESS MANAGEMENT

on the lookout fa/ improvements in his machines, men
and methods, and frequently changes his standards in
order that he may judge of his efficiency under new

conditions.

When the Carnegie Steel Company entered the com-
petitive fight which finally resulted in the formation of
the United States Steel Corporation, it was truly a
modern "battle of the standards." Mr. Carnegie proved
himself to be the most progressive manager of the day
because of his attitude toward standardization. While
other companies were judging their efficiency by the
capacity of old equipment, Mr. Carnegie was equippmg
his plant with new and up-to-date machinery. His
standards were of the twentieth century, his competi-
tors' standards were those of the nineteenth. Smce Mr.
Carnegie's success Tew men have questioned the neces-
sity of continually watching their machine standards
in determining the efficiency of their output. The gen-
eral acceptance of this principle was a great step for-
ward. Yet the problem connected with the determina-
tion of machine standards is a comparatively simple one
when compared with the determination ci those stand-
ards which are connected with men and become the
basis of judging labor efficiencies.

To establish rational-work standards for men requires in-
deed motion studies and time studies of all operations, but i
requires in addition all the skill of a planning manager, all
the skill of the physician, of the humanitarian, of the psychc.-
ogist, of the physiologist; it requires infinite knowledge, di-
rected, guided and restrained by hope, faith, and compassion.

108. Standards of labor efficiency. -The difficulties
of the problem, however, should not deter any manager

» Harrington Emerson in "Twelve Principles of Efficiency." p«e «75.

i^Bi

STANDARDIZATION AND EQUIPMENT

S09

from beginning to study the conditions surrounding his
w rkingmen. The next great step ^--^^ - ^^^^ /'I
" izalon of our industry will be along the hnes of
Laing and adopting the true standard conditions under
:;1 men shall labor. Perhaps when the next great
competitive battle is fought the manager who can meas-
ure his fighting strength in terms of labor efficiency will
inscribe h.s name higher on the list than tha of any of
the great captains of industry of the past. Such a
man will have standardized his conditions and wi 1 know
that he will be wasting less time, squandering less ef-
fort and spending less money than any of his competi-

*° As is mentioned above, every manager has standards
of some kind. Evidences of these standards are seen m
written specifications in the purchase of materials.
goods, etc. But as we approach the oPf «t^«"\ ^f^^^
the men perform and the conditions under which they
work these records grow rarer and rarer. Seldom do
we find written specifications covering what might be
known in a given concern as standard practice. But
when it is realized that tandard operations and stand-
ard efficiency are as valuable to a firm as standard ma-
terials and standard machines, then will the true func-
tions of the planning department and its record ot
standard practice be seen.

Perhaps the commonest objection to adopting stand-
ards, aside from the difficulty of obtaining them and
keeping a permanent record, is that it will destroy the
initiative and incentive of the workingman. Such per-
sons seem to reason from the position that when a
standard is once adopted it is to remain forever. But
standards are ever changing and that is the reason man-
agers are needed. No sensible manager of to-day wiU

810

BUSINESS MANAGEMENT

ignore the suggestions of his men which may improre
his standard practice. All that such managers require
is that the man show himself capable first of accom-
plishing work according to the standards that are set
by normal conditions. Absolute standards can never
be set in business ; therefore, there will always be plenty
of opportunities for the exercise of the workman's in-
genuity.

109. Cautions in adopting business standards. — Per-
haps some caution, however, might be suggested regard-
ing the establishment of standards. In business, that
particular standard is desired which will produce the
largest output with the least effort or cost under the
conditions. One of these conditions is the human ele-
ment. In a shoD employing one hundred men, one man
might be found :o would be able to do a given piece of
work three times as quickly as anyone else. If this man's
accomplishment were taken as the standard and the
other men forced to meet it, the output in a very short
time would fall appreciably. The men working beyond
their strength would soon show the result in their lag-
ging energy. The excellent man's accomplishment
should not be the standard for the good man's effort,
because it is the latter upon whom the management must
depend in the long run for its steady output. Normal
conditions and not "spurt" conditions should control.
The schedule should be made so as to embrace the gen-
eral run of men, but permit a place for the unusual as
well as the mediocre man. As Mr. Emerson says, there
are places where the poor men may fit even as the tame
goose plucked for his feathers and prepared for the feast
shows one hundred per cent, efficiency, whereas a thin
wild goose is far below par; but the efficiency would be
reversed if fiight instead of diet were being considered.

STANDARDIZATION AND EQUIPMENT 811

The schedule must fit the n.an and the man must fit the
schedule. There is no such thing as an universal

schedule. ., « x j

110. Standard specifications.— Among the first de-
partments into which definite standards were introduced
were the purchasing and contracting departments.
These have proved their worth to such an extent that
every business is familiar with the practice. The ex-
tent to which specifications have been standardized is
remarkable and significant of what might be done in

other fields. . * ^

Too much emphasis cannot be placed upbn the fact
that standardizing is a continuing process. No spjci-
fieation is necessarily perfect and modifications and re-
modifications must be made to meet constantly changing
trade conditions and to correct fundamental defects
which only experience will develop.

The quantity of each kind of material to keep on hand
and the amount to get when ordering is the second step
in standardizing materials. The object in view is to
prevent the annoyance of running short (so common
in all unorganized stock rooms), to purchase sufficient
quantitie)=, to secure good prices and still not to lock
up an unnecessary amount of capilal. This is done by
establishing a minimum below which the stock must
never be allowed to fall. The minimima depends upon
how long it takes to get supplies delivered, how fast
the material is usually used up, and how rapidly it
deteriorates. Sometimes a secondary or emergency
minimum is added to call special attention to the fact
if the new supplies have not come in before a dangerous
point is reached. The amount to purchase depends upon
the saving to be gained through quantity buying, the
room and help available for handling, the capital tied

312

BUSINESS MANAGEMENT

up, the seasonal variation in prices and the amount that
is used. These figures are generally placed directly
on the material ledger accounts so that the stock clerk
can see instantly when he is running low and replenish
in time.

111. Monetary »axnngs due to standard materiaU —
One of the big advantages of standard materials is the
direct monetary saving. An examination of the sup-
plies used will usually show a surprising variety in the
kinds and grades of the same thing. The Commission
on Standardization of the City of New York found that
the city had 25 different standards for horses and nu-
merous standards for co^l. They have been able to clas-
sify all the city requirements under seven grades for
horses and one specification for coal. So far, the com-
mission's work has covered only one fourth of the city
purchases, but if the 5 per cent, saving effected thus far
can be applied to the whole $22,000,000 which the city
spends annually for supplies, the saving will be over a
million dollars a year.

Since the introduction of standard materials is not
hampered by existing conditions — new materials of one
kind or another must be ordered from time to time— it
provides the ideal way to start standardizing.

112. Standard of/Ice material. — Office material is a
particularly good field for standardizing since differ-
ences in stationery rarely have any more logical basis
than chance. For instance, many kinds of carbon paper,
of typewriter ribb* s, pencils, pens and erasers are
found in every office together with many different
shapes and sizes of account books and forms, etc.

118. Example of standard dramngs. — The multiple
system of standard size drawings which is universal in
large drafting offices can be used to advantage in office

STANDARDIZATION AND EQUIPMENT 818

work. This system recognizes the fact that all drawings
cannot be made on one size of paper even though such
a result is very desirable. It therefore adopts a given
large size as standard, which is divided into halves, quar-
ters and eighths for smaller sizes. By this arrangement
all drawings can be filed in one size cabinet by dividing
IJie drawers to correspond with the smaller drawings.
As the standard size sheet is always selected, the paper
tan be cut to the best advantage and without waste.
For instance, if the standard or A sheet is 28 by 86,
which is a stock paper size, the four sizes allowed in the
office would be:
Full sheet A— 28x86.
Half sheet B— 28x18.
Quarter sheet C— IIV2XI8.
Eighth sheet D— llV-xQ.

The multiple system has also been adapted to ship-
ping, especially in seed houses where the packages for
(liiferent quantities are all multiples of each other.
This permits all orders to be packed in one size box;
and orders too large for one box can be packed in sev-
eral separate boxes and the boxes nailed together with
strips on the outside. This saves storage space in the
shipping room and greatly facilitates the routine.

lU. Standard equipment— Better all second-class
machines than many first with a few second and third
class; because the operators on the first-class machines
will regidate their speed to that of the workmen on the
second and third-class machines. Thus the efficiency of
the first-class machines is always lowered to that of
the poorer ones.

All machinery, however carefully watched, wears out
and breaks down. To avoid costly delays it is there-
fore necessary to carry repair parts in stock. If one

314

BUSINESS MANAGEMENT

type of machine is used, one set of parts will care for
all breakages. The probabilities are ^ainst two ma-
chines breaking down in the same t ^ at the same
time. If two kinds of machines are used, two sets of
parts become necessary because the parts of one will
not interchange with the parts of the other. If many
makes are used, many sets of repair parts are necessary.
Unproductive capital is locked up in these parts, in-
creasing the indirect expense. Machinery manufac-
turers are waking up to the importance of this matter
of repair parts, so that it is now possible to get a nam-
plete range of tools, the parts of which are more or
less interchangeable ; and fewer parts consequently need
to be carried in stock. It is also good practice to select
the entire equipment from one or two firms, provided
the purchaser does not become too dependent upon one
source. The inherent advantage of the individual ma-
chines of many different firms are often more than offset
by a gain in uniformity. Where a firm makes much of
its own machinery it is advisable to carry out the same
idea.

115. The principle as applied to delivery systemt.—
That the tendency with large companies is toward a
standardization of their delivery and office equipment
no less than their production machinery is shown by the
following advertisements :

Another big order for trucks was placed yesterday—

an order for ten from the Long Isla^id Express Company.
This concern already has ten trucks, purchased on Jan-
uary 31, 1911. The re-order makes twenty of them, all told—
$72,000 in trucks.

Rather significant is this order. When a big company
invests as much money as this in one manufacture of truck,
its own answer to the motor truck question is clear.

STANDARDIZATION AND EQUIPMENT

316

But consider for a moment what other express compames

have in the way of trucks: American Express Company,

27; Westcott Express Company, 11; Adams Express Com-
pany, 4. . i 1. •

These three express companies have an mvestment m
trucks of $161,000. Four companies, all told, total $883,600

in trucks— an investment that is greater than the capital

of many motor truck manufacturers.

116. Interchangeable parts.— Uore important than
the number of designs is the matter of standard or mter-
changeable parts both in the same machine and between
an entire line of machines. Mr. C. U. Carpenter m his
"Profit Malting Management" smnmarizes as follows:
The great advantage of standardized products is, of course,
apparent. It means cheapening production through duplica-
tion of parts and ease of handling; increase of output per
square foot of floor area through quicker production, and the
consequent reduction in indirect expense per piece; the possi-
biHty of building for stock in slack tunes and so keeping up
the factory output; quicker deliveries and more orders, better
satisfied customers, and a more rapid turning over of working
capital.

The differences in legs, screws, pins and other unim-
portant parts of machines are largely the result of the
individual designer's whun, and should be made uniform.
The Engineering Standards Committee of the Society
of Civil Engineers discovered in their investigations
that a large part of the differences in British rolled
sections had been deliberately introduced by the manu-
facturers, so that duplicates and repair parts must be
ordered from the original maker; and that, in place of
having the desired result, this action, through the need
of special tools and dies and the expense of changing
roils, had so increased production costs that the Amen-

316

BUSINESS MANAGEMENT

can and German plants were gaining the trade by under
selling. Where small parts are standardized, their
continual re-design is eliminated so that the designer
can concentrate his skill on the essential elements of
the problem.

The importance of interchangeable parts was first
enunciated by Joseph Whitmore in his paper on "A
Uniform System of Screw Thread" read before the
British Institution of Civil Engineers in 1841. It was
first generally adopted by American watch manufac-
turers. During the middle of the last century these
manufacturers made a lasting impression on foreign
engineers by dismantling two going watches, mixing the
parts with similar unused stock parts and then without
any fitting re-assembling a going watch from one of
each part selected by the visitors. Similar astonish-
ment has been occasioned in more recent tunes by our
automobile makers, performing the same severe test,
dismantling a car after a long run, mixing the parts with
similar stock parts and after re-assembling making an-
other long run.

117. Use of "limiting dimensions." — To insure the
fitting together without any mg of parts which have
been made by different work-nen, the system of "limit-
ing dimensions" has been developed. This system pro-
vides that important dista ices shall be so marked as
to the maximum variation allowable if the part is to
match with its neighbors. The workman thus knows
where special accuracy is required and is supplied with
limiting gauges for testing his work.

118. Use of symbols. — Convenience is promoted by
the use of symbols. A good symbol system must be:
(1) unmistakable; (2) easy to remember: (8) brief.

The usual terminology of tools and parts is very

STANDARDIZATION AND EQUIPMENT 817

I loose. The meaning in which words are used differs
widely among different firms, and the same word is often
used for several ideas, it being necessary to determine
which one is intended by the context. The first step
in symbolizing, therefore, is to adopt definite names in
I accordance with current commercial usage as well as
with dictionary definitions. As one of the chief pur-
poses of a symbol is to correct the slackness of common
usage, it is essential that each symbol be applicable to
onlv one definite thing or idea.

119. Constructing a system of symboU.—A symbol
consists of two things, a sign and a position. The sign
may be a letter, a figure, some borrowed character, such
as a Greek letter or something manufactured to serve
the purpose. Where there are enough signs to indicate
all the classes, position is unnecessary. This is the case
with the chemical symbols. "N" stands for nitrogen
whether it is at the beginning as in NH4CI (Ammo-
nium chloride), in the middle as in NaNOa (Sodium
nitrate) or at the end. Where, however, there are not
enough signs to go around, significance of position is
added. The digit 6 means sixty in the second place
(60) and pi^ hundred in the third (600) . Where letter
symbols ced to form groups, combinations of cap-

ital and s . *etters as in the chemical symbols are pref-
erable to ai: ;3apitals because spaces are more easily dis-
tinguished. Each succeeding capital represents a place.
In using numbers^ it must be remembeicd that the range
of any one column is to 9, not 1 to 10. Where let-
ters and numerals are used together it is better to alter-
nate them. It is also advisable to omit the letters I
and O lest they be mistaken for one and zero.

Symbol systems are "standards of measure" and must
not be continually improved. In order to avoid con-

S18

BUSINESS MANAGEMENT

fusion they must be definitely, even if arbitrarily, estab-
lished. In fact many of the speakers before the
American Society of Civil Engineers have claimed that
this is the great advantage of a number system, since
such a system makes no attempt at being logical. When
it is once established there is no temptation to alter it.
Mnemonic means "aiding or designed to aid the mem-
ory." The advantage of having symbols mnemonic is
that there need be less referring to charts and less like-
lihood of mistake. As a general rule, letters, especially
when related to the words they stand for, are more
easily remembered than numerals. The two-letter sys-
tem is the one most generally used. Its 676 possible
symbols are ample for most requirements. The letters
should be either: first and last letters as Rm, for Ram;
or first and second letters as Fr for Frame; or first and
a letter indicating the sound as Dy for Die. Where
none of these combinations is possible the same end can
be attained by making the letter so extremely inappro-
priate as to be conspi^'uous. This is doubtless the idea
back of the X for Inkstand in the Derby Desk system
described below. The memorizing of symbol systems
is not so formidable a task as it appears because each
man uses but comparatively few of the total number
and need remember only those he uses.

120. A working system. — ^As one example among
many that might be given, of a well-constructed system,
take the symbols used by the Derby Desk Company.
In this system the following capital letters, the nme-
monic value of which should be noted, are used to in-
dicate types of products.

H — High roll top desk.

L — Low roll top desk.

C — Special roll top desk.

STANDARDIZATION AND EQUIPMENT

S19

S^Flat top desk.

D— Double flat top desk.

K— School-teacher's flat top desk.

F— Flat top typewriter desk.

DF-Double desk with one side arranged for type-

Vr-Flat top desk with typewriter in place of right-
hand bank of drawers.
R— Roll top typewriter desk.
R_Bookcase.
RB— Revolving bookcase.
P— Coat tree.
X— Inkstand, single.
DX— Inkstand, double.
M— Letter tray.
MC— Map and chart case.
T— Table.

U_Umbrella stand.

W— Wardrobe. j u i-u

As most products of this company are made both
with sanitary legs and with drawers to the floor, sani-
tary designs are indicated by the prefix of the letter
0. Styles of desk or bookcase under each type are
indicated by a serial number. The length m. mches
follows the style number. Then comes the type symbol
and finally the number of the catalog (serially num-
bered) in which the desk is described.

Take, for instance, the symbol O8860DF8. To one
who is familiar with this system it is at once apparent
that this refers to a sanitary desk, style 88, sixty inches
long, a double desk with one side arranged wr a type-
writer, described in catalog numbered G.

This is not at all a complex system. It takes only
a short time to become thoroughly familiar with it

BUSINESS MANAGEMENT

Obviously, it tells all that is necessary in or Jer to it*: >
tify any product and thus prevents indefiniteucs «
well as saves a great deal of time.

121. Use of numbers in symbols. — Size is best ex-
pressed and most easily remembered as a numeral. A
series of arbitrary numbers is suggestive of the relative
not the actual size. It is better, if possible, to use some
characteristic dimension. This is more descriptive and
allows the adding of new sizes in their logical order
without disturbing the existing symbols. Where arbi-
trary numbers are assigned a sufficient number of
blanks should be left to cover all future additions.

In addition to preventing misunderstandings, symbol
systems save a great amount of writing on drawings,
requisitions, stock records, and time cards ; many man-
agers consider this saving in clerical labor as their great-
est advantage.

122. Symbols for manufacturing. — Symbol systems
may be roughly divided into four classes covering:

1. Finished product.

2. Parts.

8. Operations.

4. Tools and machines.

The usual method of symbolizing the finished product
is to divide it into classes; to designate each of these
classes, if there are less than 26, by a single suggestive
letter; and to represent the diflFerent members of the
class by consecutive numbers. Thus a certain line of
presses may be grouped as follows :

Class B — Bench Presses of all kinds.

Class C— Cutting, Horning and Wing Presses
Power, Single or Double action.

Class D — ^Drawing and Deepening Presses. Power,
Single or Double action.

STANDARDIZATION AND EQUIPMENT 321

Class E— Embossing and Coining Presses. Power,
Toggle or otherwise.

Class F— Foot and Hand Presses— Lever Pendulum
Screw, etc., Single or Double action.

Class G— Gravity Presses, Drops, with Hand Foot
Crank Belt over Roller Lifter.

Class P— Punching and Shearing Presses, Power

Throated.

Class S— Stamping and Bending Presses, Power
Double-crank, Composite frame. Throated or straight,
upright or inclined rectangular or round beds.

The individual presses are Cl, C2, C3, El, E2,

W3, etc.

A better method wherever possible, however, is to
make the symbol descriptive, as are the chemical sym-
bols, by combining a number of their elements. Thus
there will be fewer symbols to remember and anyone can
pick out the meaning of the coinbined symbol even if he
has not seen it before. The Derby Desk Company's
system is of the descriptive kind.

There are two systems of designating parts. The
older one takes the finished model and numbers its
parts consecutively. If Pi is the model symbol, the
part symbols would be Pl-1, Pl-2, Pl-3. The great
disadvantage of this system is that with the growth of
interchangeable parts the same part used in two or
more machines will have two or more symbols. This
makes stockkeeping difficult and perpetuates one of the
very faults it was designed to eliminate, the confusion of
common terminology. Its advantage is that the trade
in ordering repair parts will not confuse parts of dif-
ferent models.

The newer method aiming at fewer drawings, altera-
tion of e:.isting patterns whenever possible and the

11-21

322

BUSINESS MANAGEMENT

development of interchangeable parts, takes the part
as the basis and builds up the final model. This second
system is directly oj.posite in nature. The parts are
grouped according to their similarity, not their use.
All bolts, for instance, would be classed together as
bolts and designated by the symbol for bolts, fol-
lowed by such particulars as material and size. ,This
greatly facilitates stockkeeping, and throws the re-
sponsibility of making up a correct bill of nlaterial for
each manufactured article on the designer, where it
belongs. In order to prevent confusion the drawing
and the pattern should be designated by the same sym-
bol as the part, and this number should be stamped
on the part in some way to facilitate work in the factory
and to make it possible for customers to order duplicate
parts without consulting a catalog.

123. Standard routine. — Time study is one way of
developing a standard routine. Evolution is, however,
the more common method in practice to-day. Evolution
approaches the problem not from the standpoint of the
work to be done but of the best previous performance,
and is more or less unconsciously followed in all busi-
nesses. One man in a shop will turn out more wo
than his neighbor. His method is studied and made
the standard for the shop. By and by, some one else,
perhaps a foreman, will discover a short cut and so, little
by little, the efficiency increases. An ambitious clerk
works out a new way of handling credits which the
office adopts. The Kales manager collects suggestions
from his older salesman, which he tries out and finally
crystallizes into a manual, the codified best-way-of-sell-
ing. The difference between standardized and common
practice is that where conditions are standardized each
advance is at once officially recorded whereas, in every-

STANDARDIZATION AND EQUIPMENT 8«d

day life, advances are recorded by tradition alone and
so arc likely to get lost.

Harrington Emerson has graphically compared
standardized practice to a ratchet which holds every-
thing gained so far without in any way retarding further
progress. The business executive can stop a moment to
reflect and rest without letting the business ^all. One
man starts where his predecessor left off instead of
spending his time re-doing a problem which has already
been solved. It is the ratchet motion.

124. Steps in developing standard routine. — The first
step in establishing a standard routine is to find out
exactly what the present procedure is. One way to
get this is to have each employe write out exactly what
he does, together with any suggestions he may wish to
make concerning the improvement of any phase of the
work. Some of the older men will doubtless object to
giving away their secrets, but eventually they will get in
line to keep in the good graces of the firm. The next
step is to work the best of these up into a manual to
serve as standards until something better is evolved.
This is only preliminary, but it must be done whether
standards are to be developed by time study or evolu-
tion, the better method usually being to employ both
plans. The introduction of a standard routine is often
delayed unduly while the standard is being perfected
on paper, and thus much of the advantage of the stand-
ard is foregone and its ultimate perfection delayed.
The quickest way to develop a standard is to place it
in concrete form before the ofiice, shop or sales force.
The worker roust then agree or disagree; his test will
prove it right or wrong. In either case, his ideas are
focused for the use of the office.
It is also advisable to profit by the experience of

dS4

BUSINESS MANAGEMENT

others. Mr. Gilbreth gave the foUowing testimoi^
before the Interstate Commerce Commission:

We furnish our men with eighteen hricks in what we called
a pocket for the want of a better name. That pocket coniiiti
of a tray with four slats, two this way and two that way for
handles. I got the idea for that from Mr. Taylor and Mr.
Gantt in the matter of handling pig iron at the Bethlehem
Steel Company. They found after long experiment that 98
pounds was the best unit for handling pig iron. If that is
true of pig iron, and the laborer makes no use of the material
he carries, it must be true also of brick. So we arranged to
have the pocket that would best handle 9S pounds of brick.'

Care must be exercised, in adopting others' stand-
ards, to make sure that conditions are the same or to
make due allowance for local conditions. Di£ferences
in machinery, hardness of metal and such apparent de-
tails will entirely change tlK amount of work which can
reasonably be expected.

The development of standards both of measure and
of routine is one of the principal duties of the technical
societies. For example, ths American Street and Inter-
urban Railway Association in 1906 adopted and recom-
mended for use by its members a standard code of rules
for the government of conductors and motormen. The
American Railway Master Mechanics' Association
reconunended a standard apprenticeship in 1898 which
they have amended and reiterated from time to time.
The American Institute of Architects in conjunction
with the Master Builders' Association have adopted a
uniform building contract. There is a society specially
organized to promote uniformity in methods of testing
cement.

^Brandeu, 'Scientific Management." p. 27.

STANDARDIZATION AND EQUIPMENT 8«5

125. Value of printed record.— However the routine
is developed, it should at once be put on paper. The
rapid increase of civilization since the introduction of
printing as compared with that of the centuries before
shows the efficacy of the printed record. The record
of business routine operations is known as a manual,
and it is surprising to see how universal is its possible
use. In the office, the correspondence manual contains
a series of carefully worked out paragraphs covering
routine questions, by the use of which the correspondent
can greatly reduce the time necessary to handle his mail.
The manual of the Long Island Railroad contains 773
rules covering the duties of different employes, how to
make (ip trains, the rights of trains, how to signal, etc.
Similar codes are in force on all railroad systems. Most
department stores have their "Book of Rules." The
"Standard Book" of the Westinghouse drafting room
conthi .8 twenty-four drawing dif^tionaries which specify:
lines to be used; letters and figures; methods of sec-
tioning; mechanical features, such as siz^ of shqet,
position of title; element charts; illustrations of the
elements of their various machines; illustrated index of
terms used; diges^ of the 400 pages of circular instruc-
tions issued from tiiiii to time; and example drawings
and abbreviations.

While the material in the menual is the important
thing and not its form, neveiti..4ess it is convenient,
where the firm is large, to publish the manual as a loose-
leaf book and small enough to slip into the pocket.
Thus changes may be made from time to time without
re-publishing the whole book and because of its con-
venient form it can be carried around and thus be at
hand when required. It should be fully indexed to
facilitate its use. In small companies it is convenient

8S6

BUSINESS MANAGEMENT

to typewrite, miuieograpii or blue print the manual.
An even simpler mti' od is a scrap book in which are
pasted copies of each specification for material and
each letter of instruction which the oflRce issues. This
is not as convenient as the other forms because the
material is not pro})cr'v dassifietl. and duplicates can-
not be issued without ccnsulerable trouble.

cTiAnv.R vn

STANDARDIZAif >N vN D WAGFS

, , ^t^irer —1 »n« of the ch f dif-

„. Goal of ever, prorf..-^ ' " ^^^^

,„, „ . between ....ch .« r k « _ . ^^^ ^.

„th»lthel:itte.p«s- «''"•" »,„,♦» strong

>™,rev,va' ,f the lK..,..cratt .^. « ^^^_^^^_

1„U, this quality r ,« ««« «* ,^

Nevertheless. >vheu the , rosace, ot *

Ws that co.>,ne. i. n is tteat .m^ u -^

"'i'" u \™ '"to ..P t ommumty with the (^
nutli 1 h. hovc» to .ip »s ^

,hat,„sgu '^r^r/dSIiintrS. railing

;r";^^"i;^^^.:»^r.r.Hogether^h^.

th .s„.iUbele»e>.. y*""'"«""l Zhe«..
,ct th . .» fore ,n a g.v. n per-ou of *"»'• _^^^^f ""
,., „„„.Hes. osults fhecann^ke.^.ndardtype
„ „ „„ nm mself to the making of it over ana
1 :;;. TWa . stn„<l.rd«.tion, but ,i cannot be
. , V am,, rasvstemofh.ndicr.iclabo,for

f -,an is limited. But wit a the

t te tti.i ii(? power ■ "«» is luimeu
,d.lilin„ of lam i..>- r and m«:hm«y to the work
man ,hop. the question of being tired does not ap^

f • 4.u« *r.rtl« The more work these

= ' ~ the engine or the tools. x"c lu^ji.^

..: made to do, the higher will be the Productive ca-
IV of the shop. But before he can detennme what

8*7

328 BUSINESS MANAGEMENT

the highest efficiency of a shop is, he not only must
know his own endurance and skill, but must detennine
what the possibilities of his machine are under the best

conditions.

127. Three factors conditioning output— The three
principal factors conditioning the output of both man
and machine are speed, the character of the material, and
the tools. It is therefore necessary to determine what
particular speed, what particular grade of material,
what particular quality, what particular kind of tool can
all be united in producing the greatest amount of goods
of a given quality during any production period. When
this has been determined for each of the factors, we
have what is known as standard speed, standard ma-
terials, and standard tools. As the size of the industi)'
increases and the number of men and machmes grows, it
becomes necessary to apply the principle of standard-
ization ' to other processes, equipment and appliances.
Thus we find standard times for handlmg the work
standard times for assembUng, standard office forms
and finally a standard wage, which rests upon a consid-
eration of the relations of all those processes which have
been standardized to the labor which is necessary to di-
rect them.

The standardizing of a product, a tool, or of a process
or of a relation depends upon the removal of as many as
possible of the variable or uncertain factors. What
may be a standard under one set of productive con-
ditions mav be entirely set aside under another because
some uncertainty connected with the old standard has

iln the Santa Fd system of transportaUon, referring only to ft«
various shops, roundhouses, etc., there are 33,000 operaUons recogni-
as standard, with addiUons being made every year.

STANDARDIZATION AND WAGES

329

been removed. The measure therefore that is used m
TuLy in determining its productive efficiency, or he
ffi iencv of any part of the productive process, is the
otlt possible time in which each piece of workcan be
completed. This is known as the stundard time. A
ltd time, however, is simply the reduc" i^^^
lowest terms of a product which is made up of a number
l7lr predetermined standards. Thus the "standard
times" for anv shop depends upon the following.
1. "The character and limitations of the existmg ma-

' T-Tlie introduction and use of high-speed steel for

cutting tools.

This will 'nclude:—
"The determination of the proper shapes for

b "The provision for proper treatment of steel of
this character in forging, hardening and grind-

ing. , .

c. "The determination of the best working con-
ditions possible, ^uch as cooling agent, etc.
3. "The securing of the maximum possibilities m cut-
ting speeds.

This includes: —

a. "The careful consideration of the tests already
made and submitted by different investigators,
giving of course due thought to the conditions
existing at the time of the test.

b. "The adaptation of these records to existing
shop conditions and the making of a thorough
test in the local shop under the limitations im-
posed by types of machine tools existing in the
shop.

s^i

BUSINESS MANAGEMENT

^. "The collection of all production data upon a sys-
tematic plan and their arrangement so that they can be
used.

"The instruction of the foremen and the work-
men as to the results to be expected and how to
secure them.

"The insurance that the every day produr^ion
follows this standard of efficiency." '
128. Determination of handling time. — Many of the
standards pertaining to materials, machines, and speeds
belong for their determination within the province of
the engineer. As an illustration of how far standard-
ization has gone as a matter of business policy, the
adoption of standard times for handling the work and
for assembling the parts presents the most recent de-
velopment. Handlmg the work is divided into four
parts and a standard time determined for each division.
These are the times required to handle the parts, to "set
up" the job, to machine the work and to remove the
work. Only one of these will be illustrated and this for
the purpose of showing what commonplace and simple
activities are receiving the closest scrutiny of the pro-
gressive manager.

The time' required to handle the parts in any large
factory is an important consideration. The loss of
much time may result from the lack of proper facilities,
and methods, and from a tendency of workmen to kill
time. The proper facilities to-day for the handling of
heavy goods especially would be pneumatic or electnc
hoists connected with an overhead single track which
serves a number of machines. The method of handling
work has been standardized by having certain opera-
tions, such as the piling or placing of parts, done in the

1 " Profit-Making Management, ' lij C. U- Carpenter, page 83.

STANDARDIZATION AND WAGES

SSI

same manner and place each time the operation is per-

^Tthe handling of light work there are various opera-
tions that should be given close attention; ^ or ex^P^^,
it is best for the stock to be carried m boxes of the stand-
ard size. Thi^ reduces the number of sizes needed to

the minimum. «, ^ •• i.

A check upon the workman may be effected by care-
fully selecting the place where the box is to stand. Very
often a low, strong table can be used to good advantage.
This table at once standardizes the spot where the stock
shall be placed, and the fact that the workman becomes
accustomed to reach for his stock always in the same spot
adds appreciably to the speed of the handhng. The
conditions are now ready for a test to be made m order
to determine the least tune necessary to do the work. A
series of stop watch tests upon an active wormian wiU
serve as a basis for a standard time for handling this
part of the work. It is well, however, to check this test
bv other trials performed by an expert tester. Ihe
litter is really a standardized laborer.

The establishment of a standard time for assembhng
work has practical difficulties connected with it which
are far more difficult to overcome than in the case of ma-
chine standards. The human elements of judgment
and skill are more difficult to determine than the pecul-
iarities of a machine. In most factories the workmen
dislike to have best speed known to the mMiage-

ment. for it o. .neans a relative decrease of pay.
The only general rule that can be applied in the de-
termination of the standard' times in this work is to sep-
arate the assembling operations for any particukr job
into as small a number as possible. If a workman can
be confined to three or less operations the problem is

332

BUSINESS MANAGEMENT

much siinnl'fied. But where the assembler has as many
as ten diffcroiit operations on a particular part, the solu-
tion becomes highly involved. The character of the
difficulties put in the way of the determination of this
standard time indicates that the marager should lend
his energies to solve it. "The waste of time," says Mr.
C. U. Carpenter, in his excellent book on "Profit
^Making Management," "in the ordinary assembling de-
partment of the average manufacturing concern is al-
most beyond belief."

A test made by Mr. Carpenter on assembling work
shows what can be doi e in effecting economy in this
direction. Taking advantage of a strike in the polish-
ing department, a system of determining the standard
times of assembling was adopted with the new men.
Twelve expert polishers were put in charge of instruct-
ing sixty-two green hands. A partial analysis of the
work after a few weeks showed that a reduction of 40
per cent could easily be made in the rate paid and still
provide the men with a good wage. In three weeks
time it was found possible to put the entire force upon
piece work at the reduced rate. Being assured that no
further reduction would take place the men were urged
to do their best. The records showed that at the end of
a period of ten weeks, the average earnings exceeded
$5.50 per day whereas under the old system it was only
$3.00 per day. The work itself increased so materially
that at the end of six months the actual records showed
savings in the pay roll in this department amounting to
over $55,000 per year.

The relation of standard times to other features ot
organization is very close and vital. The determinatiOT
of the "shortest time" in which a job can be done is the
first place to begin in establishing a wage system; «na

STANDARDIZATION AND WAGES

333

what standard times mean to the cost system has only to
be mentioned, to be realized. . ^ . ^1,^

129 Principal elements in getting efficiency. -i:he
methods by which greater efficiency is gained are some-
CcM "betteiSent work." The principal elements
hThave been treated of so far in previous chapters are :
(1) the centralization of manufacture at shops best
fitted by reason of location or otherwise for domg the
," k- (2) standardization of parts, of tools and of
Iraiions- (3) supervision of materials, tools, and
S'^dlhi planning and designing of devices and
tools to help labor and machines m reducmg dela>s.
There still remains a fourth element for eonsideratjon
-the element which relates to the reduction of labor
costs by the application of a system of wage payments
130. ira^'^ systems.-ln determining the standard
time of any process involving the combined work of ma-
chines and men. the many difficulties that arise are
largelv due to the "human element." Some of these
diffimlties have been mentioned and among them is the
difference in men's capacity to work. Therefore, be-
fore a standard time can be adopted for a particular
operation, it must first be determined what the capacity
of the average man is. If the standard time is based
upon what the best man can do. and the average laborer
is expected to reach that standard, the practical f aihire
of :i ny wage system based upon it is assured.

Standards are of little use unless they can be used as
measures in comparisons. A standard used m a system
of wages must be used in effectmg two dbmparisons.
First, the working efficiency of each laborer at differ-
ent times must be compared- second, the workmg power
of different laborers must be compared. By a consid-
eration of these two comparisons, the manager is en-

334

BUSINESS MANAGEMENT

abled to determine what the individual laborer is capable
of doing from day to day and what he ought to do as
compared with the other laborers who do the same grade
of work. Having determined what efficiency is neces-
sary to produce his goods at a certain cost in order to
make the required profits, the necessity devolves upon
the manager of keeping the rate of production up to the
required standard. It is at this point that the question
arises as to how the laborers may be held to the standard
efficiency. The machine asks only as its return the re-
pairs and renewals necessary to keep it going. The
laborer, on the other hand, seeks as his return all that
he produces. The nearer he thinks he is approaching
to this demand, the greater is the stimulation to work.
It is therefore not always the high wages that determine
the labor efficiency of a factory but the system by which
the wages are determined and paid.

181. Systems of pay. — The most prominent systems
of pay in the United States are the day-work plan,
the piece work plan, the premium plan, the differential
plan, and the bonus plan.

The first method is usually employed where special
conditions prevail. Thus it would be fatal to adopt a
system of wages in a department where great care and
accuracy were demanded whereby the workmen were
stimulated to produce more but inferior work.

The piece work system in its simplest form provides
for the pajmient of work by the piece. It was at first
hailed with enthusiasm by the worker, but so inany
abuses crept into the system which proved hurtful to the
piece-worker, that it is now generally regarded by work-
ing men with suspicion. One of the abuses is the prac-
tice of cutting rates when the men begin to earn high
wages. The mischief of cuttmg rates is very largely

STANDARDIZATION AND WAGES

385

caused by poor judgment in establishing the piece-rate
ill the first place. The standard prices or the standard
times were not based upon scientifically determined
data,' but upon some such basis as the "best previous
records," an "ordinary try-out," or the foreman's rati-
mate. The laborer generally saw that by working
harder he could increase his income by several per cent
over the old rate, but this generally led to a similar per
cent cut in the price. Thus the laborer was left work-
ing very much harder than a few days before with a
return in wages no larger than formerly.

With the day work plan and the piece work systems
as a basis other methods have been made possible by the
more accurate determination of standard times. The
bonus system is one in which there is a definite tune set
for the'accomphshing of a task and which provides for
the payment of an extra sum of money if the work is
completed within this time. This is a modification of
the day-work plan, whereby a definite task has been
more scientifically determined in regard to the time nec-
essary to accomplish it. The principle involved in this
system as in the other is to establish a fixed rate of pay
per day so that if the laborer turns out less work than is
I demanded by this standard he will be insured at least of
a hviiig wage. On the other hand, if he comes up to
the standard set or does more, he will be paid a propor-
tionately larger wage. The Halsey System, named
after its inventor, is an example of a wage system
formulated along these lines.

A standard time is set for accomplishing the work,
but if for some cause beyond the control of the work-
man that piece of work cannot be done in the time set,
the laborer gets the wage previously agreed upon. It
is also understood that this rate of wages will not be

336 BUSINESS MANAGEMENT

cut Supposing that the man was working on a six-
hour day basis, he would be expected to finish in slx
hours and would be paid 25 cents an hour or $1J50 per
day If he did the work in five hours he would get a
part of the wages which he had saved by finishing an
hour sooner. If the proportion agreed upon is one-half
he would then get $1,871/2 for the five hours work-
namely, five hours' work at 25 cents plus I2V2 «nts
for the hour he saved. If he does the work m three
hours he would get three times 25 cents plus one-half of
the wages for the time saved or $1,121/2.

Under this system, therefore, the laborer never fell
below the day rate that was fixed and he always had the
chance of earning more by turning out more work.
This was a compromise between the day work and piece
work system which lessened the effects of each. The
employer received part of the benefit of the employes
increased output, thus eliminating the incentive to a.t
the laborer's wages. On the other hand, the worta
would not be inclined to limit his output because he
wished to do as little work as possible, as under ^he day-
work plan, or for fear that his wages would be cut, which
so frequently happens under the piece-work plan.

132 Taylor diferential system, -Another system is
that known as the Taylor differential piece-rate sys-
tem, after its inventor. This is based on a carefd^v
determined standard fime, a careful study having beei>
made of the opeiations involved and estimates of how
long it would take a first-class man to acco^PfJ *
given piece of work. If that standard is reached, the
workman receives a high rate of ^^g^' /^ ^' j,!)^
falls short of the standard set, a considerable deducoon
from the day rate is made. This system is only an-

STANDARDIZATION AND WAGES

337

other of the special plans made to suit particular con-
ditions. It could only be introduced into high grade
shops where the work is standardized and the men
trained by functional foremen. It might be applied
where the intensity or the rate of production must be
high in order to get the utmost out of the very costly
machinery, tools, and so on.

133. Efficiency system.— The efficiency system is
still another of these plans. Here the time limit is set
as in the Taylor system, and if it is reached by the
workman he receives a high bonus; that is, the em-
ployes are paid by day wages but are stimulated by an
additional bonus proportioned to their efficiency-
efficiency in this sense being the ratio between the time
he takes for the job and the standard or schedule time
set for him. The amount of the bonus is determined
by a standard table which fixes the percentages of
wages for time actually worked that is paid in addition
as bonus at any determined rate of efficiency. As ap-
phed in the Santa Fe shops this table grants no. bonus
below 66 2-3 per cent efficiency— that is, below the rate
of working at which the man takes one and one-half
the standard time for completing his job; from that
point upward it allows bonus on a rising scale, which
reaches 20 per cent additional to actual wages at 100
per cent efficiency (or the completion of the job in the
standard time), and thereafter adds 1 per cent of
wages for each additional 1 per cent of efficiency.

Thus it is seen that this system does not punish a man
for not reaching a standard and omits the failing of
the Taylor system by enabling the men to earn a fair
wage if unforeseen difficulties occur. For instance, if
a man reaches 100 per cent efficiency, he will receive a

ll-W

998 BUSINESS MANAGEMENT

20 per cent bonus; if he falls below or goes above this
standard, he will receive less or more according to the
following table:

P$re«ntog0 of
EfUcitney. Additional fay.

677c

74% 1

80% 3.37

85% 6.17

90% 9.91

94% 1*.4S

100%, 20

110% 30

120% *0

The rate of pay would be as follows: —

Hour*'

Dayi'

work.

Piece-work.

Premiumi.

work

Daily

Hourly

Daily

Hourly

Daily

Hourly

Wages

Rate

Wages

Rate

Wages

Rate

$1.75

.25

91.50

J14

(1.75

1.50

.25

1.50

.25

1.50

1.25

.25

1.50

.30

1.375

SJi

1. 00

.25

1.50

Sin

1.25

3\i

.75

.35

1.50

.50

1.125

,50

.25

IJO

.75

1.00

1.50

.875

.874

In order to make a further comparison of the various
systems, we will assume that the following conditions
might occur:

1. The workman does no work at all,

2. The workman does the standard work within the
standard time,

3. The workman does all the work in no time at all.
Then under the various systems we have menti(Mi«i

their pay would be as follows:

STANDARDIZATION A>D WAGES

BdO

Dny-RatP,

I'jpVf-Kate,

I'rciiiiiiiii,

r.iylor,

Efli<icniy,

No, 1.

Full wages.
No wages.
Full wages.

No pay,

Full wages.

Na a.

Full wages.
Normal pay.
Full wages.

Bonus above
normal pay.

Bonus above
normal pay,

No. 3.

No wages.
Full pay.
iO% additional

pay.
Fnll bonus and

full pay.
Full bonus and

full pay.

184. Bonus plan. — The bonus plan of payment, when
combined with methods that determine accurately the
shortest time in which a job can be finished, has much to
recommend it. In the first place, it is easily under-
stood and can therefore be easily introduced among a
lM)dy of laborers. It is easily adapted in some form to
almost any other system of pay that may be already in
existence in the shop. Some managers have found it
jKivisable to extend the bonus plan so as to include the
job bosses and the foremen. The plan in this case is to
give bonuses to the foremen in case all the men under
them earn bonuses. This has the advantage of stimu-
lating the foreman to give inmiediate and close atten-
tion to the inefficient workman. He will either attempt
by proper and speedy training to raise his efficiency or
<^rop him from the pay roll.

Thus from the point of view of labor the great pur-
pose of standardizing both as to o^ierations and time is
to introduce some system of wages whereby efficiency is
increased and stimulated under some method of bonus
awards.

Perhaps the greatest discovery which the modem
manager has made in his studies and attempts to solve
his labor problems through better wage systems is the
fact that the efficiency of the whole organization is the
efficiency of the individual workman and that the lat-
ter is secured and stimulated by giving him a wage pro-
portioned to his production.

ii«^Mi2iifaa

CHAPTER VIII

CONTROL OF LABOR

185. High cost of man power.— 'Vhe difference be-
tween the costs of man power and mechanical physical
force is tremendous. Large electric power companies
quote prices of 10 cents to 2 cents per kilowatt hour.
And prices as low as .5 cents have been known where
electric current was used in very large quantities.

A man power has been estimated to be equal to about
one-tenth of a horse power. On the basis that a kilo-
watt is 1.34 horse p( ''•.• and that labor is paid 15 cents
an hour, it is figure* I 'iv a prominent engineer that
human physical force is from 11.2 to 2.24 times is expen-
sive as electro-motive force — the force in each case being
purchased from the generator.

The most significant factor in the development of
the American nation whether we look at it from the
political, religious, social or economic side is the high
cost of man power. No nation is likely to advance
with equal rapidity along all lines at once, for that
element in a nation's life matures most quickly which
calls to it the strongest men. Business, therefore, in
America has been able to overshadow everything .else
because it could pay the price.

As a converse proposition, it might be stated that
business can pay the price because it has drawn to
itself the highest type of man power, the men who
think. Thinkers and leaders in the ei:^'^iomic world
have seen the advantages of replacing, where possible,
the high priced physical human labor by the cheaper

340

-^■•^^~

CONTROI. OF LABOR

natural forces. Th.is business itself has been modified
from within hs the same force which made it the lead-
i„j^ factor in' our civilization; the high cost of man
power has compelled Inisiness men to use steam, elec-
tricity uiid water power. Few managers to-day need
to !.e told that the most efficient way to utilize man's
pliysical strength is the employ ent of it in the control
„f 'machinery by which the work is actually performed.
Tilt" locomotive engineer or the man who manipulates
the many-tonned trip hammer controls farces thousands
of times* greater than they could generate personally.
But there eoine.^ ? time in all progress when the ad-
vancement in a particular direction is slowed down and
when every inrrement of gain is made at greater and
jri ( ater costs. This is the case at present in the basic
in.hjstries. Every machine ne-'^s a man to tend it and
thus there is point below which t'. e substitution of

this, a few

frtions for

i ise of this

'.r

men l)y machinery cannot go. Re*) "
progressive managers art looking in . r
the saving in or at least the more econr>
high-i)?iced man power.

lao. IVaste of human ^^oif^r.— When the chief con-
cern of the manager was to get out his product, no mat-
ter what its quality, of what usp was it to ; jieak of a
science of labor control ? He needed men- > le stronger
the better. The industrial frontier was advancing by
leaps and bounds and men were needed. Any kind
would do. The manager seldom questioned clcscly to
see if he was "the man for ^he job" when he emplovod
him; and when he dismissed an employe he assiiaied
that the employes failure was due to general incom-
petence. That the man might simply be a "misfit"
never occurred to the manager.
The frontier days of business are gone. "Big kill-

842

BUSINESS MANAGEMENT

ings" with primitive methods are now as scarce in busi-
ness as in hunting. It is time that some of the energy
of investigations be turned upon the question of labor
adjustment — ^the more economical use of human power.
Consider the efforts of our schools, colleges and private
laboratories to solve questions pertaining to mechanical
and electrical engineering; the struggle to produce
mechanical refinements and power saving appliances;
the tests of coal, oil and other fuels; the gav^'es for
measuring the use of power — and then consider the
small amount of effort used in investigating the use
and conservation of labor power 1

Sorae years ago, late in 1907, in a very large machine i-nop
we utilized the month of shut-down, when 90% of the em-
ployes had been laid off, to relocate 75% of the machines so as
to facilitate, expedite, and cheapen production. Nothing was
done as to personnel, although it is obvious that an orgar!/ing
skill, that could install in poor locations three-quarters of the
machines, would also, to at least some extent, fill the personal
positions badly; and so it proved, for when business started
up again there were a succession of demoralizi<'j and costly
strikes.

Investigation shows that in most industrial plants at least
three-quarters of the men are badly placed, which does not
in the least mean that the men are undesirable. An intelligent
readjustment and reassignment of positions without discharge
may improve the efficiency of a plant 30% to 40%-

Efficiency tests and analysis, tests of operation, not of or-
ganization, always show, among the day wage-earners in the
same plant, individual variations between 30% rnd 120%;
the extremes of actual test on a whole month's work being 7%
and 910%. The 210% man was evidently, by accident or
choice, extremely well fitted to his work; the 7% man w»«
equally, by accident or choice, extremely poorly fitted to liu
work. Operation can gradually, in the course of months and

CONTROL OF LABOR

d4d

years, eliminate men of low efficiency, and by experiment and
test and successive discharges replace them with men of higher
efficiency. In this way it is possible in the course of three or
four years to bring the efficiency of operation up from 60%
to 10070, but as an element in organization it is possible by
predetermination of aptitudes to curtail the time very greatly
and in the end secure a better personnel.^

137. Pe.iods of rest and relaxation.— While it is
true that experiments have shown that a man power is
equivalent to about one-tenth of a horse power, there
are elements in calculating labor power that do
not need to be considered in determining mechanical
efficiency. A man is spending his own energy first for
himself and then indirectly for the benefit of the mana-
ger. When the fatigue point is reached in a man, the
consequences of continued labor are something more
than slackened production; he is robbing himself of his
health— the storage battery of his working power. It
is at this point that employers of labor need more
knowledge of the relationship which should exist be-
tween the periods of rest and relaxation for "different
volumes of load" carried by the laborers. They should
b able to see how to adjust these periods in the pre-
determination of industrial operations so as to obtain
the maximum of work without exceeding the "elastic
limit" of the employe. It was along this line that Mr.
F. W. Taylor conducted some of his most important
investigations. He not only recjognized that the work-
ing-time units must be separated from the resting-time
units but he first pointed out that different kinds of
work require different percentages of rest depending
upon the kind and nature of the work done.

1 Harrington Emerson, address before tlie Efficiency Society. Annual Meeting.
1913.

844

BUSINESS MANAGEMENT

Although little work has as yet been done along this
line, there are evidences of much interest in the deter-
mination of a fair day's work. Time studies, fatigue
studies, work records, etc., are growing quite common
and their results all bear on the determination of a fair
day's work.

138. A fair day's pay. — Closely associated with a
fair day's v ,rk is the question of a fair day's pay.
They are t^o two sides of the same shield. The em-
ployer sees one side; the employe the other. It will,
however, be a comparatively simple thing to determine
a fair wage when we know how to estimate the lahor
involved. Yet there are other elements to be considered
besides the amount of energy expended by the laborer,
and the rate per day he is paid by the manager. These
are (1) steadiness of employment, (2) permanency of
employment and (3) future prospects.

Although American business men proved to the
world that high wages did not necessarily mean high
costs of production, it seems difficult for many men to
see the application of this principle when they are
brought face to face with the question of labor costs in
their own store or factory. They see the "wages paid"
hut forget the "output." Wages paid are high or low
depending on the size of the output; "wages received"
are high or low in proportion to the time which the
laborer takes to do the work. The combination of low
wages given with high wages received would prove to
be ideal.

139. Illustrations.— Case I. — Assume a workman
turns out ten units of a given product for which he is
paid $8.00 a day. The upkeep, interest and depreda-
tion of his machine amount to $6.00 a day. The
factory overhead cost, distributed either on the man

CONTROL OF LABOR

345

or the machine, equals $1.50 a day. The material
required for the ten units costs $7.50. While this is
purely a supposition, the proportions are typical. The
cost is $1.80 for each piece. In the form of a simple
equation the results work out as follows:

Labor + Machine + Overhead + Material = Cost

S3.00 , S6.00

11.50
10

+ $0.76 =$1.80

This equals a piece rate of wages to the workman of
30c. If he cf . ; be induced to increase his output, the
more he makes the cheaper becomes the cost.

Case II. — If he earns $4.50 by increasing his output
by one half, the cost per unit of product drops to $1.55.

Labor + Machine + Overhead + Material = Cost
$6.00 . $1.50

$0.30 +

+ $0.76 =$1.55

Case III.— If he earns $6.00 by doubling his vjutput

the cost drops to $1,421/^.

Labor + Machine + Overhead + Material = Cost
$6.00 $1.50

20 "^ 20

$0.30 +

+ $0.75 =$1.42i

Case IV. — If, however, he cannot be induced to ex-
ert himself except by a higher piece rate, say 85c each,
it will still be real economy to allow it. Though the
workman would earn the high wages of $5.25 and
$7.00 per day, the original cost of $1.80 would have
fallen to $1.60 and $1.48|, respectively.

Case V.— Suppose, in Cases II and III, that in
order to increase the output 50 per cent it is necessary
to increase the office force and supply store room clerks,

I etc. This makes the overhead rise to $2.00 a day. The
«)st would, nevertheless, drop to $1,681 and $1.50,

■ respectively.

846

BUSINESS MANAGEMENT

Labor + Machine + Overhead + Material = Coat

$0.35 +
$0.35 +

$6.00

15
$6.00

$2.00

15
$2.00

+ $0.75 =$1.63i
+ $0.76 -=$1.60

If, however, which is the more probable supposition,
the rate is made 25c instead of 85c the saving vould
become even more marked.

Labor + Machiiie + Overhead + Material = Cost

$0.25 +

).25 +

96.00
15

$6.00
20

»a.oo

15
$8.00

-f $0.75 =$1.5Si
+ $0.75 =$1.40

Case VI. — Or suppose a bonus system is adopted;
the man continues at $3.00 a day, but is allowed 50
per cent of the time he saves as a bonus. This dis-
tributes the cost as follows:

Illustration (a) where there is a 50 per cent increase in output
Labor + Machine + Overhead + Material = Cost
$0.25 + $0.40 + $0.13J + $0.75 =$1.53i

Illustration (b) where there is a doubled output.

«S.00+$1.50

= $OJS}pa

piece.

Labor + Machine + Overhead + Material = Cost
$0.22J+ $0.30 + $0.10 + $0.75 =$1,371

It will be noticed that the machine and overhead
charges are constant, irrespective of output. If a $8.00
a day man idles for half an hour the loss is not only the
18 8/4c he receives, but the $7.50 -^ 16 = 47c loss in
machine and overhead. If the man is on piece rate,
there is no loss in wages when he slows up, but the 47c
machine cost is still there.

140. Special factors influencing wage».— The amount
of increase of wages over the customary wage scale
necessary to induce a man to appreciate his job and
take care of it must be found by trial. If it is no*
ample, the men will decline "to be worked" as they

CONTROL OF LABOR

847

express it, and the plan fails. If it is too much, the
men become irregular and in many cases dissipated. It
has been found that it is not well to let the average
workman increase his earnings too rapidly. If the
happy medium is attained he becomes steadier, lives
better and accumulates property. The proper rates of
increase given by Mr. F. W. Taylor are:

Light work calling for no special fatigue such as
ordinary shop practice — 30 per cent.

Ordinary labor calhng for strength and severe bodily
exertion and fatigue — 50 to 80 per cent.

Special skill or brains with close application but re-
quiring no bodily exertion — 70 to 80 per cent.

Skill, brains, close application and extreme rack and
bodily exertion such as running a steam hammer — 80
to 100 per cent.

Other industrial engineers agree approximately on
these increases and Mr. Taylor pertinently remarks
that they are not quantities to be theorized over by
boards of directors, but are facts determined by costly
experiments.

The workman is interested in his total day's pay and
not the unit in which it is figured. The standard illus-
tration of this is the case of the ore shovelers at the
Bethlehem Steel Works. They were paid 8.2c per
ton for unloading iron ore from cars. Pittsburgh
companies were paying 4.9c per ton for the same work.
Hearing of this the Bethlehem gang all quit and
went to Pittsburgh. The conditions there, however,
were such that they could not maintain their output,
and their total earnings fell off. Within four weeks
the entire gang was back at Bethlehem, glad to work
at the lower rate, since their total earnings were greater.
Tlie wage system must be so drawn that the self in-

348

BUSINESS MANAGEMENT

terest of the workman and company interest will cor-
respond. There should be no confusion of the issue with
hypocritical sentiment. Both the boss and the work-
man are working for their own interests; and they work
together because they can thus best further their own
ends. The simplest way to get a man to exert himself
is to make it his personal interest to do so. Each man
must be treated as an individual and rewarded in pro-
portion to his individual exertions.

141. Wages the chief incentive. — The amount of
money paid a man for his work is more important from
the manager's point of view of business policy than the
actual payment which may embrace many things beside
money, for example, free lunches, use of gymnasium,
libraries, etc. But the money a laborer receives is his
to do with as tie pleases. It is this bit of absolute pos-
session that appeals to every man. Therefore, it is a
wise manager who lets as much of his labor policy show
in the wages envelope as possible. It was this knowl-
edge of human nature that led Napoleon to counsel his
brother Joseph, "The first thing to be done is to allow
no arrears ir +he pay of your forces." For a manager
to put in industrial betterments, medical service, etc.,
etc., before he has worked out a satisfactory wage sys-
tem is simply to waste his efforts.

142. Importance of short-period records. — Men love
independence and real cash gives it. But having
established a working-wage system it is well to apply
all the aids available to stimulate the laboring force to
high endeavor. Modern psychology is furnishing many
suggestions along this line. Among them are two,
worthy of special mention.

Trainers of bicycle riders discovered that the records
made when riding against time were poorer than when

CONTROL OF LABOR

349

the man was accompanied by a pace maker. More than
that he showed less exhaustion when making the paced
record than when riding more slowly. The presence
of the pace maker did it. Man needs society to do his
best work and if he has some means of comparing his
accomplishments at different stages with a known
standard he can call on his reserve forces without the
same fatigue which goes with a solitary performance
and a slight knowledge of the progress he is making.
The ultimate goal is usually too far to offer the stimulus
necessary to high accomplishment. This principle has
been applied by some managers in allowing their bosses
to post a record from time to time during the working
day showing each man just what he is accomplishing.

The effect of a record of this kind has been measured
in the laboratory upon a university athlete and it shows
that great gains in endurance are made without evil
effects. A college man was set the task of testing the
strength of his hand by gripping a contrivance which
registered the force exerted as he opened and shut his
hand. His first set of performances were completed
with absolute exhaustion. Later on under exactly
similar circumstances he was given another test, but now
he was provided with a record of each ef ort showing
just how much he exceeded or fell below his previous
record at that point. The result showed .hat this extra
stimulation raised his efficiency over 38 1-8 per cent.

The best example in business of capitalizing this
spirit of competition or emulation inherent in all men
IS seen in Mr. Gilbreth's methods of handhng his brick-
layers. At regular periods the accomplishment of each
man was posted alongside of the standard requirements,

143. Pleasurable surroundings. — Another psycho-
logical factor that plays an important part in the

350

BUSINESS MANAGEMENT

efficiency with which men work is the element of pleas-
ure. Buoyant spirits and pleasurable thoughts have a
decided effect on the physical wellbeing of man just as
they have upon his temperament. The heart works
better and the circulation of the blood is more free.
The basis of good nutrition and health is affected
directly.

On the other hand, fear contracts the blood vessels
and the flow of the blood is checked. The close con-
nection between this mental* state and the physical con-
dition is strikingly shown in the slang phrase "cold
feet." Fear lowers the working ability of man. A
girl who worked with her back to the gangway beside
which her machine stood was about to be discharged
because her work was not up to the standard in quality
or quant "ly. The foreman, however, decided to watch
her. He found that every time a truck or box was
hauled behind her she involuntarily started and slack-
ened her pace. The fear of passing trucks was the
cause. She was placed in a quiet part of the room and
there became the most efficient employe in that depart-
ment.

144. Chilly surroundings develop fear. — But if fear
causes "cold feet," the reverse of the proposition is just
as true. The full effects of -»yarm and hygienic sur-
roundings are not fully appreciated until the influence
which these things have upon the mental condition of
the employes is seen. Warmth of body reduces the
tendencies to fear and dread. With these gone, sus-
picion and comiiving diminish also. The manager's
problem of overcoming the "discontents" of his factory,
shop and office is thus in part solved.

This is not, offered as a panacea, but emphasis has
been put upon this point because the influence of in-

CONTROL OF LABOR

851

dustrial betterments upon the efficiency of the worker
would be little indeed if it stopped with the physical
effects produced upon the bodies of the men. The man
whistling at his work is more efficient than the same
man shivering over his task. The philosophy of indus-
trial betterment rests on the fact that the body and the
mind act and react in harmony.

U3. Stimulating aelf-interest.— The pay envelope
does not draw to itself all the lines of self-interest which
determine a man's attitude toward his work. Employes
are interested in their records as workingmen. If a man
does good work he is sthnulated to repeat it or to sur-
pass previous efforts provided he is duly credited.
Xothing is more disastrous to individual effort than to
elevate the shirk and overlook the industrious man. The
management must use some method whereby the in-
dividual's work is not merged with the mass and lost
M^ht of But to treat men individually, the work must
be cart i ally allotted and an individual record kept.
This method has two good effects: (1) It assures the
workman of a fair deal; (2) it becomes the basis of
eliminating poor men. The manager can keep tab on
his foreman's appointments, and thus assure the work-
man that his work is constantly under review in the
head office. If the manager or superintendent wishes
to take advantage of this, he can refer to these records
and whenever \v. sees an opportunity to praise an
employe he can walk through the shop or office and by
casually greeting the man and referring to the par-
ticular praiseworthy accomplishment he can in time
bind all the good men to him in interested loyalty.

146. Checks against injustice. — Furthermore, work-
men's records become vital aids in helping to do away
with jealousies and injustices attendant on promotions.

35ft

BUSIP ESS MANAGEMENT

It forces the foremen to depeis'l upon some other prin-
ciple than consanguinity, the "soft-soap grip," or pptty
tribute, in making promotions. They know that their
recommendations must stand luc test of recorded
efficiency. A manager who suspects his foremen of
"playing favorites" can compart tb«'ir recommendations
with the records of other men entitled to consideration.
Without removing the foreman's power of promoting a
man he can call him to the office and say, "Smith, I
understand there is to be a vacancy in your depart-
ment." "Oh! Yes," says Smith. "Well," says Mr.
Manager, "we have several good men down there; tet
us look over their records." Now the manager knows
that Smith intended to reconmiend a worthless cons' i
for the job. Such an appointment would hurt the
discipline of the department as well as cripple its pro-
ductive efficiency. But he does not want to curtail the
power of his foreman. So they look over the record
cards of the men. The cousin's record stands out in
bold contrast to that of the good men working by his
side who know how incapable he is and of his relation-
ship to the boss.

The manager does not counsel his foreman, but the
latter knows that he will be held responsible for this
appointment. If he were willing to take the responsi-
bility, the manager could not object until the result of
the foreman's appointment showed in the foreman s
record. Smith does not recommend his "cousin" for the
position and every man in the department i". stimulated
to do better work because he feels bf is going to be
judged by his record and ge* a fair deal.

147. Elimination of the unfit— The second use to
which a record may be put is the gradual eLxiiination of
the inefficient and increasing of the permanent staff

CONTROL OF LABOR

S58

substitutes exact data for impressions and other in-
tangible influences where men are to be laid off. On
this point Mr. Gantt says:

Some years ago it became necessary to lay off about ten
mold, rs in a foundry. The superintendent sent for the record
of the men and made up a list of men to be laid off. There was
pvid complaint, in which the foreman joined, that the wrong
nun had been selected and that some of these men were the best
workers in the shop. The superintendent invited an inspection
of til. records, which the foreman had never been willing to pay
any attention to before, with the result that everybody was
satisfied and the efficiency of those remaining soon showed a
very marked improvement.

U8. A typical case of the use of records,— It is per-
haps natural that the railroads should be foremost in
developing systems of discipline for their employes.
Slackness in railroad operation may result in death,
as well as in loss of profits. The old system of discipline
by suspension from duty has been quite generally dis-
placed by the system of "discipline by records."

President H. H. Vreeland in describing this system
as applied to the Metropolitan Street Railway Com-
pany, which employs 13,000 men, said that the whole
force practically renewed itself every two years before
the new methods were adopted. There were not fifty
men who had been with the company five years. Divi-
sion superintendents could discharge men whom they
had never seen and the idea that a man might offer a
defense never suggested itself. No account was kept
of a man's discharge and he might be hired again in a
few days. Soon after the record system was installed
improvement in the conduct of the men became marked.
They felt in closer touch with the management and
knew that all had an equal chance, for although their

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354

BUSINESS MANAGEMENT

errors were noted they knew their virtues were recorded
as well.

149. Look for the particular bent of the bumne88.~
Every business has a bent peculiar to itself. The atti-
tude of the laboring force is controlled by it. A
method of control to be effective must conform to it.

For example, the superintendent of a large screw
works found difficulty in getting the children who sorted
the screws to do a fair day's work. Various modifica-
tions of piece and day work wage systems were unsuc-
cessful. Finally he hit upon the thing peculiar to his
shop. He found the children were not interested in
their wages. These they surrendered to their parents.
Accordingly, he dropped the "envelope idea" and as-
signed each child a daily task which when finished would
permit him to go home. This plan succeeded at once.
The play time of the children was their own and they
prized it highly.

Another concern found it necessary to break away
from the usual methods of paying its salesmen a com-
mission on the basis of their total sales. In order to
induce them to maintain prices and to push the more
profitable lines the salesmen were paid a commission on
tlie profits of their orders,

The John B. Stetson Company discovered itself to
be the victim of a peculiar custom which afflicted its
sizing department. The employes here soon changed
their occupation and it was hard to keep a steady force.
They met the situation by a careful study of the effect
of increased pay in the form of a bonus. In 1897 the
company offered the man who worked steadily through-
out the year 5 per cent, of his total year's wages as a
Christmas present. Thirty-five per cent of the men
stuck to their jobs. For the three succeeding years the

CONTROL OF LABOR

S55

premium was increased to 10 per cent and the number
of steady workers rose from 35 per cent to 80 per cent.
In 1901 the bonus went up to 15 per cent and the per-
manent men increased to 88 per cent. Finally a 20
per cent bonus brought the permanent force up to 99
per cent., where it now remains.

150. Permanency of employment and pensions. —
The readiness with which a skilled mechanic will some-
times leave his trade in which he can earn $5.00 a day
to enter an office at $75.00 per month shows how strong
is the element of permanency in a job. Small com-
panies often compete favorably for labor with bigger
firms because they take care of their workingmen
during slack times. The power to discharge a man as
a matter of discipline in some large concerns is only
resorted to in exceptional cases. The Pennsylvania
Railroad Company's records show that 1,850 active
employes have been with the company forty years or
more; besides there were an additional 1,018 men who,
having served over forty years, had retired on pen-
sions.

So strong has the idea of stability of employment
grown of late years that hundreds of big corporations
have adopted some form of pension system. By this
means they hope to increase the attractiveness of the
work to their men. Many kinds of old age pensions
have been formulated but the commonest forms are
those which provide for the retirement of the employe
after a certain number of years' service in the company,
or at a specified age. The amount of the pension is
based on a stated percentage of the average income of
the recipient covering a period of years just previous
CO his retirement. Another, though less common,
method is the payment of fixed sums instead of an

356

BUSINESS MANAGEMENT

amount figured on the actual time of service. The
Metropolitan Street Railway Company uses this form
of pensioning its men.

The Pennsylvania Railroad Company was the
pioneer in establishing a pension system. Their system
was the result of an elaborate investigation of the ex-
perience of foreign railroad corporations. Several
arrangements were considered and the best finally
adopted. Since its introduction, January 1, 1900/ it
has been a model which both railroad and industrial or-
ganizations have followed. The International Harves-
ter Company, for instance, has copied it almost
verbatim. President Cassatt described it fuUj in his
original announcement.

151. Hope of advancement as a stimulus. — So strong
is the desire of most young Americans to advance, that
many concerns make a practice of holding out glowing
possibilities to ambitious men, and at the same time
expect them to work for very small wages. Where the
firm is sincere in its promises no employe will complain,
but it is nothing more than stealing or obtaining serv-
ices under false pretenses to get the best out of an
aipbitious man and then let him go when he can be
deceived no longer.

One has only to run through the list of "situations
wanted" in a morning paper to see how prevalent is
the desire of employes to sacrifice money returns if only
steady advancement is assured. Out of a total of 1,129
situations wanted in one paper, over 12 per cent of the
applicants emphasized the "future." In another paper,
14 per cent of the "commercial help wanted" ads re-
ferred to "chances of advancement."

"Don't go outside to fill a vacancy if you can help

* See U. S. Dept. of Labor Eulletin, vol. 6. 1901, page 1090.

CONTROL OF LABOR

tS7

it," is a policy now generally accepted as the best.
However, strict seniority is apt to drive out the men of
force and initiative. Accordingly, some firms have
broken into the practice of strict seniority by confining
its application chiefly to the minor positions, the higher
offices being quite free from its influence.

1)2. Three examples of promotion policies. — The
Pennsylvania Railroad has laid out its line of promo-
tion very clearly. Out of 160 principal officers, 150
started in the ranks. The ten exceptions are all in the
legal departments or in lines of work calling for special
experience not obtainable in the organization. The 61
principal officers of the operating department, all of
them from the general manager down, started as begin-
ners. I^Iost of the men are hired young with a view
to their eventually assuming responsible positions.
When first taken on they are put through a regular
course of training which makes them familiar -vith all
phases oi the work of the department they may enter-
traffic, operating, or maintenance of way. After this
preliminary training, there is a set line of promotion
through which they must advance. In the maintenance-
of-way department, for instance, after finishing their
training, the beginners become track laborers, road
men or assistants in engineering corps. When they
have become familiar with all the ins and outs of track
construction and maintenance they "are made assistant
supervisors, assistant engineers, principal assistant-
engineers and superintendents, being promoted in the
order named. The company not only believes that this
system is necessary for the proper perpetuation of its
organization, but that it produces the best results and
greatest efficiency.^
' Syatem, August, 1910, page ISO.

358

BUSINESS MANAGEMENT

The J. W. Butler Paper Company will not put an
outsider into a responsible position, even though it
might find a man for the time being more capable than
some individual in the firm. Mr. J. F. Butler says in
explaining this policy:

We do not call in an experienced man from outside althou^^
it may cost us considerable to train one of our men for the
position, but we invariably do it, and t pays when you balance
this one expense against the increased loyalty and efficiency
we secure from hundreds of employes. It gives an employ^
a hope for something better; it spurs him on to put himself
in line for the next vacancy ; it holds him to the house.^

The Crane Company oi Chicago have even held a
new line of work in abeyance until they could develop
men to handle it. Mr. Richard R. Crane says:

Enlightened self-interest is in fact the essential bond of any
organization. Mere appeal to sentiment counts for nothing.
An employe is one with the house only .when it aflPords him
the best opportunity to coin his talents into dollars and cents
and insures him of permanent employment. Even the appren-
tices we take into the shops are^not held by formal contract.
As a matter of fact, they usually stay, and virtuaUy aU our
department heads and managers learned their trade with us
or began as messengers. The certainty of advancement if
they desire it is a stronger incentive to steadiness and
efficiency than any formal contract could be.''

158. Selecting the "right stripe."— The employer of
labor is more and more inclined to select men for their
qualities rather than for their experience. If an appb-
cant has ability and willingness to work he can be
taught what to do, whereas laziness, dishonesty or
wrong prejudices will mhibit the best experience.

» Syf'Jm, August, 1910, page 150.
' « Ibid. Sept., 1909.

CONTROL OF LABOR

S59

In determining an applicant's fitness, every employer
of labor should have certain standards by which he
forms his opinion before selecting them. These stand-
ards should involve an understanding of the require-
ments of the situation, a knowledge of the aptitudes,
abilities, interests, ambitions, n ources and limitations
of the applicant; also careful consideration of the re-
lationships of these two groups of facts.

In view of the importance which the average em-
ployer attaches to experience the following lists are
very significant. One comes from an expert in the
selling field, Mr. Hugh Chalmers, president of the
Chalmers Motor Company; the other is from an author-
ity in production, the late Mr. F. W. Taylor, famous
engineer. Not more than one quality in each list refers
to experience or business training. All the others are
inherent in the men:

HUGH CHALMEBS

1. Health.

2. Honesty.

3. Ability.

4. Initiative.

5. Knowledge of business.

6. Tact.

7. Industry.

8. Open-mindedness.

9. Sincerity.
10. Enthusiasm.

F. W. TATLOB

1. Health.

2. Honesty.

3. Brains.

360 BUSINESS MANAGEMENT

4. Grit.

5. Special knowledge, manual dexterity, or

strength.

6. Tact.

7. Energy.

8. Judgment.

9. Education.

The employer may be greatly helped in choosing his
men if he makes out a similar lis^ " the prime char-
acteristics which his own experiei has shown him to
be necessary in his business. With this list before him
he can mentally check up the applicant, and feel sure
that he has not let some essential slip by unnoticed. Mr.
Chahiiers' testimony may be helpful along this ' :

When I was working as a salesman myself I was always try-
ing to analyze successful men to find out the reason for their
success. Later when I became sales manager and had to
employ, train, and supervise men I had these (ten) requisitc8
put on a blackboard in my office, and I used them for mew-
uring men, for discovering their weak spots, and I have always
found them very helpful.

154. Make a man analyze himself. — ^Besides the in-
formation which a manager of labor gathers from
observation, there is much to be gained from a proper
self-analysis carried on by the applicant himself. Al-
though the man's estimation of himself may be wrong,
nevertheless the manager will see the problem from a
different angle and many a characteristic will disclose
itself even where the applicant has attempted to cover
it up. The following questions prepared by Mr. Gus-
tav A. Blumenthal are suggestive of what may be done
along this line:

CONTROL OF LABOR

861

Where born?

Is father living? His occupation?

I» your health good? K not, what is your trouWe?

What exercise do you take?.

Are you fond of sports? If so, which?.

What schooling have you had?.

What are your favorite studies?

In what studies are you weak?

What kind of reading have you done? •

Aro you following a definite line of reading or study now?

If so, what?

Do you sing? Play on any instrument?

Have you a hobby? I* so, what?

Does your mind concentrate, or skip from one thought to

another? • • • •

Have you self-confidence? Patience?

Are you irclined to be lazy?. ... Do you act impulsively?. . . .

Do you make friends easily? Are you fond of company?

A ro a sensitive? Are you inclined to think

yourseh ^ ' .'stood?

How do j yfod your leisure time?

What are your pleasures?

What habits or vices do you have to fight down in yourself?

Are your thoughts clean? Can you trust yourself?.

Do you consider yourself absolutely honest?

Trustworthy? Conscientious?

What is your religion?

Are you a church member? . . .•

Are you self-supporting? Can you save money?.

How many depend upon you for support?

S62

BUSINESS MANAGEMENT

Indicate the different occupation* you have followed:
Occupation : How long in it? How did you like it?

What life do you think you would prefer?

What training or special fitness have you had for this work?

What is your present occupation?

Do you like it? Why?

Do you aspire to be an employer of men?.

What is your greatest ambition?.

Are you wiUing to pay the price in hard work to attain
cess?

sue-

When the applicant has filled out the above blanks
the employer may classify the information under the
foUowing headings: Mental characteristics; physical
characteristics; moral and social characteristics; abili-
ties and talents; vocation in which success may be rea-
sonably expected; courses of study and hobby advisable.
155. Use of written and oral teats.— The oldest
method of determining fitness is the written or oral
examination, but little use has been made of it in the
business world. However, the Chicago and North-
western Railway has a system of progressive examina-
tions running through three years.

Each fireman is given the first year's book of ques-
tions, the company's book of rules and a time card
when he is employed. As soon as convenient after the
expiration of his first year's service he is given a writ-
ten examination thereon by the traveling engineer or

CONTROL OF LABOR

868

traveling fireman, who also examines him orally. If
successful in passing this, he is given the second year's
book of questions upon which he is examined a year
hence in the same manner. At the end of his third year
the fireman is examined by a joint board of examiners
appointed for the whole system, which board sits in
Chicago each spring and fall. Some of the traveling
engineers and the airbrake instructors compose this
board and their favorable report makes the man eligible
to promotion to the position of engineer whenever
needed as such on his own division.

The failure to pass any one of these progressive ex-
aminations results in a second trial six months later;
two successive failures drop a man from the locomotive
serA'ice at once. Nb man is permitted to waive his right
to promotion.

156. Testing for physical and moral fitness. — Little
ne^d be said about the necessity for discovering a man's
physical and moral qualities. The methods employed in
obtaining data for physical fitness lie largely in the
province of the physician and many business houses em-
ploy physicians for this purpose. But the testing for
moi-al qualities is a comparatively new feature in busi-
ness management. The usual procedure is to "size up a
man," but so many mistakes are likely to happen in
using surface appearances as the basis of judgment,
that business men are demanding a more intimate
analysis of their employes' character. They are be-
ginning to recognize that the most desirable quahties,
such as conscientiousne 3 and loyalty, are less in evi-
dence than initiative and polish, and while good clerks
and mechanics may possess a'J of these qualities they
may lack the knack of personal salesmrnship.
Difficult as it is, the problem of pkcing the right

864

BUSINESS MANAGEMENT

man in the right place is being successfully solved for
continuously increasing numbers of men and women.
157. Control by education. — Business managements,
like political governments, are coming to realize that
the basis of control must rest finally on education. The
tendency to adopt this point of view is indicated by
the following examples :

The New York Edison Company offers educational
facilities through an Educational Bureau and the Edu-
cational Committee of the Association of Employes.
The committee prepares technical and accounting
courses in which the attendance is voluntary. The Ed-
ucational Bureau prepares the conmiercial courses and
part of the routine work of the commercial depart-
ment, and instruction is given on the company's time.

The commercial courses include hygiene, health and
recreation; the basic principles of salesmanship; com-
pany organization ; the elements of central station busi-
ness-getting; and the fundamental principles of elec-
tricity. The school staff consists of a manager, instruc-
tor in charge and secretary. The term begins in Octo-
ber and closes in May. The work covers two years.

The technical courses consist of laboratory exercises
preceded by a talk in which the instructor outlines the
work briefly. Students are rated on their work. Prizes
are offered to those having the highest standing. The
course lasts 15 weeks — five evenings and one afternoon
each week.

The accounting course was offered for the first time
during the year 1912-18. It consists of a series of lec-
tures by a professional teacher.

Besides these courses, the company has lectures given
by their ofiicials or by prominent speakers on general
and public policy, etc., and on technical subjects.

CONTROL OF LABOR

365

The Metropolitan L'^e Insurance Company has a
course in business English. It consirls of thirty weekly
lessons in grammar, composition and business letter
writing. A fee of $8.00 is charged. Tnere are also
classes in stenography and typewriting. The company
maintains a circulating library of general literature,
science, etc. In July, 1912, there were 6,729 books and
pamphlets for use of the employes. The total mem-
bership of the library is 2,605. There is an average
daily circulation of one hundred and seven books. A
trained librarian and three assistants are in charge.

The National Metal Trades Association is lending its
support to institutions which are teaching courses along
industrial lines. For instance, in Chicago it cooperates
with the Lewis Institute; in Cincinnati, with the Con-
tinuation School and Cooperative High Schooi as
well as the University; and in Cleveland with the Tech-
nical High School and Young Men's Christian Asso-
ciation.

In Hartford, Conn., the public school authorities
have started a Continuation School to which the n- am-
bers of the Metal Trades Association will send ir
apprentices. In St. Louis, members are working vith
the Rankin Trade School where the apprentices are
making gratifying progress. In J- <-'anapo, s a com-
mittee of the Association equipped ceitain buildings of
the Winona Technical Institute with machinery, and
furnished scholarships of the value of $100.00 each for
prospective students. The committees solicited contri-
butions of equipment and scholarships from members
of the JSIetal Trades Association.

The ,i\iiierican Bankers' Association has a section
called the American Institute of Banking Its pur-
poses are to educate bankers in their special lines, to

S66

BUSINESS MANAGEMENT

maintain a standard of education by official examina-
tions and to issue certificates for the accomplishment of
certain work. It has 12,000 members organized into 75
chapters in the principal cities of the country and in
Cuba and Hawaii. Employes of country banks are en-
rolled as correspondence students. The course of study
covers the theory and practice of banking and allied
principles of law and economics. The course requires
at least 100 hours of class and correspondence work
under approved teachers.

Spencer Trask & Company of New York City, one
of the largest bond investment houses in New York,
gives a course of instruction covering financial organi-
zation. It requires its employes to study corporation
finance, foreign exchange, the money market, theory of
investments and analysis of current security fluctua-
tions, speculation and the stock market. Their men are
also required to pass examinations on political economy,
money and credit, and the principles of salesmanship.

The National City Bank of New York provides
classes in business correspondence, French, (Jerman,
Spanish, penmanship, commercial arithmetic and book-
keeping. These are given as a first-year course while
a more advanced course is outlined for a second year of

study.

158. Special training for the company's w>orfc.--Some
firms try to give their employes specific training for
their own work. Classes are held during work hours or
evenings. They are supplemented by lectures on vital
subjects such as hygiene, sanitation, diet, first aids to
the injured, and other lines. The National Cash Reg-
ister Company has an agent's school for salesmen, one
for advertising, one for officers for the study of busmess
management, and others for the foremen, janitors and

CONTROL OF LABOR

367

waiters. The same company has a kindergarten for the
children of its employes, and cooking, sewing, and mil-
linery classes, realizing that training which benefits the
iiome makes better workers all around. The Heinz
Company has cooking and sewing classes for its 700
•rirls, most of whom are inmiigrants. The Williams
Company in Brooklyn instructs its salesmen and other
employes and provides lectures for the foremen. Many
companies provide libraries and reading rooms with
technical literature and popular fiction and magazines.
Some firms distribute manuals describing the details
of the work. One corporation published a 200-page
book with cuts and reports, and gave one to each em-
ploye, who was supposed to read it all with special at-
tention to the parts pertaining to his work. Quizzes
are held frequently and those who are deficient in any
subject are dismissed. The publication of the book
cost $2,000 but the company considers the money well
invested. Each new man must read the manual so as
to get a general understanding of the whole system.
The effect has been good on both old and new workers,
all making fewer mistakes. This makes it easier for
the various departments to work together harmoniously.
Each person knows why he is doing certain things, and
as a consequence has much more interest" in his work and
greater enthusiasm. It gives him some comprehension
of the part his work plays in the whole organization.

Firms are realizing more and more that definite in-
struction saves a great deal of time — not only for the
individual but for the whole house. It pays to develop
the ability of each one, especially as really capable men
are so scarce. A man may so increase his capacity by
having favorable opportunities as to be a wonderful
asset to the company. The Simpson, Crawford Com-

368

BUSINESS MANAGEMENT

pany of New York has an instruction room where eadi
new clerk goes for a preliminary training. There are
four sessions of from one to two hours each. The idea
is to eliminate girls who are not eflBcient right at the
start. The school saves the company much time as well
as thousands of dollars, for trade may easily be driven
away by inefficient clerks. Other stores foUow the same

system.

The National Commercial Gas Association is con-
ducting several correspondence courses. One of these
courses is mainly along the line of salesmanship, while
another is devoted to the subject of business organiza-
tion. Still another deals with the technical features of
the gas industry. The following list of subjects sug-
gests the ground covered:

The Real Salesman and the Near Salesman.

Practical Personal Elements in Selling Gas.

The Customer's Attitude Toward a Sale.

Building a Selling Talk.

Turning Technical Matter into Selling Points.

Factory Illumination— Selling Gas on a Large Scale.

Gas for Industrial Purposes.

The Salesman and the Corporation.

The Sales Department and the Organization.

The Basis of Departmental Organization.

Elements of Gas Manufacture.

Gas Distribution.

Accounting.

Business Correspondence.

Credits and Collections.

Public Utilities— Management— Financing.

Industrial Fuel and Power Engineeriiig.

Illuminating Engineering.

Utilization of Gas and Electricity and Competitive
Fuels and lUuminants.

CONTROL OF LABOR

S69

The courses cover periods of ten months to three
years. One pamphlet each month is sent to those en-
rolled. Questions are printed at the end of the lessons
and the men send in written answers to the director of
the courses. These answers are examined, rated and
returned to the students. A certificate is issued upon
satisfactory completion of the work.

Iilany of the above-mentioned corporations, as well
as hundreds of other companies, are also cooperating in
the work of the Alexander HamUton Institute, which
need not be here described.
n— 24

CHAPTER IX

INDUSTRIAL BETTERMENT OR WELFARE INSTITU-
TIONS

159. Beginnings of industrial betterment— Since the
first factory act was passed in England in 1802 at the
time when the interests of masters and workmen were
more closely allied because of the small workshops and
old methods of work, remarkable improvements have
been made in the whole civilized world p' rtaining to the
health and comfort of the workers in all branches of in-
dustry. By that act only the barest precautions were
to be taken, such as the limewashing of the workrooms
in a factory twice a year and their "due ventilation."
Hours of work were to be reduced to twelve a day.
There was no limit to the age of workers, and children
of 6 were allowed to work with their elders at the same
machinery. The act applied principally to apprentices
of cotton and woolen factories. Provisions were made
for their learning to read and write, and they were
obliged to go to church once a month.

Then came the first parliamentary inquiry in 1816,
and medical men saw that it was absolutely impossible
for the workers to retain their health under the con-
ditions in the new factories. The inhaling of dust and
fibre, the continual presence of fiithy floors and con-
stant expectoration, the lack of sufficient light and fresh
air, as well ar oppressively long hours, were common to
all the factories. In the first half of the Nineteenth
Century the figure of the "woman in unwomanly rags
plying her needle and thread in poverty, hunger and

370

INDUSTRIAL BETTERMENT

371

dirt," as depicted in Hood's "Song of the Shirt," was
deplorably common. But with factory legislation,
trade unions, and industrial betterment imdertaken by
employers, conditions have changed in Europe and
America, until now we have such model fac'.^ries as the
Cadbury Chocolate works near Birmingham, England,
where things are ideally healthful inside, and the em-
ployes are given an opportunity to live in a model vil-
lage in model houses situated in little gardens amid at-
tractive shrubbery and flowers.

160. "Welfare institutions." — About twjenty-five
years ago a number of manufav-tiiring concerns in Ger-
many, which were subsidized by the government, intro-
duced improvements in the methods of light, heating
and sanitation in their workrooms, as well as rest rooms,
emergency hospitals and lunch rooms for their em-
ployes. Houses at a low rental, recreation places,
lectures, and industrial insurance were also included.
These were considered entirely from the view point of
individual betterment and were therefore called Wohl-
fahrts-Einrichtungen, or "welfare institutions."

By experience it has been found, in America as well
as in Europe, that the promotion of the physical, men-
tal, and moral welfare of the employes is actually a mat-
ter of profit to the employer. If healtl y, in^elUgent,
comfortable and happy workers do better and more
work than those who are ill-nourished, unintelligent,
miserable and ill at ease, there is no question but that it
pays to have the former. If the workman is regarded
and treated as an automaton, bad work, ill-will, dis-
agreements, strikes and labor troubles result. If he is
regarded and treated as a fellow worker by the em-
ployer, he is far more apt to conduct himself as such,
and by interest in his employer's work there results in-

87«

BUSINESS MANAGEMENT

provement in workmanship, greater celerity, and a con-
sequent increase of production.

Undoubtedly one of the chief causes of the trouble
and turmoil in the industrial world to-day is the loss of
touch between employer and employe. In the Unites
States, the National Civic Federation and the American
Institute for Social Service of New York City are mak-
ing efforts to bring about harmony and sympathy be-
tween employer and employe by establishing industrial
betterment branches about the country, and by publica-
tions, lecture tours and meetings.

In 1889 was begun the appointment by large con-
cerns of social secretaries, who proved of untold advan-
tage to the houses that employed them. They are
sometimes called "welfare managers." Often they are
women of ability, preferably university graduates.
Their duties include the engagement of unskilled labor,
the supervision of lunch arrangements, hours and terms
of employment, the visiting of employes who are ab-
sent for illness or other causes, the overseeing of clubs,
societies and social doings and things of a similar nature.
When these welfare institutions are properly organized
and managed they do not require a great deal of atten-
tion.

161. Safety devices against accidents and fire. — In a
consideration ni welfare institutions or industrial better-
ment, we must include the provision of safety devices
against accidents and fire. There is no question but
that if the employe's peace of mind is assured and if
there is no perpetual nuisance or danger staring him in
the face, he can devote his attention and energy more
strictly to his work. In factories it is very necessary
that proper screening and belting around the machines
be provided. It is becoming more and more conraion to

INDUSTRIAL BETTERMENT

373

introduce automatic devices for protecting the workers
even if they be careless or incautious. Dangerous parts
of machinery are shielded and so painted as to attract
attention. Frequent boiler inspection is averting many
accidents. In the long run precautions of this kind
. ave money for the employe- by avoiding claims for ac-
cidents.

The law requires that factories be built fireproof, but
"* present not all of them are fireproof. Even fire es-
capes are not of much use in case of a panic, anymore
tiiaii a fireproof building is if the inmates have all lost
their heads in case of a sudden alarm. The only way to
avert a panic is to have occasional fire drills. There are
generally more casualties as a result of panic during a
fire than from the fire itself, and often there is a panic
from an alarm when no fire exists. In most places there
are fire buckets or sprinkler systems. Still if no one
knows how to use them in emergency they are not of
much consequence. Automatic sprinklers would be of
no use if there were not pknty of water at hand. For
this reason they should frequently be looked aft«^r. A
regular fire corps should be appointed from among the
workers and drilled occasionally. Fire escapes too are
often the cause of casualties. The lowest fire escape
balcony generally has its ladder himg up so as to pre •
vent tlie possibility of thieves and burglars (ntering the
building. If the ladder is long and heavy, it is difficult
to handle especially under the stress of excitement.
Consequently there is a jam and much crowding on the
stairs of the escape. By fire-drills, the employes may
be instructed how to act — ^how to get to the escapes in
an orderly way as quickly as possible, and then how to
descend properly without crowding. Drills Y ive been
introduced in many factories with remarkably good re-

374

BUSINESS MANAGEMENT

suits. After several of these, there is no danger of a
panic. A building with hundreds of workers may thus
be emptied in a very few minutes and all loss of life and
even minor accidents averted. Drills pay in the long
run, as in case of a real fire the firemen may devote
their energies to the saving of property. Then too/the
peace of mind of the workers is assured as they know
that everything will run smoothly in case of alarm.

The most progressive firms now-a-days provide rest
rooms and emergency hospitals in their buildings.
Often a worker may be indisposed for several hours but
by a short rest and a little care he may be able to go on
with his work instead of going home and missing a whole
day. Some of the rest rooms are provided with beds,
couches, and bath rooms adjoining. Some firms even
supply a nurse. Occasionally there is a doctor in daily
attendance whose services are free. The nurses also
visit invalid employes at their homes, and sometimes
fruit and other things are provided by the company.
Other firms keep a dentist on hand. The Diamond
Match Company has a dentist and a doctor who watch
the workers for symptoms of phoi^phorus poisoning.

162. Light. — "^he ideal modern factory or business
house is situated in the suburbs of the great cities where
fresh air, plenty of light and pleasant surroimdings are
to be procured at little cost. For example, the Cad-
bury Works are situated five miles from Birmingham
amid beautiful gardens. The Waltham Watch works
near Boston overlook the river and a well-treed village.
The buildings of the National Cash Register Company
at Dayton, Ohio, are surrounded by gardens. The
Natural Food Company has magnificent buildings
which stand in a park.

The smoke nuisance is gradually being done away

INDUSTRIAL BETTERMENT

87ft

with. An understanding of a few chemical facts re-
carding the nature of smoke disposes of the obnoxious
particles, and the entrusting of its control to a chemist
not only disposes of the evil but saves fuel as well.

The obvious advantage of plenty of sunlight m
workrooms leads to the use of much window space
Sometimes prismatic glass is used which throws the hght
directly into the center of the rooms. The office build-
ing of the Armour Company has 800 windows The
ceilings are fifteen and a half feet high.^ Each floor
has 140.C.O square feet of space. The wmdows are m
sets of three at intervals of six feet. There are 1.500
electric glower lamps nine feet apart and besides
four ninety-candle power lamps at intervals on each
floor. The lamps are twelve feet above the desks.
Electric light is superior to gas and other artificial hghts
because there is little danger from fire and no pollution
of the air. Also, it but slightly affects the temperature
and humidity of the atmosphere. Most of the large

nromessive firms now employ this method of hghting.

Next in preference come the Welsbach burner and

acetylene gas. r ui. •

168. Ventilation.— Bqu&l in importance to hght is
proper ventilation. One of the chief dangers of indoor
life is thj exposure to vitiated air. It is generally
known now-a-days that the fresher the currents of out-
side air and the more directly they enter into the rooms
the more beneficial are they to the individual. Bad air
causes weariness, dullness and torpor. It stands to
reason that an employe will not accomplish as much m
this condition as when he is kept fresh and bright by
good ventilation. Proper heating and cooling in the re-
spective seasons are well worth the expense.
In the most important modern factories exhaust fans

876

BUSINESS MANAGEMENT

are employed to draw off odors, steam, dust and dan-
gerous gases. The National Cash Register Company's
brass foundry is so arranged that the fumes from the
furnaces can be collected and carried away at the roof.
In one establishment in a i»Iassachusetts foundry, a
large flaring hood in the center of the room draws off
the dust by upward suction draft, and the operatives
wear helmets with fine wire inserts to protect the eyes
while cloths under the helmets protect the nose and
mouth. In the Parke-Davis Drug Works at Detroit
the hall doors are hermetically sealed to prevent the dust
of the hallways from entering the workrooms. The air
is kept filtered and fresh and then drawn out so that the
dust is kept from the workers as well as from the medi-
cines and drugs. The office building of the Armour
Company has tile ducts in the walls which carry fresh
air through registers in the walls near the ceiling and
the foul air is led away near the floor. Fresh filtered air
is pumped in by a fan driven by a powerful motor in
the basement. It is known that particles of iron and
stone dust induce diseases of the respiratory passages,
and thot workers in lead, n^ercury, arsenic, phosphorus
and dyes suffer from injurious effects.

164. Sanitation. — In connection with light and venti-
lation comes the consideration of cleanliness and sani-
tation. Realizing that next in importance to clean
v'orkrooms is the cleanliness of the individual, employers
have provided facilities for this. Especially when
foods and fine light colored materials and articles are
handled it is imperative that the workers be absolutely
clean. In many occupations a change to clothes proper
for the work is insisted upon, and lockers as well as
washing and bathing facilities are provided by all en-
terprising employers free of charge. The same thing

INDUSTRIAL BETTERMENT

377

is necessary when workers are employed in dirty work.
The McCormick Harvester Works provide each ma-
chine shop with rows of marble basins for hot and cold
water and soap and towels. The Cleveland Twist Drill
Company provides ahower baths. In the works of the
Pope Bicycle Manufacturing Company at Hartford,
Connecticut, warm water flows in a trough past the in-
(livi(hial lockers. Each of these has also a cold water
tap. At the Cadbury Works in England swinmiing
baths are provided. The Natural Food Company has
fourteen rooms with baths and the employes are allowed
to use them in the firm's time; hot water, soap, and
towels being provided free of charge. In Germany at
the Krupp mines near Hanover 1100 miners are al-
lowed to use the twenty-eight shower baths free of
cliarge daily. The Spindlers near Berlin have free bath
houses on the river with swimming instructors for their
1000 employes, while there is a small charge for hot,
shower, steam or hot air baths.

165. Fest hours and lunch rooms. — Realizing the im-
portance of proper and cheerful methods of eating as
well as the absolute necessity of hygienic food, employ-
ers have established lunch rooms where healthful lunches
may be bought at a low figure. More has been done in
Europe along these lines than in the United States yet
great progress has been made here too. Americans are
still held up to ridicule for their patronage of "quick
lunches," and dyspepsia continues to be the national dis-
ease. The picture of the shop girl or factory hand rush-
ing out at noon to lunch upon ice cream soda, probably
adulterated, or a cup of strong coffee and the proverbial
piece of pie, is still laughed at by Europeans. Never-
theless this is becoming rarer under the newer facilities
offered by employers.

378

BUSINESS MANAGEMENT

In France there is a law which irsists on dining
quarters in connection with factories. In many of the
large concerns a good lunch may he had for from 2 to
15 cents. The Krupps in Germany have dining-balis
which are provided with ranges so that food brought
from home may be properly heated. Milk, coffee, and
rolls are to In,* bought at cost both morning and evening.
Another big firm in Germany provides the same kind
of dinner that is given to the German soldier— six
ounces of beef, a quart of soup and vegetables— for o
cents. Plain coffee is to be had at less than a cent a
pint. Another dining-hall is provided for those work-
ers whose families bring in their meals and who are al-
lowed to eat with them.

In the United States the Natural Food Company
gives free lunches to 850 girls. One hundred and fifty
men can buy dinner for 10 cents at a lunch counter be-
longing to the company. Wanamaker's provide good
meals at 10 cents for the employes at their stores. The
Chicago Telephone Company gives a free lunch of tea
or coffee with cold meat and fruit and other things with
a frequent change of menu. The United States Play-
ing Card Company of Cincinnati can seat 1230 in its
dining-hall. The menu is posted outside the dining-
hall door each day and the employes can make a selec-
tion in passing. They leave work in four batches.
Each takes his plate from a rack and gets it filled on the
way to his seat. At some of the mines in Colorado
there is a bar where men may procure soft drinks and
unadulterated alcoholic drinks of the best quality.
This is to protect them from injurious and poisonous
drinks, for it is a well-known fact that miners are much
addicted to drinking. Many companies too provide
plenty of pure spring or filtered water so that at least

INDUSTRIAL BETTERMENT

879

while their employes arc at work no risk from bad water
is incurred.

166. Recreatim.—The primary consideration in the
matter of recreation is of course the adoption of an
eight hour day, which many progressive firms have seen
fit to do. Next is sufficient time for lunch and then
perhaps one or two intervals of rest for a short period
each day. We all realize that "all work and no play
'ikes Jack a dull boj." Just as much and even more
wui k is accomplished in shoi ter hours. Faculties which
are dulled by fatigue, weary muscles, and a mind
fagged out are not conducive to good nor rapid work.

Many firms allow a few minutes of rest during the
afternoon, realizing that their employes are under
stress and tension which is greatly relieved by a short
change, and that they really work faster as a result.
Cheerful surroundings, good air, and light all have a
recreative eflfect. Music is encouraging and restful
and relieves the strain on the nerves. Some companies
make it a practice to have music played on a piano some-
times accompanied by a song during work hours. No
one doubts the enlivening effect of the band ipon
soldiers on the march. Why not have music in the
march of industry? There are factories in which the
operatives sing to the piano during work.

iSlauy concerns provide outside amusements which
may be indulged in during the noon recess. The girls
of the Cadbury Works are allowed to go out upon the
magnificent twelve-acre grounds, where there are tennis
courts, cricket pitches and shady walks. The wish of
the woman of the "Song of the Shirt," who longed "but
to breathe the breath of the cowslip and primrose sweet,"
has indeed been realized in these days by her more for-
tunate sisters, who, in a figurative way, ply their needles

380

BUSINESS MANAGEMENT

and thread industriously, but who can relieve the monot-
ony by the sight of the sky above their heads and the
grass beneath their feet. In wet weather the Cadbury
girls go to the gymnasium where there are two instruct-
resses who are employed by the firm. The men have
several acres of ground with a pavilion and gymnasium,
as well as cricket and football fields and a fishing pool.
Mr. Carnegie at Pittsburg has a public library, a con-
cert hall and organ, and also a swimming bath, a gym-
nasium and bowling alleys. A low fee is charged for
their use.

Vacations with full or part pay arc profitable to both
worker and employer. In Europe, the Saturday half
holiday is common and it :'s becoming more customary
in the United States. Most big American concerns give
summer vacations of one or two weeks and an occasional
outing or picnic for a half day. The Siegel-Cooper
Company of New York gives its 2000 women employes
a chance to spend two weeks at their seaside home every
summer.

167. Effects of welfare institutions in general.— A.
concern which treats its employes rightly gets not only
the interest of the employe but of the buying public as
well. A close bond of union between the management
and the workers is essential to a concern's high name and
reputation. Under harmonious relations, the rate and
amount of production advance, allowing the employer
to realize a profit while the workman gets a sufficiently
high wage to live in comfort and peace. In one past
year the industrial betterment system of the National
Cash Register Company netted the company $80,000.
It stands to reason that a modern business, progressive
and well managed, will attract a better class of workers
than one which is not progressive and takes no interest

INDUSTRIAL BETTERMENT

381

in the welfare cf its employes. The lack of cooperation
between employer and employe arouses the militant side
of the trade unions, which results often in threats and
violence. With cooperation and conciliation commit-
tees, any disputes may easily be settled, and the trade
unions need no longer be defensive but may concentrate
their energies on the development and elevation of the
laboring classes, which will assuredly bring about in-
dustrial peace. Man-power — the personal element in
business — is certainly the most influential element. The
ideal business is the one where the individual is not only
a part of the organization, but where the business be-
comes a part of the individual worker both during and
after work hours.

168. Suggestion system. — In order to encourage new
ideas on the part of the employes and to arouse their
interest in the management generally, the sugges'.im
system has been introduced in many of the most progres-
sive business houses of to-day. It has been found to
benefit both the employer and employe. Very often
practical suggestions for improving methods are re-
warded by prizes. Small locked boxes are distributed
throughout the buildings and offices. They have a slit
through which the written suggestion may be dropped.
Eacli box is provided with a small pad of paper whose
leaves can be detached. A carbon sheet is inserted so
that there may be a duplicate sheet for the writer for
future reference. Each suggestion must be signed by
the writer in order to be considered. They are collected
at regular intervals by a clerk who copies them without
the name, and files the originals. The copy is sent to a
committee representing both the employer and em-
ployes. These consider the suggestions and decide on

38S

BUSINESS MANAGEMENT

the awards. The system produces some wonderful ideas,
sometimes of great value.

The suggestions may include the following considera-
tions: improvements in machinery; improvements re-
garding the comfort, safety and general welfare of the
work people; saving of time and expense; prevention of
the waste of materials; improvements in factory and
office systems, such as the keeping of records, duplica-
tion of circulars and advertising; improvements in
methods and processes of manufacture as well as designs
of products and so on. The salesmen are also encour-
aged to make suggestions along their lines, such as im-
provements in the products they represent and methods
of advertising. Sometimes the suggestions are not
pxactical, but they are generaUy suggestive at least,
and with some modification will prove useful. The
prizes range aU the way from fifty cents to one hundred
dollars. The National Cash Register Company dis-
tributed $6,070 in one recent year in prizes. In this year
they had over thirteen thousand suggestions, of which
over a fourth were adopted. Sometimes the suggestions
mvolve the taking out of patents. Some firms oflfer
awards without a definite prize system. The rewards
are generally distributed by progressive firms at a gen-
eral gathering of all the employes at which a festival
spirit prevails.

169. Results of suggestion system.~ln order to make
the system work property there r.iusi be right relations
between the working organization and management, be-
tween the worker and the employer. It seems to be a
well-established idea that the suggestion system when
property managed is well worth while. It pavs from a
business point of view. Some business men object to
the system because they think that the plan affords an

INDUSTRIAL BETTERMENT

383

opportunity for petty complaints and interference in
things which are not the affairs of their employes. It
is only by testing it and examining the actual sugges-
tions received that a firm can find out whether or not
this is the case. Whether or not the individual sugges-
tions alone pay may be inferred from the following
notes of improvements made through suggestions of the
workers at the National Cash Register Company.

One man suggested that a certain advertising pam-
phlet be sewn with cord instead of tying it with ribbon.
This will save $36 per month. The prize was $80.
Another suggested the use of riveting machines for
studs in special counter frames. The counter frames in
registers are made in ten pieces. These were formerly
riveted by hand, but doing the work on a riveting
machine saves $171 per year. The award for this sug-
gestion was $20. Another person suggested that a
number of pieces of registers made with very expensive
metal could be fully as well made with a cheaper kind of
metal which was just as strong. The saving amounts
to over one thousand dollars a year. The prize award
was $30. A woman suggested an improvement h\ the
engraving machine cutter by having a larger screw made
for the spindle which holds the cutter on the engraving
machine, making it more convenient for those who
operate the machines. The award was $10.

At the Cadbury Works near Birmingham, England,
for everj'^ suggestion that is accepted and adopted, a
prize is given from one shilling up to as much as £150
and £200 for exceptional suggestions. The following
notes will give some idea of the character of the minor
suggestions: A wire netting under the stools to put
aprons and waste rags on; footstools in the shop; a scrap
box with wheels; the removing of the lights overlooking

884 BUSINESS MANAGEMENT

the table to second beam in front, as they are of no
benefit when the work is stacked; hooks fixed to wall
to keep the window cords straight; repairing of the
tin over ventilator; the placing of a heat radiator
in the Dental Surgery, as the fire grate is too small;
the rolling of the top path in the girl's recreation ground,
as it is rough and stony. These suggestions were carried

out by the firm.

Major Charles Hine of the Harriman lines has given
the following description of how he introduced the Unit
System* of organization.

After starting the system, about the second day I got out
of town and in the course of a month or so I came back to see
how they were getting on, to check them up and, best of all,
to steal some of the ideas that had been developed much fur-
ther than had occurred to me. These ideas I could use on
other divisions.

The suggestion system principle has a broad applica-
tion. Many companies encourage intelligent criticism
from their patrons. The Erie RaUroad, for instance,
leaves a blank page on all its local time tables headed:
"This page is reserved for comments either favorable
or unfavorable to the Erie Railroad."

The B. F. Goodrich Company recently sent cards to
an ordinary automobile mailing list asking their opinion
of tires and received 85,600 replies which it has worked
up into a sales booklet. The Good Housekeeping majpi-
zine has long run a department of practical household
hints called "Discoveries" paying $1.00 for each dw-
covery accepted. This is considered one of the mm
interesting departments by many of the papers suo-

» PMceedings Wertem Rwlway Oub, Jmi. 18, 1910.

INDUSTRIAL BETTERMENT

885

scribers and has proved so successful that it is widely

copied.

Aside from the mere profit to the employers, the
suggestion system, by stimulating the flow of new ideas
and commanding the best efforts of every worker, is
a step in industrial progress. It fosters cooperation,
811(1 cooperation has been found profitable both to em-
ployer and to employe.

11—86

CHAPTER X

SOURCES OF ADMINISTRATIVE INFORMATION

170. Use of statistics. — Only when statistics can be
employed progressively are they effective. It is not
so important that past conclusions be confirmed by our
statistics as it is that deductions for the future be
correctly drawn. Only when they take on this latter
character may they be said to be vitalized.

Among the monthly reports of the Harriman lines
is one of particular interest because it looks forward
instead of backward. It asks not for an explanation of
the unsatisfactory conditions shown by the figures, but
for a statement of what action has been taken to cor-
rect them.

R. R Division.

19....

General Superintendent :

Dear Sir. — 1 transmit herewith explanations of fluctua-
tions in operating expenses for 19. • • ■> com-
pared with the same period of previous years, having person-
ally reviewed the month's exhibit.

The fluctuations are regarded by me as unsatisfactory,
and I have taken action to improve results in future periods.

171. Graphs and statistics.— The graphic method
of stating statistics, though inferior to the numerical
in accuracy, has the advantage of enabling the eye to
take in at once a series of facts. This advantage is not

986

SOURCES OF INFORMATION

387

of first importance when we are considering only one
set of facts. Accuracy is then more essential than ease
and rapidity of representation. But ease and rapidity
are essential when we want to compare many sets of
facts, because if the mind is delayed long in taking in
the general effect of one set, it loses count of the others.
The function of the graphic method is the comparison
of different sets of statistics. President Brown of th»
New York Central recently told the New England
Railway Club how a simple use of graphic charts saved
the road $2,000,000.

Thirty years ago we built four grain elevators in Buffalo.
In 1909 it became necessary to rebuild them, and two million
dollars were appropriated. However, I had an analysis made of
the grain business, and plotted a chart of the curve of pro-
duction and consumption. Those lines cross at 1913, meaning
the probable end of exporting grain, and we decided to spend
only $80,000 and merely repair the existing elevators. At the
meeting to-day even that appropriation was canceled at my
recommendation.

172. Indicating influence of one set of facts on an-
other.— Another function of graphic charts is the indi-
cation of the true influence of one set of facts upon
another. For instance, it is known that cost varies with
output. In starting a new business or shaping new
plans it might be desirable to know just what this vari-
ation was likely to be in order to estimate how much
business would be necessary to overcome the initial ex-
penses, and what profit should be realized from a given
volume of business. A chart will show far more clearly
than statistical tables the variations of two factors in
relation to each other.

S88

BUSINESS MANAGEMENT

178. Comparisons of time periods.— St\\\ a third
class of information which can be advantageously
studied with the aid of cunes is that which is compared
from month to month, such as costs, sales, output, etc.
Almost any kind of information can be plotted with
time, as the horizontal coordinate, and the desired in-
formation as the vertical. Curves should always work
out from the left-hand side and never from the bottom
up. The advantage is that the curve can be kept up
to date, that comparisons with previous and standard
conditions are grasped more easily and present the re-
sults over a long period of time. For instance, the
average market price of a product for every business
day in the year can be shown in much less space than
is possible in any other way. In the matter of output,
sales costs, etc., it is customary to carry in addition to
the quantity for the period, the cumulative total for
the year. The height of this curve always shows the
total business to date and its slope shows whether the
tendency is to increase, lemain stationary or fall off.
Conditions making for or against improvement may
then be caught and reached sooner than they would he
if tabulations of figures were used. Note, for instance,
how quickly you catch in figure 12 the relation between
orders and shipment. It also shows a cumulative total
and illustrates the plotting of two or more curves to
scale on the same chart. ^

174. Reports.— Reports from subordinate officers to
the management are the most common means of col-
lecting information. The trouble with them m mos
cases is that they are too long delayed to ^e of real
service. Reports can be kept up to date. All that is
needed is a time schedule. The payroU, to give a fam-

SOURCES OF INFORMATION

889

FiGiRE 12. — Graphic Representation of Relations Between Obdebb and Ship-
ments IN A MANXTTACnnUNO CoNCEBN.^

'Repiudueed by permission from Woods* "ReporU on Industrial Organiutioi, Syi-
tonatization and Recounting."

890

BUSINESS MANAGEMENT

iliar illustration, is always complete on Saturday mom>
ing, because the men must be paid at noon, but the cost
department using the same data and doing the same
work, merely making the debit instead of the credit
entry, is allowed to fall a month or more behind. In
fact, the only difficulty in keeping a department up to
the minute is catching up at the beginning. The de-
partment that is regularly three months behind is hand-
ling a full day every day; otherwise it would continue
to fall behind instead of remaining regularly at three
months. After it has once caught up, the same effort
will enable it to stay caught up. In fact, work that is
up to date is more easily handled as errors or discrep-
ancies are readily detected while the matter is still in
mind, but are difficult to get at after the incident has
been forgotten. Improved accounting methods, which
utilize perpetual inventories and controlling accounts,
make it possible to keep in daily touch with the finan-
cial condition of the business, instead of waiting for a
monthly or yearly stock taking. Robert Owen, at the
beginning of the last century, was accustomed when
away to receive daily reports from the mills at New
Lanark, so that present-day executives who are not in
daily touch with conditions are more than one hundred
years behind the times.

175. Determining facts by inspection. — Another
method of determining the facts of a business is by in-
spection. One may be well assured that in thesle days
of keen competition and close scrutiny of expense of
all kinds the outlay for inspection must be considered
a good investment, or it would not be tolerated by so
many important companies.

The inspection methods of the Westinghouse Electric

SOURCES OF INFORMATION

891

and Manufacturing Company * are typical of large
engineering concerns. The inspection department,
which is under the supervision of the manager of works,
consists of several hundred men divided into two sec-
tions; one for the inspection of apparatus building in its
own >.'orks, the other for the inspection of all materials
coming in from outside manufacturers, including the
various raw and partly finished materials, also for
apparatus of its own manufacture returned for any rea-
son such as for repair or exchange, or returned from
loans or exhibits, etc. Materials coming in from outside
manufacturers are generally inspected upon arrival at
the works, though certain kinds of special nature, such
as bar pulleys, etc., are often given a preliminary inspec-
tion or test at the place of manufacture.

In addition, representatives of the company are some-
times delegated to inspect the works of manufacturers
with whom there seems a liV-'Mhood of doing business to
see if their facilities are such as to enable them to furnish
materials of the degree of excellence required.

The material specifications prepared by the "Material
Committee" are made use of by the inspection depart-
ment in seeing that the materials supplied are actually
as ordered.

A very complete chemical and testing laboratory is
maintained by the company and full advantage is taken
of it not only in the preliminary testing of raw materials
but also in the examination of partly finished material
or apparatus at various stages during the process of
manufacture.

Careful records are kept of materials rejected or

' "T Work of Shop Inspection," C. B. And, Ameriean Maehtnut, May U,

1911, p. 977.

39S

BUSINESS MANAGEMENT

found defective in any respect and steps are taken to
see that such materials are promptly disposed of, to nre-
vent any possibility of their becoming mixed with ac-
cepted materials.

176. Inspection of work in process. — In the inspec-
tions of the company's apparatus endeavor is constantly
made in each department to inspect the work during
the actual making as well as upon completion.

As there are 85,000 diflperent items listed in the stock
room it would be impossible to inspect every individual
piet*?. With automatic and semi-automatic machinery,
ar.er it is properly set and working, it is only necessary
to inspect a small percentage of the output to prevent
the dies wearing out or getting out of alignment. On
the other hand, apparatus which is made by hand with
special limit gauges, templets, etc., requires detailed in-
spection of all its parts and this the company aims to

give.

Next to inspecting the work while it is still in the
workman's hands, the best method is to have the ma-
terial after each operation delivered with an identifica-
tion tag to an inspector and passed on before going to
the next operator.

Some concerns hold each man responsible for defects
in the pi^ -e on which he is working, thus causing him
to examine all the work he receives carefully for errors
of the preceding workers.

177. Questions as guides.— li is of great assistance
to the inspectors, especially the new men who are being
trained, to be supplied with some list of questions such
as the following, which call their attention to the special
points to be noted. The questions are so drawn that
they may be answered by yes or no, thereby minimizing
the writing required.

SOURCES OF INFORMATION 898

CoMPLETC Machine InraPECTioM Tao

OF THE

Wkstinohoubk Electeic and Manufactueino Compaht

Urn frame been cleaned and painted inside?

Are field coils tight and is bore of field correct?

Arc holes eve.ily spaced?

Do interpole bolts extend beyond shot face?

Arc connections between field coils properly cleaned and

insulated

Has flame-proof braid been removed from brush holder

ends and replaced by tape?

Are housings entirely free from dust .»• .1 core sand?

Do bearings and housings fit, and is alignment correct?

Are oil grooves chipped in cells?

Is drain hole 'provided for waste oil?

Are brush holders properly spaced and brush tension cor-
rect?

Arc brushes parallel with commutator segments?. ...'....

Are oil covers proprrly fitted?

Is pinion tight on shaft and key properly fitted?

Does gear case clear gear ?

Did commutator develop high-bar on test ?

Serial

Order

Inspected by

178. Qualifications of inspectors. — Inspectors should
be chosen from experienced workmen and, if possible,
trom the department where they will serve as inspectors.
They should be men who are imbued with the responsi-
ftility of their position and with good judgment not
only iti passing on materials but in dealing with men.

Judgment must be used in inspection because some

394

BUSINESS Mi»NAGEMENT

variations from drawings in no way affect the utility of
the machine, whereas other variations do. All defects
and variations are given careful consideration to deter-
mine whether the piece should be scrapped outright,
whether the imperfection may still be rectified or, if the
feature be an unimportant one, whether the machine or
apparatus may be passed as it stands. Of course, a full
knowledge of the situation is required before an intelli-
gent decision can be arrived at. If the inspector is
undecided he refers the matter at once to the depart-
ment head, stopping all work thereon pending a de-
cision.

179. Information from the outside. — The efficiency
of inspection depends in very large degree upon the aid
received from the engineering, correspondence, testing
and other departments. Every letter of complaint is
accepted at its face value and thoroughly investigated:
first, with a view to ascertain the cause of the trouble;
second, with a view to prevent a recurrence of it. It
will be found decidedly efficacious when complaints are
received involving defective workmanship to send now
and then the foreman or inspector of the department at
fault to see for himself the cause of the trouble. In this
way their viewpoint will be broadened and they will
appreciate more fully than they would otherwise the
necessity of good work.

No matter how adequate the precautions may be,
there will be certain points, particularly with new appa-
ratus, or new applications of standard apparatus, that
can only be gleaned from actual experience. Hence,
the works must depend to a large extent upon the
suggestions of their erecting gangs and customers.

180. Various kinds of inspection. — Inspection as a
means of gaining information is not confined to mechan-

SOURCES OF INFORMATION

395

ical lines. Traveling auditors perform similar duties
in a different field. Spasmodic inspection, however,
unless backed by proper reports, is apt to give errone-
ous impressions. Conditions are apt to be unusual and
the men nervous. In fact om panics often waste con-
siderable money in this ,vi».y. When it is rumored that
an inspection is to take lace, men tu-e knocked off from
their regular work and i-^*^ to cleaning up because so
many executives confuse appearance and efficiency.
This may be overcome in part by having the inspection
take place unannounced; but better by the percentage
system, which provides that a certain percentage of
the work will be examined or an established number of
inspections made, the particular lot or time of inspec-
tion, of course, being unknown. If the work inspected
proves satisfactory the entire amount is passed. If any
defects are found the entire lot is carefully examined
for further errors.

181. Inspection and research. — Closely allied to in-
spection, so closely allied in fact that one set of appa-
ratus often serves the two functions, is research. The
two functions are, however, distinct; inspection is for
the purpose of insuring that the work and material shall
come up to certain prescribed standards. Research is
for the purpose of determining these standards anc for
discovering possible improvements in the product or
the maruifacturing procesF.es. Research is much like
advertising; its value is cumulative. The first results
are apt to be disappointing and absolutely worthless
if the work is discontinued. When the general plan of
recording all results is followed, however, apparently
useless results often prove of great assistance in solving
future problems. The General Electric Company
spends annually two and a half million dollars in mak-

396

BUSINESS MANAGEMENT

ing and developing inventions. In addition to its ex-
perts it employs a corps of twelve patent attorneys and
twenty-eight assistants. The Westinghouse Electric
Company maintains a department almost as large and
expensive. The Pennsylvania Railroad Testing Labora-
tories at its Altoona shops were established in 1875, and
employ over 200 men. The American Telephone and
Telegraph Company, the Hoe Printing Press Com-
pany, and scores of smaller companies carry a force of
men upon salaries whose duties are to invent and de-
velop the possibilities of inventions.

182. A large research laboratory, — Probably one of
the largest and best equipped commercial laboratories
is that of the J. I. Case Threshing Machine Company,
which makes ever\' kind of machine used in threshing
grain. It has its own facilities, but to offset the heavy
expense of maintaining the laboratory, it does commer-
cial work for other firms.

The laboratory occupies four rooms in the company's
office building. One is the laboratory office in which
the reports are made up and the results of the various
analyses and tests recorded for use, reference and dis-
tribution. The office contains a library of several hun-
dred volumes on subjects relating to chemistry, physics,
electricity, heat, power, manufacturing, etc. The fine
instruments, microscopes, barometers, hygrometers,
anemometers, machines for electrolysis, grease-testing
machines, glue testers, etc., are also kept here. Among
them are a number of very delicate scales, one sensitive
to the 1,200th part of a milligram.

Samples of all kinds of minerals, paints, oils, drugs,
paper, cloth, leather, rubber, cordage, fuels, clays, brick,
etc., are kept h. re for reference, inspection and com-
parison. The collection of samples forms a valuable

SOURCES OF INFORMATION

397

education not only for the chemists but for the shop

foremen. - , j i.

The system of record keeping is careful and accurate,
and data for years back are a very valuable feature.
One set of books is used for research work, one for
recording chemical analyses, one for physical tests, and
one exclusively for foundrj^ work.

183. Commercial results.— The head of the labora-
tory is not only an expert che.iist, but has had many
years of practical experience in the iron and steel, nib-
ber, leather, oil, paint and other industries. Bemg
thoroughly practical, he is able to judge of the value of
any particular chemical analysis or physical test. This,
of 'course, is essential in a laboratory of this kind, for
while any chemist may be able to make an analysis, yet
in applying chemistry to practical work he may be
entirely at a loss, and through lack of personal experi-
ence in the manufacturing or commercial side of the
problem he may often do more harm than good. Each
of the assistant chemists handles a special line of work
so that the laboratory runs in a systematic manner.

A very important feature of its work is the making
of specifications for the raw materials which the com-
pany uses. This involves a great amount of testing and

research work.

Another feature is tracing the causes of failures and
breakages and, if necessary, finding a remedy for the
trouble. This is also an important feature of the work
of the Pennsylvania Railroad and the Westinghouse
testing laboratories and their procedure is ahnost iden-
tical with that of the J. I. Case Company. Thus, if a
threshing machine shaft, bearing or belt, proves defec-
tive or breaks for an unknown cause it is shipped to the
laboratory and carefully tested and examined. If the

PJSINESS MANAGEMENT

fault is due to poor workmanship or defective materials
the chemist reports the fact and it is replaced free of
charge. If the examination fails to show the cause
the foreman or chemist is dispatched to the locality
where the trouble occurred to make a thorough investi-
gation. If an inordinate strain has been applied or
unusual conditions introduced, the investigator is in a
position to suggest or make the necessary changes.
Although this method is expensive, the company feels
fully repaid in that it insures the confidence of its cus-
tomers and tends to improve future output.

184. Time study.— One phase of research work
which has awakened a great deal of interest, and to
which reference has been made in preceding sections, is
"time study," that is, the scientific determination of the
amount of time it should take a man to do a given
piece of work. Frederick W. Taylor, who has been so
closely associated with time study methods, describes it
as follows:^

It has been the writer's experience that the difficulties of
scientific time study are under-estimated at first and greatly
over-estimated after actually trying the work for two or three
months. The average manager who decides to undertake the
study of "unit times" in his work fails at first to realize that
he is starting a new art or trade. He understands, for m-
stance, the difficulties which he would meet in estahlishing a
drafting room, and would look for but small results at first
if we were to give a bright man the task of making drawings
who had never worked in a drafting room, and who was not
even familiar with drafting implements and methods, but he
entirely under-estimates the difficulties of this new trade.

The art of studying "unit times" is quite as important and
as difficult as that of the draftsman. It should be undertaken

» Tmiu. Aril. Society Medumical Engineen, vol. M, p. 14M.

SOURCES OF INFORMATION

899

seriously and looked upon as a profession. It has its own
peculiar implements and methods, without the use and under-
standing of which progress will necessarily be slow, and in the
absence of which there will be more failures than successes

scored at first.

In the course of this work Mr. Thompson has developed
what are in many respects the best implements in use, and
with his permission some of them will be described. The blank
form or note sheet used by Mr. Thompson, shown in Fig. 13,

contains essentially:

1. Space for the description of the work and notes in

regard to it.

2. A place for recording the total time of complete
operations— that is, the gross time including all necessary
delays for doing a whole job or large portion of it.

3. Lines for setting down the '^detail operations" or
"units" into which any piece of work may be divided,
followed by columns for entering the averages obtained
from the observations.

4. Squares for recording the readings of the stop-
watch when observing the times of these elements. (If
the squares are filled, additional records can be entered

on the back.)
The size of the sheets, which should be of best quahty
ledger paper, is 88/4 inches wide by 7 inches long, and by fold-
ing in the center they can be conveniently carried m the
pocket or placed in a case containing one or more stop-

watches.

In the illustration the operation consists of a series of ele-
ments. In such a case, the letters designating each elementary
unit are entered under the columns "Op," the stop-watch is
thrown to zero, and started as the man commence, to work.
As each new division of the operation (that is, as each elemen-
tary unit or "unit time") is begun, the time is recorded. Dur- /
ing any special delay the watch may be stopped, and started^
again from the same point, although as a rule Mr. Thompsoi^
advocates allowing the watch to run continuously, and enter*

400

BUSINESS MANAGEMENT

SOURCES OF INFORMATION

401

the time of such stop, designating it for convenience by the
letter "Y."

s
I

185. Time study reduced to formula. — The elemen-
tary operations are usually fewer in number than the
complex processes of which they form a part. This
greatly simplifies the problem. When the standard
elemental times have been determined and tabulated,
the standard time for any new work can be determined
without making a special study by combining the
proper known elemental times. In fact, formulas can
be deduced exactly like other engineering formulas in
which the varying quantities such as the distance trav-
eled, or the weight moved, may be substituted and
which give when solved the standard time the job should
take.

Any variation between this standard time and the
actual time taken in doing the job represents avoidable
loss. To eliminate the waste it is often necessary to
change the workman's methods of doing the work or to
re-design the machinery so as to facilitate operation.

Where the operations run into the thousands the
best results are obtained by grouping them into classes
depending upon the similarity of design, shape and
mechanical operation, and then to make an accurate
study of each group. While it is probably true that
the deductions made from these tests will not be as
thorough as would have resulted from individual tests,
a systematic examination of such classes gives quicker
and better results than could be gained by a haphazard
examination of the whole field.

186. Written aids, books, periodicals, etc. — Books on
topics connected with management are of value as a
''^^'iiIm "^*«ining an education in fundamental prin-

402

BUSINESS MANAGEMENT

ciples or as a convenient reference. A great philosopher
has said that one half of a man's education consists of
knowing where to get information. For keeping
abreast of the progress in one's own field, however, it
is also necessary to supplement the information in books
by periodical literature.

Among the most valuable sources of printed informa-
tion to-day are the trade papers and the proceedings
of the various technical societies. These sources supple-
ment each other. The latter are somewhat more gen-
eral in that the proceedings enumerate the theories, the
discoveries, or results of experiments conducted by the

members.

In the same class with the proceedings of the techni-
cal societies must be placed the various publications
offered by the general and state governments. While
the various departments of agriculture are doing the
best work, much valuable information concerning busi-
ness is contained in the publications issued by tho
bureaus of commerce and labor. A small charge is made
for some of them, but the majority are issued free.
Illinois has established an Engineerinr Experiment
Station in connection with its schools of engineering and
has investigated such important topics as fuels, building
material, railroad equipment, publishing its findings for
the benefit of Illinois manufacturers.

The Superintendent of Documents, Washington, D.
C, publishes two monthly catalogs, listing all publica-
tions of the Federal Govermnent.

In addition to making use of the library facilities of
the communitv. many companies find it advisable to
maintain specialized libraries of their own, either sepa-
rately or in connection with their testing laboratories.
These libraries collect special material, such as literature

SOURCES OF INFORMATION

408

of their competitors, forms, formulas, etc., which cannot
he secured through the regular channels.

187. Study of competitive methods. — Another source
of information is one's competitors. When the Penn-
sylvania Railroad considered the question of pensions
a special committee on Superannuation and the Pension
Fund was appointed by the advisory committee of the
relief department. The committee examined into and
reported upon the various systems of pensioning in
operation on more than seventy of the leading railroads
of Europe, America, Asia, Africa and Australia. When
the Weston Electrical Instrument Company resolved
to build its new plant at Newark, N. J., it sent three
practicing engineers on a year's tour of American
plants, two of the engineers to study mechanical fea-
tures and one to discover what arrangements other
companies were making for their employes' comfort.

3Ir. C. B. Anel, Assistant Manager of Works, West-
inghouse Electric & Manufacturing Company, in a
recent speech before the National Machine Tool
Builders' Association, said:

Recognizing that methor'^ of manufacture which had in the
past been satisfactory for their needs were proving inadequate
to handle the increasing volume of business, for the reasons
already stated, the Westinghouse Electric and Manufacturing
Company spent considerable time in investigating the methods
of other large companies in similar lines of business, with the
result that it was believed advisable to modify the original
sclieme ift favor of the so-called "factory system."

In a recent article in the American Machinist ap-
peared this significant paragraph:

The firm stands ready to furnish information concerning its
experience in this line, which may be useful for others who are
thiiking of establishing laboratories for themselves.

404

BUSINESS MANAGEMENT

The liberality with which American companies are
willing to share their experiences has often excited the
surprise of European visitors, since abroad the methods
of doing business are zealously guarded from all out-
siders. In fact, so general is the get-together idea in
American industry that a firm's willingness to give in-
formation is a fair indication of the value of the infor-
mation it has to give. Small concerns are often opposed
to giving away "trade secrets," whereas the largr cor-
porations are glad to show visitors through their works
and to furnish any information within reason. On the
other hand, many of them make a practice of sending
their foremen and department heads to visit other fac-
tories.

One method which has proved effective in writing to
a competitor r information is to state, "this is the
way we are now handling the matter; if you have a
better method we should like to hear of it." Another
method when making an extended investigation is to
state the fact and offer other companies copies of the
results, provided they will cooperate by describing their
methods. A recent inquiry of this kind addressed to
fifty firms concerning their method of applying the
"suggestion" system brought thirty-five replies.

188. Consulting experts. — Specialists exist in almost
every line of business. There are consulting engineers,
certified public accountants, testing chemists and patent
lawyers. In the steel business there are agencies which
will inspect the work in the mills, while in general there
are advertising and sales experts and information bu-
reaus without number. This work is now being sys-
tematized through many agencies, so that the business
man may secure information more readily than has pre-
viously been possible.

CHAPTER XI

SAVINGS IN TIME AuD MATERIAL

189. Time-saving hy "routing." — London and Paris
first learned of the death of Pope Leo XIII from New
York, although New York is 3,000 miles farther from
Rome. This was hecause the Associated Press had
routed the news.

As a courtesy to the Church, so that Cardinal Ram-
polla might have time to notify the Papal deleg. tes, the
Italian Minister of Telegraphs refused to allow any
news of the Pope's death to pass until two hours had
elapsed. When the Pope died an attache immediately
telephoned the Associated Press representative two
miles away, who in turn cabled to the New York
manager personally, as had been previously agreed,
"The number of the missing bond is 404 Montefiore."
To avoid any suspicion the number which gave the time
of the Pope's death was to be written backwards, as
352 for 253, or 53 minutes past 2. It happened that
this made no difference. When the telegram arrived in
Xew York its contents were shouted to the sending
room and each operator flashed the news over his cir-
cuit. Although the message was delayed at Havre and
again at the French Cable Company's office in New
York, the New York papers knew of the Pope's death
nine minutes after it had happened and the San Fran-
cisco papers, eleven minutes. The foreign newspaper
agents in New York sent the news to their respective
cities long before these cities had heard directly from
Rome.

406

BUSINESS MANAGEMENT

In the Associated Press inetliods, we find an admir-
able illustration of efficiency gained through careful
planning and routing.

The routing of news seems easy perhaps because of
the nature of the substance routed. The routing of
materials over a line of railway is the next best field
from which to draw an illustration. Since the elements
here involved pertain to industrial routing as well as to
transportation it is well to study them carefully.

190. How a train is routed. — The physical routing
of a railroad train is done by the locating engineers who
lay out the line. They make a preliminary sur\'ey, plot
out the results, estimate the cost of the various pro-
posals and after much preliminary study arrive at a
solution. There are four factors in railroad location :

1. The needs of the country traversed, connecting
with the large cities, etc.

2. A straight line is the shortest distance between
two points.

8. Gravity is a force. Working contrary to it by
lifting the train is energj' wasted. Gratis are a very
important part in railway location, because they deter-
mine the load an engine can haul.

4. Cost — 1 per cent grades and straight track are
desirable, but if a hill inter\'enes it may be more econom-
ical to go around.

It is the interplay of these four factors that deter-
mines which scheme shall e\entually be selected. A
chart often helps show the relations of these factors
to each other.

When the track has been laid and regular trains are
to be run, a train schedule is drawn up, a dispatching
system is installed and a train dispatcher is put in
charge.

SAVINGS IN TIME AND MATERIALS 407

The dispatcher's business is to route the moving
trains. The entire force must have absolute confidence
in the skill of the train dispatcher. His work requires
undivided attention. He must know accurately the
road, its cuts, curves, gradients, sidings, and the capac-
ity of the equipment with which he works. The train
dispatcher is the creature of emergencies; he is the
doctor when something goes wrong with the road. He
is in constant touch with all moving trains, and when
an\ thing goes wrong it is he who tells each conductor
and engineer what to do. He must be a man of action,
familiar with every detail and able to take advantage
of every situation. His special duty is to designate the
meeting and passing places of trains ar /• to keep in
motion trains which would otherwise bt y- led. At
the same time he must prevent trains from overtaking
each other. The Railway Age Gazette's statistics of
railroad accidents show that one-fifth are rear-end col-
lisions.

This fact is of enormous importance to the dispatcher,
for every mistake may involve human lives.

If human life depended upon the decisions of the
route clerk in the factory as closely as it does on those
of the train dispatcher, more attention would be called
to this important function in ordinary business life.

191. Essentials in routing. — Railroad dispatching has
three characteristics :

1. A route carefully laid out.

2. A prearranged time schedule or time table of
all trains based on the experience of the road.

3. A train dispatcher, whose duty it is to keep
the trains moving according to schedule and, if this
is not possible, at least to move them to the best
possible advantage.

408

BUSINESS MANAGEMENT

The proper routing of work through shop or office
is characterized by the same three feat ^s:

1. A prearranged route.

2. A predetermined time schedule.
8. A dispatcher.

A near approach to the railroad schedule in the com-
mercial world is the delivery-routing system of a big
retail store.

192. Securing a good plant layout. — The physical
routing of the work in a business is determined mainly
by the plant layout in exactly the same way that the
railway train route is determined by the track, and the
same care should be given to laying out the plant that
is given to a railroad survey. This subject has already
been touched upon in Chapter VIII of "Organization,"
but requires some further consideration here.

Mechanical helps are of great assistance in arriving at
the best solution just as the chart is of great assistance
to the railroad man in developing his time table. It
is well to cut templets to scale of the machines including
their necessary clearances and working spaces and then
shift these until the best departmental arrangement is
found. A symmetrical arrangement is always the most
economical use of space. Then cut templets of ea'^h
department and fit them into each other in the same
way as to arrive at the complete layout. It is much
easier to shift paper than to carry the idea in one's head
or to work up a sketch with rubber and pencil. Another
method is to prepare several distinct layouts on tracing
paper and then by superimposing them make a final
sketch including the best features of each. This method
is followed by most architects. When the ultimate solu-
tion is determined by the site, as in a city lot or in
rented quarters, this method works well; but where

SAVINGS IN TIME AND MATERIALS 409

perfect freedom is possible it is not likely to give so
good a layout as the first method, since it works from
the wrong end. The ultimate solution of the layout of
any business will be determined by the interplay of the
same four factors, work to be done, straight line move-
ment, gravity, and cost. But while this is true in gen-
eral, differences in application of the principles arise as
soon as they are applied to industrial conditions.

193. Straight line between terminals. — All manu-
facturing touches the outside world at two points — ^the
receiving and shipping departments. These are the
terminals of the road, and the simplest and best layout,
other things being equal, is a straight line between these
two points. Where the plant has only one connection
as one street or one railroad siding, the general char-
acter of the routes must be in a circle, so that the start
and finish will be at the same point, or a U or series
of U's both ends of which touch the outside world.
When, however, other exits are possible, receiving and
shipping need not unduly influence the routing, but be
located to facilitate manufacture. As soon, however,
as these elementary conditions of location of the "indus-
trial terminals" are passed there appear more important
complications which affect the routing.

194. Various types of manufacture. — All manufac-
turing is analytic, continuous, assembling, or more often
a combination of all three processes. Thus the United
States Steel plant at Gary is analytic in that it breaks
the coal up into coke, gas and tar, each of which must
be henceforth handled separately. Next it is assem-
Wing, in that it unites the coke, ore and limestone which
must he received separately and united in the blast fur-
naces. It is then analytic, in that it separates the iron
from the slag which is subsequently manufactured into

410

BUSINESS MANAGEMENT

cement, and finally continuous in that the iron continues
without further additions until it emerges as bars.

193. Analytic manufacture. — This type is one in
which the main material is gradually dissected to form
many products, one of which is, however, usually of pre-
dominating importance. The best illustration is the
meat industry where the carcass is broken up into beef,
hides, bones, etc., each of which is treated separately
after it once leaves the main stream. The important
point in such industries is to provide means of taking
away the parts that are removed, so they will not collect
and block the main stream of work.

196. Continuous manufacture. — This is the type in
which the mass remains the same throughout the process,
being merely acted upon and changed in form. This
is by far the simplebi and might be compared to a canal
where the entire bulk of the water enters at one end
and leaves at the other. In weaving the thread enters
at one end and, with the sole application of labor,
emerges as cloth at the other. In milling the wheat
enters at one end and the flour emerges at the other.

197. Assembling manu^'^cture. — This is the process
in which many different r :erials are received, worked
upon and gradually brou;^ht together to make the fin-
ished whole. Building is the best illustration because it
is exclusively an assembling operation. It assembles
the bricks, cement, plumbing and other manufactured
products into a house. The important thing in assem-
bling is to see that the necessary parts come together
at the right time and place, for all subsequent movement
must wait until not only a majority, but all the parts
arrive.

198. Passageways must he provided. — ^Whatever the
type of manufacture, sufficient room must be allowed

SAVINGS IN TIME AND MATERIALS 411

to provide convenient access to all parts of a machine,
and for the removal of any machine whenever necessary.
Sufficient area must exist for the storing of as large a
supply of working material and finished material as may
be necessary without interfering with the passageways.
Storage facilities must be provided at each point where
the flow of work is likely to be interrupted and where
two streams unite. In order to minimize this area, the
most economical method of stocking should be deter-
mined and the space allotted on this basis.

199. Transportation. — Adequate transportation fa-
cilities must be provided.

The open areas must be wide enough to permit t^'> passage
of two trucks in the aisles and for the sidetracking of trucks
around machines. A truck system involving the retention of
the material in the trucks, with as little unloading as possible,
is an important feature and one deserving attention in an
establishment. It involves the building of a considerable
number of trucks, and departmental supervision, but is likely
to result in economy. In some instances trucks are desirable,
built so as to pick up and deliver a sheet-steel keg for holding
work in progress. An ample supply of metal "tote boxes"
for ^ ''ng small parts will facilitate stock moving and lessen
Ic .mail parts.^

iJeificks, traveling cranes, c ' industrial railroads are
a great convenience in handling heavy materials and are
often a necessity. Belt, link, gravity or pipe lines are
serviceable where the material is uniform or will flow.
Where the plant consists of several buildings it is cus-
tomary to connect them by a system of tunnels radiat-
ing from the power house. These tunnels have cement
floors, brick and cement walls waterproofed with

*Hugo Diemer, "Factoiy Adminiatration," p. IS.

41«

BUSINESS MANAGEMENT

asphalt. They are large enough to accommodate the
trucks used and for a man to stand upright. They
usually carry the electric and water pipes but no
drainage.

All service departments, such as stock rooms, draft-
ing rooms, tool rooms, wash and locker rooms, should be
centrally located so as to be equally accessible from all
the departments which they serve.

Certain departments are by their nature mutually
exclusive.

Obviously it would be inconsistent to have a saw mill in the
same room or enclosure with departments for shellacking and
final finishing of wood surfaces, as good work of this character
cannot be performed where the surrounding air is carrying
even a small amount of dirt or grit.^

Some work, on the other hand, is better done in con-
junction with other work of the same kind. Stiff hats
are dried four distinct times during their manufacture
and it would be uneconomical to equip four separate
drying rooms in order to prevent retracing one's steps.

200. Growth must he allowed for. — Even railroads
are now accustomed to lock into the future and build
their bridge piers and terminals to acconmiodate the
expected increase of traffic. The first requirement for
systematic expansion is land. One of the main reasons
big businesses are moving from the cities to the suburbs
is to provide for future growth. It is essential, how-
ever, that a growing concern

shall not burden itself at the beginning to provide for future
prospects. One of the surest i^^ans a concern can follow to
prevent it from ever requiring ey ansion room is to incur too
»Day, "Industrial Plants," p. 51.

SAVINGS IN TIME AND MATERIALS 413

heavy an expense in securing a location that will permit future

growth.*

201. Expansion not to interfere with flow of work. —
The buildings should be designed to pennit expansion
without disturbing the flow of the work. The simplest
style is the one-story building taking its light from the
roof. This can expand indefinitely in all four direc-
tions. In all multiple story building side lighting must
be provided for and so growth is only possible by ex-
tending the ends or building separate additional build-
ings, much as a filing cabinet is built up by adding units.
This is possible only in schools or textile mills where the
work is uniform and can be shifted from building to
building without loss. Where the movement is a
straight line from the receiving room to the shipping
room the lateral growth will add capacity without
changing the method. An example of this is the plan
of the United States Steel Corporation's plant at Gary.

Ship Canal

o
-q

V o

il
H

3 3

Receiving and Storage

V
-V

Blast Furnace

Soaking Pita

Rail and Plate Mills

Shipping by Hail

Figure 14. — Genebal LAT-ctrr or U. 8. Steel Plant at Gart
'Duncan, "Principles of Industrial Management," p. 34.

..-'r^^-.^.a^

414

BUSINESS MANAGEMENT

The same idea in multiple story bull 'lings is ••hown
in the Wagner Electric Manufacturing Comjmny of St.
Louis and the Allis-Chalmers Company.

Receiving and
store room

•
•

Machinery
etc.

Machin- : ^^^^ : :

Assembling

'■ 1

FiauRE 15. — Lay-octt of a Plant with Multiple-Stoby BciLDiNas.

The idea underlying all such building is to have the
work which may need the most room in the future touch
the growing end.

1. L_

Dept. 3

Dept. 2

Dept. 4

L _

Dept. 1

FiacBE 16. — CoBBECT Lay-out or Depabticentb.

By arranging the departments as in Figure 17 growth
in departments 2 or 3 would be excluded.

Dept. 1

Dept. 2

Dept. 3

Dept. 4

FiGUBK 17. — ^Incorbect Lay-out or Depabtmsntb.

lAiii

SAVINGS IN TIME AND MATERIALS 415

202. Taking advantage of gravity. — The force of
gravity being universal, it influences manufacturing no
less than railroading. Every time a load is brou^t
down stairs and taken back again, energy is wasted.
There are two ways to avoid this waste. The materials
may be taken directly to the top floor and allowed to
work back systematically to the first through the manu-
facturing processes, or they may be started on the
ground floor and systematically worked up to the top.
The finished product is then brought down. The first
way is usually the better as the energy stored in moving
the materials to the top may be economically used to
transport them through the manufacturing processes
back to the shipping room on the ground floor.

Gravity should be recognized in small individual t_
erations as well as in a great mass. In the best organ-
ized shops machine tenders are no longer allowed to drop
their product on the floor. They take it from a movable
table at machine height and pass it through the ma-
chine to another movable table so that when the work is
finished the materials can be rolled to the next operator,
thereby saving the lifting and the carrying. The trucks
should have large wheels and large beamings.

Lifting goods to a car or truck is unnecessary as the
shipping room should be level with the floor of the car
or truck.

203. Time element in routing. — ^Routing, however,
involves not only materials and locations but time as
well. Much routing in a high stage of development has
gone unrecognized as such because business time sched-
ules are not often recognized as such, being expressed as
quantity of output. The time schedule of the Carnegie
Steel Company, for instance, was a constantly increas-
ing number of tons of steel p6r week and every superin-

416

BUSINESS MANAGEMENT

tendent who fell below this mark was expected to ex-
plain. When analyzed, 5,000 tons per week simply
means that 5,000 tons must be completed in 7 x 24 or
168 hours, in other words, that each ton must not take
more than 168-3000, or .0386, hours to produce.

204. Two types of routing. — From the time schedule
standpoint there are only two classes of manufacture:

1. For stock; that is, the factory turns out the same
.thing continuously, throwing the responsibility of nd-
ing a market for the product on the sales departir it.
This class includes textiles, typewriters, shoes, fuiiii-
ture, clothing, pianos and most ordinary goods which
are consumed in quantity. Quantity time schedules are
adequate for manufacture for stock.

2. For specific contract; that is, a single object made
to a customer's order. This class includes repair work
on orders from the general shops, but its most impor-
tant application is the assemblage of large engineering
works such as locomotives, large machinery, steamboats
and buildings. Making connections is the important
thing in manufacturing, as it is in railroading, for one
late part will stall the entire work. A premature arri-
val is as bad as a delay. If the steel for a mode, sky-
scraper arrives before the foundations are complete,
chaos ensues, for it is constantly in the way, retarding
the work which must be done before the steel can be set.
It may take a month or more to straighten out the con-
fusion. It is therefore necessary to figure out the time
necessary to mar.utacture each separate part, and to
schedule the starting date of each succeeding operation
accordingly. These time schedules resemble ordinary
railroad time tables.

For example, in the Thompson-Starrett schedule for
construction of a New York office building, shown in

SAVINGS IN TIME AND MATERIALS 417

Figure 18, it wiU be noticed that the foundations start
11-1 (November 1), the day the excavation is finished
and not sooner, and that the steel erection starts 11-24
(Xovember 24), the day the foundations are finished.
The granite, however, depends not only upon the steel,
but upon the foundation walls, and so the granite starts
as soon as they are brought to grade, 12-8 (December
8). The limestone follows the granite 12-10 (Decem-
ber 10) and the brick succeeds the limestone 12-15
(December 15). The floor arches, however, depend
again on the steel and follow right behind the rivets be-
fore the steel work is complete, and so throughout the
building. The difference of a day or two between op-
erations is to allow the time necessary to get the ma-
terial on the job and so be able to start at once.

205. When special dispatching is necessary. — As in
railroading, the time schedule is the important thing
and the more spectacular method of special dispatch-
ing is resorted to only when unforeseen circumstances
occur. Therefore, personal dispatching is of compara-
tively little importance in manufacturing for stock, es-
pecially where automatic machinery is used which sets
the pace for the operator. It is, on the other hand, an
important adjunct to manufacturing for specific or-
ders, because, on account of its irregular nature, the
general and repair work cannot be mapped out in ad-
vance and because the elaborate schedule of a building
or other work may be entirely invalidated by the care-
lessness of one individual. Like the train dispatcher
the industrial dispatcher must know his shop, its exact
condition, its capacity, special characteristics of men
and machines and the amount of work and materials he
has on hand.

^^ u^7®"' '° P^^ **^ routing.—But the dispatcher,

ittHHliHliiKliKiii

418

BUSINESS MANAGEMENT

'"*»" TIM« SOHieULl

THOMl'SOX-STARFETT COMPANY

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12-20

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*-l

—

FiavMuW,

SAVINGS IN TIME AND MATERIAL3 419

or the order-of-work clerk, is not supposed to work out
his schedules alone. The planning department pro-
vides him with all the necessary information as to what
work is to be routed and how it is to be routed. The
order-of-work clerk dispatches his jobs in accordance
with these instructions. He must keep in mind a multi-
tude of details regarding the machines, the men and all
the jobs which have been routed for him, for it is his
duty to keep the work moving. Accordingly, he is sup-
plied with a dispatch or "route" board, the instru-
mental means by which the planning room controls the
operating departments.

207. H^hat the route-board w.— This board which
contains many groups of hooks, each group being com-
posed of three sets, placed one above the other, shows
the progress of all work and the movement of all ma-
terial from point to point. When a job is assigned to a
machine, the operation card is hung on the lowest one
of a series of three hooks, each machine or working area
in the shop being represented on the bulletin board by
one of these sets of three hooks. Thus when a job is
assigned to a machine it shows that all drawings, in-
structicn cards, etc., are ready; that the i.u.terials are
on hand and everything ready for the machine to begin
Its work. It is then that the "operation order" which
covers a given operation r i on hook No. 8, the lowest
hook and the one which represents all "jobs ahead in
the shop" for that machine.

Next, when the materials have been moved to the
machine, the operation ort'er is put on hook No. 2,
"jobs ahead at machine."

Finally, when the job is actually begun the operation
order is moved to the top hook. No. 1, "job on ma-
chine."

4X0

BUSINESS MANAGEMENT

The ordc I ()f-vvork clerk, or for that matter any
person interested cHn follow the movement of a job
through the shop by watching tlie operation orders on
these three hooks. If the job should be moved to an-
other machine th^n tlv operation order would hi as-
signed to another ra-;) of three liooks correspontiifu
to the second mad ine.

208. Planniiui (n\r.-d mgiials all movemenU. -Thus
the "planning bi.arti" si^Mals the movements iH indi-
cates the seque-u ux i'leh the jobs are done. This it
does for the plaiiriing 'oom; but the man in the sh p
must also be in+ormnl of lese novements, f«ir hi< ac-
tivities depend on them. He nmst know whether lie is
to work at the same or a dif ent nsuchine afti i one job
is completed. He cannot run to the ijiaiuiing room
every time. Hence a miniature "bulletin board" !« p' '^
in the shop; and when an order in the !)lanning roi i
goes to hook Xo. 2, "jobs aht d at mnvhluv" a dupli-
cate order goes upon the shop It Uetin board notifying
the worker, as he consults it, .vhat ,,obs have been
planned ahead for him.

209. Questions answered J - route-hoard. — By n ' ''n*^
of his route-board, as it is soi eiinies called, a *\i
series of questions vital to the mauuirement an be i-
awered immediately: (1) what job hall \^e done t ■•
(2) if a machine breaks down wha^ »ther machin
do the work; (3) if a man is absent ^hat sther niui:
do the job; (4) what is the cost of any operation >n
machine for any hour, or what is he total rost of
operations going on on all machine n ar- ho^ '.

210. Status of tcork in progrt- —hi sll qag^ti^
manufacture — as for stock where He contract or
divisible into wo ig units, as, >r in •'■- a r ir*

an
an

embankment into -ubic yards— reguia

i^'^i

.ft,

SAMNGS IN TIME AND >f\TERIALS iHl

must bv iMtnpleted in each unit )f time to finisti the
eiiHre com let pmutuully. If the shop is un/'Sle to
prod'ice W quota at the '^art, it will surely be unable

. „ .MKo; „ _ ^,,|j

-eg

S3 "i «

f'> make up the shoitage in addition to the regidar allot-

i ent at the end. It is, however, in the assembling in-
stries that the progress of work must be most care-
Reprinted by permiMion from H. L. Gputfs "A Graphical Daily Balance

'" ^la-'^facture," in Transactiona American Society of Mechanical Engineers.

Vol. XXIV, p. \iU.

liiMyBidiJbM^tii&ii^

4SS

BUSINESS MANAGEMENT

fully watched. On the first indication that any one part
is falling behind, thus making likely the delay of the
entire work, it should be brought up to date either by

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employing men overtime or by increasing the force.
Comparative figures are always more mtelligible and
therefore it is better, if possible, to combine the progress

> Reprinted by pennission from H. L. Gautt's "A Graphical Daily Balance
in Manufacture." in Tranaactions, American Society of Mechanical Engiaeen.
Vol. XXIV, p. 1S84.

SAVINGS IN TIME AND MATERIALS 428

report and the time schedule which shows, at all times,
the state of the job in relation to the schedule.

The American Locomotive Company's progress re-
port is shown in Figure 19. The upper and lower
heavy, black lines indicate the time schedule and cor-
respond with the start and finish dates on the Thomp-
son-Starrett schedule. They are printed in red on the
original form and are known as the danger lines. A
black line is ruled under each department when all the
work is finished to indicate this fact to the chaser.
Figure 20 shows the same form as used in the machine
shops. The starting and stopping lines have been left
off to avoid confusion. It will be noticed that the dif-
ferent operations foPow one after the other in regular
sequence. Any department holding up the work shows
that fact immediately, for its figures do not follow those
of the preceding department.

The infomiation to keep such a report up to date
may be obtained from the shop by the coupon form of
order (Figure 21). This order which follows and is
usually wired fast to the piece resembles a railroad
ticket with a coupon for each department. When the
work in any one department is completed the coupon
is detached and returned to the dispatcher who enters
the fact on his report. In this way it is possible to
know by noon of any day the exact state of all work in
progress up to quitting time of the day before and so
it is possible to push work which is falling behind.
But in shops where the planning department is fully
developed the state of work is indicated on a "progress-
of-work sheet" by the record clerk when the job is
^ven out and when the ticket is returned by the worker.
In outside work and work done by contractors it is cus-
tomary to get the information by personal inspection.

4f4

BUSINESS MANAGEMENT

•t

la ^O
s8 to

ft 2

I C/3

I §

I- a

I ^-^

s ««

i ^

FiQUBK 21.— Coupon Fobii or Obosb Tickbt.

{!
I

SAVINGS IN TIME AND MATERIALS 4*5

Thus one of the most important duties of Thompson-
Starrett's "chasing department" is to visit regularly
the sub-contractors and to report exactly how their
work stands with reference to the time schedule.

211. Hoiv to route office work. — The New York
Clearirg House is a good example of the value of rout-
ing in office work. Each bank has a numbered desk,
and is represented by two men, a delivery clerk and a
settling clerk. The settling clerk remains at the bank's
desk and receives, records, and receipts the checks re-
turned by the other banks. The delivery clerk takes his
place m front of his bank's desk and on the manager's
signal moves to the desk on his left, delivers the piack-
age of checks, drafts, etc., drawn on that bank and de-
posited in his own bank and after receiving a receipt
for the package moves forward to the next desk, and so
around the room, until he circles the whole room and
returns to his own desk. All the delivery clerks move
simultaneously and by this method the banks are able
to exchange over $300,000,00(9 in about ten minutes.

212. Time schedule of the Clearing House. — The
dispatcher is the manager of the Clearing House. He
directs the operations from his raised balcony at the end
of the room.

9:59 Clerks must be in their places. Failure to
be punished by fine.

10:00 Delivery starts.

10:4£ > e up for making proof.. Fines will be
.nposed for all mistakes remaining un-
located.

11:15 Fines will be doubled for all mistakes re-
maining unlocated.

12:00 Fines will be quadrupled for all mistakes
remaining unlocated.

426

BUSINESS MANAGEMENT

1 :80 Time up for settling debit balances. A fine
will be imposed on all debtor banks who
have failed to settle their account with the
Clearing House.

1:80 Credit balances will be paid by the Clearing
House except that no credit balances will
be paid until all the debit banks have set-
tled.

.i,T^uu^''f 7 °^ ^^'' '"^'"^"^^ '' Proved by the fact
that although the annual clearings have exceeded $100-
000.000 000. the total of all the fines imposed have neve'r
exceeded $1,422 a year (1889) and have fallen as low
as $280 a year (1904).

218. How organization saves time.— The purpose of
or^mzmg is to enable each employe to work under the
best possible conditions of team-play. The manage-
ment should remove all obstacles to the workman's full
performance and supply all the aids necessary. De-
lays not only waste the workman's time but shut down
his machine. It is well fo remember that an employe
IS not forking for himself, and any assistance which
an employer can give him enables him to do this work
more intelligently.

The workman needs certain elements in doing his
work. These include power, machinery, tools, materials
and the cooperation of the management and his fellow
employes. The need for supplying machines and power
IS so obvious as to hardly need mention. What needs
emphasis is that the workman must be continuously
supplied with power and equipment, in other words,
that he be protected from delays due to break-downs,
etc.

214. Substitute poxoer equipment— The commonest
method of guarding against power shortage is by the

SAVINGS IN TIME AND MATERIALS 427

provision of substitute power equipment. Many of the
\ew England mills operated by water power find it
necessary to have steam plants to help out during
periods of drought. Similarly many concerns in New
York City using electric power find it advisable to
continue their old engine equipment, even though the
Edison Company offers to buy it up.

Substitution is a valuable preventive in all lines, even
though the substitute is more expensive than the thing
it replaces. The difference in cost will be more than
offset by the saving of time, the most expensive factor
in business.

215. Equipment "tickler.*' — An ounce of prevention
is worth a pound of cure. The most efficient mainte-
nance is the replacing of a part before it actually breaks.
A tickler system is a valuable aid. The best type of
tickler is one which has a portfolio for each day in the
year which should be large enough to insert all re-
minders. Notices should be placed in the tickler in
advance to come out at proper intervals throughout
the year for the examination and repairs at stated in-
tervals of parts of machines,- boilers, engines, belts, etc.,
Hkely to wear out or give trouble

216. Other methods to avoid shut-downs. — Another
metliod is the annual shut-down of the plant as prac-
ticed by the National Cash Register Company, the
Remington Typewriter Company and other large con-
cerns. All the operators are given their vacations at the
same time, the plant shuts down and the '^ntire equip-
ment is overhauled. In the steel industry it has been
found advisable to relieve the furnaces each Sunday,
whctlier they need it or not, so as to avoid their burn-
ing out during the week. In the same way ships find
it advisable to overhaul all machinery while in port and

4S8

BUSINESS MANAGEMENT

to replace worn parts even though they might last an-
other trip, rather than take chances on breaks in mid-
ocean.

No matter how carefully things are watched, occa-
sional break-downs are bound to occur and the best way
to minimize the loss is to be prepared for them. The
stock room should always carry a stock of repair parts,
and the plant should have adequate wrecking equip-
ment, such as traveling cranes and hoists for taking
out and replacing the broken machinery.

217. Stock-keeping system a necessity. — In order to
guarantee sufficient and proper tools and materials, a
modern stock-keeping system is essential. The duty of
a stock or tool department, as described by Harrington
Emerson, is to supply the right material, at the right
place, at the right time, in the required quality, in the
minimum necessary quantity and at the lowest cost.
In addition to preserving the materials from deteriora-
tion, loss and waste, the stock-keeper must anticipate
the shop's needs so as to prevent the loss of time in
waiting for supplies. The supplies are furnished to the
workmen at his machine or desk and he is not allowed
to leave it. His duty is to run that machine, for when
he is away getting supplies or gossipping with other
workmen at the storeroom window, his work is being
neglected.

The tool room is in charge of a tool expert who has
the care of all tools and the sharpening and keeping
them in shape. No workman is allowed to stop and
sharpen his own tools. He must call for a new one.
in fact, he is supplied with a call bell so that he does
not have to go aft^r the tool but has the tool brought
to him. The workman quickly realizes the justice of
this plan, and when he knows his bonus depends on it,

SAVINGS IN TIME AND MATERIALS 489

it is interesting to see how he makes the helpers step
around. Some companies even go so far as to supply
to each man a standard kit of hand tools which he
must nse constantly and a locker in which to keep them,
instead of letting him furnish his own. For these he
gives his receipt, promising to return them or their
value on leaving the cx>mpany's employ. The advan-
tages of this method are :

1. It reduces the number of tools required.

2. It enables the shop to obtain exact standards.
8. It assists the shop in dictating the exact

method of doing the work.

218. Three rules of store-keeping. — The interest on
the capital released by a maximum and minimum stores
system v/ill often pay the entire expense of the depart-
ment. Store-keeping is commonly broken up into tools,
rough stores or raw materials, and finished stores ready
for shipment. Often it is much further divided into
finished parts waiting assemblage, or other grouping, as
occasion demands. However, the principles of han-
dling these classes are the same and very simple.

There are only three operations in store-keeping: the
receipt of goods, the issuance of goods to workmen and
the preservation of the remainder on hand. There are
only three rules to stock-keeping:

1. A receipt is to be given for all goods received.

2. A receipt is to be taken for all goods delivered.

3. Some one must be responsible for stores on
hand, just as a cashier is held responsible for all
cash.

219. deceiving supplies. — Goods are received from
only three sources. The first and by far the largest
portion is purchased from outsiders. Before being

430

BUSINESS MANAGEMENT

pl«»d m s ock the« goods must be ci^efuUy checked
« to quantity .„d quality, for after they are phuS to
s^ock their identity i, lost. In order that tt! r«^„"
clerk n,.y do this intelligently he must i: sSpS:^^
a duphcate copy of the purchase order. Where he Z
not have such a copy he is bound to «»ept sh^ruZ
and wrong goods. The discrepancy may h^ZT
quent ly caught by the .^ountingVrtment. in cht^
mg .ts rec.e,pts w,th the original orders, but after^fe
goods have been received and placed in ^i itTmu^
more d,fflcult to rectify mistakes ahd, consequent
1 ss hkely that any attempt wiU be made to do so ft ,"
cu tomarj., however, to leave off the price whfck d«,
not concern the store-keeper.

Some suspicious purchasing agents blank the quan-
tity, thus making sure that the receiving clerk actuaul
checks the quantity received. I„ all casi it is „^"^
to give the unit of measure, %" nickel-plated ells .«
purchased by the niecp 1/ " ~.i • 5 ,," t
Iw,..„^. 1 xu , ' '2 galvanized ells by the

he check may be entirely useless, with no second S

wdr:f % V'r "^ "' p""**"" <>' '-^^

w«ght the stock clerk should be supplied with a scale

neglected. The best practice is to have two scdes. one
for heavy weights and one for small, thus securing the
maximum accuracy. *

Some accountants advocato placing all goods r,
ceived for whatever purpose in stock and then^Zrg^g

Z^r^,T ■ ™»'»<"»«^»»'y- Where goods*^'
ordered for special purposes it is much more direct to

Z^fi f ™ 1.?1.*° *■"* P^P""*- The order should
specify for what they are to be u«d and where; so
that the recavrng clerk may be able to forward them

SAVINGS IN TIME AND MATERIALS 481

to the proper department at once, thus insuring a mini-
mum amount of handling and delay.

There are two methods of issuing receipts for goods
received. One is to issue a formal receipt to the one
making the delivery. This receipt gives the order num-
ber, the date when the article was received and a de-
scription. A carbon copy is sent to the purchasing
department. The second method is to O. K. and re-
turn the stockroom copy of the original purchasing
order. The second method would appear the better
especially in small concerns, in that it reduces the
clerical work both in receiving and in checking bills.
The practice is however divided. One company, for
instance, uses the original order in its electrical depart-
ment, but independent receipts for its general pur-
chasing.

The second source of supply is goods manufactured
for stock. The production order should cover this class
without any additional formalities. The third source is
unused materials returned by workmen. A credit mem-
orandum should be issued for this class of receipts.
They should be distinguished from requisitions by the
color of the paper or printing. A common custom is
to use red ink for all credit items so as to prevent con-
fusion.

220. Issuing supplies. — Tools, as a rule, are easily
distinguishable from materials; but they run together
in such articles as brushes, fUes and rubber boots. Al-
though generally considered as tools they are worn out
so quickly that many managers invariably classify them
as materials and charge them out as such. Each of
these three classes of goods — ^materials, consumable
tools, tools — ^should be distinguished and issued ac-
cordingly.

4S2

BUSINESS MANAGEMENT

221. How to use requisitions. — There are two sys-
tems of issuing materials. The first corresponds with
banking practice. If a depositor wishes cash at a bank
he must issue a "counter check" on the paying teller.

f*"^- nHillnMtiMni«hrlvaM

tmm

HsarnN

MM. Ill M*

2
3
4

5
6
7

MlltaM

MtHklMlii

**'*^

FiouBE 28.— RaqmsiTioN Fobm.

This is the requisition system. The store-keeper issues
stores on the presentation of a regular order or requisi-
tion signed by any responsible person. (Figure 22.)
In office stock-keeping it is often advisable to combine
the requisition with the stock ledger by providing col-
umns in the ledger for the name of the person authOTia-

mtm

SAVINGS IX TIME AND MATERIALS 488

in^ issue and the signature of the receiver. This lessens
the clerical work and as all office supplies are charged
to expense there is no object in charging the items
separately.

222. Bill-of-materials.— The second method is to
issue the materials called for by a bill-of -material pre-
pared by the designing or production departments.
This has the advantage of more closely approximating
the actual requirements and so conserving material. It
assists the store-keeper in keeping up his stock and
preparing for future requirements. It lessens the ac-
counting because it eliminates the listing and totaling
of many small individual requisitions.

223. Combination gystems.— Other systems, how-
ever, use a combination of the two. The bill-of-ma-
terial should be the general practice with the requisi-
tion as the flexible element to meet emergencies and to
offset clerical errors in bills. Some managers think it
is better policy to issue material when caUed for by a
responsible department foreman and adjust later any
discrepancies between bills-of-material or other speci-
fications and the foreman's statement as to his require-
ments. Under no circumstances should production be
stopped pending adjustment of technicalities as to
quantity of material.^ If a loreman is to be held to
results he must be given a certain amount of freedom.
Under either method the man actually receiving the ma-
terials should also be required to sign for them so that
he can be required to explain any over-issue which may
occur.

To secure a new consumable tool the workman must
return the wprn-out tool he has. To get a new brush,
for instance, he must return the old one, to get a new

' ^1«"»>«. "P»ctory Orgwiiiation," p. 118. v

484 IIIISINESS MANAGEMENT

pair of b..nl» lie m.ist return the w,.rn-o..t pair. ThU
Prevents the worku.a.i losing his tooU »nd getting new
™es fro,,, the «orer<K,n,, ...a also gives the purch.8-
■:^ aepurtment . basis for judging f *e we.nng
q.falitv of the Komls. Replaeement of defective rw-
Triali and issues ol materials on account of spoiW
work should lie made by this mahod.

224,. Complete and >imple .;/.«-m.— The J. L. Mon
Compauv's t,K,l-ro„m system is .omplete and smiple.
Each^ian is given 12 checks »-«""« *es."iem.m^
l«r and specially made from a reversed »»« *^ "'^
the firms initials so as to prevent the poss.bdily of th«r
bdng duplicate-l. Each tool in the department is rep-
r sented by a 3x5 filing card. When ^ere " ton
one tool of a kind there are a corresponding number
of cards. A t ,„ .nawcr card index -"met is us^ .

In drawer K,-.. 1 Ib^ gui-le cards "P"'-^"* '"^'^^
ing, bins, drawers, etc., of the tool-room Behmd tt«^
the tool cards are placed correspondingly. I"^™" '
No. 2 there is a guide card for each man "um^' <• J»
Correspond with his checks. When a man pr««nt» Im
check at the window for a tool, the check is hung on the
t^ Cl and the .ool card is taken f ™m W"
place, drawer No. 1, and placed back of the ^T^
Lde card in drawer No. 2. When the tool is rrtumrf
Z man receives his check and the »<»> -^;^PtX
in its proper place in drawer No 1 . If tools are
or J the card is taken out o jj-' J^^ "^d .
being marked "broken or iMt » pi*^
guide marked "broken or lost" » «»«-' fj; .^„
S^e checkhoard shows at a gl«"« >«'" "™y^„ x„. S
has and the total nmnber of tools -^^P'^^H^^ lo
shows what tools are in the shop - ithout refern i

the shelves.

SAVINGS IN TIME AND MATERIALS 436

225. Single and double check sygtem.— The simplest
n»ethod of issuing tools is to give each workman a
supply of brass checks, say ten. When the man gets a
tool he hands in a check which is substituted for the
tool. This is the single check system.

In the double-check system, which is the common
l)ractice, each man is represented by two adjacent hooks
on the tool-room checkooard. Ten round checks are
issued to the man when he starts work and ten square
checks bearing the same number are hung on one of
liis hooks. When he calls for a tool he presents one of
his round checks. This is hung on the vacant hook.
At the same time one of the square checks is taken off
and placed in the tool rack, case or drawer from which
the tool is taken. When he returns the tool he is given
hack ills round check, and the square check is taken
from t1 " rack, case or drawer into which it had been
placed as a substitute for the 1 This system enables

tne tool-room foicTian to tell \, i umber of round
checks hanging on any man's hfx < n. . how many tools
he has out, but it does not show a -••. tools they are as,
ill the Mott Company's system.*

226. Responsibility for remainder on hand. — In or-
der tliat the stock-keeper may be hei<^. responsible for
the stock and tools on hand he m .j have complete
authority. The stock-room must be under lock and
key and no one except the store-keeper allowed access.
This is essential. Unless he is thus p.otected, the
store-keeper cannot justly be held accountable for
the stores. If twi) men have joint charge, each can
blame the other and it is never possible to place the
responsibility absolutely. Thus we see separate cash
reprjsters in large store . Kach clerk has a cash drawer

'Dipmer, "Factory OrgaiuMtion." p. 159.

436

BUSINESS MANAGEMENT

of his own and so is responsible for any shortage in his
own drawer.

227. Stock-room protects goods. — The stock-room
must also protect goods from depreciation. Only heavy
goods of little value should be stored out of doors and
these protected from the weather by sheds or tarpaulins.
Finished surfaces should be greased even in the house
to prevent rust. The Robert Gair Company, paper
goods manufacturers, state that one of the advantages
of their new concrete building is that ft s.',ves fully
$5,000 a year in vermin losses.

Fire is, however, the main cause of loss and special
precautions should be taken, especially for goods of
value and all records. Thus in Armour an Com-
pany's office building and in other modern buildings
there is a built-in fire-proof vault for office records, and
in the American Bridge Company's drafting room v.
fire-proof vault for drawings. This practice is becom-
ing universal. Where records and drawing are not
thus protected a duplicate set should be kept somewhere
else as an insurance measure.

To prevent goods being kept too 1" :g the Water-
town arsenal introduced the so-called two-bin system.
Two bins A and B are provided for each article.
While the goods in A are being used al! new goods re-
ceived are put in B. When A is empty, B is started
and .new goods are put in A. Thus the material is used
in the order of its receipt instead Oi old material col-
lecting at the bottom of the bin as is the case where new
material is dumped in on top of the old. The two-bin
system is especially appropriate in handling stationery
which yellows with age, so that often the bottom of a
pile under the old system has to be thrown out.

228. Classification by kind. — Materials should be

SAVINGS IN TIME AND MATERIALS 437

classed by kind not by size. For this reason some unit,
such as 24 inches, should be adopted and the shelves
divided into square compartments. These compart-
ments can then be subdivided as required without
changing the shelving. There are two systems of such
arrangement.

The way to number bins in stock warehouses is to divide
the w'^ole cubic volume of the house into spaces and allot a
certain number of spaces to each volume, whether the volume
is to contain large or small bins. In this way,, no matter
what changes or rearrangement in the sizes of the bins there
may be, the same number will always designate the same space
in the warehouse. For instance, all bins numbered in the ten
thousands would represent bins in aisle 10, those beginning
with 10,500 representing the bins on one side of the aisle, and
those beginning with 10,000 the bins on the opposite side of
the aisle. If the bins are large, of course, a great many num-
bers will not be used. This is practically the same principle
that lias been finally adopted as the most satisfactory method
of numbering houses in city streets, and will be found equally
satisfactory in storage and warehouses.^

The placing of even numbers on one side of the aisle
and odd on the other as i.«5 done in the numbering of city
streets and theater chairs has, however, some advan-
tages over this method.

It is also convenient to place those goods which are
much used near the delivery point and those which are
seldom used at the back in the storeroom. Where this
system is adopted it is necessary to have "finding lists'*
or card indexes giving the location of the supplies.
Where the stock-room is large or there are several
floors, it will save time to have several such finding lists
located at convenient points.

' Uiemer, "Factory OrganisatioD," p. 114.

4S8

BUSINESS MANAGEMENT

The second method is alphabetical by the material or
tool symbols. These symbols are marked on the end of
the tiers so that any one, even if not familiar with the
stock-room layout, can find anything in stock exactly
as he would locate a name in the city directory. This
system follows the general trend to simplify the work
and eliminate the index ^vhich is discernible in all lines
in loose leaf ledgers, in card systems and in the open-
shelf fief 1 classification of the public libraries. The
procedure is the same whether a lead pencil or a blow
valve, a box of envelopes or a rough casting is wanted.
Of course some kind of a symbol system is a prime
requisite.

229. Size materials when checking. — The handling of
materials is facilitated by the sizing of materials the
first time they are checked and so eliminating the need
of doing it again. The Salford Rolling Mills, Man-
chester, paint the weights on all castings when they
leave the foundry. The Thompson-Starrett Company
paint the length of all heavy timber on both ends so
that one can tell just what is in the yard by looking at
the ends of the piles. Some companies indicate the
kind of steel by painting one end a certain color. The
Tabor Manufacturing Company of Philadelphia paint
their bolts, washers, clamps, etc., used in setting up
work in machine tools, bright colors, such as red, blue,
green, etc., which immediately designates them as tool
equipment. Adequate hoists, tool boxes, etc., for han-
dling the material should be provided.

280. Stock ledger and inventory-taking. — The actual
stock ledger is usually kept in the dispatching or plan-
ning department to facilitate routing. Where the sys-
tem of dispatching has not yet been introduced, the

SAVINGS IN TIME AND MATERIALS

4S9

stock ledger is usually kept in a card or loose leaf
ledger.

Standard designs are carried in stock by most of the
manufacturers of loose leaf and card systems. A use-
ful stock form of the C. E. Sheppard Company is
shown in Figure 28. The sequence of the items varies
in different companies. C. B. Cottrell & Sons place
the balance between the received and delivered columns.
C. W. Hunt Company place the order number after
the amount delivered but before the balance on hand.
The W lis Brothers Company provide separate date
columns.

In order to verify the stock on hand, the balance-of-stores
clerk spends an hour a day in the storeroom checking up.
Each day he takes a certain number of items and counts and
weighs them, comparing the results with the figures on his
sheets. To go through the whole stock-room requires six
months, so that during the year two full inventories are
taken. ^

Another method is to check each article when the
quantity on hand is low and so involves a minimum of
work. Slight discrepancies are bound to occur, be-
cause the fallibility of the stock clerk is far more com-
mon than the infallibility of records. When these dis-
crepancies are marked or appear as continual shortage
in the more valuable materials they should, of course,
be investigated, but in general they should simply be
written off. In either case, that bugbear, the annual
"taking account of stock," is entirely unnecessary.

2.31. Provide a surplus of the less expensive. — If two
men are mutually dependent upon each other, the less
expensive must wait upon the more expensive. The- »

' E. M. Woolley in SyHem, June, 1911.

sfB^aB;

440

BUSINESS MANAGEMENT

SAVINGS IN TIME AND MATERIALS 441

oretically it should be possible for them to exactly tie
into each other. Practically it is not so. Unless the
cheaper serves the more expensive, the more expensive
ran or machine will do the waiting. For instance, if
men are loading trucks with dirt, it should be possible
to proportion them exactly so that one truck would
drive on to be loaded while the one ahead was driving
away full. As an actual fact it is not possible and un-
der such circumstances the men will be waiting for the
trucks or the trucks will be waiting to be loaded or both
will be waiting for each other during different parts
of the day. It is therefore necessary to decide which of
the two is the more expensive, and supply either
enough men to keep the trucks moving or enough trucks
to keep the men busy.

This applies throughout business. If the man's time
is more valuable than the material used, he must be
given a leeway, otherwise he will have to adapt him-
self to the material. If the material is more valuable
than the man's time, he must adapt himself to the ma-
terial, otherwise he will waste it. This is the case in
gold-smithing, and the workbench is laid out, not to
convenience the man, but to save the gold filings. This
reasoning applies with special force to office work. If
an executive's time is worth more than a clerk's he
must be supplied with a sufficient clerical force, other-
wise he will be doing the clerical work himself at the
expense of more important work. The less expensive
must wait upon the more expensive.

232. Small savings. — Manufacturing and other
forms of business at some time meet a stage in their
development when their profits, so far as these depend
upon the cutting of their costs, must be made through
small economies. Transforming industries are similar

442

BUSINESS MANAGEMENT

to agriculture, mining and lumbering in that they, too,
hav,e their day of big profits which were made through
an extravagant use of materials, new machinery and
cheap power. But a time comes when the factory or
store must be worked as intensively as the farm. "The
Gleaners" as pictured by Millet represents not merely
a laborer toiling but an economic condition which de-
mands that no head of grain be wasted. The time has
likewise come in our American factories, mills and busi-
ness homes for the appearance of "The Gleaner." The
by-products, the scrap-pile and the ash-heap must be
made to contribute to success. The steel plant at Gary
is described as "the result of a thousand short cuts."

In some offices every employe is required to tear each
memorandum before throwing it into the waste basket
so that no one will lose time in taking it out to see if it
contains valuable information. Machine time has been
saved because its work has been facilitated through a
careful study of the chemical composition of the metal
on which it worked and castings have been reduced in
size to save the machine in finishing them. Designing
apprenticeships are no longer solely confined to the of-
fice. Out of a seven years' training four years are
spent in the shop. Designs must be made to meet com-
mercial conditions. One of these is composition. The
designer must keep the element of cost in mind. He
must effect a saving if he can.

233. Office ivork. — Office work, as a rule, is particu-
larly open to savings by reduction in the time required.
Many superintendents keep an extra timekeeper to
figure costs for the week. These same costs are often
figured in the main office for the higher executives; thus
two men are paid for doing the same thing. One or the
other is clearly superfluous. The results worked out

SAVINGS IN TIME AND MATERIALS 448

for any one man in the office should be in such form
as to be available for his own future use and for all oth-
ers wishing the same infonnation.

In estimating haphazard methods are no longer al-
lowed, but the computations are carefully worked out
in books. When it is desirable to verify the results, it
is much simpler to check the computations than to re-do
them as would be necessary if done on scrap paper.
]\Ioreover, the chances of locating errors are greatly
increased.

The perpetual inventory system of bookkeeping by
which the balance is brought down after each entry is
another illustration. Apparently, this involves addi-
tional labor. The saving results from the fact that the
balance is taken once instead of every time one has
occasion to refer to the account as formerly and the
pencil figuring so common in the old-style ledgers is
given a column and done systematically.

The time consumed in "hunting" for things is a pure
waste. Pigeon-hole desks, deep drawers, disorganized
stock-rooni3 are decidedly out of date. A place for
everything and everything in its place is a great time-
saver.

Another step forward was the elimination of the in-
dex. With the modem loose leaf and card ledgers,
bookkeepers are able to turn directly to an account in-
stead of first looking up the page in the index. Ency-
clopedia filing also has this great advantage over the
numerical system and is in general much to be pre-
ferred. The slogan of the adding machine advertise-
ments is, "We can get your monthly trial balance off
three days sooner," or "You can go home at six o'clock
instead of eleven." The gain effected by most other
office appliances is a saving in time.

444 BUSINESS MANAGEMENT

284. Unnecesmnj shifUng involvet /om.— Shifting
from job to job is a fonn of wasting time as common to
the office as to the shop. Not only does the moving
from place to place take time, but there is always a
certain amount of preparatory work, the shiftmg of pa-
pers, the arranging of materials, the changing of ma-
chines which must be re-done every time a change is
made. The wisdom of our ancestors has become the
rule of efficient organization, "Don't make two bites at
a cherry." Where shifting of large gangs is unavoid-
able, as on construction work, their change should be
made if possible at noon or the men instructed to re-
port at the new place in the morning. This takes ad-
vantage of the natural breaks.

This principle applies to all labor paid for by the
week. Mr. Frank Gilbreth's manual states that all
foremen and others paid by the week are to mend tools,
clean stock-room or to be employed in some similar way
on rainy days. Most office employes fall in this class.
In many seasonal businesses the better part of the of-
fice force have nothing to speak of to do for three or
four months at a time. As much work as possible and
vacations should be thrown into these slack periods.
When work of minor importance comes in it is well to
list it and keep it until such time as the regular work
is light. In enforcing this rule, it is well to remember,
however, that if straight time men are allowed nothing
for working over-time in a pinch, it is only fair that
they be allowed compensating time off when things are
slack. Even where men are employed by the hour, it
is better if possible to keep them working on m-m
work, because much broken time causes dissatisfaction,
the better class of men drift to ^here the/ can earn
steady wages, and those left "soldier" whenever possi-

SAVINGS IN TIME AND MATERIALS 445

ble to prevent running out of work and being laid oflf
for a time.

FUl-

^tt

work.— The same principle applies
even more forcibly to the use of equipment, for equip-
ment cannot be laid off during slack times. In a ma-
chine shop, certain equipment is absolutely necessary
even if the quantity of work is not sufficient to keep
it busy all the time. In such shops, it is cheaper to use
tiiese machines during their otherwise idle time on some
classes of work for which they are not especially fitted,
rather than to buy other specialized machinery which
would do the work more efficiently but which would
also be idle part of the time. This has led to the custom
of fill-in work. The planning room keeps each machine
working on that class of work for which it is best fitted,
but when there is none of that class of work in the shop
to assign to it, some other class for which it is not espe-
cially fitted, but which it can do, is assigned to it.

T'. conserve time by utilizing every minute, steel
mills, mining operations, foundation works and many
(ither activities wliich are run under heavy expenses
work twenty-four hours a day, seven days a week. In
outdoor work during the summer, it is usually light
enough to run two eight-hour shifts, one from 4 a. m.
till noon, and the other from noon till 8 p. m., without
artificial light.

Two-way vauling is another illustration. It takes
practically much tune to come back empty as to come
back full. Contractors count on this in making prices,
and will figure much closer if there is a load of sand
one way and a load of rubbish the other. Companies
shipping west can usually get better service, because
there are always empty cars going west which the roads
are anxious to fill.

446

BUSINESS MANA(ihMENT

Power companies often find it economical to make
special rates for consumers who agree not to use any
power during the time of the peak load on the j'^nt.
The peak load determines the maximum the company
can ::ontract to supply even though during the rest of
the day the plant will be running below capacity, and
they, therefore, can readily offer a better price to stimu-
late the demands at times of low ebl) for capacity which
will otherwise be wasted. Such low priced power is in
the nature of fill-in work.

Many companies make a practice of manufacturing
an "understudy product" or contracting at cost prices
to carry them through financial flurries, not with the
idea of making a profit but in order to keep even. Nar-
row markets may mean ruin ; narrow markets combined
with a narrow product place one at the mercy of every
passing gale. A manufacturing concern that makes a
very heavy steel product has a line of light metal goods
that go to wholly different markets. During the last
financial disturbance the main product was cut off
absolutely; but at such times the world does not stop
running. This concern's foundry and machine shops
were kept sufficiently busy on the secondary product
to pay the fixed expense on the whole plant.

Lesser savings are also often possible in the machines
themselves. ^Many cutting tools are found on examina-
tion to be cutting air from one-half to three-fourths of
their stroke, thereby taking from two or three times
as long as necessary. Improvements in machinery and
methods such as the Taylor- White high speed steels are
continually reducing the time taken to <lo a job.

286. Waste motion. — In ordinary business practice
much of the work is waste motion. Most of the actual
work in foot pounds done by a bricklayer is consumed

SAVINGS IN TIME AND MATERIALS 447

ill lifting the brick and mortar from the scaffold to the
w all as with each stooping he must lift not only the brick
but the weight of the upper part of his own body*. If
the scaffold could be so arranged that he would lift the
bricks down instead of up, so that he employed the
force of gravity instead of working against it, he could
set many more bricks a day and still be less tired at
night.

Imperfect work is a common cause of waste material,
for usually not only is the time and work spent on the
piece wasted, but the piece has to be scraped. Careful
iuspeetion is essential to economical manufacture. Im-
perfections due to workmanship should never be paid
for, as the practice encourages carelessness. Cutting
to the best advantage is probably the most fertile field
for saving material. A piece of goods will go much
further when the patterns are dove-tailed into each
other. The old-fashioned buzz and gang saws wasted
as much as one-eighth of the lumber in sawdust. It
is only recently that lumbermen have begun to cut on
the ground level instead of waist high thus saving the
stump. Working capital can often be scaled down by
carefully limiting stock and credits which is cutting
capital to the best advantage.

237. Using supplies a second time. — The 2c rebate
on the delicatessen bean pan and the $1.73 allowed for
the return of the Standard Oil's "holy blue barrel"
and the 10c for the return of a cement bag show like
recognition of the importance of using the same ma-
terial twice wherever possible. Some unions oppose
this and have had laws passed forbidding the second
use of cigar boxes.

It is well to visit the scrap heap occasionally. All
old bolts should be collected. An old man in some out-

MICROCOPY RESOLUTION TEST CHART

(ANSI ond ISO TEST CHART No 2)

1.0

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S^S Rochester, New York 14609 USA

^S ("5) '•82 - 0300 - Phone

^S (''6) 288 - 5989 - Fa«

448

BUSINESS MANAGEMENT

of-the-way corner of the shop with an anvil and hammer
can straighten these, after which they should be care-
fully sorted and used again. If the threads are rusted
or broken they can be cut off and re-threaded.

By-products are probably the most important method
of utilizing materials. Cement from iron furnace slag
was first made because the slag accumulated so fast
that disposing of it was expensive, and chemists were
given the job of finding out what could be made of it.
A by-product is a product manufactured to utilize cer-
tain inseparable parts of the raw materials of the main
product which would otherwise be wasted. Thus gas
is a by-product of the iron industry and coke of the
city gas works. The extent to which by-product utiliza-
tion is carried by large firms is exemplified by the case
of coal tar products which shows that 108 products are
n\ade from coal tar, 'the residuum of gas and coke
works. The Standard Oil Company in addition to
making 220 grades of kerosene, naphthas, benzines, and
gasolines make 994 different kinds of paraffines, waxes,
candles and greases from the residuum. Where the
residuum is not large enough to justify the expense of
utilizing it, it can often be sold as it is. The retail
butchers find it more to their advantage to save and
sell their fat than to make soap; and the great United
States Steel Corporation finds it better to sell coal tar
than to work up the 103 products into which it is
eventually made.

CHAPTER XII

OFFICE METHODS

238. Function of the office. — In its usual sense the
"office" is the part of a business establishment in which
the administrative and clerical work is perfonned. That
is to say, if the vice-president happens to have charge
of the factory, his headquarters are said to be "in the
office." The sales manager's, advertising manager's,
treasurer's and accountant's departments are also re-
garded as parts of the office. But for our purpose —
that of laying down basic principles in the management
of the office — we must adopt r different point of view.

It has already been explained that, generally speak-
ing, a business is divided into four basic departments —
the production department, the sales department, the
financial department and the accounting department.
Each has its own specific functions to perform. The
production department supplies the article to be sold,
the sales department is concerned in selling it, the finan-
cial department collects and disburses the money in-
volved in the conduct of the entire business and the
accounting department records all the transactions,
summarizes the facts and presents the results in state-
ments and reports for use in further operations. The
office, as we shall have to regard it, performs the clerical
work required by these four departments. In the pro-
duction department, records of orders, of quotations,
of invoices, of stock, of requisitions and the like are
constantly needed. The whole attention of the factory
n-i8 449

450

BUSINESS MANAGEMENT

superintendent or manager should, theoretically, be de-
voted to the efficient production of goods. This calls
for the use of all his skill and ability in the handling
oi machinery, plant, men and materials. He is only
interested in the clerical work as an aid in the per-
formance of his duties. When about to purchase a
new machine, for example, his interest lies, not in how
the quotations are filed, but in the bids themselves. Or
if the factory manager is uncertain as to the specifica-
tions on an order going through the plant for one of
the customers, he wants the original order when he
calls for it. He does not care how that order is found,
but only that it is brought to him promptly.

Again there are sales records and statistics, follow-up
files, prospect lists, clippings, electros and other data of
this kind which must be cared for. The sales manager,
like the factory superintendent, is supposed to give his
whole thought and attention to increasing sales. It is
necessary that the sales records be reliable and on hand
when wanted. Farther than that, the sales official's
interest does not go.

The financial department also has its records, such
as credit information, list of delinquents, and the like,
upon which it relies in conducting its operations. The
accounting department requires sundry clerical work,
such as billing, filing vouchers, etc.

In addition, the four departments referred to receive
and send out mail which must be typewritten, filed and
otherwise handled. There are other details incident to
the routine of every office, such as the operation of
duplicating, addressing and other machines, attending
to callers, errands and inter-office communications.

All these details fall within the scope of the office
proper. From a management point of view, then, the

OFFICE METHODS

4S1

office may be defined as that part of a business organi-
zation which performs the purely clerical work neces-
sary m the conduct of the whole business.

289. Elements of management applied.— The same
eirdmal elements of management discussed in previous
chapters are present in the management of the office.
In other words, we face the problem of directing forces
or energy toward the fulfilhnent of a purpose. There
are both kinds of energy— human and machine. The
purpose of the office is to provide the clerical work
necessary in the conduct of the entire establishment.
To perform this work expeditiously and efficiently is an
element in the profit-making of the concern in the same
sense that increasing sales or reducing the cost of pro-
duction is also an element.

The first step should be a study of *be work required
of the office, as we now understand the term, and an
analysis of the amount of energy available. To put
the matter more concretely, we may compare the office
manager's work to that of a contractor about to
build a school-house. His plans and specifications are
laid before him. He knows what is wanted. He
knows, too, that he has so many men, so many dummy
engines and so on. The men and engines represent a
given amount of energy which the contractor measures
by the amount of work they can perform. A brick-
layer can lay an average number of bricks a day; a
forty horse-power engine can move an average number
of loads a day.

The office manager, in a similar manner, ascertains
that he has five, six or more departments to serve. Each
department requires certain services which are approxi-
mately determinable. These services are the "results"
required of him. He studies the people on his force

462

BUSINESS MANAGEMENT

and the mechanical appliances at his command. The
efforts the two put forth represent the energy under
his control. He, too, measures energy by results. That
is to say, a typist is capable of turning out, say, 900
lines a day; a duplicating machine will produce say
85,000 form letters a day.

Knowing what the 0i''.ce is capable of, with its
present equipment of people and machines, it devolves
upon the office manager to determine whether the ex-
isting standards are sufficiently high and where possible
to raise the standards through the introduction of new
methods or a bettei grade of help or through reorgan-
izing the work where reorganization is required. 'This,
really, is the axis around which all the office manager's
duties revolve.

240. Office hi ad. — The term "office manager" has
been used above. Since the duties properly within the
scope of the office may be separated from other duties
and since the management of the office may be con-
sidered as a separate function, it would seem that there
should be an official who is specifically responsible for
its efficient conduct. Theoretically this is true and in
many large concerns, such as the Westinghouse Air
Brake Company and branches of the United States
Steel Company, there is actually such an official. In
the majority of cases, however, — particularly in
medium and small concerns, — this duty is either divided
among a nimiber of department heads or is only one
of a number of duties assigned to an officer also in
charge of some other branch of the concern's activities.
This feature is considered in a later section of this
chapter. It is desirable, before proceeding, to inquire
into the necessary qualifications of the person or per-
sons who are charged with governing the office.

OFFICE METHODS

453

We have seen that the office proper is in close touci)
with every department in a business establishment. As
a matter of fact, it is an essential to the efficient con-
duct of these departments. What would be easier, for
instance, than to l ustrate an important plan for in-
creasing sales by neglecting the clerical features of the
plan? Or if the financial department were contemplat-
ing a special campaign to stimulate collections during
a usually "slow" month, the person in charge of the
clerical work, failing to comprehend the importance of
the movement, might easily cause a loss of several
thousand dollars by postponing attention to certain
details in favor of "more pressing things to be done."
It is highly desirable, then, that there be complete
harmony between the office and all the departments.

There is a corollary to this conclusion. The persons
in charge of the office must be thoroughly familiar with
the purposes and policies of all the departments and
must be fully aware of the import of almost every
move that i. made involving clerical work. This will
hardly be possible unless these persons understand the
principles that underlie the conduct of business gen-
erally. What the sales department is for and how it
operates and the design of the work in the production,
financial and accounting departments is important
knowledge to the office head. He should also, of course,
be thoroughly familiar with the subject of organization
and management and should be in touch with all the
modern office methods and devices. In addition he
should possess the natpral qualifications of any leader.
Tact, precision, sympathy, forcefulness and a keen,
accurate perception of the details of problems pre--
sented for his decision.

241. Selecting and handling employes. — The prob-

454

BUSINESS MANAGEMENT

lem of directing the office force so that it will work
harmoniously and with maximum eflftciency is one of
the hardest to solve. Unlike the manufacturing end
of the business, the employes of the office cannot be
placed upon a strictly scientific managc;ment basis.
The work is too varied, requires the exhibition of more
individual intelligence and is dependent upon too many
indeterminable factors. Yet the principles of efficiency
are as capable of application i the management of an
office as they are anywhere

It is important, first of ^a, that proper care be given
to the selection of employes. The fourteen-year-old
applicant for the office boy's position should be a future
executive. He should be examined with that end in
mind, and his physical and mental charac -sties should
be carefully studied. During the last few years much
progress has been made by such people as Dr. Kath-
erine M. H. Blackford and Dr. Winthrop Talbot in
establishing scientific physical tests. Some of the large
concerns have installed medical departments for this
sole purpose. The education, home surroundings, and
future ar.ibition— all of which may be determined by
discreet questioning — are also important barometers in
judging the capability of a person to perform the work
to which he or she is assigned and of advancing the
employe to a more important position.

One of the large electrical companies places so much
importance upon an employe's advancement that it has
laid down this definite rule. Each year during the
first five years an employe must either be worth an
increase in salary or must be dismissed upon the ground
that he is not made of the right kind of material. It
is said that this rule works out excellently in practice,
though there is some doubt as to whether its inflexi-

OFFICE METH(

455

bility, especially in so large a concern, does not work
considerable harm.

There is not sufficient space to dwell upon this fea-
ture at length. Suffice it to say that the selection of the
right kind of office employe is essential to the successful
management of any office. Some concerns, notably
Ladenburg, Thalman & Company of New York, have
definite application blanks, methods of investigation,
and so on, for this purpose.

Coupled with the selection of employes is the im-
portance of assigning to them the duties which they
are by nature best fitted to perform. This is almost
obvious, yet how many clerks are at the billing desk
when they should be order clerks or entry clerks? In
cases where there is an original examination such as has
just been discussed, it is only a matter of carrying
the process one step farther and determining what
qualifications are necessary to perform a given kind
of work. In the mailing department of one of the
large publishing houses, for example, it has been estab-

'•" ^ that an active, nervous girl can turn out more
-ban a calm, self-contained girl, even though the

cr may move decisively.

The welfare movement in factories is being applied
to offices as well. In many of the large companies, like
tlie Metropolitan Life Insurance Company and The
American Telephone and Telegraph Company, light,
airy lunch rooms where wholesome food is tastily
served at low prices are provided. The National City
Bank of New York, Spencer Trask & Company, and
other large companies have provided club rooms, libra-
ries and recreation rooms where office employes may
gather after office hours and listen to lectures on busi-
ness subjects, discuss outings and so on. All these

456

BUSINESS MANAGEMENT

movements should be encouraged and aided by office
managers and by the heads of concerns. They stimu-
late loyalty, cooperation and an interest in each other
which in the long nm expresses itself in an increased
interest in their work.

242. Establishing stundards.—lt was stated above
that office work does not lend itself well to scientific
management. Yet it is possible to establish standards
and by means of the reports discussed in the chapter
on "Office Systems and Reports" to determine the
efficiency of employes. Marshall Field & Company of
Chicago, the Simmons Hardware Company of St.
Louis, and other concerns have, for instance, placed
their typing departments upon an efficient basis in this
manner. By means of a register which records the
number of strokes on the typewriter keys they obtein
a fairly accurate record of each girl's output. In other
cases the number of lines (of a given length) or the
number of words are counted by the chief of the typing
department. The following is a sample of a week's
record in one of the concerns which uses the line method
of calculation. The high records were made by opera-
tors on dictating machines turning out standard para-
graph letters while the lower records were made by be-
ginners or girls on difficult dictation. The initials in
the top row indicate the correspondents who dictated
during the week; the names of the typists appear in
the left-hand column:

M- a .V. "^^X ^5^ ®^^ ^^ ^^ EWC MHE HT COPY TOT.

Mi88 Smith... 270 670 585 760 1,066 60 1,240 4,640

MissJones... 85 ... 4,900 .. '145 95 '415 5640

M188 Brown 310 4,870 590 .. . 300 6070

MissRicharda 250 ... 3,900 150 ... 1,546 6845

MiMHart _ _ ^ ^ 420 ... 2;040 3,965

356 670 6,450 5,970 750 3,900 2^370 155 5^ 26AM

These records form the basis of a bonus system. Any

OFFICE METHODS

467

such bonus system must necessarily be elastic and more
or less arbitrary. In this particular case the committee
which awards the bonuses takes into consideration the
number of lines, the nature of the work and the acci-
dents and other delays reported. The operators cannot
tell in advance just w'lat their bonuses, if any, will be.
Their reliance on the fairness and judgment of the
committee makes the system effective, however. In
addition the figures posted on a bulleti^i board arouse
a friendly competitive spirit.

Many large concerns have discontinued bonus and
piece-work systems in the office. The American Law
Book Company of New York tried a piece-work sys-
tem but gave it up. So did the Sears-Roebuck Com-
pany of Chicago. At one time five hundred clerks in
the entry department in this company were paid on a
piece-work basis, but the plan was found impracticable.
248. MUitary type of organization.— There are three
types of office organization: first, the military type;
second, the functional type; third, a combination of the
military and functional types which may be termed
semi-functional. In the military type, which is the most
common, the head of each department controls all of
the work that is performed in the department, regard-
less of its character. The sales manager, for example,
is provided not only with assistants for writing to sales-
men, for handling mail order work and for other purely
sales activities, but in addition has his own stenogra-
phers, typists, statisticians, file clerks, mail clerks and
errand boys. The sales department, under these coudi-
titns, becomes practicaxly a business office in itself. On
the one hand, it is credited with :;ales and, on the other
hand, it is charged with its expenses. This is an easy
method of determining the exact ratio of sales expense

458

BUSINESS MANAGEMENT

to income. As has already been pointed out in tn
earher part of this book, however, the military (o^^f
organization is obviously inefficient. The sales depart,
ment is forced to perform functions entirely outside U.
scope. The selling type of mind is different, as a Ai

routine ^^ """^"^ ^°' '^' '®'^'"* '^«^**'«" <>'

The same basic objections apply to the military form
of orgamzation m the other departments.

244. Functional type.-The separation of strictly
office work from the functions within the scope of the
sales. Produrbon, fi„,„,i,^ ^„j accounting officials is
smiilar to the change which takes place in the factory
orgamzation when the functional type is substituted for
the military. The duties of the gang foreman in the
latter case are distributed among a number of func
tional foremen, each with his own special duty to per-
form. In the office, the department heads confine their
energy to selling, manufacturing, financing and ac-
counting, as the case may be. The specialized function
of mana^ng the office is turned over to a person trained
for this duty. Frequently we find an officer-usually
the accountant-performing the dual task of rumiing
an office and one of the four departments. While thS
arrangement is sometimes expedient, especially when
a concern is not large enough to warrant the employ-
ment of an office manager, it does not conform strictly
to the accepted idea of a functional orgamzation.

When the functional idea is in force it is carried out.
so far as possible, throughout the entire office organi-
zation. Except in cases where there is not enough work
to keep a person busy, one specific task is assigned to
each employe. Functional organization is illustrated
m Figure 24.

OFFICE METHODS

409

460

BUSINESS MANAGEMENT

During the change to the functional scheme of organ-
ization in this case numerous instances were discovered
where one clerk could do the work that two had for-
merly performed. The office, in this organization, is
a separate department directly responsible to the execu-
tive committee. It is not a sub-department of any one
department, but a sub-department of them all. All
the clerical work is under the supervision of the office
manager and he has his subordinate chief clerks, whose
duties are still further specialized. The functional idea
IS carried to its fullest point in the collection depart-
ment where each clerk has one task to perform. One
checks bills, receipts and addresses, another types form
letters, another enters remittances, and so on.

245. Semi-functional organization.— We frequently
find an office organization ahnost on a functional basis
but still adhering in minor respects to the old scheme
of management. For reasons that are good, the various
departments retain their own stenographers and one or
two special clerks. The work may be of a confidential
character or the clerk may need specialized training
that can be obtained only by closely attending the head
of the department or his assistants.

The organization of the office in the White Company,
Cleveland, Ohio, manufacturers of motor cars, is of
this character. In the White Company, the sales de-
partment is in two divisions, one in charge of the second
vice-president, the other under the jurisdiction of the
secretary. The auditor is also office manager but vari-
ous sales departments and sub-departments have re-
tained some clerical help. The advertising department
is a typical example. Specially trained clerks are
usually necessary in advertising work and we find that

OFFICE METHODS 4gl

special stenographers and clerks are assigned to this
department.

246. Committee system.— The committee system is
employed in the office with excellent effect. In Figure
24 it will be seen that the office manager is a member
of the executive committee. The value of this arrange-
ment is evident when it is remembered that the force he
controls is in constant attendance upon the departments
of which the other members of the committee have
charge. Through the committee meetings the office
manager keeps in touch with the plans and policies of
the various departments, and is thus enabled to direct
his force with an intelligent regard for the work which
should take precedence over other work. Here, too,
he learns of the shortcomings of his force, receives sug-
gestions that add to its efficiency and imbibes the spirit
of the entire organization, which in turn he communi-
cates to his department heads through an office com-
mittee. The office committee is composed of the office
manager and his chief clerks. The frequency of the
executive committee and office committee meetings de-
pends upon the nature of the business. The former
usually meets more frequently than the latter. There
IS a danger in carrying the committee system too far,
just as there is in not carrying it far enough. The
routine of the day should not be broken any more than
necessary; it is often advisable, in fact, to hold meet-
ings during the lunch hour or on Saturday afternoons.
247. Suggestion system.— The suggestions offered
by office boys and other minor employes frequently sur-
prise even the most ardent advocates of the suggestion
system. The usual plan is to offer two or three definite
money prizes for the best suggestions turned in during

46«

BUSINESS MANAGEMENT

a given period, say one month. The suggestions are
unsigned, a copy being kept by the author. They are
deposited in a box designed for that purpose or are
laid on the desk of the office manager. Either the exec-
utive committee or the office committee passes on the
various suggestions submitted and awards the prizes
posting the winning suggestions on a bulletin board!
The contributors then submit their copies, receive the
prizes and their names are written on the posted docu-
ments Suggestions such as providing a motor for a
hand-driven device, reducing the sizes of various pieces
of stationery to avoid folding, pasting carbons to let-
ters instead of pinning them thus saving space in the
hies and cost of pins or clips, and ideas of this sort are
the more common. Very often, however, advertising
and selling ideas and suggestions of similar importance
come from the most unexpected sources.

248. Arrangement and lighting of office.— Wh\[t this
subject might properly be treated under the head of
organization it is, nevertheless, an important element
in the management of the office and may well be con-
sidered at this point.

The arrangement of desks, filing cabinets and other
equipment depends much upon the type of organiza-
tion. Under the functional type where the filing is
concentrated in one department, where the typists are
gathered under one chief and where the other functions
are similarly segregated, it is obvious that the equipment
IS grouped according to the departments. The problem
then becomes one of allotting the proper floor space
and position to each department. The general prin-
ciple of progression forward should be adhered to so
far as possible. It is usual to follow the course taken
by the orders received. This is illustrated by the floor

OFFICE METHODS

463

plan of the office of a large clothing house in New
York (Figure 25). The orders are first laid on the
president's desk. From there they go to the credit de-

PRESIDENT

TREASURER

CASHIERS

CREDIT
DEPART-
MENT

AUDITOR

PRIVATE CORRIDOR

.ACCOUNTING

VICE
PRESIDENT

SECRETARY

MAIN CORRIDOR

FACTORY
SUPERINTENDENT

■urchaJ.

IKS I

«oentJ

DIRECTORS'
ROOM

PURCHASING
DEPARTMENT

REST ROOM
AND LIBRARY

STENOGRAPHIC
DEPARTMENT

BILLING
DEPARTMENT

BEPARTMEN

OFFICE
MANAQER

MAILING

DEPARTMENT

■\

FILING
DEPARTMENT

I mnnnuKR

SALES
DEPARTMENT

MAIN CORRIDOR

ORDER
DEPARTMENT

ELEVATORS AND STAIRWAYS

FiGiRE 25.-FLOOB-PLAN OF Offics IN New Yok Clothwg Establmhhent,

paitment and when the sales manager receives them
lie knows whether or not they are approved by the
credit department. After his approval they proceed to
the order department where the production orders are
made and the proper copies sent to the filing depart-
ment for the sales and other files, to the billing de-

464

BUSINESS MANAGEMENT

™

partment and to the factory superintendent. The
latter is not far distant from the purchasing agent with
whom he is in frequent communication. The treasurer
is located close to the credit and accounting depart-
ments. The shipping slips come up from the shipping
department on the floor below to the billing department
which is across the hall from the accounting depart-
ment. The filing, mailing and stenographic depart-
ments are also conveniently located. There is very
little doubling back in this office.

Care should be given to the proper lighting of the
office. Poor light is responsible for much of the in-
efficiency in office work. It is advisable in most cases
to call in an expert on lighting, because ^the work has
been reduced to a science. In some cases it is found
cheaper to install an indirect lighting system; in others
a direct, properly diffused light is better. The candle
power, th^ kind of shades, the distance of one light from
another and from the work— all these are important
factors to be considered.

249. Conclusion. — In this chapter the essential fea-
tures of managing an office have been treated only
briefly. Much more might le said on the subject but
the reader will undoubtedly be able to apply the prin-
ciples laid down. It has been seen that these principles
differ very little from the principles that underlie the
whole problem of management. Proper organization,
intelligent handling of the forces under the office mana-
ger's control with an eye always toward results, the
adoption and use of higher standards and better
methods and finally a regard for the comfort and sur-
roundings of his employes — these are the main prob-
lems of the office head.

QUIZ QUESTIONS

{The numbers refer to the numbered sections in the

text.)

PART I: BUSINESS ORGANIZATION

CHAPTER I

1. What is the meaning of the word "Organization,"
as applied to business?

2. What did the early economic man lack in order to
make his labor effective?

3. What relation has surplus wealth in various com-
munities to commerce?

4. How did the proportion of capital compare with
labor in the period of the town economy?

5. How did specialization affect the industrial de-
velopment of the town ? How did the growing demand
for goods affect the organization of the guilds?

«. Why is the handicrafts system sometimes char-
acterized as a system of custom production?

7. From what point of view is industry regarded
when its organization is referred to as the domestic sys-
tem? ^

8. Describe the conditions under which the middleman
made his appearance. Point out several thhigs which
show how industry was graduaUy changing its organiza-
tion m the latter part of the Eighteenth Centurv.

9. W^hat was the chief function of the manufacturer
durmg the latter period of the domestic system? Why

ll-so 465

)

166

QUIZ QUESTIONS

was it that business men were seldom ruined completely
during a financial crisis? What economic argument
did the parliamentary committee offer in justification
of the merchant's position?

CHAPTER II

10. What is the problem of each nation relating to
the disposition of the industrial surplus? What prin-
ciple governed the colonial policy of nations in the
Eighteenth Century?

11. What was the first great gain in cheapening pro-
duction? Name the consideration which may counter-
balance the technical efficiency of machinery.

12. What were the essential elements iii the change
from the domestic to the factory system? What effect
did machinery have upon the methods of labor?

13. Under what conditions did the partnership form
of organization originate? Name the advantages of
the corporate form over the partnership form from the
point of view of business organization.

14. When did large-scale production become the pre-
vailing type of industry? Name the largest corpora-
tions in the United States.

15. In what four directions has the division of labor
manifested itself? Illustrate by reference to some mod-
ern industry the great savings that are being made in
the cost of production.

16. What characteristics pertain to the territorial di-
vision of labor?

17. Why are specialization and cooperation closely
associated?

QUIZ QUESTIONS

467

CHAPTER III

18. Into what two phases may business be roughly
divided? Describe the simplest form of market.

19. What pecliar feature k there in connection with
the Antwerp grain market?

20. Market prices are the resultant of what influ-
ences?

21. What is the function of the speculator, the iob-
ber, the broker?

22. How does the handling of raw materials differ
from the distribution of manufactured products?

23. Why does speculation associate itself with the
markets for raw products more than with the markets
for manufactured goods?

24. What are the chief points pertaining to the cus-
tom of "set off" in the decision of the Supreme Court
of the United States, May 8, 1905? . .

25. Into what two parts may a market be divided?

26. Why is grading of a material necessary in order
to establish a broad market?

27. Why is the warehouse receipt an important docu-
ment m the grain trade?

28. What is a contract grade of v hea*; ? Why should
an inspector of goods by whose decision a grade is es-
tablished be closely watched?

CHAPTER IV

29. Name the various interests which use the Chica-o

30. What is the business purpose of the corporation

468

QUIZ QUESTIONS

known as the Chicago Board of Trade? What are the
two principal kinds of transactions on the exchange?

81. What are the chief sources of orders which are
received by the brokers in the future markets?

82. Define hedging. Point out the difference be-
tween a hedging and a speculative operation.

88. What economic argument is there in support of
the future trading in the wheat markets? Define the
hedging operation as conducted by an elevator com-
pany.

84. Describe the course of an order.

85. Into what two classes may pit traders be divided?

86. Describe the method of payment employed in the
Board of Trade.

87. What is meant by the expression "trading on a
margin"? Show how the method of "ringing out" ob-
viates the necessity for a clearing house.

38. Why is a clearing house system necessary in con-
nection with the Board of Trade?

89. Name the chief produce exchanges of the United
States and Europe. What is the duty of the committee
on arbitration? Name four rules which protect the
traders.

40. What influence have the telegraph and the At-
lantic cable had upon the organization of the market?

CHAPTER V

41. Why was the Manchester cotton goods exchange
organized ?

42. What reasons are impelling the manufacturer to
strengthen his control over the market? What form of
association is represented by the Central Thread Com-
pany?

QUIZ QUESTIONS

469

43. Describe the agency method of selling. Outline
the method employed by the American Tobacco Com-
pany in disposing of its product.

44. How may the method of transportation influence
the system of distribution ? What special cause induced
the large iron and steel manufacturers to eliminate the
middleman?

45. Name some factors aifecting the selling methods
in the textile industries. State two reasons for the
strong position which the commission men hold in these
trades.

46. What drawbacks has the mail-order method in the
United States and England?

47. Why does not the manufacturer of sugar estab-
lish his own retail stores? What motives led the Ameri-
can Tobacco Company to establish retail stores? Show
how a company has rapidly extended this system of sell-
ing.

48. Outline the chief reasons for the declining im-
portance of the middleman.

CHAPTER VI

49. What part has private enterprise taken in the
building up of the foreign export business?

50. How does the American manufacturer look upon
industrial expositions as a means of introducing his
goods in other coimtries?

51. Outline the methods by which a manufacturer
should approach the subject of exporting.

52. Why are clearness and simplicity in foreign cor-
respondence essential? What cautions should be ob-
served in compiling catalogues?

53. What advantage has a graduated scale of prices

470

QUIZ QUESTIONS

over a quoted price? What caution should be observe?
in quoting: prices C. I. F. and FOB ? ''^''^^^

J^4. What is the economic function of the commission

sion house? ^ ^ *^'^ ^^^P"*^ ^^on^mis-

n3k J u T. ■ "' '^°'""«" commission airent' Wh«(

62. How do manufacturers locatpd fo- ^> xi.
ports keep in touch with the export cLlt'oLf""" ""

CHAPTER VII

o*. What influence is the industrial aetiritv nf r.r
many exert mg on our consular service? ^ ^ ^"'

a«™?„ TwT °' """""• "PPo-'-nts w.. i„.

^66. What is the range of the salaries of consutar offl-

er. What is the character of the consular report,?

QUIZ QUESTIONS

4T1

Of what importance are such reports to the American
foreign trade?

68. How have the consular reports helped the United
States to introduce new goods into China ? Why should
Americans study the styles and prejudices of foreign
countries?

69. What is the custom among foreigners in regard
to credits?

70. Why is it important that strict attention be paid
to the packing of goods for the export trade?

71. How does the government discriminate in favor
of its own citizens in the matter of trade information?

72. How do the consuls aid in the protection of the
customs revenue ? In what direction should the consular
service be extended?

CHAPTER VIII

73. In what two directions has the manufacturer at-
tempted to reduce his costs?

74. Why is capital said to be fixed when it is invested
in a manufacturing plant?

75. What important factors must be taken into con-
sideration in predetermining business enterprise?

76. Why should a factory be placed as near as possi-
ble to the source of the raw material?

77. Why should it be near the source of power?

78. Discuss the labor market.

79. Discuss the factorj'^'s output.

80. Discuss transportation facilities and the relation
to factory location.

81. Why are the physical surroundings of impor-
tance?

47fl

QUIZ QUESTIONS

'^^'

of manufacturing plants scattered types

modem plant? ^ "" """^ "* designing a

grouped? ^ '"* machinery often

86. Why should standard equipment be inrf.n j
far as poss ble? What kind Hf . i ""*»''«1 "

most economical in «,e ISl.;' ^ ^"""^ '"'"*'
<vh» p?vMi^J'',*;"|t'- kf P«»ninentl.v in view

pitt'n'tr::-rp?-r-'-"p-

CHAPTER IX

90. On what basis should men be seleof^^ ^«
tions of authority? ^^^^"^ ^°' P^s^"

.-sportif«;rntn^:Sr* S "'"J"^'"^-
executive, administration wCdT k "??1™*'"''

ered by the re»rding department / " ^ «""'•

the empiovment of i^T^^'f, '" "'"nection with

price at which ^s ca^L s^alo^^^'f'^^'
.« .t m.portant that the maintenan ^nd'mZ^L^g'

QUIZ QUESTIONS 479

(lepartmcnU he consulted before any extensive improve-
menu are made in building or equipments? ^

W. Give a list of typical duties pertaining to the fol-
owmg officers: president, vice-president secreting
treasurer, general- manager. ^^^*

08. What is required of a foreman under the mili-
tary method of organization ?

I "\^ "! ** "^"^ ^o'-*"'™ connected with this
»«. What .re the duties of the shop bosses?

CHAPTER X

97. MJte a Mmple foim which may be used by .

98. Why IS it good business poUcy to keep the di^ft-

*ould aU drawmgs be OK'd by the rfiop -.LumZ
fore they are placed in the shop?

99. In order to determine the efficiency of the tool

100. What advantages are there in tlie sep«ation of
mam office at «>me business center or hu-ge cftv?

Z^T^^" P"^""* tbe best result?

m ^ " *?K ™'™''"'* ^■'**'» °^ n.««.geme„t?
wh„mS»L *' ^'^ "^ *^ committed? Of
I Zi^ *« member^p <„nsist? Who should act

itr^ "f *,!,""^ '"P"-*"" «»"-iittee,?

104. Why should the meeting, of the job bosses and

474

QUIZ QUESTIONS

the foremen be sharp and to the point? What class of
men controls the labor situation in a factory?

103. What are tlie fundamental problems which in
one form or another should be considered by the various
committees?

CHAPTER XI

106 State the principle upon which an office system
should be laid out. ^

lOr. Name the various departments that must be pro-
vided for under the heading of administrative offices.
What two separate kinds ol" work does the accounting
department embrace? What other series of depart

Z^U t^^^ T^'T'^ ^^*^ '^'' ^^^*°^y organization
shou d be considered in planning the administrative of-
lices? How may the committee system be applied in
oflice management?

108. Why is the question of internal communication

i^r^f ^'''*^"'^' ^" P^^"'^^"^ ^» «ffi^^ system?
forms? * ^^°"«™es are there in having standard

110. What are special reports? Regular reports?
What general rules should be followed in the com^ila-
tion of all reports? ^

111. What factors should decide the selection of a
person who is to make a report?

112. In general what two things should always ap-
pear when possible in a report ?

113 What data should the executive have in arriving
at a standard of comparison in the process of production
and in the commercial department? Why is the execu-
tive report considered the most important?

QUIZ QUESTIONS 475

J!ir^^** ^ *' '^^^ P"^P°^^ °^ '^^ ^^Port from
the selling department?

^^^*?^rf '*''"' "^^ ^°™ *^^ b««is of the factory
report? Why is it desirable to take averages coverZ
a period of six months or more in comparing weekly of
monthly reports obtained from the factory?

116. Construct a form which will embody the data in
the factory report. (The form given for the weekly
progress report will offer some suggestions.) ^

III' Z^^""^ ^""^ *^^ *^'* ^^Po^ts treated of?
by a ;epTrtf *"° *'"^' ^'*'""^"^ *'^ P^"-^ — ^

».f"^* .!^^i^ I' '* important that immediate and definite
action should be taken on all reports ?

PART II-BUSINESS MANAGEMENT
CHAPTER I

1. What are the cardinal elements of management?

the fafeTystl W ^^ ^^^^^"^^ ^^^^ ^^^^ ^--

3. With what three forces does management deal?

4. Name the functions of the manager. Why is it
unwise to tie him down to detail ? vv ny is it

5. What is the field of the efficiency engineer ? Of the

m the use his employees make of their leisure time?

7 .17^.. f '"^ principle in management.

8 ^' «^«"ld be the ultimate aim of management?

Dafd^ ^r^K ^u"^/ ^''"""^^ ^*^°"^^ di^'idends be
paid ? State the methods by which immediate dividends
are sometmies paid, to the detriment of future profits

ii\

476

QUIZ QUESTIONS

9. State the diflFerence between the manager and the
purely technical man.

10. What has been the effect of specialization on
management ?

11. Why is not specialization in the field of manage-
ment more widely adopted?

12. Outline the general scheme of departmental spe-
cialization in the Fierce-Arrow Motor Car Works
What makes it ne-essary?

13. State the general trend of specialization.

14. To what extent may the various phases of busi-
ness activity br classed as sciences?

15. Outline scientific methods of investigation as they
apply to business management.

16 State a first practical rule in the application of
scientific methods. Why must care be taken not to re-
gard the laws deduced by investigation as final?
.17. Why is the antipathy of some business men to
theory unfounded? Distinguish between "common
sense and scientific investigation. How is this illus-
trated ?

18. What is the effect of a new standard on the or-
gamzation? What changes did the "shovel experiment"
necessitate?

19. Is the teaching element a new one in business?
How has It been developed? Describe the instruction
of shovelers at the Bethlel)em Steel Works

CHAPTER II

20 Distinguish between principles and methods.
What IS the final test of a method of management?

21. Describe the division of economic units by func-
tion. ''

QUIZ QUESTIONS

477

22. Name some important industrial units.

23. Distinguish between economics, industry, and
business and show their relations.

24. Name the managerial or business units. State
their functions. Show their relations. State the usual
division of responsibilities among the executive officers
of a corporation.

25. Who are members of the manager's cabinet?
Why is this cabinet a necessity? What new member
could profitably be added?

26. Of what does the staff organization consist? The
"ne organization? State the relation of their members
to the general manager.

27. Distinguish between the manager of the financial
department and the financial specialist of a large con-
cern. Describe the functions of the former.

28. Describe the duties of the sales manager.

29. What are the functions of the Accounting De-
partment?

30. Over what does the jurisdiction of the manager
of production extend?

31. What are the advantages of an organization
chart? Name the four basic departments of an organi-
zation. State what their relations should be.

32. Show why these relations should exist by detail-
ing the duties of the departments mentioned.

. CHAPTER III

33. Enumerate the various types of managem.ent.
Show how each has derived its name.

34. What are the chief characteristics and disadvan-
tages of the unsystematized type?

478

QUIZ QUESTIONS

befn'due''?'^^** condition has the prevalence of this type

36. What are the chief characteristics and advan-
tages of the systematized type?

37. What are the functions of the cost records? In
what respect does the systematized type fall short ac

oo"f.r^ exponents of scientific management?

38. What are the distinguishing characteristics ..nd
advantages of the efficiency type of management, as
compared wi^h the unsystematized type? As com-
pared with the systematized type?

of tostf ^*^ *^^ ^^^""""^ underlying the standardization

40 Describe the course through the shop oi a job

ticket made up in the planning department and, by

doing so, show how costs are determined as a bv-

aTd'e^ffi^encr* "'"''''''' ' ''''' '^^^^^^ ''''^-

41. State the advantages of comparative records.
Compare the deadly parallel" method with that based
on predetermined standards.

42. Show the superiority of stock taking under sci-
entific methods.

, «• ^Jff^!"f ntiate as clearly as possible between the
staff and military type of management and show how
the terms originated.

44 Is the meaning that has been attached to "mili-
tary justified?

45. What are the functions of the general staff di-
vision of military organization? How is this division
sub-divided?

46. What officers compose the military staff of a
commander of a United States Field Army, and what
are their duties?

QUIZ QUESTIONS 479

47. State the functions of the administrative staff
of an American Field Army.

48. Describe succession by seniority as it applies to
the army.

49. How may the business man profit by understand-
ing the organization of the army?

50. How is the theory of staff and line organization
applied m the Sherwin-Williams Paint Company?
What advantages are secured?

51. Do divisional and departmental types of man-
agement have to do only with the railroad? Why are
examples taken from railroad management?

52. What significance does the word "department"
have for the railroad man? For the industrial man-
ager? State the chief characteristics and advantages
of the departmental type of railroad management.

53. What is the opinion of Mr. Arthur Hale on these
two systems of management? State the facts with
which he supports his opinion.

54. Jot down side by side the advantages and disad-
vantages of the departmental and divisional types of
management. Give examples of industries in which
one or the other might be the better type to apply.

55. Can the advantages of both types be merged
in one management ?

CHAPTER IV

56. Make clear that these various comparisons of
types of management are from severni different view-
points.

57. State the chief characteristics and disadvantages
of the undisciplined type of management. Name some

f w. Msual losses casioned by it.

480

QUIZ QUESTIONS

59 State the chief characteristics and advantages of
the discipline.! type of management.

afZ'J^^^^^ T'"" ''^''^'"^' °^ discipline. What is said
of standard for output under this type. The selection

withVn , ^ management of a concern may fall

withm two or more of these classes. Distinguish the
raditional transitory, and functional types a^d show
their relations to types previously discussed.

ment. ' *''° °*^'' "*™'' ^°' functional manage-

unLylg it!' """* '' P^^""^"^- «*«*^ *^« P"-iple
64 What, according to Mr. Henry P. Kendall are

the advantages of the planning department? '

65. State the objections to a piece work system of

wage payment Name the five conditions upon wich

66 What advantages may be gained by scientific
selection of workers, and how does it aid disciplineT

67. Hy whom are workmen trained under functional
management? How does their being trained he^p X

68.^ WTiat is demanded of functional management re-
gardmg tools and machines?

69 How is discipline gained by providing a proper
incentive for the workingman? What is meant by
proper incentive? '

a Jl^'"* '™ '»™'d ".nd sweeping changes in man-
as^ent are reconunended by Mr. Taylor in instaUing
the functional type ? What doe, he sav functional ni«i

QUIZ QUESTIONS

481

agement consists of? State in brief the duties of the
"gang boss"; the "speed boss"; the inspector; the "re-
pair boss"; the order-of-work or route clerk; the in-
struction card man; the time-and-cost clerk; the shop
disciplinarian.

71. What is the keynote of all management? Name
the four principles that should underlie all manage-
ment.

72. What is said of the indispensable man?

73. How should we handle the exceptional man?

CHAPTER V

74. What factor in human nature militates against
efficient management, and how does it do this?

75. What are the requirements of a good organiza-
tion chart ? What will it show ?

76. State how it will help the employee? The man-
ager? Discuss the organization chart shown on page
280.

77. State the advantages of the organization record
and show how it supplements the organization chart.

78. What are some of the objections to a written rec-
ord? What is the answer to these objections?

79. Why is the planning department a necessity?

80. What are its duties?

81. What saving resulted from the installation of a
planning department at the Tabor Manufacturing
Company? How were these savings effected?

82. Why do some managers object to the introduc-
tion of a planning department ? What experiences are
cited to show that this stand is not well taken?

83. Outline the evolution of the planning depart-
ment. V

n— 81

48«

QUIZ QUESTIONS

84. What is said of the permanent records actually
accumulated by the planning department ?

85. Name the two main divisions of the planning de-
partment work. Mention the man taking charge of
these and other sub-divisions of the work of the plan-
nmg department. ^

86. What in general, determines the proportion of
planners to doers? ^

87. Write down the names of the men composing the
plannmg department under consideration

II' W^f ^' ^h^'^^f"«^tions of the production clerk.
Jut '"^°^™**'«" does he need? How does he
get ,t? Name some of his important classifications of
orders. Discuss their relative importance

,z^z::^ ''- "''-''''-^" -*^°^^ °^ the

91. What qualifications are desirable in the produc-
tion clerk? Define the scope of hi. authority. ^

92 What is the function of the route clerk? What
must he know?

93. Detail the p. ocedure of the route clerk in starting
a piece of work through the shop. ^

94. Why should the route clerk be endowed with tact?
How can he avoid "nagging"?

95 Under ^hat condition is a special material or
foundry clerk necessary? What are his duties?

clerk "™^''**^ ^^^ ^"t^^« °f *»»« balance-of-stores

97. What is the function of the time-study clerk?

98. State the duties of the instruction-card clerk,
clerk ""'^'**^ *^^ ^^t*^^« ^^'•^d for by the route-file

100. Enumerate the details cared for by the order-of-
work clerk.

QUIZ QUESTIONS

483

101. Why may he be called the eye of the superinten-
dent?

102. What details are cared for by the recording

clerk?

108. What are the duties of the cost clerk and his as-
sistants? What records come to him and what does he
do with them ?

104. What are the duties of the time-keeper?

105. Show that planning introduces no new duties.

106. Name the seven general functions of the plan-
ning department. What are the three things expected
of the workers ?

CHAPTER VI

107. Show the importance of correct standards in
management.

108. State the commonest objection to the adoption
of standards and show how it can be refuted.

109. What cautions must be kept in mind when
adopting standards?

110. Show how standards have been applied to the
Purchasing and Contracting Department. What ad-
vantages have resulted ?

111. W^hat has standardization accomplished in the
Xew York City Government ?

112. Look about your office and make a note of the
opportunities for standardizing supplies.

113. Explain the multiple system of standard sizes.

114. What are the advantages of standardizing
equipment?

115. How is standardization applied to delivery sys-
tems ?

110. What advantages will be gained by naving in-

^ «

484

QUIZ QUESTIONS

terchaiigeable machine parts? Support your answer
with examples.

117. Explain the use of "limiting dimensions."

118. State the requirements of a good symbol system.

119. Discuss the construction of a system of symbols

120. Construct a simple working system of symbols
lor some hne with which you are familiar.

121. When are numbers best as symbols?

122. Discuss the advantages of the several symbol
systems described.

128. State the advantages of standardizing routine
124. Describe the steps in developing standard rou-
tme.

^Ju^: ^l;f/^^ ^^^ advantages of a printed record?
AVhat would be the best form for your business?

CHAPTER VII

126. Why do men have a standard weight, i stand-
ard yardstick, a standard time, etc.?

127. Why does a manufacturer wish to establish his
production on the market as a standard of its kind?
Why does he strive to establish standards for as manv
activities and processes as possible in the factory? *

128. Provided that the inspection department is effi-
cient, why is the determination of a standard time of
prime importance?

129. What is betterment work?

130. What must be taken into consideration in deter-
mining wage systems?

181 What are the most prominent systems of pay in
the United States? State the condition under which
each has proved to be especially successful.

182. If you had a high-grade shop where the work

QUIZ QUESTIONS

was standardized and the men well trained and the rate
of production high, what system of payment would be
likely to get the most out of the costly machinery and

tools {

188. Under the efficiency system, how is the amount
of bonus determined? What advantages has it over
tiie Taylor system ?

184. What is the importance of determining a stan-
dard time before deciding on a wage system?

CHAPTER VIII

185. What is said of the high cost of man power and
its results?

186. What steps are being taken to-day to eliminate
waste of human pov/er?

187. State the theory underlying the "rest and relax-
ation" idea.

138. State the elements to be considered in determin-
ing a fair day's pay.

189. Go over the illustrations given, changing the
figures so that they will apply to your business or to
some business with which you are familiar.

140. State the special factors influencing wages.

141. Why should the chief incentive be increased
wages?

142. Indicate the importance of short-period records
as a pace.

148. Why are pleasurable surroundings important?

144. What is the importance of warmth?

145. How may self-interest be stimulated by the
keeping of individual records?

146. Explain the advantage of the individual record
in meVmg promotions. -

486

QITIZ QUESTIONS

147. Explain how by their use the unfit can gradu-
ally be eliminated. **

148. SUte the advantages gained by the use of indi-
Com an ^ '" ^^^ Metropolitan Street Railway

149 Name some incentives that have worked well in
special cases.

nienf wl"" ^^ ^P"-^""^^ °^ permanency of emp%.
nient Why have pension systems been established?

1.51. Show the importance of hope of advancement,
as a stimulus. '

this'rega^rd .*' ^^' ''°"'''' ""^ '^'"' ''"P"* '*"* ^«"^^^"« '"

em^Toy^t; W"" ''' ^"*''*'^^ >'°" ^"^^ -»' >'«-

emnlLy^* "^V"" *^^"^ ^°" "°"^^ accomplish as an
employer by making a man analyze himself?

o«^t M^lf ^ **'^ '^'*^™ °^ examination of the Chi-
cago & Northwestern Railway.

fitnes^s?^^** '' **"" importance of physical and moral

157. State the attitude of the business world toward
education. How is this evidenced?

r«!fp^"*.^'"^..**'^ instruction system of the National
G:fAs:Son.°^^^^^^ Of the National Commei^ial

CHAPTER IX

iJ^^: .What were the first steps taken preliminary to
industrial betterment? Compare the conditions in^the

teet.?? '" ^"^^'I^ ^"""« *he firct half of the Nine-
teenth Century with present conditions.

QUIZ QUESTIONS

487

160. What was the origin of the term "welfare insti-
tutions"? Give arguments to show that welfare institu-
tions are of real profit to the employer of labor. Name
the duties of "welfare managers."

101. What general devices should be employed
against accidents and fire?

162. What is the ideal location for a factory?

168. What devices are employed for good ventila-
tion, plenty of light and sanitation?

164. Give some specific illustrations of good sanita-
tion and cleanliness.

163. What is the importance of providing adequate
quarters for the employe's lunch hour? Give some illus-
trations of this in the United States and France.

166. Name some of the considerations which come
under the leading of recreation.

167. 5*tate the general effect of welfare institutions.

168. What are the objects of a suggestion system?

169. What results may be expected from the sugges-
tion system? Support your answer by citing results
that have been secured.

CHAPTER X

170. Of what use are statistics?

171. What is the chief advantage of the graph?

172. Show its use in comparing several sets of facts.

173. Illustrate its use in comparing periods of time.

174. Of what use are reports? Need they be de-
layed ?

175. Outline the inspection methods of the Westing-
house Electric and Manufacturing Company.

176. Why should work in process be inspected'

488

QUIZ QUESTIONS

177. What is the advantage of supplving the in-
spector with a list of questioijs i

178. State the qualifications of a good inspector.

179. How ,s information from the outside used to

'"T'r'r^ '^'''^"'^ °f the inspection department?

180 Distinguish between the several kinds and meth-
ods ot inspection.

181. What is research and how does it differ from in-
spection ?

182 Describe the research laboratory of the J. I
Case rhreshing ISIachine Company.

183. What are its objects?

184. Outline a time "study for an operation in your
nusmess.

18.5. Reduce this study to a formula.

186. Name some of the valuable sources of printed
mtormation on business.

187. What are the advantages of a study of competi-
tive methods and how may it be carried oii ?

188. How might consulting experts be used to advan-
tage m your business ?

CHAPTER XI

189. Give a notable example of the advantage of
routing. ®

190. Describe routing as it applies to the railroad.

191. Aame the three essentials in routing

192 Describe the two methods of securing a good
plant lay-out. ®

193. Why is a straight line between terminals im-
l)ortant ?

194. Name the various types of manufacture.

QUIZ QUESTIONS

489

19.5. What are the characteristics of the analytic type?

196. What are the characteristics of the continuous
type?

197. What riL. th? characteristics of the assembling
type ?

198. Wha u.iist be t ken into consideration in pro-
viding passage vuy^ ..rr5 space for raw material?

199. Name all the considerations that will affect
transportation within the plant.

200. To what extent should future growth be allowed
for?

201. Describe several ways in which future growth
has been provided for without sacrificing present effi-
ciency.

202. What is meant by taking advantage of gravity?

203. How does the time element affect routmg?

204. Name the two types of routing and describe
them.

205. When is special dispatching necessary?

206. How does the planning department control the
routing?

207. Describe the route-board and its use.

208. How is the worker notified of the jobs that have
been planned ahead for him ?

209. What questions are answered by the route-
board?

210. What is meant by the status of work in prog-
ress? Outline methods of keeping track of it.

211. Outline the system of the New York Clearing
House.

212. Describe its time schedule.

213. Why does organization save time?

214. What is the object of having substitute power
equipment?

490

QUIZ QUESTIONS

215. What is the equipment "tickler"?

216. Cite other methods of avoiding shut-downs.

217. Why is a stock-keeping system necessary?
What are the duties of a stock or tool department?

218. State the three rules of store-keeping.*

219. Describe the procedure in receiving suppHes.
From what three sources are supplies received?

220. What three distinctions should be made in issu-
ing supplies?

221. Describe the requisition system of issuing ma-
terials.

222. Describe the "bill-of-materials" method.

223. How may these two systems be combined to ad-
vantage?

224. OutHne the J. L. Mott Company's tool-room
system.

225. Describe the single and double check systems.

226. Why is it nt essary to have the stock-room under
lock and key and accessible to but one person?

227. How are goods protected from depreciation in
the stock-room ?

228. Outline two methods of classification by kind in
the store-room.

229. What should the stock ledger show?

280. Describe two methods by which the annual in-
ventory-taking is avoided.

231. What is meant by providing a surplus of the less
expensive?

232. What is said of small savings in manufacturing
and other forms of business?

233. Enumerate some of the opportunities for saving
in office work.

284. Sho^v the importance of avoiding unnecessary
shifting.

QUIZ QUESTIONS

491

235. What is meant by "fill-in" work? Give some ex-
amples oi savings that may be effected by it.

236. Pick out from the work going on about you
some examples of waste motions and waste material.

237. Define ai. ' explain the importance of the by-
product. Enumerate some businesses in which supplies
can be used a second time.

CHAPTER XII

238. From what point of view must we consider the
office for the purpose of this discussion?

239. What is the relation of the office to all other
phases of the business? What should be the first step
taken in securing efficiency in the office?

240. What qualifications are necessary therefore in
the head of the office?

241. Wh^ is the securing of maximum efficiency in
the office a difficult proposition? What is said of the
selection and handling of employes? How has welfare
work been applied to the office?

242. Devise methods of establishing standards in your
office.

243. Name the three types of office organization.

244. What are the characteristics of the functional
type? Describe the functional organization of the of-
fice charted in Figure 24.

245. Why are combinations of the functional with
other types sometimes advantageous?

246. Describe the committee system as it applies to
the office. What are its advantages?

247. How does the i^uggestion system work out in the
office?

49^

QUIZ QUESTIONS

248. What slioiild be the guiding principles in the ar-
rangement of an office? What effect has poor light on
efficiencj' ?

249. Summarize the principles underlying office or-
ganization and compare them with those underlying
organization in the plant.

INDEX

Accidents and fire,
Safety devices against, 373.

Accounting department, 176.
Analysis of, 231.
As a unit, ^30, 231.

Administrative departments, 151.

Administrative information, sources
of, 386-404.

Administrative ofRces 175-178.

Administrative staff, '?46.

Advancement, hope of, a stimulus
to employes, 356.
In oflBce work, 454.

Advertising, functions of factory,
148.

Agency methods of selling, 70.

Aids to management, published doc-
uments, 401-404.

America compared with England
and Germany in industries, 326-
337.

American companies liberal in shar-
ing ideas, 403-404.

American concerns seeking foreign
markets, 88.

"American Exporter," B. Olney
Hough, editor, quoted, 91.

American foods in foreign markets,
117-118.

American Institute for Social Ser-
vice, 372.

American salesmen abroad, 107.

Analytic manufacture, 410.

Applicants for positions, 358-360.

Arrangement of otBce, 46S-M3.

Assembling manufacture, 410.

Assembling work, SSI.

Automatic sprinklers, 8T3.

Balance-of-stores clerk, 298.
Basic principle in management, 201.
Basis for selecting types, 235.
Beginnings of industrial betterment,

370.
Bill of materials, 433.
Biscuits, direct marketing of, 73.
Blumenthal, Gustav A., on sclf-

analyzation, 360-362.
Bonus plan.
In offices, 457.

In paying factory employes, 335.
Points to commend the, 339.
Use of, 105.
Bookkeeping, perpetual system of.

443.
Boot and shoe industry, controUeil

by middlemen, 77.
Boss, the, ar. instructor, 216.
Gang, 270.
Repair, 271.
Speed, 270,
Bosses and foremen, 172-174.
Branch houses, 108-110.
Buyers,
Foreign, 91.

Two classes of stock, 66.
Business,
Not an exact science, 209.
Relation of, to controlling au-

thorit:, 169-irO.
Two phases, 38.
Business forces.

Nature of, 19«.
Busincs.s Management, administra-
tive information, 386-404.
Basic principle, 901.
Cardinal elements, 195.

493

494

INDEX

Business Management (Continued).
Complicated by spcciaRwition,
•20S.

Deals with three sources ot en-
ergy, 197,

Disciplined and undisiiplined,
257-262.

Functional, described by Taylor,
268-272.

Functional type, 263, 264.

Importance of charts, 232.
Industrial betterment, 370-380.
Management units, 219-234.
Modern aids, 277-306.
Office methods, 449-464.
Petty economies, 441-442
Principles of, 195-464.
Profits the purpose of, 202.
Savings in time and materials,

405-448.
Specialization in, 205, 206.
Staff and military types, 243.
Standardization and equipment,

307.

Standardization and wages, 327-
339.

Traditional type, 263.
Transitory type, 263.
Types of, 235-276.
Undisciplined and disciplined,
257.

What the science involves, 213-
215.

"Business Organization," by Spar-
ling, quoted, 60.

Business standards, cautions in
adopting, 310.

By-products, 448.

U, on assembling

Capita],
Fixed in an < lustry. 136.
Flow of, 4.
Invested, 31.
'nvestments, 16.

Carpenter, C.

work, 332.
On standardization, 315.
Census reports of capital invested.

31.

Chalmers, Hugh, on quaUtieS of em-

ployfe, 359.
Character of authority, 169.
Characteristics of the department

type, 249, 250.
Chart of orders and shipments, 389.
Chart, organization, of a publishing

house, 459.
Charts, importance of in organiza-
tion, 232.
Charts of organization, 177.
Charts, organization, usefulness of,

278-280.
Checks against injustice, 351 353.
Checking up progress of work, 392.
Chicago,
A market for grain, 45.
A typical market, 52.
Grain inspection in, 49.
Chicago Board of Trade, 52.
Cigar stores, 83.
City and country, for factory sites

132.
Classification of goods, 436-437.
Clearing-house, 62.
Clerk,

Balance-of-stores, 298.

Cost, 303.

Instruction-card, 300.

Order-of-work, 300.

Production, 290-291.

Recording, 302.

Route, 271.

Route, 294-296.

Route-file, 300.

Special material, 296-297.

Time, 272.
Time-studj% 300.
Combination systems, 433.
ComiP'^ree,

Definition of, 5.
Commercial results of test, 397.
Commission agents, foreign, lOT.

•

INDEX

495

Commission houses, 78.

Dealings with, lOS-104.

Export, 100-:03.
Committee system, 170.
Committee system of office manage-
ment, 461.
Committees, duties of, 171-172, 174.
Communication in factories, 141.
Comparison of systems, 241.
Competition, 9.

Competitive methods, study of, 403.
Conservatism, foreign, 119.
Consuls,

Purpose of. 111.

Salaries paid to, 114.
Consular reports, 115.
Consular service, 111-133.
Consulting experts, 404. '
Continuous manufacture, 410.
Control of business energy, 199.
Control ot employ^ by education,

364-366.
Control of labor, 340-369.
Cooperation,

And centralisation, 3*.

And specialisation, 124.

Benefits of, 3.

Between employer and emptor^,
381.
Corporate management, 224.
Corporations,

Origin of, 29.
Correspondence,

Foreign, 93.
Cost clerk, 303.
Cost records, 238.
Cost reports, 192.
Cost slieets, 303.
Costs as a by-product, 240.

Standardieing, 240.
Credits, foreign, 120.
Customs revenues, 123.

Ray-work plan of pay, 334.
Defoe, Daniel,

Describes conditions in England,
14.

Delivery systems, standardisation
of, 314.

Department grouping, 207.

Department specialisation, 206-209.

Department type, the, 249, 240.

Departmental functions, 144-190.

Departmental management of rail-
roads, 244.

Departments, accessibility of, 412.
Four basic, 449.

Determination of handling time,
330.

Determining facts by inspection,
390.

DifFerence between manager and
engineer, 204.

Differential piece-rate system, 336.

Discipline, aids to, 266-268.

Disciplined type of management,
260-262.

"Discoveries" in "Good House-
keeping," 384.

Distinctions between economics, in-
dustry, and business, 221.

Divisional and departmental types,
248.

Divisional management of railroads,
254.

Domestic system, 11-12.

Drafting department, 164-166.

Drawings, standard, 312.

Duties, specialisation of, 208.

Economy in standard materials, 312.

Economic units, 220.

Economics,

Point of view social, 232.
Education, control of empk>y^ by,

364-366.
Educational problems for factories,

133.
Effect of a new standard, 214.
Effects of welfare institutions, 380.
Efficiency,
Elements in, 333.

496

INDEX

Kffidcncy (Continued).

Of office employes, 456.

System of pay, 337.

Tests in, 214-^15.

Type of iiianHgenient, ;239.

Types of, 236-236.
Effort, incentive to, 349.
Elements in efficiency, 333.
Elements of management.

Applied to office, 451.

Cardinal, 195.
Elimination of the unfit, 35^-353.
Employes, courses of study for,
364-366.

Office, efficiency of, 456.

Recreation of, 379.

Selecting and handling office, 454.

Studying traits of, 354.

Suggestions by, 381-385.

Welfare treatment of, 370-380.
Employing labor, 146.
Employment, permanency of, 354-

357.
Employment records, 353.
England, sanitation in, 377.
Equipment, standard, 313.
Equipment tickler, 427.
Essentials in routing, 407.
Estimates, all results tabulated, 443.
Evidences of discipline, 360.
Evils of substitution, 104.
Examinations for consular service,

112-115.
Exchanges, Stock,

List of, 64.

Officers in, 64.

Rules, regulations and manage-
■ ment of, 63-67.
Exclusive agency, 104.
Executive officers, 151.
Executive report, 184-186.
Expense, extra, in foreign trade, 98.
Expensive versus cheap labor, 440-

441.
Experience the final test, 394.
Experiments, cost of, 210.
Experts, consulting, 404.
Export commission houses, 100-103.

Factory,

Buildings, 134.

Change from a 'mill to a schuol,
212.

Construction, 151.

Functions performed at, 169.

Organization, 125.

Output, market for, 128.

Plans 142-143.

Reports, 188-190.

Simplest type of, 413.

System, 23.

The modem, and its specialisa-
tion, 33.

Upkeep of, 150.
Factories,

Light in, 374.

Must be fireproof, 373.

Old and new, 134.

Pleasant surroundings for, 374.

Sanitation of, 376. .

Ventilation of, 375.
Facts, determinei by inspection,

390.
Family, the.

New motive for coftperation, 3.
Fill-in work, 445.

T rancial department, analysis of,
230.

As a unit, 229.
Financing of trusts, 31.
Fire drills, 373-374.
Fire escapes, 373.
Floor-plan of an office, 463.
Flour mills, capacity of, 43.
Force in manngement, 195.
Foreign commission agents, x<J7.
Foreign customs regulations, 116.
Foreign credits, 120.
Foreign markets.

Sources of information concern-
ing, 91-93.
Foreign needs and prejudices, 118.
Foreign sales arrangeisf'nts, 1J5.
Foreign trade opportunities, 122.

■ililiaiiliiMiHiHilliail

INDKX

497

Foreign trade.

Special conditions of, 93-100.
Forms for stock-taking, 4'i8, el teq.
France, lundies for workers in, 378.
French names, 99.
Function of tiu" office, 449.
Functions of the general staff, Hi.
Functional management, 268-^7^.
Functional method of organization,

156.
Functional orpaiiiiati m of ofBce,

458.

Gambling, compared with specula-
tion, 57.
General Manager,
Cabinet of, 238.
Importance of, !234.
(lerman names, 98.
(iprmany,
Lunches for workers in, 378.
Organization in, 70.
Siinitation in, 377.
Gilbrcth, I.. M., quoted on plan-
ning, 305-306.
Goal of every producer, the, 337.
Goods,
Classification of, 436-437.
Protected in stock-room, 436.
Government dos tnents, 403.
Grain,
Central markets for, 43.
Elevators, 46, 47.
Inspection of, 49.
Market for, 45.
Graphs and statistics, 386-387.
Graphic charts, 387.
Gravity, taking advantage of, 415.
Growth, room allowed for, 412.
(iiiilfls, 9.
Gunn, James N., quoted, 181.

Hale, Arthur, on railroad systems,

351-354.
Hulscy system, 33,5.
II-S8

Hniulicrnfts system, 10, 11.
Harvester consolidation, 69.
Hathaway, H. K., on completion of
orders, 393.
On planning, 384-386.
Hauling, two-way, 445.
High-s{)eed tools, 339.
High wages versus high cost, 344.
Iline, Charles, quoted on the L'nit

system, 384.
Hospitals, emergency, 374.
Human element, the, 333.
Human engineering, 300.
Human power, waste of, 341.
Hunting for things, 443.

Idle time, avoidance of, 445.
Imperfect work, 447.
Incentive, an aid to discipline, 368.
Index, elimination of the, 443.
Indispensable, no one man to be,

374-275.
Individual workman decides eflS-
cienry of whole organization,
339.
Industrial betterment, beginnings

of, 370.
Indu.strlal betterment, or welfare in-
stitutions, 370-380.

Institutions, 371-372. ^
Industrial development of ne.ions,

236-327.
Industrial units, 231.
Industry,

Increased specialization of, 7.
Industries,

Causes for localization of, 35.

Development of, 22.

Unsystematized, 237.
Information,

From the outside, 394.

Sources of, 386-404.
Inspection,

Necessity of, 390-393.

Of commodities, 48.

Of work in process, 399.

HiMi

198

INDEX

Ins|)rrtion {Cn*i\*%9^,
Research and, »95.
State bureaus of, IH.
Various kinds of. 394-392.
Inspector, duties of, 21\.
Inspectors, qualiflcatioiiH nf, 393.
Instruction-card cleric, 300.
Instruction-card man, 371.
Instructions, written, 28i.
Interchangeable parts, 315.
Interdepartmental relations, 161-

174.
Inventions, constant search for, 394-

396.
Inventory-taking, 438.
Investigation, scientific methods of,

;J09.
Iron and steel, direct selling of, 76.
Italian names, 100.

Jobber, t<

Aided sometimes by direct sell-
ing, 76.

Jobbing houses, 106.

Joint Ownership, 16.

Judgment the result of comparison,
307.

Kartell, the, of Germany, 70.
Kendall, Henry P.,

Oh scientific management, 264-
a65.

On types of eiRciency, 261.

Labor,
And capital, in handicrafts sys-
tem, 10.
Control of, 340-369.
Division of, 32.
Efficiency. 265-266.
Efficiency, low, 359.
Efficiency, standards of, 308-30S.
Market, 128.
Territorial division of, 34.

Labor-saving devices, 1T9-1H0.
Laborer of to-day, compared with

early worker, 24-27.
I.etter8,

Imitation typewritten, 95,
Libraries maintained by companieti

402.
Light, in factories, 374.
Lighting of office, 464.
Limited companies, 29.
Limiting dimensions, 316.
Liverpool market, 50.
Local management, i67-169.
Location of plant, 126.
Loss,

Caused by shifting jobs, 4U.

In unsystematised work, 257-358.
Lunch rooms, 377.
Lunches, for workers, 378.

Machine inspection tag, specimen,

393.
Machine tools study of, 329.
Machinery, economic advantage oit

27.
Machines, not to l>e idle, 444.
Mail-order houses, 81.
Mail-order method, 80.
Mail-orders,

Opposed by retail dealers, 81.
Main lines of activities, 200.
Main office.

Functions performed at, 169.
Manager, the,

Duties of, 197.
Manager versus engineer, 204.
Managers of departments, 239.
Management,

Elements of, 451.

Ix)cal, 167-169.

Units, 239.

Units, duties of, 233-234.
Managerial units, 223.
Manpower, high cost of, 340.
Manufacture, various types of, 409.
Manufacturer and Middleman, 68.
Ihlanufactures, market for, 44.

INDEX

4i»0

.Manufacturer's re*a.i xtores, iU.
Manufacturing buitine»s functions

of a. 144-15i.
Manufacturing industries, organisa-
tion In, IM.
Margins, dl.
Murlcet,

Attempts to develop special, 68.

A typical, 42.

Chicago a grain, M.

Kxtension of the, 3H.

Forces, complexity of, 66.

Fur factory output, 1^8.

For manufactures, 44.

For raw materials, 43.

Foreign, 88.

Foreign, modern methods of
reaching, 89.

Inspe?ting and grading commod-
ities, 48.

Prices, how influenced, 41.

Primary function, 39.

Sensitiveness of, 66-67.

Simplest form, 39.
.Materials, bill of, 433.

Sizing of, 438.

Standard, 312.
.Mtiit paclcers' associations, 71.
Membership in exchanges, 64.
.Merchants, rise of, 7.
.Methods of packing, 120.
.Middleman,

And manufacturer, 68.

Declining iroiMrtance of the, 84-
S7.

F. (Torts to eliminate, 75 et $eq.

I'linction of the, 41.
Middlemen, 13 et itq.
Militarj' method of organization,

155.
Military organization of office, 457.
Miiit-iry types of management, 943.
Modern aids in management, 277-

306.
-Modem plants, 134.
Morris, Ray, quoted on "Railroad

Administration," 249.
Multiple story factories 413-414.

National Civic Federation, 372.
New York Clearing House, time

schedule of, 425-426.
New York Stock Exchange, &3, 54.

Oflce,

Appliances, 178.

Employes adaptation to work,
455.

Employes, dilferent from gen«;ral
workers 454.

¥\ooT plan of, 463.

Function of ti >, 449.

Harmony with all other depart-
ments 4.i3.

Head, as distinguished from the
manager, 452.

Management, committee system
of, 461.

Manager, the, 45.

Material, standard, 312.

Methods, 449-464.

Organisation, 175.

Organization, semi-functional, 460.

Organization, three types of, 457-
461.

Purpose of the, 451.

Routine, 450.

Systems an^ reports, 175-194.

Work, how routed, 495.

Work, savings in, 442.

Work, standards in, 456.
Offices

Arrangement and lighting of, 462.

Suggestion system in, 461-462.

Welfare work in, 455.
Officers duties of, 152-155.
Oil, problem of distributing, 75.
Operating materials 145.
Operating unit, 333.
Order, course of « stock, 59.
Order for goods course of an, 161- '

164.
Order-of-work clerk, 300.

fiOO

INDEX

Ul-ltiO.

OrdpM ami shipments, chart ot, 389.
<)r«l«Ts tiHtlKHiM of hniKlling. IIH.
OrfijuiixHtion,

AdvHiitttKi-s and ||ii,i' Horn, .M.

A loi^ical arrangcii. .t of parts,

Apf)earnn«-c of niiddlciiiin, V.l rt
irq.

Capital invcstnii-nts, IC.

C'liart of. .».»l.

Cliart of a piililishing hoiiw, 4,W.

Charts, Usefulness of, :^78.

Comparative iniporfance ot capi-
tal iirul lalMir, 10.

Consular .scrvue, 1H-1>J.

Co<)|)eraHon and <fiitrHli»!ation,
it.

Departmental functions

Devclo|Jed by war, 247.

Development of, 1-.17.

Division of labor, 32.

Domestic system, 11.

Early economic man, in, 2.
Effect upon the laborer's status.

25.
Export business, 88.
Extension of national

ment, 13.
Extension of the market,
I'actory system, 23.
Functional method, i:,fi.
How it saves time. 42t).
Importance of charts. 232.
Influence of new economic activ

ities, 4.

Interdepartmental relations, IGI-
174.

Manufacturing ir iustries, 124.

Market, 38.

Market prices, 41.

Marketlnp ' manufactured

goods, 68-87
Military method, 155.
Must be impersonal, 2T4.
Of an .administrative staff, 2i6.
t)f a military staff, 245.
Office system, 175-134.
Office, three types of, 457-461.

govcrn-

38.

Organliatlon {Oontinutd).

IVrfcctloii revealed in marketik

66.
Ilccords, 28 1.
Staff and line, 227-330.
Territorial division of labor, 35.
The Kxehange, 52-07.
'Jhe prwiucer as a l>UHiness man.
27.

'Hie town n new economic unit, 0,
Town economy, 8.
Trusts, or unions of cor|M>rations
30.

Output, tliree factors coiiditionlnir.
328. '

Overtiead expense, 286.

Partnership,
Advantages ot, 39.
Early form, 28.
Passageways, 410,
Pay,
A fair day's, 344.
Systems of, ;W4-339.
PajTiient, metluMl of, in stock trans-

actions, 60.
Pensions of employes, 355-357,
PeriotI covered by a report, 192.
Physical surroundings of factory,

130.
Piece-work,
In offices, 457.
Plan of pay, 334.
^'ersus time-work, 332.
Plan of routing, 417-419.
Plan of st.c! plant, 413.
Plans, value of, as records, 288.
Planners, number of, 289.
Planning,
And overhead expense, 286.
In advance, 289.
Is specialized management, 284.
Room, 200.
Planning board, 420.
Planning department.
Duties of, 156-156.

INDKX

001

Plitnninir I)r|mrtiiHiit {r„nlii,uril).

l'uiiction.H ot, iT:i.

KMtliitlon of, )ti%.
IMtint.

ArrHiigcmrnt ot, 134-136.
I.nyout, 408,
Maintrnanre, l.V).
. I'olirifs. not dftaiU, J77.
IN-IM-. il»-iith of Uu-. how nrws wa»

roiitrd, 403.
I'c.rt.r, M. P. J„ quoted on iiianaKe-
nient. 333.

I'otttT,

Companies, rates of. 44«.

i;(|iiipinent, substitute, 43«-4.'7.

Iliinian compared with metliani-
ciil. 340-34;j.

Souree of, lit.

Triinsniisjtion of, lafl.
rriccs, quoted to foreljrn trade. 9C.
I'rinelpjes of managrement, 2\\).
Printed reconl, value of, ;V.V,.
I'riMliicir,

As a business man, 27.

I'tie jroal of every, 337.
Produet. the standardization of a,
.'L'7.

I'roducfion clerk, qualifications of,

I'riMliicfion data, .130.
Production de]iartment,

AmmIvm, of, 231.

A'i H unit, 231.
Profits

IiiiTuediate versus future. 2^3.

•Siicriflcing permanent, 20;}-;>04.

ll» l>"rpose of mauMirement, 202.
Pro^rress „f y^f^^V, how watched,

J!)2-293.
Projfrcss report, 190-192.
Promotion policies, 3,i7-359.

QtinliflriitionK «f jr,=r-.ectoF- 393.

Quiiliti.-, essential to good em-
ployes, 359-360.

Questions as guides to inspection,
392.

Railroad,

Examination!* for employes, 3«J-
3«3.

Location, 400.
ManagFUK-nt, 249.
Organliatlon, ••hart, of, 252.
Haw nuiterial,

Conlrollirig supply of, 14*.
Haw iiuitcrials,
.Market for, 42.
Source of, 127.
Reapers, contest of, abroad, 80,
Receipts foi«j(o<Hls, 431.
Receiving and shipping, 409.
Record department. 234.
Recordiiir clerk, 302.
Recon'
Aiwa) , :iable, 440.
Organiiation, 281.
Short-|ierlod, 348.
Use of employment, 353.
Recreation of employes, 379,
Remainder of stock, responsibility
for. 435.

Reorgani«ation of plants, 131.
Reports
Advantage of, 388.
Arrangement of, 183,
By whom made, 181.
Contents of, 181.
Disposition of, 192-194.
Four general kinds, 184,
Function of, 180.
Systems of collecting data, 183.
Requisitions how to use, 432.
Research and Inspection, 395.
Research laboratories, 396.
Rest,
And relaxation, 343.
Hours and lunch rooms, 377.
Rooms, 374.
Roufe-l)oard, the, described, 4U
Route clerk, 294-296.
iioute-file clerk, 300.
Routine,
Of office, 450.

502

INDEX

Routine (Continued).

Staiulurdicing, 322-3;i1i.
Routing,

Essentials in, 407.

Of news, 405-406.

Of olBce worlt, 425.

Plan of, 417-419.

Time element in, 415.

Two types of, 416.
Rules, books of, 325.

Safety devices, 373-374.
Sales delivery dates, 291.
Sales department, •

Analysis of, 330.
An ofHce division, 17(i.
As a unit, 230.
Salesmanship, courses in, 3C7-:i()0.
Sanitation of factories, 37((.
Savings effected by suggestion sys-
tem, 383.
Savings in time and materials, 403-

448.
Science of management.
Broad meaning of, 208.
What it involves, 213-21.5.
Scientific methods of investigation,

209.
Scientific methods of stoclc-taking,

242.
.Scientific selection, 266-267,
Seasonal business, 444.
Self-analyzation, 360-362.
Selling.
Agency methods, 70.
Conditions, recent change in, 230.
Department, report from, 186-188.
Direct to customers, 74.
Functions of factory, U7.
Through commission liouses, 78-
87,
Semi-functional organization of of-
fice, 460.
Shaping men to tlic organization,

275.
Sharing ideas, American liberality
in, 403-404.

366-

228.

Shifting Jobs, 444.

Sit) <ng direct to consumer, 75.

Sh( tores run by manufacturers,

J.
Shop bosses, 158-160.
Shop disciplinarian, 272.
Short cuts in business, 442.
Shortest time, determination of,

331-332.
Shut-downs, how avoided, 427.
Single and double check system,

435.
Sising of materials, 438.
Small savings, 441-442.
Smoke evil, the, 374.
Source of power, 127.
Spanish names, 99.
Spare time, utilization of, 444.
Special dispatching, 417.
Special material clerk, 296-297.
Special training of employes,

369.
Specialists in an organization,
Specialization,

And cooperation, 124.

Complicates nanagement, 205.

Department, 206-209.

In factory products, 34.

In management, 205-206.
S|>eculation,

And gambling, 56.

Defense of, 58.

Thrives on uncertainty, 66.
Staff and line in l>usii.?s.s 248.
Staff and line organization, 227-230.
Staff officers. 245.
Standard drawings, 312.
Standard equipment.

Efficiency promoted by, 313.

Need of, 137.
Standard materials, economy in,

312.
Standard office forms, 179.
Standard office material, 312.
Standard routine, 332-324.
Standard specifications, 311.
Standards,

In office work, 456.

INDEX

60&

Standards {ContiHutd)^

Of efficiency, 215.

Of labor efficiency, 308.
Standardization and equipment,

307-326.
Standardisation and wages, 3J7-

339.
Staijdardization of machinery parts,

315-316.
Standardizing costs, 240.
Statistics, use of, 386.
Status of work in progress, 420-425.
Steel plant, plan of, 413.
Stimulating self-interest, 351.
Stock exchanges.

List of, 64.

Officers, 64.

Uules, 63-67.
Stock-keeping system a necessity.

Stock ledger, 438.

Stock-room protects goods, 43'i.

Stock-taking, scientific uictliods,

^'42.
Storage facilities, 411.
Store-keeping, three niles of, 130.
Storerooms, 137.

Strike, disadvantages of a, 197.
Study,

Continual, essential to progress,
211.

Of competitive methods, 403.

Of men essential, 917-218.
Substitute power equipment, 426-

427.
Substitution, 104.
Success, conditions of, 126.
Succession by seniority, 247.
Suggestion system.

In management, 381-385.

In offices, 461-462.
Superintendent should supervise

work, 302.
Supply, receiving and storing, 46.
Supplies,

Issuing, 431.

Receiving, 429-431.

I'sed a second time, 44T.

Swedish names, 99.

Symbols for manufacturing, 320-

322.
System of symbols in factoriesi 316-

320.
Systems, comparison of, 241.
Systems of pay, 334-339.
Systematized type of management,'

238.

Taylor, Frederick W.,
Experiment of, with shovelers,

213-215.
On qualities of employes, 359-360.
On time study, 398-399.
On wage increase, 347.
Taylor differential system, 336.
Teaching men to work, 216.
Team work, 37.

Territorial division of labor, 35.
Tcrritorj',

Division of sales, 69.
Testing department, 146.
Testing for physical and moral fit-
ness, 363.
Testing of working time, 331.
Tests, written and oral for em-
ployes, 369.
Textile industries, selling problems

of, 78-79.
Three factors conditioning output,

328.
Three rules of store-keeping, 429.
Three sources of energj', 197.
Time and materials, savings in, 405-

448.
Time element in routing, 415.
Time, handling, 330.
Time-keeper, 304.
Time periods, comparison of, 388.
Time saved by organization, 426.
Time-saving by routing, 405.
Time schecok of Clearing House,

495-496.
Time study, 397.
Time-study cleA, 300. '

004

INDEX

Time study reduced to formula,

401.
Time work versus piece work, 33i!,
Tobacco, direct selling of, 73-7 k
Tool-room, need of, 136.

Relation of, to factory, 160.

Systems, 433-434.
Tools,

High-speed, 329.

Proper, 268.
Town, the,

A new economic unit, 6.

Benefits of association shown by,
8.
Trade papers, 402.
Traders,

Stock, 54, 55.

Two kinds of, 59.
Trading, concentrated, 54.
Train dispatcher, duties of a, 407.
Train routing, 406-409.
Training, an aid t<> discipline, 267.
Training of en.pIoyes, 366-369.
Transportation,

And factory location, 129.

In a plant, 411.

Interior, in factories, 138-141.

Of goods, 149.
Trusts, rise of, 30.
Types of management, 23j-?76.

Understudy products, 4W.
Understudies in managenrcnt, 274.
Undisciplined and disciplined man-
agement, 257.
Units

Economic, 220.

Industrial, 231.

Management, 232-334.

Managerial, 223.

Of management, 219-23-4.
Unity of purpose the keynote of
management, 272.

Unsystematized type at manage-
ment, 236.

Use of facts derived from experi-
ment, 212.

Use of statistics, 386.

Use of supplies a second time, 447.

Use of symbols in factories, 316-
320.

Vocations, advantages of, 380.
Ventilation of factories, the, 375.
A'rccland, H. H., quoted on hiring
men, 353.

Wage systems, 333.

Efficiency, 337.

Halsey, 335-336.

Taylor Differential, 336-337.
Wages,

Factors in influencing, 346.

Standardisation and, 327-339.

The chief incentive, 348.
War develops organisation, 247.
Warehousing, 149.
Waste, avoidance of, 210.
Waste motion, 446-447.
Wealth, and its problems, 28.
Welfare institutions, 371-372.

Effects of, 380.
Welfare work in offices, 455.
Wheat,

Different grades of, 50.

Futures in, 58.
Work,

In process, inspection of, 392.

In progress, 420-425.

Planned ahead, 264.

Pleasant surroundings for, 349-351.
Workmen, standardising, 331.
Woolen manufacture, England, 17.
Written aids to scientiflc manage-
ment, 401-404.

■Miii