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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 }7 I 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. 9. 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 16 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 .' * / ' * ». .-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 IX 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 1. 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. «(!. 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 V 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. .V 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™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. 10 BUSINESS ORGANIZATION li 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. IS BUSINESS ORGANIZATION •I en H H en en < H en O i IS H b O o en NH < o u 2 g d <£• 3 2 ,1 S 3 "S 3 o s •c o Ctt >-* < V o .a 1 I coTJ ll ■^ ». *3 S ti c E s X c o S5 01 1 V it "S-g § 1 Pi O X 15 o I 1^ O . ■§ s a s DEVELOPMENT OF ORGANIZATION 18 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 14 BUSINESS ORGANIZATION i I i J 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 10 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. 16 BUSINESS ORGANIZATION 11 ij II 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 17 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-« 18 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 19 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 20 BUSINESS ORGANIZATION I 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 il 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 St 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 S8 84 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. i 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 m 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 27 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. 28 BUSINESS ORGANIZATION I 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 i9 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 60 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. m DEVELOPMENT OF ORGANIZATION 31 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 1 « 1 1 f.O » a IINV • ISTEO AT tUM CCNSUSi m TO IMl oMDs or MujoM w eeium • w « « ^1 • • » M ^ ^^ "** tiTO 1 ^ tllO S. VALUE OF PRODUCTS AT EACM CCNSU& IIM TO IMO, wMowas or muwns or eoujm ^1 ii2 BUSINESS ORGANIZATION 1. 3. 3. 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- 34 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 J DEVELOPMENT OF ORGANIZATION 35 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. 36 BUSINESS ORGANIZATION (b) Favorable climate. 2. Business characteristics: (a) Nearness to markets. (b) Cheap labor supply. (c) Abundant capital 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 38 ORGANIZATION OF THE MARKET 39 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 40 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 4t 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 jy ORGANIZATION OF THE MARKET 48 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 44 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! 46 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 47 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 48 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 49 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 50 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 61 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 " 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 60 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.' J THE EXCHANGE 61 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 has over mne hundred stores. It is now an 84 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- 86 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 88 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 90 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- n 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. 94 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 06 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. 98 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 99 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 in 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- uo 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 ui 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 of 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^^ ., 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«., (c) Boilers, engines and power geiicro 9. IMP^^M.^•.. This aepartment^^b *e «■ placing of existing buUdings or ^^'^^ proved types and greater relative ^^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. (c) The finance committee. ^ (d) The president. (e) First vice president or general manager. (f) Experts. 12. Administrative uepaetments. (a) Secretary. (b) Treasury. (c) Auditing. (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 e. 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- :m 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 m 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. 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 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. 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 the tiiiished 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- 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 |H 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- MICROCOrV RiSCHUTION TBT CHART (ANSI and ISO TEST CHART No. 2) ■ 28 12^ L40 il 2.0 1.8 i /APPLIED IN/MGE 1653 East Main Street Rochester. Ne« York 14609 US* (716) 482 - 0300 - Phone (716) 288- 5989 - Fa« 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- nx 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 0. 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. (c) Percentage of jobs reaching standard time. Moteria! purchased. (u) D otly. (b Inu ectly. nve iiory classified). \IisLt lanei; s charges (classified), r'actory balances (classified). iO. i) f. J? 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 c Cd w a: 2 8 fl. * H U < <;! e s ""71 * lb ^ _^ 8(3 6S I' (»dd|t|9 8| jBq.vi iCq djqs »snw •iCq loajg ^snw •japiO;o»)va 11^ e "8 192 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 196 196 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 ■-gf e_5 r I "a -S t.S •c • S S^ s en 81 u §"3 il 'I 2 i I- § i ° U Q f 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 806 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 214 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 Ml 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 1 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 I Insp' AauitanU AaiiiUnU As§iaUnti An m'j Fia. 5.— Analysis of Financial Departmint. I 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 I 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. f 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. w 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 Ul 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'loneI. Of ' Herbert roster, "OrguuMtiom." p. «8. S46 BUSINESS MANAGEMENT ►II, ;!l .^^>»i m >*'!. 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 MiatOCOfY RESOLUTION TEST CHART (AN5' and ISO TEST CHART No. 2) 1.0 I.I !r 14.0 2.5 10 1.8 A /APPLIED IIVMGE Inc ^g^ 1653 East Main Strsel ^S Rochester, Ne» York 14609 USA ^g (716) *82 - 0300 - Phone ^S (716) 288 - 5989 - fat «60 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. 9M 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. S68 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 m 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, 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. 286 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„- 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 a. 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 a. b. ^. "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 7 $1.75 .25 91.50 J14 (1.75 J5 6 1.50 .25 1.50 .25 1.50 M 5 1.25 .25 1.50 .30 1.375 SJi 4 1. 00 .25 1.50 Sin 1.25 3\i S .75 .35 1.50 .50 1.125 31 9 ,50 .25 IJO .75 1.00 M 1 M SS 1.50 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 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 i. 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 10 10 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 + 15 15 + $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 20 $2.00 15 $2.00 20 + $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 so -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 20 = $OJS}pa piece. Labor + Machine + Overhead + Material = Cost $0.22J+ $0.30 + $0.10 + $0.75 =$1,371 L 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 I 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 J 350 BUSINESS MANAGEMENT i 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. J 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 It 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 11 — i,»> Miatoconr resoiution test chart (ANSI and ISO TEST CHART No. 2) 1.0 I.I 1.25 15.0 i^ 1^ UL 122, ll£ 1^ tii. y^ Li Im H^ !'•« 1.4 1 '•'- ^ /1PPLIED IfVHGE Inc ^^ 1653 Eost Moin Street r.S! Rochester. Ne« York U609 USA JSSS (716) 482 - 0300 -Phone ^B (716) 2B8 - 5989 - Fa> 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 i> 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 89 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 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. 406 406 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 a 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_ r 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 m 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 CLAM Offio«-Lof» •WUMNO 123 WILLIAII fTRilT 1^246 OATt D«a«l,l»Olli orric B MHIMLI ■ WORK ■ M* MHIB4IM J» to i.€t CO«.T(i*CT COS»l»Ct On o« itroai 1U> COM • rART nNMti ^ ■O »AV NO l>A1 ' " 3 AIICIIITICT>S DRAWIRCS ■^ 3 WHEC'KING ~™ 4 KXCAVATION 10-10 11-1 ^" S [)RAI\S ANn WATER 10-10 10-20 « l'AlssliNS_rii.r« 7 FOliNt)ATIoys-««-^ii» c.« — m " C*ll— •mJtAL— T»:^T 2-20 16-16 16-lS l« BOILER') ■ 17..H 1 .n 11-1 11-16 17 Pl'.MP-T.VM ' i.n } -p.n 10-20 10-28 in ARCHIS 12. n 1 -in 10-20 10-28 19 PLl'MlllNG-OAH— iimn«-^«T 12-S 1.20 20 riNisH— nxTi'«r« 2-10 S.IB 10-20 10-29 21 HEAT— VEHTILATIOH— ROl'OH 12-S 1.20 22 " RECIILATION — nwi^H 2-10 S.IB 10-20 16-49 21 ELECTRIC-iioi'ciH-Tiar.-i.maT 12-S 1.20 11-15" 11-48 24 " FIXTURES-wmiiu 2-10 S.IB 10-25 11-4 is COMMOR BRICK WAUS ' 17.. Id 1.20 9-2S 16-9 26 GRANITE — 17..A iK.in ■ lo-l 10-19 27 BI.L'ESTONES 12-e 12.10 10-1" 16-18 2» LIMESTONE-HAiiiui — " 12-10 12.18 6-25 16-1 It TERRA COTTA 12-20 1.20 10-9 10-28 30 FACE BRICK-t»»MrL.B 12-18 1.12 10-6 10-29 12-18 1.12 ■ 10-26 11-6 12.18 10-25 11-4 '^ 12.18 1.20 16-24 11-2 14 PULLEYH-mnm-oiAim 12.18 1J.-16 11-28 M GLASS 1.7 11-10 11=20. 1.R 1.2K 11-10 11-20 37 SHEET METAI. ~ 1.8 r" 11-10 11-20 .18 BUCKS 12-28 1.28 ■■■ 11-18 11-48 3» STHIPS ANn FILL — 12-28 2-1 11-22 11-28 '— 1-4 2.8 12-5 12-16 41 OIOORDS ARD LATH 1-10 2.12 11-20 12-1 ~- LIS 3-1 2.1 S,l 11-B 11-18 44 MARBLE WALIJI-^u 2-1 S.l 2-10 3-10 11-6 11-18 4a HARDWARI-nmM 1-28 .2.18 11-19 11-26 47 TUM-voDD 2.10 "~ 2.10 .1.20 , 11-25 12-6 4« PAIItT— Mexuunoii 2.20 S.20 12-1 14^16 SO FIlflSH FLOOR— wooiH-caMUfT ~~ 2.20 SI MAIL CHUTE 2.28 S3' REVOLViNO E>0OR ~ 1-16 1-18 S3 PAVlNG-«ioi»aui— con ^-18 3.8 54 VAULT WORK SS FILTER "" ~ 57 ICK PLANT ■— sa LAUNDRY— ■•««!« "— " U ^ 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 !V \ embankment into -ubic yards— reguia i^'^i .ft, SAMNGS IN TIME AND >f\TERIALS iHl I 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 • S CO B3 « ° m 4 8 3 3 ? s -' " ' :£KR I a 1 »!♦ -, 'di ' j! 5 a E 1 . i- |_-...::_:::::: ^ -|_U.::-::!ffl: A 1 .-..::.::—• 8 E * -3= snRf fc a-- __ i 1 ' "" "•' T 3 8? ' e 5 1 ■.•"»••■<•■• .• 6-a=ima a s-e } -i.-!h.:. .:.::.:... J • B 2- l._. ...=B«:: a "1 ~~ 1 " t 3 2 i 1 ^1 ::::::: - • T 5 - 1 -1 .-::..!!:!!. 9 ' 1 -I".:.::.:!:!.:. C St. n -» nil • a 2X . i '1 s ..ZZ1..Z ^ id . a gs ssRiseGS ass's tJM 5«!l ! i 1 i 1 I s 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 I ^ % ^ ^ I •t a la ^O s8 to ft 2 I C/3 I I § I- a I ^-^ I I 1 s «« 8 i ^ FiQUBK 21.— Coupon Fobii or Obosb Tickbt. s I {! I 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 V tmm HsarnN MM. Ill M* "^ 1 2 3 4 5 6 7 8 MlltaM MtHklMlii **'*^ ^ M. 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 «orerimple .;/.«-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. rr 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 ' 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 1 SECRETARY i^ 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 ■\ Ll 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 ) I 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.;' ^ ^"""^ '"'"*' 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 B 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 4M 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. B 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. E 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, xe 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. N 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 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. Q 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(oeculation, 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. L 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. U 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. W 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