|
|
The History of Management |
|
History of Management |
The Rise of the Professional Manager in America Management emerges uniquely in the United States because of the combined effect of the Industrial Revolution, a vast geographic expanse and national market, and the unique complexities of the American railroad industry. Historians label the the on-going developments of the the Industrial Revolution up to the 20th century as the Second Industrial Revolution. If the first period of industrialization was characterized by application of steam technologies, the second period of extended industrialization is characterized by improvements in methods, chemicals and metals manufacturing, and the power of electricity. In the United States the legacy of the Civil War provided for a national market. The Fourteenth Amendment, intended to secure the civil rights of African-Americans extended the protection of private property guaranteed by the Fifth Amendment to state governments. It may not be obvious in the 20th century, but while the Fourteenth Amendment was worthless for much of the post-Civil War history in protecting civil rights, it became the foundation for expanding the protection of property rights and the institutionalization of laissez faire capitalism. The post Civil War period transformation of the United States to an industrial state is evidenced by: growth of industrial wage earners from 957,000 in 1849 to 4,252,0000 in 1889; the value of factory made goods jumped from fourth internationally in 1860 to first place in 1894; and, urbanization increased from 8.5 percent of American living in 44 cities in 1840 to over 32 percent living in 547 cities in 1890. America was not alone in this kind of industrialization, which was also transforming Great Britain and Germany. Unique to the American experience was the development of the railroad industry. The Industrial Revolution, of course, introduced the rail to Europe. George Stephenson in Great Britain had pioneered the rail in 1830. But in Europe the railroad industry either developed as a state enterprise or, as in England, became a highly competitive industry spread over many rivals. In 1844 England had 104 railway companies. In the United States the railroad became "big business", the modern corporation. By 1840 there was about 3000 miles of railroad tracks in the United States – almost the same mileage as the canals. By the Civil War about $1.2B (1909 $$) had been invested in the railroads of which about 25 to 30 percent was government funded. By 1849 rail freight receipts exceeded passenger receipts. In 1855 before the Pennsylvania acquired the PFW&C, it cost about $2M to run the railroad. In comparison, the largest comparable non-railroad businesses were the huge New England textile mill complexes, and the largest only cost about $.3M to run. By the late 1880s the Pennsylvania RR employed over 50,000 men. Size of the railway business was one aspect, but this was not a sufficient condition to create the modern business enterprise. Although the corporate form of organization with stock ownership was well established before the railroads, the rail industry required substantial capital which it acquired mainly from the sale of stocks. In 1835 only three Railroads were traded on Wall Street, by 1850 thirty-eight were traded, and by 1855 rail shares accounted for half the negotiable securities traded in the U.S. By the end of the Civil War the financial markets of Wall Street and Philadelphia were well established based largely on the transactions of rail stocks. The importance of stock ownership is that it transfers business ownership from the founder-proprietor to a large number of owners or investors. Stock owners, unlike owner-managers or partnerships, have a single interest in the enterprise -- a return on investment. Investors may have limited knowledge of the business; moreover, coordination and decision-making for the business becomes unwieldy as the number of investors increases. Ownership is divorced from management as investors now seek a professional who is knowledgeable of the business and who can manage the enterprise. This gives rise to something that did not exist before -- the professional manager. The size of the American market created additional complexities. While a railroad traversing Great Britain from north to south spans a distance of a little over 500 miles, a transcontinental rail in the U.S. covers nearly 5,000 miles. A transcontinental railroad was charted by Congress in 1862 in anticipation of trade with the Orient and in support of the Western migration spawned by the gold rush, but the Civil War made its construction a matter of national priority. The Union Pacific, working from the east, and the Central Pacific, working from the west, completed the transcontinental railroad in 1869, meeting at Promontory Point, Utah. The enormous fixed capital investment of railroads required elaborate long-term planning to insure that tracks linked important markets. Coordinating over large distances imposes the need for multiple intermediate managers, the role of the professional manger. Also, new to capitalist enterprise was the concept of "middle management", an idea that was developed from the model of station managers or agents who oversaw rail operations for a prescribed length of track and a specific locality or "market". There are also unique operational complexities associated with running a railroad: trains had to be scheduled; prices had to be established for different passenger fares and freight; logistics of handling passengers and freight had to be planned and executed; equipment and tracks had to be maintained; and, local operations had to be harmonized with corporate policies. This introduced a high level of specialization of skills and diversity of skills that were required.
One of the early professional managers was Daniel C. McCallum, Superintendent of the Erie line for the New York and Erie Railroad Company. In his annual reports to the corporation's Board of Directors, McCallum laid out the principles and organization of the first "modern" corporation in the mid-1850's. His organization chart, which became widely adopted, laid out the fundamental structural difference between the ubiquitous "functional" organization and the emerging corporate or "multi-divisional" structure. As illustrated in Figure 1 the "functional" form of organization, heretofore the dominant business form of organization, is based on the concept of specialization of labor by function or task. The structure is ideal for smaller businesses, operating in a single market, making a single product. The typical hierarchical deign was headed by the owner-manger, although the structure was adapted by corporations for management by the key or designated owner-manager. McCallum observed that for short-haul railroads a superintendent can directly know and manage operations. But, with a rail stretching over 500 miles this is not feasible. He proposed and implemented an organization that broke the rail line into geographical divisions of a manageable size, each headed by a divisional supervisor. Divisional supervisors reported to headquarters. His Multi-divisional form of organization enabled a large business to operate as efficiently as a small one. J. Edgar Thompson at the Pennsylvania railroad quickly adopted McCallum's idea and developed staff functions at corporate headquarters for planning and financial controls and , and to implement general business policies. As more American enterprises expanded into markets and with new products the multi-divisional form of organization denoted by multiple business units attending to specific markets and reporting to a central headquarters become the model corporate structure.
The modern business enterprise (Figure 2), as it was developing the U.S. through the railways differed from the traditional firm in two fundamental respects:
The modern enterprise with its hierarchical controls and multi-divisional structure depended upon an increased number of professional managers. In 1881 local industrialist and philanthropist Joseph Wharton funded an experiment to meet this need - the establishment of a collegiate business school at the University of Pennsylvania. The Wharton school was an experiment because there were no "business" professors and there was no management literature, aside from "how to" manuals and trade publications.
|
| Next Page |
 |
