Week 3 Notes

The Industrial Revolution in the United States

The Industrial Revolution – in the United States British mercantilism kept the U.S. as a colony

which delayed economic development. Great Britain prohibited the sale of manufacturing

equipment and emigration of skilled labor to U.S. Adam Smith influenced writing of the U.S.

Constitution and economic system. Textile Industry Commonwealth vs. Hunt 1842 American System of Manufactures Railroads

Early Industrial Development– Textile Mills

Largest industry at the time was textile.

Even though the textile industry was the largest business, factories were still small.

“Photo” on the left depicts an early textile mill.

Textile Mills

Samuel Slater – “Rhode Island System” First to use steam-driven

power looms Relied on sole

proprietorship or partnership form of ownership initially.

Relied on family for labor – with growth had to hire professional managers.

Vertically integrated operations forward and backward.

Samuel Slater

Textile Mills

Francis Lowell – “Waltham System” Used water-power looms. Hired non-family supervisors & managers

with corporate model. Used integrated spinning and weaving to

manufacture goods in large quantities. Relied on adult female labor. Praised by Charles Dickens for better

treatment of employees.

Textile Mill at Pawtucket, Rhode Island

Mill – present day reconstruction

Depiction of Mill

Commonwealth v. Hunt (1842)

Worker combinations (unions) were no longer illegal unless their intent was criminal.

Seeking a closed shop and striking were no longer illegal.

Only applied to Massachusetts but discouraged prosecution of worker organizations elsewhere.

The American System of Manufactures

Manufacture by interchangeable parts was not new – previously confined to making muskets and revolvers.

The Springfield (MA) Armory was an early factory prototype. 250 employees – largest factory in the U.S. until

after the Civil War. Organized by Colonel Roswell Lee in 1815. Used piece rate incentive payments and

accounting system. Labor was more specialized. Uniform standards promoted interchangeability of

parts.

The American System of Manufactures

Ideas spread to other areas of manufacturing. Ex: The reaper by Cyrus McCormick

The “American System” received its name at the exposition of 1851 in London.

U.S. factories remained relatively small. The McLane report of 1832 found the firms were

mostly: Family owned and managed Few corporations – unlimited liability Little use of steam power Similar to findings of Andrew Ure regarding

English firms

The Railroads: Pioneering in U.S. Management

First “big business” in the U.S. – developed c. 1830. Started the transportation revolution. Facilitated U.S. industry move from local markets to

national markets. Railroads had size and complexity. Required a management system.

Courtesy of Association of American Railroads (AAR)

Communication Revolution

Telegraph, patented by Samuel Morse in 1837, started concurrent revolution in communication.

By 1860, about 50,000 miles of wires extended over the eastern U.S.

Dramatic effect on business communication.

Facilitated U.S. industry move from local markets to national markets.

Richard Sears used the telegraph to see gold watches – the first electronic commerce.Samuel Morse

The Age of Rails:Daniel McCallum (1815-1878)

Developed a system of managing on the Erie Railroad: Specific job descriptions Accurate performance

reports Merit basis for pay and

promotion Organizational chart to

show lines of authority, responsibility, and communication

Use of telegraph for dispatching trains and checking on performance

Daniel McCallum, Circa 1865

Daniel McCallum

System of management relied on division of labor, personal responsibility, and organization.

Developed a formal organization chart. Developed highest state of the art information

management. Lost his job when the locomotive engineers would

not follow his rules. Workers were on strike for ten days in June 1854

then 6 months in 1857 in defiance of McCallum’s system.

Successful career building bridges and served as master of the Union’s railroads in the Civil War.

Erie Railroad Organizational Chart

This is perhaps the first organizational chart ever made

McCallum created the organizational chart to explain the Erie Railroad Operation

Erie Railroad Organization Chart of 1855. Library of Congress, Haer, N.Y.

Henry V. Poor (1812-1905)A Broader Management View Editor of the American

Railroad Journal Became “conscience” of

first U.S. big business Looked for broader

principles of railroad operations (financing, regulation, and role of U.S. Railroad in life)

Developed three principles based on McCallum’s ideas: organization, information, and communication

Henry Varnum Poor

Henry V. Poor

In later work, Poor felt the answer to problems of top management was through better leadership Unity in the

organization Selecting leaders on

merit Developing better

information systemsCourtesy of Pics4Learning. http://pics.tech4learning.com

Emerging Governance Issues

Early industries were partnerships or sole proprietorships.

Railroads, requiring large amounts of capital, saw the growth of joint-stock companies.

Without uniform, adequate laws in Great Britain, management malfeasance occurred.

Henry Poor wrote about the need for government regulation but not control.

Summary

From independence to 1860, the U.S. grew and developed industry.

Period was critical to development of the modern enterprise.

Railroads and the telegraph allowed firms to grow for economies of scale and scope.

Managers were required for large, complex organizations.

Quality of life for people was improving.

Chapter Six

Industrial Growth and Systematic Management

Industrial Growth and Systematic Management Growth of enterprise was facilitated by

transportation and communication revolutions as well as manufacture by interchangeable parts.

Alfred D. Chandler Jr. Andrew Carnegie Systematic Management The Changing Environment

Alfred D. Chandler, Jr.

Chandler wrote about the evolution of U.S. Corporations in 1962 book Strategy and Structure.

He developed his ideas from the study of U.S. corporations during this period.

Alfred D. Chandler, Jr. Courtesy of Harvard Business School

Alfred D. Chandler, Jr.

Described the late 19th century as the accumulation of resources with growth occurring because of: Horizontal combinations of firms in smaller fields Vertical integration – forward and backward

Larger firms and the growth of hierarchy of managers to coordinate and integrate operations were the result.

Key to success was good management, not size.

Andrew Carnegie (1835-1919)Steel Industry

Learned McCallum’s system of management on the Pennsylvania Railroad.

Used the new Bessemer furnace technology to begin vertically and horizontally integrating his firm in the steel industry.

Used cost accounting to guide his pricing strategy and drive costs down.

Andrew CarnegieCourtesy of The General Libraries, The

University of Texas at Austin.

Andrew CarnegieSteel Industry

He increased the “throughput” velocity to gain economies of scale and to fully utilize his resources.

The result was a declining price of steel for the consumer.

Andrew Carnegie’s his first job was in a textile mill like this.

The Renaissance of Systematic Management Mechanical engineers

(especially Henry R. Towne) became important in improving factory operations – they often became the managers.

Numerous others began to take an interest in management.

The idea that good management was critical in a firm gained credence with engineers and economists.

The Renaissance of Systematic Management The Labor Question

Some “Social Gospel” proponents felt that workers should join unions, share in profits, and have arbitration instead of strikes.

Engineers and others felt that better work methods and systems were the answer, including pay for performance incentive systems.

In 1895 Frederick W.Taylor proposed a rate setting and piece-rate system.

Big Business and Its Changing Environment Business & Society

Matthew Josephson characterized the business leaders of this time as “Robber Barons.”

There is evidence that business leaders did engage in some corrupt practices: watering stock, bribery of government officials, manipulating stock, and conspiracy.

Their motivation was alleged to be “survival of the fittest” and desire for monopoly.

Motivation was also drive for economies of scale that led to lower prices.

Big Business and Its Changing Environment

The social conscience of the 19th century entrepreneur gave rise to individual philanthropy: Ezra Cornell – his money

founded Cornell University.

William Colgate – college changed its name to his as result of his generosity.

John Hopkins – founded John Hopkins University.

Cornelius Vanderbilt – founded Vanderbilt University.

Cornelius VanderbiltCourtesy of The General Libraries, The University of

Texas at Austin.

Big Business and Its Changing Environment More Philanthropists

Joseph Wharton – grant enabled first business school at University of Pennsylvania.

Edward Tuck – gift to Dartmouth started Amos Tuck School of Admin. & Finance.

Leland Stanford – honored his son with a university John Stevens – provided for the Stevens Institute of

Technology. James B. Duke – Trinity College (later renamed for the

family). Daniel Drew – promise of funds led to Drew University. Moses Brown – founded Rhode Island College; became

Brown University in 1804.

Big Business and Its Changing Environment

Famous Philanthropists John D. Rockefeller –

given half a billion dollars by the time of his death as well as establishing the Rockefeller Foundation.

Rockefeller is pictured here in 1907 beside a building.

John D. RockefellerChicago Daily News negatives collection, DN-0051595. Courtesy of the Chicago Historical Society

Big Business and Its Changing Environment

Famous Philanthropists Andrew Carnegie –

gave away $350 million by the time of his death in addition to his libraries, university, and the Carnegie Foundation.

Andrew Carnegie Courtesy of The General Libraries, The University of

Texas at Austin.

Rockefeller and Carnegie

Despite generosity by both individuals, the Congressional Committee on Industrial Relations in 1915 denounced both as “menaces to society.”

Rockefeller Archive CenterAndrew Carnegie Free Library & Music Hall

Business and Labor

The Commonwealth v. Hunt decision (1842) broke the British tradition of unions as conspiracies in restraint of trade.

U.S. craft unions and brotherhoods of railroad workers were successful in the late 19th century.

Efforts to organize other workers were generally unsuccessful.

Labor violence in the late 1800s fueled public fear of unions.

Business and Labor

American Federation of Labor organized in 1886 under Samuel Gompers.

Without unions, and despite growing numbers of immigrants, U.S. workers found their wages and real (purchasing power) wages rising during the period.

Samuel Gompers, courtesy of Library of Congress

Inventive and Innovative Impulses

Railroads: made travel possible and pleasurable; fostered a retailing revolution.

Telegraph and telephone: aided growth of commerce and transportation through communication.

Other industries developed and grew: Electrical Mass marketers Sewing machines Harvesters Steel

Business and Government: The Seeds of Reform

The “elastic clause,” the commerce clause, of the U.S. Constitution expanded during this period with regulation of railroads.

The Interstate Commerce Act and the Sherman Antitrust Act were attempts to regulate business but these laws were generally ineffectual.

Woodrow Wilson (then a college professor) advocated better management of government.

Woodrow Wilson, courtesy of The Constitution Society

Summary of Part One

Examined management thought prior to the scientific management era in the U.S.

Early civilizations placed a low value on economic activity.

The technical and cultural changes of the Industrial Revolution presented managerial problems in : organizing, motivating people, and fusing people and processes.

Figure 6-1 Synopsis of early management thought.

Additional Internet Resources

Academy of Management – Management History Division Websitehttp://www.aomhistory.baker.edu/departments/leadership/mgthistory/links.html

List of Internet Resources compiled by Charles Booth http://www.jiscmail.ac.uk/files/MANAGEMENT-HISTORY/links.htm

Western Libraries Business Library – Biographies of Gurus http://www.lib.uwo.ca/business/gurus.html Developments from Ancient History

http://www.accel-team.com/scientific/index.html Max Weber

http://www.faculty.rsu.edu/~felwell/Theorists/Weber/Whome.htm Nicolo Machiavelli – Medieval Source Book – The Prince 1513

http://www.fordham.edu/halsall/basis/machiavelli-prince.html John Locke Biography

http://www.blupete.com/Literature/Biographies/Philosophy/Locke.htm Adam Smith

http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/smith/ James Watt by Carnegie

http://www.history.rochester.edu/steam/carnegie/ Developments during the Industrial Revolution

http://www.accel-team.com/scientific/scientific_01.html

Additional Internet Resources

The Robert Owen Museum http://robert-owen.midwales.com/

Charles Babbage Institute http://www.cbi.umn.edu/exhibits/cb.html Andrew Ure - The Philosophy of the Manufacturers 1835

http://www.fordham.edu/halsall/mod/1835ure.html Charles Dupin Biography

http://www-groups.dcs.st-and.ac.uk/~history/Mathematicians/Dupin.html Cyrus McCormick - Biography

http://www.vaes.vt.edu/steeles/mccormick/bio.html Samuel F.B. Morse

http://memory.loc.gov/ammem/atthtml/mrshome.html Henry R. Towne – Address delivered at Purdue University (1905)

http://www.cslib.org/stamford/towne1905.htm Andrew Carnegie

http://www.americaslibrary.gov/cgi-bin/page.cgi/aa/carnegie The Rockefellers – PBS Documentary

http://www.pbs.org/wgbh/amex/rockefellers/ The Samuel Gompers Papers

http://www.history.umd.edu/Gompers/index.html

End of Part One