MODERN MANAGEMENT

OF ENTERPRISES

by

HENRY K. JUNCKERSTORFF Saint Louis University

THE HAGUE

MARTINUS NI]HOFF 1960

Copyright 1960 by Martinus Nijhojf, Th Hague, Nttherlnnds All rights rtJenJed, including tht right ro transU!k ar ro

rePTodzu:, this book or paTts thereof in any form ISBN 978-94-015-0]j2-8 ISBN 978-94-015-0772-1 (e8ook) 00110.1007/978-94-015-0772-1

PREFACE

This study is written first of all for the European manager who needs more information on the subject than ever before. The American science of management as a whole is scarcely known in Western Europe although many details have been learned and put to use. A general approach, however, is needed.

I have tried therefore to develop the main aspects in this field seen against the background of the national sciences and its characteristics.

Thus the scientist will find an approach which as yet has never been offered before and he will be faced with a challenge to help setting up a science of management on a universal scale.

ACKNOWLEDGMENT

The author wishes to express his appreciation to his colleagues, associates and staff for their contributions of time and effort. To some extent acknowledgment is made in the footnotes and in the bibliography. Particular mention must be made for the generous offering of time and effort expended by Mr. Louis Erbs, M. S. in c., and Mr. Philip Degnan, Jr., B.S.

THE AUTHOR

CONTENTS

Preface. . . . . . . . . . . . . . . . .. v

PART I / Introduction

Building up economies in underdeveloped coun-tries . . . . . . . . . . . . . . . . . . . No international cooperation in the field. . .. 2 Different stages of development achieved in national sciences. . . . . . . . . . . . .. 3

PART II / The Need for a Standard Terminology

A Mixed-up Situation. . . . . . . 4 No understanding between national sciences 5

PART III / Principles of Business Conduct

The U.S. Chamber of Commerce Principles listed Comment ......... .

PART IV / The Lack of International Management and its effects on the Western World

Statements of the Anglo-American Council on Productivity. . . Analysis . . . . British Approach. France, Italy and Germany

7 7 8

9 9

10 10

CONTENTS

PART V / Management: Art or Science

A French Comment. ... The British Point of View . The American Approach A German Opinion. . . . Management - A Science . The Methods of Management. The Advantages and Drawbacks Management. ........ .

PART vI/Management: A Public Service

of scientific

Profit the First Objective of Business? Public Service and Profit A British Approach. A German Opinion . France and Italy. The United States .

PART VII / Management: A Dynamic Science

Statics and Dynamics. . . . . . The Theory of the Environments. Social .. Political. . . Ethical ... Psychological Economic . Physical ..

PART VIII / Basic Functions of Management

An Appraisal. Great Britain France. Germany .. Italy .... The Five Functions Explained.

v

12 12 13 14 14 16

17

18 18 20 21 23 26

30 31 31 33 37 40 41 43

44 46 52 54 56 56

VI CONTENTS

PART IX / Conclusions 68

PART X / Automation and the Functions of Management

Definition of Automation . . . . . . . .. 69 Effects on Planning, Organizing and Controlling 70 A Word of Caution. . . . . . . . . . 70 Survey of the Bureau of National Affairs 71 Centralization and Decentralization. 71 Stromberg Carlson Reports . . . . . . 73 Cincinnati Milling Co. Reports. . . . . 73 Scientific Management in the Electronic Age. 73

PART xI/Management and the European Economic Community

The Treaty of Rome and its Overall Objectives 74 Organs of the European Economic Community 75 Common Tariff. . . . . . . . . . . . . 75 Transitional Period. . . . . . . . . . . Effects on American and British Business . Management Problems ........ . Exporters Change their Business Structure: G.E. Manufacturers' Approach: Merck and Ford Only 10,000 Firms interested . . . . New Common Markets: Latin America

Bibliography. Index . ...

75 76 76 77 78 79 79

80 82

PART I

INTRODUCTION

Building up national economies in underdeveloped countries has one basic presupposition: The existence of a group of people trained to take over the management of the enterprise after the instruction teams have left.

It is surprising if not depressing to see that the problem in­volved has not yet been attacked and solved by the nations of the Free World. This despite the fact that opening the big prospective markets in the Near East, India, and last but not least Africa de­pends upon establishing new partners in world trade, partners who cannot rise on their feet, however, without the help of managers.

One of the reasons why we have to face this is the fact that the West has abandoned the task of formulating the principles of universal management. As a result we have no permanent platform on the international level which would secure comprehensive cooperation between national sciences in the field concerned.

The question has to be asked whether we have a need for establishing such cooperation in Business Administration. Did not F.W. Taylor (U.S.A.) and H. Fayol (France) give a complete system of thought to be applied whenever and wherever a business has to be set up or to be conducted the modern way? By no means! It is certainly true that all the national sciences, as young as they are, were based upon the findings of the father of "scientific man­agement" and his French counterpart. But this homogeneity so far only existed at the start about thirty years ago. Since then the Business Administration in each country has lived its own isolated life so to speak. There were, of course, a series of contacts especially between Great Britain and the United States and promi­nent scientists of other countries. But when asked about the actual situation we will have to quote the famous British expert E.R.L. Brech stating (1953):1

1 Erech, E.R.L., The Principles and Practice of Management, London, 1953, p. 15.

2 INTRODUCTION

"The absence of agreed or authoritative views as to the definition of Management and its fundamental principles has meant that there is as yet no accepted terminology."

This statement indicates that we have to start from scratch. But it is not as hopeless a beginning as it may look. We have only to embark upon an analysis of the developments to be noted in the national fields. Here we see that the basic ideas of scientific management have penetrated the sciences in Great Britain, Ger­many, Italy and the U.S.A. thoroughly. The basic approach being common to all nations concerned we are in a position to check the trends and to make a distinction between elements of an organ­ically natural process of growth and artificial ones indicating a deviation from the basic concepts.

This survey will also disclose the fact that the sciences of the partners concerned with world trade have reached and accom­plished different stages. Sometimes the process was slower some­times faster. Comparing essential aspects we will find that obsta­cles impeding the development in one country have been overcome successfully by other nations.

It may not be surprising at all that the science of Business Administration has made the biggest progress in the United States of America. Rapidly growing industries combined with the pres­sures of war efforts have made this build-up of scientific manage­ment an urgent necessity. America became the leader in the fields based upon extensive research. The problem of establishing a standard terminology has not yet been completely solved however but this does not imply the consequences reported by Mr. Brech. The system of scientific management stands firmly in the U.S.A. and Business Administration has become a field of education which rests upon solid foundations.

Thus the U.S.A. can help the other nations to a considerable extent completing their system. "International Management" which is today a postulate will become a reality tomorrow provided that real intensive cooperation can be brought about.

In the meantime we should try to explore vital problems to find a solution which will foster the process of getting well acquaint­ed with each other. The first step, of course, has to be the adaption of a common language in a primitive sense thus bringing about some basic concepts common to all partners of the West.

INTRODUCTION 3

Part II deals with this problem. Parts III-IX will be devoted to the study of some basic principles of management which in a future period may become component parts of international man­agement. Parts X and XI will direct attention to fundamental changes which in the future will have an effect on this body of science.

It is hoped that in this way the book will serve the scientists and the practitioners in international business.

PART II

THE NEED FOR A STANDARD TERMINOLOGY

One thing may be taken for granted: We can get only as much of international management as we can get an international stan­dard terminology. The British Institute of Management has done a lot of research in this field. The results, however, are not very encouraging as yet. In a sectional meeting Mr. Winston Rodgers,! head of the Department of Management, Acton Technical College, presented a paper on the subject which was widely discussed by the experts of the B.I.M. To illustrate the confusion which has arisen the author chose the words "management" and "adminis­tration." He reported that some authorities refer to the former as a policy-forming activity and to the latter as the activity concerned with carrying out the policy. But the famous British expert Brech who was briefly referred to in the foregoing part states in "The Nature and Significance of Management" that man­agement is the generic term for the total process of executive control. The Chairman of the meeting Lt.-Col. L. Urwick added that the Oxford Concise Dictionary offers an explanation of the term management in a verbal sense as an "especially trickery, deceitful contrivance." Looking up the word "factory" we will find "Merchant company's foreign trading station."

Comparing this mixed-up situation with the American approach we can say that the definition of management is clearly conceived and that there is no basic controversy as to its elements. We may quote George R. Terry, one ofthe modern scientists and research­ers explaining the term as follows: 2

"Management is the activity which plans, organizes, and controls the operations of the basic elements of men, materials, machines, methods, money, and markets, providing direction and co-ordination, and giving leadership to human efforts, so as to achieve the sought objectives of the enterprise."

1 Rodgers, Winston, No. 5/1949, Conference series 7. 2 Terry, G.R., Principles of Management, Chicago, 1953, p. 8.

TERMINOLOGY 5

It is true that the different meaning as to the position of the policy within the basic set-up of an enterprise may be extremely confusing not only in Great Britain but in the international field too. Brech1 states: "Policy can be briefly defined as the objective, the mode of thought and the body of principles underlying the activities of an organisation." The American point of view, how­ever, is characterized by the fact that the objectives of an enter­prise are carefully separated from the policies. A policy is in the words of Terry2 "a verbal, written, or implied statement outlining the guiding courses adopted and followed by a manager." A managerial objective is in his mind "the intended goal which prescribes definite scope and direction to efforts of management." We will have to discuss the fundamentals in the fields concerned in the next chapters. It may suffice therefore for the purpose of indicating the sort of problems with which we are faced in getting a standard terminology to mention the characteristic points of view in comparison with the British approach.

At the meeting of the B.LM. referred to in this part Mr. G.A. Robinson, Examinations Secretary of the Institute, gave an inter­esting report illustrating the impossibility of international cooper­ation at the present stage with the absence of a common scientific language in the fields. Mr. Robinson had the manuscript of two books which the publisher's readers had recommended should be published. They were both publishers of repute. One is a book on "Market Research" and the other on "Legal Aspects of Industry." In the book on market research the man who had sent in his manuscript had been trained in Britain, had spent some consider­able time in the United States, and was then in South Africa. The readers reported that although the content of this proposed book was in their opinion ideal within the terms and title laid down, the man in question was using expressions, some picked up in South Africa, some picked up in the States, and some were perhaps rather more loosely used in Britain. It was eventually agreed that the books would be published, but with the glossary indicating what was meant by the terms. Mr. F.e. Hooper, Manag­ing Director, Schweppes Ltd. completed the report by offering some experiences of his own. Introducing himself, he said that he

1 Brech, l.c., p. 18. 2 Terry, l.c., p. 89.

6 TERMINOLOGY

spent 23 years in management and that he never read a book about it during the whole of that time. Some years ago, however, he studied a lot of books on the subject to find out what they had to say about it. At the end he was faced with the greatest difficulty in finding out what meaning was attached to a term in anyone book and then in trying to correlate the different meanings intended by that term when used by different authors in different countries - because some were American.

If this can happen between two English-speaking countries what should we suspect when comparing the terminology applied in France, Germany, and Italy? The biggest obsta<;le is obviously the lack of common terminology. We should embark upon com­parative studies immediately having as our goal the preparation of a dictionary of terms as a first step to effective international management.

PART III

PRINCIPLES OF BUSINESS CONDUCT

The Chamber of Commerce of the United States has adopted principles of business conduct in May 1924 which since then have won unanimous acclaim nationally and internationally. These principles have also largely influenced the sciences con­cerned because it was understood that the highest authority es­tablished by the American business had touched the heart of the matter proclaiming basic truths upon which the future of business will rest forever in our system of free enterprise. Here are the main points of the document which is introduced as follows:

"The function of business is to provide for the material needs of mankind, and to increase the wealth of the world and the value and happiness of life. In order to perform its function it must offer a suf­ficient opportunity for gain to compensate individuals who assume its risks, but the motives which lead individuals to engage in business are not to be confused with the function of business itself. When business enterprise is successfully carried on with constant and efficient endeavor to reduce the costs of production and distribution, to improve the quality of its products, and to give fair treatment to customers, capital, manage­ment, and labor, it renders public service of the highest value.

We believe the expression of principles drawn from these funda­mental truths will furnish practical guides for the conduct of business as a whole and for each individual enterprise."

The principles of business conduct are formulated as follows:

"1. The Foundation of business is confidence, which springs from integrity, fair dealing, efficient service, and mutual benefits.

2. The Reward of business for service rendered is a fair profit plus a safe reserve, commensurate with risks involved and foresight exer­cised.

3. Equitable Consideration is due in business alike to capital, manage­ment, employees, and the public.

4. Knowledge - thorough and specific - and unceasing study of the facts and forces affecting a business enterprise are essential to a lasting individual success and to efficient service to the public.

5. Permanency and continuity of service are basic aims of business, that knowledge gained may be fully utilized, confidence established and efficiency increased.

BUSINESS CONDUCT

6. Obligations to itself and society prompt business unceasingly to strive toward continuity of operation, bettering conditions of employ­ment, and increasing the efficiency and opportunities of individual employees.

7. Contracts and undertakings, written or oral, are to be performed in letter and in spirit. Changed conditions do not justify their cancel­lation without mutual consent.

8. Representation of goods and services should be truthfully made and scrupulously fulfilled.

9. Waste in any form - of capital, labor, services, materials, or natural resources - is intolerable, and constant effort will be made toward its elimination.

10. Excesses of every nature - inflation of credit, over-expansion, over-buying, over-stimulation of sales - which create artificial con­ditions and produce crises and depressions, are condemned.

11. Unfair competition, embracing all acts characterized by bad faith, deception, fraud, or oppression, including commercial bribery, is waste­ful, despicable, and a public wrong. Business will rely for its success on the excellence of its own service.

12. Controversies will, where possible, be adjusted by voluntary agreement or impartial arbitration.

13. Corporate Forms do not absolve from or alter the moral obliga­tions of individuals. Responsibilities will be as courageously and consci­entiously discharged by those acting in representative capacities as when acting for themselves.

14. Lawful Cooperation among business men and in useful business organizations in support of these principles of business conduct is commended.

15. Business should render restrictive legislation unnecessary through so conducting itself as to deserve and inspire public confidence."

No comment as such seems to be necessary regarding the princi­ples laid down by the Chamber of Commerce of the United States. Let us, however, make the statement that a certain percentage of national and international business seems only to be rendering lip-service to the fifteen points of the declaration. By no means do they want to agree that business means public service. Fair profit is something they like to stress when fighting competitors, forgetting about the point the very moment they fix prices of their own. Their obligations to society are not looked upon as important. Bettering conditions of employment and increasing the efficiency and opportunities of individual employees are not rated very high. Waste in any from is regarded intolerable indeed but not for the purpose of protecting the commonweal. Egocentric thoughts dominate the scene here as everywhere. Fortunately it is only a minority in national and international business who act in open disregard to the principles of business conduct.

PART IV

THE LACK OF INTERNATIONAL MANAGEMENT AND ITS EFFECTS TO THE WESTERN WORLD

In Part I we have briefly discussed the situation in underde­veloped countries as far as modern methods of management are concerned. Part II pointed to a lack of common terminology in the field of our science and illustrated the difficulties in estab­lishing international management. It is obvious that practical repercussions will have to be noted in the field of management within the Western World. Strange enough up to now only the symptoms have been analyzed, but not the underlying causes.

In October 1948 an Anglo-American Council on Productivity was established. The Council consisted of representatives from management and labor from the United Kingdom and the United States. The two general conclusions of the Council run as follows:

"1. The most significant factor in America leading to high production at low cost is efficient management.

2. The principles and methods which American management applies are well known in Great Britain but are practiced much more universally and vigorously in America."

The report on education stated:

"We believe that American experience has shown that productivity and education for management are closely related. The subject is of such vital importance to Britain that industry as a whole should study means for promoting educational experiments for executive develop­ment" .... "The volume and established facilities for university education in busi­ness subjects enabled the United States to meet the management training requirements of war on an impressive scale. We cannot escape the conclusion that there is in the United States a massive equipment for training future managers, greater both in volume and in depth of experience, than anything which has been contemplated in Great Britain. That fact is bound to have a progressively adverse effect upon our competitive position."

Analyzing the foregoing statements we will find that two factors have been omitted: The existence of "an established system of scientific management" without which the indicated progress

10 INTERNATIONAL MANAGEMENT

would have been impossible. In addition to that we have seen in the previous chapters that because international management is non-existent Great-Britain was not in a position to take to the fullest extent advantage of research accomplished in the United States. As soon as the opportunity was afforded the British experts to acquaint themselves with American procedure the situation looked much different as illustrated by the opinion of a British consultant who offers this observation:

"The process of management arises in much the same way in varied types of industry. There is, first, the need for lines of direction, the determination of an objective or purpose, the laying down of broad policy for the achievement of that objective and the translation of the policy into plans and programs of actions. There are, secondly, the means by which the action is carried into effect - the principles and methods of guiding and regulating the personnel of the organization in the performance of these tasks and for maintaining adequate coordi­nation; and the technique of supervisions that ensures that performance is in keeping with policy and plan."l

We realize that objectives and policies are distinguished from each other and we see that this way of thinking is largely influenc­ed by the American pattern. This being a result of a contact between Britons and Americans in the field of scientific manage­ment may prove that getting a common platform for understand­ing each other is not as difficult as it may seem at the first sight.

But now let us check the situation in other European countries based upon the material presented by the Report of the Anglo­American Council.1/2

As to France it is said that most organizations are top heavy, authority being vested in a few individuals. The concept of staff and its application as developed by the American science is seldom found. Presidents and managing directors are servants of detail due to improper organization and a failure to apply the principle of management by "exception." In Italy administration means largely "financial administration and control" rather than top level decisions on organization for general management and future planning. In Belgium - as far as e.g. marketing is concerned - the

1 Quoted by Fillipetti, George, in Business News Notes, University of Minne­sota, September 1954, No. 16.

2 See also: The European Market, An AMA Report, New York '1958, p. 93 fo1.

INTERNATIONAL MANAGEMENT 11

manufacturers are chiefly interested in the distribution of capital goods and little study is given to the matter of price differentials between standard products and custom-made goods. In Germany, although much efficiency is found in processing, the marketing phase of business is weak.1

Among the more common findings commented by the foreign production teams the following statements may be cited:

"The wide extent of the knowledge and application of the principles and methods of management and the programs for development of management men both within industry and the universities."

"The selection of administrators and management personnel on the basis of ability rather than by inheritance."

"The separation of management from ownership and the development of professional managers; the use of management consultants to im­prove management effectiveness."

"The philosophy of production which calls for sharing of the gains of efficiency in terms of higher wages, increased profits and lower prices."

"The climate in which business operates and in which management, labor and the social order believe in the desirability of profits, of compe­tition, of high wages, of mass consumption, and of business as a career."

"The freedom of exchange of management information on techniques and methods, even by competitiors in the same field of industry."

"The continuous analysis of markets, actual and potential, and the coordination of marketing and production."

In summary we may say that the Report of the Anglo-American Council on Productivity is highly important in bringing about a deeper understanding of what is going on in the international field of management. It also shows that the difficulties involved in starting international cooperation can be overcome. The example of the British consultant as quoted in this chapter may offer the suggestion to use the American way in dealing with the problems concerned and adopting basic terms in the field of language.

1 Fillipetti, l.c.

PART V

MANAGEMENT - ART OR SCIENCE

As stated in Part I the basic ideas of scientific management have thoroughly penetrated the sciences in Great Britain, Germa­ny, and, of course, the United States.

Going through the literature of the different countries mentioned above we find a basic approach in a fundamental book published in France by G.L. Campionl explaining business administration in the following way:2 Administration according to a classic formu­la is planning, organizing, commanding, coordinating, and con­troling. The author, however, does not agree that F.W. Taylor has established a scientific management.3 He feels that this term is not correct because it would have been necessary to find out certain principles which could not be contested and which could apply in all cases without distinction. This, however, has proved to be impossible because of the nature and the complexity of the problems involved. The management of an enterprise has always been an art and not a science. Up to a certain point we can speak of a science in the field of organization and rationalization of an enterprise because some formal rules exist in this field which have to be followed by the chief of the enterprise.4

The British approach as illustrated by E.R.L. Brech5 seems to 1 Campion, G.L., Traiti des Entreprises Privies, Vol. Illl, Paris, 1949. 2 p. 227: "Administrer, suivant une formule classique, c'est prevoir, (a term

applied by Fayol comprising all stages of preparation in planning. - The author) organiser, commander, coordonner et controler."

3 p. 227: "Taylor a cree ce qu'il a appeIe incorrectement Ie 'Scientific manage­ment,' ou direction scientifique. L'expression est singulierement inexacte, car on ne pourrait parler d'une direction scientifique que si l'on arrivait a deduire les regles de gestion de certains principes indiscutables traces une fois pour toutes et qu'il suffirait d'appliquer a des cas particuliers. En fait, il ne peut en etre ainsi, en raison de la nature et de la complexite des problemes souleves."

4 p. 227: "La direction d'une entreprise reste bien un art et non une science. Au contraire, on peut jusqu'a un certain point, parler d'une science de l'organisa­tion ou de rationalisation des entreprises, car ici il existe quelques regles formelles que tout chef d'entreprise est oblige de suivre. Mais ces regles sont peu nombreuses si l'on envisage l'ensemble des entreprises."

5 Brech, l.c. p. 58.

MANAGEMENT: ART OR SCIENCE 13

coincide in some way with the French opinion. Brech stresses the fact that Taylor and his associates were broadly concerned prima­rily with diverting attention away from the struggles over the division of the proceeds of industry, to the need for a concerted effort to increase those proceeds for mutual benefit by better planning and a better will-to-work, supported by incentive meth­ods and other forms of bonus technique. Brech believes that Tay­lor and his associates have perhaps come down through the years more by their contribution to the philosophy or principles of man­agement applied in human terms. In their own country, he says, they gained, through accidental circumstances, a pUblicity that inevitably entailed increasing public interest in the more easily understood and the more pleasantly acceptable aspects of their work. As a contrast in Great Britain the pUblicity engendered serious suspicion in the minds of the leaders of organized labor, and generated an emotional opposition that has persisted even to our own day.

Terry,! however, representing the American point of view, offers a more concrete opinion. He and the I talians2 believe in the big progress brought about by the publication, especially of Tay­lor's Principles oj Scientific Management. 3 Taylor stressed the fact that to manage effectively it was necessary for a manager to develop a science for each element of an employees work, to select and train employees scientifically, to establish friendly cooper­ation with the employees, and to assume responsibility for activi­ties which are of a managerial nature.' It is true that scientific management can be defined simply and accurately. It means ap­proaching management problems in the spirit of and by the meth­ods of science as W.F. Gast states.s It is management character­ized and guided by the use of science, says Terry.6

1 Terry, l.c., p. 21. 2 Zignoli, Vittorio, Tecnica della Produzione, Milan, 1950, p. 27. 3 Taylor, F.W., The Principles of Scientific Management, New York, 1911,

p. 36 - 37. 4 Zignoli, l.c., p. 27: "Con la pubblicazione di 'The principles of Scientific

Management' il Taylor completa l'enunciazione dei suoi principi rec1amando un'analisi metodica di tutti i fattori dellavoro, mediante i sistemi dei quali si avvale la scienza, il che gli permette di chiamare scientifico il suo metodo, in confronto a queUo tradizionale che lascia agli operai una larga liberta di scelta nei metodi produttivi, e che e percio empirico."

6 Gast, F.W., Principles of Management, St. Louis University, 1952. 6 Terry, l.c., p. 21.

14 MANAGEMENT: ART OR SCIENCE

It may be worthwile to mention the fact that scientific manage­ment is sometimes called in Germany "Rationalisierung" and in Italy "Razionalizzazione."l In France, as we have seen beforel the term is "Direction scientifique." The Italians developing a doctrine in the field concerned, start quoting the four principles of Poppelreuter,2 namely, that man is instinctively opposed to 'ra­zionalizzazione,' that he does not like to correct spontaneously his own organizational defects, that he has a low capacity to bring about a betterment in his own efficiency and that he rarely reflects on a better way of executing orders. Germany has built up her own concept of 'Betriebswirtschaftslehre' of which scientific management is only a small part.3 Adopting, however, the princi­ples developed by Taylor on the largest scale possible, the Germans have entrusted the development of 'Rationalisierung' to a scien­tific body of its own, the 'Rationalisierungs-Kuratorium der Deutschen Wirtschaft.' Thus it is obvious that scientific manage­ment is looked upon more as a technique to be used by the prac­ticing manager rather than as a field in which the university can participate with its research and teaching.

Answering the question heading our chapter let us state that management in principle is a science. In acquiring and applying science to management activities it should be observed that art is used. The individualized application of knowledge and skill is vital in bringing about a desired result.4 In addition to that Fayol5 has stressed the point that management can and should be taught.

In order to get a more detailed picture of scientific management let us briefly discuss the five methods of management as listed by Gast:6

1 Zignoli, l.c., p. 25. 2 Poppelreuter, W., Arbeitspsychologische Leitsiitze fur den Zeitnehmer, Miin­

ep.en, 1929. 8 Mellerowiez, Konrad, Allgemeine Betriebswirtschaftslehre, Berlin, 1952, p. 23:

"Taylorismus im weiteren Sinne, wissensehaftliehe Betriebsfiihrnng, ist nur ein kleiner Teil der Betriebswirtsehaftslehre. Die Betriebswirtschaftslehre umfasst: 1. eine betriebliche Wirtschaftstheorie, zum Erkennen des Seienden und Werden­den in seinen Zusammenhangen und Abhangigkeiten; 2. eine Betriebspolitik, zum praktisehen Gestalten des Seinsollenden, ausgerichtet an Normen und angeleitet durch Grundsatze betriebliehen Verhaltens; 3. eine Organisationslehre und betriebswirtschaftliehe Technik zum rationalen Gestalten der ArbeitsabHiufe."

• Terry, I.e., p. 21. 5 Fayol, H., Industrial and General Management, London, 1948, p. 138. 6 Gast, I.e., p. 51.

MANAGEMENT: ART OR SCIENCE 15

"1. Management by the Rule of Thumb Method: This method is followed by most self styled "practical" managers. It consists in the use of more or less uncritically adopted procedures derived either from personal experience or from the experience of others. By this method problems are solved by confidently applying solutions which the manager happens to know about, has probably used before with more or less success, and for which he is convinced there can be no better alternative." .... Such methods are not necessarily wrong or ineffective ... The trouble is that they are not honestly and fearlessly put to test, and that they tend to rule out a consideration of other methods which may turn out to be much better."

"2. Management by the Progressive Method. This method is adopted by many alert managers who sincerely wish to apply the best possible procedures in the area of their responsibility and wish also to urge the same enthusiasms upon their associates, superiors, and subordinates. The progressive manager is receptive to new ideas and does not object to the challenge of old ones. He reads much, attends conventions and lectures frequently and exhibits an eager­ness to keep abreast with current developments and innovations." .... The trouble is that the thought processes which underlie the progres­sivism are too frequently not sufficiently penetrating, thorough, and philosophicJo avoid unfortunate, ifnot tragic mistakes in the selection of procedures."

"3. Management by the Scientific Method . ... Today, scientific management means one oftwo things: management by the use of science, or management by the method of science. Manag­ers are making more and more use of science in the practice of manage­ment functions. They frequently draw upon the physical sciences of chemistry, physics, geology and make a great deal of use of the applied sciences in virtually all branches of engineering. Moreover, they also turn to the social sciences of psychology, sociology, and economics for many valuable aids. Of more concern to us than the use of science in management is the growing adoption of the method of science in business." ...

"We may define science as (1) classified knowledge from which (2) abstractions, or generalizations are drawn reflectively, which (3) are then tested or verified to ascertain their validity, so that (4) they may have both interpretive value in connection with other facts in the same category and also predictive value in comparable circumstances."

In applying these elements to the scientific method of manage­ment Gast offers four conclusions:1

"a. Science demands facts and only facts. That is to say, the scientist attempts to find the truth, whatever it may be and wherever it may lead." ... "He wants not only facts, but also a sufficiency of facts" ... "and he sorts his facts into a limited number of groups or classes of similar facts."

"b. Science demands the discovery of the meaning of classified facts. The scientist searches for the relationship between classes of facts.

1 Gast, l.c., p. 52.

16 MANAGEMENT: ART OR SCIENCE

If he observes that certain objects float in water, while other objects sink, he wants to know what relationship exists between these groups of observations or facts" .. "He finally arrives at the inference that any object which displaces at least its own weight of water will float. He has discovered a law which he has abstracted from his mass of facts and which he supposes may be universally true. But he cannot be sure about the latter until he has put to adequate test the assumption or hypothesis which he has tentatively formulated."

"c. Science demands the verification of discovered meanings. The scientist does not rest with the meanings suggested to him by his examination of classified facts." ... "The scientist always and rightfully demands 'to be shown. '"

"d. Science applies the verified discoveries of meaning to learn more meanings." ... "It is necessary .. to estimate the probability of correct­ness of prediction."

"4. Management by the Autocratic Method. The managerian autocrat, once abundant, seems to be rapidly ap­proaching extinction in business" ... "The autocrat exhibits a belief in the master-servant relationship between himself and his subordi­nates."

"5. Management by the Method of Leadership . . . leadership is the way of getting others to do what they should be doing because they want to do it". ... "There is the sharpest kind of contrast between the autocratic method and leadership. The latter alone is rational. When it is combined with the method of science, the best possible and, in the long run, the only practical method is estab­lished."

Until to-day not a single author in the national and internation­al fields concerned has undertaken a comprehensive analysis of the methods of management except Mr. Gast. We may question the practical value of a survey like this. As a matter of fact we cannot find the place to be reserved for the scientific method of management in the structural set-up of the science as a whole if we are not aware of the fact that there are numerous methods in existence which we have to check first before we are in a position to evaluate the new one. Moreover there is a widespread belief among managers that the old methods, as listed above, are some­how connected with scientific management and that the Rule-of­Thumb method and especially the progressive method are inti­mately linked with F. W. Taylor's approach. To bring about a clear picture and to help the managers judge themselves the analysis will do a very good job. It is not true, however, that all the other methods except the scientific one combined with leader­ship are totally wrong and can and should not be applied at all. There are always business situations coming up which will require

MANAGEMENT: ART OR SCIENCE 17

the autocratic method for example. But this does not mean that the principle has to be abandoned and this principle consists in putting scientific method into the center of daily practice.

It should be remembered as one of the first presuppositions of successfully embarking upon scientific management that it con­sists in getting the facts as Mr. Gast stated before. The scientific method cannot lead to success if beliefs instead of facts form the foundation upon which management has to build upon. A great many failures can be traced back to the very beginning when decisions were based upon opinions instead of facts.

The scientific method as developed by Mr. Gast looks some­what complex and not easy to understand. Actual experiences, however, offer evidence that once completely understood the procedure along the lines of this method is easy. Of course as a basic requirement it lends itself only to persons who have been trained to be objective, fact-demanding, orderly, scrupulously honest, patient, discerning, meticulously logical, and free from the unyielding grip of tradition, as Mr. Gast explains.

It is very interesting to look upon the reports coming from the different countries promoting scientific management. It may not be surprising that the United States has achieved perhaps the biggest success and shown the most impressive progress in the field. But even the nations which are just about to follow the American example are offering most favorable aspects. We may quote here the increase of production as listed by the Italians as a consequence of introducing 'razionalizzazione':1

"Electric batteries ........ . Chemical industry Ceramic industry Food-canned - industry Hat industry Foundries Mines Weaving mills

1 efr. Zignoli, l.c., p. 34.

annual increase of production 30,5 % 28,5 % 19 % 39,5 % 20 % 27 %

22-27 % 30 %

PART VI

MANAGEMENT - A PUBLIC SERVICE

The nature of management has often been discussed and ana­lyzed in the countries of the Western world. Comparing the different points of view we will find out that there is, generally speaking, only one aspect which may be called a trait common to all national sciences involved. It can be simply formulated as follows: A businessman and a manager are primarily interested in making money, getting a profit - and nothing else. It is an answer given by people who may not be trained or educated at all in our fields relying upon the Rule-of-Thumb Method as a guide to their activities. It may be true, however, that this is a large group often being the majority.

N ow let us examine the fallacy in the statement listed above. Striving for profit is one of the most powerful sources of energy developing business. It may become the dominant factor govern­ing the actions of the individual. But at the same time it may have disastrous effects in other fields. A business enterprise is not an isolated cell living somewhere in space. In contrast it is linked with its environments in a way that it cannot exist without its suppliers, its customers, and the community of which it is a part. Only looking upon profitmaking implies neglecting these ties which are of vital importance. Thus we come to the conclusion that a second important factor or group of factors has to be taken into consideration when analyzing the very nature of management. What are these ties we have spoken ofin essence? Broadly speaking we can classify them as environmental strings by which the enter­prise gets a hold in the community. It is obvious that a business cannot exist without customers. The customers, however, form a part of the community. Seen with the eyes of the society the business is rendering service to the community by providing the inhabitants with goods and services.

Comparing the profit factor and the factor of public service we

MANAGEMENT: A PUBLIC SERVICE 19

will have to make up our mind as to the weight of the two phe­nomena. The people who believe in profit as a sole king of business dominating the nature of management are ready to admit that there is such a thing as rendering service to the village and the city. But they feel that this point is by no means a vital one because there exists only a one-way relationship, as they say. This means that the businessman is absolutely free in his decisions to render the services he likes to offer and even to stop the delivery of goods ifhe wants to go out of business. This approach, however, overlooks the fact that the customer is king in the way that he demands what should be produced and delivered. The customers' demand determines the action of business. In our system of free enterprise everybody can enter and leave the market the way he wants but nevertheless the whole business in its structure and in its activities depends upon the customer as a part of the com­munity.

Considering these facts we may perhaps be inclined to state that "profit" and "public service" as factors determining the na­ture of management may be of equal importance. The fact has to be stressed here that the wellbeing of the business completely depends upon the wellbeing of the community in which it is lo­cated. If the society is in a state of distress or threatened with revolution the business will be faced with peril too. If the com­munity is destroyed it will be impossible for the business to sur­vive. We see that the individualistic approach as illustrated by the profit motive has to be rated second.

Going through the literature of the different countries con­cerned we will get the impression that the nature of management as shown by the two factors mentioned above, is not clearly recognized and often misunderstood. The scientific method of management can and should not result in neglecting the world outside the business enterprise, although is has to be admitted that there is a temptation to do so. The teachings of Taylor and Fayol were only a beginning indicating new ways and means of analyzing management. The scientific method, however, should also be applied accordingly checking the environments of the business thus developing the teachings to bring about a doctrine as a whole. It may not be surprising that the United States and partly Great Britain are leading in the field, having achieved a

20 MANAGEMENT: A PUBLIC SERVICE

progress which France and Italy could not yet realize. As to Germany the way in which the 'Betriebswirtschaftslehre' has been established, differs from the other countries. But as to the decisive criterion, as we will see later, Germany is on the top of the developments too.

Beginning with Great Britain let us first examine what we may call the individualistic approach. Renold1 has published a paper defining the fundamental concepts of the nature of (industrial) management as a process of getting things done through the agency of the community.

"There are thus two kinds of consideration involved in industrial management. There are those primarily related to the 'things to be done' - the goods and services, the supply of which is the raison d'etre of the undertaking- that is to say, its 'purpose.' There are those related to the wellbeing ofthe community, which is the 'agency' through which alone the purpose may be achieved" .... "Seeing that the purpose can only be achieved through the agency of a team or community, the wellbeing of that community is a condition of achieving the purpose. When one reviews the manifold aspects or functions of management it is obvious that many of them are, in fact, concerned with that very thing - with maintaining the wellbeing of the team or community. Others are, of course, concerned more or less directly with the purposes themselves - the things to be done. It may be useful to consider the functions of management from this point of view. I do not suggest that they lend themselves to being separated into two neat groups - those concerned with the agency and those concerned with the purpose. Both elements are present in greater or lesser degree in all aspects of management but, regarding policy and execution, the proportions in the mixture vary. It should make for clear thinking to recognize this and especially to recognize that many of the functions of management are concerned largely with the wellbeing of the agency - the team, regarded as a community - and are not too greatly affected by the nature of a particular purpose - the 'product' of the undertaking. Let us therefore consider this question of wellbeing of a team regarded as a community. In the first place it must have a structure and that structure must be convenient and suitable. The groups which form the elements of the structure must each embrace such an assortment of activities as to have something of a line of its own. At the same time each must be so related to other groups that each can play its part in the life of the whole and make its contribution to the purposes of the whole in the most convenient and natural way possible. These are questions of what may be called the anatomy of the community body. Nobody can enjoy wellbeing if its anatomy is faulty."

Immediately we recall that there is a need not only for a standard terminology but for a common method to analyze phenomena of

1 Renold, Sir Charles, The Nature of Management, London, 1948.

MANAGEMENT: A PUBLIC SERVICE 21

management too. The ideas of the author seem to be excellent but it is very unusual to look upon a team as a community. Regardless how it may be, the wellbeing of the team of the business enterprise is not the sole and most important element of the nature of management.

Brech1 stresses the point that there is an outside and an inside aspect, dealing respectively with the relations of the organization to the world outside, and the people and methods making up the organization itself. Thus a fully developed policy2 provides man­agement with the basis for discharging effectively the economic and social responsibilities which devolve from its participation in the life of the community:

"(a) To contribute to the economic needs of the community by the manufacture and supply of the products which it is set up to produce, or by carrying out the particular lines of trade or service that it is designed to provide;

(b) To contribute to the economic and social wellbeing of the com­munity by improvements in the quality and volume of the products made available, and by reductions in the price at which they are available; in other fields, by improving the service that is being offered and lowering the cost without impairment of quality. It is by reductions in cost of existing products and services that a community makes advances in its standards of life, because, by having to spend less money on known or admitted needs, consumers have a margin to spend on the satisfation of further wants, investment for savings purposes, or the pursuit of educational or recreational amenities;

(c) To improve the standards of employment by raising the level of working conditions and enhancing personal and social satisfactions at work;

(d) To respect, or contribute to the advancement of, the local ameni­ties of the particular community in which the enterprise is physically set."

Largely influenced by the American way of thinking Brech offers here in contrast to Renold an analysis of the nature of management which may be called a modern one, thus establishing a link between the British and the American concept as we will see later.

In Germany, Mellerowicz3 comments on the method of thinking to be applied in dealing with management. In his opinion it is necessary to keep in mind the problem of costs, the problem of

1 Brech, l.c., p. 20. 1 As to the use of the term 'policy' see Part II, p. 5 of this book. 3 Mellerowicz, l.c., p. 28.

22 MANAGEMENT: A PUBLIC SERVICE

organization and the interest of the commonweal.1 As to the latter he feels that first the effects of an action on the commonweal should be analyzed and then as the second point the consequences which may come up as a result of the action for the enterprise shall be evaluated. Even in the enterprise itself no egocentric way of thinking should prevail. Not the maximum profit but common­weal-productivity should be the goal.

Comparing the German and the British point of view we might observe that they complete each other in some way. Being in conformity with the basic ideas developed at the beginning of this study, the German approach is a dynamic one, stressing the need to fight egocentric thinking and decision-making in business. Of course, as a heritage ofthe past, the profit idea (profit - nothing but profit) is always present as a threat to modern management.

Let us briefly discuss this part of the picture in its general aspects. If egocentric thinking dominates the scene in management the most urgent social aspects have to be neglected. The worker and employee acquire a feeling that they are being utilized by the employer until the fullest extent of their utility has been sapped and they are then rendered useless. At such time when the em­ployee is unable to comply with the standards of his job he is thrown to the charity of the community as an old or disabled person. Certainly the community will not feel very happy about such a reputation of a business which forms part of its community

1 Mellerowicz, l.c., p. 29: "Die Betriebswirtscha£tslehre hat nicht nur ihre besonderen Probleme, sondern auch ihre besondere Denkweise, bezeichnend flir den besonderen Typus des Betriebswirts mit dem ihm eigentiimlichen Habitus. Die betriebliche Denkweise ist eine dreifache: 1. eine kalkulatorische, 2. eine organisatorische, 3. eine gemeinwirtschaftliche. Kalkulatorisch denken heisst, in Wirtschaftlichkeit denken, heisst ein Ziel mit dem geringsten Aufwand zu errei­chen suchen .... Die organisatorische Denkweise ist eine konstruktive Denkweise. Sie bezweckt, flir eine Aufgabe den besten Arbeitsablauf zu finden. Sie ist eine mit Fantasie gepaarte Denkweise, die imstande ist, neue Organisationsformen zu gestalten. Sie ist eine Denkweise in ArbeitsabHiufen, im Einsetzen von Menschen, Maschinen und sonstigen Organisationsmitteln, urn fiir die Durchfiihrung von Aufgaben beste Wege zu finden.

Gemeinwirtschaftlich Denken heisst, bei allen Betriebshandlungen und Planun­gen zuerst an die Gesamtheit und dann erst an den eigenen Betrieb denken, sodass auch im Betriebe nicht betriebsegoistische, sondern gemeinschaftsgebun­dene Denkweise herrscht und nicht maximale Rentabilitat, sondern gemein­wirtschaftliche Produktivitat fiir alle Wertungen und Planungen massgebend ist. (Das gemeinwirtschaftliche Denken ist natiirlich nicht nur dem Betriebswirt eigen).

Dieses dreifache Denken soIl den Betriebswirt kosten-, organisations- und sozialbewusst machen."

MANAGEMENT: A PUBLIC SERVICE 23

life. Workers and employees will often complain about the treat­ment they get but also the conditions of work in general because everything has to be subordinated to the goal of increasing the revenues. It will nottake long until word will spread that in such a factory laborers are white slaves who in the end will ask the com­munity for help when they are getting old or disabled. This story may also form the introduction to a report on the development of collectivistic tendencies in the city where the factory is located. Indeed we open the door to infiltration of political poison if we uphold the validity of the outmoded approach that profit comes first.

As a contrast a synthesis between the interest of the public and the individual has to be found. This can be done easily by substi­tuting the old spirit in which an enterprise is managed by a new one. As a matter offact it should be remembered here that workers and employees spend a great part of their life with the enterprise and that they share its risks perhaps to a greater extent than the investors. The investors may lose part of their money if business is going down. The worker however, may lose the existence upon which his family is based. The synthesis we have spoken of may involve a change of mind, bringing about the feeling based upon the forementioned factors that the "team" of an enterprise belongs together for better or for worse. The spirit of the business family thus created will open the eyes of all members as to the new aspects of life in a completely changed atmosphere. As to France we cannot say, however, that the links between the business enterprise and the community are not looked upon as important but the approach is quite different. Campion! stresses that the enterprises regardless of their kind, imply the necessity of a life in a community. The fact, he says, that the individual is not isolated gives way to division of labor and specialization. But Campion does not check the details of the fact that the enterprise is a part of that community. He feels that there has to be a basic law that producing should be kept free from the intervention of the state. The French expert Campion having written the first basic study in our field, tries to find out where private enterprise and

1 Campion, l.c., p. 33: "Les entreprises, queUes qu'elles soient, impliquent de toute necessite, la vie en collectivite. Le fait que l'individu n'est pas isole permet la division du travail et la specialisation."

24 MANAGEMENT: A PUBLIC SERVICE

public enterprise begins, stating that the entrepreneur has free­doms which prevent his being considered as a public 'fonction­naire of production. He is entitled to establish or not to establish his enterprise in a way that the risks and the profits are his own.1

He comes to the conclusion that the enterprise has an existence of its own, that the enterprise is producing for the market, being exposed to its fiuctuations. 2 More or less Campion analyzes man­agement somewhat indirectly describing interesting traits in the economic field. He touches by his analysis the crucial points of profit and he also indicates that the state as such has a say in the matter. Being heavily opposed to interventionism he does not isolate the factors of management as such. Using part of American and British literature he restricts his analysis to some techniques in the field of organization without offering an appraisal as of basic concepts with which we are faced. In addition to that he tries to paint the picture of an ideal manager thus indirectly explaining what management may be. He says3 that the manager has to have health and physical force, intelligence and intellectual capacity, moral qualities (e.g. "will, courage, awareness of his du­ties, respect for the general interest. ") Moreover he shall have a strong general culture, strong administrative capacities, general know­ledge covering the essential functions of management and the greatest possible training in the special functions of the enterprise. Here and there in his survey we see those ideas shine through which should be discussed first however. The problem of profit vs. public service is recognized perhaps in its first beginning, by the fact that Campion demands that the general interest should be respected.4 But in fact he seems to be very suspicious of dealing

1 Campion, l.c., p. 35: "l'entrepreneur prive conserve certaines libertes qui empechent de Ie considerer comme un fonctionnaire de la production. 11 est libre de creer, tout au moins, de ne pas creer son entreprise, en sorte que la gestion s'effectue, a juste titre, a ses risques et profits.

2 Campion, l.c., p. 39. 3 Quoting Fayol. , Campion, l.c., p. 233: "Ces qualites sont indispensables a la fois pour Ie

maniement des hommes et pour la conduite des affaires. Selon Fayol, ce sont: - Sante et vigueur physique; - Intelligence et vigueur intellectuelle; - Qualites morales: volonte, activite et eventuellement audace, courage, senti-ment du devoir, souci de l'interet general; - Forte culture generale; - Fortes capacites administratives; - Notions generales sur toutes les fonctions essentielles de l'entreprise; - La plus large competence possible dans les fonctions speciales de l'entreprise";

MANAGEMENT: A PUBLIC SERVICE 25

with scientific management quoting Hyacinthe Dubreuil! who has published a book "A chacun sa chance" (For everybody an oppor­tunity.) Dubreuil is cited as a witness against the mathematic minds who believe that they could organize labor completely: "They have forgotten that man is no machine and that you cannot put him into an equation with the obscure forces of conscience."2

The statement seems to indicate that France is not quite aware of the fact that Taylors' findings as father of scientific management were a beginning and not an end. Scientific management had to be developed based upon his research and to be expanded into a complete doctrine adjusted to the needs of industrialization in the second half of this century.3

I taly has not yet found out that the progress is not only restrict­ed to the technique of production but to the whole area of business itself. Italy, just as France, has no theory or concept of her own but tries to use the economic approach to point out the link between business and community. Thus we will find the position of the community and the state in regard to business commented as follows: 4

"As a factor in economic life, the state has the responsibility to care a.o. for the following functions: Social: the Defense of economic liberty; the Defense of work; the Defense of the worker; the Defense of production; the Defense of consumers; the Defense of savings; the Defense of the interests of the state, representing the nation; Protective: the Guarantee of security; the Guarantee of economic stability; the Control of competition;

1 Dubreuil, Hyacinthe, quoted by Campion, l.c., p. 233. 2 Dubreuil, l.c.: "Des esprits mathematiques ont cm ala toute-puissance de

la science pour organiser Ie travail. !Is ont simplement oublie que l'homme n'est pas une machine et que l'on ne peut mettre en equation Ies forces obscures de la conscience."

3 See also Parts X and XI, 69 fol. 74 fol. 4 Ziguoli, l.c., p. 306: "Azione sociale: difesa della liberta economica; difesa

del Iavoro ; difesa dei lavoratori; difesa della produzione; difesa dei consumatori; difesa dei risparmi; difesa degli interessi della Stato inteso come rappresentante della nazione. - Azione protettiva: garanzia di sicurezza; garanzia di stabilita economica; sorveglianza della concorrenza; posizione rispetto ai monopoli; prote­zione 0 liberta doganale.

26 MANAGEMENT: A PUBLIC SERVICE

Taking a position with respect to monopolies; Protective tariff of policy; or exemption from duty;

Evaluating the Italian point of view we are not in a position to say that management is recognized as a public service. But the economic and legal aspects listed above indicate indirectly that if research would be fostered the true nature of management would easily be discovered.

Analyzing the British opinion as to the nature of management we felt that there is a notably large influence emanating from the United States. Let us now try to analyze the American ap­proach as far as the modern school of thought is concerned, mainly represented by Gast and Terry. If we want to know something about the nature of management we will have to check the mana­gerial objectives as a whole. A managerial objective is the intended goal which prescribes definite scope and direction to efforts of management.! The managerial objectives are necessarily identical with the objectives of the enterprise itself. There may sometime be a little deviation in detail but it seems obvious that management as the acting power of the enterprise cannot have as a rule ob­jectives differing from those of the business of which it is the main organ. Terry, however,2 feels that the objectives of man­agement and those of the enterprise are not necessarily the same but that they are closely related. In the final analysis, Terry agrees with our point of view stating that logically, the objectives of the enterprise establish the areas and help define the goals of the management members. In other words "the objectives of the enterprise are interpreted and expressed in terms which serve as objectives for the managerial activities."

The types of objectives listed by Terry indicate that the ma­jority express the characteristics of the public service of man­agement. We may quote the following objectives:3

"1. To produce products desired by buyers. 2. To render services for human satisfaction. 3. To conserve health of employees. 4. To eliminate evil influence in a community. 5. To protect the needy and the helpless.

1 Terry, l.c., p. 52. z Terry, l.c., p. 52. 3 Terry, l.c., p. 52.

MANAGEMENT: A PUBLIC SERVICE 27

6. To provide for public defense against a common enemy. 7. To improve man's spiritual being. 8. To prevent waste of natural resources. 9. To supply employment for a maximum number of workers.

10. To discover scientific data and relationships which can be used to improve all forms of life."

These objectives resulting from the relation of the business enterprise to the world outside are completed by objectives serving the organization itself. Terry lists the following:1

"1. To realize financial profits on operations. 2. To achieve a high volume of output. 3. To attain maximum sales volume. 4. To become the leader in a particular industry. 5. To guard the wellbeing of employees."

The survey offers evidence that the public service elements within the nature of management begin to dominate the scene. It seems, however, that some of the points listed sub 1-10 are in some way overexpanding the scope of objectives concerned. However it may be that there is at least an equilibrium between the two aspects in the nature of management, the public service and the profit aspect.

An interesting point is made by Terry when be deals with the question regarding the positions to be reserved for profit motives. Traditionally, he says,2 many feel that the objective of enterprises is to realize a financial profit. But this goal, he stresses, is but one of many possible aims. Using churches, hospitals, schools, charitable institutions, and government agencies as examples, he feels that the profit objective is absent in these cases. The com­parison, however, is not convincing because no business enter­prises as such are involved here. But Terry is absolutely right, saying that a manager cannot go out and directly secure profits and that he must do something else which might result in a realization of profits. That something else is normally the supply­ing of a service which buyers demand or can be induced to demand.3

Evaluating Terry's opinion as a whole, we feel that he has

1 Terry, l.e., p. 52. 2 Terry, l.e., p. 53. 3 Terry, l.e., p. 54.

28 MANAGEMENT: A PUBLIC SERVICE

brought about a clear concept as to the essential elements involved in the nature of management. But sometimes he is too far reaching into theoretical abstractions. Quoting the provision for public defense against a common enemy as an objective of management will interfere with the competence of the community which would undoubtedly be called upon to take over such a mission. Moreover we need a more concentrated scientific compilation which is not based upon some sort of a coincidental enumeration.

This review is presented by Gast, l who offers only five overall objectives of a business enterprise. These objectives of the business enterprise are necessarily identical with the objectives of manage­ment as was previously pointed out. They run as follows:

"1. The production of a want-satisfying commodity or service; 2. The provision of opportunities for the productive employment of

persons; 3. The provision or opportunities for the satisfaction of normal occu­

pational desires; 4. The increase of wealth in society through the economical use of

labor and capital; 5. A just return on capital and just wages for labor."

We recognize at once that these objectives have been formulated having in mind the public service rendered by management. There is no individualist approach at all. The enterprise is looked upon as a social entity within the community. This point of view de­termines the analysis of the enterprise objectives in its outcome. Emphasis is placed upon the fact that the production of a want­satisfying commodity has to terminate in consumption in order to be truly useful. In addition to that Gast is completely right saying that a large number of alert businessmen have freely expressed the opinion that employment must be given the status of a busi­ness objective, coordinated with profit. The satisfaction of normal occupational desires is of a decisive nature too. If an individual is not rewarded with the adequate satisfaction of those urges which constitute the nature of the individual, Gast explains, work becomes a repressive and not an expressive experience. "Under such circumstances, the individual will tend either to engage in some form of revolt against the unsatisfying job, or to seek satis­faction elsewhere than in his job with what remains of his time

1 Gast, l.c., p. 14. 2 Gast, l.c., p. 15.

MANAGEMENT: A PUBLIC SERVICE 29

and energy."2 The peak of argumenting in favor of the society's interest in a business enterprise may be reached by the statement that the increase of wealth in society is one of the goals of enter­prise and management. "To the extent that business uses the labor of human beings, it becomes responsible to society for the outcome of that use."l The last objective listed by Gast may involve the profit element, that we have spoken of before. But interesting as it is, Gast deals with the subject not at the be­ginning but at the end. And then his approach differs widely from all the other American and foreign opinions. He advocates a just return on capital and just wages for labor. This means that he is restricting profit at once to a certain extent. But, of course, the question what may be just and what may be unjust is not easy to answer. Gast tries to find help in the economic theory of pure profits but as so many theories in the field of economics there are as many opinions as there are authors. We can be sure that Mr. Gast's approach will be attacked and a new opinion built up upon his own. But we feel that there is an urgent need to restrict the profit idea to that which Gast refers to as a just return on capital. The word profit has a double meaning to-day. The idea that the investor who shares in the risk of business is entitled to get a return is clouded by the aftertaste given to the term by the profit­hunters who have done so much harm in the first decades of our century. They are to a great extent the guilty ones who have given way to collectivism, offering evidence that Marx was ap­parently right in accusing the capital of getting the "plus-value" not paid for by the employers. If we want to keep our capitalistic system of free enterprise healthy we have to reject that distorted profit concept and we should do it by abandoning the term and replacing it by "just return," as Gast suggests. As to the relation­ship between labor and capital in the field concerned, let us follow the statement of Gast running:2

"Both labor and the owners of capital should justly share in the income of an enterprise. Moreover, they should share equally - not in the sense of half-and-half, but by the same measure, that measure being the value of their respective services."

1 Gast, l.c., p. 16. 2 Gast, l.c., p. 19.

PART VII

MANAGEMENT - A DYNAMIC SCIENCE

The national sciences of management as covered by this study are characterized by the fact that they look upon management more or less as a static phenomenon. Perhaps this is a consequence of relying on Taylor and Fayol in all possible respects. But even the fathers of scientific management did not overlook the fact that business is a part of life and therefore cannot be dealt with in a way e.g. archaeology would be entitled to ask for. An enterprise is a living organism created by man and we simply cannot use the tools which would have to serve dissecting an amorphous body when analysing this social entity and its phenomena. Nevertheless it has to be noted that Americans, French, Germans and Italians generally overlook this point in general. It is evident that forget­ting about the dynamic structure of management will lead to misconceptions, errors and misstatements.

Here and there however, we find symptoms indicating that the sciences are getting more and more aware of the matter. Beginning with Campionl we are faced with the observation that the economy of an enterprise is dynamic in essence. Terry2 feels that organizing - only one function of management - is a dynamic phenomenon and never should be thought of as being static. A more comprehensive approach is offered by Considine3 saying that American business is a miracle of adaptiveness both in time and space.

"N ot only does it adapt to social change, but also to foreign cultures. It is therefore a model instrument for the reformation of other econo­mies; for far from imposing an alien pattern on them, it is constantly reforming itself from within" .... "Everybody can play the American game, and the rules can change as we go along if certain essential

1 Campion, l.c., p. 236: " ... l'economie de l'entreprise etant essentiellement dynamique. "

2 Terry, l.c., p. 148. 3 Considine, Charles Ray, A n Outline Of Business Management, Dubuque, Iowa,

1951, p. 3.

MANAGEMENT: A DYNAMIC SCIENCE 31

characteristics are maintained. The American Business Economy is neither a closed nor a fixed system. By its nature it must remain open and changing or perish."1

Observing the Business Economy of recent times especially in the United States we find that the business situation changes quite rapidly. Considine and the majority of the American au­thors in the field are cognizant of this fact but it is interesting to study the reasons for making these changes. The answer is given by Gast2 who has developed in his book the theory of the environments which is about to find broadest interest in the inter­national sphere.3 Gast offers the picture of the enterprise being surrounded by about six types of environments. All these com­ponent parts of the world outside the business are characterized by one specific trait: They are changing constantly, partly slowly, partly rapidly. This dynamic process has to be reflected by the enterprise, which cannot remain static when the world outside is on the move. This implies a high degree of flexibility on the part of management making decisions to secure adjustment to the changing conditions upon which at the end the existence and the ultimate survival of the social entity will depend. Here the vital importance of the new theory for the development of scientific management and its practical application may be recognized. The dynamics of business, as explained by Gast, offer evidence of the high degree of capacity, capability, training and education, which a manager must possess in order to be a success in his job and in tum to assure not only the survival but the expansion ofthe business.

Here are the main points of the theory of environments:4

"1. Social environment. The environment of a business enterprise really consists of just

two parts: the social or human, and the physical. Consequently, we should speak only of the social environment and the physical en­vironment. However, the social environment is entirely too complex

1 cfr. the preferably static approach of the following authors: 1. Davis, RC., Industrial Organization and Management, New York, 1940; 2. Newman, W.H., Administrative Action, New York 1951; 3. Owens, RN., Management of Industrial Enterprises, Chicago, 1953; 4. Spriegel, W.R, and Lansburgh, R.H., I ndustrial Management, New York, 1947.

2 Gast, I.e., p. 33. 3 Junckerstorff, H.K., in Zeitschrift fur Betriebswirtschaft, September Issue,

1955. • Gast, I.e., p. 33 - 34.

32 MANAGEMENT: A DYNAMIC SCIENCE

to permit it to be analyzed as a whole. Thus, for the sake of convenience, we have divided it arbitrarily, not into smaller parts, but into phases. That is to say, we shall attempt to understand the whole social en­vironment, by discussing five important phases of it: the social, the political the economic, the psychological, and the ethical. Now, we are taking the liberty to designate one of these phases by the term applied to the whole, namely 'social.' This privilege is appropriated for want of a more suitable term."

The composition of the group may include the following aspects: Size and distribution of the population, number and size of the families, rate of increase of popUlation, racial origins, sex and age distribution. Arising from associations within the group some ac­tivities may be noted: Occupations, living conditions and habits, institutions in which associations are formed and expressed, mem­berships in organizations of various kinds. Social thought springing from associations within the social group may relate to education, religion, standards of living, social caste.

A manager who is on the alert will have to watch carefully the developments within the social environment. There is evidence that business failures specifically in the middle class can be traced back to the inability of the manager to realize that for example the size of the population in a specific area was changing. These movements within the social sector are, it is true, not always easy to find out because the process is slow and the symptoms may easily be overlooked by a busy manager. Even more important for a business of a specific kind may be the distribution of the population. All over the world there is a trend to be noted to get out of the crowded downtown districts of the big cities and to settle in the suburbs. In this way the market conditions of a business located in the center of the city may be changed com­pletely so that survival will become an impossibility. Following the trends in the development of the social environment business people have concentrated on establishing shopping centers in the surroundings of the town, thus adapting themselves to the changes within the sector concerned. It may be understandable that the number and the size of the families will largely influence the structure of the present and the future market. Those who do not follow the population increase or decrease will not be in a position to make a right estimate of the potential market. They may produce too much and suffer losses or produce too little and

MANAGEMENT: A DYNAMIC SCIENCE 33

be expelled from the market in the end by powerful competitors who made more cautious observations. Sex and age distribution offer important hints for managerial decisions not only in the present but also in the future. In most of the countries of the free world we have to note a progressing longevity. People live longer thus increasing the percentage of aged people in the popu­lation figures concerned. Meeting the demands of elderly folks may become an important factor in business planning. By the same token the steadily increasing birthrate is opening up new markets for businesses in meeting the needs of this group.

Businessmen often overlook going into business to check the occupations, the living conditions and habits of their prospective customers. A market analysis started at the beginning may give some information in this respect too. Perhaps it would not be advisable to open a store specialized in equipping steelworkers and coalminers in a region where most of the people are engaged in farming. It should be remembered that the social environment, as mentioned before, is changing slowly but constantly. This im­plies the necessity of a manager to check from time to time what sort of a change may be expected. It may be that in our case farming is declining and workers from a steelmill in the neighbor­hood are moving in, thus changing the market conditions to a considerable extent. Education and religion are important aspects in the social sector largely because they influence the demand in its composition, the same way as it may be influenced by the living standard. The living standard as such may be generally at a high level but there have to be variations by necessity. The standard may even change in a boom period because this state of eco­nomy does not exclude the advent of local or professional de­pressions.

"2. The political environment. The political environment of a business enterprise consists of the governmental institutions, the laws, and the political concepts which seek to harmonize the freedom of action and the property rights of the enterprise with social requirements, through state sovereignty ..... . the state, and its government, exists in theory at least to serve the interests of its constituents by defending the group against its neighbors, and by protecting the internal relations of members of the group. Where there is anarchy, such group protection and development for the benefit of all individuals does not exist. Where there is recognized government, all matters which are of vital concern to the group (with

34 MANAGEMENT: A DYNAMIC SCIENCE

usually a few constitutional exceptions) are legitimate matters of con­cern for the government."!

Business as a part of the life of a nation belongs to these le­gitimate matters and the question comes up what, generally speak­ing, should be the attitude of the state in this respect. Two basic principles govern the situation in the countries of the free world which adopted our democratic system: the freedom of enterprise backed by the principle of private property. As a rule businessmen want to be let alone. They sharply reject the intervention2 ofthe state in whatever form it may be planned. It is true that based upon the two principles the businesses of a nation can embark upon setting in motion the machinery for producing goods and rendering services with the result that a new phenomenon enters the scene which we commonly call commercial competition. Numerous businesses are striving to achieve the same goal and are approaching the customer in a way that he makes up his own mind to buy the merchandise or accept the services. Competition, says Gast, is a striving for reward by two or more individuals or enterprises. Thus we have to recognize that competition is a prod­uct of the political environment of the enterprise. The basic laws of the state have as a presupposition to grant the rights which will enable the build-up of a free economy. Not all states ofthe globe, however, have adopted this system. A lot of them abandoned it in the first half of the century abolishing the freedom of enterprise and the principle of private property. As a consequence the free economy was replaced by a state economy where all the businesses are owned by the society and property is regarded as a theft. It is evident that competition under such circumstances had to vanish too. The results are, or should be, widely known. The motor of progress being removed, the state economies tried in vain for a substitute to competition. In all fields they were and are suffering economic setbacks. Looking upon the gloomy experience, as illus­trated before, we have all reason to be proud of our competitive system, originating in the political environment for developing its effectiveness in the economic sector, as we will see later.

Gast lists the following advantages of competition:3

1 Gast, l.c., p. 34 -35. 2 See p. 24 of this book. 3 Gast, l.c., p. 35.

MANAGEMENT: A DYNAMIC SCIENCE 35

"A profit-making advantage which accompanies some form of market control secured by one of or more possible means, such as a better product, a more efficient method of production, a more aggressive selling method" ....

"The freedom in the use of wealth and in the choice of pursuits, which underlies competition, tends to give all members of society opportunities to devote themselves to those ends for which they are best fitted. In doing this, the individuals benefit, and society likewise .... The rivalry of competition excites competitors to the keenest use of their faculties and resources."

Competition, of course, has some drawbacks which originate in the fact that freedom has a different meaning to different people. As a matter of fact this struggle for survival in the market can degenerate into forms violating public interest. As long as busi­nessmen feel that they have to act as partners of a society re­specting the interests of the community, they will restrict the competitive practices to fairness and sportslike behavior. But the very moment they forget about this common belonging to society they may embark upon means and methods which are not only detrimental to the competitor but to society also. They may commit acts of violence, they may use defamation, bribery and deceive the customers. If the state would keep silent some sort of civil war, however restricted, may break out. It is obvious therefore that wherever we find freedom of enterprise and free­dom of competition in a democracy, rules for operation have to be established. These rules can be of a twofold nature, private or public ones. In a democracy in which citizens feel responsibility for the wellbeing of the community, they will try to establish codes of behavior for the professional groups involved, thus a­voiding the intervention ofthe state. We will have to discuss these codes later. These codes, however, are so highly important in the field of management that we should stress here the fact of their central position in the environmental fields. It is evident that the state in addition to the ethical codes has to set up standards protecting the public interest as a whole. This is an experience which emanates from the history of competitive practices.! In general the state will have to protect freedom and honesty the same way. Freedom of competition as one of the essential parts

1 ] unckerstorff, K., "The History of Competitive Practices," in La Concurrence Loyale, Vol. II, No.1, p. 17 and in Saint Louis University Law Journal, Vol. I, No.4, p. 312. ] unckerstorff, in ] ahn-] unckerstorff, International Manual on Cartel-Policy. Duncker und Humblot, Berlin 1958, p. 57 fol.

36 MANAGEMENT: A DYNAMIC SCIENCE

of our economic system has to be established in a way that every­body is free to enter and to leave the market. Monopolies and other means to hinder and to lessen competition have to be elimi­nated. If competitive practices as such are protected in a way that fairness dominates the scene, basic rules of law have to be set up containing guides for business.

Thus we can speak of political control over competition pre­venting the misuse of freedom and maintaining the efficiency of the whole system. We have seen in the foregoing chapter how strongly opposed business is to the so-called interventionism of the state. The tendency to be observed in most of the countries of the Western world is to expand legislation in the economic fields thus restricting the freedom of enterprise in the end. It should not be overlooked, however, that the old system of 'laissez­faire, laissez-aller,' of doing nothing at all as far as the attitude of the state is concerned, cannot be observed anymore in a world which is divided as ours to-day between free and enslaved nations, between capitalism and communism. The regulations issued by the governments should be limited to a minimum but provisions have to be made which will enable the state to meet emergencies. This is the second group of rules to be looked upon as important within the field of the political environment of a business enter­prise which is favorably inclined to the full exercise of the rights of private property and freedom of enterprise. Institutions, laws, and concepts which constitute the political. environments, demand a socially beneficial use of these rights. To this end, the enterprise must be protected against other enterprises and against the state, and the state, or society against all enterprises.1

The changes within the political environment may be slow or they may come rapidly depending upon the situation in general. The state may be compelled to act fast in times of crisis to protect business. Competitive rules, however, under regular conditions will take time developing. Management has to adjust itself to the changing conditions in any case. If it would forget about the regulations issued by the government it would have to suffer the punishment for the violation. But as a contrast to the social environment business will be in a position to take action itself promoting or opposing developments. This can preferably be done

1 Gast, l.c., p. 35.

MANAGEMENT: A DYNAMIC SCIENCE 37

by means of business collaboration. The management of a business faced with unfair competitive practices may decide upon asking business organizations to call for help from the state. The local Chamber of Commerce may take up the matter, submitting the petition to the Chamber of Commerce of the United States if a nationwide interest may be supposed. The professional organiza­tion of the retailers, wholesalers or producers may intervene if a specific professional interest of the group is involved, finally asking the government to take action. But in minor cases both types of business associations will try to solve the problem by internal means. They will discuss it within the competent organs and will find a way to eliminate the problem by an intervention of their own, demanding that the unfair practices of the competi­tors have to be stopped. Perhaps the situation will call for amend­ing the ethical codes to be discussed later. Only fundamental issues which cannot be dealt with efficiently by private organi­zations will have to be submitted to parliament and government for decision.

The ethical environment referred to in the previous paragraph is defined by Gast as follows: 1

"3. The ethical environment. The ethical environment of a business enterprise is much less definite in structure than either the social or the political. It is located, of course, in the social group which embraces all environmental influences, except the physical. ... . We shall define ethical environment of a business enterprise as all of its social and economic relations with individuals and groups which require an ethical consideration of con­duct .... The conduct which the ethical environment influences, includes the conduct of the enterprise toward its own human means, the conduct of the enterprise toward the social and economic environment, and the conduct of the human means of the enterprise toward the enterprise ..... 'Conduct' does not have the same meaning as 'acts.' 'Conduct' is included in 'acts.' It is that quality of acts which describes the outward manifestation of the ends sought by inward motives. An ethical con­sideration of conduct is a consideration or deliberation, which regards conduct according to whether it is right or wrong, good or bad, moral or immoral."

As a matter of fact we should remember first that our Western world is based upon Christianity and its moral and ethical princi­ples. As a consequence there can be no difference between the basic approach of businessmen in our hemisphere, judging what

1 Gast, l.c., p. 36.

38 MANAGEMENT: A DYNAMIC SCIENCE

is good or bad, what is permitted or what is prohibited. Thus an understanding of how to make an evaluation of a specific kind in the field of business behavior may easily be established between the nations concerned. As a contrast we can imagine the difficul­ties arising when we had to deal with people who would deny our moral standards and regard, as communists do, property as a theft. This does not mean, however, that we have to-day a uniform code of ethics covering all details concerned, extending over the whole free world. The problems originate in the national peculiarities of each country in a way that a discussion has to be set up to bring about a unified concept. How easy it is to attain this goal may be illustrated by the fact that the International Chamber of Commerce "The World Parliament of Business" was in a position to establish ethical rules covering competitive prac­tices and very specific ones in the mainfield of commercial com­petition in advertising. 1 Some of the rules run as follows:

"Advertising should be so designed as to conform not only to the laws but also to the moral and aesthetic sentiments of the country in which it is published ...... Advertising should tell the truth and avoid distorting facts and misleading by means of implications and omissions."

Many commercial and professional organizations have de­veloped codes of ethics in the national field, intended to regulate the conduct of their members. It is true that some of these codes are so general in statement as to be worthless. Others confine their statements to specific situations which arise in the course of trade. In the past years, however, there is a noticeable tendency to set up a high level of requirements and to develop methods which would open the way for detailed provisions. This trend has been fostered especially by the U.S. Federal Trade Commission which actually includes a department exclusively devoted to giving advice to business in the competitive fields and to help drafting ethical codes which have to be adopted voluntarily by all the members of the profession involved. The FTC is extremely interested in the field because by way of the so-called conference procedure this agency of the government is called upon to set up rules for the different branches of industry and commerce which ultimately will be fortified by getting binding force in the legal

1 Code of Standards of Advertising Practice adopted by the International Cham­ber of Commerce in Paris (revised edition 1948).

MANAGEMENT: A DYNAMIC SCIENCE 39

sense for the enterprises involved. Up to now about two hundred rules of this type have been issued after the business was given an occasion to discuss its provisions with the agency. But as a matter of policy the FTC meeting the business point of view in this respect seems not to be much in favor of introducing legal codes in the above mentioned manner because the conviction prevails that the codes would be applied more easily and voluntarily if they were adopted as a private body of rules binding upon the members of the profession.

Here one element appears which seems to be extremely impor­tant. This is the fact that the ethical code is a powerful instrument as such when adopted by a group of enterprises. As Gast puts it, that adaptation to ethical environment is a must and has to take place. Failure to comply with the requirements inevitably brings about some sort of reaction of the environment. It may be at the beginning a friendly warning but it may be in the end the expul­sion from the professional organization with all the social and economic consequences involved. A businessman, a manager, as a rule, may suffer a temporary disadvantage but he never will run the risk of being faced with the boycott of the society. Having this in mind we feel that the Federal Trade Commission is right fostering the adoption of private codes. If a situation arises the code will form the draft for the compulsory rules which have to be issued the very moment in which evidence is given that the profession as such cannot handle the matter itself. It may be that outsiders will try to undermine the ethical standards. It may be that technical innovations of a revolutionizing character are taking place offering problems which can only be solved by the state. But the principle remains that the ethical code is a power­ful instrument and that the enterprise if well-managed has to ad­just itself or being exposed to the dangers described above.

In the foregoing paragraph we have referred to the American scene which is extremely interesting because there is evidence that the ethical environment largely influences the political en­vironment. The structure of business is built upon ethics first, and law second. This is one of the reasons why international business is deeply concerned with introducing the basic concept of the American system. Actually Germany is about to try de­veloping ethical codes, France and Switzerland are going the same

40 MANAGEMENT: A DYNAMIC SCIENCE

way, however reluctantly. Great Britain has built up a system similar to the American system. The power of the ethical code in Great Britain is so impressive that in a lot of cases unfair practices, as widespread as they may be, are suppressed from one day to another simply by means of passing a resolution within the pro­fessional bodies concerned. The basic idea of backing the legal system by the ethical codes has been imitated in some way by Ireland and Japan, countries which have adopted the Federal Trade Commission concept almost completely. Ireland, however, has linked the American system with the British established in 1948.

Any business conduct! is regarded to be unethical if either the motive or the result violates the principle of both natural and legal justice.

A very important component part of the outside world of a business enterprise is called the psychological environment. Man­agement, if not properly trained, is often unaware of the role this sector plays in dynamic business. It has to be admitted that the matter is more complex than the social and political environment. As a rule, problems cannot be recognized without previous study. The definition of Gast runs as follows: 2

"4. The psychological environment. The psychological environment of a business enterprise consists of the inner behavior of members of its whole social environment. By the expression "inner behavior" we mean the functioning of the neuro­mental structure of each individual, as it is involved in the responses (actions and thoughts) ofthe individual to his own social and physical environment." .... The most important element within business enter­prises is men. The most important element in the environment of business enterprises is men. The men of the environment live and associate in groups. The men engaged and employed in enterprises come from these groups .... In the first place, each individual associated with the group has a functioning mind of his own. . . In the second place the group, being a collection of associated minds, tends in many respects to function mentally as a unit .... Every individual in the social group to which an enterprise must adapt itself, socially, politically, ethically and economically - has a personally functioning mind and body, but this is conditioned by his own environment of associations with his fellows and with nature."

How to deal with people can be called the essence of the fore­going statements of Gast. The manager's job to a great extent consists in solving this problem in the different fields of his ac-

1 Gast, l.c., p. 37. a Gast, l.c., p. 37 - 38.

MANAGEMENT: A DYNAMIC SCIENCE 41

tivity. Some are gifted by nature to recognize characteristic traits of the people they have to deal with, some are not. A basic know­ledge of psychology should be one of the prerequisites sought for in a prospective manager. He should know that every individual is different and will react differently in his response to stimuli emanating from his environment. Inborn or inherited tendencies will play an important part in forming the decisions of the indi­vidual combined with his previous experiences which he can also use. Managers agree generally that these are points of view to be looked upon as important coming along with customers. They forget, however, that there are other groups which can in no way be rated second. There are the employees and workers, the in­vestors and suppliers.

Only the manager who is aware of these different types of groups he has to face in everyday life will be in a position to see the problems as they really are and to solve them in a way that adaptation to the changes becomes perfect. These changes are often not easy to trace and only the trained mind will become aware of the symptoms indicating a new trend of behavior. But as in the political and ethical environment the opportunities are given to the manager to influence the developments to a consider­able degree. Serving the interest of the customer the best way he can, dealing with the employees and workers as members of his business family, facing investors as a successful businessman and the suppliers as friends, he will build up a reputation securing his place in the community.

The most important part ofthe surroundings of a business may be the economic environment, mainly because the adaptation to this sector is a pressing requirement involving decisions everyday and perhaps every hour. Gast defines the environment as follows: 1

"5. The economic environment. The economic environment of a business enterprise consists of that social group and those institutions and enterprises whose production and consumption activities exert an appreciable influence upon the enterprise. In the whole environment sphere of an enterprise there is a group of individuals and a collection of business institutions and enterprises whose activities in various forms of production and con­sumption exert an influence upon the enterprise, sufficiently strong, to require the enterprise to adapt itself to them."

1 Gast, l.c., p. 38.

42 MANAGEMENT: A DYNAMIC SCIENCE

Here the business meets the customers and the prospective customers, its suppliers, and in short everyone connected with buying, selling and operating. 1 Business also meets its competitors, producing and selling the same goods or rendering the same serv­ices. Originating from the political environment competition en­ters the scene of economic environment as the most powerful factor which forces the enterprise to act quickly and efficiently, meeting the requirements of survival. Competition takes place in what we call the market where the struggle is going on to win the customer. It is extremely important to get an exact picture of the actual and prospective developments within the field con­cerned. The market determines what is to be produced, how much can be produced, what price can be asked, and what conditions can be offered. To the extent that a manager will be in a position to predict future developments, he will be able to stay within the market and to expand the volume of his sales. It is said that a businessman who is saturated and who does not want to increase the volume of his business has ceased to be a businessman. This statement is quite correct because survival in the long run depends upon keeping close contact with the market conditions. A lot of business failures result from overlooking the analysis of existing market conditions and its future trends or from predictions which turned out to be wrong.

In both cases management made decisions which did not meet the requirements of the market situation which finally became a reality. There was no adjustment to the changes of the economic environment and as a result the business had to suffer losses.

Experience demonstrates that analyzing the markets for making adequate forecasts largely depends upon training in management and knowledge of the basic facts of the business concerned. There are inside and outside sources from which the necessary informa­tion can be drawn. A well organized and trained sales force will be of immense value in obtaining news from within the market. It takes time, however, to build up an organization of that kind because sales people are not quite aware of that sort of mission which can and should be entrusted to them. Periodical conven­tions combined with indoctrination will help to establish a reliable instrument in the field. As to the outside sources let us mention

1 See page 56 of this book.

MANAGEMENT: A DYNAMIC SCIENCE 43

the services of the professional associations publishing information regularly on market conditions in the specific branch of business completed by those of market research institutions. More general in nature are the reports issued by the local chambers of com­merce and the periodicals in the field. In the end, of course, the manager has to check everything carefully and then he has to make up his mind what should be done and how it should be done. If he is a gifted man he will come to a conclusion very fast. If he has to depend solely upon training and experience he will need more time perhaps but he too will find out how to meet the requirements of the situation.

All the environments we have discussed in the foregoing para­graphs deal with man but there remains a last one, dealing with nature and physical phenomena to which business has to adapt itself:1

"6. The physical environment. The physical environment of a business enterprise may be defined as the land over which its immediate operations extend, together with all accompanying natural conditions and all man-made improvements, modifications, structures, and modifying physical influences."

The land as described in this definition will have two component parts: the parcel on which the enterprise is located and the area upon which the whole environment is situated. The term includes the topography, water, fertility, natural vegetation, mineral con­tent. Accompanying natural conditions may be climate, tempera­ture, precipitation, the wind, humidity, light and seasons. Man­made changes will add improvements such as drainage, roads and streets, parking, zoning, city developments and canals. Influences emanating from man's activity may be smoke, gases, odors, noises, and light obstructions.

The foregoing survey illustrates that some factors within the picture are not subject to changes while others can be modified or completely eliminated. It is, then, the concern of the man­agement of the business to insure a dynamic program of adapting the needs of the business to the ever-changing en­vironments in which it functions, for if this be overlooked much time will be spent in solving problems which conceivably could have been avoided.

1 Gast, l.c., p. 41.

PART VIII

BASIC FUNCTIONS OF MANAGEMENT

1. AN APPRAISAL

We have seen that the concepts of Taylor and Fayol have been very well understood by the Western world. On the other hand we came to the conclusion that the nations not being linked by the way of international scientific cooperation and thus living an isolated life of their own, have reached different stages of develop­ing the science of scientific management. We had to state that the United States had to take over the lead being faced with a rapid growth of industrialization. In the same way Great Britain followed the trend but it could not reach the level of progress attained by the U.S.A. In the past years, however, it seems that the British are coping with the problem in a more efficient way. The reason may be the fact on one side that the country recovered from the war and its aftereffects, on the other the changing atti­tude may be the result of the activity of the Anglo-American Council on Productivity, discussed in Part IV of this book.

Broadly speaking, we may sum up the actual situation as fol­lows: The United States of America has developed a complete doctrine in all fields of management. Britain is about to achieve the same goal perhaps in a few years. The findings of Taylor and Fayol are the cornerstone of the science in both countries. But they have been spread out, so to say, into all component parts of modern management. Management is in its very heart regarded as a public service, determining the position of the enterprise within society, determining at the same time the overall objectives of management in defining its duties. The idea that profit is the sole goal in business has been replaced by the modern aspect that although the motive should not be and practically cannot be suppressed or removed from the scene, the basic concept should be that of securing a just return to the invested capital.

The recent developments in the United States which have as yet not been parallelled by Great Britain indicate that a better

BASIC FUNCTIONS OF MANAGEMENT 45

understanding of the dynamic nature of management has been reached. Until to-day the static approach governs the scene in all fields of international management. But we must come to a change because progress in the further development of scientific management can only be secured if the methods of analysis will be adjusted to the dynamic aspect involved. The theory of the environments, developed by Gast, may be the beginning of a new area in research and the opening chapter of an expanded theory of management at all. Until to-day not a single book on the subject of scientific management in our Western world deals with the social phenomena with which business management is con­fronted. No rules guiding the decisions have been found as yet. The psychological environment, somewhat regarded as an ap­pendix, and not an important one, to management, has been given for the first time the prominent place it is entitled to ask for. A lot of research has been done and impressive results have been reached, but they are not linked organically with the science of management of which they form a part.

The ethical environment, however, is regarded as essential and has been incorporated into the field. But even here defects are prominent. Checking the literature of the different countries concerned we become aware of the fact that no research has been established analyzing the relationship between the ethical and political environment.

Based upon a comparative study in competitive practices! it became clear that the American scene offers a completely different picture compared with the European countries except Great Brit­ain. The United States has built up a competitive system which rests upon the ethical codes being completed in the legal sphere. In Europe the opposite is the case, the legal concept comes first and the ethics in a certain way seem to complete the picture.

The economic environment in the center of the whole system offers a highly favorable aspect in the U.S.A. and to some degree in Great Britain. But going through the details of study and research established in this field we find that the focus points are located preferably with competition and market research.

The physical environment is widely known but mostly the sig-

1 Junckerstorff, "Competitive Policy in the U.S.A." in Saarlltndiscke Reckts­und Steuerzeitsckrift, Saarbriicken, Vol. 7, February and July Issue 1955.

46 BASIC FUNCTIONS OF MANAGEMENT

niftcance of its main aspects has not been explained. We know, however, that there are a lot of rules to be discovered, indicating for example the relationships between nature and production or climate and distribution.

Speaking in general terms we can say that with the U.S.A. taking the lead and Great Britain following closely, the develop­ment of scientific management has made astonishing progress. Checking the Continental scene in Europe we can only repeat that the sciences have been isolated for too long a period to enable them to join the progressive trend as a whole. That does not mean, however, that they do not show developments oftheir own. This is specifically true as far as Germany is concerned. This country has set up some sort of a classic science in the field. Having achieved this goal we question the practicability of the successes involved: Efficiency without any doubt has reached a peak. But the question comes up whether the whole classical concept will not constitute a barrier to future developments as reported by the U.S.A. Some time ago a German scientist, Abromeit, l has found out that Germany is training directors at its universities, but America is educating business executives who can be employed wherever a need may come up. It will be difficult to transplant basic educational ideas in the field concerned from one continent to the other but there is one recommendation to be extended which results from the study ofthe literature concerned: The static aspect which prevails in nearly all respects should be substituted by recognizing that management is a dynamic science.

2. GREAT BRITAIN

Brech states that management appointments all partake of a threefold character - a technical aspect, an administrative one, and a human one:2

"The Technical - Applying the particular knowledge of processes, products, materials, equipment, procedures, etc., pertinent to the oper­ations or field allocated to the manager. For example, in the case of a Factory Manager, this will cover consideration of, and decisions on, quality standards, the suitability of a certain tool, the design of product,

1 Abromeit, Hans-Gunter, Amerikanische Betriebswirtschaft, Wiesbaden, 1953, p. 269.

• Brech, I.e., p. 52.

BASIC FUNCTIONS OF MANAGEMENT 47

investigation into complaints of faults, and so on. In the case of the Chief Accountant, it will cover questions of classification of expense, liability for income tax, interpretation of financial law, and so on. The Administrative - Concerned with the routines or procedures by which planning and control are carried into effect, in relation to manu­facturing, distributing, or other activities that the organization is dealing with, as well as te such internal matters as employment routines and financial controls. Such routines will fall generally into two groups, namely, those that are of the overall scheme designed for the organiza­tion as a whole, and those which are specific to division, unit or section of the individual manager. The tasks of the manager in this connection are often delegated to clerical or secretarial staffs engaged in the compilation of records, the writing of reports, of the preparation of other documentary matter. The Human - The motivation of the working teams, all those daily activities which the responsible manager must undertake in order to ensure that the morale of his team is high. Part of this activity may be delegated to a specialist personnel officer or assistant; for instance, matters concerned with the engagement or training of staff, or the routine handling of welfare activities. For every manager, however, there is a human element in his own reponsibility which he cannot delegate and which is in effect the impact of his own leadership or motivation on the people working under his jurisdiction."

The foregoing opinion of Brech deserves our special attention because British science somehow establishes a link between the American and the European concept. To begin with the positive factors we have to agree that the human element within manage­ment is clearly defined. Keeping up the morale of the team is one of the most important missions to look upon. It is impossible indeed to delegate the responsibilities the manager has in this field. Brech and the Americans stress the necessity of applying the leadership method combined, of course, with the scientific method. Negative aspects appear when checking the paragraphs covering the technical and administrative points of view. We find here as in France, Germany, and I talythe basic concept originating with some sort of misunderstanding as to what Taylor and Fayol really wanted. To begin with the father of the scientific manage­ment had certainly not in mind when he wrote his basic book on the Principles of Scientific Management to develop a technique only, a new one based upon scientific approach. What he and Fayol wanted, however, was a completely new approach covering the whole field. Scientific management cannot be interpreted as a science composed of a set of technicalities. This is the first ob­jection which has to be raised against Brech and his European

48 BASIC FUNCTIONS OF MANAGEMENT

colleagues. In the administrative approach as established by Brech too much emphasis is placed upon the "routines" and the "procedures," which maybe is not surprising, having in mind the principal attitude we were just talking about. By no ways and means, however, the administrative aspects of management can be explained that way without doing harm to the foundation of scientific management. This activity is essentially a creative one. It is impossible to apply routine adjusting to the environments. All the planning can be characterized that way with few ex­ceptions when a daily recurring problem is being solved by rou­tine. We do not neglect, however, the big set of plans which makes the enterprise run smoothly without involving the necessi­ty to change its form and content. But this part is by no means the heart of management which consists in audaciously attacking problems which have to be solved to secure not only survival but development and growth of the enterprise. Using only a routine may sometimes help, but in the overwhelming majority of the cases it would lead to completely wrong decisions.

The British view on the basic functions of management may be quoted as follows: 1 There is a planning 'and controlling function and a function of coordination and motivation.

Planning is called the primary management responsibility, char­acterized by the determination of policy "the laying down of the aims of the organization and the general principles on the basis of which it will operate. This is required not only in a general sense, but also in relation to each ofthe major divisions." "Without a known policy," Brech says, "in respect of all its activities, an enterprise cannot function effectively, if at all. A well-defined policy relating to all aspects of an organization can be of considerable value in promoting coordination and smooth working." "In ad­dition a "responsibility under the element of planning is that of organization structure."

The first objection to be raised is that a confusion exists between objectives of a business enterprise and its policies. We discussed this approach in Part II of this book and we want to stress the necessity to establish a common terminology again. A mana­gerial objective is the intended goal which prescribes definite

1 Brech, l.c., p. 48.

BASIC FUNCTIONS OF MANAGEMENT 49

scope and direction to efforts of management.1 A policy is a verbal, written, or implied statement outlining the course adopted and followed by a manager. It is a guide to the personnel handling specific problems the way desired by management. With the term policy substituted by the term objectives we can completely agree with Brech, however.

The next step in planning as listed by Brech deals with produc­tion, financial management, and personnel. There is no necessity to discuss the details offered which are of the specific nature involved. But evaluating the whole chapter of planning, we cannot say that Brech is developing an overall concept of this essential function of management. Even adding additional information contained in his book and taking into consideration all the perti­nent material he offers, 2 there is no summary of planning and its elements which would cover the whole field concerned as a doctrine. Surprising as it is, the British do not recognize the function of organizing which is commonly adopted in the United States. Planning being something which takes place in our mind has to be completed by bringing into being that which was planned. Here and there in the British concept the necessity can be traced to deal with problems of this sort. As Renold3 puts it, "then comes the stage of devising the operation instructions that will give effect to the plan decided on. These instructions may be thought of as the operative programmes of work for the various sections of the undertaking." Having no theory on organization it may be understandable that a lot of serious difficulties threaten British industry. Let us quote Renold referring to this point as follows:'

"One of the most prevalent diseases of industrial organizations is the overburdening of the top authorities with executive detail, leading to congestion, ineffectiveness and stultification. This may be caused by lack of clarity in devising and defining the delegation of authority, but it may also arise from failure to distinguish between policymaking and execution. The difficulty here is the frequency with which particular situations arise that have implications far beyond the point at which action would normally be determined and taken, and for which the pattern of established principles does not provide. Such situations

1 Terry, l.c., p. 52. 2 Brech, l.c., p. 49. 3 Renold, l.c., p. 13. 4 Renold, l.c., p. 7 - Brech believes that organization is an aspect of planning,

Brech, l.c., p. 41.

50 BASIC FUNCTIONS OF MANAGEMENT

raise, in fact, 'policy issues' ; they present a range of choices to which the pattern is no adequate guide. Decision with regard to such situations is referred up and up the line with the results I have mentioned."

Here the whole dilemma becomes visible. It should not be said, however, that the disease of industrial organizations Renold de­scribes is restricted to Great Britain. It will enter the scene every­where when a theory of organizing has not been developed. We will come back to Renold's report when concluding the chapter.

The second function in the belief of the British is control. Con­trol, as defined by Brech,1 watches to see that the programme and the standards are adhered to, or brings to light the reasons why not. In some recent methods of management (especially 'Bud­getary Control' and 'Higher Control'),2 the elements are actually combined in one procedure."

Brech's classification next lists coordination. "This element," he says, "in management does not call for or use any special techniques, but it is achieved by the active skill of the manager or supervisor himself ..... in the main by the conscious 'manage­ment efforts' ofthe individual manager. "3 "Co-ordination of oper­ations requires balance of activities as well as unification; it can be most effectively attained by direct continuous contact among the persons concerned, starting at an early stage of their activities, and proceeding with due regard to the relevant facts."4

There is no doubt about the fact that coordination is necessary in management. The only question to be answered is whether it constitutes a function in itself. American science5 believes to an ever-increasing extent that the concept of Taylor and Fayol has to be modified in this respect and that it is an ever present postulate to be regarded as vital within all functions of management. Says Gast: 6 "The realization of the objectives of a business enterprise requires coordination between all activities in the enterprise. Coordination requires control of all activity. Control requires (a) a force-knowledge - i.e., a plan - of what the activity should be, and (b) a suitable, but also controllable means through which the

1 Brech, l.c., p. 49. 2 No definition is given of that term. It seems, however, that the controlling

functions of the Board of Directors are meant. 3 Brech, l.c., p. 50. 4 Brech, l.c., p. 43. 5 cfr. Davis, l.c., p. 130; efr. Gast, l.c., p. 55. G Gast, l.c., p. 55.

BASIC FUNCTIONS OF MANAGEMENT 51

activity can take place. As a matter of observation and of logical necessity, planning, organizing, and controlling are the functions which managers perform.

Practically speaking we can say that it would be bad planning if the whole system of plans set up by managers would not be brought into an order, dominated by the objective as large or as small as it may be, establishing some sort of a hierarchy. Organizing would be poor if not developed organically and governed by the rule of first things first. Controlling would practically be impossible if not based upon an orderly system covering the whole organism of the business in the most efficient way. Thus, if coordination has to be present all the time when managers do managing, we may characterize it chiefly as a mental attitude of the awareness of the fact that like a human body all parts have a fixed re­lationship to each other and depend upon their influence on each other.

The British pay much attention to motivation (leadership) which they also classify as a function of management. Brech explains it the following way:1 "The task is to fuse the varied individual human capacities and powers of the many people em­ployed into a smoothly working team with high morale and a high productivity. It is a task closely clinked up with the element of coordination. It is an element in their responsibility of which managers and supervisors have hitherto too frequently been ig­norant and negligent."

Leadership was defined in accordance with Gast2 as a way of getting others to do what they should be doing because they want to do it. In Part VII we came to the conclusion that the modern aspect of management demands combining the scientific method with the leadership method. As in coordination, leadership is a phenomenon which has to be ever present in management. It is some sort of a mental climate to be established by management covering the whole enterprise resulting in a high morale and pro­ductivity, as Brech states. But we cannot recognize motivation in leadership as an independant functi6n. The reasons are the same as in coordination, an essential attitude which has to govern this spirit in which planning, organizing, and controlling are done,

1 Brech, l.c., p. 50. B Gast, l.c., p. 53.

52 BASIC FUNCTIONS OF MANAGEMENT

can logically not be characterized as a function of its own. We may say that these distinctions in theory may not be so

important for the practitioner and that it would not matter to add two more functions to the three we just have listed. But science is called upon to bring about a clear picture of the basic aspects especially. It is simply not a matter of theoretical value to develop a terminology and to set up terms which have to be universally agreed upon because they cover the essential elements and nothing else.

3. FRANCE

We remember that France has adopted a classic formula of managementl defining the term as planning, organizing, com­manding, coordinating and controlling. Referring to the previous chapter we will have to state that, as shown before, they will have to be reduced to three. Based upon Fayol, Campion2 devel­ops a lot of principles of management which we have to discuss briefly. He rates first the principle of discipline, equality, stability of personnel and of the subordination of the private interest to the general one. He feels, however, that these principles are more rules of conduct, adding that they should be completed by punctu­ality, courtesy, plainness of the commands and clearness of the reports. Then he proceeds to formulate special principles, as he calls them, which are subject to some sort of explanation. He lists the unity of commandment, the permanence of com­mandment, the necessity of a hierarchy which is clearly establish­ed, the centralization of results based upon verification through control, the initiative and the responsibility, the authority of the "chief" (manager) and finally the "union" of the personnel.

As to the unity of commandment, he believes that a member of an organization can only be subordinate to one superior. If there happened to be two superiors they should, Campion says, divide the authority between themselves. In a big organization, he feels, two managers may issue orders executing decisions of a common superior. This approach is somewhat similar to our con­cept of the clear-cut-organization, where everybody knows where

1 see Part V, p. 12 of this book. 2 Campion, l.c., p. 237.

BASIC FUNCTIONS OF MANAGEMENT 53

he stands, what he has to do and to whom he has to report. The American science is dealing with the subject concerned dis­cussing the organizing function of management, the pure line, the multiple line and functional organization, types we will have to discuss later.l

The permanence of commandment is defined by Campion2

saying that the authority, the superior, who has to issue orders shall always be present or represented by someone else. Campion believes that the principle results from responsibility, stating that responsibility cannot exist without permanence of the order-is­suing manager or his substitute. As to the hierarchy which has to be clearly established, he stresses that this principle is demanded by the unity of commandment. Each member of the organiza­tional structure having but one superior, orders have to be given through the chain of command. Quoting Henry Ford, he stresses the dangers involved in neglecting the higher hierarchical aspect concerned.3 Centralization of results based upon verification through control, shall bring about the result that the manager shall not do anything but see to it that everything is done. As to initiative and responsibility he believes that the spirit ofiniti­ative should be developed in every way accompanied by responsi­bility and in the end by reward or punishment. As to the authority of the manager Campion defines the term that the manager is entitled to issue orders and see to it that they will be complied with. The "union" of personnel, as he understands it, means that the manager should develop an esprit de corps among the person­nel.

This review illustrates that France has not developed ideas of her own in the field of scientific management. It may be remem­bered that the book was offered a heartly welcome by the famous French economist Charles Rist, stating in the foreword that the French did not have books of that type at all. Emphasis is placed based upon Fayol on the organizational aspect of management. All the principles listed before belong organically to the functions of organizing and in one case to controlling. There is nothing new, there is no analysis of the functions themselves, there is only a

1 See page 64 of this book. 2 Campion, l.c., p. 237. 3 Campion, l.c., p. 237.

54 BASIC FUNCTIONS OF MANAGEMENT

vague approach to some aspects in the prementioned field. The permanence of command may not be explicitly mentioned in other national studies concerned, largely because the observation has a mere theoretical character. The concept that a man can only serve one master even in business, seems to be antiquated in face of the fact that the multiple line will offer a different aspect. But as a rule we may agree to it. The statement that the manager shall not engage in some work down the line but see to it that everything is done will be a good hint in the organizing field. The same should be said as to developing initiative and responsibility. That the manager has a right to issue orders being invested with authority is a basic statement which cannot be doubted. But if the manager is not the proprietor it would be worthwhile to add that authority in a business enterprise always flows down from the top to the bottom of the organization, the whole being headed by the investors.

IV. GERMANY

The national sciences as we know have lived an isolated life in our field. This becomes evident when we look at the develop­ments in Germany. It was mentioned before that the Germans succeeded in building up a classical science, the structure of which is illustrated in an excellent manner by Mellerowicz.1 The result is, however, that on one side we have a complete system of ana tional character, on the other the static approach. There is no formula­tion of common principles governing the whole, but a very detailed build-up in the different parts of doctrine. In the midst of the theory we find a statement which indicates that Germany bases her concept completely upon the American approach. The func­tions of management are summed up as follows: 2 Disposition, organization, and control. Disposition has the same meaning as planning which is defined3 as prognosis and program indicating

1 Mellerowicz, l.c. The table of contents of the three volumes of his book contains the following chapters which seem to be characteristic in this respect: 1. Begriff, Gliederung und Methode der Betriebswirtschaftslehre. 2. Der Betrieb als Glied der Gesamtwirtschaft - Die Wirtschaftsformen. 3. Betriebsformen. 4. Die betrieblichen Produktionsfaktoren - Arbeit, Kapital, Organisation. 5. Theo­rie der Produktion. 6. Anwendung der Theorie der Produktion. 7. Die betrieb­lichen Funktionen - Leitung und Verwaltung, Beschaffung, Produktion, Vertrieb

2 Mellerowicz, l.c. Vol. I, p. 121. 3 Mellerowicz, l.c. Vol. III, p. 244.

BASIC FUNCTIONS OF MANAGEMENT 55

the means and methods which are necessary to attain the goal. Organization is defined as the planned selection of means for solving a problem. The organization is brought into being and constantly supplied by the activity of organizing, the planning and executing of rules having am organizational character. Control is simply explained as supervising.1

It is rather difficult to compare the German system with the other national sciences2 because the structure is so very different and the terminology is not easy to translate. We may say that the whole study offers evidence that much progress has been made which largely influenced the neighbor countries. Fortunately the common basis has not been lost and it may be expected that international management will take great advantages using the German classical science. Strange as it seems to be, Mellerowicz adds one more function to the three basic ones we have just cited, a function called representation. But he does not explain the term in his books. It may be supposed that this additional function does not have any special meaning.

Abromeit3 states that business administration and economics are the component parts of the American political economy and stresses the fact that specialization in business administration is built up to the highest degree. On the other hand he feels that Americans in their conscious mind do not distinguish sharply between management and political economy. He believes that it would be better to set up a general theory in business administra­tion instead of dealing with the different parts in different courses. This author, by the way of his approach, may offer an explanation why it seems to be difficult to establish international management. Developing theories may be a good thing but it is technically impossible to teach all the fields of business administration in one course. Abromeit is wrong in his belief that political economy and management are not distinguished from one another in the U.S.A. The whole appraisal results from the fact that he is of the opinion that the measure of performance in the field has to be based upon the specific national science. Although there may be a temptation to evaluate performance in this way, it cannot be done because,

1 Mellerowicz, l.c., Vol. I, p. 12l. 2 cfr. Mellerowicz and the table of contents of his books sub. 22. 3 Abromeit, l.c., p. 255-257.

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the tools needed often will not be existent. The goal even when achieved could not be appraised properly on an universal scale.

5. ITALY

In defining the basic functions of management Italy follows the American concept by making a distinction between planning, organizing, and controlling. Zignoli, l however, finds that a more detailed picture is necessary. Here are his main points: 1. State the objectives; 2. Analyze and classify the problems (projects, constructive design etc.) getting a simplified concept; 3. Specialize in detail planning; 4. Take all the dispositions and have the conse­quences in mind; 5. Prepare the means provided; 6. Execute the plans; 7. Control the results systematically.

6. THE FUNCTIONS EXPLAINED

Summing up the basic functions of management we shall first have to remember the place to be given to the said functions classifying the types of business functions in general. The primary functions of business are buying, selling and operating. The fa­cilitating functions assisting or supporting the primary ones (main­tenance, work etc.) may belong to a second group. The third group are the managing functions, planning, organizing and con­trolling.2 Planning is a definitive function of management which consists in formulating objectives and deciding upon the means, methods and techniques by which the objectives are to be reached.3

The reason why planning is called a definitive function lies in

1 Zignoli, l.c., p. 38: 1. Determinazione della scopo da conseguire; 2. Suddivi­sione di ogni complesso, sia esso uno studio preliminare 0 esecutivo, un progetto, un dettaglio costruttivo, una operazione di lavoro nei suoi costituenti pin sem­plici; 3. Specializzazione, cioe attribuzione di un compito ben definito alIa cosa o persona pin adatta per assolverlo, secondo quanta e emerso dallo studio di suddivisione; 4. Previsione di tutte Ie disposizioni da assumere e di tutte Ie conseguenze possibili di esse. In questa fase delle studio non vanno dimenticati i principi d'armonia e di continuita; 5. Preparazione dei mezzi previsti; 6. Esecu­zione secondo Ie disposizioni stabilite senza consentire alcuna deviazione dal piano esecutivo; 7. Controllo sistematico dei resultati e studio dei perfezionamenti.

2 Gast, t.c., p. 28. 3 Gast, t.c., p. 55.

BASIC FUNCTIONS OF MANAGEMENT 57

the fact - as the latin origin of the term indicates - that this activity of a manager has to be brought to an end. This means that absolutely nothing should be left out of planning. All prob­lems, small or large, have to be solved. This has to be done the perfect way. Of course, mistakes will always be made but this does not exclude the necessity to do the job the best way possible. Planning by its very nature always ends in a plan. It should not stop half-way, allowing the circumstances to bring about the results desired. This definitive function of management is at the same time a very complex one. First the question comes up what to plan and then how to plan. The manager must recognize the problems he will be faced with, problems which are sometimes easy, sometimes difficult to detect. Planning in most of the cases thus involves the necessity to make a choice between different ways and means. The capacity and ability to come along with planning largely depends upon the training and the experience of the manager. It can be learned by the trial and error method and it can be acquired by education. The mental tools, however, needed for this sort of processing will vary to a great extent depending upon the situation. Modem business therefore insists upon getting executives who are well equipped in both respects. Since the scientific method of management requires the collection of facts as the first step, the managers will have to look upon getting the complete picture as the presupposition of successful planning. It may be noted here that set-backs to a great extent result from neglecting this point.

Planning may involve coverage of a large or small portion of the business. As a consequence we have five principle types of objectives: a) enterprise objectives, b) functional objectives, c) job or position objectives, d) task objectives, e) motion objectives. l

Planning the enterprise objectives is indeed the first step to be taken when going into business. The overall objectives we have discussed in Part VI belong into this category. As to the functional objectives the sale of some definite quantity of merchandise may be the objective of planning. Having in mind to hire a factory foreman would make it necessary to extend planning to the duties he will have to perform, duties constituting his job. Giving ad­ditional work to the secretary in an office may involve planning

1 Gast, l.c., p. 79.

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the new task which shall be allotted her. Time and motion study may be a small objective for planning, however vital in determin­ing costs and job analysis.

Terry lists the following advantages of planning:1 Plans help to formulate the mental concept of the complete activity before it is done, set deadlines for the completion of tasks, provide orderliness to operation, and save time, effort and money.

Modern science provides means for coming along with planning in everyday practice. Gast2 suggests four types of plans which may be helpful: Masterplans, detailed plans, standards, and poli­cies. The nature of a masterplan may be characterized by the fact that this type has to cover larger groups of activities in a way that the main idea incorporated will dominate the scene. Thus a manager will have to set up master buying plans, master selling plans, master financial plans, commonly called the budget. In their proper sequence we shall have to state that the master selling plan has to be developed first and the buying plan second. At the top of the whole hierarchy the budget will find its place showing in monetary terms what sums will be available for the purposes involved. One of the characteristics of this type of plans is the fact that they do not extend very far into the future. Three months to twelve months may be the timespan, covered by what we call current or short-term master plan.

But there are other long-term master plans extending up to twenty-five years into the future. Founding a company the in­vestors may charge the management to build up a master plan indicating the final goal which the enterprise shall reach in the next ten years. This, of course, can only be a guide indicating no detail but is an important one since it shows what is to be included or omitted in the planning activities. If a business based upon a new raw material is founded, research will show what the pro­spective fields of production and consumption are in which the new material can be used. Financial considerations, however, may restrict investors and managers to embark upon all the business ventures at one time. To gain experience and to analyse possible risks which actually are not known, they may open up an enter­prise by establishing a long-term master plan stating that in the

1 Terry, l.c., p. 77. 2 Gast, l.c., p. 83.

BASIC FUNCTIONS OF MANAGEMENT 59

period involved all the possible lines of production shall be entered into. The value of this type of plan, as shortly described before, consists in opening the minds of management and of the team judging opportunities along the line of the plan the right way. In addition to that there is a tendency to boost production and to force consumption to pave the way for the next step to be reached complying with the terms of the plan.

Some types of master plans after adoption and satisfactory performance, may become standing master plans as for example an employee retirement and pension plan.

It is obvious that the master plan has to be completed by another type of plan serving as its goal. Gastl has chosen the term detailed plan for these types which logically are derivatives of master plans. As a contrast the detailed plan will cover only a relatively short span of time depending upon whether or not it deals with recurring or non-recurring problems. As the term indicates this type of plan covers only a detail, not a group of activities. Going through the detailed plans to be set up every day in business we have to state that the number cannot be counted easily. Thousands of detailed plans may have to serve to achieve the goal of the master plan of which they were originally merely a segment. From top management down the chain of command all the subordinates may get detailed plans from the superior which have to be dismembered again, giving way to the birth of new detailed plans still smaller in scope. They may be shortlived, covering a situation or a problem which never will come up again, or they may be longlived, setting up a schedule for workers and employees which may be in force for years.

There exists a relationship between the detailed plan and the standard plan as interpreted by Gast. 2 He restricts the meaning, however, to meet the requirements of developing scientific man­agement. A standard, as he puts it, is a result of a scientific research for the one best way of doing something. Being a type of plan it may be said that it will often emerge from the engineers' scientific approach. It will deal with recurring situations. The engineer, for example, while assisting the manager in a time and motion study may discover that there is a specific procedure to

1 Gast, l.c., p. 93. 2 Gast, l.c., p. 92.

60 BASIC FUNCTIONS OF MANAGEMENT

be applied in dealing with sealing envelopes. He will lay down all the essential details such as how many motions and what type of motion the worker has to perform for getting the work done economically. This standard plan will be different from the detail­ed plan because there is a scientific approach involved, based upon methodical research.

Policies in the mind of modem science cannot be confused with objectives. They are plans, very important ones, which serve the attainment of an objective, a goal. They are a type of plans which is used very frequently as a time and money saver for business. A policy, Gast1 explains, is a plan which is intended to guide the personnel of an enterprise, or some part of it, in dealing with a recurring question, by requiring it more or less uniformly to recog­nize some objective or to employ some broadly defined means or method for reaching an objective. They may extend over a long or short period of time and tend to be comprehensive in scope but may be quite limited.

Remembering the types of objectives we have discussed in the paragraph dealing with planning, we may distinguish between policies covering the whole enterprise or only parts of the organi­zational structure. One example of the first kind would be the policy "the customer is always right" and of the second kind we will have credit policies, promotion policies, service quality poli­cies, sales policies, purchasing policies, production policies. There is a common opinion that policies should be set up very carefully and should not be subject to easy change. This, of course, would not exclude the possibility to introduce a policy in a seasonal business covering only the summer period or Christmas. It is also advisable to formulate the policies in written statements to make sure that no misunderstandings may come up and to help manage­ment check the policies at the different levels of organization to avoid contradictions and violations by subordinates. We have stated at the beginning that policies are useful, saving time and money, answering questions which otherwise would have taken the time of management.

Organizing has been called the implementing function of man­agement which consists in providing suitable personnel and capi­tal for the execution of plans and incorporating these means in

1 Gast, l.c., p. 89.

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a structure of relationships through which their functioning can be effectively controlled.1 Organizing should be distinguished from organization. Organization is logically one end of organizing, the outcome of the activity involved in organizing. We have seen in the previous chapters that on the international level this distinc­tion, generally speaking, has not yet been made. The term organi­zation seems to cover in most of the cases the activity and its final result.

Organizing, says Terry,2 is a dynamic activity. It should take into account changes in the enterprise, whether these changes be in goals, scope, content, or personnel. Terry lists the following steps in organizing: "Know the objective - Determine the func­tions necessary to achieve the objective - Group the functions into practical units - For each function or group of functions to be performed, define clearly the duties to be carried out and indicate by whom - Assign qualified personnel - Indoctrinate assigned personnel with respective function or functions, duties, and relationships to other members of the organization structure."

Organizing on the other hand has to be looked upon as a con­tinuing function of management, the most difficult to perform competently. Organizing is not finished when a business enter­prise has been successfully established. 3 The theory of the changing environments, as described in Part VII, makes adaptation a ne­cessity. To this effect the manager has to plan and to organize daily. Planning as a mental activity may be called an easy one compared with organizing which has to bring into existence that which has been planned. There is a large group of managers overestimating the capacity of their firm, setting up plans which finally cannot be covered by organizing. There may be a lack of financial means, of capital, or personnel. Things look simple on paper but complex when execution enters the scene. In addition to that it should not be forgotten that the adaptation to the changing environments has often to be accomplished very fast to secure the survival ofthe enterprise in the market. In summation it may be worthwhile to state that the activity of organizing deserves our fullest attention.

1 Gast, l.c., p. 55. 2 Terry, l.c., p. 150 and in Part VII, p. 30 of this book. 3 Gast, l.c., p. 59.

62 BASIC FUNCTIONS OF MANAGEMENT

Gastl offers the following analysis of the five functions of organ­izing:

"1. The definition of business functions and their relationships. 2. The definition of jobs and their relationships. 3. The procurement of personnel and capital appropriate for the jobs. 4. The assignment and conditioning of personnel and capital to their

jobs. s. The delegation of authority and responsibility to all managerial

personnel. "

The first two are called the planning functions of organizing, and the last three the executing functions of organizing.

Commenting on the foregoing analysis we should add one es­sential factor governing the whole field: The principle of simplicity. Everything should be done the simplest way to secure success. There is a growing tendency among managers of all countries to embark upon an activity which finally results in highly complicat­ed ways and means. The objection often heard runs as follows.

We have a highly specialized business and it is impossible to fol­low the advice ofthe 'terrible simplificateur.' We cannot function efficiently without the alleged complexity. Checking the individual situation scientists will find out that this approach is merely a pretext for proper organizing procedure. The manager is hurriedly issuing orders which are not yet completely checked. If he would realize that organizing and the planning involved is dominated by the necessity of summarizing all possible solutions of a problem to the simplest structure, he would not be inclined to act prema­turely. Organizing takes time and plenty of time but if it is well done it pays back by securing efficiency and adaptation to the market conditions.

Gast has listed as the last point within the functions of organiz­ing the delegation of authority and responsibility to all manageri­al personnel. This is perhaps the most crucial problem encountered in management. As we have seen in the previous Part, Renold2

complains that overburdening of the top authorities with execu­tive detail, leading to congestion, ineffectiveness and stultification is one of the most prevalent diseases of industrial organizations. I t is the inevitable result of overlooking organizing - the activity -as a function of management at all. The "traditional" concept is

1 Gast, l.c., p. 107. a Renold, l.c., see chapter VI.

BASIC FUNCTIONS OF MANAGEMENT 63

characterized by the attitude to do nothing in organizing when the business is growing. The advocates ofthe "organical develop­ment" which is supposed to solve automatically all problems con­cerned in the end do not recognize the fact that only a balanced structure offers the guarantee of adjusting the enterprise com­pletely to its changing environment. Simply waiting for coinci­dental improvements does not help to attain the goal. Every enterprise should be checked regularly in all details of its organiza­tional structure and in the meantime managers should not hesitate to embark upon organizing with future developments in mind.

As soon as business grows the manager should take into con­sideration the delegation of authority and responsibility. Authori­ty in simple terms involves the power to make managerial deci­sions and to enforce them. Responsibility is accountability and indicates that if authority is given, corresponding obligations are undertaken by the recipient. Fundamental in these obliga­tions is that of good performance. One of the main characteristics of a good manager consists in the fact that he will delegate author­ity and responsibility to the greatest extent possible, to get relief from the burden of too much detailed work which would hinder his efficiency as manager of the whole enterprise. There is a large group of managers in the international field who would deny this principle and continue in the belief that the manager should do everything which is physically possible. In this way we get those top-heavy organizations which are lacking efficiency. There is an urgent necessity to abandon this approach. Even here tradition may be a good thing, but it should be interpreted in a different way. If a business is to grow steadily the managers have to advance too.

The question has to be asked what organizational structure should be aimed at as the final outcome of the organizing activity. Going through the literature of the different countries, subject to our study, we have to state that there is a common opinion as to the basic points and there is a lot of difference regarding the ensuing details. But the fact that a common foundation does exist is extremely important and very encouraging.!

1 Campion, l.c., p. 249-254; Zignoli, l.c., p. 356-366; Mellerowicz, l.c., p. Vol. I, p. 135 fol.; Terry, l.c., p. 186-193; Gast, l.c., p. 124-139; Brech, l.c., p. 28 fol.

64 BASIC FUNCTIONS OF MANAGEMENT

Distinction is made between the line organization, the function­al organization, and the staff organization. A line organization is, as Gast explains, any hierarchical structure of job relationships in which all superior jobs are so defined that the persons who perform these jobs have concurrent authority to make decisions and to enforce them upon persons in subordinate jobs.! This type of organization is completed by the multiple line organization in the sense that the single lines of authority and responsibility which impart simplicity to the pure line organization are replaced by the more complex arrangement of two or more such lines between successive levels. A person at one level may be subject to authoritative communications from two or more persons at the next higher level.2 The whole system, however, should be given the benefit of a principal line of authority securing simplicity in such a way that the subordinate subject to orders from different managers knows where he stands in the organizational structure and to whom he has to report in the end. A factory supervisor, for example, should always be first the subordinate of the production manager, despite the fact that the managers of the sales and fi­nancial departments will be entitled to give orders too. A func­tional organization is constituted by the frequently used organiza­tional device of delegating managerial authority relieving line managers of some of the burden of having to perform too wide a range of managerial functions.

An important phase in setting up a line organization deals with the question of what is commonly called the span of control, e.g. how many subordinates can be placed under an executive in such a way that efficiency is secured. If the span of control is too large it will become impossible for a manager to check how the employees or workers are doing their job. As the number of per­sons in an organization increases the number of levels in the structure has the tendency to increase to the same degree. It will be, however, impossible to reach maximum efficiency if the problem concerned has not been solved adequately. This implies that the span of control should be adjusted to the circumstances and should not be too large or too narrow. One school of thought fosters the idea that the span of control should be fixed based

1 Gast, l.c., p. 126. 2 Gast, l.c., p. 129.

BASIC FUNCTIONS OF MANAGEMENT 65

upon mathematical equations. Experience demonstrates that pro­cessing this way we can only get a tentative solution which has to be proved by empirical methods. In a lot of cases the span of control is subject to variations depending upon the quality of the workers and the employees and can readily change as soon as a member of the team has to be replaced. The problem of finding out how many persons can be made responsible to one manager is by no means secondary. Aside from the technicalities in building up a line organization, the span of control is one of the most important means to keep an organization flexible, speci­fically in the process of growth.

We should never forget that the line organization is not a purpose in itself but a means to an end. The members of the busi­ness family easily overlook the fact that the line organization is or should be a powerful instrument serving the enterprise in its struggle for survival. This instrument is to be used by the head of the organization making sure that all the movements which have to be brought into effect to adjust the enterprise to the market conditions are performed without delay. If the line organi­zation does not have the span of control which is needed, the flexibility of the whole business will be largely impeded.

Adding a staff organization which in its structure is some sort of an auxiliary body insures future adaptability, for the protection of the business structure. This means the staff should never out­grow the line. The staff in essence is entrusted with the mission to help the line to retain its effectiveness when the business struc­ture is enlarging. The staff can take over a lot of work on all levels, if desired and if it is financially bearable, without interfering with the functions of the line as such, characterized by the authority not only to make decisions but to enforce them. This does not exclude the fact that the staff will have to make decisions too, but as soon as the problem of enforcement enters the scene, the line has to take ovet again. Disregard for these simple basic rules often has damaged business structures in a way that they have become nearly inflexible. Here again organizing as a continuing function of management has to see to it that the balance of the whole structural building is not disturbed and that the staff re­mains what it has to be, the helper but not the ruler of the internal life of the organization. The ruler has to be the line transmitting

66 BASIC FUNCTIONS OF MANAGEMENT

the orders from the head of the organizational structure, the manager. In an exceptional case staff people can be entrusted with (functional) managerial authority on a temporary basis.

Another problem which may be of vital importance is indicated by the question whether centralization, limited decentralization, or complete decentralization should be applied in making deci­sions.1 We have seen before that a manager who does not know how to delegate authority and responsibility, does not deserve the title of manager. How much authority to be delegated indicates the problem with which we are faced. As a rule centralization should only be applied under special circumstances. It is in addi­tion practicable only in small enterprises or small divisions of larger firms (lunchroom chain - financial department). When all decisions have to be made on the top level the manager can get no relief from the burden and he may be not in a position, if he is a man of average qualities, to check prospective developments at an early date. Advantages may be that he can employ cheaper personnel and save money in hiring unskilled workers. But the main disadvantage is that of the danger of rigidity. This may be the reason why American business has developed the system of limited decentralization. Top policy matters are decided by the manager but as much authority is given down the line as possible. The amount of authority which is delegated depends upon the jobs concerned and last but not least upon the capacity and ability of the subordinates. In this way the top manager is applying an elastic method and is opening the way for developing employees and workers, reserving the power on the other hand to withdraw authority from the lower levels when the necessity arises. The decentralization when completed relieves the manager from the burden of making decisions except those of basic importance.

The factory supervisors, for example, in a far remote corner of the country or in an overseas location get all the authority to act the way they want to adjust the business to the local conditions. Supervisory functions, of course, stay with the man­ager but in general the ideas which finally will be transformed into decisions tend to flow up from the bottom of the organization to the top.

As to the controlling function of management, Gast offers the 1 See Part X p. 72 of this book.

BASIC FUNCTIONS OF MANAGEMENT 67

definition that it is a regulative function, causing the organization to function according to plan and measuring the performance of the organization.1 The term regulative function underlines the fact that controlling is the very heart of management. We re­member that elements of control always permeated the theory of management as developed in the different national fields. But unfortunately most of these sciences do not feel the necessity to recognize controlling by developing a general theory on the sub­ject. Exception is made by the Americans2 and the British.3

The planning and the organizing functions need a constant supervisory activity. Here the scientific method combined with the leadership method plays an important part maintaining a high level of efficiency based upon high morale. Terry lists the following points to look at as important:4 •••• developing people, securing cooperation, employing equitable follow-up, discussing tentative changes with others, making changes gradually, dis­cussing grievances. Incentives will have to be used very carefully. Rewards are strong incentives and punishment, it should be re­membered, does not work in business.

Controlling should be properly executed and economically ap­plied. Setting up strategic control points in the different areas of the business structure will simplify the job to a great extent. The means and methods are numerous beginning within the de­partments checking the incoming and outgoing mail through the means of collecting a special carbon copy through the manage­ment office or by holding mail conferences for distributing the letters to the departments concerned. In the field of production controlling may begin with taking samples of the raw material and establishing quality control points strategically located and properly balanced at the end of the different stages of processing.

1 Gast, l.c., p. 55. 2 Terry, l.c., p. 243.

Gast, l.c., p. 145. 3 Brech, l.c., p. 545. 4 Terry, l.c., p. 246.

PART IX

CONCLUSIONS

We have seen in the foregoing chapters that international man­agement today is not a reality but only a postulate. The national sciences having lived an isolated life, have much more in common than it is generally believed. They not only started from the basic teachings of F.W. Taylor and H. Fayol, but they also have de­veloped a great many ideas which can easily be brought into a universal system of thought.

The difficulties in the field of terminology are a serious obstacle which has to be overcome by means of international scientific cooperation. The economies of the free world should take a vital interest in securing a permanent exchange of views which may finally lead to an international dictionary accepted by the free world. Discussion of this matter will give rise to the necessity for analysis not only of the terms but also of the underlying theory behind them. By this process we will get a unified concept of scientific management in its modern aspect.

Criticizing the different points of view in the different parts of this book shall not mean an unfriendly attitude as to the actual standing of the national science. It simply has to be done to attract attention of researchers and to mobilize international scien­tific opinion dealing with the subjects concerned.

Judging this study as a whole, we should not overlook the fact that the various national sciences have served their respective countries well and regardless of their position they deserve ac­claim and a honored position in the coming system of interna­tional management. The goal which has to be achieved is securing progress by international scientific cooperation. The free world opening up new markets is in an urgent need for the international development of scientific management. Millions of businessmen, specifically in the underdeveloped countries, wait for help in this respect which should be offered as soon as possible.

PART X

AUTOMATION AND THE FUNCTIONS OF MANAGEMENT

We are living in the electronic age and automation is here to stay. These new developments will largely influence the body of science which we call management. It is difficult to predict the changes which will come up. There can be no doubt, however, that planning, organizing and controlling have to be adjusted to meet the requirements of a new era.

What is automation? The word was first used by Del Horder of the Ford Motor Company in a speech he delivered in 1947:1

Horder shortened the word automatization to automation. John Diebold2 defines automation as a means of analyzing, organizing and controlling our production processes to achieve optimum use of all our productive resources. Automation, he says, is automatic operation, the processing and handling of material and information ; it can include automatic direction of the activities of human beings. It involves automatic control of processes. In manufac­turing it extends to automatic handling of material and parts in­to and out of machines, as well as in them: it is not necessarily workerless. Automation is not new, says Osborn.3 What is new is its extension to industries and activities where it was never before possible. The most important criterion, however, consists in the fact that these new machines are correcting their own errors without human interference.

There are two fields involved in automation: One is the process control in the factory as well as automatic machines etc. The development of the automatic factory will take time. The second field will be in business data handling. At present this field is running ahead of automation in the factory.4

1 cf. Automation in Business and Industry, edited by Eugene Grube, New York, 1957, p. 13.

2 Diebold, John, Applied Automation, a Practical Approach, New York, 1957. 3 Osborn, David G., Geographical Features of the Automation of Industry,

University of Chicago, Chicago, 1953, p. 13. • Automation in Business and Industry, l.c., p. 15.

70 AUTOMATION

Before deciding upon introducing automation it should be taken into consideration that it is a costly process to enter. The financial problem, however, might be solved by increased profits based upon increased production facilitating the amortization of the investment. But the even more important point consists in the fact that in many cases we have no experience at all what the outcome of the experiment might be. Introducing automation implies re-thinking of the whole process with the objective in mind to establish very small steps, simple ones which can be handled by the automatic device. A mistake in the planning stage can amount to highly increased costs. A as consequence we real­ize that the first function of management gets first rank in the overall picture. It becomes even more difficult because organizing has to be done in cooperation with trained specialists. After automation has been introduced, if a success has been achieved a new danger enters the scene. The automatic production system usually is a loosely integrated machine. It has a limited range of variation of both speed and type of output. In other words, it can easily happen that the flexibility of the whole business organi­zation is being replaced by rigidity. This is a consequence which offers serious disadvantages maintaining a stable position within markets which are getting more competitive every day. It should not be overlooked that the electronic age is characterized by producing new products in number and on a scale never known before. Top-management, as a consequence, will be faced with the necessity to adjust itself to a rapidly changing environment. De­cisions of a basic nature will have to be made in a relatively brief period of time in order to survive. The high degree of flexibility which is needed might get lost, thus inviting the defeat of being thrown out of the market. On the other hand the controlling function of management will be not as burdensome as planning and organizing. The automatic devices correcting their own errors will give relief tothe manager thus facilitating this type of activity.

The first advice which results from this analysis is a word of caution. Management should not rush into automation. It cannot afford, however, to be negligent and it has the duty to watch this part of the environment of the business enterprise very care­fully. In several cases American firms have set up a brain trust­part-or fulltime - composed of managers and experts to take care

AUTOMATION 71

of this job. The projects developed on a tentative basis will then be studied by a committee of three specialists, including a man­ager, in order to find out whether the project should be given serious consideration for being introduced into the framework of long-term plans established by the company. If the decision is a favorable one, a department of automation will again check and re-check the project. A report will then be submitted to the top-manager for final decision.

If agreed upon, the first step to enter into a hitherto unknown field will be a pilot project started in order to find out the ad­vantages and the disadvantages to be gained from automation. Restricting the risks to a considerable degree it finally can be found out whether it would be advisable to proceed establishing more projects of this kind.

The Bureau of National Affairs, Inc. compiled a survey of 84 large and small companies, (a large company being defined as over 1,000 employees and a small one under 1,000 employees). Some of the companies included were: American Airlines, Kaiser Steel, Eastman Kodak, Northwestern Airlines and the Mead Cor­poration.1 The question was raised how automation will affect administrative policy. It is interesting to note that no change in the number of employees was reported in 60% of the large compa­nies and 40% of the small companies. Production workers were affected in a way that a decrease was noted in 50% of the large companies and 75% of the small ones. Seven-tenth of the large companies and one half of the small ones reported no change in the number of clerks. Automation brought about no change in the number of hours worked in four-fifths of the large companies and seven-eighths ofthe small ones. In the remaining companies there was a decrease of the numbers of hours worked, or a cut in the overtime. While working the same number of hours, however, it can be that productivity has been increased. A highly important fact was disclosed when the answers of the firms illustrated that in two-fifths of the large companies and seven-eighths of the small ones no change in the level of centralization was necessary. Two-fifths of the large companies reported more centralization while the remaining firms saw less. Apparently these statements

1 Company Experience with A utomation, Survey No. 46 of the Bureau ofN ational Affairs, Personnel Policies Forum, January 1958, pp. 2 and 3.

72 AUTOMATION

refer only to the centralization of control and not to the centrali­zation of decision-making within the company's structure as a whole. It is true that the automated plant being more compact and integrated centralizes the operation and puts it under one man's control.

As a rule there is as mentioned earlier a trend in American business to decentralize decision-making. Authority, the power to make and enforce managerial decision, is delegated "down the line" from top-management to the administrative level, so-called middle management, which in turn transfers parts of its authority to the so-called working level, where the business operations take place, the buying, producing and selling. How strong American top-management feels about decentralization may be illustrated by the fact that in a survey! 73,7% ofthe top-executives favored this type of administration. The manager of a unit within the company's structure plans, organizes and controls, and upon the authority he gets from the top, is held responsible for the efficient operation of his unit. Centralization, as a contrast, is characterized by concentration of power in the hands of a top manager. It is a centripetal force as compared to decentralization as a centrifugal force. Jean Paul Getty may be quoted here as saying "I like Benjamin Franklin's advice: If you want it done correctly, do it yourself. I do it all myself."2

Decentralization is governed by the principle that each manager on all levels shall get as much authority as he can carry. The top-manager will only make the reservation that decisions of a basic nature have to be made by himself. It should not be over­looked that each enterprise will always, even if it is decentralized, have to establish an equilibrium between the centripetal and the centrifugal forces with the difference that in decentralization the power centralized at the top will be relatively small as compared to the opposite.

Applied to the picture automation offers today there will be a centralization of control on one side. On the other side, however, there will be a trend to decentralize the processing. The reason can be found in the fact that the automatic device can only be

1 Cfn. Part X, p. 66; Centralization and Decentralization in Industrial Relations, Princeton University, Princeton, N.J., 1954, p. 242.

2 Time, Vol. 71, 1958, pp. 89-94.

AUTOMATION 73

supervised by trained employees who are authorized to manage their part of the automated machinery. It will be practically impossible for a top-manager to withold the authority to make the necessary decisions "down the line" on the spot where opera­tions are breaking down and steps have to be taken to restore the orderly functioning of the device.

There can be no doubt that automation will expand more ra­pidly than it is expected. The competitive pressure is steadily stiffening and the successes reported by leading firms are very encouraging. The Stromberg-Carlson Division of the General Dynamics Corporation, a well-established firm in the field of communications and electronics, gradually introducing automa­tion has reported big savings in materials and in labor.1 In radio manufacturing these savings amounted to 3t% in materials and 37!% in labor. Completing automation, the firm believes will lower cost of manufacture, lower inventory, enhance the quality of product and insure its greater uniformity, and increase pro­duction and production density. The Cincinnati Milling Machine Company2 reports that it took 162 machines to produce 108 pieces per hour in 1914. In 1954 one automatic machine produces 108 pieces per hour. One enterprise producing aluminium cups needed 55 employees to tum out 2000 cups per hour on standard equip­ment. With an automatic machine one part time operator can turn out the same number in one hour.s

This brief survey of a highly important field indicates that scientific management will be widely affected by automation. Management has to be on the alert because eventually not a single enterprise will be in a position to isolate itself from the revolutionary process surrounding it. Again a word of caution not to rush is indicated. It should be a step by step process which recommends itself having in mind the numerous breakdowns of firms already reported from both sides of the Atlantic. There is a temptation to look upon increased productivity, improved quali­ty, reduction in lead time, increased safety and easier house­keeping as a strong invitation to act without delay. These argu­ments in favor of adjusting the firm to the needs of the electro­nic age should not be heard until the planning function of manage­ment has been fulfilled with extreme care.

1 Groves, Leslie, Keeping Pace with Automation, New York, 1956, p. 54. 2 June, Stephen A., The Automatic Factory. a Critical Examination, Pitts­

burgh, 1955, p. 39. 3 Wall Street Journal. April 2, 1954.

PART XI

MANAGEMENT AND THE EUROPEAN ECONOMIC COMMUNITY

The Treaty which created the European Economic Community (EEC) was signed in Rome on March 25, 1957. The economic objective consists in establishing a Common Market comprising Italy, France, West-Germany and the Benelux Countries - The Netherlands, Belgium and Luxembourg, eliminating trade re­strictions between the six partners.

Internal tariffs shall be lowered gradually, quotas on movement of goods are to be abolished; restrictions on the movement of capital and labor across the national boundaries of the member states shall be removed. The Treaty provides for the establishment of a Social Fund to assist families of any workers whose well-being might be injured by the increased commercial competition which the Treaty encourages. The Treaty calls for the establishment of two Investment Funds, one to channel constructive capital into backward areas of the EEC; the other to do the same for under­developed regions of the overseas territories of the Six.

Within the realm of overall objectives, the Treaty expresses the desire of the countries participating in the agreement to co­ordinate economic and financial measures and activities among themselves, to increase productivity and improve production methods, to ease manpower problems, facilitate movement of workers and capital, to stabilize the financial structure of member countries, to raise standards of living, increase prosperity and promote the general welfare, to take steps to insure full use and development of resources, and to establish rules that insure free and equal competition.

The organization of such a body as the European Economic Community represents a tremendous amount of activity in itself, as well as an amazing achievement in cooperation between tra­ditional enemies, particularly so since, as the provisions of the Rome Treaty are implemented, each of the Six must surrender

THE EUROPEAN ECONOMIC COMMUNITY 75

more and more of its sovereignty in economic and social fields. After all it has to be borne in mind that the EEC aims at estab­lishing a political unity as the final goal.

In view of this end, central institutions have been set up to deal with the Community's affairs. They consist of a Parliamentary Assembly which reviews the Community's annual budget and other administrative activities, a Council of Ministers to represent the six governments, a Commission to administer the Treaty on a continuing basis, and a Court of Justice with jurisdiction over questions involving interpretation of the Treaty. Within this framework many committees have been established to provide facts, to coordinate efforts, to work on specific problems, etc.

A common tariff will be introduced by taking an arithmetical average of the four separate tariffs which now exist: Italy, France and Germany have individual tariffs, the Benelux countries are already operating under a single one. American business some­times expresses fear that this might lead to surrounding the European Economic Community with, what is called, a "tariff wall" excluding importers from the European Common Market. There is, however, no reason to believe that this might come true. The President of the Community, Professor Walter Hallstein, has stressed the fact at several occasions that the basic policy of the Community consists in incorporating the new entity into the inter­national economy without hurting the partners in trade of the Western World. This policy is a flexible one avoiding hardships through mutual negotiations when necessary.

After all it should not be overlooked that the Treaty provides for a transitional period of 12 to 15 years lowering internal tariffs and adjusting the commercial policy of the Community to the developments within the international economy. It already can be said that until today the European Economic Community has been a tremendous success. Businessmen of the partner states feel that the economic integration goes ahead with a much higher speed than expected and provided for in the Treaty of Rome. President Hallstein reported recently that it has been suggested to lower internal tariffs again in the near future. This, however, might not become a reality but the trend seems to be clear. The economic integration, offering so many advantages for the national economies of the six nations, has won acceptance even among

76 THE EUROPEAN ECONOMIC COMMUNITY

those who were reluctant to believe in the success ofthe "greatest experiment in economic history."

The reason why the United States of America wanted to get a big trade partner in Europe is evident. We urgently need "a third force" taking its stand between the two giants in the West and the East. The European Common Market - as the European Economic Community is called - comprises 162,000,000 people in an area with rising productivity, free flow of goods, services and capital and a standard of living which is rising steadily.

But now the question arises what effects the Common Market will have upon American business and American trade with European nations. American exports to the six Common Market nations amounted to 3 Billion Dollars in 1959, climaxing a rising trade curve which began in 1950. Exports to Belgium and Luxem­bourg were about 85 Million higher in 1956 than in the similar 1955 period. Exports to France rose to 160 Million, to Western Germany more than 130 Million, to Italy 140 Million, and to the Netherlands about 60 Million. It is the consensus in America that ifthe EEC will serve to strengthen the foundations ofthe Western European economy, a better market for U.S. goods, better than ever before, can be developed with the skill of the international businessmen. As we have seen before the EEC is certainly on its way to achieve this economic objective. It may be noted here that the European nations outside the EEC are equally aware of the business opportunities which are coming up with the successful operation ofthe European Common Market. The British industry was, at the very beginning of the greatest experiment of economic history, convinced that the advantages of the EEC would by far outweigh the disadvantages deriving from European Economic integration.

In order to make the European Market a success not only within but also outside the European Community, it seems to be highly important that the science of management faces the problem to be encountered. If firms outside the EEC have in the past relied upon simple exports for their share within this area, management must now reconsider its position. l In the future imports from countries outside the EEC will, as shown before,

1 Bucher, Norman, The European Common Market and its impact on American Management, St. Louis, [Thesis] 1960, p. 15.

THE EUROPEAN ECONOMIC COMMUNITY 77

be confronted with the common tariff surrounding the six member countries. This tariff may result in more favorable or less favorable market conditions depending upon where the market is concen­trated. The averaging feature, which was mentioned earlier, will result in a general lowering of tariffs in France and Italy and a general increase in tariffs in Germany and the Benelux nations. Thus, the German and the Benelux markets may become more difficult to reach and the French and Italian markets more easily accessible.

In view of these problems importers will have to consider the possibility of providing full manufacturing facilities within the EEC itself. This might be the reason why American corporations such as General Motors, International Business Machines and National Cash Register have set up full-scale international di­visions and plants abroad.

These business ventures, however, will be successful only if accompanied by a structural setup which fits the needs of opera­tions on a world-wide scale. American firms practice the principle of centralizing strategic planning and control but decentralizing the local planning and operations. Thus the equilibrium between centralization and decentralization we have spoken of in the foregoing chapters, has been established in a new way. The stra­tegic planning, organizing and controllingl will be carried out at corporate headquarters. The very nature of these decisions, which involve the corporation as a whole, implies that they must be made by management in a position to view the total operation of the concern and its requirements for a successful exploitation of opportunity throughout the world. Local levels must be grant­ed the authority to make decisions demanded by their environ­ment with comparative independence, but guided always by the corporate objectives formulated by top management.

At the very beginning of 1960 a big American Corporation, General Electric, has offered an interesting example how to adjust its organization to the requirements of the new area introduced by the EEC. Previously, the exports and the non-consolidated foreign subsidiaries were the responsibility of a division level man­ager reporting directly to the chief executive officer. Changing the organizational setup General Electric established an international

1 Bucher, Norman, l.c., p. 22.

78 THE EUROPEAN ECONOMIC COMMUNITY

group on a level with its Consumer Products Group, Electronic, Atomic and Defense Systems Group and Apparatus and Industrial Group. The group executive is a member of the top management policy team along with the board chairman, the president and the other three group executives.!

As we have seen before exporting to the European Economic Community will raise a lot of problems and it might be recommend­ed to look into the possibilities of establishing production facili­ties within the area. The Norton Company is offering some advice on how to proceed. Mr. John R. Allison, Treasurer of the Norton Behr-Manning Overseas, Inc.2 feels that following this way the firm will be in an excellent position to participate fully in that market. While it might seem logical to concentrate total produc­tion in one or two plants, Allison says, in order to achieve the economies oflarge-scale production, he believes that the regional trade pattern in his industry will persist for customer service and other reasons.

Unlike Norton, C. Merck Sharp & Dohme InternationalS made the decision to concentrate their efforts through a single facility rather than multiple ones. Its President, Dr. Antonie T. Knoppers, stresses the point that to operate in a more integrated Europe necessitated such basic production, inasmuch as the import of manufactured goods would be possible only under unfavorable conditions from a general competitive point of view, custom duties being only one factor.

Ford Motor Company's management felt that they too had to establish manufacturing facilities in order to survive in the mar­ket.' International Harvester, to quote one more example, has long been an advocate of manufacturing abroad with all the possi­bilities to adjust itself to the conditions of the market.

As far as the United States is concerned it seems to be highly probable that more and more firms will take an interest in doing business with the European Economic Community. They will be faced with the managerial decision to decentralize their operations in the proper way. It has to be borne in mind that trading between

1 Business Week, January 2, 1960, p. 57. 2 The European Common Market, An AMA Management Report, New York,

1958, p. 169. 3 The European Common Market, l.c., p. 170. • The European Common Market, l.c., p. 173.

THE EUROPEAN ECONOMIC COMMUNITY 79

the new trade partner and the United States is a two-way affair. That is to say that the firms of the European Economic Community too will try to establish a firm hold in the United States market. This in turn will without any doubt lead to an increase of Ameri­can firms exporting goods. Until today only 10,000 firms out of the 4,600,000 in the U.S. are interested in this type of business.

A change of mind, however, seems to be imminent based upon the fact that the unfavorable trade balance has to be improved. In addition to that, the newly established Latin-American Markets will help mobilizing forces in the United States in favor of taking up exporting as a vital part of business operations. It may be remembered here that on February 13, 1960 Guatemala, Honduras and EI Salvador have created an Economic Union with a market of almost 8,000,000 consumers. On February 19, 1960 seven more Latin-American republics signed a Common Market Agreement. The participants were Argentina, Brazil, Chile, Mexico, Paraguay, Peru and Uruguay; 13 other Latin-American republics, it was said, are eligible to join.

Thus we can make the statement that we are living in a period of transition in many respects which makes it necessary to think of management problems in new ways, applying new means to achieve prosperity for the individual firm, and for our Western Economy as a whole.

BIBLIOGRAPHY

Abromeit, H.G., Amerikanische Betriebswirtschaft, Wiesbaden, 1953. Brech, E.RL., The Principles and Practice of Management, London, 1953. Bucher, Norman, The European Common Market and its impact on American

Management, [Thesis] St. Louis. 1960. Campion, G.L., Traite des Entreprises Privees, Paris, 1949. Considine, Ch.R, An Outline of Business Management, Dubuque, 1951. Davis, RC., Industrial Organization and Management, New York, 1940. Diebold, John, Applied Automation, A Practical Approach, New York,

American Management Association. Dubreuil, H., A chacun sa chance, quoted by Campion. Fayol, H., Industrial and General Management, London, 1948. Fillipetti, G., in: Business News Note, University of Minnesota, September

1954. Gast, F.W., Principles of Management, St. Louis, 1952. Groves, Leslie, Keeping Pace with Automation, New York, 1956. Grube, Eugene, Automation in Business and Industry, New York, 1957. Junckerstorff, H.K., "The History of Competitive Practices," in: La Con-

currence Loyale, Leyden, 1938. "Ueber die amerikanische Business Administration," in: Zeitschrift fur Betriebswirtschaft, Wiesbaden, September 1955.

- in: Saint Louis University Law Journal, St. Louis, 1951. "Automation, The Advent of the Automatic Factory," in: Social Order, St. Louis, November 1953. Internationales Handbuch der Kartellpolitik (with Georg Jahn), Berlin 1958.

June, Stephen A., The Automatic Factory, a Critical Examination, Pitts-burgh, 1955.

Kenner, H.J., The Fightfor Truth in Advertising, Round Table Press, 1936. Mellerowicz, K., Allgemeine Betriebswirtschaftslehre, Berlin, 1952. Newman, W.H., Administrative Action, New York, 1951. Osborn, D.G., Geographical Features of the Automation of Industry, Uni­

versity of Chicago, Chicago, 1953. Owens, RN., Management of Industrial Enterprise, Chicago, 1953. Poppelreuter, E., Arbeitspsychologische Leitsatze fur den Zeitnehmer, Miin­

chen, 1929. Renold, Sir Ch., The Nature of Management, London, 1948. Rodgers, W., The British Institute of Management, No. 5/1949, Conference

Series 7. Spiegel, W.R., and Lansburgh, R.H., Industrial Management, New York,

1947. Taylor, F.W., The Principles of Scientific Management, New York, 1911.

BIBLIOGRAPHY

Terry, G.R., Principles of Management, Chicago, 1953. Zignoli, V., Tecnica della Produzione, Milan, 1950.

81

Centralization and Decentralization in Industrial Relations, Princeton Uni­versity, Princeton, 1954. Company Experience with Automation, Survey No. 46 of the Bureau of National Affairs, Personnel Policies Forum, January 1958. International Chamber of Commerce, Code of Standards of Advertising Prac­tice, Paris, 1948. The European Common Market, An AMA Management Report, New York, 1958. Testimony on Automation, Subcommittee on Economic Stabilization, Washington, 1955.

INDEX

Abromeit, H.G., 46, 55 Anglo-American Council on Produc­

tivity, 9 Argentina, 79 Automation, 69, 72

basic functions of management, 44, 56 Betriebswirtschaftslehre, 14 Brazil, 79 Brech, E.R.L., 12, 46, 49, 50 bribery, 35 British Institute of Management, 4 Bureau of National Affairs, Inc., 71

Campion, G.L., 12, 23, 24 centralization, 66 Chamber of Commerce of the U.S.A., 7 Chile, 79 Codes of Ethics, 38 collectivism, 29 common tariff, 75 competition, 35, 36 controlling, 67

decentralization, 66, 72 defamation, 35 Diebold, J., 69

El Salvador, 79 environments, 31 European Economic Community, 74

Fayol, H., 1 Federal Trade Commission, 38 functions of organizing, 62 France, 10, 23

Gast, W., 13, 14, 28, 50, 50, 58, 59, 62 Germany, 21, 54 Great Britain, 10, 20, 46 Guatemala, 79

Honduras, 79

internal tariffs, 74 International Chamber of Commerce,

38

international management, 2, 9, 68 investment funds, 74 Italy, 25

return on capital, 29 wages for labor, 29 leadership, 51

Mellerowicz, K., 14,21 methods of management, 15, 73 Mexico, 79 motivation, 51

objectives of management, 28 organization, 64, 65 organizing, 60

Paraguay, 79 Peru, 79 planning, 58 principles of business conduct, 7 productivity, 74 profit, 19 progressive method, 15 public service, 18

Rationalisierung, 14 razionalizzazione, 14, 17 Renold, Ch., 20, 49, 50 Robinson, G. A., 5

scientific management, 73 scientific method, 15 social fund, 74 staff, 65 standards of living, 74

Taylor, F. W., 1, 14, 25 Terry, R., 4, 13 types of objectives, 57

Uruguay, 79 Urwick, L., 4 U.S.A., 10, 76

Zignoli, V., 13, 56

II MARTINUS NUHOFF - PUBLISHER - THll HAGUE

Just out:

MODERN MANAGEMENT OF ENTERPRISES

by

HENRY K. JUNCKERSTORFF Prqfossor of Business Administration, St. Louis University

The basic ideas of scientific management have penetrated the sciences in some western European countries and the U.S.A. They are based upon the findings of the father of scientific management F. W. Taylor and his French counterpart H. Fayo!. But this homogeneity so far only existed at the start about thirty years ago. Since then the Business Administration in each country has lived its own isolated life.

It may not be surprising that the science of Business Adminis­tration has made the biggest progress in the U.S.A. Rapidly growing industries combined with the pressures of war efforts have made this build-up of scientific management an urgent necessity. The system of scientific management stands firmly in the U.S.A. and Business Administration has become a field of education which rests upon solid foundations. Thus the U.S.A. can help the other nations to a considerable extent completing their system. International management which is today a postulate will become a reality tomorrow provided that real intensive cooperation can be brought about.

The goal which has to be achieved is securing progress by inter­national scientific cooperation. The free world opening up new markets is in an urgent need for the international development of scientific management, and specifically the underdeveloped countries wait for help in this respect.

The American science of management as a whole is scarcely

MARTINUS NI]HOFF -PUBLISHER - THE HAGUE

known in Western Europe although many details have been learned and put to use. Therefore the author develops the main aspects in this field seen against the background of the national sciences and its characteristics. Thus the scientist will find an approach which as yet has never been offered before and he will be faced with a chal­lenge to help setting up a science of management on a universal scale.

*

CONTENTS Preface

I. Introduction II. The Need for a Standard Terminology

III. Principles of Business Conduct IV. The Lack of International Management and its Effects on

the Western World V. Management: Art or Science

VI. Management: A Public Service VII. Management: A Dynamic Science

VIII. Basic Functions of Management IX. Conclusions X. Automation and the ,Functions of Management

XI. Management and the European Economic Community Bibliography Index

* *

1960. VIII and 81 pages. roy. 8vo. Guilders 5.70

***

About the author~ Doctoral degrees in Germany, France and Italy; general manager; director of a manufacturing concern; director of two syndicates in Germany; 1950. professorship at St. Louis Uni­versity; President of the International Institute for Study and Research in the Field of Commercial Competition, Brussels; Founder~President of the International League Against Unfair Competition, Paris; 1959. consultant to the Organization for Economic Cooperation, Paris; visiting professor at Fribourg Uni­versity and Neuchatel University, Switzerland; lectured at the Management Center of Louvain University and at the Centre d'Etudes Industrielles, Geneva.

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A VD..A, S.J., FmtNANDO BASTOS DE· Economic impacts of immigration: The Brazilian immigration problem. 1954. XI and 102 pp. II figs, 19 tables, I map. With Bibliography, Zusammenfassung,Sommaire. roy.8vo. Guilders 6.75

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Table of Contents (abridged): Preface - Intro­duction - Les caracteres du sous-develop­pement - Les lec;:ons de quelques cas types· de croissance economique aux XIXe et XXe siecles. - Realisations actuelles dans Ie domaine du developpement economique -Conditions, facteurs et repercussions du developpement economique - Le role de la Belgique face aux problemes du sous-deve­loppement - Principales statistiques con­cernant Ie sous-developpement - Elements de bibliographie critique du sous-develop­pement economique par Georges de Greef­Indices.

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COPPIETERS, EMMANUEL - English bank note circulation 1694-1954. 1955. 171 pp. J"oy. 8vo. Guilders 8.50

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Part I of this book reviews the major shifts in the structure of world trade, includes a general reference section, and analyzes the developments in the system of multilateral trade over the last thirty years. The present system of multilateral trade is set forth and compared with the interwar system. Part II is devoted to the empirical verification of the tendency towards trade regionalization per se for the major blocs - the Sterling Area, the Continental O.E.E.C. Bloc, and the Dollar Area. The concluding chapter examines some of the welfare implications and evaluates the future prospects of economic regionalism.

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