American Manufactures to Big Business by tdv15178


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									   Week 3 Notes

The Industrial Revolution in the
        United States
The Industrial Revolution – in the
United States
 British mercantilism kept the U.S. as a colony
    which delayed economic development.
   Great Britain prohibited the sale of manufacturing
    equipment and emigration of skilled labor to U.S.
   Adam Smith influenced writing of the U.S.
    Constitution and economic system.
   Textile Industry
   Commonwealth vs. Hunt 1842
   American System of Manufactures
   Railroads
Early Industrial Development–
Textile Mills

                  Largest industry at the
                   time was textile.
                  Even though the textile
                   industry was the largest
                   business, factories were
                   still small.
                  “Photo” on the left
                   depicts an early textile
Textile Mills
                      Samuel Slater – “Rhode
                       Island System”
                           First to use steam-driven
                            power looms
                           Relied on sole
                            proprietorship or
                            partnership form of
                            ownership initially.
                           Relied on family for labor –
                            with growth had to hire
                            professional managers.
                           Vertically integrated
                            operations forward and
     Samuel Slater
Textile Mills
 Francis Lowell – “Waltham System”
   Used water-power looms.
   Hired non-family supervisors & managers
    with corporate model.
   Used integrated spinning and weaving to
    manufacture goods in large quantities.
   Relied on adult female labor.
   Praised by Charles Dickens for better
    treatment of employees.
Textile Mill at Pawtucket, Rhode

Depiction of Mill   Mill – present day
Commonwealth v. Hunt (1842)

 Worker combinations (unions) were no longer
  illegal unless their intent was criminal.
 Seeking a closed shop and striking were no
  longer illegal.
 Only applied to Massachusetts but
  discouraged prosecution of worker
  organizations elsewhere.
The American System of Manufactures
 Manufacture by interchangeable parts was not new –
  previously confined to making muskets and revolvers.
 The Springfield (MA) Armory was an early factory
    250 employees – largest factory in the U.S. until
     after the Civil War.
    Organized by Colonel Roswell Lee in 1815.
    Used piece rate incentive payments and
     accounting system.
    Labor was more specialized.
    Uniform standards promoted interchangeability of
The American System of Manufactures
 Ideas spread to other areas of manufacturing.
    Ex: The reaper by Cyrus McCormick
 The “American System” received its name at the
  exposition of 1851 in London.
 U.S. factories remained relatively small.
 The McLane report of 1832 found the firms were
    Family owned and managed
    Few corporations – unlimited liability
    Little use of steam power
    Similar to findings of Andrew Ure regarding
     English firms
The Railroads: Pioneering in U.S.

         Courtesy of Association of American Railroads (AAR)

 First “big business” in the U.S. – developed c. 1830.
 Started the transportation revolution.
 Facilitated U.S. industry move from local markets to
  national markets.
 Railroads had size and complexity.
 Required a management system.
Communication Revolution
                      Telegraph, patented by
                         Samuel Morse in 1837,
                         started concurrent
                         revolution in communication.
                        By 1860, about 50,000 miles
                         of wires extended over the
                         eastern U.S.
                        Dramatic effect on business
                        Facilitated U.S. industry
                         move from local markets to
                         national markets.
                        Richard Sears used the
                         telegraph to see gold
                         watches – the first electronic
      Samuel Morse       commerce.
 The Age of Rails:
 Daniel McCallum (1815-1878)
 Developed a system of
  managing on the Erie Railroad:
      Specific job descriptions
      Accurate performance
      Merit basis for pay and
      Organizational chart to
       show lines of authority,
       responsibility, and
      Use of telegraph for
       dispatching trains and      Daniel McCallum, Circa 1865
       checking on performance
Daniel McCallum
 System of management relied on division of labor,
  personal responsibility, and organization.
 Developed a formal organization chart.
 Developed highest state of the art information
 Lost his job when the locomotive engineers would
  not follow his rules.
      Workers were on strike for ten days in June 1854
       then 6 months in 1857 in defiance of McCallum’s
 Successful career building bridges and served as
  master of the Union’s railroads in the Civil War.
 Erie Railroad Organizational Chart

 This is perhaps the first
  organizational chart
  ever made
 McCallum created the
  organizational chart to
  explain the Erie
  Railroad Operation

                 Erie Railroad Organization Chart of 1855. Library of Congress, Haer, N.Y.
Henry V. Poor (1812-1905)
A Broader Management View
 Editor of the American
  Railroad Journal
 Became “conscience” of
  first U.S. big business
 Looked for broader
  principles of railroad
  operations (financing,
  regulation, and role of U.S.
  Railroad in life)
 Developed three principles
  based on McCallum’s
  ideas: organization,
  information, and

                                 Henry Varnum Poor
Henry V. Poor
 In later work, Poor felt
  the answer to problems
  of top management was
  through better
      Unity in the
      Selecting leaders on
      Developing better
       information systems    Courtesy of Pics4Learning.
Emerging Governance Issues
 Early industries were partnerships or sole
 Railroads, requiring large amounts of capital,
  saw the growth of joint-stock companies.
 Without uniform, adequate laws in Great
  Britain, management malfeasance occurred.
 Henry Poor wrote about the need for
  government regulation but not control.
 From independence to 1860, the U.S. grew
  and developed industry.
 Period was critical to development of the
  modern enterprise.
 Railroads and the telegraph allowed firms to
  grow for economies of scale and scope.
 Managers were required for large, complex
 Quality of life for people was improving.
Chapter Six

 Industrial Growth and
Systematic Management
Industrial Growth and Systematic
 Growth of enterprise was facilitated by
  transportation and communication revolutions
  as well as manufacture by interchangeable
 Alfred D. Chandler Jr.
 Andrew Carnegie
 Systematic Management
 The Changing Environment
Alfred D. Chandler, Jr.
                                           Chandler wrote about
                                            the evolution of U.S.
                                            Corporations in 1962
                                            book Strategy and
                                           He developed his ideas
                                            from the study of U.S.
                                            corporations during this

           Alfred D. Chandler, Jr.
    Courtesy of Harvard Business School
Alfred D. Chandler, Jr.
 Described the late 19th century as the
  accumulation of resources with growth occurring
  because of:
      Horizontal combinations of firms in smaller fields
      Vertical integration – forward and backward
 Larger firms and the growth of hierarchy of
  managers to coordinate and integrate operations
  were the result.
 Key to success was good management, not size.
Andrew Carnegie (1835-1919)
Steel Industry
                                           Learned McCallum’s
                                            system of management
                                            on the Pennsylvania
                                           Used the new Bessemer
                                            furnace technology to
                                            begin vertically and
                                            horizontally integrating
                                            his firm in the steel
                                           Used cost accounting to
                                            guide his pricing strategy
                                            and drive costs down.
           Andrew Carnegie
 Courtesy of The General Libraries, The
     University of Texas at Austin.
Andrew Carnegie
Steel Industry

 He increased the
  “throughput” velocity to
  gain economies of scale
  and to fully utilize his
 The result was a
  declining price of steel
  for the consumer.

                             Andrew Carnegie’s his first job was in a
                                     textile mill like this.
The Renaissance of Systematic
 Mechanical engineers
  (especially Henry R.
  Towne) became important
  in improving factory
  operations – they often
  became the managers.
 Numerous others began to
  take an interest in
 The idea that good
  management was critical in
  a firm gained credence
  with engineers and
The Renaissance of Systematic
 The Labor Question
   Some “Social Gospel” proponents felt that
    workers should join unions, share in profits,
    and have arbitration instead of strikes.
   Engineers and others felt that better work
    methods and systems were the answer,
    including pay for performance incentive
   In 1895 Frederick W.Taylor proposed a rate
    setting and piece-rate system.
Big Business and Its Changing
 Business & Society
   Matthew Josephson characterized the
    business leaders of this time as “Robber
   There is evidence that business leaders did
    engage in some corrupt practices: watering
    stock, bribery of government officials,
    manipulating stock, and conspiracy.
   Their motivation was alleged to be “survival
    of the fittest” and desire for monopoly.
   Motivation was also drive for economies of
    scale that led to lower prices.
Big Business and Its Changing
 The social conscience of
  the 19th century
  entrepreneur gave rise to
  individual philanthropy:
      Ezra Cornell – his money
       founded Cornell
      William Colgate –
       college changed its
       name to his as result of
       his generosity.
      John Hopkins – founded
       John Hopkins University.
      Cornelius Vanderbilt –                   Cornelius Vanderbilt
                                  Courtesy of The General Libraries, The University of
       founded Vanderbilt                          Texas at Austin.
Big Business and Its Changing
 More Philanthropists
      Joseph Wharton – grant enabled first business school at
       University of Pennsylvania.
      Edward Tuck – gift to Dartmouth started Amos Tuck
       School of Admin. & Finance.
      Leland Stanford – honored his son with a university
      John Stevens – provided for the Stevens Institute of
      James B. Duke – Trinity College (later renamed for the
      Daniel Drew – promise of funds led to Drew University.
      Moses Brown – founded Rhode Island College; became
       Brown University in 1804.
Big Business and Its Changing

  Famous Philanthropists
       John D. Rockefeller –
        given half a billion
        dollars by the time of
        his death as well as
        establishing the
       Rockefeller is pictured
        here in 1907 beside a                   John D. Rockefeller
                                  Chicago Daily News negatives collection, DN-
        building.                 0051595. Courtesy of the Chicago Historical
Big Business and Its Changing
                                                    Famous Philanthropists
                                                          Andrew Carnegie –
                                                           gave away $350
                                                           million by the time of
                                                           his death in addition
                                                           to his libraries,
                                                           university, and the
                                                           Carnegie Foundation.

                 Andrew Carnegie
Courtesy of The General Libraries, The University of
                 Texas at Austin.
Rockefeller and Carnegie
    Despite generosity by both individuals, the
     Congressional Committee on Industrial
     Relations in 1915 denounced both as
     “menaces to society.”

     Andrew Carnegie Free Library & Music   Rockefeller Archive Center
Business and Labor
 The Commonwealth v. Hunt decision (1842)
  broke the British tradition of unions as
  conspiracies in restraint of trade.
 U.S. craft unions and brotherhoods of railroad
  workers were successful in the late 19th century.
 Efforts to organize other workers were generally
 Labor violence in the late 1800s fueled public
  fear of unions.
Business and Labor
                                    American Federation of
                                     Labor organized in 1886
                                     under Samuel Gompers.
                                    Without unions, and
                                     despite growing numbers
                                     of immigrants, U.S.
                                     workers found their
                                     wages and real
                                     (purchasing power)
                                     wages rising during the

        Samuel Gompers,
 courtesy of Library of Congress
Inventive and Innovative Impulses
 Railroads: made travel possible and pleasurable;
  fostered a retailing revolution.
 Telegraph and telephone: aided growth of
  commerce and transportation through
 Other industries developed and grew:
      Electrical
      Mass marketers
      Sewing machines
      Harvesters
      Steel
Business and Government: The
Seeds of Reform
  The “elastic clause,” the
   commerce clause, of the U.S.
   Constitution expanded during
   this period with regulation of
  The Interstate Commerce Act
   and the Sherman Antitrust Act
   were attempts to regulate
   business but these laws were
   generally ineffectual.
  Woodrow Wilson (then a
   college professor) advocated
   better management of
                                    Woodrow Wilson, courtesy of
                                     The Constitution Society
Summary of Part One
 Examined management thought prior to the
  scientific management era in the U.S.
 Early civilizations placed a low value on
  economic activity.
 The technical and cultural changes of the
  Industrial Revolution presented managerial
  problems in : organizing, motivating people,
  and fusing people and processes.
Figure 6-1   Synopsis of early management thought.
     Additional Internet Resources

   Academy of Management – Management History Division Website
   List of Internet Resources compiled by Charles Booth
   Western Libraries Business Library – Biographies of Gurus
   Developments from Ancient History
   Max Weber
   Nicolo Machiavelli – Medieval Source Book – The Prince 1513
   John Locke Biography
   Adam Smith
   James Watt by Carnegie
   Developments during the Industrial Revolution
     Additional Internet Resources

   The Robert Owen Museum
   Charles Babbage Institute
   Andrew Ure - The Philosophy of the Manufacturers 1835
   Charles Dupin Biography
   Cyrus McCormick - Biography
   Samuel F.B. Morse
   Henry R. Towne – Address delivered at Purdue University (1905)
   Andrew Carnegie
   The Rockefellers – PBS Documentary
   The Samuel Gompers Papers
End of Part One

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