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Week 3 Notes The Industrial Revolution in the United States.

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1 Week 3 Notes The Industrial Revolution in the United States

2 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

3 Early Industrial Development– Textile Mills Largest industry at the time was textile. Even though the textile industry was the largest business, factories were still small. “Photo” on the left depicts an early textile mill.

4 Textile Mills Samuel Slater – “Rhode Island System” First to use steam-driven power looms Relied on sole proprietorship or partnership form of ownership initially. Relied on family for labor – with growth had to hire professional managers. Vertically integrated operations forward and backward. Samuel Slater

5 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.

6 Textile Mill at Pawtucket, Rhode Island Mill – present day reconstruction Depiction of Mill

7 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.

8 The American System of Manufactures Manufacture by interchangeable parts was not new – previously confined to making muskets and revolvers. The Springfield (MA) Armory was an early factory prototype. 250 employees – largest factory in the U.S. until after the Civil War. Organized by Colonel Roswell Lee in Used piece rate incentive payments and accounting system. Labor was more specialized. Uniform standards promoted interchangeability of parts.

9 The American System of Manufactures Ideas spread to other areas of manufacturing. Ex: The reaper by Cyrus McCormick The “American System” received its name at the exposition of 1851 in London. U.S. factories remained relatively small. The McLane report of 1832 found the firms were mostly: Family owned and managed Few corporations – unlimited liability Little use of steam power Similar to findings of Andrew Ure regarding English firms

10 The Railroads: Pioneering in U.S. Management First “big business” in the U.S. – developed c Started the transportation revolution. Facilitated U.S. industry move from local markets to national markets. Railroads had size and complexity. Required a management system. Courtesy of Association of American Railroads (AAR)

11 Communication Revolution Telegraph, patented by Samuel Morse in 1837, started concurrent revolution in communication. By 1860, about 50,000 miles of wires extended over the eastern U.S. Dramatic effect on business communication. Facilitated U.S. industry move from local markets to national markets. Richard Sears used the telegraph to see gold watches – the first electronic commerce. Samuel Morse

12 The Age of Rails: Daniel McCallum ( ) Developed a system of managing on the Erie Railroad: Specific job descriptions Accurate performance reports Merit basis for pay and promotion Organizational chart to show lines of authority, responsibility, and communication Use of telegraph for dispatching trains and checking on performance Daniel McCallum, Circa 1865

13 Daniel McCallum System of management relied on division of labor, personal responsibility, and organization. Developed a formal organization chart. Developed highest state of the art information management. Lost his job when the locomotive engineers would not follow his rules. Workers were on strike for ten days in June 1854 then 6 months in 1857 in defiance of McCallum’s system. Successful career building bridges and served as master of the Union’s railroads in the Civil War.

14 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 Library of Congress, Haer, N.Y.

15 Henry V. Poor ( ) A Broader Management View Editor of the American Railroad Journal Became “conscience” of first U.S. big business Looked for broader principles of railroad operations (financing, regulation, and role of U.S. Railroad in life) Developed three principles based on McCallum’s ideas: organization, information, and communication Henry Varnum Poor

16 Henry V. Poor In later work, Poor felt the answer to problems of top management was through better leadership Unity in the organization Selecting leaders on merit Developing better information systems Courtesy of Pics4Learning.

17 Emerging Governance Issues Early industries were partnerships or sole proprietorships. Railroads, requiring large amounts of capital, saw the growth of joint-stock companies. Without uniform, adequate laws in Great Britain, management malfeasance occurred. Henry Poor wrote about the need for government regulation but not control.

18 Summary From independence to 1860, the U.S. grew and developed industry. Period was critical to development of the modern enterprise. Railroads and the telegraph allowed firms to grow for economies of scale and scope. Managers were required for large, complex organizations. Quality of life for people was improving.

19 Chapter Six Industrial Growth and Systematic Management

20 Growth of enterprise was facilitated by transportation and communication revolutions as well as manufacture by interchangeable parts. Alfred D. Chandler Jr. Andrew Carnegie Systematic Management The Changing Environment

21 Alfred D. Chandler, Jr. Chandler wrote about the evolution of U.S. Corporations in 1962 book Strategy and Structure. He developed his ideas from the study of U.S. corporations during this period. Alfred D. Chandler, Jr. Courtesy of Harvard Business School

22 Alfred D. Chandler, Jr. Described the late 19 th 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.

23 Andrew Carnegie ( ) Steel Industry Learned McCallum’s system of management on the Pennsylvania Railroad. Used the new Bessemer furnace technology to begin vertically and horizontally integrating his firm in the steel industry. Used cost accounting to guide his pricing strategy and drive costs down. Andrew Carnegie Courtesy of The General Libraries, The University of Texas at Austin.

24 Andrew Carnegie Steel Industry He increased the “throughput” velocity to gain economies of scale and to fully utilize his resources. The result was a declining price of steel for the consumer. Andrew Carnegie’s his first job was in a textile mill like this.

25 The Renaissance of Systematic Management Mechanical engineers (especially Henry R. Towne) became important in improving factory operations – they often became the managers. Numerous others began to take an interest in management. The idea that good management was critical in a firm gained credence with engineers and economists.

26 The Renaissance of Systematic Management The Labor Question Some “Social Gospel” proponents felt that workers should join unions, share in profits, and have arbitration instead of strikes. Engineers and others felt that better work methods and systems were the answer, including pay for performance incentive systems. In 1895 Frederick W.Taylor proposed a rate setting and piece-rate system.

27 Big Business and Its Changing Environment Business & Society Matthew Josephson characterized the business leaders of this time as “Robber Barons.” There is evidence that business leaders did engage in some corrupt practices: watering stock, bribery of government officials, manipulating stock, and conspiracy. Their motivation was alleged to be “survival of the fittest” and desire for monopoly. Motivation was also drive for economies of scale that led to lower prices.

28 Big Business and Its Changing Environment The social conscience of the 19 th century entrepreneur gave rise to individual philanthropy: Ezra Cornell – his money founded Cornell University. William Colgate – college changed its name to his as result of his generosity. John Hopkins – founded John Hopkins University. Cornelius Vanderbilt – founded Vanderbilt University. Cornelius Vanderbilt Courtesy of The General Libraries, The University of Texas at Austin.

29 Big Business and Its Changing Environment More Philanthropists Joseph Wharton – grant enabled first business school at University of Pennsylvania. Edward Tuck – gift to Dartmouth started Amos Tuck School of Admin. & Finance. Leland Stanford – honored his son with a university John Stevens – provided for the Stevens Institute of Technology. James B. Duke – Trinity College (later renamed for the family). Daniel Drew – promise of funds led to Drew University. Moses Brown – founded Rhode Island College; became Brown University in 1804.

30 Big Business and Its Changing Environment Famous Philanthropists John D. Rockefeller – given half a billion dollars by the time of his death as well as establishing the Rockefeller Foundation. Rockefeller is pictured here in 1907 beside a building. John D. Rockefeller Chicago Daily News negatives collection, DN Courtesy of the Chicago Historical Society

31 Big Business and Its Changing Environment Famous Philanthropists Andrew Carnegie – gave away $350 million by the time of his death in addition to his libraries, university, and the Carnegie Foundation. Andrew Carnegie Courtesy of The General Libraries, The University of Texas at Austin.

32 Rockefeller and Carnegie Despite generosity by both individuals, the Congressional Committee on Industrial Relations in 1915 denounced both as “menaces to society.” Rockefeller Archive CenterAndrew Carnegie Free Library & Music Hall

33 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 19 th century. Efforts to organize other workers were generally unsuccessful. Labor violence in the late 1800s fueled public fear of unions.

34 Business and Labor American Federation of Labor organized in 1886 under Samuel Gompers. Without unions, and despite growing numbers of immigrants, U.S. workers found their wages and real (purchasing power) wages rising during the period. Samuel Gompers, courtesy of Library of Congress

35 Inventive and Innovative Impulses Railroads: made travel possible and pleasurable; fostered a retailing revolution. Telegraph and telephone: aided growth of commerce and transportation through communication. Other industries developed and grew: Electrical Mass marketers Sewing machines Harvesters Steel

36 Business and Government: The Seeds of Reform The “elastic clause,” the commerce clause, of the U.S. Constitution expanded during this period with regulation of railroads. The Interstate Commerce Act and the Sherman Antitrust Act were attempts to regulate business but these laws were generally ineffectual. Woodrow Wilson (then a college professor) advocated better management of government. Woodrow Wilson, courtesy of The Constitution Society

37 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.

38 Figure 6-1 Synopsis of early management thought.

39 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 John Locke Biography Adam Smith James Watt by Carnegie Developments during the Industrial Revolution

40 Additional Internet Resources The Robert Owen Museum Charles Babbage Institute Andrew Ure - The Philosophy of the Manufacturers 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

41 End of Part One


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