This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 4. Division of labor in management. The management of industry does not usually show itself in entirely simple forms. The directing power in an establishment is not always exercised by one person, but usually by a number of persons. When there is a single owner, he most often is the manager. (See Chapter 26.) There is a virtue in this union of financial responsibility with practical control that favors its survival despite various limitations. But men are constantly failing in health, advancing in years, or becoming unfitted to meet new conditions after acquiring fixed habits of business. Partnerships often are formed by an older man taking into the business a younger man who might assume duties of active management. Yet the frequent difficulty of partnerships is an old story. " We went into partnership. I supplied the money and he supplied the experience. When we quit he had the money and I had the experience."
Some minor functions of direction must be given to foremen when there are even a few employees; in larger establishments the men are constantly being tested and promoted to higher positions, becoming partners, or, in a corporation, officials. The "indoor man" and the "outdoor man" are clearly marked types. Many a man succeeds admirably in minor tasks of direction, but has his limitations whether due to natural endowment or to defects of education. A man may have just the qualities fitting him to manage a small gang of men whom he can see, know, and direct personally, but be unable to succeed where some power of imagination and some ability at constructive planning is required. A good departmental head may be a poor general manager.
* Division of labor and specialization in management may be by some such plan as is here graphically shown. The foreman may receive directions regarding the machines and their operation from an engineer, regarding special chemical processes from an industrial chemist, and regarding other matters from the superintendent of production. A modification of this plan is shown below in fig. 40.
§ 5. A large commercial policy. The highest function of the management, that which properly is performed by the chief of the organization, is to form the general commercial policy of the enterprise. Every active investment is made in some generally predetermined line - it is merchandise, agriculture, manufacture, transportation, etc., and more specifically is wholesale stationery, general farming, iron making, teaming, etc. From the moment the general investment is made the management begins to exercise the power delegated by the enterpriser, investing and reinvesting, shaping and reshaping the business in accordance with a continuous policy. In a degree varying with the kind and size of the business, demand must be anticipated. The trend of changing fashion, in engineering as well as in dress, the shifting of demand for products, must be foreseen and prepared for not too rashly or too cautiously. The process in every kind of undertaking, that of buying and selling, as well as that of manufacturing requires time. Materials and labor are to be embarked in directions from which they can not be recalled. The widening or narrowing of the scope of the enterprise (as to variety of goods, extent of the market sought, etc.) and the enlargement or reduction of the size of the plant, are decisions wisely made only by a mind with a large business outlook. The larger the investment and the more complex and distant the factors, the greater is the difference of loss or of gain made by the manager's judgment. The man who has the ability to do this exceptionally well in the largest business merits the title of a " captain of industry." He is not a mere employee of investors, but a prominent personality, whom investors follow, eager to assume the financial risk under such leadership.1
* This is an attempt in large enterprises to unite the benefits of specialization with directness and unity of responsibility. The president is responsible for the larger policies, and to him are responsible directly such officials as treasurer, chief salesman, chief engineer, and factory manager. By the work of committees and conferences the various functions and departments are brought into cooperation as far as is necessary and practicable, and the eye of the specialist is on every part and process of the business.
1 Among the men receiving salaries of $100,000 a year or more in the United States in 1914 were the following: Pope Yeatman, expert mining engineer for the Guggenheims; Theodore P. Shonts, civil engineer, president of the Interborough Metropolitan Co., in control of the great rapid transit system of New York City; Theodore N. Vail, president of American Telephone and Telegraph Co. (the Bell telephone) ; Lewis E. Pierson, banker, president of the Irving Exchange National Bank, New York; Samuel Instill, president of the Commonwealth Edison Company, which controls nearly the whole electric system in Chicago; William M. Wood, president of the American Woolen Company, owning forty mills; and David W. Griffith, manager of the Mutual Film Corporation, of Los Angeles, manufacturers of moving pictures. See articles on $100,000 salaries, in McClure's, April to October, 1914, by E. M. Woolley.
A special type of manager is the promoter, who makes a plan of enterprise and tries to interest men of capital to invest in it actively. The promotion may be either of a new enterprise of a competitive nature, or of a combination to create a monopoly out of existing enterprises. The latter is the case of promotion most frequently spoken of, and it may be discussed with the trust problem. The promoter as such is a manager in the initial stage of the enterprise only. He is the moving spirit who offers his services to the investors, who are to perform the enterprise function.
§ 6. Obtaining of capital. The conduct of any business may be thought of as consisting of three parts, or processes: (1) buying, (2) alteration (i.e., recombination, elaboration, change in form, place, and time), (3) selling. These are continuous until the last sale is made and the whole business is ended. Buying and selling make up nearly all of mercantile business, alteration being subordinate; whereas alteration is the most striking feature of manufacturing, in which buying and selling appear (often mistakenly) to be quite unimportant.
Almost every business to-day requires from time to time additions of capital, temporary or permanent. Frequent use must be made of credit. The confidence and support of lenders, whether banks, trust companies, individual shareholders, or investors in bonds, must be secured by the management.
Good judgment of the money market often is as vital as judgment of the market for the particular product. In some of the largest corporate enterprises this quality becomes the most essential, so that financial "influence," consisting of personal or official relations with large financial institutions, comes to outweigh in importance most other qualities of management. This is in part the explanation both of the growth and of the evil of "interlocking directorates." A similar power to get special privileges and opportunities from national, state, and city legislatures, in the form of favoring tariffs or of public franchises, is important for the success of some business enterprises, and this often fosters an evil conspiracy between bad politics and big business.