This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
It may be remarked, in closing this chapter, that the history of many of the large industrial and of some of the large railroad combinations does not support the notion prevalent some years ago that combinations necessarily achieve economies and improvements in management. On the contrary, the general impression which today prevails among conservative bankers and investors is that most combinations suffer from recklessness and inefficiency of management. It is clear that when the executive organizations of a number of different plants are suddenly disrupted, and a new executive organization takes over at one time the management of all these plants, there are pressing and difficult problems to be solved. The controlling spirits of the new management must be thoroughly trained and resourceful if they are able to retain the good features of the former managements and also add other good features which their larger capital will enable them to command.
Sometimes a combination is formed under auspices so favorable and with so much harmony that a majority of the executive talent engaged in the former independent concerns remains with the combination. If the leader of the combination proves to be a man of unusual breadth and of commanding abilities, he may be able quickly to build up a new organization which will be highly efficient. Ordinarily, however, it happens that the executive officers of the former independent plants, who are, perhaps, not large shareholders in those plants, are not satisfied to accept subordinate positions in the combination. They prefer to go into other lines of business or even to start competing concerns of their own. The malting combination and the various starch combinations are prominent examples. They were formed to limit and forestall competition; their chief result was to increase the amount and intensity of competition.
On the other hand, this difficulty does not necessarily arise when a combination grows gradually by absorbing one or two plants at a time. In that case, the executive organization may also expand accordingly and the concern will be built on a safe basis.
It may further be noted that the possibilities of directing an immense enterprise through the creation of a proper form of organization and other scientific methods of standardizing and testing the various activities, are only in process of development. When the principles of organization are better understood and more commonly applied, the obstacles to the success of combinations will tend to disappear.