of scientific research, is the discovery that there are certain
fundamental principles which are alike for all lines of business,
however diverse the subject-matter to which analysis is applied.
Substituting the principle of likeness for diversity as the
starting-point of business analysis, has far-reaching consequences not
only for education and research but for management as well. First among
these consequences is the fact that search for elements of likeness
leads at once to replacing the trade or industry with the function as
the significant unit both of research and organization.
If we start our study of business by separating manufacturing,
railroading, merchandising, banking, and the rest, with a large number
of more or less logical subdivisions in each field, and then try to
work out a body of principles applicable to each subdivision, we soon
run into endless combinations and lose all sense of unity in business
as a whole. As soon, however, as we approach business from the
standpoint of accounting, sales management, employment, executive
control, and when we find that lessons in statistics, advertising,
moving materials, or executive management, learned in connection with a
factory, can be carried over with but slight adaptation to the
management of a store, we at once get a manageable body of material on
which to work.
Recognition of the principle of likeness and of its corollary, analysis
by function rather than by trade, marks perhaps the greatest single
step yet taken in the development of scientific business. The
principle, however, has its dangers. Analysis by function implies
functional specialization in research and a similar tendency in
business practice. Without specialization there can be no adequate
analysis of any large and complex body of facts. With too intense
specialization there is always danger that the assembling and digesting
of facts, and especially the conclusions drawn from them, will reflect
some peculiar slant of an individual or of a particular specialty.
The accountant does not always go after the same facts as the sales
manager, and even with the same facts the two are likely to draw quite
different conclusions as to their bearing on a general policy.
Specialization, too, may result in setting an intense analysis of one
group of facts over against a very superficial view of other facts--or
again, an intense analysis of the same facts from one viewpoint with
failure to consider them from another, and perhaps equally important,
viewpoint. Unless these weaknesses are corrected, the business will
lack balance; the work of departments will not harmonize; there will be
no fundamental policy; goods sold on a quality basis will be
manufactured on a price basis--all of which leads to disastrous
results.
Scientific method is the first article in the creed by which business
training must be guided. The growing necessity for critical and
searching analysis of business problems, justifies all the effort we
can put forth to develop plans for training into a structure of which
scientific method shall be the corner-stone. But analysis is not all.
Following analysis must come synthesis. Somewhere all the facts and
conclusions must be assembled and gathered up into a working plan. It
is this task of leveling up rough places in the combined work of
department specialists, that puts the training and insight of both the
executive and the director of research to the most severe test. It is a
mark of a well-trained executive that in performing his task he
instinctively follows principles instead of trusting alone to momentary
intuitions, however valuable and necessary these may be.
And here it is that the second article in the creed of business
training appears. The executive's task is primarily to adjust human
relations, and the nature of the principles by which these adjustments
are made, determines the relations of a concern to its laborers, to
competitors, to customers, and to the public. If the executive comes to
his task without a mind and spirit trained to an appreciation of human
relations, he is not likely so to synthesize the work of his
subordinates as to make for either maximum efficiency within the
business or its maximum contribution to the life of the State.
The term "executive" in large and highly organized concerns is likely
to mean the head of a department. A large proportion of the department
heads now in business are men of purely empirical training. Their
horizon is likely to be limited and to center too much in the
departmental viewpoint. They may perhaps be able to see the whole
business, but if they do, they will probably see it exclusively from
the inside. There is frequently nothing in their business experience
that has made them think of the great forces at work in society at
large. As the bulk of business has been organized in the past, there
has been no department in which, automatically and in the regular
course of business, a view looking outward is brought to bear. If it
came at all, it was reflected back from the larger relations and the
larger social contacts of the head of the business. Many general
executives have been promoted from the position of head of department
at a period in life when their habits of thought had become
crystallized, and it was not natural that they should entirely change
those habits with the change in their responsibilities.
Besides, the economics of competition and a strong group sentiment
among business men have tended to make them resist social influences
which might react upon the policies of their own business. Superficial
conclusions drawn from such experiments as those of Pullman and of
Patterson, to which reference has been made, have seemed to justify
such resistance and have fortified men in the belief that business and
response to social influence should be kept separate in water-tight
compartments.
More recently men have been coming to understand the fundamental
defects in the Pullman and the original Cash Register plans and have
come to realize that even a separate welfare department may be
successfully incorporated in a business, if only certain fundamental
policies are followed in its management. Still more significant is the
view looking-outward and the consequent harmonizing of social and
business motives, which is coming in the ordinary development of
business policies as a result of their more fundamental analysis.
Perhaps the greatest step toward a fuller consideration of facts on the
outside is taken, when a business creates a separate department of
employment. It is hard to see how the head of an employment department
can have the largest measure of success if he sees only the facts on
the inside. A comprehensive application of scientific method to
problems of employment leads a long way into analysis of the social
facts affecting the people who are employed.
From different angles the same thing is true in other departments of
business, notably so in the case of advertising and sales. One of the
most obvious outside facts which affect sales, is the location and
density of the population, and yet it is a fact which frequently is
neglected. Another outside fact, which ultimately advertisers will have
to consider, is the consuming power of population. They have been very
keen to study our psychological reactions, and in doing this they have
undertaken the entire charge of the evolution of our wants. But they
have not always gone at their work from the long-time point of view.
Sometime they will have to take account of the fact that unwise
consumption impairs efficiency and depletes the purchasing power from
which advertisers must be paid.
The next step in the scientific analysis of business is to provide for
more ample analysis of facts on the outside. Weakness at this point
explains the defects in many plans for the welfare of employees, it
explains the defects in scientific management, mentioned above, and it
explains many other shortcomings in projects for increasing the
effectiveness of business.
But men who approach business from the standpoint of university
research are not free from the same danger. In their effort to orient
themselves with the business facts, they get the business point of view
and run the risk of centering attention too much on materials and
material forces. Even psychological reactions of men and women may be
analyzed from the standpoint of their mechanics, without ever going
back to those impelling motives which have their roots in the human
instincts and complex social reactions of which the men and women are a
part.
Approached from the standpoint of scientific method, the field of
conflict between different interests in business and between so-called
"good business" and "good ethics" becomes measurably narrowed. I do not
mean to give science the sole credit for achievements along this line.
More frequently advance in moral standards has been forced on unwilling
victims through legislation, public opinion, or class struggle, and
then men have discovered, as a happy surprise after the event, that
"good ethics" was profitable. But science has done something, and might
have done still more, if our efforts at scientific analysis had not
been so often underweighted on the human side. These very discoveries
of harmony between wholesome practice and good business constitute a
part of the body of fact of which a truly scientific method must take
account. When a review of all the cases in which compulsion has changed
existing methods shows an almost invariable adaptation and a tendency
toward better results after the level of competition is raised, a man
of scientific training immediately asks the question, whether a
fundamental law is not at work.
A glance at social legislation during the last century reveals some
interesting uniformities. Every step in the development of the English
Factory Acts as they stood at the beginning of the present war,
starting with the first Child Labor Bill in 1802 and ending with the
Shop Regulation Act of 1912, had been taken against the protest of the
most vocal elements in the trades concerned. In nearly every case
investigation will show, either that the requirements of the measure
enacted fell considerably below the practice of the best concerns, or
that the whole industry was in need of some outside impulse to start it
in the way of more efficient organization. As long as it is permissible
to employ five women and five children to tend five machines, there is
not the right incentive to make adjustments by which all five of them
can be tended by one man.
In this country in our forty-nine jurisdictions we have been going
forty-nine times over the experience of England and other countries, in
connection with each effort to force up the competitive level. We have
seemed to be quite unable to apply the most obvious lessons of
experience either at home or abroad to new cases, and yet essentially
the same uniformity of adaptation has occurred here as abroad. Like our
employer, whom a strike impelled to adopt an advanced policy toward
labor, we find after the event that we should not know how to do
business under the standards in force before the law compelled a
change.
Enforcement of the Sherman Anti-Trust Law has been frequently cited as
an example of unwise government interference. With respect to many of
the incidents of enforcements, criticism has been well founded. But the
net result of that enforcement has been a much sounder body of law on
the important subject of fair and unfair competition. Besides, we now
have in the Federal Trade Commission the beginnings of an
administrative organization for dealing with the whole subject of
monopoly and restraint of trade. And more than all this, we have a
better prospect than ever before, of some sort of mutual respect
between government and business, and of honest cooperation in working
out their mutual problems. It is not likely that the Anti-Trust Law has
prevented honest men from earning legitimate profits from legitimate
business service to anything like the extent which would be indicated
by the vigor with which it has been opposed. But even if it has, we
have received something for the price paid.
And so the list might be lengthened, pure food and drugs, meat
inspection, public service regulation, industrial safety, and the
rest,--in nearly every case, from a purely business point of view,
opposition, in so far as it related to the main point of government
policy, has been a mistake. Refusal of the business men affected to
accept a policy of regulation has tended to shut them out of the
councils in making adjustments of detail. This fact has hindered the
government in performing a service which in most cases both the public
and the business needed to have done.
Even when we admit, as obviously we must, the persistence of conflict
between different interests with respect to a large mass of business
detail, the fact of group influences and social control still remains
an important consideration to which business analysis must give due
weight. There has been a large mass of business in this country, in
which the community has been unable to recognize any productive
service; it has been regarded only as a means of acquisition for those
who pursue it. Legislation, public opinion, and the evolution of
enforceable standards within particular business groups are tending all
the while to narrow the sphere of purely acquisitive business. With
respect to that great mass of business which has both an acquisitive
and a productive side, these forces are gradually bringing us to an
attitude of mind in which we regard gain as a by-product of service.
The public is also recognizing that the purpose of goods and services
is to promote individual and community welfare, and as fast as public
policy to that end can be worked out, it is carrying emphasis even
beyond specific products and services to the social ends for which
these products and services exist. In these ways society too is trying,
clumsily perhaps, to take a long-time view of its business and to
conserve the human values that make for progress.
Obviously it is but a partial and incomplete analysis of a business
situation that omits these human factors; a working policy that fails
to anticipate their force and then to reduce the zone of conflict to
its lowest limits is neglecting an important element in the definition
of long-time efficiency. And business men are beginning to see this.
A few weeks ago the manager of a large department store in San
Francisco was kind enough to show me his record of departmental profits
for a number of months. The fluctuation in relative profits of
different departments month by month was apparent, especially the fact
that after a certain month several departments which had previously
earned high profits became relatively much less profitable. I asked the
manager to explain, and he did in this way: At the time when the change
occurred a new policy had been inaugurated by which employment of help
had been centralized and standardized for the whole concern. As a
result, when certain departments which had been decidedly sub-standard
with respect to wages were brought up to standard, they were unable to
earn anything like the profits which they had previously shown.
Without going into the question of the connection between high wages
and profits, of which this incident in my opinion was an exception, it
was clear to the manager as to me that the increase in wages in these
particular departments had been accompanied by an immediate loss in
profits. Furthermore, the manager was unable to determine, from figures
available before and after the change, that this loss had been directly
compensated by gains in other departments. In order to get his
viewpoint concerning the change at issue, I asked him two questions:
(1) Why was he willing to make a change of such a fundamental character
without being able to ascertain in advance whether or not it would be
profitable? (2) In the absence of facts that could be incorporated in
the accounts, was it his belief that the change would in time be
profitable, and if so, how did he reach his conclusion?
His response to the first question revealed to me an intensely natural
but nevertheless complex motive. He said, substantially, that he was
confident that standardized employment was the only acceptable policy,
from the standpoint of the general manager. Given the necessity of
standardizing, it was necessary for the general reputation of the
business to standardize upward rather than downward. He wanted his
business to be regarded as one in which the best standards of
employments obtained. Furthermore, he added, "California will soon have
a minimum wage law, and I want this business to be well in advance of
any wage standards which may be imposed by law."
Answering the second question more specifically, the manager recognized
the advertising value of a reputation for having good conditions of
employment. He had discovered no tendency for general profits to
diminish or for the rate of increase to be retarded more than
temporarily. In the absence of definite facts to the contrary he
considered it safe to assume that as soon as the business should become
adjusted to the new standards, standardization of wages upward would be
profitable for the business as a whole. He wanted to make the change
voluntarily and to commence operating successfully on the new basis in
advance of competitors.
It is scarcely possible to discuss this sort of business situation with
a progressive manager, without feeling that he does not approach
business exclusively from the standpoint of gain; in other words, to
use the phrase of Adam Smith, he is not exclusively an "economic man."
The manager of a modern business, on the contrary, is a man very much
like the rest of us, and being such a man he is first of all desirous
of conforming to whatever standards are in way of acceptance by that
part of society in which he moves. Obviously, these standards are made
up of both selfishness and altruism, with selfishness tending all the
time to become more enlightened as society advances.
As we come to distinguish more clearly between reward for service and
mere one-sided gain, there occurs a parallel change in men's motives;
they become more sensitive to social disfavor and to social esteem and
less and less willing to devote their lives to activity by which no one
but themselves is benefited. In this reaction of altruism with
enlightened selfishness there emerges in men's minds a new concept of
their own interest and a better understanding of the kind of business
policy that in the long-run brings them the greatest reward. Of course,
this does not mean that enlightened selfish interest has ceased, or
that it will ever cease, to be a motive force in business. But there is
a vast difference between selfishness untempered with other motives and
selfishness eager for the esteem of one's fellows.
Clearly it is a task of higher education to help promote response to
the more enlightened motives. The difficulty which even men of advanced
university training have in taking full account of human factors
indicates something of the nature and importance of the task. The
so-called "scientifically trained" manager tends to undervalue the
human factor of his equation. His analysis is likely to be overweighted
on the material side. When the university starts--as it is starting and
should start--to train future executives, it needs to analyze its own
problem, and take full account of the dangers against which it has to
guard. Otherwise the training itself will be overweighted on the
material side and will perpetuate the weakness that it ought to
correct.
The greatest danger in this connection, as I see it, arises out of the
distinction between the so-called "cultural" and the "vocational" point
of view. This distinction comes to us with a large mass of traditional
authority, and we have classified subjects and erected barriers on the
assumption that the distinction is real. As far as the training of
business executives is concerned, I am confident that the distinction
is one which ought never to be made. It is a great misfortune, when
young men and women who are preparing for a serious career are
permitted to think of culture as a non-functioning ornament; equally
unfortunate is it for them to think of their prospective vocations as
activities devoid of cultural association.
A few days ago a student who had already selected his profession and
was anxious to be about it confided to me, as many others have done,
how distasteful he was finding the task of "working off his culture."
Does any one really suppose that the sophomore who is "working off his
culture" under faculty compulsion, in order to get his college degree,
is really absorbing from his study anything which, as the faculty
assumes, makes him a better man and yet, as he himself believes,
contributes nothing to effectiveness in his profession? Or take the
case of the man who devotes himself with professional earnestness to
his two, three, or four years of college work--will he find that he has
invested his time and his money on a purely ornamental luxury that has
no relation to his later work?
The first great element of training which the university can give to
future business men is a mastery of scientific method as a means of
analyzing problems and synthesizing results. Quite as fundamental as
this is the development of an intelligent and sympathetic approach to
questions of human relationship. Only the beginning steps in the
direction of business efficiency can be taken while attention is
confined to the material and mechanistic side of business organization.
No secure basis for permanent efficiency can be established until we
are prepared to go deeply into the question of human motives and to
understand something of the complex reactions that come from individual
and group associations. Without such a basis we cannot hope for a
nationally effective business organization.
Business is a form of cooperation through which men exercise control
over natural forces and thereby produce things with which to satisfy
human wants. Any subject well taught, which gives an insight into human
relations or into nature and man's control over it, will help prepare a
person to deal with the intricate problem of human relations in
business--that is, if the student has studied the subject in an
attitude of mind to see its bearing on what he is preparing to do.
The question is not so much one of too few or too many so-called
culture subjects, but rather of the attitude of mind in which all
subjects are undertaken. It is a question of getting such a survey of
the great facts of human experience and of so pointing their
significance as to enable men to approach a problem of human
relationship with sympathy and something of a long-time dynamic
viewpoint. When this is accompanied by a mastery of scientific method,
the foundations are reasonably secure. Without such foundations,
secured either in college or out, analysis of problems in a specialized
business field is almost sure to be one-sided and incomplete.
The kind of professional training that I would suggest for the future
business executive would be laid on the foundation of a college course
of two, three, or four years in which the viewpoint and the varied
methods of study in several diverse branches of knowledge had been
thoroughly instilled. When the student passed to the professional study
of business he would be expected to master the fundamentals of business
organization and management, including the basic elements of subjects
like accounting, finance, and other divisions of organization common to
all lines of business. All of these studies would be pursued with
constant reference to the fact that business is carried on in a
community in which certain public policies are enforced and in
recognition of the fact that business should conform to these policies
and help to make them effective in contributing to public welfare.