Cyclopedia
_of_
Commerce, Accountancy,
Business Administration
VOLUME 1
_A General Reference Work on_
ACCOUNTING, AUDITING, BOOKKEEPING, COMMERCIAL LAW, BUSINESS
MANAGEMENT, ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION,
BANKING, ADVERTISING, SELLING, OFFICE AND FACTORY
RECORDS, COST KEEPING, SYSTEMATIZING, ETC.
_Prepared by a Corps of_
AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS
METHODS AND MANAGEMENT
_Illustrated with Over Two Thousand Engravings_
TEN VOLUMES
CHICAGO
AMERICAN TECHNICAL SOCIETY
1910
COPYRIGHT, 1909
BY
AMERICAN SCHOOL OF CORRESPONDENCE
COPYRIGHT, 1909
BY
AMERICAN TECHNICAL SOCIETY
Entered at Stationers' Hall, London
All Rights Reserved
[Illustration: MAILING DEPARTMENT IN THE NEW YORK OFFICES OF THE
WESTERN ELECTRIC COMPANY]
Authors and Collaborators
JAMES BRAY GRIFFITH, _Managing Editor_.
Head, Dept. of Commerce, Accountancy, and Business Administration,
American School of Correspondence.
ROBERT H. MONTGOMERY
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants. Editor of the American Edition of Dicksee's _Auditing_.
Formerly Lecturer on Auditing at the Evening School of Accounts and
Finance of the University of Pennsylvania, and the School of Commerce,
Accounts, and Finance of the New York University.
ARTHUR LOWES DICKINSON, F. C. A., C. P. A.
Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified
Public Accountants, and Price, Waterhouse & Company, Chartered
Accountants.
WILLIAM M. LYBRAND, C. P. A.
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants.
F. H. MACPHERSON, C. A., C. P. A.
Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.
CHAS. A. SWEETLAND
Consulting Public Accountant.
Author of "Loose-Leaf Bookkeeping," and "Anti-Confusion Business
Methods."
E. C. LANDIS
Of the System Department, Burroughs Adding Machine Company.
HARRIS C. TROW, S. B.
_Editor-in-Chief_, Textbook Department, American School of
Correspondence.
CECIL B. SMEETON, F. I. A.
Public Accountant and Auditor.
President, Incorporated Accountants' Society of Illinois.
Fellow, Institute of Accounts, New York.
JOHN A. CHAMBERLAIN, A. B., LL. B.
Of the Cleveland Bar.
Lecturer on Suretyship, Western Reserve Law School.
Author of "Principles of Business Law."
HUGH WRIGHT
Auditor, Westlake Construction Company.
GLENN M. HOBBS, Ph. D.
Secretary, American School of Correspondence.
JESSIE M. SHEPHERD, A. B.
Associate Editor, Textbook Department, American School of Correspondence.
GEORGE C. RUSSELL
Systematizer.
Formerly Manager, System Department, Elliott-Fisher Company.
OSCAR E. PERRIGO, M. E.
Specialist in Industrial Organization.
Author of "Machine-Shop Economics and Systems," etc.
DARWIN S. HATCH, B. S.
Assistant Editor, Textbook Department, American School of Correspondence.
CHAS. E. HATHAWAY
Cost Expert.
Chief Accountant, Fore River Shipbuilding Co.
CHAS. WILBUR LEIGH, B. S.
Associate Professor of Mathematics, Armour Institute of Technology.
L. W. LEWIS
Advertising Manager, The McCaskey Register Co.
MARTIN W. RUSSELL
Registrar and Treasurer, American School of Correspondence.
HALBERT P. GILLETTE, C. E.
Managing Editor, _Engineering-Contracting_.
Author of "Handbook of Cost Data for Contractors and Engineers."
R. T. MILLER, JR., A. M., LL. B.
President, American School of Correspondence.
WILLIAM SCHUTTE
Manager of Advertising, National Cash Register Co.
E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Author of "The Credit Man and His Work" and "Financial Advertising."
RICHARD T. DANA
Consulting Engineer.
Chief Engineer, Construction Service Co.
P. H. BOGARDUS
Publicity Manager, American School of Correspondence.
WILLIAM G. NICHOLS
General Manufacturing Agent for the China Mfg. Co., The Webster Mfg. Co.,
and the Pembroke Mills.
Author of "Cost Finding" and "Cotton Mills."
C. H. HUNTER
Advertising Manager, Elliott-Fisher Co.
FRANK C. MORSE
Filing Expert.
Secretary, Browne-Morse Co.
H. E. K'BERG
Expert on Loose-Leaf Systems.
Formerly Manager, Business Systems Department, Burroughs Adding
Machine Co.
EDWARD B. WAITE
Head, Instruction Department, American School of Correspondence.
Authorities Consulted
The editors have freely consulted the standard technical and business
literature of America and Europe in the preparation of these volumes.
They desire to express their indebtedness, particularly, to the
following eminent authorities, whose well-known treatises should be in
the library of everyone interested in modern business methods.
Grateful acknowledgment is made also of the valuable service rendered
by the many manufacturers and specialists in office and factory
methods, whose coöperation has made it possible to include in these
volumes suitable illustrations of the latest equipment for office use;
as well as those financial, mercantile, and manufacturing concerns
who have supplied illustrations of offices, factories, shops, and
buildings, typical of the commercial and industrial life of America.
JOSEPH HARDCASTLE, C. P. A.
Formerly Professor of Principles and Practice of Accounts, School of
Commerce, Accounts, and Finance, New York University.
Author of "Accounts of Executors and Testamentary Trustees."
HORACE LUCIAN ARNOLD
Specialist in Factory Organization and Accounting.
Author of "The Complete Cost Keeper," and "Factory Manager and
Accountant."
JOHN F. J. MULHALL, P. A.
Specialist in Corporation Accounts.
Author of "Quasi Public Corporation Accounting and Management."
SHERWIN CODY
Advertising and Sales Specialist.
Author of "How to Do Business by Letter," and "Art of Writing and
Speaking the English Language."
FREDERICK TIPSON, C. P. A.
Author of "Theory of Accounts."
CHARLES BUXTON GOING
Managing Editor of _The Engineering Magazine_.
Associate in Mechanical Engineering, Columbia University.
Corresponding Member, Canadian Mining Institute.
F. E. WEBNER
Public Accountant.
Specialist in Factory Accounting.
Contributor to The Engineering Press.
AMOS K. FISKE
Associate Editor of the _New York Journal of Commerce_.
Author of "The Modern Bank."
JOSEPH FRENCH JOHNSON
Dean of the New York University School of Commerce, Accounts, and
Finance.
Editor, _The Journal of Accountancy_.
Author of "Money, Exchange, and Banking."
M. U. OVERLAND
Of the New York Bar.
Author of "Classified Corporation Laws of All the States."
THOMAS CONYNGTON
Of the New York Bar.
Author of "Corporate Management," "Corporate Organization," "The Modern
Corporation," and "Partnership Relations."
THEOPHILUS PARSONS, LL. D.
Author of "The Laws of Business."
E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Formerly Manager of Publicity, National Cash Register Co.
Author of "The Credit Man and His Work," and "Financial Advertising."
T. E. YOUNG, B. A., F. R. A. S.
Ex-President of the Institute of Actuaries.
Member of the Actuary Society of America.
Author of "Insurance."
LAWRENCE R. DICKSEE, F. C. A.
Professor of Accounting at the University of Birmingham.
Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company
Secretary," etc.
FRANCIS W. PIXLEY
Author of "Auditors, Their Duties and Responsibilities," and
"Accountancy."
CHARLES U. CARPENTER
General Manager, The Herring-Hall-Marvin Safe Co.
Formerly General Manager, National Cash Register Co.
Author of "Profit Making Management."
C. E. KNOEPPEL
Specialist in Cost Analysis and Factory Betterment.
Author of "Systematic Foundry Operation and Foundry Costing," "Maximum
Production through Organization and Supervision," and other papers.
HARRINGTON EMERSON, M. A.
Consulting Engineer.
Director of Organization and Betterment Work on the Santa Fe System.
Originator of the Emerson Efficiency System.
Author of "Efficiency as a Basis for Operation and Wages."
ELMER H. BEACH
Specialist in Accounting Methods.
Editor, _Beach's Magazine of Business_.
Founder of The Bookkeeper.
Editor of _The American Business and Accounting Encyclopedia_.
J. J. RAHILL, C. P. A.
Member, California Society of Public Accountants.
Author of "Corporation Accounting and Corporation Law."
FRANK BROOKER, C. P. A.
Ex-New York State Examiner of Certified Public Accountants.
Ex-President, American Association of Public Accountants.
Author of "American Accountants' Manual."
CLINTON E. WOODS, M. E.
Specialist in Industrial Organization.
Formerly Comptroller, Sears, Roebuck & Co.
Author of "Organizing a Factory," and "Woods' Reports."
CHARLES E. SPRAGUE, C. P. A.
President of the Union Dime Savings Bank, New York.
Author of "The Accountancy of Investment," "Extended Bond Tables," and
"Problems and Studies in the Accountancy of Investment."
CHARLES WALDO HASKINS, C. P. A., L. H. M.
Author of "Business Education and Accountancy."
JOHN J. CRAWFORD
Author of "Bank Directors, Their Powers, Duties, and Liabilities."
DR. F. A. CLEVELAND
Of the Wharton School of Finance, University of Pennsylvania.
Author of "Funds and Their Uses."
[Illustration: THE ADVERTISING DEPARTMENT WHERE ARE ORIGINATED THE
PUBLICITY CAMPAIGNS OF THE SHERWIN-WILLIAMS CO., CLEVELAND, OHIO]
Foreword
With the unprecedented increase in our commercial activities has come
a demand for better business methods. Methods which were adequate for
the business of a less active commercial era, have given way to systems
and labor-saving ideas in keeping with the financial and industrial
progress of the world.
Out of this progress has risen a new literature--the literature of
business. But with the rapid advancement in the science of business,
its literature can scarcely be said to have kept pace, at least, not to
the same extent as in other sciences and professions. Much excellent
material dealing with special phases of business activity has been
prepared, but this is so scattered that the student desiring to acquire
a comprehensive business library has found himself confronted by
serious difficulties. He has been obliged, to a great extent, to make
his selections blindly, resulting in many duplications of material
without securing needed information on important phases of the subject.
In the belief that a demand exists for a library which shall embrace
the best practice in all branches of business--from buying to selling,
from simple bookkeeping to the administration of the financial affairs
of a great corporation--these volumes have been prepared. Prepared
primarily for use as instruction books for the American School of
Correspondence, the material from which the Cyclopedia has been
compiled embraces the latest ideas with explanations of the most
approved methods of modern business.
Editors and writers have been selected because of their familiarity
with, and experience in handling various subjects pertaining to
Commerce, Accountancy, and Business Administration. Writers with
practical business experience have received preference over those with
theoretical training; practicability has been considered of greater
importance than literary excellence.
In addition to covering the entire general field of business, this
Cyclopedia contains much specialized information not heretofore
published in any form. This specialization is particularly apparent in
those sections which treat of accounting and methods of management for
Department Stores, Contractors, Publishers and Printers, Insurance, and
Real Estate. The value of this information will be recognized by every
student of business.
The principal value which is claimed for this Cyclopedia is as a
reference work, but, comprising as it does the material used by the
School in its correspondence courses, it is offered with the confident
expectation that it will prove of great value to the trained man who
desires to become conversant with phases of business practice with
which he is unfamiliar, and to those holding advanced clerical and
managerial positions.
In conclusion, grateful acknowledgment is made to authors and
collaborators, to whose hearty coöperation the excellence of this work
is due.
Table of Contents
(For professional standing of authors, see list of Authors and
Collaborators at front of volume.)
VOLUME I
ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION
_By James B. Griffith_ Page 11
The Business Engineer--Preliminary Investigation--Charting
the Organization--Organization of Business--Organization
of Mercantile Business--Universal Application of Organization
Principles--Departmental Authorities--The General Manager--
Comptroller--Sales Division--Superintendent--Purchasing Agent--
Employment Department--Charting Salary and Wage Distribution--
Expense Distribution Chart--Arrangement of Plant--Factory
Plans--Office Plans--The Committee System--The Suggestion
Plan--Order Blanks
ADVERTISING AND SALES ORGANIZATION _By James B. Griffith_ Page 61
Systems and Records--Designs and Cuts--Cut Indexes and
Tracers--Records of Printing--Periodical, Street Car, and Outdoor
Advertising--Rate Cards--Advertising Contracts--Checking Returns--
The Sales Department--Branches--The Mail-Order Branch--Follow-up
Systems--Personal Salesmanship Division--Routing Salesmen--Sales
Records
THE CREDIT ORGANIZATION _By James B. Griffith_ Page 127
The Credit Man--Information Required--Financial Statements--
Analysis of Statements--Sources of Information--Local
Correspondents--Credit Agencies--Recording Credit Information--
Collections--Monthly Statements--Installment Collections--
Collections by Attorneys
THE SHIPPING DEPARTMENT _By James B. Griffith_ Page 183
The Shipping Clerk--Class Rates--Commodity Rates--Freight
Tariffs--Condensed Rate File--Routing Shipments--Filling
Orders--Checking Shipments--Export Shipping--Freight Claims--
Express Shipments--Retail Delivery System
CORRESPONDENCE AND FILING _By James B. Griffith_ Page 231
Opening and Distributing Mail--Correspondence Short Cuts--
Talking Machines for Dictation--Copying Correspondence--
Stenographic Division--Records of Work--Filing Division--Filing
Systems--Methods of Indexing--Guiding, Transferring, and Sorting--
Selecting Filing Equipment--Styles of Construction
BUSINESS STATISTICS _By James B. Griffith_ Page 287
Sales Costs--Records of Shipments--Returned Goods--Salesmen's
Records--Expense Distribution--Department Sales--Trading
Statements--Profit Figuring--Administrative Costs--Profit and
Loss Statements--Mailing-Room Machinery
REVIEW QUESTIONS Page 333
INDEX Page 347
[Illustration: AN EXECUTIVE OFFICE AT THE PLANT OF CORBIN CABINET LOCK
COMPANY, NEW BRITAIN, CONN.]
ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION
=1.= With little fear of contradiction, it may be stated that every
commercial enterprise is conducted with the one purpose in view of
making money for its owners. Naturally, the owners desire the largest
possible returns from their investment of money or time, or both. Every
person connected with the enterprise, in any capacity whatsoever, is
indirectly working for the same purpose--to make as much money as
possible for the owners of the business.
The largest possible volume of profitable business must be transacted;
the business must be conducted with economy; the returns from each
dollar expended must be as large as possible. This very condition is
one of the beneficial results of modern business methods. The demand
for a greater volume, lower cost of production, and more economical
methods, has brought with it an incentive to greater effort on the part
of the individual, with corresponding rewards.
That the efforts of the individual may be productive of best results,
he must have the coöperation of other individuals engaged in the same
enterprise. The enterprise must be properly organized.
Realizing the absolute necessity of harmoniously working organizations,
keen students of business affairs have given much study to the question
of how to organize a business. They have studied the plans of operation
of the most successful enterprises, for the purpose of discovering
those factors which have contributed most largely to their success.
They have investigated and improved old plans and methods and invented
new methods.
=2. The Business Engineer.= The investigations of these men have
brought into being a new profession--that of the business organizer or
business engineer--a profession that has quickly gained recognition.
Business men, especially those at the head of large enterprises have
not been slow to avail themselves of the services of men who have
mastered the science of business organization.
For the same reason that he has long employed an architect to plan
his building the modern business man calls in a business engineer
or systematizer, to perfect his business organization. As in every
other profession, some incompetent men are found posing as business
engineers, but an increasing number of trained men are entering the
field. It is the work of these men that is placing the profession on a
high plane.
The successful business engineer must have the ability to quickly grasp
the plan of operation of any business with which his work may bring
him in contact; he must be able to analyze conditions and to determine
the factors which make for the success or failure of a business. His
work is to organize and systematize every step of the work in every
department.
=3. The Preliminary Investigation.= The first step in the organization
or systematizing of a business is to determine its natural divisions.
What is the nature of the business, and what are its distinguishing
characteristics? Be it a manufacturing, jobbing, wholesale, retail, or
professional concern, there is some one head on whom rests the final
responsibility for the success or failure of the business. He must be
surrounded with subordinates, each having certain duties to perform,
who will be responsible for the performance of those duties, thereby
coöperating to carry out the purposes of the enterprise.
The highest type of organization is found among the great industrial
enterprises. These enterprises with their many activities most
readily lend themselves to the application of scientific principles
of organization. Here, organization can be carried to its final
conclusion; in a smaller enterprise the same principles apply, but
modification of details is necessary.
If we study the organization of a large enterprise, regarding it as a
type, we can more readily grasp the requirements of a smaller business.
But it must be remembered that in any event, the individual business
must be studied and the organization made to fit the business. A tailor
does not cut all coats from the same pattern.
In certain respects a great industrial organization may be likened
to the army. At the head of the army is the commanding general, on
whom rests the responsibility for the success of any campaign. He
is surrounded by his staff, with whom he consults on questions of
importance. When any important move is decided upon, the members of the
staff--themselves in command of divisions of the army--issue orders to
their subordinate officers. They, in turn, pass the orders along, and
at a predetermined moment, an entire army is set in motion.
Another important feature of the army organization which should
be applied to the organization of a business is the disregard of
the individual. Military authorities long since discovered that a
high standard of efficiency could be maintained only through the
organization of the army along certain lines. The question was not
one of creating offices the duties of which would conform to the
capabilities of certain men; the offices were first created, and then
competent men were selected to fill them.
=4. Individuals Disregarded.= In creating responsibilities in a
business organization, the individual should be disregarded, just as
he is in the army. Unfortunately, the importance of this question
is not always recognized. Too frequently the best interests of the
organization as a whole are subserved to the interests of individuals.
Business enterprises are organized and offices divided among the
principal owners without seriously considering their respective
abilities. This is wrong in principle, and works to the detriment of
the business. It is one of the important problems to be solved in
organization. Jones, who is a natural born financier, prefers to manage
the selling end of the business, while Brown, a salesman of ability, is
made treasurer. Neither is in the right place; change them about, and
an efficient team would result.
Before we can perfect an organization, we must know what the business
is. We must ascertain for what it is organized; what class of business
is carried on; manufacturing, mining, jobbing, wholesale, retail, or
a combination of two or more classes; whether conducted entirely in
one plant or through branches; the method of marketing the goods; by
traveling salesmen, agencies, or mail; the facilities for obtaining
supplies, raw materials, or manufactured goods. When we understand the
nature of the business, we are in a position to work out an impersonal,
systematic organization.
Referring again to the necessity of a disregard of individuals in
perfecting an organization, it is not the province of the business
engineer to determine the qualifications of the men. He must be
governed solely by the requirements of the business. When his work is
completed, it is for the management to decide who is best fitted to
assume the duties and carry out the purposes of the departments and
positions created.
We refer, for convenience, to the business engineer or systematizer;
the principle is the same whether the one doing the work is acting in
a professional capacity, perfecting the organization of his employer's
business, or even solving the problems of his own establishment.
OBJECTS AND CHARACTERISTICS OF ORGANIZATION
=5.= To reduce the subject to concrete form, the objects of business
organization may be defined as follows:
(A) To unite the individuals who are to conduct an enterprise into a
body which will work systematically to a common end.
(B) To bring together or group the component parts of the body with
respect to their specific relations and duties.
(C) To elect officers and appoint committees and authorities with
clearly defined duties and responsibilities.
These definitions all lead to a common center, that is, coöperation.
Without co-operation the success of any organization is very
questionable, if not impossible. With it--a body of men all working
together for a common end--almost any apparent obstacle will be
surmounted. No matter how large an organization may be, how many or
wide its ramifications, if the spirit of co-operation prevails, it will
move as one irresistible body.
And, regardless of the size or nature of a business enterprise, the
organization, as here used, resolves itself into certain easily
distinguished components, as follows:
First: The owners, represented in a corporation by the stockholders or
investing public; in a partnership, by the partners; in an
individual business, by the proprietor.
Second: The executive or managerial division.
Third: The commercial or active business division.
Fourth: The manufacturing or productive division.
These components lend themselves naturally to certain specific
subdivisions; natural groups are formed to insure efficient management;
certain authorities are delegated to effect economical operation.
The stockholders (owners) first elect from among their number, a _board
of directors_. This is the initial step toward perfecting a business
organization. The directors represent the stockholders, and the
interest of the stockholder, as such, becomes that of an investor only.
His interest in the operation of the business is to be looked after by
the directors, whom he, or a majority, has elected.
From this board of directors is built the framework of the executive
or managerial division. The first act of the directors is to meet and
elect the usual executive officers: _President_, _Vice-President_,
_Secretary_, and _Treasurer_. In modern organizations, it is customary
to also elect or appoint an _executive committee_ or _board of
managers_.
This committee consists of three or more members, usually selected from
the officers, to which may be added one or more directors who are not
officers.
To this committee, the board of directors delegates its authority in
the actual conduct of the business. This plan of electing an executive
committee is particularly desirable when the board is a large one,
as it concentrates authority and results in more prompt action on
matters demanding immediate attention. A large body is unwieldy, a
quorum cannot always be brought together on short notice, but a working
majority of a small committee can be convened promptly.
The executive committee takes charge of both the commercial and
manufacturing divisions. To still further concentrate authority, it is
customary to appoint a _General Manager_ who has direct supervision
over the immediate operation of both commercial and manufacturing
divisions. He is appointed sometimes by the executive committee, but
more often by the board of directors.
The general manager, while occupying a position of chief acting
executive, acts with the executive committee and is directly
responsible to the board of directors.
The commercial division of a business naturally subdivides into two
sections: _Accounting_, and _Advertising and Sales_. The first thought
of the student might be that accounting is given a position of too
great importance, but in the sense here used it means the records of
the business of every nature, the accounts, the gathering and recording
of statistics and information of every character.
The manufacturing division divides into _Purchasing and Stores_, and
_Production_. In a measure, the purchasing of goods is a function
of the commercial division, but the purchasing of raw material and
supplies is properly under the supervision of the manufacturing
division.
CHARTING THE ORGANIZATION
=6.= What may be termed the anatomy of an industrial body, is most
graphically shown by means of charts. Free use of charts will be made
throughout these papers. With properly designed charts the logical
divisions of authority or expense can be clearly shown.
Fig. 1 furnishes a graphic illustration of the principal components
of the organization under discussion. In the first group we find the
owners (stockholders) whose line of communication with the business is
through the board of directors. Subordinate to the board of directors
are its own executive officers, the executive committee, and general
manager.
The connecting lines show the executive committee to be in direct
communication with the board of directors, while the general manager is
in direct communication with both the executive committee and the board
of directors.
Under the general manager are the commercial and manufacturing
divisions, over both of which he has direct supervision.
=7. Working Authorities in Large Enterprises.= The next logical step
in the development of our organization is a study of the working
authorities and responsibilities of the different officers and their
assistants. We have seen that the administrative authority is for
practical purposes centered in the general manager. It is not to be
supposed, however, that in a large industrial organization he will
personally supervise all of the details of operation of the commercial
and manufacturing divisions. His time must not be taken up with details
which can be as well handled by subordinates. He should be free to
devote his time to questions of policy, the providing of finances, the
consideration of new fields of endeavor, and the making of the more
important contracts. His immediate assistants will be a _Comptroller_
and a _Superintendent_.
The comptroller fills a position identical with that of a business
manager or an assistant manager. His duties are mainly in connection
with the commercial division. It is his business to devise systems of
accounts and systems for recording the activities of every department,
and have reports compiled, in proper form for presentation to the
general manager. His is a statistical department, filling a place
between the general manager and the subordinate departments, and, while
not closing the avenues of communication between these departments and
the general manager, it is here that reports and records of results are
concentrated.
[Illustration: Fig. 1. Chart of a Corporate Manufacturing Enterprise]
The superintendent is in immediate charge of manufacturing operations
and is responsible for the custody of all property used in
manufacturing. His position does not close the avenue of communication
between factory departments and the general manager.
Fig. 2 illustrates the subdivisions of the commercial and manufacturing
branches. This chart does not go back of the administrative section of
the organization, as the stockholders have no direct connection with
the actual operation of the business.
We find the subdivisions of the commercial branch in charge of the
following: _Chief Accountant_, with direct supervision over all
bookkeeping and accounting records; _Chief Stenographer_, in charge
of all stenographic and circularizing work; _Advertising_ and _Sales
Managers_, in charge of publicity and selling campaigns; _Credit man_,
in charge of credits and collections.
The manufacturing department includes the _Purchasing Agent_, who
purchases all manufacturing stores, materials, and supplies; _Chief
Stores clerk_, in charge of the storage of all materials and supplies;
_Chief Engineer_, who designs new products, new machinery for the
manufacture of that product, and conducts all experimental work; _Chief
Draftsman_, who superintends the work of the drafting rooms; _Assistant
Superintendent_, in charge of maintenance of power and heating plants,
internal transportation facilities, machinery and buildings; _Foremen_,
in charge of shops employed in production work.
As shown by the lines of communication, represented by the heavy
lines, the authorities of the comptroller and superintendent extend to
every phase of the work of the commercial and manufacturing branches.
The comptroller is in communication with the manufacturing branch
since the making of schedules, time keeping, and the assembling of
cost statistics are all centered in his office. He does not, however,
assume any of the duties of the superintendent, and while their work
is closely related, the two officers conduct their departments without
conflict of authorities. It must be remembered that they are equally
responsible to the general manager, which of itself requires cordial
coöperation.
[Illustration: Fig. 2. A Chart of Working Authorities in a
Manufacturing Business]
=8. Organization Applied to Small Business.= We have referred only
to large manufacturing enterprises divided into many departments,
necessitating a division of executive duties among a large number of
minor executives. While, in the organization of a smaller enterprise,
not all of these department heads will be required, the principles of
organization, so far as division of authority is concerned, remain the
same.
In the small corporation, we find the same board of directors elected
by the stockholders. This board may be small, consisting of no more
than five, or even three members, but the same executive officers
are elected. One man may hold more than one office, as secretary
and treasurer, or vice-president and treasurer, yet each office is
filled. If the board is small the executive committee may be omitted,
in which case the board itself performs the duties of the executive
committee. There is the same general manager; at least the duties
exist even though there be no such office in name. The president may
act as the executive head, and be recognized as the actual manager of
the business, but in so doing he is acting in an entirely different
capacity than that pertaining to the office of president.
Extending the illustration to a small manufacturing enterprise, the
general manager may assume all of the duties of the comptroller in
the operation of the commercial branch; he may be his own sales
manager or credit man; or in the manufacturing branch, he may act as
superintendent.
The treasurer of the corporation may be the accountant and also act
as credit man. The advertising and sales managers may be one, or the
superintendent may be the purchasing agent as well.
The point intended to be emphasized is that there are certain duties to
be performed, certain responsibilities to be met, certain authorities
to be assumed even though it be but a one-man business. And in this
is illustrated the importance of creating any business organization
without regard to individuals.
=9. Organization of Mercantile Business.= Leaving for a time the
organization of a manufacturing enterprise, we will consider the
application of the principles of organization to a trading business.
In such a business, the administrative section remains the same:
stockholders, directors, officers, executive committee, general
manager. At this point the business naturally divides into the
departments of _buying_ and _selling_.
[Illustration: Fig. 3. A Chart of a Corporate Trading Enterprise]
The buying department is subdivided into _purchasing_, _stock_, and
_shipping_. The subdivisions of the sales department are _sales_ and
_accounting_. Our chart of the organization shown in Fig. 3, follows
the same lines as Fig. 1, the only change being in the main divisions.
Advancing the next step we find the executive officers in charge of
the several divisions of the work, corresponding very closely to those
shown in Fig. 2. The buying department is in charge of the _Purchasing
Agent_, _Chief Stock Clerk_, and _Shipping Clerk_, or _Traffic
Manager_, as he is sometimes known.
The selling department is in charge of the _Chief Accountant_,
_Advertising Manager_, _Sales Manager_, and _Credit Man_. This is shown
clearly in the chart, Fig. 4.
Lest an erroneous impression be gained, it may be well to state at this
point that the advertising and sales managers must work in perfect
harmony. Indeed, advertising is one branch of the sales department and
the success of one is so closely interwoven with the other that no
important step should be taken by either independently.
In many large concerns, the sales manager is the real advertising
manager, even though another may supervise the actual routine of
preparing advertising matter. A competent advertising man makes
a successful sales manager, and every sales manager should have
advertising training, for the purpose of advertising is to create a
demand and assist in making sales.
Referring again to Fig. 4, it is seen that both buying and selling
departments are under the control of the general manager, from
whom direct lines of communication lead to every division of these
departments. Direct communication is also maintained between the two
departments. The accounting division keeps the accounts of the buying
department; the sales division must be in communication with the
purchasing and stock division in respect to maintaining the stock to
be sold, and with the shipping division in respect to the filling of
orders.
=10. Universal Application of Organization Principles.= When we go into
all of the ramifications of business we find many establishments where
minor variations of our plan of organization appear necessary, but in
the final analysis, the fundamentals prove to be the same.
[Illustration: Fig. 4. Chart of Working Authorities in a Trading
Business]
Reduced to its simplest form, we will suppose the business under
consideration to be a small retail establishment conducted by two
partners. No thought has been given to the principles of organization,
yet they are applied in that little store just as surely as in the
immense manufacturing plant.
Ask any commercial salesman calling on the firm who is the man to
see regarding the introduction of a new line of goods, and he will
probably answer, "Mr. Jones is the man to see; he does the buying."
With no thought of organization, the owners of this little business
realize that it is best for one man to do the buying. Perhaps the
other may inspect samples, his opinion may be asked, he may even place
an occasional order, but it is not the rule of the establishment. By
placing the buying in the hands of one partner, confusion is avoided.
He can keep in closer touch with prices, and the results are far more
satisfactory.
Advancing to the larger retail business of the department store,
whether the general store of the small town or the big store of
the city, we find a different problem. Here the buying is further
specialized, for one man buys for one, or at most three or four
departments. The same men act as sales managers and buyers in the
departments for which they are responsible. The manager of a department
in a big store is selected as much for his ability as a buyer as for
his salesmanship. But we do not get away from fundamental principles,
for in buying and selling the manager is performing two entirely
separate and distinct functions.
No matter what the business, we find the same two fundamental
functions, that is, buying and selling. As illustrations of the
application of this principle to different businesses we give the
following:
Publishers of newspapers and other periodicals buy editorial
work, manuscript, engraving, paper, printing; sell subscriptions,
advertising space.
Publishers of books buy editorial work, manuscript, engraving, paper,
printing; sell books.
Railroad companies buy equipment, rails, lumber, coal, supplies,
labor; sell freight and passenger transportation.
Schools and colleges buy textbooks, supplies, services of instructors;
sell instruction.
Professional men buy their instruction, books, instruments, office
furnishings, clerical assistance; sell their services.
In every undertaking, revenues are produced through salesmanship. Every
business and every profession has something to sell, and its financial
success depends largely upon the quality of salesmanship employed.
Whether it be a professional man with nothing but his services to
sell and no other means of advertising than through work well done,
or a gigantic commercial organization with its extensive advertising
campaign and many salesmen, a selling organization exists in some form.
And before anything can be sold it must be procured, or bought.
On this question of the universal application of the principles of
organization, we quote from a valuable contribution in _The Engineering
Magazine_, by C. E. Knoeppel:
"While business as it is now conducted is not as simple as it was in
the barter days, it must not be inferred that this segregation of
authority is synonymous with complexity, for its very purpose has
been to simplify, and that is what it has accomplished. It is only
where this segregation has been the result of lack of thought and
proper attention, or other like causes, that we find a complex and
unsatisfactory condition of affairs. In fact, there is all about
us sufficient evidence that many commercial enterprises are being
conducted along lines that, as far as evolutional development is
concerned, are several stages behind the times.
"Let us suppose a case, which will apply in a greater or less degree
to the majority. In the earlier development, we will say that the
founder of the business was able, on account of its small size, to
make what sketches he needed, solicit orders, see that they were
filled, perhaps take a hand at the making if occasion required, see to
the shipments, and attend to the collections and the keeping of his
few accounts. He finds that the business grows, and eventually places
a man in charge of certain branches while he looks after others. The
accounts eventually require more attention than he can give them
so he engages a bookkeeper in order that he may be relieved of the
work. He finds that the quantity of materials received and shipped
amount to enough to warrant a receiving clerk as well as a shipping
clerk, and, to handle this material from its inception to shipment
he conceives the idea of placing a man in charge as stock clerk. He
then adds a purchasing agent, in order that he may be relieved of
the detail and that purchases may be made most economically; a man
is placed in charge of the orders; foremen are placed in charge of
certain men in the shops; the details connected with making plans,
drawings, estimates, etc., are taken over by a practical man; his
manager is given a man to look after the shops or engineering branch;
while the commercial branch with its many details is placed in the
hands of another. As the evolution continues, the selling branch is
assumed by one man; cost details are looked after by another; a chief
inspector is added in order that all work may be shipped according to
specifications; the engineer, who before had been a sort of jack of
all trades, is placed in charge of certain work, while an electrician
is engaged to look after this particular work; and so this segregation
continues as the development continues.
"Perhaps it is not to be wondered at that the founder, in
looking backward, is inclined to pat himself on the back when,
in a reminiscent mood, he considers what he terms 'remarkable
development.' He considers that he has been wonderfully successful in
building up a business which at the beginning was so small as to admit
of his supervising every detail, while today he employs a dozen men
to do the work he once did. There is no getting away from the fact
that it is this same feeling of self-satisfaction that is responsible
for a large number of faulty organizations, for if we should tell
this manufacturer that his business is far from being as successful
as it is possible for it to be ... he would vigorously resent any
such accusation; but the fact remains that it is not the success it
should be, for the very reason that the development has been allowed
practically to take care of itself. New men were added, new offices
created, only when absolutely necessary, each newcomer being given
a general idea of what was expected of him, and not knowing, not
thinking, or perhaps not having the time to give more than passing
attention to the matter, the proprietor did not consider the fact that
his business was a unit, with each worker a part, having a distinct
relation with every other worker. Hence, as the efficiency of any
organization is directly in proportion to the care with which these
relations are considered and treated, his organization naturally fails
to attain that degree of efficiency obtainable, and for this condition
he, and he only is responsible."
=11. Departmental Authorities.= The next logical step in the
development of our organization is an analysis of the departmental
organizations. We have seen how the operations of the business are
divided among several divisions or departments. The reason for such
divisions is apparent. In a large business no one man can personally
supervise all of its activities. Each division is engaged in certain
activities that demand the immediate supervision of specialists. One
man is a specialist in advertising, another in sales plans, others
in purchasing, specific manufacturing operations, or the design and
maintenance of appliances intended to improve the product or to reduce
costs.
To reach the highest state of efficiency in every department of the
business, these specialists must be employed, which is another reason
for organizing a business along the line of its activities, and without
respect to individuals.
Before we can decide what manner of man should be placed at the head of
this or that department, we must study the duties of the position, the
responsibilities involved, the authorities to be assumed. To present
this problem in graphic form, the chart (Fig. 5) is designed. While
the arrangement is not inconsistent with Fig. 2, this chart of the
same class of organization is laid out along the lines of authority.
It shows both the authority of the department head and the necessary
activities of his division.
We have selected the organization of a large industrial establishment
for the very reason that many divisions and departments are necessary.
The smaller organization will have a less number of divisions, but it
is much easier to condense than to expand a given plan. Any man who
understands the requirements of a large organization can readily adapt
those ideas to a smaller establishment. He can apply the plan so far as
it can be used to advantage. Some variations of the application of the
plan will be pointed out in our departmental analysis.
[Illustration: Fig. 5. A Chart Which Shows the Duties, Responsibilities
and Authorities to be Assumed by Each Department Head]
It is perhaps unnecessary to say that while the authorities of some of
the department heads have been referred to in preceding pages, this
analysis is intended to exhibit these authorities in greater detail.
=12. General Manager.= As a rule the general manager has general
supervision over the commercial and manufacturing branches. In
conjunction with the president and executive committee, he formulates
all policies to be followed in purchasing, manufacturing, sales, and
advertising, establishing credits, and accounting methods. He is
responsible to the executive committee and board of directors for
procuring materials, their manufacture and sale, and the maintenance of
buildings and machinery.
It is his duty to keep in touch with the operations of every department
and to post himself on the general efficiency of all classes of
workmen. Through reports he will keep informed in regard to the results
of the operations of every department.
While in direct communication with all department and division
heads, he will have for his immediate assistants, a comptroller and
a superintendent. It is from the comptroller that he will receive
statistics and reports of the activities of the business in all its
branches, while to the superintendent he delegates his authority in the
actual operation of the manufacturing branch.
=13. Comptroller.= "A controller or manager" is a standard definition
of the term comptroller. In the organization under consideration, he
is a _controller_ of the business by virtue of the fact that he is
responsible for the accounting and recording of all activities of the
business.
He occupies the position of auditor and is the real systematizer of
the business. He creates all systems of commercial accounting, cost
accounting, departmental records, time keeping, and pay rolls, reports
of superintendent, perpetual inventory, sales statistics, and, in
fact, all records of the business. He prepares all balance sheets,
comparative statements, trading, manufacturing, and profit and loss
statements, and reports to the general manager or executive committee,
or both, on the condition of finances, materials, and finished goods.
Since the formation of important policies may hinge on the reports and
statistics of his department, he occupies an office next in importance
to the general manager. The training and experience gained in his
office place him in direct line for promotion to the office of general
manager.