Chapter Six
Industrial Growth and Systematic
Management
Industrial Growth and Systematic Management
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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
Alfred D. Chandler, Jr. (1918-2007)
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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
Alfred D. Chandler, Jr.
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Described the late 19th century as the
accumulation of resources with growth occurring
because of:
 Horizontal
combinations of firms in smaller fields
 Vertical integration – forward and backward
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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.
Andrew Carnegie (1835-1919)
Steel Industry
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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.
Andrew Carnegie - Steel Industry
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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 first job was in a
textile mill like this.
The Renaissance of Systematic
Management
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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.
Economists
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
Edward Atkinson – management made a difference
Alfred and Mary Marshall
 Management
requires “rarer natural abilities…and
training”
 Managers must forecast, plan, and organize to gain
economies of scale
 Internal economies are enable by more efficient
management
The Renaissance of Systematic Management
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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.
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.
Big Business and Its Changing Environment

The social conscience of the 19th
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.
Big Business and Its Changing Environment
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More Philanthropists
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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.
Famous Philanthropists – John D. Rockefeller
 Gave
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-0051595. Courtesy of the Chicago Historical Society
Famous Philanthropists

Andrew Carnegie –
gave away $350 million
by the time of his death
in addition to his
libraries, university, and
the Carnegie Foundation.
Courtesy of The General Libraries, The University of Texas at Austin.
Rockefeller and Carnegie
D
espite
generosity by
both
individuals, the
Congressional
Committee on
Industrial
Relations in
1915
denounced
both as
“menaces to
society.”
Andrew Carnegie Free Library & Music Hall
Rockefeller Archive Center
Business and Labor
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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 19th century.
Efforts to organize other workers were generally
unsuccessful.
Labor violence in the late 1800s fueled public fear
of unions.
Business and Labor
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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
Inventive and Innovative Impulses
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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
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Business and Government:
The Seeds of Reform
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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
Summary of Part One
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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.
Figure 6-1
Synopsis of early management thought.
Additional Internet Resources
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Academy of Management – Management History
Division Website
http://www.aomhistory.baker.edu/departments/le
adership/mgthistory/links.html
List of Internet Resources compiled by Charles
Booth
http://www.jiscmail.ac.uk/files/MANAGEMENTHISTORY/links.htm