THE EVOLUTION OF MANAGEMENT THOUGHT, 6TH EDITION Electronic Resource by: Regina Greenwood and Julia Teahen

Chapter Five The Industrial Revolution in the United States

The USA Economy before 1861 British mercantilism kept the U.S. as a colony which delayed economic development. Great Britain prohibited the sale of manufacturing equipment and emigration of skilled labor to U.S. Adam Smith influenced writing of the U.S. Constitution and economic system. Earliest factories were textile mills Commonwealth vs. Hunt 1842 American System of Manufactures – manufacture by interchangeable parts Railroads

Early Industrial Development– Textile Mills Largest industry at the time was textile. Even though the textile industry was the largest business, factories were still small. “Photo” on the left depicts an early textile mill.

Textile Mills Samuel Slater – “Rhode Island System” Very similar to practice and personnel policies existing in Great Britain First to use steam-driven power looms Relied on sole proprietorship or partnership form of ownership initially. Relied on family for labor – with growth had to hire professional managers. Vertically integrated operations forward and backward. Samuel Slater

Textile Mill at Pawtucket, Rhode Island Mill – present day reconstruction Depiction of Mill

Textile Mills Francis Lowell – “Waltham System” Used water-power looms. Hired non-family supervisors & managers with corporate model. Used integrated spinning and weaving to manufacture goods in large quantities. Relied on adult female labor. Praised by Charles Dickens for better treatment of employees.

Resources from Waltham, MA Charles River Museum of Industry and Innovation The Waltham Museum Inc. Waltham Public Library The National Archives, Northeast Region, Boston

Commonwealth v. Hunt (1842) Worker combinations (unions) were no longer illegal unless their intent was criminal. Seeking a closed shop and striking were no longer illegal. Only applied to Massachusetts but discouraged prosecution of worker organizations elsewhere.

The American System of Manufactures Manufacture by interchangeable parts was not new – previously confined to making muskets and revolvers. The Springfield (MA) Armory was an early factory prototype. 250 employees – largest factory in the U.S. until after the Civil War. Organized by Colonel Roswell Lee in 1815. Used piece rate incentive payments and accounting system. Labor was more specialized. Uniform standards promoted interchangeability of parts. Peterson, Eric. "Springfield Armory National Historic Site." 28 May 2007. HowStuffWorks.com. <http://adventure.howstuffworks.com/springfield-armory-national-historic-site.htm> 04 December 2008.

Springfield Armory http://freepages.history.rootsweb.ancestry.com/~dickbolt/SpfldMADownTown.html Peterson, Eric. "Springfield Armory National Historic Site." 28 May 2007. HowStuffWorks.com. http://adventure.howstuffworks.com/springfield-armory-national-historic-site.htm04 December 2008.

The American System of Manufactures Ideas spread to other areas of manufacturing. Ex: The reaper by Cyrus McCormick The “American System” received its name at the exposition of 1851 in London. U.S. factories remained relatively small. The McLane report of 1832 found the firms were mostly: Family owned and managed Few corporations – unlimited liability Little use of steam power Similar to findings of Andrew Ure regarding English firms

The Railroads: Pioneering in U.S. Management First “big business” in the U.S. – developed c. 1830. Started the transportation revolution. Facilitated U.S. industry move from local markets to national markets. Railroads had size and complexity. Required a management system. Courtesy of Association of American Railroads (AAR)

Communication Revolution Telegraph, patented by Samuel Morse in 1837, started concurrent revolution in communication. By 1860, about 50,000 miles of wires extended over the eastern U.S. Dramatic effect on business communication. Facilitated U.S. industry move from local markets to national markets. Richard Sears used the telegraph to see gold watches – the first electronic commerce. Samuel Morse

The Age of Rails: Daniel McCallum Developed a system of managing on the Erie Railroad: Specific job descriptions Accurate performance reports Merit basis for pay and promotion Organizational chart to show lines of authority, responsibility, and communication Use of telegraph for dispatching trains and checking on performance Daniel McCallum, Circa 1865

Daniel McCallum (1815-1878) System of management relied on division of labor, personal responsibility, and organization. Developed a formal organization chart. Developed highest state of the art information management.

Daniel McCallum (1815-1878) Lost his job when the locomotive engineers would not follow his rules. Workers were on strike for ten days in June 1854 then 6 months in 1857 in defiance of McCallum’s system. Successful career building bridges and served as master of the Union’s railroads in the Civil War.

Erie Railroad Organizational Chart This is perhaps the first organizational chart ever made McCallum created the organizational chart to explain the Erie Railroad Operation Erie Railroad Organization Chart of 1855. Library of Congress, Haer, N.Y.

Henry V. Poor (1812-1905 ) A Broader Management View Editor of the American Railroad Journal Became “conscience” of first U.S. big business Looked for broader principles of railroad operations (financing, regulation, and role of U.S. Railroad in life) Developed three principles based on McCallum’s ideas: organization, information, and communication Henry Varnum Poor

Henry V. Poor Unity in the organization Selecting leaders on merit In later work, Poor felt the answer to problems of top management was through better leadership Unity in the organization Selecting leaders on merit Developing better information systems Courtesy of Pics4Learning. http://pics.tech4learning.com

George Hudson – “Railway King” Paid dividends out of capital, both existing and borrowed Altered accounts of railway traffic and revenue to indicate more profit than actually existed Published false statements to investors Bought iron rails from one of his lines and sold them to another of his interests for a £6,000 profit

Discussion How to The “Railway King’s” practices compare with other examples of executive illegal and unethical behavior? “A long-forgotten document has shed new light on the career of the disgraced York railway pioneer, George Hudson.” BBC News, 2 May, 2005

Emerging Governance Issues Early industries were partnerships or sole proprietorships. Railroads, requiring large amounts of capital, saw the growth of joint-stock companies. Without uniform, adequate laws in Great Britain, management malfeasance occurred. Henry Poor wrote about the need for government regulation but not control.

Summary From independence to 1860, the U.S. grew and developed industry. This period was critical to development of the modern enterprise. Railroads and the telegraph allowed firms to grow for economies of scale and scope. Managers were required for large, complex organizations. Quality of life for people was improving.