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business organization, the individual should Ix* 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 abili-
ties. This is wrong in principle, and works to the detriment of the
business. It is one of the important problems to be solved in organi-
za ion. 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 wliat 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 tw^o or more classes; whether conducted
entirely in one plant or through branches; the method of marketing
the goods; l)y 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 engi-
neer to determine the qualifications of the men. He must be governed
solely by the requirements of the business. When his work is com-
pleted, it is for the management to decide who is best fitted to assume


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the duties and carry out the purposes of the departments and positions

We refer, for convenience, to the business engineer or systeraa-
tizer; 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 establish-


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 responsibihties.

These definitions all lead to a common center, that is, co-opera-
tion. 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 distin-
guished 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 man^
agement; certain authorities are delegated to effect economical

The stockholders (owners) first elect from among their number,
a hoard of directors. This is the initial step toward perfecting a
business organization. The directors represent the stockholders,


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and the interest of the stockholder, as such, becomes that of an in-
vestor 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 execu-
tive or managerial division. The first act of the directors is to meet
and elect the usual executive officers: President y Vice-President,
Secretary f and Treasurer. In modern organizations, it is customary
to also elect or appoint an executive committee or hoard of managers.

This committee consists of three or more members, usually
selected from the officers, to which may be added one or* more direc-
tors 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 exec-
utive committee is particularly desirable when the board is a large
one, as it concentrates authority and result^^in more prompt action
on matters demanding immediate attention. A large body is un-
wieldy, a quorum cannot always be brought together on short notice,
but a working majority of a small committee can be convened

The executive committee takes charge of both the commei-cial
and manufacturing divisions. To still further concentrate authority,
it is customary to appoint a General Manager who has direct super-
vision over the immediate operation of both commercial and manu-
facturing 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 actin'^
executive, acts with the executive committee and is directly responsible
to the board of directors.

The commercial division of a business naturally sub-divides into
two sections: Accounting , and Advertising and Sales. The first
thought of the student might l>e that accounting is given a position of
too great importance, but in the sense here ustnl it means the records
of the business of every nature, tlie accounts, the gathering and record-
ing of statistics and information of every character.

The manufacturing division divides into Purchasing and Stores,
and Production. In a measure, th(» purchasing of goods is a function of
the commercial division, but the purchasing of raw material and sup-
plies is properly under the super\ision of the manufacturing division.


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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 cleariy

Fig. 1 furnishes a graphic illustration of die principal c*omponents
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 du*ec-
tors 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 com-
mittee and the board of directors.

Under the general manager are the commercial and manufac-
turing divisions, over both of which he has direct super\'^ision.

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. W^e 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 cn^mmercial
and manufacturing divisions. His time must not be taken up with
detaib 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 connec-
tion with the commercial division. It is his business to devise sys-
tems of accounts and systems for recording the activities of every
department, and have reports compiled, in proper form for presenta-
tion to the general manager. His is a statistical department, filling
a place between the general mannger and the subordinate depart-


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F*\K. 1. Chart of a Corporate ManufafturliiK Knterprlsr


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ments, 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.

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 conmiuni-
cation between factory departments and the general manager.

Fig. 2 illustrates the subdivisions of the commercial and manu-
facturing branches. This chart does not go back of the administra-
tive 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 sup-
plies; 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

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 manufac-
turing branches. The comptroller is in communication with the
manufacturing branch since tlie making of schedules, time keeping,
and the assembling of cost statistics are all centered in his oflBce.
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 e(|ually responsible to the general manager, which of
itself requires cordial cociperation.


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Fig. i. A Chart of Working Authorities In a Manufacturing Business


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8. Organization Applied to Small Business. We have referred
only to large manufacturing enterprises divided into many depart-
ments, 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 secre-
tary and treasurer, or vice-president and treasurer, yet each office b
filled. If the board is small the executive committee may be omitted,
in which case the board itself performs the duties of the executive
conunittee. 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 mana-
ger of the business, but in so doing he is acting in an entirely difl^erent
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

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 ,selli)uj.


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Fig. 8. A Chart of a Corporate Trading Enterprise


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The buying department is subdivided into piArchasing, 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

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 depart-
ments. Direct communication is also maintained between the two
departments. The accounting division keeps the accounts of the
buying department; the sales division must Ik* in coinmunicatioii
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 establish-
ments where minor variations of our plan of organization appear
necessary, but in the final analysis, the fundamentals prove to be the

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Fig. 4. Ohart of Working Authorities in a Trading Business


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Reduced to its simplest form, we will suppose the business under
consideration to be a small retail establbhment conducted by two
partners. No thought has been given to the principles of organiza-
tion, yet they are applied in that little store just as surely as in the im-
mense 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
prdbably 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*

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 special-
ized, 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 sales-
manship. 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 appli-
cation 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 furnish-
ings, clerical assistance; sell their services.

In every undertaking, revenues are produced through salesman-
ship. Every business and every profession has something to sellj


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and its financial success depends largely upon the quality of sales-
manship 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 exten-
sive advertising campaign and many salesmen, a selling organization
exists in some form. And before anything can be sold it must l)e
procured, or bought.

On this question of the universal application of the principles
of organization, we quote from a valuable contribution in The Engi-
neering 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 syn-
onymous 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 tnat many commercial enterprises are being con-
ducted 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 accoimts. 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 amoimt to enough
to warrant a receiving clerk as well as a shipping clerk, and, to handle thin
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 economi-
cally; 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, <lraw-
ings, 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 evolu-
tion 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 segrega-
tion continues as the development continues.

" Perhaps it is not to be wondered at that the founder, in looking back-
ward, is inclined tr^ pat himself on the back when, in a reminiscent mood, he


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considers what be terms 'remarkable development.' He considers that he hA0
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 em-
ploys a do»en 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 pausing atjbention 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 organisation naturally
fails to attain that degree of efficiency obtainable, and for this condition ha,
and he only is responsible."

11. Departmental Authorities. The next logical step in the
development of our organization is an analysis of the clepartmental
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

Online LibraryIll.) American School (LansingCyclopedia of commerce, accountancy, business administration ... [microform] → online text (page 2 of 27)