Chapter 3

One of the earliest results of an approach to business in an attitude 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 coöperation 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 coöperation 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.