CCS Manual Complete

Homer M.
Sarasohn 1998
The Fundamentals of Industrial Management
CCS Management Course
Homer M. Sarasohn
Charles A. Protzman
Civil Communications Section
GHQ, SCAP
Homer M. Sarasohn 1998
ii
Electronic edition
http://deming.ces.clemson.edu/pub/den/giants_sarasohn.htm
iii
Contents
Preface..................................................................................................................................iv
Acknowledgements ..............................................................................................................vi
Chapter I. Management Policy ............................................................................................1
Objective of the enterprise .............................................................................................1
Administrative Policy.....................................................................................................2
Management Policy........................................................................................................3
The nature of Policies ....................................................................................................6
Leadership and Policy Enforcement ...............................................................................8
Examples of Policies, Sales, Personnel, Public Relations.................................................9
Operational Policies .....................................................................................................11
Chapter II. Organization....................................................................................................13
Zones of Management..................................................................................................13
Design of Organization ................................................................................................22
Forms of Organization.................................................................................................28
Construction of an Organization ..................................................................................32
Analysis of Existing Companies ...................................................................................65
Chapter III. Controls..........................................................................................................80
Types of Controls ........................................................................................................80
Prerequisite to the establishment of controls.................................................................88
Application of Organization Controls...........................................................................89
Quality Control............................................................................................................94
Application of Cost Controls...................................................................................... 118
Application of Supervisory Controls .......................................................................... 129
Chapter IV. Operations.................................................................................................... 137
Plan and Organize Operations .................................................................................... 137
Build for the Future ................................................................................................... 143
Establish the Elements for Success............................................................................. 156
Charts................................................................................................................................ 176
iv
Preface
As the year 1946 began, the good news was the War in the Pacific had ended. The bad news was
Japan was a devastated country. Its economy was at a standstill. The industries that had devoted
their resources to its war efforts were now, to a large extent, destroyed. Their factories were
reduced to rubble. Peoples lives were in chaos. Food was hard to come by. Government
operations were disrupted and ineffectual.
Into this situation came the Allies occupation force led by General Douglas MacArthur. The
immediate question he faced was: shall Japan be treated unrelentingly as the vanquished enemy,
or shall it be restored to viability as a democratic nation to take its place in the community of
nations? The Allied decision was that Japan would be helped to rebuild its national economy and
its national life.
For this purpose, MacArthurs general headquarters (GHQ) was organized into several staff
groups, each one having direct supervisory and leadership responsibility for an assigned segment
of government operations. One of these groups was the Civil Communications Section (CCS).
Its task was to rehabilitate the communications industry, which was in shambles, and put it into
good working order.
This would be no small or simple job. The countrys telephone, telegraph and radio broadcast
systems had been heavily damaged by aerial bombardment. But even before this, these systems
had been neglected by the lack of regular facility upgrades and scheduled maintenance services.
Adding to the problem now was the loss or unreliability of the manufacturing industry these
systems had to depend upon for equipment and supplies support.
The starting point for CCSs effort to get the communications systems back into service had to be
the revival of the equipment manufacturing industry. This meant that companies that had been
producers of items such as radio receivers and transmitters, telephone instruments and switch
gear, telegraph devices and related components such as vacuum tubes, relays, cables and chassis
had to be identified and scheduled for attention.
Getting their facilities back into operation in the 19461948 time period was a daunting challenge.
Debris had to be cleared from factory sites and work spaces set up. Machinery that had been
removed to rural areas to escape the air raids had to be located and brought back. Other machines
and equipment had to be repaired, refurbished and installed. Workers had to be hired and trained
for their jobs. Supplies and materials had to be brought in. This was literally starting the
manufacturing process from the ground up.
As difficult as these problems were to resolve, there was yet another major obstacle to overcome.
At the very beginning of the Occupation, the decision was made to eliminate the zaibatsu, the
cartels that dominated Japans industry and provided major support to the countrys military
v
ventures. Their senior executives were removed from positions of power and influence. New
managers, then, had to be selected and installed to run the companies that were being revived.
The source of these new people was primarily the companies second levels.
Basically, these were inexperienced functionaries. They tended to be followers, rather than
leaders. In their previous role they typically relayed their superiors instructions to their
subordinates. They were seldom involved in strategic planning or decision making. Their vision
of what might lie beyond the immediate at hand was limited by feudal traditions. They were
unprepared for their new responsibilities, and uncomfortable in the positions into which they had
been forcefit.
Great advances had been made in the West in production technology during the war years. Major
improvements had been achieved in product quality, manufacturing productivity and yield though
the use of statistical process control techniques, universal machine tools, and paced automatic
assembly methods. It was appropriate that, at the proper time, information about these new ideas
should be passed on to these managers for application in their companies. And, they were eager
to get that information. But at this time (19481949), it was of greater importance that these
people be trained in the modern concepts of progressive management. A solid foundation of
knowledge must exist first if these advanced techniques were to be successfully employed.
A colleague of mine in CCS, Charles Protzman (now deceased), and I decided that a university
level course in the fundamentals of industrial management was needed to modernize the practice
of management in the communications industry. The course would be called the CCS
Management Seminar. Senior executives of the companies in the industry would be obliged to
attend as students. Protzman and I would be the teachers. We would write the textbook since
none other existed that met our requirements. Protzmans half of the book had to do with the
pragmatics of manufacturing: industrial engineering, production processes, cost controls, plan
layout, etc. My part covered management policy formulation, strategic planning, organization
principles, product innovation, quality control, etc.
The course was presented first in Tokyo in the latter part of 1949, and second in Osaka in the
spring of 1950. The students represented more than 100 companies, universities and
government agencies. Classes were held four days a week, eight hours a day for eight weeks.
Subsequently, the course continued to be presented to other industrial groups for several years
under the sponsorship of interested Japanese training organizations.
It should be noted that the fundamentals of industrial management never wither into oblivion.
Application of those fundamentals to new situations, however, may require new and creative
even imaginative ideas. Successful managers will recognize the need for such new ideas, and
they will respond appropriately and in time to maintain the vigor of their enterprises.
That is fundamental!
Homer M. Sarasohn
Scottsdale, Arizona
August 1998
vi
Acknowledgements
What was created fifty years ago as a matter of necessity has been given a new life as a historical
record by some very special people.
One of these is Kenneth Hopper. His research into the post-World War II evolution of Japans
industrial success led to the publication of Creating Japans New Industrial Management: The
Americans As Teachers (Human Resource Management, 1982). This was a detailed scholarly
analysis of the environment the CCS Seminar was designed to change. It helped to put what we
achieved in Japan into proper perspective.
Myron Tribus is indeed a special person. He is an educator, practitioner, consultant: an
internationally renowned authority on the subject of quality management. Among his many
accomplishments, he produced and made available to the public a comprehensive video tape
record of the CCS Seminar program. His suggestions and critique were invaluable in updating
this text for publication.
Of particular note are the contributions made by Nicholas Fisher in bringing this text to
publication. It was Nick who conceived and implemented this project. He was positive it could
be done, and was worth doing as a historical record of something that helped to change a nation.
The timeworn appearance of the original 50 year old printed pages of notes did not deter him.
But, it was Suzanne Lavery, in fact, who had to contend with those pages. She labored mightily
to produce a comprehensible typescript, organize the chapters, and put the charts and other
illustrations into proper order.
My personal thanks go to Nick and to Suzanne, and to my wife Shirley for her editorial help.
H. M. S.
Notes:
1. References available to me at the time of preparation of the original course material were:
L. P. Alford, Principles of Industrial Management. New York: Ronald Press, 1947.
P. E. Holden, L. S. Fish & H. L. Smith, Top Management Organization and Control.
Stanford: Stanford University Press, 1947.
D. S. Kimball, Principles of Industrial Organization. New York: McGraw-Hill, 1939.
2. In producing this electronic version of the course notes, the opportunity was taken to make a
few minor changes of an editorial nature, and to improve the layout. Otherwise, the notes are
as originally prepared.
- 1 -
Chapter I. Policy
1. Objective of the enterprise
Why does any company exist? What is the reason for being of any business enterprise? Many
people would probably answer these questions by saying that the purpose of a company is to
make a profit. In fact, if I were to ask you to write down right now the principal reason why your
companies are in business, I suppose that most of the answers would be something of this sort.
But such a statement is not a complete idea, nor is it a satisfactory answer because it does not
clearly state the objective of the company, the principal goal that the company management is to
strive for. A companys objective should be stated in a way which will not permit of any
uncertainty as to its real fundamental purpose. For example, there are two ways of looking at that
statement about profit. One is to make the product for a cost that is less than the price at which it
is to be sold. The other is to sell the product for a price higher than it costs to make.
These two views are almost the same but not quite. The first implies a costconscious attitude
on the part of the company. The second seems to say whatever the product costs, it will be sold at
a higher price.
There is another fault that I would find in such a statement. It is entirely selfish and onesided.
It ignores entirely the sociologic aspects that should be a part of a companys thinking. The
business enterprise must be founded upon a sense of responsibility to the public and to its
employees. Service to its customers, the wellbeing of its employees, good citizenship in the
communities in which it operates these are cardinal principles fundamental to any business.
They provide the platform upon which a profitable company is built.
The founder of the Newport News Shipbuilding and Dry Dock Company, when he was starting
his company many years ago, wrote down his idea of the objective the purpose of the
enterprise.
He put it this way. We shall build good ships here; at a profit if we can at a loss if we must
but, always good ships.
This is the guiding principle of this company and its fundamental policy. And it is a good one too
because in a very few words it tells the whole reason for the existence of the enterprise. And yet
inherent in these few words there is a wealth of meaning. The determination to put quality ahead
of profit. A promise to stay in business in spite of adversity. A determination to find the best
production methods.
Every business enterprise should have as its very basic policy a simple clear statement, something
of this nature, which will set forth its reason for being. In fact, it is imperative that it should have
such a fundamental pronouncement because there are some very definite and important uses to
which it can be put. The most important use of basic policy is to aim the entire resources and
- 2 -
efforts of the company toward a well defined target. In a general way it charts the course that the
activity of the company will follow in going toward the target. (See Fig. III.)
Making a clear statement of the objective of the enterprise is like providing a target for a man
shooting an arrow with a bow. Figure No. III shows such a man who represents company
management holding a bow which represents company policies and an arrow which represents the
total efforts and resources of the company. If no target is provided for management (the man),
toward which company efforts and resources (the arrow) can be aimed and directed, company
policies (the bow), no matter how good they may be will be utterly useless. But altogether,
policies, efforts and resources and ultimate purpose to which they are to be put are all part of a
single picture. Any one part has a definite intimate inter-relationship with every other part, and
no one part is able to stand alone. Each demands the co-existence of the other elements in order
to comprise the total picture which is the entire business enterprise.
A great advantage to be gained in a statement of the objective is the stabilizing effect it is bound
to have on all features of the organization. For one thing, employees will better understand the
use to which their efforts are being put in relation to the total enterprise. At the same time, the
statement of the objective will build up confidence in the customers by letting them know just
what they can expect from the company. Then too, the part that everyone in the company must
play in relation to the attainment of the desired goal is more easily recognized because of the
stated objective.
The statement of purpose also serves as a point of measurement, a standard, against which current
operations can be measured in order for management to assess the accomplishments of the
company. Not the least of the advantages to be gained is the opportunity afforded for pre-
determining all the factors involved in attaining the sought-for goal.
Thus, the basis of the organization lies first of all in the enunciation of the basic policy, the
fundamental objective of the enterprise.
Obviously, there can be as many different stated objectives as there are different business
enterprises. But one point stands out clearly. A very necessary preliminary to the establishment
of any company is a clear, concise, complete statement of the purpose of the companys existence.
2. Administrative Policy
But such a short statement of this nature cannot contain all the necessary elements of procedures
and instructions to employees on how to accomplish the ultimate goal of the company. So,
within the framework which has been established by the enunciation of the objective of the
enterprise, and in order for the company organization to become a living, functioning body, there
must be established general rules for the conduct of business which we may call administrative
policies. Whereas the basic policy may have been laid down by the stockholders or the owners of
the business, the administrative policies which cover the broad problems of the enterprise are
generally issued by the Board of Directors or the President and the other top company officials.
- 3 -
Administrative policies are those that determine the scope within which management is to
operate and they set the objectives which are to be attained in the normal operations of the
business These policies become the general laws of the company and usually are concerned with
the broader aspects of financial, production, sales, accounting and organizational matters.
For example, financial policies are usually related to the issuance of stock, declaration of
dividends, borrowing of money, investment of surplus, etc.
Production policies have to do with the location of a new plant, change in location of an existing
plant, collective bargaining agreements, method of wage payment, etc.
Sales policies may be concerned with the method of selling, whether direct or through jobbers,
establishment of branch offices, and whether to aim for large volume small profit sales or
small volume large profit sales.
Executive policies related to accounting have to do with the installation and use of a budget,
selection of a cost system, and the nature and character of administrative and operational reports.
In each case, an administrative policy is a general rule which states the established procedure
which is to be followed in a recurring situation.
3. Management Policy
On the other hand, management policies are more specific and detailed rules which prescribe
procedures to be followed in particular situations. But the main distinction between
administrative and managerial policies lies principally in the executive level at which they are
formulated. The former are framed by the top executive group while the latter are usually set
by the executives in the operations group.
Management policies are those that are determined by the personnel group which leads, guides,
and directs an organization to the accomplishment of predetermined objectives.
Persons in this group include the Treasurer, Comptroller, Plant Manager, Chief Engineer, Sales
Manager, General Affairs Manager, Personnel Manager and the Purchasing Agent.
The purpose of management policies is:
a. To make every person in the organization clearly understand his position in the
organization and his relation to others in the organization.
b. To clearly define the duties of every person and every part of the organization and
definitely fix the responsibility and authority of every person.
- 4 -
c. To coordinate the efforts of every person and every part of the organization in order to
achieve a single effort toward the realization of the enterprises administrative and
basic objectives.
d. And in the case of several persons being on the same level of authority, to carefully
prescribe and coordinate the efforts of the separate field of each one.
Good policies are coordinative in their influence upon the organization and are basic for
management control. In order to develop and implement this control certain devices are used in
conformity with established policies in order to make those policies effective. The devices which
are used to secure and maintain coordination are called the system the management system.
Of the several mechanisms that are used to coordinate efforts and exercise executive control the
most important are: organization charts, organization records, standard practice instructions,
orders and returns, records of performance, administrative reports, and committees.
The organization chart is, of course, a picture of the structure of the enterprise.
The organization record is a written interpretation of each position shown on the chart.
Standard practice instructions make policies effective by telling precisely, stepbystep, how a
particular job is to be done.
Orders and returns is the name given to the flow of instructions and advice from top management
down to the lowest level of workers and the return flow of reports and suggestions from that
lowest level to top management.
Records of performance are the data sheets that are gathered from inspection, production, sales
and other activities of the company.
Administrative reports are such things as profit and loss statements, balance sheets, stocks and
bonds reports, etc.
Committees are cooperative groups which are organized to make best use of the combined
knowledge and talent of the company.
Now before analysing the nature of management policies, let us see to what sort of problems they
are applied. Some of these are:
a. Development of an organization plan for departments and subdivisions, defining
authority, nature, scope, and limitations of activities and relations and responsibilities
of each department.
Attention should be given to the use of the words limitation of activities Just as it
is important to specify the scope of the functions of a department, it is also desirable,
- 5 -
by specifying the limitation of activities, to tell what functions are not to be included
within its scope of activities.
b. Development of a layout plan for departments and equipment, to provide for
rearrangement where necessary and to include provisions for expansion and new
departments in accordance with the major organization plan.
This item is concerned with the Organization for Operations, which is the physical
requirement (plant, machines, tools, equipment, workers and such other physical
necessities for production) of the manufacturing company.
c. Collection and summarization of data relating to products.
The emphasis here is on making market and sales studies not only of your own
companys products but also of your competitors products, analyzing such things as
customer preference, sales reaction, etc.
d. Collection and summarization of data relating to machinery and equipment.
e. Standardization of machines and development of a maintenance system.
On the assembly line where there are several operators all doing the same work, the
same production machinery should be used. It would thus be possible to maintain
better control of production if there is some plan to standardise on the type of
machine equipment used. At the same time it is of utmost importance that that
machine equipment be maintained for proper operations. A definite routine of
keeping machinery in good order should be established as a maintenance system.
f. Standardization of tools and development of a tool room system.
g. Development of a stores system.
A great deal of money is being lost in Japanese companies through petty thievery and
damage because of the lack of an adequate warehousing system. Besides this there is
often large amounts of materials purchased unnecessarily because of inadequate
inventory control systems.
h. Development of an order system (flow of instruction and returns).
i. Development of a timekeeping system to serve accounting purposes.
j. Development of a routing system including complete planning in advance of work to
be done in turning out the product.
k. Development of methods to follow up and control work in process.
- 6 -
l. Development of time studies, development and standardization of operations and
operating methods and a pay system based thereon.
The present system of wage payment does not take into consideration the amount of
good work, efficient work, that is being done in the factory. Standard costs based
upon factual knowledge of the manufacturing process in use are almost nonexistent.
There is hardly any company in Japan that does not need a definite policy in this
regard.
m. Development of a cost accounting system.
4. The Nature of Policies
Even though in different companies there are bound to be widely differing policies depending
upon the different individual situations, there are certain elements which are common to all
policies. These are:
a. A policy must be flexible in application.
b. It must be subject to change and improvement.
c. It must be enforced in order to be effective.
What is meant by flexibility is, an industrial policy must be capable of meeting special situations.
In formulating a policy it should be framed with as much foresight as is humanly possible to bring
to bear on the problem. For this reason, generally a policy should be considered as almost a fixed
practice. But it is inevitable that from time to time, there will be cases where the facts of a
pressing situation are in contradiction to established policy.
In this case executive judgement will be called upon for a decision to relax or temporarily amend
the policy and it should be possible to do so without running the risk of endangering the
continuance of life of the policy or its applicability in other normal cases.
At the same time a policy cannot really be considered as a rigid sacred standard. Rather it should
be regarded as progressive in nature and as susceptible to modification, change, or improvement
at any time when a better practice is discovered. A policy is never ultimate.
It should be realized too that no statement of established procedure is effective simply because it
has been enunciated. To produce the effect desired through the influencing of activities and
actions, policy must be enforced by the impact of a human will through (a) organization
structure, (b) planning programs and schedules, (c) standard practice instructions and (d) checks
and corrections of performance.
- 7 -
This impact of a human will is the functioning of managerial leadership; that which makes a
policy effective because of enforcement.
All too often in Japan we find a general inclination on the part of management to think that if a
plan exists then automatically the problem covered by that plan is solved. Nothing could be
further from the truth. A plan only exists if it is put into effect by purposeful and consistent
action. A plan only has value in relation to its actual use.
Figure No. 112 shows graphically the relationship of the various phases of policy establishment.
Industrial policies are of two natures: Administrative and Managerial (management). In order to
provide a consistent method of dealing with specific problems, and also for the purpose of
relieving busy management personnel from having to act personally in every case which could
just as well be handled by a subordinate who follows an approved procedure, policies are
formulated. But as it has been said above, in order to make policies effective they must be
enforced. Management enforces policies by exercising leadership and acting through the lines of
authority provided in the established organization.
Any business enterprise is capable of being divided into two component parts. One is the
organization for operations; that is, the physical aspects of the enterprise, and the other is the
organization for control. This latter includes the management functions which guide, lead and
direct the operational activities toward the accomplishment of stated objectives.
For effective use this organization for control must be designed just as any structure is designed.
Personnel must be selected, trained, and assigned positions within this organization and given the
responsibility for carrying out the functions of executive control. Finally, management must
coordinate the activities of all the various functions of the enterprise so that out of separate efforts
there must come a single combined effort which is devoted to the accomplishment of a single
purpose the realization of the objectives of administrative policies and of the basic purpose of
the enterprise.
There are, of course, internal conditions in a company which influence the making of policies.
Just as there are many factors external to the company which may affect policy making too.
These might be national laws, local laws and regulations, trade agreements, labor contracts,
public opinion, etc. But, no matter what factors may be involved, there are eight essential steps
which should be followed in policy formulation.
a. A policy should be definite, positive, clear and understandable by everyone in the
organization.
Particular attention should be paid to the use of the word everyone. The welfare of
enterprise demands that every single person in the organization know, understand,
and use the policies which are established for the guidance of the enterprise. That
means that it is important for each worker as well as the president to know the laws of
his company.
- 8 -
b. A policy should be translatable into practices and peculiarities of every department
and part of the organization.
c. A policy should be flexible and at the same time have a high degree of permanency.
d. A policy should be formulated to cover all reasonably foreseeable conditions.
e. A policy should be founded on facts and sound judgment.
f. A policy should conform to economic principles, statutes, and regulations, and should
be compatible with public interest.
g. A policy should not prescribe minutely detailed procedure.
h. Policies are useless unless they are enforced.
The eight points stated above can be used as a yardstick to measure the adequacy of your own
company policies. Take each of your own policies and compare them step by step against each of
these eight points. How do they measure up? Do your policies meet every qualification or are
they lacking in some element? If they are, then you know wherein your policies must be
corrected in order to make them good policies.
Policies are like standards or like the laws of the nation in that they represent the best that can be
devised at the time and they should be adhered to until good reasons appear for making a change.
For this reason, policies should be under constant review by company management so as to make
sure that they do not become obsolete or ineffective.
Policies, again like standards or laws, are useless unless they are enforced. They are the best and
perhaps the only way that management can impress its ideas and ideals upon the rank and file of
its employees.
For this reason they should be definite and tangible and presented to all in a simple
understandable form. The most difficult task in this regard is to get the ideals and ideas of the
management clearly before every worker. Ways of accomplishing this might be by periodic
meetings of management and workers in small groups wherein the policies are explained and
discussed. Another publicity scheme is to use printed statements in company periodicals. The
point to be remembered here is that building up company morale and making policies effective
are a constant process of education which must never be allowed to become neglected.
5. Leadership and Policy Enforcement
But, policies alone are not of much avail. However, good policies plus wise leadership may be
very effective. No enterprise, industrial or otherwise, prospers without able leadership. Inasmuch
- 9 -
as a policy is merely a general statement of procedure of something to be done and how to do it, it
has within itself no force to bring about results. Executive action leadership is required to
make any policy effective. The more positive and more effective the leadership exerted, the
greater is the probability that policies will be adequately enforced and the predetermined results
realised. In other words, achievements in manufacturing enterprises come from decisions put into
effect by the will of the ones who are responsible for policy enforcement and who exercise
leadership.
Whenever men are gathered together for the purpose of accomplishing some common purpose the
basic principle underlying all operations the principle of leadership applies. That principle
is stated thus: Wise leadership is more essential to successful operation than extensive
organization or perfect equipment.
Leadership is the faculty or capacity to direct, control, or influence others in definite lines of
action, and to maintain a high level of morale. A leaders main obligation is to secure the faith
and respect of his followers. To do so he must be the best example of what he would like to see
in his followers. In the democratic sense a leader does not drive his people, nor does he make his
people advance by kicking them in the back.
Rather he goes ahead of the others, as if he were lighting their way through a dark tunnel,
showing them the path to take and forging ahead so that the others can come after having full
confidence that they are treading a firm safe path that will ultimately lead to the desired goal.
The characteristics required for leadership are: Creative power, high purpose, courage, honour,
independence, tireless industry.
These characteristics are not qualities that are to be reserved as private property only for the
companys president or directors. They must be possessed by everyone in the organization who
has to do with the enforcement of policy whether he be president or foreman. And in those cases
where there are supervisors who do not have these necessary characteristics, such people must be
trained and the qualities developed in them so that they can become good leaders and thus
correctly enforce the policies of the company.
6. Examples of Policies, Sales, Personnel, Public Relations
Up to this point we have discussed the basic requirements of organization. We have learned that
a company must be based first of all upon a clear statement of its objective. This objective is then
amplified into general rules of procedures by the formulation of administrative policies. Finally,
by the development of managerial policies the general procedures are put into more detailed form
so that the objectives of the company can actually be realized.
a. Sales
- 10 -
Now let us give some attention to particular policies and see how they come about. Let us
take an example of a sales policy which is stated as, The sales policy of this company will
be to extend our product into every available market.
As good as this statement might be, it does not tell how the result is to be accomplished.
The usual procedure has been just to send salesmen into a sales area without any
preparation whatever with a hope that they may be able to find some customers. Modern
management uses a different system and follows a management policy.
Suppose we have a sales organization as is shown in Figure 123 and the management policy
outlines the sales procedure as indicated. The steps which would be followed in developing
a new market would be to first of all make a market survey. The new sales territory is
surveyed from the point of view of the population, the distribution of wealth, the nature and
character of the residents, and the competition which may be encountered in that area. This
survey becomes a recommendation to the company on the sales possibility of this new area.
Using the information gained from the survey an advertisement campaign is started which
is tailored to fit the requirements of that particular area. Only after this advertising
campaign has been started and is in full force is a direct approach made in that area by the
salesmen, but these salesmen have been previously armed with completely organized sales
material.
They have complete information on the product they are selling, delivery schedules, credit
information, application of the product and the customers particular use, authority to
conclude sales contracts and such other things required to adequately exploit this new sales
territory.
This whole sales procedure which has been outlined may be embodied in the sales policy
which is used to implement the administrative sales policy of extending the market. It is a
policy which is built upon facts. The method is logical and scientific.
It is not personal or casual. Figure 124 indicates other problems which may be covered by
the establishment of sales policies.
b. Personnel
An example of a personnel policy was stated by a certain company in these words: It will
be the policy of this company to secure the maximum prosperity for the employer coupled
with the maximum prosperity for each employee.
This statement is an administrative statement and enunciates the objective which will be
sought. It does not tell the manner in which it will be accomplished. For that we need
management policies of more detailed nature. These will be concerned with wages, job
evaluation and bonuses for merit, production, and operating efficiency. They will also
contain procedures relating to employee welfare and benefit activities, working conditions,
- 11 -
discipline and will set the rules to be followed in such matters as promotion, hiring and
firing, seniority and training.
Figure No. 125 is the personnel policy of Western Electric Company. It may be desirable
for you to use this example in a comparison with your own personnel policy. How does
your policy measure up to this one?
c. Public Relations
The relation of the company to the community in which it is located has recently come to be
recognized as having a significant importance. In this regard company management have
often found it necessary and advisable to make definite plans to obtain and maintain a spirit
of good will and thus they have formulated what are called public relations policies.
d. General
In general, there will be a policy enunciation for every major function of management.
Policies on pricing, on research activity budgets, on the number and quantity of product
models to be made in any production period, on whether raw materials will be bought on
speculation. Such matters as these will be clarified for the benefit of management by policy
statements. What this really means is that management will try to foresee every problem
with which it may be confronted and have a predetermined plan ready to be used in any
event.
Figure No. 126 is a policy statement promulgated by the Ministry of Telecommunications.
It is one of the first and certainly the best of such statements to come out of any government
agency in recent times. Here again is a good example of what policy statements should be.
7. Operational Policies
We have said that the objective of the enterprise will be stated in very general terms and that
administrative policies are general rules for the conduct of business. Management policies are
more detailed rules of procedures but do not state the detailed steps which are to be followed. To
cover this phase there are operational policies which generally take the name of standard practice
instruction. Such instructions are usually formulated on a departmental or section level by
immediate work supervisors. These instructions prescribe the steps to be followed in actually
accomplishing particular specific jobs.
There are usually several ways any given result can be achieved. The purpose of the standard
procedure is to select the one best way, taking into consideration the particular conditions of
management, personnel, product, facilities and plant, putting that best way into writing,
distributing the instructions to all concerned departments and individuals, instructing personnel in
the use of the procedures, supervising its execution to see that it is being properly carried out and
- 12 -
that the desired results are being achieved, and periodically reviewing the procedures to see if a
better way of doing the job can be formulated.
This is a method which applies to every function in the company, office, factory and laboratory.
If each department of the company is to efficiently perform its part of the total task it must know
definitely what it is to do as well as the best and quickest way of doing it. If the operation as a
whole is to be performed effectively each department must do its part in proper sequence and
must do it in such a manner as to facilitate the operations to be performed by other departments.
The using of written procedural instructions is of utmost importance since it will prevent conflict
of authority, gaps in responsibility and also costly errors.
In our previous example of the sales policies, standard practice instructions would be detailed on
how the market survey is to be done, detailed instructions on the procedures to be followed in
conducting and processing the advertising campaign and specific instructions to the salesman on
how they are to do their job. The actual functioning of the operations of every phase of the
business is clarified and specified in this manner.
One of the greatest advantages to be found in the use of operation policies (standard practice
instructions) is that they relieve the management people of themselves having to act in every
routine matter that occurs in the normal course of business in the company. A management
persons time is valuable and it should be used only for the important aspects of the business
which are not of a recurring nature. Where only ordinary problems occur, these instructions
should be used and followed, thus relieving management of some of its burden and allowing the
upper level people time to function in the proper sphere, namely, managing and planning ahead
for the overall welfare of the entire company.
It is the responsibility of each of the labor management level persons who formulate operational
policies to see that such policies are consistent with and in harmony with the management
policies within which he is to function. At the same time it is the responsibility of the top
management people to see that operational policies which are formulated, are designed to
effectively carry out the major policies of the company in the best and most efficient manner.
It is also the responsibility of top management to define the nature of policies which can be
determined by the lower management levels, which policies must be submitted to the higher level
for approval before putting them into effect and which policies are to be determined only at upper
levels of management. Such decisions as these will be made in conformity with the organization
chart and organization manual (that which is used to interpret the structure of the organization)
and usually will be specified in the job description which is written for each of the positions in
the company.
- 13 -
Chapter II. Organization
1. Zones of Management
1.1 Introduction
There are, in an efficient company, various zones or levels of management which are separate and
distinct. Each can be identified by the nature of the functions and responsibilities. The
possibility of effectiveness can be measured by the extent to which functions are defined,
authority is specified, and accountability is actually required.
The purpose of this educational unit is to review the concept of Zones of Management. It is
hoped that after careful study of the principles discussed it will be possible for each top
management executive to better analyze the present management structure of his company and
recognize its weakness. The study of sound principles is valuable only to the extent these can be
and are practically applied. We consider the application of these principles vital to the future of
any company.
At the outset it is important to have an understanding of the use of terms. When a title is used it
will not necessarily be comparable to the title used in your company. We have found that in
various companies, whether American or Japanese, the title in one company may mean something
entirely different than the same title in another company. So do not take any title or term used in
this discussion and apply it as such without careful analysis. Instead, study the job functions, the
responsibility, the authority and the accountability. The title is just an empty bucket look at
what the bucket contains.
1.2 General Concept
The first step in recognition of the zone structure of management is illustrated in Chart # 11 1.1,
which shows the Pyramid of Management Structure. At the base of the Pyramid are the
Workers. These are the real doers; the people who actually make the product; who do the work.
Above these, and dependent on the worker base are the lower management levels which we will
call the Supervisory Management Zone.
Over this comes the group which we will call the Top Management Zone with the President at the
Apex of the Pyramid.
If you will examine this Top Management Zone you will observe that it is divided into two sub-
zones, the lower being referred to as Departmental Administration and the upper as General
Administration.
- 14 -
At the right of the company Pyramid you will observe another Pyramid which is inverted. This
Pyramid which parallels the General Administrative Zone of Top Management we call the Board
of Directors and its zone we have called the Trusteeship Zone.
1.3 Detail Analysis
A. Trusteeship Zone
Trusteeship is used here in the sense that the Board of Directors is acting for, and in the interests
of the stockholders. This is a different type of responsibility than that of the President and Top
Management for the internal functioning of the company.
Referring to Chart # 11 1.1 you will see that on the Board of Directors we have shown a portion
of the Pyramid (outside Directors) which is beyond the Company Management Zone. In the
United States many companies have such directors who are elected by the stockholders either to
represent groups having a large stock ownership or because their experience and background is
valuable in maintaining a well-balanced company. These outside directors are not regular
employees of the company and are not a part of the companys internal management. Selection
of such outside directors by the stockholders is apparently not very common among Japanese
companies at the present time and is not absolutely essential if the company management
representatives on the Board of Directors are efficient, experienced, capable, and exercise sound
judgement. But it is essential if the Board of Directors is merely a rubber stamp for the President
or some other strong or influential individual. In the United States it is generally recognized that
outside Directors contribute much to the balance and continued progress of successful companies.
Also, referring to Chart # 11 1.1 you will note that the Pyramid cuts off at the bottom of the
General Administrative management level. While there are cases where this is not advisable it
has been found that generally the men who are in charge of Departmental Administration are so
involved in the organization, functioning and administration of their own unit that they do not
have the general experience and background needed for the execution of responsibilities required
of the Board of Directors. Further, it is very difficult for them to divorce themselves from the
problems of their own Department and consider problems objectively from the standpoint of
overall company operation.
We have found in Japan that a great deal of prestige is attached to the title of Director or
Managing Director. Appointment to such a position, which carries with it a place on the Board of
Directors, is too frequently the result of long company service, friendship, university connection,
or family relationship to some powerful individual. Such a custom or tradition is not in the best
interests of either the stockholders or the company.
- 15 -
Reference to Data Sheet # 11 1.2 and a careful analysis of the responsibilities in the Trusteeship
Zone will show the dangers of poor selection for the Board of Directors. It cannot be emphasized
too strongly that for continued success the members of the Board of Directors must learn their
responsibilities and actively execute them (Discuss Data Sheet # 11 1.2) Also refer to Data
Sheet # 11 1.3 Example of U.S. Co.
- 16 -
Advantages and Disadvantages - Top Management Board
(Develop these points through guided discussion.)
ADVANTAGES DISADVANTAGES
1. Generally, all important functions are
represented for consideration of basic
problems and policies.
2. Matters requiring consideration
receive quick action.
3. Special meetings can be called easily.
4. More frequent meetings should result
in constant Board consideration and
deliberation on company affairs.
1. Difficult to maintain objective
viewpoint which properly protects
stockholders interests in considering
business needs.
2. The Board, in effect, merely endorses
the action of its members as company
executives.
3. Members of the Board are in the
peculiar position of reporting to the
President as executives, while as a
Board, he is supposed to report to
them.
4. The President may (and often does)
dominate and run a one-man show.
5. The Board may consist of good and
capable specialists, but be lacking in
all around good business men. This
results in unbalanced decisions.
6. The Board lacks an outside point of
view in considering its problems.
7. There is absolutely no check on
management, and no one to question
the soundness of decisions or actions.
B. Top Management Zone
As indicated on Chart # 11 1.1 this zone has been divided into two sub-zones, the first being
referred to as General Administration and the second as Departmental Administration.
In order to understand what is meant by each of these sub-zones let us analyze Chart #11 1.4.
Here we continue to use the concept of a Pyramid. In the Pyramid of General Administration are
to be found the major functions of the company, each headed by a general management executive
such as a Managing Director and all responsible to the President.
It is important to remember, at this point, that the example used is not a recommended structure
for the company. It is used only to illustrate the fundamental principle of management zones.
Actual organizational structure and practical application of structural principles are covered in a
subsequent unit.
Another important fact to keep in mind at all times is that the members of the General
Administration Zone who are also members of the Board of Directors have a dual responsibility.
- 17 -
They are responsible not only to the President of the company for the proper General
Administration of the phase of the business which is assigned to them, but also to the
stockholders in the trusteeship functions.
The Pyramid concept is also applicable, regardless of organizational structure in considering the
Top Management sub-zone of Departmental Administration. Here, the general administrative
head (such as Managing Director) is the Apex of a Pyramid. Under him are the major
Departmental functions associated with the particular general management function.
Frequently, in Japan, it has been observed that selection and appointment to this General
Administration Zone has not been on the basis of ability, experience, and background, but rather
for the same unsound reasons that were outlined in discussion of the Board of Directors. (Review
these again.)
Reference to Data Sheet # 11 1.5 and a careful analysis of the Types of Functions,
Accountability, Responsibility and Authority of the General Administrative Zone will show the
importance of proper selection of personnel in this zone to fulfil adequately the needs for
successful business operation. (Discuss Data Sheet # 11 1.5) Refer to Data Sheet # 11 - 1.6
Example of U.S. Company.
C. Supervisory Management Zone
In previous discussions of Top Management and Trusteeship zones it has been evident that the
people comprising these zones have been interested in general policies, general programs, general
performance. Their responsibilities, functions and authority have been in the broad fields of
administration. It should be equally obvious that these people have no business attempting to
devote themselves to the detail functions which are part of the operation of lower management
levels. Further, they do not have time to do their own job properly for the successful management
of the company if they do devote their time to such details.
As we progress downward to the Departmental sub-zone of top management it can be observed
that there is a gradual change in what is expected of the executive. At this level we find that the
Department head may not have the broad business background, the experience and viewpoint
which are essential for the General Administrative functions of higher levels of management.
Frequently he may be younger, or less experienced.
One point that cannot be stressed too often or too greatly is that limitations of individual ability
must be considered in determining advancement. Because an individual is competent as a
department head (or any other management position) does not necessarily mean he will be equally
competent in a higher position. All too frequently this fact is overlooked and as a result people
are advanced because of long service or some other reason. When this happens and the employee
is incompetent, the business suffers. Every other management employee is handicapped and has
to carry a greater load.
- 18 -
Much less of the Department Heads thinking and effort are concerned with general planning than
at higher levels. He is focusing most of his attention on his own department. His primary
interests are specific problems of operation, efficiency and results as they concern his department.
He is required to carry out many policies, plans and programs established at higher levels. And
while he has considerable influence in shaping the course of his own department he has less to do
with the establishment of general policies and programs. Even within the department he must
conform to basic and general policies and programs in establishing his own departmental plans
policies.
This change which we have observed through the top management zones is one of viewpoint as
well as functions. The emphasis is changing from administrative, organizational and planning
ability, from objective analysis of overall operation, to the more limited but equally important
supervisory functions of executing these plans, programs and policies in the day-to-day operation
of each phase of the business.
Therefore when we come to the supervisory management zone it is important to recognize at the
outset that the change which has been observed downward through the top levels is further
accentuated as we progress through the supervisory zone.
Thus the lowest level of management, the foreman, will be found to have very little to do with
planning except from the standpoint of the day to day effectiveness of his workers. He will have
little to do with policy making. Primarily he will be responsible for the execution of the plans,
policies, programs and objectives which are set for him at higher levels.
In the analysis of the supervisory management zone we continue to use the Pyramid concept.
Chart # II - 1.8 illustrates this concept. But again, it is important to stress that the title we have
used at each level is meaningless as such. For your own analysis of your own company you must
consider the functions, responsibility, and authority that are essential rather than the empty title.
Data Sheets # II 1.9, 1.10, 1.11 outline the types of functions. Accountability and responsibility
in the various levels of the supervisory management zone. (Discuss these.)
D. Summation
In our review of the subject of zones of management we are sure that most of the types of
functions and responsibilities that we have discussed are familiar to you. You recognize them as
things you have thought about either specifically or in a vague way. But if this is true why do we
spend our time and yours reviewing them?
One very obvious reason is that our observation of Japanese managements has convinced us that
even though you know these things you are not applying them in a logical manner and one which
will give you the best results.
- 19 -
For one thing you do not zone your responsibilities and authorities in a manner that will make top
management or lower management effective. The President of a company will be so involved in
small details, in approving what should be routine action, that he does not have the time to be
President. A managing director will be interesting himself in the details of operation of a small
part of his job rather than planning and coordinating his entire organization. And the people at
lower levels who should be responsible and accountable for and have the authority to do these
detail functions are confused by the lack of proper definition of their job and by the lack of true
responsibility and authority. Further any initiative and interest they may have in trying to do a job
is often destroyed by the interference and meddling of higher management.
Do not misunderstand what we mean by interference and meddling. We expect the President, the
Managing Director, every management employee to be very interested in what is happening in
every part of his organization. We expect that when he sees something wrong, or something that
can be improved he will see that steps are taken to change the condition. But he will observe
lines of organization in having the change made. Interfering and meddling as we talk about them
are when the higher level management man, such as the President, goes directly to the lower
supervisor or worker and tells him what to do instead of making the comment or suggestions
through the various levels of management that are between the President and the individual. In
America we call such direct interference Short circuiting because the intermediate management
levels are short circuited or by-passed.
Traditionally, many of the things we discuss are not the Japanese way of doing. But while we
appreciate and understand tradition we also recognize that the rest of the industrial world is not
going to be concerned about tradition. They are going to continue to forge ahead, applying more
and more scientific principles. We do not believe we need to draw you a picture for you to
understand what that is going to mean to Japanese industry if you continue in the old ways.
We have gone through a series of logical steps in building the concept of zones of management.
We know that the principles are sound and workable. But such principles are of value to you
only as they are practically applied.
Note: To be certain that the group understands what has been reviewed, a guided discussion
should be held at this point. Below are some questions that can be asked, together with
comments as to what answers should be expected. These comments are for the guidance of the
instructor and not to be read as a lecture.
1. Within any management level in any company, foreman for example, should there be
appreciable differences in the type of function, responsibility or authority?
Answer: No. Regardless of the type of job to which the foreman is assigned, the type of
functions, responsibility and authority should be the same. The difference is in
the actual job which requires specific job knowledge rather than in the zone
responsibilities all of which require the same basic knowledge and application for
the particular level.
- 20 -
2. Does a company have to change its organizational structure in order to properly define the
type of functions, responsibility and authority that should be delegated to each level and
zone?
Answer: No. The type of functions, responsibility and authority should be the same
regardless of organizational structure for any level or zone in an efficient
company. The only change that is required is a recognition by management at
each level of what it should be doing. And following this, some action to really
do it.
3. What should be the major considerations in the selection of all management personnel?
Note: The application of scientific principles of analysis is a most important phase of this
and every other management problem. Obviously there can be all kinds of answers to such
a question. Therefore it is advisable to use analysis in arriving at a sound answer. To do
this we must ask ourselves other questions. For our purpose we will refer to data sheets # II
1.5, General Administrative sub-zone; and # II 1.11, Foreman. Comparing these two
sheets let us see what some of the factors are that require consideration.
(a) Is the viewpoint of a Managing Director the same as a Foreman?
Answer: No. The foreman is concerned with his job in minute detail. He is
answerable specifically for each and every worker; how he does the job;
what his efficiency is. Little is required of the foreman in understanding of
the overall business, or of General Administration. The Managing Director
however, must look at his job from a broad viewpoint which takes into
account not only his own phase of the business but also the company as a
whole. He cannot devote his time and effort to minute detail. His job is to
plan, to observe, to evaluate results, to assure a subordinate management
structure which will do the detail job effectively. His approach must be
fundamentally administrative rather than supervisory. The Managing
Director plans, the foreman executes.
(b) What difference is there in Experience and Background required of the Foreman and
Managing Director?
Answer: In the case of the foreman it is obvious that he should know every detail of
his specific job because otherwise he cannot train his workers. Beyond this
he must either have some knowledge of company policies or be trained. He
must also have some ability to handle people. He must meet the problems
and emergencies of day to day operation which requires ability to do simple
planning and make minor decisions.
However, in the case of the Managing Director complete detail knowledge
of the job over which he has direction is not essential. Actually it would be
- 21 -
impossible for him in most cases to know all the details of every minute
sub-unit of his organization.
Instead, he must be able to organize and plan for the job as a whole, leaving
details to his subordinates. He must be able to analyze the performance of
his organization, coordinate the activities of his departments, find the
managerial weaknesses of his subordinates and correct these by education
or change. He must devote most of his time to general planning rather than
detail supervision.
Therefore the Managing Director is required, for effective performance, to have a wide
experience in administration, in organizing and planning, in measuring quickly and
accurately the performance of his organization. He must have sound judgement which is to
a considerable extent the result of experience and background.
There is another factor which is vitally important to this managing director. It may be
called a management skill. This skill is the thing we sometimes call executive ability. This
is rather difficult to define but it might be described as the ability to visualize and conceive
ideas of what is needed and get others to execute these ideas. Further, it is the ability to
obtain from others ideas and suggestions which can be incorporated in these plans. Some
people lack this ability, and others have it to a minor degree. However, it is one of the very
important factors that must be considered if higher level executives are to do an effective
job.
It should be very evident that the selection of management personnel is not something that
can be done without careful analysis and study if you are to have an efficient company.
You cannot base promotion solely on length of service. University or family connections,
or friendship do not make any man more competent. Fundamentally, your company will
progress or fail dependent upon the ability of people selected for key positions. Be sure you
select wisely.
4. Should the decision as to functions, responsibility and authority of any management level
be based on the qualifications of specific people who now hold those jobs?
Answer: No In developing this answer the following points should be made:
(a) Building any management level position around an individual rather than upon the
proper functions and responsibilities of the level is dangerous. When this is done,
every time there is a change in individuals there must be a corresponding change in
the type of function and responsibility.
(b) Further, such a procedure results in the building up of one man organizations
because the individual will have types of functions and responsibilities which should
be in other zones than his own. For example, a President or a Managing Director
because of his experience may interest himself (and interfere) in the operation of a
- 22 -
particular unit or phase of the business instead of holding the proper lower zone
supervisor accountable and making sure that this supervisor is properly trained or else
is replaced by someone who is capable of doing the job.
1.4 Practical Application of Analysis of Zones of Management
We stated earlier that sound principles are of value only to the extent practical use is made of
them. The time you spend on this course is wasted unless you can go back to your company,
instruct others, and begin practical application. The following is a proposal for initiating action
to apply the principles developed in discussing zones of management. It is our belief that this
step must be taken if the industry is to get results.
1. Review your own company organization and separate present jobs into proper zones.
2. Consider the types of responsibilities that should accompany each management level
and compare with types of responsibilities that actually accompany each job.
3. Review delegation of authority (if any) to see that authority is adequate to meet
responsibilities of each level.
4. Define the responsibilities and authority proper for each zone and management level.
5. Train present personnel to meet requirements of their proper management position or
select and train competent personnel if present personnel is incompetent.
2. Design of Organization
2.1 Introduction
People, machines, financial resources and physical facilities must be grouped together into a
particular pattern specifically designed to accomplish a stated purpose. This is the essence of
organizational design.
Creating a company organization requires the same thoughtful planning that is needed to set up
any other kind of sound, stable structure. For example, if you were to have a building constructed
in which you planned to manufacture a product, you would not go to some builder and say:
Build me a factory; I am going to be a manufacturer. At least, we hope you would not!
You have many things to be concerned about, not only roof, walls and a floor. You can expect to
spend a great deal of time and money having this building put up. You have to be assured that it
is going to meet all of your anticipated needs. So, how are you going to deal with this problem?
- 23 -
The common sense thing to do is to determine and decide upon your needs, not only your
immediate needs, but as well as you can identify them, also your future needs. These needs must
be based on facts and firm plans. For example, what kinds of machines and equipment will your
business require? How will the production, shipping and office facilities be arranged? The
building is to accommodate how many people? How many offices will be needed? What will be
required for storing materials, process parts, products, inventory, chemicals or other special
materials? All of these questions must be answered, and many more facts must be gathered,
before design requirements of the building can be settled.
It is only after an analysis of this kind is done that you can go to an architect with the necessary
particulars to discuss and test a design and develop a plan of action. Now, you may have to
consider alternatives. For example, you may not be able to build the most perfect building of your
dreams because the cost may be too great. You may have to make some practical compromises
that will give you the most function for the least expenditure that satisfies your basic
requirements. Only after this part of the total effort is accomplished are you then prepared to go to
a builder to have the design of your concept converted into a tangible structure.
We have been using the example of creating a factory building as a way of introducing the subject
of designing and building a business management organization. Let us recognize at the outset that
we understand that you already have a management structure in your companies. You are not
starting out new to build something from the ground up. It is agreed that it is much more difficult
to change something that already exists than it is to start afresh with something new. But, where
change is indicated as a necessity as a matter of existence, change must be done. We know that
change, especially major changes, take time to accomplish. We also know that change brings with
it great rewards. Reaping those rewards is the goal of our organizational design effort.
As engineers and management people, we are convinced that the logical approach to determining
what changes are needed and the benefits to be derived from them stems from the use of the
Scientific Method. It merely involves careful, common sense, analytical thinking. Simply stated,
the scientific method approach consists of five steps. They are:
1. Define the problem precisely.
2. Get the facts all the facts.
3. Analyze those facts to decide upon a proper plan of action.
4. Put that plan of action into effect with the expected results identified.
5. Monitor the plan in process; make necessary timely adjustments.
The problem that we are dealing with in this course is quite easy to define. Manufacturing
productivity and reliability is at an economically unacceptable low level. That calls into question
the effectiveness of management organizations. We want to turn the situation around. In order to
- 24 -
accomplish that we must determine all the factors that influence organizational operations. The
next section will consider Factors that Affect Organizational Design.
But, this is only a part of the information that is needed in constructing an organization. Forms
of Organization will be covered in the following section and, following that, is the section on
Construction of an Organization. After these topics have been studied, we will be ready to
proceed with considerations of practical applications of the principles we have learned to the
situations in our own companies. The last section of this chapter on organization is devoted to an
analysis of existing companies, both American and Japanese. This will help in visualizing how
the factors we have studied have been applied in actual practice.
2.2 Factors Affecting Organization Design
Here are the more important factors that affect the design of an organization:
a. The location and arrangement of factories.
1. Are all factory operations consolidated in one location or are they scattered?
2. If factory operations are scattered do some of the plants act as satellite or feeder
locations which provide only materials and components of the products? Or is each
factory a self contained unit which manufactures certain products complete?
3. What is the size of the organization (number of personnel) at each location?
4. What are the problems of product distribution, transportation, and sale? Are markets
concentrated or scattered? Are most sales through dealerships or direct?
5. What is the internal arrangement of each factory location? Do physical limitations
and arrangement of factory buildings necessitate more elaborate or complex
organization design?
b. The amount and kinds of management controls required
It is not our intent, at this point, to consider in detail the subject of management controls.
This is covered later in the course. All we will do now is briefly study the factors that
should be considered in designing the organizations.
Controls may be defined as the functions, procedures and checks required to assure the
satisfactory accomplishment of plans, policies, and objectives. In the final analysis, all
controls have as their ultimate purpose either the control of quality or the control of cost, or
both.
The first item to be considered is the nature of the product.
- 25 -
1. Is it simple or complex in design?
2. Does the design require complex and intricate manufacturing equipment, tools
processes?
3. Are there special product requirements that necessitate particular care in manufacture
to assure control of quality?
4. Are complex cost controls necessary in order to insure economical manufacture or
sales?
5. Is the product mass produced, or does it have to be made on an individual order (job-
shop) basis to fit the customers needs?
The second item to be considered is the number of products to be made.
1. How many and what kinds of products are to be made?
2. Are any or all of the product inter-related?
3. Do the products require different types of processes and equipment? Do they require
different types of cost and quality controls? Or can they be integrated under the same
controls?
c. Type of personnel
In the introduction to this subject of organization design we used as an example the
construction of a building. In a sense your organization structure is also a building which is
equipped, or should be equipped with the facilities and tools which management, made up
of people, must use in accomplishing the objectives of the company. These people, who
comprise all levels of management from foreman to president, use this organization
structure to help them do their respective management jobs.
But people are all different. No two will ever have the same ability, the same view point,
or exactly the same way of doing a job. Some will be more skilful than others in the use of
management tools, regardless of what these tools are. Some people can be easily trained
and will use initiative. Some will be capable of handling a bigger or more complex and
diversified job than others.
These things must be considered in designing the organization because a good organization
plan on paper is worthless unless it can be made to function by the people who are
management.
You already have organizations which are built to some extent around the present
personnel. Practical consideration of both immediate and long range objectives in
- 26 -
organization design require that you evaluate these present personnel as the first step.
Determine these things:
1. Are competent people available and are they properly assigned to key positions?
2. Is the experience of key people limited to narrow specialized fields or small units of
company operation?
3. Are special quality or cost controls necessary because of the inadequacy or
inexperience of present personnel?
4. Is the present organization design built around the present people their individual
abilities, expense and background?
In reviewing these questions the first one regarding competent people is going to assume
major importance in your minds. We know that in most cases you will immediately say to
yourselves: We lack people who are competent, who have the ability and initiative that
are needed to make a good organization design workable, we know this because we have
heard it repeatedly in our contacts with your companies in the past. But we also know it
because we have experienced the same thing in the United States.
It is true that there is always a shortage of men of special ability, and that we can seldom
reach the goal of an ideal organization design because of this. However, we also know that
part of this shortage of men does not exist except in our own minds. The reasons are that
frequently we do not establish any means for measuring ability and performance or provide
the incentives which encourage or develop these things.
For example, there is a tendency to evaluate ability and performance on the basis of the
personal opinion or feeling of the superior rather than any actual measurement by this
superior of accomplishment. Also, where people are given responsibility without authority,
where there is too strong domination and control from above, ability and initiative are
stymied. And, any person, no matter how capable, will do a better job sooner if properly
trained.
But how can any person, no matter how capable, be trained unless his job is defined?
Certainly the superior is in no position to train his subordinates unless both he and the
subordinates know the scope of their jobs. The experience that the subordinate gains in this
case is hit or miss. It is not comprehensive and does not really give him what is needed for
either his present job or a better job.
Of course, there will always be a few men of outstanding ability and initiative who will be
able to move ahead and learn by their own efforts. But this is not enough because the
number of such people is too limited. Also, we fail to make the best use of these people if
we do not train them and thereby accelerate their progress and make the most of their
- 27 -
ability. The large majority of people must be trained if we are to broaden their experience
and develop their ability and usefulness.
The problem of whether competent people are available and properly assigned in their
present positions must be approached from the standpoint of careful analysis. We must
evaluate these people and to do this we must know the job they are expected to do. We
must also find out, through sound personnel evaluation, whether we have other people who
are competent but who have not been given a chance.
The question of limited experience is also a very obvious factor in organization design. But
here also, while people may be limited at the present time, a well planned training program
based on defined jobs, together with a program of job rotation aimed at broadening
experience, will place us in the position of progressively reducing such limitations.
During the interim period when we are going through the necessary steps of developing key
personnel it may be that special controls, indicated under the third question, may be
necessary. But as progress is made under a program of personnel selection and
development many or all of these special controls can be relaxed or eliminated.
The fourth question is particularly important, and should be the subject of unbiased,
objective study. The easiest way to design an organization structure is to build it around the
ability, experience, and background of individuals who are available. By doing this you do
not have to worry about how the job is going to be done.
But this is the most dangerous thing you can possibly do and in the long run will cause
great inefficiency and confusion. Suppose, for example, you have a man who is competent
and experienced in engineering, manufacturing, and inspection. You design your
organization so that he is responsible for these three phases of the job. But something
happens to this man and he has to be replaced. The only replacement available is a man
who knows manufacturing and inspection. Then, either the engineering suffers or you have
to change your organization design and put engineering under a separate man.
If you follow such a practice you are constantly at the mercy of conditions over which you
have no control and must be continuously ready to change your organization design or else
take a chance on loss of efficiency.
Sound judgement would dictate that we plan our organization design on a logical basis of
job functions, and select and train our personnel to fit the job rather than be continuously
changing the job to fit the person.
There are other features affecting organization design which we will touch on only briefly,
although we recognize that they are real problems for Japanese industry at the present time.
First is the tendency to reward long service through promotion, regardless of the ability of
the man to do the job. And sometimes, people are placed in responsible positions because
- 28 -
of influential connections. But in either case, if ability if lacking, the company will
suffer.
A second feature, which reflects tradition to some extent at least, is that once a man has
been assigned to a job it is difficult to demote him regardless of how incompetent he is
because he will lose face. We will not comment further on this except to point out that in
the future you can save yourselves much worry and difficulty if you make sure of the mans
ability and competence before the promotion rather than after.
2.3 Practical Considerations in Organization Design
In presenting the factors affecting organization design we recognize that you already have
management structures. It is realized that it is much more difficult to change something already
built than to build something entirely new. If you are going to consider changes; if your present
management structure is not adequate for present or future needs; if it is too costly, then before
you start you must have a plan. Be sure you have defined your needs, determined all the facts,
established a plan that is not only sound on paper but is also workable before you proceed with
such changes. Changes without an ultimate objective are meaningless in themselves. They must
be introduced logically, step by step, as they are justified. Major changes may take a long time to
accomplish if they are not to be excessively costly. If you are not absolutely sure, try out the plan
in a single unit of the company such as a section or department. Analyze the results and check
the plan for soundness. Then you are in a sound position to proceed.
3. Forms of Organization
In our previous discussion we reviewed some of the things that affect the design of an
organization. Now we will briefly cover the general forms of organization that are usually an
outgrowth of the proper consideration of the factors we talked about. Please remember, in
considering these forms of organization, that they are general. They do not give you a formula to
be used in your own company structure.
A. Line Organization
The first form of organization we will refer to is the Line Organization. This is illustrated in
simple form of Chart # II 3.1 This form of organization is perhaps the oldest and most natural.
This is because most companies begin with a few men. As the duties and responsibility of the
president grow with the expansion of the business there is too much for him to do himself. As a
result he selects a man under him who could assume part of the responsibility. He delegates
certain duties (and presumably authority) to this man.
Progressively this happens at each level until there are a series of management people between
the president and worker, each with duties and authority delegated from the next higher level.
- 29 -
The distinguishing feature of this form of organization is that the lines of direction and
instruction are vertical. At any level of management no one can receive instructions or command
from another person at the same level. It is assumed that each man on whatever level of
authority is capable of performing the duties of his position regardless of how numerous or
different in kind these duties are.
Now what are the advantages and disadvantages of this kind of organization?
Advantages Disadvantages
1. Discipline is direct and
relatively simple.
2. Duties and responsibilities are
clear. There is no chance of
misunderstanding as to spheres
of activity.
3. This is probably the least
expensive form of organization
where the size of the company
is very small, and its functions
are simple.
1. With growth in size and complexity the use
of this form results in overloading a few
men with a variety of duties.
2. Since few men are capable of doing a
variety of unrelated things equally well
some phases of their responsibility will be
neglected. This weakens the efficiency and
effectiveness of the organization.
3. Instructions issued to any level, including
the worker must of necessity be meagre
because the people at any level are so busy
with a variety of responsibilities and duties
that they are unable to devote adequate time
and attention to any one phase. Reliance
must be placed on the experience, ability,
and skill of each individual including the
worker.
4. This form of organization tends to
concentrate the possibility for success on
the ability of a few strong men. The loss of
one or more of these men usually results in
the company deteriorating. Often such a
company fails when this happens.
B. Line and Staff Organization
The second form of organization to be considered is the Line and Staff Organization. This is
illustrated in simple form in Chart # II 3.2 The reason for the development of such a form of
organization is simple. The management of companies which have grown in size and
complexities realise (or are forced by economic conditions to recognize) that men are required for
the efficient management of business who have special knowledge and special skills. The reason
such a form is called Line and Staff is that all executive orders, and all direct supervision are
- 30 -
handled through the Line Organization. The Staff specialists have no authority to issue orders
directly. They act in an advisory capacity to the line executive or supervisor. All suggestions and
advice pertaining to the special field of each staff member are passed through the line officer or
supervisor. One thing to be remembered however, in the proper functioning of a Line and Staff
organization, is that staff members, while they cannot issue orders to anyone in the Line
Organization, can and do in effect furnish advice which may be the equivalent of a command.
This will be more clearly understood in detail discussion of controls later in the course.
However, here is one example:
If the engineering department furnishes plans and specifications for a product, the Line
Organization would not change these specifications without obtaining prior approval of the
engineering department.
There are two features of the Line and Staff form of organization that are sometimes confusing.
This confusion arises from the concept which is usually developed in theoretical discussion of
this type of organizational structure, because the Line Organization is considered to be the
Manufacturing or Operations group and other functions such as Finance, Engineering,
Marketing, and Industrial Relation are considered to be Staff Organizations.
Frequently a question may be raised as to why marketing should not also be considered an
Operations function and therefore a Line organization. Such a concept is perfectly
reasonable and sound. From a practical standpoint the company has two main functions. The
first is to make the product and the second is to sell the product.
If such a concept of two line organizations is used, then Finance, Engineering and Industrial
Relations are Staff organizations furnishing advice and guidance to both Manufacturing and
Marketing.
It should also be remembered that within any Staff organization there may be an internal Line
organization, and also internal staff groups advising this line organization.
- 31 -
Let us review the advantages and disadvantages of the Line and Staff form of organization:
1. By obtaining advice and
recommendations from staff
members, the line management is
freed from the necessity of time
consuming consideration of problems
that are not related to the
performances of Line duties.
2. A more effective job is done by
Line management because it
concentrates on phases which it is
most competent to handle.
3. The danger of developing a few
strong men and depending on their
individual abilities is greatly reduced.
This adds to the stability of the
business.
4. Control of the organization from the
standpoint of assuring consistency
and proper application of policies is
greatly simplified.
1. Specification of functions,
particularly at lower levels of
management tends to retard the
development of flexibility and
breadth of experience of individuals,
which is important as these men
advance to higher levels.
2. Unless continuous and close scrutiny
is maintained, staff organizations
may develop into empires which
grow because of internal complexity
rather than real need and
effectiveness. It is easy to develop a
group of paper shufflers who do
not contribute to the effective
operation of the business.
3. The advisory nature of staff functions
often results in line management
using staff organizations as a crutch
to do things these line people should
do for themselves.
C. Functional Organization
The third form of organization is the Functional type. As in the case of the Line and Staff form,
this is an outgrowth of the need for specialists in various phases of the business enterprise. The
major difference however, is that at any level, the specialist can and does issue instructions or
orders to each subordinate on the phase in which he is a specialist. A simple form of this
structure is shown in Chart # II 3.3.
You will note that one feature of this form of organization is that in his own special field each
organization head is supreme. Every subordinate in every organization is answerable to the head
of each special organization for the following of instructions in the particular field of that
organization.
- 32 -
Following are some of the advantages and disadvantages of the Functional form of organization.
1. Specific knowledge and guidance are
conveyed to each individual and
group by experts, rather than through
those who may have had only partial
education in the various fields of
activity.
2. Activities are separated with
reference to the function being
performed.
3. The number of functions any
individual must perform is reduced to
a minimum, creating high functional
efficiency.
1. There is a marked tendency to
weaken disciplinary or line control
because each individual is
answerable to more than one
superior.
2. Elaborate means may be required to
coordinate the work and efforts of all
members of any management levels.
3. Managing authorities must have a
high ability to correlate the work of
strong personalities to assure
cooperation and harmony.
C. Summation
It is not possible to specifically recommend the form of organization any company should adopt.
In actual practice it has been found that often a combination of forms is effective. In any case,
however, it should be recognized that any company that has grown and expanded without an
understanding of the fundamental concepts of organization is not in any true sense an
organization. It is a conglomeration that makes efficiency and control difficult if not impossible.
We are going to ask you, at this time, to analyze your own company structure in general and see
how far you can go in determining whether you use Line, line and Staff, Functional or
combination forms. This homework has two purposes. The first is to develop familiarity with
practical analysis. The second is to prepare you for intelligent consideration and application of
these general principles in subsequent phases of the course and also in practical use in your own
company.
4. Construction of an Organization
4.1 Introduction
Before proceeding further, let us review briefly the field that has been covered in the earlier
phases of this management course.
First we reviewed the subject of policies. What are the purposes of policies?
- 33 -
a. To provide guides, rules, or laws for the conduct of the business.
b. To insure stability of purpose for the protection of the integrity of the company.
c. To provide for the protection of the interests of the stockholders.
d. To provide for the protection of the interests of the employees.
Second, we reviewed the Zones of Management. You will recall that in this section we were
interested in the types of functions, the nature of the responsibility and authority that is logical
and sound at each management level. Further, we developed the fact that these zones of
management apply regardless of the organization structure that is set up.
Summarized, the study of zones of management showed that:
a. At all levels of management, from the Foreman to the President, it is not possible for
the man at any level to personally accomplish all the functions for which he is
responsible.
b. That at each level of management certain responsibilities and authorities must be
delegated to subordinates.
c. That these delegations of responsibility and authority become more specific and
detailed as we progress downward, from the President to the Foreman.
d. That the individual at any level must be held accountable for the execution of the
responsibilities for which he has been given authority.
e. That at any level of management it is not humanly possible to do well the job required
at that level and also do the work of a subordinate or group of subordinates which
should have been delegated to these subordinates.
Following the study of zones of management we reviewed the factors affecting the design of an
organization, and the theoretical forms of organization that are applicable to various business
enterprises.
Actually, then, we have considered two types of things. One might be called the active
management phase, which embraces the development of policies or laws for conduct of business,
and the nature of management application of these policies through the assignment of
responsibility and authority. The second might be called business structure or organization.
It may help our concept and understanding if we consider the organization as a structure which is
necessary for the efficient and economical operation of the business. Management uses the
organization structure as a tool for the accomplishment of these objectives. But like any tool,
- 34 -
organization structure should not be considered as a permanent, fixed design. It must be adapted
and improved as better concepts or ideas are developed.
4.2. Functions Necessary to a Company
Now in taking a scientific approach to the consideration of organizational structure we must
define our problem. Suppose we state the problem like this:
What structure must be provided for the organization of my company in order to assure that the
most efficient results are obtained by management?
Obviously there are many facts that must be obtained before any plan can be developed. These
facts may be separated into two groups:
a. What functions are essential for the operation of the Company?
b. What factors must specifically be considered in the practical incorporation of these
functions in an organizational structure?
Note: These factors were developed under the previous unit #2 Design of Organization. Our
objective in the present unit is the development of the functions that are essential for the
operation of the company. (Question a above.)
Now what are the general functions that are essential to any business?
First, of course, the company develops from an idea for a product which is needed or demanded
by the public. This idea must be translated into a form which can be produced and sold. In order
to accomplish the development of a design and translate this into a practical form the company
requires engineering. This is one of the general functions.
Second, the company needs money. It must finance the factory, provide facilities, buy materials,
pay salaries, establish cost and sales price, and keep records of expenditures to be sure the
company is not losing money. This function could then be called finance.
Third, the product which has been designed must be produced. Somebody has to make the
product, using the factory, the facilities, the people. This function can be called manufacturing.
When the product is made it must be sold to complete the cycle and get financial returns that will
permit the manufacture of more products. Earlier, we reviewed briefly some of the phases of this
function during our discussion of policies. We can call this function marketing.
It may be argued that these four functions are all that are required. In the past this would
probably have been true. However in the last few years there has been a tremendous change in
the relationship between the employer and the employees. One of the evidences of this change is
the increased prestige and power of labor through the unions. And with this change has
- 35 -
developed the necessity for management to devote more thought, attention, and time to the
problems associated with labor dealings.
Not only must considerable time be devoted to labor negotiations, but also it is becoming
increasingly evident that the basic company policies and operational policies must be more
clearly defined and more far reaching. Also, the dissemination of these policies so they are
known and understood by all employees, and their proper administration, are absolutely vital.
Therefore a major function must be added in Japan as it has been in America. This function can
be called industrial relations.
In addition to these five general functions there will usually be the company offices of Secretary
and Treasurer.
Now, in order to make certain that we arrive at a complete list of detail functions which we will
eventually group and arrange around the general functions, we will take each general function and
find all the detailed functions (all the facts) that might be considered to be of the nature of the
general function. In some cases we will later find that some of the so-called functions will
actually be sub-functions. That is, they will fit into the organization structure at a lower level. In
other words, these functions and sub-functions are subject to the same concept of zones that we
studied in the unit on zones of management.
For the moment, however, do not try to fit these functions into zones, or try to decide whether
they should be assigned under the heading (general function) we list them under at this time. For
example, under the first function of Engineering we have listed Sales Engineering. Sales
Engineering is an important engineering function but in the company structure it is not
necessarily a part of the engineering organization but is often a part of the Sales organization.
The one important step to be taken at this time is the analysis of each function to make sure we
have a common understanding of what is included. It is important to be able to recognize the
general scope of each activity in order that we can logically plan the organization structure. Later
it will be important also, to recognize these activities as they relate to controls and operations.
The following Data Sheets # II 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 incorporate the important individual
functions.
4.2.1 Engineering
Before proceeding with the detail consideration of each of the necessary functions we should
devote some time to the consideration of engineering as it applies to industries. Specifically you
are interested in engineering as it applies to the functioning and successful operation of your own
company.
Now what is an engineer? Actually there may be several definitions depending upon whether you
are considering the question from an academic standpoint, or from the narrow viewpoint of
specialized fields, or from the general viewpoint of a practical industrialist.
- 36 -
For our purpose we might say that an engineer is a man whose technical training makes him
capable of the analysis, assignment and application of knowledge in a logical manner to produce
a desired result.
What are the differences between a good technically trained engineer and a man who has had only
practical experience? Through technical training the engineer has at his command the knowledge
and experience of several generations. This accumulated experience has been sorted and reduced
to fundamental principles which are filed in logical reference libraries in his mind. He can
refer to these fundamental principles and apply them in a wide variety of ways to the problems for
which he is expected to provide a sound and practical answer. But the man of practical
experience who has not had technical training also has a mental reference library. His library is
the accumulation of his own experience. He has learned by trial and error, and therefore will not
make the same mistake a second time. But usually this practical man does not know why
something worked or failed. He does not have the advantage of understanding the fundamental
principles through which he can make general application of what he knows.
It is very easy to consider that an engineer is someone much different from the man of practical
experience. Sometimes engineers even encourage such a concept. But in the final analysis the
only difference between the two is that the engineer has at his command the understanding of
fundamental principles and a more extensive mental reference library that the man of practical
experience lacks. Please remember that we said at the start a good engineer.
It is important, however, to recognize this difference because unless we do we fail to realize that
there are some types of functions, some jobs within an industry that can only be done in an
effective manner by technically trained engineers.
It is generally recognized, for example, that Research & Development require the services of
engineers whose technical knowledge is a prerequisite to such work.
It is not so generally recognized that engineers have an important place in the actual
manufacturing phases of a companys operations, and in the planning and execution of functions
which are essential for establishment of sound quality and cost as well as the subsequent control
of these two vital factors.
Also, wider recognition is needed of the contribution the engineer can make in increasing sales
and broadening the market for products manufactured.
A concept of the scope of engineering in an industrial concern will be clearer if we consider the
purpose of the various engineering functions. This is again an application of the scientific
approach.
If we start with the idea for a product which is needed, or for which a need can be stimulated by
the buying public (the potential market) this idea must be translated into practical form or design
which can be produced and sold. The idea may have come from some basic fact or the property
- 37 -
of some material that has been discovered or disclosed as a result of fundamental research. It
may have come from field surveys to find out what people want but which is either not available
at all, available in limited quantity, or unsatisfactory because of design, quality of cost. Or it may
have come from a suggestion of an individual or group either within or outside of the company.
4.2.1.1 Research
a. Fundamental Research
Obviously if the idea resulted from fundamental research this research must have been done
by a special group of engineers within the company who were devoting their time to such
research or else have been obtained from information supplied by some outside group
engaged in fundamental research.
Until World War I it was not generally recognized by companies in the United States that
fundamental research had an important place in industry. However, since that time there
has been a growing understanding of its importance. It is generally understood and
acknowledged today that fundamental research is important to the future of industry.
However, it must be remembered that there are practical considerations in the determination
of the extent to which any company can and should support such fundamental research. For
example, in Japan today much of industry is behind the rest of the world in the application
and use of principles and fundamental research information that is already known.
Obviously it is important first to catch up with what is already known before going too far
in exploring new fields. Actually, there is grave danger of re-exploring already discovered
basic fields if you do not first determine what has already been accomplished somewhere
else. This is a waste of time, energy and money.
There are, of course, some engineers whose minds are peculiarly fitted to fundamental
research, and who would not be fully effective in any other phase of engineering work.
However, the vast majority of engineers can be trained (if they are not trained already) to
apply the disciplined logic of a scientific approach to the solution of practical development,
manufacturing and sales engineering problems. We believe these fields are the ones on
which Japanese industry should place major emphasis under present conditions.
b. Practical (or applied) research
Most companies, particularly medium and small sized concerns will probably start their
work in the practical research stage. That is, they will start on the basis of fundamental
research done by others. The function of this phase of research is the conception or
visualization of some practical application of an idea. At this point the development work
necessary to convert this visualized application into a product design has not yet begun. It
is possible that the man (engineer) who visualizes this concept may not be able to develop
even a preliminary design of the product.
- 38 -
But unless the engineering staff of a company is large, it will probably be found that the
man who does develop the practical concept will also usually have to carry on the
preliminary work in the succeeding stage of Product Development.
4.2.1.2 Development
Development Engineering is in itself a complete phase of engineering work. However, in order
to better analyze the progressing steps between Practical Research and Production Engineering
we have divided the discussion into three components. Each of these is essential in a properly
integrated engineering setup, and their lack can and does cause difficulty and inefficiency in
manufacture as well as waste and excessive cost.
a. Product Development
This is the first step in the actual development into a product of a visualized application of
an idea. You will recall that the practical research phase was where the application of the
idea was conceived, but design for manufacture and use was not initiated. Product
development, then, takes this application of an idea and translates it into a preliminary
design for experimental purposes. This design may still be far from the final design which
is to be manufactured. Its purpose is to test, through preliminary models whether the
application is practicable. It is important both from the standpoint of proving the
workability of the application, and as the source of information and analysis which will
contribute to the final development stage of product design for commercial production. It is
in this experimental or laboratory model stage that errors are corrected. It is in this stage
also, that data are collected which will make possible any essential improvements needed in
the final design.
b. Product Design
The last stage of engineering development in the route from an idea to a product that can be
manufactured is the final or Product Design. This is a vital phase because it is here that the
plans, specifications, drawings and requirements are developed which govern the success of
the product both in manufacture and with the customer.
Following are some of the more important factors that must be considered in Product
Design:
(1) Consideration of the problems of commercial manufacture including manufacturing
facilities that are available or required, the skill of workers, the special tools or
processes which may make manufacture excessively expensive, designs or tolerances
on components which are too severe for commercial processes without high losses
through scrap and defective parts, and other related items.
- 39 -
(2) Consideration of the materials specified to insure that the product will have the
maximum service life and the minimum of instability and deterioration consistent
with cost and customer satisfaction.
(3) Consideration of design features other than materials which will improve
performances. This will include determination of adequate margins of safety, etc.
(4) Consideration of design features that will facilitate operation and simplify
maintenance.
(5) Consideration of design features that will enhance the saleability of the product
through eye appeal. It is generally recognized that possibilities of sale are greatly
influenced by appearance.
(6) The final design should be given an adequate trial in which normal operating
conditions are simulated or created. This is in order to determine whether there are
any shortcomings which might result in an unfavorable customer reaction after the
product is on the market. An unproved product can often cause a bad name for the
manufacturer that it is very difficult and costly to overcome.
You will note that in this review we have repeatedly mentioned cost. It should be
remembered always by development engineers that it is just as important to design for the
simplest and lowest cost as it is to design for the required features of the end product. Cost
must always be as low as possible for the quality required. Cost consciousness begins with
product design.
c. Standardization
What do we mean by standardization in connection with Development Engineering?
Previously we emphasized the fact that development engineers must be cost conscious. It
was also indicated that product quality is an equally important consideration.
Standardization as applied to product design is the simplification of design structure to
permit the maximum usage of designed components on several products (where possible)
and the incorporation of previously designed parts or components in new products wherever
this can be accomplished without seriously affecting the end requirements of the new
product. Also, in the preparation of design, standardization includes the application,
wherever possible, of commercially available items rather than those of special design.
These things are part of the economic considerations which are the development engineers
responsibility.
Product quality as a factor in development of design may be considered as the features
which are built into the design through adequate planning to insure a finished product
quality level (assuming that adequate control of quality is maintained in the manufacturing
- 40 -
processes). One of the major problems in the provision of a product design whose quality
can be controlled is the use of proper materials.
By proper materials we mean not only the selection of the best kind of material for each
part dependent upon its serviceability and cost, but also the repetitive procurement of such
materials within predetermined limits of variability. In other words specifications for
materials must be developed which will insure that the manufacturing organization can
order, and verify the receipt (through inspection) of materials which conform to these
predetermined limits.
Here again the economic aspects must be considered. If the development engineer specifies
materials with special requirements that are more expensive to purchase than commercially
available items which would serve the purpose he is not doing a proper job. Further, in the
selection of materials consideration should be given by the development engineer to the
problems of manufacture such as the machinability or workability of the material.
d. Summation
The work of Development is completed only when the steps covered in this discussion have
been adequately covered and the product design is ready to be turned over to the Production
Engineer who will integrate it into the manufacturing program.
Complete information must be furnished to the Production Engineer including;
specifications for special materials where required; drawings showing piece parts,
components and assemblies and indicating the material, dimensions, tolerances (limits of
variability); requirements as to appearance, performance, etc.; stock lists covering the
entire product.
Beyond this, the Development Engineer is expected to be continuously on the alert to find
or develop new designs, or modifications, materials applications etc., which will make
possible the production of the product at a lower cost, or improve the quality where this is
determined to be advisable. In this phase of his work the engineer must also consider what
effect such changes will have on the obsolescence of manufacturing equipment and tools
and interferences in manufacturing processes that will, in effect, increase the cost of
manufacture.
4.2.1.3 Production
Production Engineering is the term we have applied to cover all phases of engineering associated
with the actual manufacture of the product. It is an arbitrary term, and you may use any other
terminology. The important thing to remember is that this phase of engineering covers specific
functions which we will review.
- 41 -
a. Operating Standards
In the United States there are several organizations which have been working for many
years in the development of standards which are accepted and used by industry. Among
these are the U.S. Bureau of Standards, American Standards Association, and American
Society for Testing Materials. The standards developed by these groups serve as a guide
both in the development of product design and in the production engineering for
manufacture. It is a production engineering responsibility to consider and use such
standards wherever applicable.
Beyond this, there are many cases where it is desirable to establish standards which will
serve as a guide in machine and tool design; tolerances which can be allowed on dimension
where no variability limits are specified; special processes which must be used repetitively
on one or more products and where the technique is complex or special controls are
essential. In many cases these standards, particularly on processes, are in the form of
process specifications which define, in detail, the complete operation, controls, etc. This
has the dual purpose of insuring the consistent repetitive performance of the process and
reducing the amount of detail required in the issuance of manufacturing layouts (Working
Sheets).
b. Process
In discussion of this phase of production engineering we are listing in some detail the
functions of such engineers.
(1) Analyze new product designs for features that would interfere with commercial
production; possible design modifications to facilitate production and reduce cost
(these must be referred to the development engineer for approval); new equipment,
tools, etc., required.
(2) Determine equipment (machine and tool) capacity and availability of manufacturing
capacity and insure provision of additional machines, tools, etc., as required.
(3) Determine manufacturing techniques to: insure product quality; reduce material
usage and scrap; eliminate excessive materials handling.
(4) Plan shop arrangement and machine location to insure efficient operation.
(5) Furnish ordering information and specifications on materials to interested
organizations.
(6) Prepare manufacturing layouts (shop instruction sheets) for product manufacture
indicating all operational steps; specifying machines; tools, fixture etc.; listing
materials and stock lists; and referring to manufacturing standards, process
specifications, etc.
- 42 -
(7) Study existing methods and equipment for possible improvement and cost saving.
(8) Cooperate with manufacturing, accounting, and other organizations to correct
manufacturing difficulties.
(9) Furnish basic data to cost accounting organizations for the establishment of cost
forecasts on new products and cooperate in the verification of the soundness and
accuracy of manufacturing cost estimates.
(10) Cooperate with Machine and Tool Design organization in the development of new
machines and tools; furnish basic requirements for operating characteristics required.
(11) Provide instructions and specifications for the proper maintenance of equipment such
as type of oils, etc.
c. Inspection
This phase of production engineering has, in general, functions which are almost identical
in nature with those of process engineering except that they are applied to inspection.
Often, however, there is tendency to leave the major burden for inspection planning, and
frequently much of the provision of inspection gauges, fixtures etc., to the Manufacturing
Department.
On products where the design is simple, and complete manufacturing information and end
product requirements are available, it may be argued that a statement to the effect that the
product must meet all requirements is all that should be required for the manufacturing
organization to verify that the product is satisfactory. And in theory this may be true.
However, such a concept ignores the fact that there are many ways that individuals will find
to accomplish any job and that all of these ways are not equally efficient. Further, not all of
these ways provide the best assurance of complete or accurate results. Therefore it is
important that technically trained engineers with sound background and experience be
assigned to the problems of inspection in the same manner that engineers are assigned to
other phases of production engineering. When we refer to inspection we are referring to all
phases; Purchased Materials (and parts), Process and Final.
Following are the major engineering functions in relation to inspection engineering:
(1) Analyze the product requirements, special specifications, and materials requirements
of new products to determine whether existing inspection equipment (including test
equipment) is adequate from a design standpoint to inspect the new product.
(2) Determine whether present equipment capacity is adequate or if additional equipment
(of present design) will be required. Insure provision as required.
- 43 -
(3) Develop the new types of equipment and facilities that will be necessary for
inspection purposes. Insure provision as required.
Note: Frequently, the processes and methods developed for production will affect
the planning and design of inspection facilities. Therefore close coordination
and cooperation with the process engineering functions are essential.
(4) Develop inspection methods and techniques to insure adequate and economical
inspection. This is extremely important because techniques may be developed which
are actually too comprehensive. It is as easy to over-inspect as under-inspect.
Over-inspection results in waste of money and high cost, while under-inspection
results in unsatisfactory product reaching the customer. Special note should be taken
of the fact that giant strides have been made by many American companies to develop
and apply systematic statistical quality control methods and procedures, not only to
their manufacturing operations, but also to their other business functions. The
effectiveness and economic value of these methods have, to a large degree, made
ordinary inspection operations of less importance in the total production process.
(5) Plan inspection operations location and arrangement, in conjunction with process
engineering plans to assure proper location, efficient performance and adequate
control.
(6) Prepare Inspection Layouts (inspection instruction sheets) indicating all inspection
steps and specifying inspection gauges, fixtures, etc., test equipment, and referring to
inspection standards or standard methods.
(7) Study existing inspection methods and equipment for possible improvement and cost
savings.
(8) Establish standards of maintenance, allowable tolerance variability of gauges,
fixtures, and test equipment and frequency of checks on such facilities to insure
accuracy of performance.
(9) Cooperate with other organizations, (manufacturing, engineering, purchasing, etc.) to
correct deviations from standards.
(10) Furnish basic inspection cost data for incorporation with process engineering data in
the establishment of cost forecasts. Cooperate in the verification of the soundness
and accuracy of inspection cost estimates.
(11) Cooperate with Machine and Tool design organization in the development of new
inspection gauges, fixtures, etc. Furnish basic requirements for characteristics,
tolerances, limits, etc.
- 44 -
Note: Frequently, test equipment is of special or complex design which will require
the services of Development Engineering. Cooperation an coordination on
such joint projects is essential.
d. Machine and Tool Design
The functions of such a group do not require special analysis because these are self evident.
However, in considering these functions it is important to remember that this group has an
economic responsibility for design which will insure maximum life commensurate with
cost and productivity requirements. In other words do not design machines or tools that are
more complex than can be justified by production programs and requirements, but build
each machine or tool of the materials and with the design that will give long life. A further
design responsibility is to make maintenance as easy as possible. Standardization of design,
materials tolerances, and application are also important functions. Information furnished
for construction in the form of drawings, specifications, requirements, tolerances, etc., must
be complete.
e. Time and Motion Study
Time study may be defined as the function of observing and recording the time required to
do each detailed element of an industrial operation.
Motion study may be defined as the study of the movements, whether of a machine or a
person in performing an operation. The purpose is to eliminate useless motions, change
motions to reduce fatigue, and arrange the sequence of useful motions in the most efficient
order.
Generally, motion study precedes time study because time study of an inefficient operation,
while it would provide a measure of performance, would not provide a sound measure of
industrial efficiency.
Time and motion study may be considered as management tools (furnished by engineers) to
insure the maximum of production efficiency and worker time utilization with minimum of
fatigue and waste. It follows that analysis which is a fundamental part of such study will
result in reduced cost, establishment of sound measures of worker performance, and will in
turn result in better management control of both operations and workers. This phase of
engineering is a specialized field to which much study should be given both by management
as such, and engineering organizations. One important fact should not be overlooked.
Time and motion study are not limited to productive work, but are equally valuable in all
phases of company operations.
f. Safety
There is much that could be said about the place of engineering in the field of safety.
However, it is a subject of such magnitude that it could not be covered in a course of this
- 45 -
nature. Effective application of safety engineering presupposes a recognition of the
importance of the welfare of human beings. It also presupposes a recognition of the
economic loss to any company which results from disabling injuries. This loss is not only
in time of the injured employee, but also in machine output, group efficiency and company
expense for the treatment of the injury.
Safety engineering applies to every phase of company operation. It begins with the
planning of buildings and facilities and proceeds through the development of machines,
tools, processes, handling methods, arrangement of equipment, etc., to the actual work
effort. It is important to provide guards on moving parts and tools. But it is equally
important to so protect the worker that he will not injure himself by the improper
application of his own physical effort in lifting, moving, or other expenditure of energy.
4.2.1.4 Sales Engineering
This term is applied here to the application of technical engineering training in the expansion of
markets, exploration of customer needs, and technical advice to the sales organization and
customers on product application and use. The first prerequisite of the Sales Engineer in
accomplishing these objectives is a comprehensive knowledge of company operation, company
products, facilities and skills. Without such a background to support technical training much of
his effort will be wasted. Following are brief reviews of the Sales Engineers functions in various
fields:
a. New Products
Provide, through analysis of market surveys and study of customer requirements, ideas for
new products which can be considered for development and manufacture. This should be
an important source of such ideas because the technical training of the engineer makes
possible the analysis of fundamentals through which he can recognize the possible
application of these fundamentals for new products.
b. Product Adaptation
The same ability to analyze fundamental principles is invaluable from a sales standpoint in
the consideration of products already being manufactured to determine whether minor
modifications (which are known to be possible through knowledge of company operation
processes, etc.) can extend the field of applicability.
c. Application
Technical knowledge of fundamental principles, which is a working tool of the engineer,
furnishes a sales organization with an increased market. The Sales Engineer, because he
can recognize the possibility of application of present products to a variety of uses that are
not evident without engineering analyses, can provide wider product use. The Sales
- 46 -
Engineer is in a position to advise the customer, either directly or through the salesman, on
the technical problems associated with the actual application.
Frequently the Sales Engineer is called upon to present to the customer a complete
recommendation for application and installation of the companys products. Such customer
service is an important part of marketing responsibility and frequently provides a
tremendous increase in business.
d. Summation
As we stated at the beginning you are interested in engineering as it applies to the
functioning and successful operation of your own company. Later we will consider what
should be determined structurally for the best accomplishment of engineering objectives.
In our presentation of engineering, the sub-division between Development and Production
Engineering is, as you will recognize, an arbitrary one. We established the premise that all
engineering in connection with the manufacture of the product should be called Production
Engineering.
To avoid any misunderstanding it should be made clear that from the standpoint of
organizational structure and job titles, this term of Production Engineering is not
universally used. Some companies consider the development work connected with new
products, such as new processes, new machines, methods, etc., as part of their Development
Engineering function. Some companies sub-divide the engineering associated with product
manufacture into several phases. Still others have a separate group who are referred to as
industrial engineers whose functions are much broader in that they interest themselves not
only in the economies of engineering, but in such things as management organization,
company structure, etc.
At this point however, the important consideration is whether you have these functions in
your company now. Are these functions clearly recognized and defined? Are there any
links in the engineering chain that are weak or lacking? Do your engineers recognize their
duties and responsibilities? Are they trained to perform their job?
Chart # II 4.7 illustrates graphically the phase of engineering in industry.
4.2.2 Finance
This subject, as we are considering it, embraces only the internal workings of the company. No
attempt is made to consider the phases having to do with corporate financing such as stocks,
bonds, loans, etc. However, the importance of internal finance, the establishment of adequate
cost and accounting procedures, methods and controls, cannot be over-stressed as a major
function both to assure the sound continuing operation of the business and also as a better
- 47 -
guarantee of favourable consideration by investors, banks and loaning agencies in corporate
financing.
4.2.2.1 General Accounting
Business methods are included with accounting methods in this review because of the close inter-
relationship of the two. Frequently, where there is a special organization set up on Business
methods it is a part of the General Accounting structure because this financial group serve as the
watch dog guarding the companys financial position. It is through the establishment of
Standard Practices which are defined and implemented through Business Methods, that the
functioning of all phases of Accounting and Cost are made effective.
Earlier in the discussion of Policies it was pointed out that the decision as to basic policies,
such as the general accounting and cost policies were made at top management levels. However,
as should be true of any specialized field, these policy decisions must be based on the sound
experience, background and advice of experts in the fields of Accounting and Costs. It is not
enough to depend only on the views and opinions of men with practical experience who do not
have the fundamental knowledge of accounting and cost that comes from specialized training.
Accounting, of which costs is a special branch, is not a productive function in the usually
accepted use of the word. It does not directly add anything to the value of the product. Neither
does it contribute to product quality. It is not unusual, therefore, to find management people who
look upon accounting as a troublesome evil whose usefulness is questionable. Usually such
views are evidence of two things.
The first is a lack of understanding on the part of such management people of how accounting can
help them in the efficient operation and control of their job. The second is the failure on the part
of accounting to do a complete job, which includes the provision of data and analyses which are
of practical use for operations and control.
Most of the phases of General Accounting are recognized by management, and it should not be
necessary to discuss them here in detail. But as a review for the purpose of checking and
verifying the conditions in your own company we will briefly outline the basic functions of
General Accounting.
a. The orderly and systematic collection and recording of all expense data of the
business and receipts from the business.
b. The allocation of expense into proper accounts in accordance with the nature of the
expenditure and the phase of the business where the expense occurs.
c. The evaluation of general company overhead expense (excluding factory overhead
which is included in cost) in order to determine and establish the selling price of the
product.
- 48 -
d. The determination of profit or loss.
e. The provision of reports and analyses for comparative purpose to all management
levels.
f. The provision of reports and analyses for external agencies and stockholders.
4.2.2.2 Cost Accounting
Cost Accounting is the process of determining the detail cost components which make up the
total cost of the product. To be fully effective and accomplish the necessary objectives of
analysis and control, cost data are accumulated in such a manner that not only can a proper selling
price be determined by the General Accounting Group, but also the cost of any phase or particular
operation can be determined. This allows comparison of the cost of the various ways of doing an
operation and permits analyses for the purpose of locating the source of inefficiencies.
From a practical industrial standpoint it must be recognized that while cost accounting is
normally considered a part of the accounting function, costs and the understanding of the basic
principles used by the accounting organization are also part of the responsibility of every
management employee from the Foreman to the President. But recognition of this is not enough.
If you are ever going to have an efficient company in the modern concept of the word your people
must know how to adequately discharge this responsibility.
Beyond this, it is a management responsibility to achieve results which will protect and advance
the position of the employees. Any company management which fails to do this is a bad risk for
the employee too because the security and stability of his job is endangered.
In determining the cost of a product there are three methods of approach which are commonly
used. These are:
a. The Historical
The simplest method of determining the cost of a product in a going concern is from
records of the actual cost over past periods. This is the historical method. Under this
system information may be taken from regular accounting records with little additional
expenses and statements are usually prepared in comparative form which shows the current
cost against the cost in previous periods. Where such a method is adequately used, that is
where it is in sufficient detail that each management employee can measure his own job
performance, cost data use some unit of measurement such as the cost per unit of
production, cost per hour of labor, and cost per machine hour. This places all factories and
factory departments on a comparable basic. But usually such data is provided so long after
the fact that correction of unsatisfactory conditions is delayed with resulting further losses,
or else nothing is done.
- 49 -
This historical method has several other disadvantages. Costs are not established or
measured on the basis of best-known possible performance. Generally, also they do not
provide any sound or adequate basis for delegating authority, responsibility or
accountability for cost results. Often coverage of expense in sufficient detail is limited to
productive operations which results in little control of non-productive functions. Lack of a
sound basis for evaluating expense necessitates approval at high levels before any
expenditure can be made.
In general it may be stated that the historical basis for costs and cost accounting is most
effective only in small companies whose operations are simple, and where control is
assured through the ability and experience of individual executives.
b. The Predetermined Cost
The cost of a product may be estimated in advance (or predetermined) on the basis of past
experience in producing products of similar natures; engineering estimates taking into
account the material, labor, overheads, etc., which will be required to produce the product.
In our previous discussion of Engineering, we indicated an engineering responsibility for
providing the accounting organization with data for the purpose of establishing cost
estimates on new products. Such estimates could be referred to as predetermined costs.
This procedure involves a comprehensive analysis of what needs to be done, and presumes
a careful analysis and study of what is presently being done. The aim, as implied in our
review of engineering is to adequately study the factors of quality and safety as well as cost.
Estimated, or predetermined costs are chiefly applicable in companies where production
orders are based on sales orders or forecasts previously obtained. They are much more
satisfactory for operation and control than the historical cost.
c. The Standard Cost
The simplest method of determining the cost of a product in a going concern is from
records of the actual cost over past periods.
One of the Engineering functions we referred to was Time and Motion Study. This
function coupled with the other phases of engineering, plus the establishment of an efficient
planned company organization structure make possible the establishment of a basis or
standard cost. In other words, the product cost is established as a cost which should be
obtained under a given or assumed set of operating conditions and volume of output.
This cost is not an ideal cost, but is one which could be reached if the company were
operated with the highest practical degree of efficiency.
Such a standard cost requires that a standard or goal be set for plant operations, for volume
output, for raw material and process quality and cost, for minimum material usage and
- 50 -
waste, for labor efficiency and cost, and for each element of overhead expense. Standard
cost is a basic standard of measurement of efficiency.
Standard cost requires basic analysis of every phase of operations, including manpower,
wage and salary structures, the organization structure, materials procurement and control,
manufacturing process control, expense control, and also what is needed and how to most
efficiently apply sales, clerical, staff and supervisory effort.
It is recognized that in most Japanese companies the accomplishment of the objective of a
standard cost structure must be long range. However, it is not too soon to begin the
analysis and study of your present systems, and the preparation and institution of a program
aimed at progressive development of more comprehensive and adequate cost systems. We
believe that in the case of most companies, the objective of a standard cost system is most
desirable.
Time will not be devoted here to the detail analysis of the functions listed under cost
accounting because these are self evident.
4.2.2.3 Budget Control
Budgeting is a system of preplanning all operations of the company in advance, and for
committing the various departments or phases of the business in advance to a well considered
performance estimate. Budget control is obtained through the comparison of this performance
forecast against actual performance. This provides the means for checking results, disclosing
inefficiency, waste, and excessive costs and making corrections before it is too late.
Usually budget forecasts are based on an estimated production program for the succeeding year.
This program is established on the basis of sales forecasts and known business. Budget forecasts
must take into account the detail program planned by every department or phase of the company,
and these programs must be integrated, coordinated, and approved by the top management of the
company. Such forecasts are of little value if they are padded to take care of inefficiencies and
unforeseen contingencies. They should reflect the improvement that can be made by each
management man in his own job performance. Ordinarily budget forecasts are scrutinized and
questioned at each management level to make sure that careful thought and consideration has
been given to improved performance.
Budget forecasts are subject to scrutiny and analyses not only by progressively higher levels of
the line organization but also by the accounting organization and if a separate Budget Control
organization is established final scrutiny is made by this organization.
Such annual budget forecasts are periodically reviewed, usually every three months, and adjusted
for changes in program forecast. At such time revisions may also be made as a result of actual
performance. However, for proper control, it is important to remember that an increase in budget
estimates (beyond that justified by program changes) must be proven necessary and unavoidable.
Each organization is fully accountable for living up to its budget forecast.
- 51 -
Budgets and budget control provide an effective means by which top management can delegate
responsibility and authority without any sacrifice in overall control. Top management first satisfy
themselves as to the reasonableness and soundness of budget forecasts and preplanned objectives.
They assure themselves of the requisite conditions and the soundness of estimated expenditures
for such items as payroll, salary increases, repairs, new facilities, advertising, manufacturing
service costs, overhead sales, etc.
After doing this, top management can delegate the final review and approval of individual items
and expenditures to lower levels within the blanket authorization of the overall budget estimates.
Control is maintained by observing performance against budget objectives.
The person responsible for each budget figure establishes his own objectives and criteria of
performance, cost, etc., and follows up with actual performance comparison to see why he failed
to meet his objectives. Then he takes immediate steps to correct the weakness.
The person responsible for each budget also makes a careful check of actual results against
budget forecasts and holds the person furnishing the estimate accountable for accomplishment of
objectives.
Budget control is not a function of a single management level, or individual management
employee but is the responsibility, within the field of his own job, of every management
employee from Foreman to President.
4.2.2.4 Cost Control
Cost control is closely related to Budget control. The name cost control is self explanatory to the
extent that it is in simple terms the control of costs. However, the extent to which cost control
can be applied is dependent upon the extent to which sound costs are established. This goes back
to which of the three basic methods are used in establishing costs. It is further dependent on the
degree to which analysis is made of each function of the company in order to determine whether a
better, more efficient and cheaper means can be found of achieving objectives. This applies not
only to the productive operations of manufacture but also to every item of material and overhead
expense.
Expected cost, which should be the immediate target of all phases of the business, is one of the
yardsticks of company performance. Budget forecasts should always be aimed at meeting these
expected costs.
It can be seen that if these expected costs are not based on anything other than past performance,
and if every management individual and organization is not constantly on the alert to find ways of
reducing costs, the establishment of budget will not provide objectives which will stimulate real
effort at improvement.
- 52 -
If any individual or organization does not set goals that are better than he thinks he can reach
without strenuous effort there will be no progress. This applies to every phase of the business
enterprise.
4.2.2.5 Auditing
Auditing as we consider it here applies only to the internal company organization. Many
concerns hire an impartial outside auditing concern to make an annual audit and certify to the
correctness and accuracy of company reports on finances, operations, etc. Such outside audits are
a guarantee to the investors, stockholders, and financing agencies as well as the Government of
the validity of the company management statements.
However, within the company, it is important as a part of industrial control to have an impartial
agency verify the accuracy of information and the observance of standards, methods, and records.
These are the functions of auditing.
To completely accomplish these functions it is necessary to go beyond the mere verification of
accounting and cost records. Such verification merely assures the accuracy of bookkeeping.
Auditing should also include sampling checks on the data and records underlying the
bookkeeping. Such things, for example, as the accuracy and validity of timekeeping; the proper
classification of charges and expenses; the observance or violation of defined methods and
practices such as approvals for expenditures, withdrawal of materials, methods of record keeping,
etc.; verification of the accuracy of inventory and stock records; determination of the proper
usage of materials and accounting for disposition of scrap and defectives. These are
representative examples.
It may be stated, in summation, that auditing is one of the important means of control applied by
company management to assure that it does not become careless in the observance of its own
rules, regulations and practices.
4.2.3 Manufacturing
While the functions that comprise the manufacturing phase of the business enterprise are
reasonably clear as we discussed them in connection with Data Sheet # II 4.3, it is well to
review them in order to assure that we are applying the scientific approach in our construction of
a sound and logical organization plan in the next phase of this educational program. With this in
view we will briefly review each function.
4.2.3.1. Production Planning and Scheduling
This function involves the translation of customer orders or of production programs, where these
are the basis for manufacture, into an integrated plan for manufacture. It takes into account the
availability of personnel and manufacturing capacity (present work load), normal manufacturing
interval, materials and supplies on hand, procurement intervals required for delivery of additional
- 53 -
materials, and the specific time when new facilities, such as machines, tools, manufacturing
information and personnel will be available.
4.2.3.2. Production Orders
On the basis of information developed in planning and scheduling, production orders are placed
on the shop indicating the quantity, delivery date, and other information, and materials orders
including complete ordering information, specifications, quantity and required delivery date are
placed on supplies through the purchasing organization.
4.2.3.3. Production Expediting
This function is a management tool to insure meeting production schedules objectives and
promised delivery dates. Normally this function includes the assurance that materials are
available; that there are no delays due to lack of information, facilities and tools; that the
manufacturing organization adheres to the production schedule; that deliveries of finished
products are made on time.
4.2.3.4. Production Records and Reports
Such records and reports provide historical data on performance; furnish information for
accounting, programming and sales; serve as a guide to management for operation and control.
4.2.3.5. Materials
a. Receiving
This function goes beyond the physical acceptance and handling of incoming materials. It
includes also verification of receipt of quantity in accordance with purchase orders (a copy
of which is furnished by the purchasing organization when the order is placed); notification
to purchasing, production expediting, and inspection organizations of receipt of material;
responsibility and accountability for custody of the material until delivered to inspection or
storerooms.
b. Storing
This function may be called custody of materials. It involves the handling, storage, and
protection of materials from the time they are delivered from the receiving department and
verified as to description and quality by purchased materials inspection until they are
required for use in production. Materials storage necessitates the proper segregation and
identification of materials, and assurance of adequate physical protection from damage as
well as prevention of unauthorized withdrawal and use.
- 54 -
c. Distribution
Distribution involves the withdrawal of material (only on authority of properly approved
withdrawal tickets) from storage and delivery to the designated department or unit. It also
involves the obtaining of the signature of authorized personnel for receipt of the material.
This is an important control function.
d. Inventory and Control
Materials inventory is an essential for proper control. It serves the dual purpose of keeping
production scheduling, ordering and expediting units fully informed at all times of the
physical availability for use, and serves as a means of verification by accounting units for
investment control, material usage, and cost control.
e. Scrap Recovery and Disposition
These functions are an important means of reducing unnecessary losses by proper selection
for reuse and repair of useable items.
Further, this operation can be used as a check on the job being done by manufacturing and
inspection units to assure that good product is not being wasted and also as a source of
information for correction of operations or processes that are causing excessive scrap or
defective product.
4.2.3.6. Manufacturing Operations
The functions of operations are self evident. However, it must be remembered that proper
execution of these functions is dependent upon the provision of management tools methods,
instructions, defined responsibility and authority, control methods and information, etc. as
well as the provision of the physical facilities for actual performance of manufacturing
operations.
4.2.3.7. Inspection
Inspection has been listed as a part of manufacturing. This has been done because of the physical
relationship of the function to manufacturing operations. However, it is not the intent to indicate
that this function is or should be a subordinate phase of manufacture from the standpoint of
organization structure and control. This question will be discussed at length later in the course.
a. Purchased Materials
This function embraces a variety of responsibilities. The first is the verification of the
quality of incoming materials, purchased items and parts and sub-contracted components.
Payment for materials should not be made until approval has been given by P. M.
inspection on the quality of the shipment. Received materials should not be released for
- 55 -
delivery to processing units until approved by P. M. inspection. Questions as to usability of
materials which are outside limits must be handled by P. M. inspection. These involve
reference to engineering and manufacturing organizations and occasionally to customers.
Questions as to quality provided by the suppliers must be referred through purchasing to the
supplier. Rejection and return of unsatisfactory material, including the furnishing of
information to interested organizations such as production ordering, purchasing,
accounting, and shipping are also P. M. inspection functions.
b. Process
This phase of inspection, as the name implies, involves the verification of quality of parts
and components in the various stages of manufacture. Process inspection is one of the
motor sources of control information from which can be determined whether defects are
caused by workers, process operation (machines, tools methods) or by design weakness.
Process inspection assures a minimum of defective parts being assembled into finished
product with accompanying waste of labor, material and productivity.
c. Final
Final inspection has as its primary responsibility the assurance of satisfactory quality being
delivered to the customer. Results obtained by final inspection govern whether the product
is delivered, rejected and returned to the manufacturing unit for readjustment or repair, or
scrapped. Data accumulated in final inspection are a major source of information for
analysis of worker quality, process quality, and design weaknesses.
4.2.3.8. Quality Control
This function, like inspection, is listed under manufacturing only because of physical relationship.
There is no intent to indicate that this is or should be a subordinate manufacturing function.
Mention of the function is made at this point only because of its importance as a phase of
scientific management. It will be discussed in detail later in the course.
4.2.3.9. Purchasing
This function includes the buying of all materials, supplies, sub-contracted components, and
facilities. It involves responsibility for obtaining the best possible price consistent with quality,
location of new and better sources of supply, negotiation of purchasing contracts (subject to
authority delegated), negotiations on unsatisfactory materials received, price discounts, etc.
The remaining functions, which are listed on Data Sheet # II 4.3 are self explanatory.
Note: Review these with the group to determine whether there are any questions.
From our previous discussions of the functions of Engineering and Finance it is obvious that
while manufacturing might be termed as an Operations function, there is close inter-relation
- 56 -
with other major company functions. This will be further evidenced in consideration of
Marketing and Industrial Relations. Responsibility and accountability for operations are
dependent upon the provision of information, instructions, methods, standards and facilities by
other groups. Responsibility devolves on manufacturing to provide information (budget
estimates, performance data, etc.) to other organizations. Cooperation and coordination are
required on questions pertaining to Engineering, Finance, Marketing and Industrial Relations as
they affect manufacturing.
4.2.4 Marketing
We have previously discussed some phases of the marketing functions, Figure 113 in the section
on policy is an example of the application of market surveys and advertising in the development
of new markets. Also in our review of Engineering we covered another function, Sales
Engineering, which is vital to marketing.
At one time it was probably safe for most companies to depend to a considerable extent on so-
called contacts and friendly customers. These provided a steady marketing under these
conditions and was a relatively simple matter.
But in the past as at present the companies that had well organized aggressive sales forces, who
established a reputation for good customer service, and who were able to build up a reputation for
quality products maintained the lead.
Changes in economic conditions require even more emphasis on the efficiency of the sales
organization both from the standpoint of sales effort and of economical organization and
operation. But in addition marketing requires more effort in the fields of surveys and engineering
to develop new products and expand the product line into wider market applications.
We have already mentioned the importance of building and maintaining a reputation for product
quality. Equally important is to establish prices on a sound competitive basis, and this will in part
depend on keeping marketing expense at a minimum.
The programs of any company for production and correlated activities are dependent upon the
soundness of sales forecasts. These are developed by the marketing organization and to be sound
must be based not only on known and potential orders, but also on adequate market surveys and
good sales objectives. It is not enough to set objectives which are based solely on past
experience.
Lack of adequate information and study of the market, failure to take into account obvious
changes in economic conditions and the use of guess work can place in jeopardy the financial
and future competitive position of any company. Further, the lack of market study, market
development, customer service and aggressive salesmanship can retard a companys progress and
also frequently jeopardize its competitive position.
- 57 -
An important part of the marketing function is continuous and careful evaluation of the
effectiveness and results of every phase of the job. Following are some questions to ask
yourselves.
1. Is advertising getting results commensurate with expenditures?
2. Does each salesman have an adequate sales objective?
3. Is each salesman accomplishing the greatest possible sales with a minimum of
expense?
4. Is customer service getting results?
5. Do market surveys accomplish results?
6. Is product distribution efficiently planned or do you have delayed delivery in some
areas and excessive stocks in others?
7. Are sales forecasts based on sound data and analysis, or are they just someones
guess?
8. Is engineering being applied to sales and market problems?
9. Is the marketing organization well integrated and operating on a sound budget?
10. Do you know what it is costing you to sell each product?
You must not only ask yourselves these and similar questions but you will have to see that
satisfactory answers are found to make satisfactory progress in the modern competitive business
world.
4.2.5 Industrial Relations
In our preliminary review of this function we pointed out that the selection of this title was an
arbitrary one. But again, regardless of the title you may use, there are certain functions which are
essential and which are logically grouped in this general branch of business activity.
At top management level you will recall that one responsibility is the establishment of basic and
general policies. Those which must be considered in the field of industrial relations pertain to all
phases of labor and employee relationships.
In reviewing the detail functions let us keep in mind that any specific methods, standards and
procedures that are developed to apply basic and general policies are dependent on the soundness
and breadth of vision reflected in these basic and general policies.
- 58 -
In our discussion of industrial relations there is no intent to discuss either favorably or
unfavorably any of the basis concepts of labor unions or management. Rather, we are considering
the things which, from the standpoint of sound industrial management, are essential
considerations in scientific management planning.
4.2.5.1 Labor Relations
a. Labor Contracts
This includes the study of labor laws; analysis of past union negotiation problems; study
and analysis of present labor contracts of your own and other companies; obtaining the
advice, criticism and recommendations of all branches and levels of management;
protection of management prerogatives in the writing of new contracts. It also requires
careful consideration of the position of the worker to assure adequate worker recognition
and protection in the preparation of such contracts.
b. Labor Negotiations
Such negotiations by labor relations groups may be handled in one of two ways. The first
is to refer all labor questions, grievances, complaints, and recommendations to this group.
In this case the line organization has no authority to discuss or take action on any labor
question without at least the advice and recommendation of the labor relations
organization.
The second method is to consider only problems of collective bargaining as the
fundamental responsibility of the labor relations group. Collective bargaining in this case
may be defined as labor problems regarding working conditions, job grading,
employment, upgrading, downgrading, layoff and dismissal, wages, and other questions
which affect either groups of employees or the entire employee body. Also included in
this category would be contract negotiations.
You will note that for our discussion we make a distinction between grievances of
individual workers and collective bargaining. What is this difference? Grievances of an
individual are the result of dissatisfaction of one person with his treatment, wages,
working conditions, or some other disturbing factor which applies only to this individual
worker. It does not affect either a group of employees or the entire employee body.
Collective bargaining on the other hand is not concerned with the grievance of an
individual. Only when the dissatisfaction applies to either a group or the entire employee
body is the term collective bargaining used.
Problems affecting individual workers on any subject are handled progressively by line
supervision as grievances. Only when it is impossible for line supervision to reach a
satisfactory conclusion on such problems are these referred to the labor relations
organization.
- 59 -
It should be noted that the first method probably assures the consistent application of
policies with less difficulty than the second method because all negotiations are made by
an impartial group. However, such a procedure weakens the prestige of line supervisors,
and relieves them of responsibility. It is generally true that if a supervisor is responsible
and accountable for relations with his subordinates he will do a better job and keep in
closer touch with actual conditions than if he knows that someone else is going to
straighten out any difficulties resulting from lack of consideration, leadership, or fair
treatment.
Regardless of the method that is used, sound labor relations are possible only when
policies, procedures and methods are clearly defined and understood, and consistently
followed.
4.2.5.2 Public Relations
This is the function which relates to company external relationship with the general public, the
industry, and government. Its purpose is to insure the sound presentation of its position and
actions.
Public relations aims at giving facts about the business and business management to anyone who
has a right to know them. As with an individual, the character of a business may be said to be
what the business actually is; its reputation is what people believe it to be. If people are to
formulate sound opinions they must know the facts.
Therefore, sound public relations must begin with honest, sound policies which are properly
administered. If the internal situation is not sound, if you do not have and administer good
policies, no amount of publicity will hide or cover up this failing, and the companys reputation
will suffer because it actually has a bad character.
One fundamental for sound public relations is to have informed and satisfied company personnel.
Then everyone from the janitor to the president is an enthusiastic booster.
Company policies and activities should always take into consideration the point of view of public
reaction. Announcements, speeches by officers and others, company contributions to civic and
welfare activities, participation by company members in such activities, and similar things should
be reviewed and considered by public relations from the standpoint of their favorable or
unfavorable effect on the public.
Relations with other companies in industry through the medium of associations, such as the
FJECIA, and active participation in association activities is an important aspect of public
relations. Further, the associations through their public relations can do much to add to good
public opinion.
- 60 -
4.2.5.3 Personnel Relations
a. Employment
In most companies, with the exception of very small concerns, employment is the function
of a specialized group. Usually the actual hiring is only a part of this function. This is
because of the many considerations involved in dealing with personnel under present
conditions.
Where company managements do not take the initiative in establishing sound policies
with relation to conditions of hiring, layoff, dismissal, rehiring, etc., these are frequently
forced by the insistence that such policies with accompanying standard methods be
incorporated in union contracts.
Therefore employment of new employees cannot usually be done if previous employees
who were laid off because of lack of work are available. Further, employee layoffs are
subject to question and protest unless these take into account company service or
seniority.
Usually, discharge or dismissal also necessitates verification of cause. This is one of the
features of protection for employees which managements of forwardlooking companies
have recognized as desirable, and which have been forced in other cases by union demand.
It is becoming increasingly difficult for management employees to take final action on any
question relating to employment, and at the same time it is more important to be able to
substantiate any action recommended or taken.
As a result, the employment function necessitates the maintenance of adequate records on
employees, both active and those no longer with the company. Further, requests for
additional personnel usually clear through the employment section to assure that surplus
employees are not available for transfer who would otherwise be laid off. Usually also,
this group verifies the recommended action of management in both layoffs and dismissal
or discharge.
b. Placement
The evolution of placement as a function has paralleled the development of employment
for similar reasons. As the guardian of employee interests the unions take an active
interest in any employee promotions, demotions, and transfers. And in concerns where
far-sighted policies for the fair and impartial treatment of employees have not been
developed, these are demanded by the employees, through the unions.
Here again, it is developing more and more upon management to insure that action taken
is supported by sound reasons and that these reasons be capable of verification.
Frequently, this placement function also includes the study of employee skills and abilities
- 61 -
with a view to locating the work for which the employee is best fitted. This phase of
placement is now generally recognized as of great value to the company as well as to the
employee.
c. Training
Training may be said to resolve itself into three phases. These might be called:
(1) Worker training
(2) Supervisory or lower management training
(3) Executive or upper management education
These three phases of training may be further classified as on-the-job and off-the-job.
Progressive companies recognize that, for efficient company operation, training of all
employees is essential; and that training is one of the major responsibilities and duties of
all levels of management. Obviously the training of any employee is not possible unless
his job is known, defined and capable of performance through provision of the proper
facilities and tools. From a training standpoint the management tools we have talked
about before are just as essential for supervision as the physical tools are for the worker.
On-the-job training is training which is given right on the job during working hours.
This is the kind of training which is associated with job function and activities where the
actual job surroundings and conditions are necessary and beneficial.
Off-the-job training is training where the student or trainee is removed from job
surroundings and associations. It is important where the nature of the program makes it
important to divorce the trainee from the interruptions, problems, and division of attention
between the training course and the job that would interfere with learning.
Do not confuse off-the-job training with educational programs that are offered by the
company on a voluntary basis and where the employee attends on his own time without
pay. Off-the-job training is not voluntary but is required by the company, and whether
the course is given during regular working hours or after hours the employee should be
paid for his time. The industrial management course you are taking is a good example of
off-the-job training.
In companies that capitalize on the benefits to be obtained from training, it is usually a
function of the personnel relations organization to establish recommended programs on a
company wide basis, keep in touch with developments in the industrial training field, and
follow or give courses. An important responsibility is the follow-up to determine the
effectiveness of such training. In the United States we make this statement: If the student
has not learned, the instructor has not taught.
- 62 -
d. Employees Service
This function is so well recognized and understood that little discussion should be
necessary. However, it is well to remember that the administration of the various phase:
health, welfare, recreation, will govern to a considerable extent the morale and well being
of both the employees and the company.
e. Safety
The extent to which workers in any company are safety conscious can be measured
directly by the extent to which the management of the company is interested in safety. We
stated earlier that safety should begin with design of the product and continue through to
and include the effort of the worker.
In the United States, safety it is considered of such importance that a National Safety
Council has been established. This council, whose industrial membership comprises the
great majority of American industrial concerns, has as its objective the study and
promulgation of safety practices and safety consciousness. It plans and executives
programs on a nationwide basis through the medium of its membership. One of the major
activities of this organization of and the safety groups in each company is the Safety
Education of every individual.
f. Job Rating
The determination of the importance of any job in relation to other jobs in the company is
possible only through job rating. And only through such rating can the fundamental
concept of free enterprise be realized. This concept may be called the right of every
individual to be measured, compensated, and advanced on the basis of ability and
performance.
Where job rating is not used, it is recognized, of course, that different jobs require various
degrees of knowledge, experience, skill and ability. However, there is no sound measure
of the relative value to the individual or the company of these factors. As a result, there
can be and usually are wide differences in the recognition and treatment of employees
doing work of a similar nature even in the same company and sometimes in the same
organization unit.
Job rating involves the establishment of a unit with special knowledge and training. The
functions of such a unit are:
(1) Analysis
This involves the preparation of a detail description of the job. It may be done by
the employee (with proper supervisory verification), by the supervisor or by the job
Analyst. Where employment and organizational policies have been well established
- 63 -
such job information will already be available. As a matter of policy, job
descriptions are usually reviewed with the employee before final approval by the
responsible (delegated) supervisor.
There are two generally recognized methods of analysis and evaluation. The first is
called the Ranking Method and the second is called the Point Method.
The first method is at best only approximate. It depends on comparison between
jobs and the ranking of jobs by such comparison. Obviously, there can be wide
differences of opinion between organizations and individuals because of the
emphasis that is placed on a particular factor by an individual as a result of personal
opinion. This is far from the scientific approach and results not only in
disagreement between various organizations but also individual grievances which
can be and are exploited by wide awake unions.
The second method is much less subject to individual opinion and is more sound in
its fundamental approach.
Job analysis by the ranking method usually takes into consideration factors such as
the following:
Volume of work
Difficulty of work
Monotony of work
Responsibility involved
Supervision required
Knowledge and experience required
Working conditions
Job analysis and rating by the Point method evaluate factors both as to characteristic
and degree. As an example, Data Sheet # II 4.7 details the point system used by
the National Electrical Manufacturers Association.
(2) Specifications
Following job analysis and evaluation, specifications must be prepared which show
the final job description and job rating. Usually such specifications define the
education, experience, and background required, indicate the type of physical
characteristics required, nature of the actual job, etc.
(3) Wage Rates
In Japan this phase of job rating presents a serious problem. The fundamental
concept of job evaluation presupposes compensation commensurate with the job
level. This is contrary to Japanese tradition and present practice.
- 64 -
Here again, the decision will have to be made by you as to whether you can continue
to follow tradition and pay employees on the old basis, or whether sound
competitive company operation will necessitate the payment of people in
accordance with their true worth to the company for the job performed.
In a competitive economy, wages are based on supply and demand as well as on cost
of living, although this is an important factor. Further, however, people who have
had good professional training such as technical engineers and accounting experts
are recognized as contributing much more to the business than people who lack the
basic understanding and use of scientific principles. The pay of such people is
higher in recognition of their training and their contribution to the welfare of the
business.
g. Organizational Control
This function will be discussed in more detail under the section on Controls.
However, at this point it is important to recognize that organization structure as
planned and defined by management policy and standards works to the extent that
it is analyzed, checked, and reviewed for effectiveness, efficiency, and possible
improvement. These are functions of organization control.
4.2.6 Secretary and Treasurer
When these are officers of the company then functions are clear from Data Sheet # II 4.6.
However, from a structural standpoint the allocation of duties will be dependent upon analysis of
the needs of the business as well as the stipulated setup of company officials in the by-laws.
4.2.7 Conclusions Construction of an Organization
The following section of the course involves practical analysis of organization structure and the
application of structural principles. It should be recognized in approaching this phase of our
work that it is essential to define jobs both as to content and also as to responsibility and
authority. Further, to insure an efficient structure these jobs must fit together for inter-relation,
coordination and cooperation without overlapping and duplication of effort.
It is important to remember the factors that must be considered in establishing organizational
structure and that the progressive steps in reaching the objective of a most efficient company
should be taken logically and progressively as these steps can be justified.
- 65 -
5. Analysis of Existing Companies
We have completed our study of the underlying principles that form the basis for the
establishment of policies and the foundation upon which is built company organization. Now let
us apply those principles in the analysis of some typical actual companies.
a. A Japanese Company
There (Fig. 250) is an organization chart of a certain company here in Japan. It is in the
communications manufacturing business and is of a middle size. About seven thousand people
are employed here in the head office, eight branch offices and about eighteen factories which are
grouped into six manufacturing departments.
The chart shows the head office group and the detailed organization of one of the manufacturing
departments.
To make our discussion of this organization really complete we should also have here the
organization record or the manual, which interprets and explains each of the positions and
functions, which are represented here.
But, unfortunately, such a record does not exist. Or rather, I should say that the company does
have some sheets of paper upon which are written some vague and inconclusive statements
generally concerning this chart. But, because they are so unsatisfactory compared to what they
should be, it is just as well to say that there is no organization record.
Later on in this discussion I will give you an example of what sort of things are included in a
company manual. But let us go ahead now with the analysis and assume that the scope of each
part of the organization includes the functions normally associated with the title of each group.
During the analysis of this company, let us make a list of all the criticisms we make and the first
item on our list will then be the lack of an adequate organization record.
The organization chart is merely a picture, which shows the component parts, which make up the
total company structure and also the authoritative relationships of the various parts of the
company structure. But this is not sufficient in and of itself.
It is highly desirable, and in fact necessary, to finalize the chart with written statements that
prescribe the full authority and responsibility of each executive head. This would remove all
doubts in debatable fields of activities as to which individual is responsible for what function.
The absence of such a written record in this company is a course of irritation and dispute and also
inaction. There is an attitude here of Let the other fellow do it since nobody has said that this is
my job. As a result of this attitude, nobody does the job and the job never gets done. Can you
see too that this situation leads to poor employee morale?
- 66 -
The specifying of duties of the executive heads has the added advantage of making the organizer
think out his plan of organization with the same care and thoughtfulness that a designing engineer
would apply to the development of a piece of machinery. This point has been missed by the man
who constructed this organization. We will see this more clearly as we go along.
Let us now inspect the form of the organization. It is essentially a line organization. This type of
structure grew out of the military system where discipline and vertical lines of direction and
instructions were required. Incidentally, there is almost no army in the world nowadays which
still uses this form of organization.
The lines of authority and instructions here run directly from the president through the manager to
the workers, and all the persons who are on the same authoritative level are quite independent of
others in a similar situation. Thus there are separate channels reaching down from the president
into each particular phase of the business.
The proportion of both mental and manual work is the same for all men on the same level. What
separation of mental and manual work as does exist comes from those in the higher positions of
authority, keeping for themselves only the mental work of administration and the delegation of
additional duties to those in subordinate positions. The division of mental and manual work here
then is incidental rather than a result of a logical study. There is an assumption made, and in
actual practice it turns out to be a false one, that each man on whatever level of authority he may
be is fully competent to perform the duties associated with his position, no matter how many
duties he may have assigned to him and how different in nature they might be.
There is no doubt that this system has one advantage. It is possible to exercise discipline over the
members of the company. It has some very serious limitations however, and for that reason this
form is no longer used either in armies or in business enterprises.
This system tends to lead a few executives to the breaking point with a multiplicity of jobs of a
different nature.
It tends to permit crude methods of operations since few men can do several different jobs and do
each one of them well.
The instructions given to the workers in how they are to do their job are usually meager and
therefore great reliance must be put on the individual skill used and the knowledge of the
workmen. Where there are experienced workmen this problem may not be so acute, except that
there is no standardization of the working method and hence no control over the manufacture of
the product. But where there is no worker training, as is true in most of the plants here, reliance
upon the skill of a new or inexperienced worker is fatal to the quality of the product and the
economic condition of the company.
Finally, this line system tends to make the success of the undertaking depend upon the ability of a
very few men, or as is generally the case, upon only one man. If these indispensable men should
ever have anything happen to them; should they die, be incapacitated, or otherwise be lost to the
- 67 -
company, the company itself would be lost. There would be no reserve strength to fall back
upon.
If this were a very small company engaged in a simple business, there would be no criticism
made. But that is not the situation here, so our second item in the list of comments will be in the
form of the organization.
One of the things that impresses me most about this plan is the large number of subordinates
reporting to any one superior. There are twenty-five organizations reporting to the president.
There are six groups shown in this detailed department reporting to the manager. But in addition
there are similar groups reporting here from the other five manufacturing departments and six
branch offices. There are nine complex groups reporting to the chief of the Manufacturing
Section. Incidentally, this company suffers badly from inadequate management control. You can
see why: it is a physical impossibility for any manager to adequately supervise such a multitude
of different activities as is being demanded of these management people.
A technical term is used to describe the number of subordinates, which can be successfully
directed by a superior. This term is Span of Control. When the span of control is too great, as
in this case here, the direction and control of the industrial enterprise is bound to suffer from
delay and procrastination, friction and bad feelings between employees, and confusion on
everyones part. What is the proper span of control? A good rule to remember here is the smaller
the responsibility of a group chief the larger may be the group. And conversely, the larger the
responsibility of the chief, the smaller must be the number of people reporting to him. Following
this rule, at the top of the organization it is desirable to have only three groups reporting to the top
executive, but in the lower echelons of the company, it is possible to have one man supervise as
many as six groups.
A foreman who has only limited responsibility may adequately control ten, fifteen or twenty
workers depending upon the nature of the work. But the president of the company (see Fig. 250)
who has twenty-five groups reporting to him and who has to bear the full responsibility of the
whole company, has not the slightest chance in the world, even if he were superhuman, of
adequately supervising the work of his subordinates.
In any association of people there are three types of human relationship: direct single, direct
group, and cross. Usually we measure our relationships with other people only in terms of our
direct connection with each of them individually. But especially in regard to industrial relations
and business management, human inter-relationships are not that simple.
Suppose we have a supervisor, A, who only has two subordinates, B and C. Obviously A can
deal with B and with C, each on an individual basis. This would be a direct single relationship.
On the other hand, A can deal directly with B and C together at the same time on a group basis.
The behavior of B in the presence of C is apt to be different from his behavior if he were alone
with A, the supervisor; and the same way with C in the presence of B.
- 68 -
Moreover, the attitude of B toward C and C toward B constitutes a cross relationship which A
must keep in mind in arranging the work of B and C. It is necessary for A to see that a
harmonious and cooperative atmosphere exists between B and C in order to get the job done right
and to serve the welfare of the company.
So, in this very simple example of the relationship of three people there are from four to six
relations that are the concern of A, not only two.
Minimum Maximum
Direct single: A to B, A to C 2 2
Direct group: A to B and C 1
A to B with C 2
A to C with B
Cross: B and C 1
B to C, C to B 2
4 6
From this discussion it can be seen that whereas direct relationships increase in proportion to the
number of subordinates assigned to a supervisor, the number of group and cross relations increase
very rapidly out of proportion.
Suppose
N is the number of subordinates, and
S is direct single relationships
G is direct group relationships
X is cross relationships
Then the total number of relationships with which a supervisor must deal is the sum: S + G + X
S = N
G =
2
N
(N-1)
X = (2)
n
(N + 1)
For the case cited in Fig. 251, S equals 25
G equals 300
X equals 33, 569, 974
- 69 -
Total number of relationships equals 33, 570, 299
Fig. 251 INCREASE OF RELATIONSHIPS WITH INCREASE OF SUBORDINATES
Number of Subordinates 1 2 3 4 5 6
Value of S 1 2 3 4 5 6
Value of G 0 1 3 6 10 15
Value of X 0 1 4 11 26 57
TOTAL 1 4 10 21 41 78
According to management theory it is possible to practically control 12 cross and 28 direct group
relationships. From this it appears that what should govern the decision as to how many
subordinates to put under a supervisor is not the direct single relationships that exist, but rather
the group and cross relationships. This would be true for all but the most simple and routine sort
of work.
Of course, the problem of how many subordinates to put under a chief is not limited to this
mathematical relationship. The nature of the work to be done naturally cannot be ignored.
However, this mathematical relationship should be used as a guide in the problem.
Referring again to Fig. 250, it is apparent that every rule of proper span of control is violated
here. There should be little wonder then that this is a poorly managed and inadequately
supervised company. So for the third item in our list of criticisms we may put down span of
control.
Because of the line type of organization and the absence of prescribed duties, responsibilities and
authority, there exist in this company several definite ills which may not be obvious from the
organization chart but which are inherent in the companys structure.
The president must be in direct personal control of every phase of the company. But since he
cannot be everywhere at once he is, after all, only one man- while he is exercising his control
over one part, he is, at the same time, neglecting another part, which also is in need of direction.
In exercising this control he may be able to enforce discipline, but he is also bound to cause a
great deal of resentment.
For one thing, he interferes with and infringes upon the area of responsibility of his subordinates.
And when he does that, as we said in our first lecture, he automatically relieves his subordinate of
that responsibility.
For another thing, assuming that the subordinate is a specialist in his own field, and this is a
proper assumption to make since if it were not so why then would the subordinate be assigned to
his job, is it reasonable to think that when the chief executive interferes with the lower job, he
could do it any better than the specialist? If he can, then the specialist should be fired and a more
competent man be put in his place. But what almost always happens is that, by his interference,
the executive makes a mess of things and then the subordinate must cover up the mistakes of his
- 70 -
boss. Let this happen only twice or three times and the subordinate loses his respect for his chief
and he becomes uncooperative and antagonistic toward his chief.
Another ill inherent in this situation is this. If the top executives reserve for themselves all the
decisions that could be made at lower levels, if the people in the lower levels are not given a
chance to act on their own authority, if they have no opportunity to develop their own executive
abilities, they are going to lose interest in their jobs and if they dont leave the company to get
better jobs, they will remain and do only mediocre work. They will have lost all their inspiration
and incentive to extend their efforts to do better than just average work.
It is this extra margin of effort, which so often spells the difference between profit and loss,
between a successful happy company and a dispirited, falling-apart, failure of a company.
There are a number of other factors we could talk about: the question of whether the head office
exercises a strict control over, or whether it coordinates, the branch plants and sales offices; also,
the question of the top executives faithfully following the lines of the established organization;
and the functional inter-relationship of the various departments.
But such things as this we cannot readily see just from looking at the organization chart. I could
talk about these things because I know this company. But our purpose is to make a factual
analysis of what we actually see here in Fig. 250. So let us leave the top management side of the
picture and now look at the structure of the manufacturing department.
First of all, we see that there are some groups here, which are duplicated in the head office. Sales
offices, Tokyo office, Welfare Group, Accounting Group. Now, we do not criticize this because
this may not actually be duplication of activity. The chart does not tell us and we have no
organization manual to tell us. But it does look suspicious and so we reserve a question about
this apparent duplication.
Secondly, in the manufacturing section we see what may be more duplication. There is a General
Affairs Branch that has accounting functions, there are nineteen separate technical groups
concerned about production efficiency, design, and other engineering functions besides the
Efficiency Research Branch. There are eight separate inspection groups and nine separate
purchasing groups. In these cases there will obviously be duplication of work and the cost of
operations will be excessive because of it.
A manufacturing section should be what the name implies. It should manufacture. These other
functions which we have just pointed out are activities which are necessary but which are
subsidiary to manufacturing.
To include so many different activities under the chief of a manufacturing shop makes too great a
demand upon that individual. He must be a supervisor of purchasing, engineering, inspection,
warehousing and other activities as well as production. If we cannot find a man at higher levels
who is an expert in each of these fields, what chance do we have of finding one at this lower
level. The obvious result of this situation is and it is true in this company only an inferior
- 71 -
inadequate and unsatisfactory job is being done at this level. And the workers do a poor job
because their work is not supervised. The supervisor has no time to supervise. He is too busy on
other jobs.
Another evil in this organization is the autonomy, which is bound to occur. Each of these shops
is almost a self-contained company in itself. There is no need to cooperate with other groups in
the company because each one is self-sufficient. How is any manager going to get one single
coordinated result out of a situation like this?
Notice too that there are nine very complex shop groups reporting to the chief of the
manufacturing section. Again, this man is required to be an expert in every phase of the business.
That is a job, which is too much for any man. It is too much for this man and the result is that he
actually does nothing.
Let us add our criticisms of this department to our list. We mentioned duplication of
departments, then there is the grouping of similar functions into a combined single unit rather
than having them distributed as are inspection, purchasing, etc. here. We also talked about the
unfair burden placed upon the supervisor who is expected to oversee so many different kinds of
jobs. We criticized the organization plan, which would permit the existence of autonomous
factory shops. And finally, we again talked about the span of control of the section head being
too great and the resulting lack of coordination of the parts of his organization.
The basic fault we can find here is the obvious lack of organizational planning. This structure
was made without regard to the fundamental principles of grouping similar jobs together, placing
them under a competent chief, maintaining a minimum span of control, and then organizing the
whole into the type of structure that could be controlled by the delegation of authority, the
assignment of responsibility and the exercise of supervision.
b. Large U.S. Company
Let us now consider an American company where if there were no executive control exercised the
results would be disastrous. Fig. 252 is an organization chart of the top management structure of
the General Motors Corporation.
At the very outset let me say that I do not recommend this type of organization for your own
purposes. The General Motors Company is one of the largest and most complex corporations in
the world. My purpose in bringing this chart to your attention is merely to show you a picture of
one type of top management organization. We will discuss it briefly and see if we can determine
the elements or organization, which are vital to any enterprise, large or small.
As you know, the General Motors Corporation is mainly a manufacturer of automobiles. There
are five brand names of motor cars and several lines of trucks and buses. The corporation also
makes its own engines, car bodies, chassis, and parts such as spark plugs, spark coils, roller
bearings and all the other gadgets that go into a motor car. But a lot of parts are also bought from
outside suppliers too.
- 72 -
General Motors also produces electric refrigerators, radio receivers, airplane engines, bicycles,
and in addition, is in the real estate and the exportimport business. It also operates factories in
foreign countries.
About 600,000 employees work in this company and the annual gross income is about
$1,000,000,000 (one billion dollars).
There are several thousand stockholders who own this company, the Du Pont Company being the
largest single stockholder (less than 5%). There are about thirty people on the Board of Directors.
Two special committees report to the Board, one on corporation finance and the other on
corporation administration. These groups comprise the Administrative policy-making body.
The president comes under the authority of the Board of Directors. He manages his company
through four staff organizations and three assisting groups. These latter three groups are the
publicity or public relations staff, the legal staff, and a staff of assistants who advise him on
technical, budget, and organizational matters.
The financial staff is divided into two parts. One conducts the business of the lending of money
to prospective customers. The other handles the stock, tax, financial statistics, general payroll,
auditing, bookkeeping and accounting matters of the corporation.
The operations staff coordinates the work of actual production in all the various plants and
subsidiary companies in the corporation. Notice that this organization is divided into four groups,
one that makes automobile accessories and household appliances, one that integrates subsidiary
companies, one on export, and the fourth one coordinates the automobile and parts-making
factories.
The Advisory Staff coordinates the patent, research, purchasing, real estate, and such other
activities that affect the company as a whole.
The Inter-Divisional Relations Committees are used to standardize on methods and operations in
the different parts of the corporation. To a certain degree, the various manufacturing divisions
operate with a great deal of independence. The head of each division is almost as if he were the
president of a separate company. But at the same time his work is coordinated by the
corporations staff groups and the inter-divisional relations committees. There is such a cross-
relation of services and cooperativeness here, for example on research, market analysis, budgeting
and finance, large quantity buying, that it is possible to streamline the separate divisional
organizations, eliminate duplication of activities, and secure the advantage of minimum operating
costs.
To a considerable degree these (inter-divisional relations) committees set management and
operational policies. They act as a clearinghouse on ideas, filtering out unusable ideas and
distilling down from many views on a subject, the one best way to proceed with the problems
with which they are assigned to deal. As a consultative group they also serve to check on each
- 73 -
managers method of operation, pointing out unwise or undesirable action. These committees are
a method of combining the best minds of the corporation in order to develop the best talent. The
committees are also used as a controlling device to pass on certain actions of the managers. Thus,
money expenditures or some other functions, according to the instructions, which are established,
may be referred to the group for approval.
To summarize, we find these outstanding features in this organization:
(1) There is a Board of Directors who controls the organization for the stockholders and
which is made up of a group of people of wide general experience. The Board has
two specialized advisory committees to help on the two major problems of business
administration and finance.
(2) The president has only three functioning executives reporting to him, the Operations
Staff acting as a committee headed by a chairman.
(3) Each of the Staff organizations coordinates the divisions, which function within its
scope.
(4) The Inter-Divisional Relations Committees act to standardize, establish and control
operation procedures as well as establish ways and means for maintaining cooperation
between the various parts of the corporation.
c. Small American Company
Let us leave this large company now and consider a typical smaller sized American company
(Fig. 253). The one we will investigate employs 3000 people and is engaged in the manufacture
of water and gas pipes, valves, pumps and other plumbers equipment.
The form of the organization is line and staff. That is, specialists are employed to advise the
executives on problems of engineering, purchasing, production, tools, etc. These specialists
cannot give orders to the workmen directly, not even within the field of their own specialty. The
advice is given to the supervisor in the line organization (who would usually not possess this
specialized knowledge himself) and the advice then is translated into orders, which are passed
down the line through the foremen to the workers.
- 74 -
This type of structure looks something like this:
Stockholders
Board of Directors
President
General Manager
STAFF LINE STAFF
STAFF LINE STAFF
STAFF LINE
In a rigidly enforced line and staff organization, the staff groups would contact other lower level
groups only through the central channel of command. But, in actual practice such a channelling
is often found to be cumbersome. Therefore, some relaxation of the rigid form is usually allowed
and parallel operations are thus permitted.
That is to say, the medical group for example, functions for the entire company, passing its
advice, requirements and information directly to the lower echelon which is concerned.
The engineering department, in dealing with standards and specifications, for example, might
send its instructions directly to the workshop. In this case, there is an understanding that the
factory manager or some other higher executive in the line organization empowers the
engineering department to act directly. The engineering instructions then become orders just the
same as if the factory manager had issued them. Of course, the factory manager reserves the right
to discuss, criticize, or seek a change in the instructions if he feels that such action is necessary.
But, there is one very important item to note here.
The factory manager, or any other line executive, does not change the staff instructions or advice
by himself. He may suggest a change, recommend it, or even demand it. But any change that is
made is done by the group, which originated the original instructions or advice. People in the line
organization must not arbitrarily modify the work of the staff organization without the latters
knowledge and approval. If this were to be done otherwise, the position of importance of the
staff group to the entire company would be weakened and its future contributions to operation
activities cheapened. The effective operation of the entire structure would be endangered.
The line people in the company must remember that the staff people are just as important to the
companys welfare as they themselves are. Therefore, the proper respect and consideration must
be given to the staff. The whole purpose of the line and staff type of organization is to make
everyones job easier. Specialists are employed to work on specialized problems leaving the
operations people free to operate.
This type of structure begins to break down when this important fact is forgotten and the line
people begin to do jobs, which are properly within the sphere of the specialists.
- 75 -
The organization chart, the organization manual, the specification of jobs, the prescribed
delegation of responsibility and authority, and finally, intimate personal supervision of work
these are the devices which are used to make this type of organization work successfully.
We have discussed the general form of the line and staff structure. Now, I want you to help me
draw a picture of the organization chart of the American company. Let us now take data sheets
Nos. II 4.1, 4.2, 4.3, 4.4, 4.5 and 4.6. These sheets list the activities normally found in any
company.
You will notice that each of these lists is grouped under a main heading, i.e. engineering,
marketing, sales, and so on. These headings represent the major, inclusive functions of the
enterprise. But remember this: even though some activity is listed under a major function
heading, it does not necessarily follow that in our organization chart we will put that activity
under the same heading. We may decide that for organizational purposes, for the sake of better
supervision and control, we may (within certain limits of course) put any activity under any major
function.
Let us now write the names of the major functions of the enterprise.
Stockholders
Board of Directors
President
Treasurer General Manager Secretary
Comptroller Ch.Eng. Factory Sales Ind.Rel.
Manager Mgr. Manager
Treasurer Finance
Secretary Stock registry
Comptroller Accounting
Chief Engineer Engineering
General Manager Executive Control
Factory Manager Manufacturing
Sales Manager Sales
Industrial Relations Personnel
Now, taking data sheets No. II 4.1, 4.2, 4.3, 4.4, 4.5, and 4.6, let us fit each of the activities
listed there into the organization chart under the most proper heading. We will do this based on
the assumption that the scope of each major function contains the activities usually associated
with the name of that function. (By group discussion and participation develop the organization
chart of the Lunkenheimer Company, Fig. 253.)
Now look at Fig. 253. You see that you have developed an organization, which is the same as
this American company. It is not difficult to set up an adequate organization provided you base
- 76 -
your thinking upon sound basic principles, plan ahead for how the organization is going to work
and then group the functions of the company properly under the proper head.
If this were your company that we were working on, we would now be almost half way through
our organizing problem. But what we must do now is to check our organization against the
Objective of the Enterprise. Does it match? Can we work toward our ultimate goal using this
structure? If the answer is yes, then let us check the chart against our administrative policies.
Are the necessary departments established to carry out the immediate objectives of the business?
Does the organization structure help or hinder operations, speed operations up and increase
efficiency or delay operations causing bottlenecks and red tape barriers.
The only way we could get definite answers is to put the plan into action and watch it carefully
and make such adjustments as are necessary from time to time to maintain a smoothly operating
business body.
The thing that makes this organization (Fig. 253) successful is its close adherence to the ten basic
principles of organization. Let us read them over together. (Reference, Fig. 254.)
Figure 255 is an organization chart for another American company. It also is line and staff. This
company makes airplane parts, equipment, and accessories, radio transmitters, and radio crystals.
You will notice the similarity of this companys structure to that shown in Fig. 253.
But this company is not content to draw up an organization chart and leave it at that. This
company has written an organization manual, which is part and parcel with the chart. Fig. 256 is
a brief copy of the manual. You will notice that every supervisor and every activity has some
brief description of its roles and responsibilities.
Figure 257 is another example taken from a different organization manual, which shows how one
company prescribes the duties of its departments and people. This example defines the scope,
duties, functions, and responsibilities of the Comptroller and shows what functional groups
comprise the Comptrollers department.
The reason I have pointed out to you these examples is to show what sort of things is included in
an organization manual. You could use these samples as a guide in the writing of your own
manuals.
Now for a moment, let us look at all four of the organization charts we have studied. Figures
250, 251, 252, and 255. Lets compare them. Which one would you select as the type, which
would most likely succeed, in your own company?
Fig. 255 is a somewhat more simple organization than is Fig. 253. One reason for this is that the
company represented by Fig. 255 is smaller than is the other company. It is possible in this case,
therefore, to combine some activities under one head, whereas in the other chart that activity
stands alone.
- 77 -
For example in Fig. 255, purchasing (procurement) comes under the Production Control
Department while in Fig. 253 there is a separate Purchasing Department. The factors that will
help to decide whether, in your own companies, any activity should be combined with another or
whether it should be established in an independent department, are:
(1) The relationship of the nature of the activity to the nature of the other activities in the
company.
(2) The question of an additional executive position having to be set up in the company.
(3) The question of having the proper personnel to fit the requirements of the job.
(4) The amount of coordination and other executive control required over the activity.
(5) The importance of the activity as a part of the total enterprise.
In Figure 255 there is a central line organization which is made up of the Stockholders, Board of
Directors, President, General Manager, Chief of Operations, Chief of Manufacturing and the
operating sections of the factory. The staff organizations, Engineering, Marketing, Accounting
and Personnel serve to aid, advise and guide this central command channel.
At the next lower level of authority, the staff groups, Process Engineering, Plant Engineering,
Inspection and Production Control, have a similar advisory relation to the line organization.
Please do not get the idea from this that the line is any more important to the company than is the
staff. It is just that this type of organization structure combines two forms that must be closely
inter-related and which are completely inter-dependent.
Suppose we take a hypothetical case to show how this organization works. Let us say that the
research laboratories have been working on a problem and they come up with an idea, which may
be possible to turn into a saleable product. The chief engineer tells the development laboratory to
get to work on the idea and come up with a model of the new product. The chief engineer, when
he gets the final model, takes it to the chief of the Marketing Department to see if such a thing
could be sold. A market survey is started and, finally, the results of this investigation are made
known. Let us say that 50,000 of the new product can be sold if this item can be gotten on the
market within ninety days in order to beat out a competitor who is planning to sell a similar
product.
The decision of the president is to go ahead and the work starts. The engineering department
makes final drawings, specifications, and lists of materials required. These go to the Production
Control Section where the problem is analyzed and it is decided to start manufacturing in sixty
days. Purchase orders for materials are written so that the materials will be in the factory before
sixty days.
- 78 -
The engineering departments materials specifications are sent to the materials suppliers along
with the purchase order and a copy is also sent to the Inspection Department.
The Production Control Section also sends the blueprints, specifications, and other design
information to the Process Engineering Section. Here the question of tools, jigs, fixtures and
manufacturing processes to be used, how the work is to proceed from one operation to the next,
how materials are to be handled, and all such technical problems are considered. The
Engineering Department and the Manufacturing Department are called in on the discussion. One
of the things that comes out of the discussion is that the factory will need some machine
operators.
The chief of the Manufacturing Section writes out a draft of what the qualities and requirements
for these new people should be and he sends it to the Personnel Department. There, this draft is
compared with the standardized job descriptions that are on file and prospective employees are
interviewed. The manufacturing chief under whom the new people will work also interviews
these people and gives his recommendations on them to the Personnel Department.
The Process Engineering Department decides that in order to speed up factory operations certain
machinery has to be rearranged and the Plant Engineer is called in. Incidentally, this information
concerning the work, as well as all contacts between the various departments, are usually written
or drawings are provided. Verbal instructions dont go.
The Process engineers work with the Engineering Department and detailed manufacturing
instructions are written. Also estimates are made on labor man-hours and materials costs and
these are sent to the Accounting Department.
Now the production material begins to arrive at the factory. The Purchasing group is in constant
contact with the suppliers to make sure that the other materials will be delivered in time.
The Inspection Section comes up with a problem. There are two materials, which do not meet the
Engineering Departments specification. The Engineering Department is contacted and it is
decided that one of the materials will be accepted. The Engineering Department notifies in
writing the Receiving, Inspection, Purchasing, Production Control and Process Engineering
groups of this substitution.
The other material cannot be used and must be sent back to the supplier. The Purchasing section
is notified and they go out and get the proper material.
Now the time is approaching when the factory is to start production. The Production Control
section issues work orders to the Manufacturing Section according to a schedule which is
designed to make the best use out of every machine in the factory. Materials are drawn out of the
stockroom and the stockroom group notifies the Accounting Department of the quantity and cost
of materials withdrawn. If this cost begins to approach the estimate made by the Process
Engineer before the work orders are finished, the Accounting Department notifies the Operations
Chief and an investigation is started to find the reason for the situation.
- 79 -
The Products are inspected according to the Engineering Departments specifications and any
troubles that occur here are settled by agreement between the Inspection, Engineering and
Manufacturing groups.
The products are shipped out according to the instructions of the Sales Department, which also
follows up on how the customers react to the companys products. The Sales Department brings
back to the Engineering Department the advice and suggestions of the customers for the engineers
to consider in making a change in the design of the product or some other adjustment, which may
be required.
This is the usual way this type of organization works. Perhaps you will say it is the same way
your own company works. If it is so, then we all are very happy. We are happy because you
know the secret of success of this company. This whole structure (Fig 255), and your company
too, depends upon these things for its success:
1. A form of organization simplified to the irreducible minimum number of functional
groups.
2. The combination of similar and directly related activities into single groups.
3. A small span of control, making possible greater management efficiency.
4. A clear definition of the scope, function, duty, inter-relation, responsibility and
authority of each segment of the company.
5. A system of standard practices, procedures, controls, and supervision to make sure
that the work of the organization is being properly done.
6. A coordinated and cooperating body of workers and supervisors who know what their
jobs are, how to do them well, and what the sequence of jobs is so that the proper
operation is performed at the proper time in the proper place using the best available
methods.
7. Finally, the success of a company depends upon the planning ability of its executives.
It is for this reason that management people must free themselves from petty details
of work and routine functions. They must be able to devote their time to looking
ahead and making plans for the future.
The devices, which are used by management to free itself from detailed operations and yet be
informed of the current situation of the enterprise, are controls. These controls are the logical
outgrowth of organization that, in turn, is the logical practical result of established policies. In
the next section of this course, then, we will turn our attention to the various controls used by
management to guide and regulate the affairs of the enterprise.
- 80 -
Chapter III. Controls
1. Types of Controls
In our previous discussions we have given a great deal of attention to the subject of industrial
organization. We have come to realize that the organization is a tool an implement used to
put into effect the aims and ambitions, the policies and objectives of the owners and the managers
of the enterprise. But, an organization, like a tool, cannot do work by itself. The tool must be
directed, guided, governed, influenced and even restrained. In other words, the tool and the
organization must be controlled.
In the administrative and management sense, the usual concept of the word control is enlarged
by adding to it the ideas of determining the objectives to be worked for, the programs and plans
to be adopted, the leadership to be applied, and the unifying of all that is done to achieve the pre-
planned results.
Inasmuch as control is a human activity made effective by the impact of the human will of those
in authority and who have responsibility, it then follows that there are possible various types and
kinds of controls.
Basically, we may say that there are two kinds of controls, man control and fact control.
Man, or personal control, is the autocratic, arbitrary, opinionated type of rule which is often
found in dictatorships. Fact control or organization control is on the other hand, the democratic
system of management which is becoming the universal system of management.
The famous industrial engineer, Henry L. Cantt, was very definite in his abhorrence of man
control. He once said, Actions based on opinions will lose in competition with actions based on
facts. And on another occasion he said, We have no right morally to decide as a matter of
opinion that which can be decided as a matter of fact.
- 81 -
To place these two types of controls in contrast:
Man control is: Fact control is:
a. Personal
May be subject to
Bias
Prejudice
Whim
a. Impersonal
b. Limited
Based on one mans
Attitude
Experience
Knowledge
b. Common Agreement
Facts are concurred in all
concerned
c. Arbitrary
Decisions may be
Autocratic
Dictatorial
Opinionated
c. Self-determining
Facts speak for themselves
Facts are always triumphant over
opinions
A fact is something that has happened, it is a statement of truth, it is something that is so.
Technical engineering is based on such facts, the truths of science. The emphasis we put on fact
control in industrial management is then in part, merely the application of sound engineering
principles.
But that does not mean that a manager must be an engineer in order to be a good manager.
Rather, what is required is what we call the engineers type of mind, the scientific approach to
thinking, clear, logical, factual thinking.
Ideally, the engineer and the scientist have this type of mind as a result of their specialized
education and training. But also, the lawyer, the financier, and the businessmen develop this type
of thinking not only because of their training, but also because of the nature of the problems with
which they deal. The problems of finance, of personnel, of meeting the demands of the customer,
and all the hundreds of situations which daily face the business manager are just as complex, as
mysterious, and as vexing as are the experiments of the chemist, the investigations of the
physicist, and the mathematical calculations of the engineer. But the methods that these
scientifically trained persons use so successfully in attacking their problems can equally as well
be used in attacking and solving the problems of management.
Their methods are first of all founded upon dealing with facts, upon separating personal opinions
and wishes from facts, upon the complete analysis of problems in order to get all the facts, and
finally, upon the making of decisions based only on facts.
But one of the biggest problems in industrial management is to get all the facts that affect a
problem and then to determine what their inter-relation is. In this connection, let me tell you a
story that is an example of bad fact control.
- 82 -
A young industrial engineer was once hired to work in a lumber mill. A few days after he started
on his job he was watching the logs being brought to the mill on railroad cars. The logs would be
dumped off the cars and they rolled down the embankment into a pond in front of the mill. Some
of the logs floated on the water and some sank to the bottom of the pond. Being a bright young
engineer, he set to work with his pencil and paper and calculated the ratio of logs that floated to
those that sank. He then found out how many logs were sawed each month in the mill and then
went to his boss with a startling recommendation that the company stop cutting down the trees in
the forest for three months. His figures showed, he said, that there were enough logs which had
sunk to the bottom of the pond to supply the saw mill for the next three months.
The engineers calculations were probably correct but where he made his mistake was assuming
that the logs which had sunk to the bottom of the pond were still there. Actually they were not,
because as a standard operating procedure every month all the sunken logs were dragged out of
the pond and brought to the mill.
This engineer dealt with facts and came to a decision based on those facts. But his decision was a
ridiculous and wrong one because he did not deal with all of the facts of the problem.
Modern democratic business management leaves no doubt that the only effective control is fact
control, and in that sense, we call modern business management scientific management. But,
applied to the business enterprise, what forms and shapes does this fact control take in
constituting what we have called the Organization for Control?
First of all, there is Administrative and Management control that we may also call Executive
Control. This is the generalized control of the whole enterprise.
Then, there are the controls on operations which are made effective by the issuance of standard
practise instructions.
In addition, there is:
Production Control
Material Control
Purchasing Control
Inventory Control
Stock Control
Quality Control
Cost Control
Personnel Control.
Each of these controls is based, not on opinions or wishes and desires, but rather on actual,
factual, provable data, information and facts.
- 83 -
a. Executive Control
Figure 112, which shows the relation of policies and organization indicates that the element of
coordination is one of the major components of the Organization for Control. From our
discussions of leadership and the application of the principles of organization, we have come to
realize that coordination is to be practiced not only by the president and the general manager of a
company, but by each and every supervisor in the entire organization.
Previously, we also talked about analyzing the company into its elemental functions and
activities. Then, these elements, we said, are grouped together according to their similarity of
nature or their direct relationship. But again, the grouping of functions alone will not guarantee
that the operations of the company will be successful. What is required is active coordination by
the executives of the company of every function of the enterprise. This, then, is what is meant by
Executive Control.
In order to make the organization work smoothly all of the separate activities of the company
must be timed in their operation so that each one is performed in its proper sequence according to
an established schedule. The process of timing the activities and reuniting the subdivided work
in an industrial organization is called coordination. Coordination means to combine separate and
individual activity into a single consistent and harmonious action.
The highest form of coordination in an industrial enterprise is the conscious acceptance by the
entire group of the objective and policies established by the management and a conscious
agreement to the various forms of discipline (guidance) which are necessary to achieve the
purposes of the enterprise. This type of coordination is possible only in a carefully selected,
welltrained organization where employee morale is maintained at a high level.
This type of coordination is possible too, only in an organization which makes effective use of
well-planned written procedural instructions which tell what is to be done, where, how, when,
and why. To the same extent, coordination also depends for its success upon a steady flow
returning to management of reports, data, and information which tell of the results which are
accomplished by the people who carried out the orders of the companys leaders.
In other words, coordination is made effective by the active functioning of a management system.
On the administrative side, this management system is made up of (1) Administrative policies,
(2) Organization charts, and (3) Organization procedures, which describe the methods to be
followed in working toward the company objectives.
In addition to these things, there are certain reports upon which the Administrative system
depends for its decisions and evaluations of the enterprise. There are general reports that are the
Balance Sheet (Fig. 511), the Profit and Loss Statement (Fig. 312), and the Manufacturing
Statement (Fig. 313).
- 84 -
And there are also operations reports that, for budget comparison purposes, included information
of:
Production
Labor
Expense
Plant and Equipment
and for the evaluation of periodic (weekly or monthly) operations results:
Plant Activity
Production, labor, and overhead
Idle time
Production Cost
Labor Cost
Manufacturing Expense
Estimated against Actual Costs
These latter reports usually come from the department chief level of the company where they
have been summarized and combined before being passed on to the higher levels of management.
In their original form they would be too detailed and take up too much time in their reading of the
higher executive people.
The Balance Sheet is, of course, a concise presentation of the financial condition of the company.
The Profit and Loss Statement is a summarization of the general income account of the company
and conveys a general picture of operations in the periodic intervals during the times in between
the issuance of Balance Sheets.
The Manufacturing Statement is a periodic presentation of the cost of the manufactured products
sold.
Budget comparisons (Fig. 314) are needed frequently in industrial organizations in order to check
budget allowances of money against actual operating performances, and in this way to control the
work being done by its indication of where investigations of operations should be made.
On the management side of the business, there is a system of reports which is often used to
clearly indicate the situation in the operations of the factory departments and shops. A typical list
of these reports which are the bases for the summarized and combined reports mentioned earlier,
would include the following:
Raw Materials Workers Efficiency
Supplies Spoilage
Small Tools Idle Machines (Fig. 316)
Direct Labor Departmental Costs
Expense Labor Inspection and Quality Reports
Controllable Expense Stores and Materials
- 85 -
A very important and necessary part of establishing a system of reports is planning the routing of
the reports to the various people who must handle them. Paper work, although necessary is
burdensome and therefore it should be handled in a highly efficient manner. In its worst degree
paper work is called red tape. But, a wellplanned distribution system will enhance operations
and prevent things from becoming tied up in red tape. Figure 317 is a chart that was designed by
one company to establish the method of handling purchase orders. It shows operations, routings,
and activities to be performed. Similar charts should be drawn up for the handling of every
report form and paper used by your companies.
Reports, just like policies, are different for different companies. But there are certain essentials
which are common to all reports. These are:
(1) A report must be prepared to meet the specific needs of a particular executive.
For example, a production supervisor must have reported to him manufacturing
information and data. Sales information included in a manufacturing report might not
be useful to the production chief.
(2) A report should cover a period adapted to the needs of the executive.
A president would find daily attendance reports too trivial for his needs, but the
payroll clerk would require them for his purposes.
(3) A report should have a degree of permanency depending upon the executives
responsibility.
The balance sheet for example must be in a permanent form because of the
presidents responsibility for the entire company.
(4) A report must present its information in simple easy-to-understand forms.
(5) Reports must be prompt, accurate, and presented with sincerity.
(6) Reports must be capable of being compared with previous reports.
(7) Reports should clearly indicate variations in results.
(8) Reports should be interpreted to show precisely any action that may be required.
(9) A report should indicate the individual responsible for any indicated action.
We have spent a considerable amount of time talking about report and report forms because they
are an important part of the management system and are a means of conveying information from
the operating centers of the company to the management levels of the company. By the use of
reports, executive decisions and instructions are formulated, and executive control is exercised.
Previously we mentioned operations control and the standard practice instructions that are used to
effectuate it. Figure 318 is one example of an instruction card. Other types of forms are also
- 86 -
used, some being charts, such as flow charts and the chart shown in Fig. 317, and still others are
in a detailed written form.
Procedural instructions which affect the operations of the factory are generally written by the
production engineering group or by some particular operating group for its own guidance.
Standards for the operations of the office and clerical groups (i.e., Accounting, Purchasing, etc.)
are usually written by the comptroller or the Accounting Department, although here again a
particular group may design its own procedures for the control of its own operations. The form
of the report to be used and who establishes it will generally be influenced by the nature of the
particular problem and the assignment by management of this responsibility.
We have discussed two of the general controls used in the business enterprise; Executive control
and operations control. In addition to these however, we have several specific controls which we
will now discuss only briefly since a more complete treatment of them will be made in a later
section of this course.
b. Production Control
Production Control comprises the planning, routing, scheduling, dispatching, and inspection
functions in the productive process. These activities are organized in such a way that in spite of
how the movements of materials, the performance of machines and the operations of labor may
be subdivided, they are nevertheless directed and coordinated in regards to quantity, quality,
time, and place.
Planning, that is, looking ahead to every step to be taken in the entire process of manufacturing,
is the primary function of production control.
Although a great deal could and should be said of this subject, for the present we will leave it and
return to it in a later part of this course.
c. Materials Control
Materials Control is another in the series of controls vital to the operation of the business. Here
we find included Purchasing Control which is important to the welfare of the company for three
main reasons:
First, purchasing is a primary function inasmuch as the cost of purchased materials will largely
affect the final sales price of the finished product.
Secondly, efficient manufacturing requires the proper materials at the proper time. But, at the
same time, a company cannot afford to invest a lot of its money in stock piles of materials. Thus
purchasing must be wisely done making sure that not too much money is spent on materials and
yet also making sure that enough materials are on hand so that the factorys work will not be
impeded.
Thirdly, due to its outside contacts, the purchasing group can often advise on new materials
which can be substituted for regularly used materials, changes in market trends, relations with
other business firms, and possible new products which might be added to the companys line of
sales products.
- 87 -
Inventory Control is another aspect of Material Control. In one sense, the accumulation of
materials, parts, and stock in the companys warehouse may be thought of as money deposited in
a bank. The companys money has been invested in materials that, when processed by
manufacturing operations, will bring larger money returns.
In another sense, the materials in the warehouse can be thought of as service to the manufacturing
processes, designed and organized to promote efficiency and minimize manufacturing costs.
In any event, Inventory Control must:
(1) Maintain raw materials in sufficient quantities and qualities to meet the needs of the
manufacturing activities.
(2) Keep the investment in materials, supplies and finished product at a minimum.
(3) Issue stores only upon proper authorization and at times, places and in the manner
established by the company.
(4) Maintain inventory records which will show at a glance the value and quantity of
materials in storage, the deliveries of materials from the warehouse, and the point at
which materials should be automatically requisitioned from the Purchasing
Department.
(5) Price all materials sent to the Manufacturing Department in order to help the
Accounting Department begin an actual manufacturing cost record on the particular
product being produced.
The Control of Warehousing (keeping stores) is another part of Materials control.
This activity would include the receiving, putting away in proper storage, issuing, and
generally having in physical possession, the materials used by the company.
d. Quality Control
Quality Control, including the function of inspection, is principally concerned with the attainment
of standards of goodness by the companys products. It is planned to speak about Quality
Control at greater length later on so we will pass over this subject now with no further comment.
e. Cost Control
Cost Control is often defined as the ability to provide for the consumption of materials,
application of labor, and distribution of expenses, all on a sound basis. The purposes of this
control are:
(1) To determine actual costs
(2) To control expenditures
(3) To form a basis for pricing products
(4) To provide a basis for operating policy formulation.
- 88 -
But more will be said about this subject too in a later section of this course.
f. Personnel Control
In Personnel Control we have a variety of functions all of which are aimed at providing for the
company a body of employees possessing all the qualities necessary for the achievement of the
companys goals. Therefore, within this control there are provisions for labormanagement
negotiations, employee welfare, benefit and training activities, job evaluations, wage setting, and
other activities related to the attainment of high employee morale.
2. Prerequisite to the establishment of controls
The controls that a company uses, the effectiveness of the controls, and the degree to which work
is speeded up and improved, are considerations of prime importance to the business managers.
To a great degree, the success of a company depends directly upon the effectiveness of its
controls.
However, controls must be developed and conditions made favorable in the company for the
application and use of controls. None of the controls we have spoken of can be installed in the
company in the way a telephone is installed or a desk moved into a room. You cannot one day be
without controls and then suddenly have them the next day.
They are not of such a nature. While it is true that the results of controls are tangibles, the
controls themselves are made up of both tangible and intangible qualities.
Therefore, I say, controls must be developed. And, in order to have one, it must have been
preceded by another. And that, in turn, may have required that some other control must have
been first established.
Thus, when we speak of production control, and quality control, and cost control and the others,
you may ask what must I do in order to have these controls in my company. What are the
prerequisites of these controls?
My answer to that must be: controls.
In other words, before any success can be expected from these major controls, there must be first
of all established in the company such things as these:
(1) A workable structural form of organization must be provided for the company.
(2) The scope of the functions of every department of the company must be defined and
must have been derived from the stated objectives of the enterprise.
(3) Every persons job in the company must be clearly specified in writing.
(4) The work of every person in the company must be capable of being supervised.
- 89 -
(5) Working instructions must be standardized, written, and the employees trained in
their use.
(6) Every employee must be held accountable for carrying out his duties and
responsibilities.
(7) The work of every person must be in accordance with plans and schedules and must
come in the proper sequence of operations.
In the final analysis then there must first of all be the stated objectives of the company the
goals that are desired to be attained.
From these, there must be established the organization so designed and so integrated as to make
possible the actuality of attaining the stated goals.
Then, and only then, can the major controls be established in and upon the organization.
3. Application of Organization Controls
In all of our discussions we repeatedly stress coordination and previously we have reviewed the
many and varied things that are necessary to insure proper and adequate control of the
organization: such items as organization structure; job definition and delegation of
responsibility and authority; defined policies and standardized practices, methods and
procedures; reports, analyses, etc.
Now how can we best approach the problem of application of organization controls? We must
make sure, among other things, that each management person carries his proportionate share of
the burden. At the same time, we must avoid overlapping and duplication of functions, that will
cause friction, confusion and working at cross purposes. Further, we must make certain that no
essential function, operation or control is missing.
To insure these things that, grouped together, represent the function of organization control, we
will discuss step by step the phases of this function. These are:
a. Organization Planning
b. Organization Charts
c. Job Specifications
d. Control Specifications
e. Organization Manual
f. Organization Changes Initiation and Approval
Before proceeding with our analysis there is a question which logically arises. Who is going to
do these things? Whose responsibilities are they? In some instances, of course, you have staff
groups who handle some of these phases. In other cases you depend on one or more individuals
in different branches of the company whose experience is helpful in shaping your course of
action.
- 90 -
We believe that wherever possible this work should be consolidated under a responsible head in
the general administrative zone of management. It should be made up of a small group of
specialists who have had wide experience and familiarity with the different major functions of the
company such as finance, engineering, manufacturing and marketing. This group should be
given the advantage of education in this present industrial management course.
The importance and value of such a group cannot be over-emphasized. On the effectiveness of
such a group depends the determination of needs; formulation of plans; obtaining necessary
acceptance, cooperation and support; and the coordinated effectiveness of application to assure
company operation with a minimum of organization (manpower).
Following is a detail analyses of each phase of this function:
a. Organization Planning
As we have stated previously, it is not usually practical to develop and put into effect at
once an ultimate plan of organization that will be ideal for your company. There are too
many problems of personnel availability, and other factors to make this possible. However,
by applying the scientific approach to this problem, it is possible to set up such a plan as an
objective. By doing this, your selection and training of personnel, and the step-by-step
introduction of organization changes as these can be justified will be aimed at the ultimate
reaching of a definite goal. Without such a goal, changes are meaningless. Again we stress
that one man plans are not good. Get the opinions and viewpoints and ideas of as many
management levels as possible. Do not overlook the value of opinions among your lower
supervisory levels. These are the people who can make your plans work or fail.
Here are the essentials to comprehensive organization planning:
(1) Keep familiar with the best thought and practice along industrial organization lines.
This can be done only through constant study and review of literature on the subject
and the exchange of ideas with other concerns.
(2) Question and test the adequacy and soundness of every phase of the organization plan
from a completely objective point of view. As pointed out in our study of
organization structure this involves, first, the careful analysis of your present
organization: the relationships, charts, functions, responsibilities and authority. And,
second, it involves the consideration of ultimate objectives without being influenced
by precedent or tradition, or present structure and personnel.
(3) Block out in chart from the ultimate (ideal) plan that will meet the objective of an
effective management tool. Included are the classification of the zones or levels of
management as to types of duties, responsibilities and authority as well as the
agencies or primary divisions of the company that are to handle them. This means
that these general functions are logical, distinct, and designed for most efficient and
economical management application. This was discussed in some detail in the study
of organization structure.
- 91 -
(4) Design and write the specifications for each level of management and each general
function (such as finance, engineering, etc.), also, each key job or group of similar
jobs. Define and clarify objectives, functions, responsibilities, limits of authority,
and relationships with other parts of the organization.
(5) Compare the ultimate (ideal) plan with the present plan. Analyze and classify the
changes needed to achieve the ultimate plan. Determine by careful analysis and
study what steps can be taken at once, and initiate these changes. Determine what
must be done in the way of personnel changes, selection and training, in order to take
subsequent steps and establish a program for proper measurement of available people
as to qualifications and ability. Follow this with a planned training program to
educate present personnel and those selected in the future for key jobs.
b. Organization Charts
This has already been indicated as an essential of organization planning. In our previous
study of organization structure we analyzed a typical Japanese company structure (present)
as well as representative American company structures. The principles of analysis which
were used are an excellent guide for practical application.
A good check of whether you have the soundest and simplest organization plan is whether
it is easily and simply charted. If you have a plan that cannot be readily charted and which
does not easily show organizational relationships it is apt to be illogical and confusing to
those working under it. Organization charts should be available to, and understood by, all
management personnel. They are the first step in organization control.
c. Job Specifications
We have discussed this phase of organization structure repeatedly in every step of our
course. Job specifications, to be of value, must be workable. That is, they must not only
cover what is expected in theory but they must also be capable of practical application.
They must be clear and easily understood. Here again, the experience, views, and opinions
of the management people actually doing the job are invaluable.
Preparation of Job Specifications is the second stop in the application of organization
controls. Only after clarification of the requirements of each management level, of the
definition of the duties of each function, and of the responsibilities and authority of each
management job, can each job holder know his proper place and part in the management
function and concentrate on achieving his own objectives.
Similarly, the individual management job holder cannot be properly measured and his
accomplishments evaluated by his superiors unless his job, its duties, responsibilities, and
authority are clearly defined.
To define each job and write each job specification the following should be included:
(1) Basic Functions, or duties
- 92 -
(2) Scope the general extent of responsibility
(3) Limits of authority
(4) Relationships with other organization units
Usually, as a control function, general objectives will be indicated which will serve as a
measure of accomplishment in doing the job. An example of a job specification for one of
the higher level management employees is shown on data sheet # III 3.1 (discuss this Job
Specification).
The first logical step in the preparation of management Job Specifications is to determine
the present practice. Obtain from each supervisory level and type of management job the
definition of what is now understood to be their job by the people involved.
This information will serve as the basis for analysis both of the adequacy of present
understanding and also the weaknesses which must be corrected. In many cases you will
have to request your people to write out their job functions because nothing is written as a
guide. We also caution against having them refer to old job descriptions. Too frequently it
will be found that these do not represent what is actually being done or should be done.
Further, if you do have old job descriptions, this writing out of job functions by the
management employees without reference to anything already written will provide a check
as to how well you have trained them to observe and follow established procedures.
d. Control Specifications
As job descriptions are developed, wherein responsibilities and delegations of authority are
required, it is evident that some means of control is necessary over activities with which
each position is concerned. Such controls are essential on a company-wide basis and
should indicate the respective functions, responsibilities and relationships of the different
agencies having part in the control of any specific activity. These controls may be prepared
in the form of Control Specifications, and will cover such items as:
(1) Plan of Organization
(2) Capital Expenditures
(3) Operating
(4) Manpower and Payroll
(5) Wages and Salaries
(6) Promotion and Transfer
(7) Hiring and Dismissal
(8) Line of Products
It will be noted that these items are applicable to problems of all departments or units of the
company. Data sheet # III 3.2 illustrates a control specification over capital expenditures.
Note: In the analysis of this control specification, point out that such a specification
provides the basis for designation of control agencies and delegation of authority,
responsibility and accountability. In this case the control plan (or specification) would be
prepared by the Finance Organization with proper approval by Top Administration. In the
- 93 -
same manner, such items as (f) and (g) would be prepared by the Industrial Relations
Organization with proper approval by Top Administration.
It should be noted, however, that regardless of who prepares these plans, the responsibility
for application of the controls rests on appropriate management levels in every branch of
the company.
e. Organization Manual Initiation and Approval
In section 5 of the chapter on organization we showed two examples of Organization
Manuals (figures 256 and 257). Beyond this previous discussion it is well to point out that
the preparation of such manuals is not a routine clerical assignment. It is so very important
that it requires men of high calibre. Therefore such work should be the responsibility of
Top Management levels; having adequate assistance and guidance from experienced and
capable experts in each field of activity. The control Specifications that we just reviewed
would be logically included in an organization manual. Also included would be the
organization charts, and ultimate organization plans as well as the job specifications for
organization units and management levels such as:
Board of Directors
General Administration
Departmental Administration
Committees
Supervisory Management
Key Jobs
f. Organization Changes Initiation and Approval
Since the proposal or initiation of changes in the plan of organization may result from
suggestion from within the organization as well as from the group handling organization
planning, it is advisable that all important changes be carefully reviewed by the
organization planning group. Such changes must take into consideration their relationship
with existing plans, conformance to the ultimate plan, and basic soundness.
Sound approval and authorization practices followed in many companies are as follows:
(1) The general plan of organization for the Board of Directors is usually prescribed in
the by-laws. Within these the board normally establishes:
(a) Internal Organization of the Board
(b) Functions delegated to General Administration
(c) Responsibilities delegated to General Administration
(d) Limits of Authority of General Administration
(e) Board approvals required by the company management on changes in general
and departmental administrative organization structure.
- 94 -
(2) Subject to the Board of Directors requirements as to approval, the general
administrative official establishes:
(a) Organization plan for handling General Administrative functions
(b) Basic organization plan for Departmental Administrative functions
(c) Functions delegated to Departmental Administration
(d) Responsibilities delegated to Departmental Administration
(e) Limits of authority of Departmental Administration
(f) General management approvals required by the Departmental Administration
on changes in Departmental and Supervisory Management structure.
(3) Within the basic pattern of company organization and specific limitations of General
Administration, Departmental Administration establishes:
(a) All adjustments and changes considered necessary in their organization plans.
Note: If proposed changes affect the interests of other departments such changes are
referred to General Administration for approval.
General
While this subject of Organization Control is only one phase of the subject of controls it is
extremely important. It is a direct and practical means of improving the efficiency and
economical operation of the company. Fundamentally this may be considered a cost
control because it has a vital bearing on the company overhead.
Indirectly, this control also applies to quality because product quality is dependent not only
on product design and manufacturing processes but also on the effectiveness with which
management does its job.
In conclusion we wish to emphasize again that changes should be made only when you
have a planned objective and that such changes should be introduced only as they can be
justified. However, there are many of the phases of this function that can and should be
initiated immediately.
4. Quality Control
Andrew Carnegie was one of the greatest business managers the world has ever known. As a boy
he had no special advantages and, in fact, he had little school education. Very early in life he had
to go out into the world to earn his own livelihood.
But, from this poor beginning, he developed himself to the point where he became one of the
richest men in the world owning one of the worlds largest and wealthiest corporations the
United States Steel Company.
In his autobiography, he wrote down what he believed was the secret of his success. He said:
Instead of objecting to inspectors, they should be welcomed by all manufacturing
- 95 -
establishments. A high standard of excellence is easily maintained and men are educated in their
effort to reach excellence. I have never known a concern to make a decided success that did not
do good, honest work, and even in these days of the fiercest competition, when everything would
seem to be a matter of price, there lies still at the root of great business success the very much
more important factor of quality. The effect of attention to quality upon every man in the service,
from the president of the concern down to the humblest laborer, cannot be overestimated. And
bearing on the same question, clean, fine workshops and tools, well kept yards and surroundings,
are of much greater importance than is usually supposed. But, the surest foundation of a business
concern is quality. And after quality comes cost.
This statement of Andrew Carnegies emphasizes what is nowadays generally accepted by all
companies. A company that does not base its operations on quality is a company that has no
pride in its product. And further, it is generally to be expected that a company that cannot control
its quality cannot keep in control any of its other functions and activities. In other words, the
state of the quality of a companys products is a direct measure of the effectiveness of that
companys management and operations.
The term quality as applied to manufactured products refers to the characteristics which
distinguish that product from a competitors, or one article from another, or one grade of product
from another when both are turned out by the same manufacturing process.
There are two aspects to the concept of quality. One is the identification of a product, as in the
case of comparison with a competitors articles. The other is a measure of the degree of
perfection attained by the product.
In either case, quality is not an absolute quantity; it is only relative. The quality of any particular
item can only be stated in terms of comparison with some ideal that is accepted as a standard.
The quality of a product, then, can only be expressed as being higher or lower, better or worse
than the standard.
Thus, quality not being absolute, must be a variable and when the permissible limits of variability
have been specified in any one case, for that case, it may be said that the quality has been
adequately defined.
The characteristics that enter into the determination of product quality include such things as size,
material, form, shape, chemical composition, mechanical functioning, workmanship, and
appearance. Such things as these elements can then be grouped under two headings: (a) quality
of design, and (b) quality of conformance. The first is a description or specification and the latter
is the manner and degree in which the product measures up to the specifications.
The quality of design involves a peculiar problem. The engineer, and the business manager too,
are constantly faced with the necessity of balancing the value of a given result against the cost of
a given result. For example, a cigarette lighter, if offered at a selling price of one yen, would find
many buyers because the cost would be small compared to the utility value of the lighter. But, if
the selling price were successively raised, to say one thousand yen, there would be less and less
buyers. The cost would be too high compared to the lighters intrinsic value.
- 96 -
In the same way, greater precision of dimensions, greater chemical purity, or the increasing
enhancement of any quality characteristic may increase the value of the product, but it must also
increase the cost of the item. Eventually, the point will be reached where the cost of the
improvement is out of proportion to its value.
Thus, the designing engineer is continually faced with the problem of selecting the standard of
quality which is adequate for the purpose intended for the product and yet he must keep the cost
of quality within reasonable limits.
This problem affects the quality of conformance to the same degree. Suppose, for example, a
manufacturing process, upon investigation, is shown to have a defective rate of 0.1%. That is,
out of every one thousand of pieces of the product, one of these pieces is a reject. On the average
then, one thousand pieces must be inspected in order to find the one bad one.
The cost of this inspection may be far greater than the loss caused the consumer if and when he
receives the one bad part. In this case, the greater economy would be in not making a 100%
inspection of the parts.
It would be an economy for the customer too since the cost of a 100% inspection would have to
be included in the sales price of the product he buys.
So, inevitably, the cost of quality enters into the picture of both design and conformance. And
inevitably too, the business manager, as well as the designing engineer, is called upon to decide
the question of balancing the cost of the products quality against the value of the quality of the
product.
Many factors will weigh upon the problem. Some of these are the manufacturers protection of
his reputation among his customers, the ability of the skill of the workers and the precision of the
production machines to match the required design quality, the control exercised over raw
materials, and also the economical relation between cost and quality.
Figure 351 graphically represents this costquality relationship. In this example, a quality of #2
would be the most economical. A drop from #2 to #1 quality would reduce the cost of quality by
amount A, but the value of quality, the intrinsic worthiness of the product would be reduced by
the larger amount B. On the other hand, increasing quality to level #3 would raise the value of
quality by the amount D, but this is less than the amount C, which is the concomitant raise in the
cost of quality.
Thus, the first step to be taken in the establishment of quality control is the establishment of a
reasonable quality standard. The next step is to set up a quality enforcing agency, which is the
inspection group.
The inspectors perform what is largely a judicial function. They are called upon to judge the
product against the quality standards that have been set up by the engineers.
- 97 -
The selection of personnel for inspectors jobs is therefore an important one. The quality of the
product and hence the reputation of the company rests very decidedly upon the skill, judgement
and honesty of these people.
Also, to meet the requirements of quality control a large number of inspection standards are
needed. These include standards for:
Work in process
- Condition
- Form and dimension
- Appearance and finish
Working inspection
Finished product
Completed mechanism
These standards and specifications will generally be written by the designing engineer or some
group in the engineering department. But in some cases they might be written by the production
engineers. That would be a problem in the assignment of responsibility for management.
Quality must, of course, be worked into the product. Inspection cannot make a bad product good.
You cannot inspect quality into a product. Responsibility for making products of up-to-standard
quality must rest with those who make the product, the manufacturing groups. This division of
responsibility is one of the prime reasons why most companies find it necessary to separate the
inspection group from the manufacturing group in the factory organization plan.
Production is responsible for quality, inspection measures the achievement of quality. Thus,
engineering design that sets the quality standard, production, and inspection, are separate but
equally ranking independent functions in the manufacturing enterprise.
The failure to achieve the established quality standard may arise from (a) bad engineering or
product design, (b) or failure or inability of the manufacturing activity to live up to the
engineering design and specifications.
Putting the inspection activity in a position that is independent of both engineering and
production gives to the group in charge of protecting the quality reputation of the company a
certain degree of authority over both in its attempt to discover the cause of failing to meet quality
standards.
Inspection could, in the case of continuous production of rejectable items, cause the
manufacturing activity to stop operations until the cause for the reject is discovered and
corrected.
By the same token, inspection could require engineering to make a design change if the original
design was at fault.
The point to remember here is that the purpose of inspection is not to find production faults, but
rather to prevent them.
- 98 -
There are various forms of inspections in use. Regarding inspection methods, there are Tool,
First-piece, Patrolling, Operation, Sampling, and Final. And regarding inspection location in the
factory, there are floor and centralized inspection.
Tool inspection is often used in punch press operations where many parts are made. The parts
themselves are not inspected but the tool or dies are inspected from time to time for wear or
damage.
First piece inspection is also used in repetitive processes and is concerned with getting the job
started right. The assumption here is that if the first piece is made right, the subsequent
production will be correct also.
Patrolling inspection, as the name implies, is that done by inspectors moving up and down the
assembly line removing a few pieces here and there to check on the quality of work going
through the line.
Operation inspection is one of the most commonly used systems. The inspector sits in the
assembly line and all the items that come from one operation as process go to him before the
items are passed on to the next operation.
Sampling inspection is less than 100% inspection. A definite number of products are taken out of
a lot of products and the whole lot is judged by the results obtained from inspecting just the
samples.
This type of inspection is based on the principle that any piece selected at random from a group
of similar pieces probably is representative of all the pieces in the group. It is sound theory to
assume that anything which happened under a set of certain circumstances will happen again if
the conditions are again identical to those of before. But, manufacturing operations do not deal
with conditions that are always the same. Workers diligence changes as they get tired.
Machines wear out. Materials used in production are not uniform. Therefore, the theory of
sampling inspection must be closely scrutinized and applied with extreme care.
We will give much more attention to this subject a little later on. But now, let us continue with
our brief description of inspection methods.
Final inspection is concerned with the inspection of the product when all work and operations on
it have been finished and is performed just before the product is sent to the customer or to the
stockroom.
Floor inspection is the name given to the type of inspection that is done at the place where the
item is made. In other words, the inspector comes to the work.
Centralized inspection is just the opposite. Inspectors are situated away from the production
processes and the work is brought to them. In centralized inspection it is possible to use less
skilled labor because with all of them gathered in one place, intimate supervision over their work
is possible. It is also possible to divide the inspecting work and put it on an assembly line basis.
- 99 -
The principles that govern the control of quality in a manufacturing concern are:
1. The quality of manufactured products is a variable and it has a tendency to improve
under a competitive enterprise system.
2. The control of quality increases the amount of saleable goods, decreases the cost of
manufacture and tends to make economic mass production possible.
3. For highest efficiency, the inspection function must be independent of engineering,
manufacturing and sales, but must be coordinated with these activities.
4. The conformance of finished products to the design specification should be made, not
by sorting the good from the bad after manufacturing is completed, but rather by
avoiding the making of non-conforming goods.
As Andrew Carnegie stated, the importance of quality to the manager cannot be overestimated.
But it is not sufficient that the executive know the number of good and bad products made in his
factory. What is of more significance is a knowledge of the different classes of defects made.
This will help him to understand where the responsibility lies for the making of non-conforming
products and where corrective action must be concentrated to bring production into a state of
control. There are generally four classes of defects used in inspection and quality control work.
1. Major. Would cause operating failure of the product as a whole.
2. Serious. Would probably cause failure of the product. But at least it would surely
cause operating difficulties and service and maintenance costs would be high.
3. Important. Might cause operating failures. Likely to be below standard in the
products operation. Maintenance costs would be excessive or the operating life of the
product would be short.
4. Minor. Would not cause operating failure. Relatively small defects of appearance,
finish or workmanship.
Relative weights are usually given to each of these classifications. That is, a Major defect
is weighed at 100, Serious is worth 50, Important is set at 25, and Minor is 5 points. Then
the number of defects in each class multiplied by the numerical weight of each type of
defect gives the total demerits in that class.. For example, suppose for a five year period the
total number of demerits was 56,000 and suppose also in that period a total number of
500,000 units of product were inspected. Then the average number of demerits per unit
would be
500000
56000
= 0.112
Class of Defect No. of Defect Demerit Weight Total Demerits
1. Major 50 100 5,000
2. Serious 240 50 12,000
3. Important 800 25 20,000
4. Minor 3,800 5 19,000
Total 4,890 56,000
Each month such a table as this is constructed and with it an index figure can be derived. Say, for
example that the current months demerits total 1200 and 6000 pieces have been inspected. Then
- 100 -
the demerits per unit for this month would be
6000
1200
= 0.200. The index figure for the current
month would then be
unit per demerit period base
unit per demerits current
. Then
I =
112 . 0
200 . 0
= 1.785
When I = 1, the two quality efficiencies are equal. When I is less than 1, the work is improving.
Zero would be perfection. But a figure for I greater than 1 indicates that the work is becoming
worse than the base period.
In past years, the control of quality was effected only through inspection. The good products
were sorted out from the bad. Nowadays, however, a different interpretation is given to
inspection. Inspection results now are being used to indicate the manufacturing situation in the
factory and also to check on all factors in the company which bear upon or have influence on
manufacturing.
In other words, in the past a company was content to select good pieces to send to its customers.
In contrast, at present we are more interested in maintaining factory operations at a consistent
level of efficiency. The quality of the product is used then to indicate the current state of
production efficiency.
The purpose behind maintaining a consistent level of operations is the reduction of operating
costs. Higher efficiency, economical use of materials, efficient use of labor, and the elimination
of waste labor, waste time, and waste materials can all be realized when production flows along a
steady course.
To achieve this purpose a new technique is being used in all kinds of factories. This technique is
called statistical quality control.
Although used to some extent before the war, statistical quality control became popular and
generally applied only within the past seven years. It was strongly advocated during the war first
by the United States Navy and then later by all of the United States military agencies.
The problem was this. At the start of the war, the United States had almost no arms or munitions.
And, the number of factories that made war material was small. There had to be sudden
tremendous expansion of production capacity to meet military demands.
As a result of this need, companies which never in their business life had any production
experience in this type of materials, (washing machine companies, typewriter factories,
automobile manufacturers, etc., for example) suddenly found themselves making parts of guns, or
ammunition, or any of the things that an army or navy might have need of. Generally, those
companies that converted themselves to war production were suppliers of parts to some main
factory or company that did the assembly work.
- 101 -
Naturally, the problem of interchangeability of parts was a big one. Any of the parts from one
company had to fit with any of the parts of another company when a third company made the
assembly.
To make the problem more difficult, production rates were high, both as to speed and quantity.
And the assembly factories had to have the assurance that the parts that were used would always
have the expected quality.
The answer to the problem turned out to be statistical quality control. And, while there is still a
lot of development work being done to improve this control, there is enough known about the
subject nowadays to make it of inestimable value in its everyday use in peacetime factories.
Statistical quality control is based on the theory of probability. Briefly stated, the probability of
an event is the ratio of the number of favorable cases to the total number of possible cases, all
cases being equally likely to occur.
But before we go further into this discussion, let us define some of the terms that are commonly
used in connection with quality control.
Unit refers to one item or thing taken out of a group of similar items or things.
A Sample is a group of units selected from a large number of units.
Lot is the name given to the group of units which are made under the same conditions in any
periodic interval (day, hours, work shift, etc.), or by one machine during a certain period, and
which are presented for inspection at the same time.
Universe is a number of lots. It is a great number of units made under similar conditions.
Random sampling is the selection of a sample wherein good and bad units, or units of any
characteristic, have an equal chance to be included in the sample.
We mentioned before that the theory of probability was at the basis of quality control. In
considering a universe, we are concerned with the probability that a certain set of circumstances
will occur. We are also concerned with the desire to know how many times that set of
circumstances will be repeated.
For example, suppose you have a pair of dice. Hold one of them so that the one spot is
uppermost. As the other die is rotated, it will be noticed that the lowest possible combined
number of spots on the two dice is two and the highest is seven.
Now, hold the one die so that the two spot is uppermost. As the other die is rotated to its various
faces, it will be noted that the lowest combination of spots on both dies is three and the highest is
eight.
- 102 -
If we were to continue this, putting the three spot uppermost on the fixed die then the four, five,
and finally the six, while the other is rotated, we would have a distribution of sums as is shown in
chart, figure 352.
Figure 352
Now, by counting the number of times any of the sums occurs, we can say what the relative
frequency of occurrence of any event is. (Each sum is called an event in quality control work.)
Event
1 2 3 4 5 6 7 8 9 10 11 12
Relative Frequency
0 1 2 3 4 5 6 5 4 3 2 1
% Frequency
0 2.78 5.56 8.33 11.11 13.89 16.67 13.89 11.11 8.33 5.56 2.78
The total number of frequencies is 36 since that is the largest number saying it another way, the
total number of all possible events with the dice is 36.
The possibility of throwing a seven then, according to our previous explanation would be the
ratio of the number of favorable cases to the total number of cases, or 6/36 = 16.67%.
But this is only a possibility and not a probability, since throwing the dice a few times would be
an isolated random sample out of a very great universe. The universe would consist of all the
throws of the dice a man could make in his lifetime.
A single small sample, in this case, would not represent the true case of the universe as shown in
figure 352 above. But, the larger the number of samples taken, the more nearly would the results
approximate the theoretical expectations.
If we were to plot the relative frequency of occurrence from figure 352 on graph paper, the
resulting curve would look like this:
1
2
3
4
5
6
1 2
3
4 5 6
2 3
7
4
5 6
3 4 5
6
7
8
4 5 6
7 8 9
5 6 7 8 9 10
6 7 8 9 10 11
7 8 9 10 11 12
Fixed
die
- 103 -
Or again, suppose we have the example of an electrical heater where the wire that is used for the
heater coil is specified to have a resistance no greater than 3.65 ohms, and no less than 3.25
ohms. The method used to make the heater coil is to cut one wire so as to measure exactly 3.45
ohms, and then to cut lengths of wire from a spool to the same linear dimension as the standard
wire. Will this method give heater coil wires that will have the best resistance value, assuming
that this value is 3.45 ohms?
To answer this, a heater coil is selected from among a group of such coils and upon being
measured it is found to be 3.37 ohms. What does this mean? Does it mean that all the coils
measure 3.37 ohms?
Of course not. Another coil is selected and it measures 3.29 ohms. These two measurements
alone do not give us much information. But suppose we measure one hundred coils. The results
are shown in Figure 354.
There are represented here one hundred facts. But the human mind cannot very easily interpret
any useful information from one hundred of such facts. This then, is where statistical methods
are brought in to interpret these facts.
The first step in the treatment of this data is to make what is called a frequency table. This is
easily done as shown in Fig. 355.
This result is very useful. It is now possible to tell with a little study how these coils distribute
themselves. It is easily possible to tell how many coils are outside of the prescribed limits, or
how many lie within any given limits.
Notice that the measurements are grouped around the value 3.35 ohms, and that more coils
measured 3.35 ohms than any other value. It is also obvious that about half the observations are
above 3.35 ohms but none is 3.45 ohms or higher.
- 104 -
From the information contained in Fig 355 it would be possible to draw a frequency distribution
curve. But again it would have the same general shape as in the case of the dice example. This
curve which is described by the mathematical expression
exp{-(x-)
2
/
2
} / (2
2
)
is called Gaussian Curve, or, the curve of normal distribution.

Any large number of measurements made on any kind of item will generally match the form of
this curve. But the shape of the curve, its flatness (kurtosis), the central location of the hump
(skewness) or the width of the skirt of the curve (standard deviation) all contain and reveal
important information about the things being measured.
One of the most important of all quality control measurements is the measurement of the spread
of the curve of normal distribution. This is called the standard deviation and the Greek letter
sigma ( ) is used to represent it.
In any set of data, such as that included in Figure 354, a central tendency will tend to be
established. That is, some value of measurement will occur about which all of the observations
will tend to group themselves. Central tendency is expressed in several ways; among them, are
the arithmetical mean or average, (the sum of the observations divided by the number of
observations) median, mode, geometric mean, etc.
The average is generally the most reliable and accurate measure of central tendency. The median
(the center value in an ascending scale of values of observations) is a less precise measurement
but it is easier to compute than the average. The mode, the value of observation most often
repeated, is a rough indicator of central tendency but is the easiest to determine.
But, in any case, the central tendency will generally locate the mid-point of the distribution curve.
With this point known, the dispersion of observations, or how the data are scattered around this
axis, must then be determined. It is necessary, in order to control production, to know if all the
products tend to be very much alike, that is, their measured values tend to lie close to the central
tendency; or if they are much unalike (lie far away from the midpoint) or have a scattered,
unpredictable, and non-uniform characteristic.
Range is a rough estimate of the dispersion of observations. It is simply the difference between
the maximum and minimum observations in a set of data.
This only gives knowledge of the extreme variation of the data without taking into account the
intervening data. This may be useful when the number of data is small, but where more accurate
information is desired, standard deviation is used.
As was said before, this is the most important and most useful measurement because it tells the
extent of the dispersion of the data. It tends to locate the position of the majority of the data with
reference to the axis of the central tendency. In that sense ( ) sigma is the axis of gyration of the
observed values around the arithmetic mean of all the observations.
- 105 -
Referring to the curve of normal distribution. a value of on either side of the axis includes 68
of the area under the curve. A distance of 2 on either side of the center includes 95.4% of the
area. And 3 includes 99.7% of the area under the curve.
That is to say, in any case where there is a Gaussian distribution of data above and below the
mean value of the observations, only 0.3% of all possible observations will probably have some
value that exceeds the value of the average plus, or minus, the amount 3 times the value of the
standard deviation.
For example, returning to our dice, it can be shown that if the dice are thrown two hundred times,
on an average, a combination of seven will be likely to occur thirty-three times.
Throwing the dice two hundred times, you can expect 68% of the time to get from 28 to 38
sevens. We can expect to make from 23 to 432 sevens in 93% of the times we throw the dice.
And 99% of our two hundred throws will result in a seven from 17 to 49 times.
However, if we were to throw fifty sevens during our two hundred throws, we had better not
gamble with these dice. There would be something definitely suspicious about them because you
could not expect to throw more than 49 sevens twice or three times out of a thousand throws.
Up to this point we have been talking about data being uniformly dispersed on both sides of the
arithmetic mean, the average. But, in measuring quality attributes of products, there is often a
directional tendency which will be taken by inspection data. This will give the distribution curve
a lopsidedness or skevness for vhich the Greek letter kappa ( ) is used as a symbol. A negative
value of skewness indicates that the observations below the average tend to deviate further from
the average than the observations above the average. And the reverse situation is indicated when
kappa has a positive value.
Kurtosis. Greek letter beta ( ). refers to the density of occurrence of observations vith respect to
the central axis. A Kurtosis value of greater than three means that there are more observations
very close to the average and also far from the average, with few in between, than in the case of
the normal curve. Values of less than three indicate the reverse.
We have discussed some of the terms and procedures used in the interpretation of inspection data.
But let us now look at the way a quality control system is operated.
Let us assume that a Quality Control Department has just been established in a company that has
been operating for some time, although this companys production cannot be said to be in control.
It already has an inspection system and a manufacturing organization. These we do not want to
disturb because any interruption in routine operations will be bound to cause delays and increase
costs just the opposite of the situation we hope to establish. We will then include the Quality
Control functions in the engineering department not only for this reason, but also because of two
others.
The quality control activity functions as an agent of the customer and guarantees to him an
assured level of product quality. This activity also serves to keep management informed about
quality matters in the company.
- 106 -
For these reasons, it has been generally felt necessary to remove the quality control function as
far away as possible from such daily problems as factory costs and schedules, and thus remove it
from operations activities. Also, the appraisals of quality require engineering judgement and
engineering talent is required to develop and improve methods of appraising the quality of
products. So it is quite right that we think of quality control as an engineering function.
Coming now to the matter of inspection, it is possible to realize the existence of two main types
of inspection. One, the usual factory inspections, is essentially protective in nature and consists
largely of sorting the good products from the bad, or determining the sate of quality of a specific
lot of product. The other is informative and is primarily concerned with the satisfactoriness of
the manufacturing processes. Quality control inspections fit into the second category. Their
primary interest is to verify that expected levels of quality are being maintained. In other words,
the basic proposition of quality control is that if the manufacturing processes are in control and if
there is assurance that they are maintained in control, the actual quality of each individual piece
of product need be of no concern. It will automatically have an acceptable quality.
But, first of all there must be established specification limits. These are the maximum
allowances given to any characteristic of the product that will still permit correct performance of
each individual unit of product.
For example, a shaft which must fit inside of a bearing of 0.500 inches (inside diameter) might be
specified as to diameter as 0.495 inches, plus or minus 0.004 inches. The specification limit in
this case would be plus or minus 0.004 inches.
The designing engineer, who must take into account the material to be used for the product, the
use intended for the product, the skill of the persons who make the unit, the machines used in
production, the manufacturing processes by which the product will be fabricated, and all the other
attendant factors, is the one responsible for the setting of the specification limits.
But, we have need of another set of limits. They are used, not for checking the quality of each
unit of the product, but as a basis for judging the significance of the quality variations from
sample to sample, or lot to lot, or from time to time. They supply a criterion for deciding whether
a production process is being disturbed by causes of variation that are worthwhile identifying.
Control limits are expressed in terms of a unit of measure that refers to the collective quality of a
group of units, a sample or a series of samples.
The most commonly used measurements of sample quality are the average or arithmetic means,
the standard deviation, range, and the fraction defective. This last term is used in connection
with the inspection of products simply on the basis of whether they do or do not confirm to a
specified quality requirement.
The quality of a product as measured from one sample to another, or from one lot to another,
shows variations that might be a result of any number of causes. These variations can be
classified in one of two ways. It can be of slight significance so as to merit no investigation and,
if such be the case, we say the variation is due to unassignable causes. But, it may be a
- 107 -
significant variation due to some serious or important cause, an assignable cause of trouble. This
would be identified and corrected.
The control limits make it possible to identify the occurrence of assignable variations almost as
they happen in production. When and where the assignable cause of trouble has occurred will be
indicated. But the identification and the elimination of the cause of trouble is an engineering
problem that is not the immediate concern of the quality control activity. An assignable cause of
variation may be due to a lack of uniformity of materials or of workmanship, or irregular
performance of manufacturing machines or equipment, or possibly the fault may be with the
testing equipment.
But, by keeping a watch on the day by day performance of operations, the quality control group
can help to decrease the variability of quality.
The system works this way. The Quality Control group, with the assistance of the designing
engineers, select certain quality characteristics upon which to concentrate attention. These
should be characteristics upon which the intended performance of the product depend. They
could be characteristics measurable only in the finally completed product, or a group of data
points including both in-process and final measurements. For example, in applying quality
control to vacuum tube production, one of the measurements made by the quality control group
might be the plate current of a certain type of power amplifiers after they have been given their
final test. On the other hand, the group may measure not only this, but also the spacing between
the cathode and grid during an intermediate production process.
Having selected the quality characteristic to be measured, the next step to be taken is an analysis
of the production process. This is done in order to determine the kind and location of causes that
are likely to give rise to troubles. First of all, the specifications and manufacturing instructions
are studied to determine their bearing upon the quality characteristic which has been selected.
Then next, the relation of each production step and this characteristic is studied and particular
attention is paid to where and how quality might be affected by irregularities in raw materials,
component parts, machine operations, human operations, etc.
The next investigation to be made concerns the method of the factory inspection being used to
measure the selected characteristic. And particular attention must be paid here to any factors that
may give rise to errors of observation. It frequently occurs that variations in quality are not due
to faulty production but rather to faulty inspection. This may result from improper gauges, or
improperly working test equipment, or bad work habits on the part of the inspector himself, or
even incorrect instructions given to the inspector.
After this study has been completed, the decision must be made as to how the units of products
will be handled. That is, the production lot size must be defined. Will it be one days total
production, or will a lot be all the products from one machine in one day, or one hour?
Convenience of handling the product and the production rate will be the determining factor here.
But, in any case, a lot must be rigidly defined.
The defining of lot size can be extremely important. This was emphasized by an experience
some years ago. In a certain vacuum tube factory there were six automatic sealex machines all
- 108 -
making the same type of tube. The total output of all machines in one day was defined as one lot.
The specification was that not more than ten percent of the lot should contain 2% or more
defectives. But the lots were running 3% defective quite regularly.
This situation was turning out to be quite expensive. The rejects were high, the extra handling of
the tubes was great, inspection costs were increasing, and altogether the situation was not good.
It was finally decided to re-define the lot size as the production of one machine in one day. And
an immediate good result was obtained. Five of the machines were doing almost perfect work,
but the sixth machine was turning out 18% defective. The entire days production was being
rejected before because of one machine that was at fault. But under the new lot definition, at
least the five machines production could be accepted and the sixth one could now be recognized
as the one that was causing the troubles.
After the lot size has been decided and defined, the next step to be taken in installing the quality
control system is to determine the earliest point in the production system at which inspection and
testing can be made for the quality characteristic which has been selected.
This is required because of the nature of quality control. In protective inspection, the sorting of
good and bad items, all of the manufacturing operations to be done on the product were
completed by the time inspection was made. When bad products were found there was not much
that could be done about the matter. The bad products were already made. They could be
reworked, or repaired, or thrown away as scrap. But, in any case, there was a definite loss of
money to the company.
The purpose of quality control, however, is to discover a tendency on the part of the
manufacturing processes to make bad products and thus prevent rejects before they occur. For
this reason, the quality control group must have the earliest possible chance in the productive
process to measure any quality trend. It cannot afford to wait for its information until all of the
processes have been completed.
But now the problem to be considered in setting up the control system is the planning of how
inspection data is to be collected and grouped.
For the time being, we have decided that we are going to have the ordinary inspection normally
done in the factory and in addition to that we will also have quality control inspections. The
latter will be done by the control group which may have its own set of test and inspection
equipment and its own separate working place.
Now, for the quality characteristic that has been selected to control, it must be decided what
inspection data will be recorded and how it will be grouped.
First of all, it must be assured that the instructions for how the inspection is to be made are
clearly written out and that the inspectors understand exactly how to follow instructions.
Now a decision must be made whether a measured value will be recorded for each item of
product inspected, or whether, merely, it will be noted if the products being inspected do or do
- 109 -
not conform to specification requirements. This decision will govern what type of control chart
is to be used: whether it will measure average (), standard deviation (), fraction defective (p),
range (R), etc.
On the basis of the study of the production processes previously made, the decision must now be
made on how the inspection results are to be divided into groups and sub-groups so that the items
which make up any of the groups are units which have been produced under the same essential
conditions.
One of the essential features of the control chart method is the breaking up of inspection data into
rational sub-groups, that is, to classify the observed data into sub-groups within which variation
may for engineering reasons be considered due to non-assignable chance causes only, but
between which there may be differences due to assignable causes.
Thus, in the sampling that the quality control group does, the sub-groups that make up the
samples should have some important common factor. This may be for example, the units
produced in the same short interval of time, or units coming from certain machines, or units being
made from the same batch of materials.
The different sub-groups should represent suspected or possible differences in the production
processes, such as different times of production, or materials, or machines.
The application of quality control is made less complicated and easier to use when samples, all
containing the same number of units, are selected on a planned basis. This could be once an
hour, or once a day, or a sample from every lot, or on any other basis which would be convenient
and also be representative of the production.
But in order to have the samples represent the universe from which they come they must be
random samples. There are two precautions that must be considered at this point.
1. A periodic selection of samples must not be allowed to coincide with any periodic factor
in the production process which may have some influence on quality.
2. The selection of samples should not be made on a fixed time schedule. For example, if
samples were selected every hour on the hour, the workers knowing this may have their
work so influenced that the quality of the product would be affected.
In deciding upon the size of samples and the number of samples to be taken, it should be taken
into consideration that several samples of a small number of units each is more informative than a
few samples that contain a large number of units.
Obviously, the method of recording inspection data is of great importance. Specific data should
be kept so as to be able to relate it to specific times or occurrences in the production processes.
This would make it easier to locate observed data irregularities associated with causes of trouble
in the factory.
- 110 -
A chart form for recording quality control inspection data has been developed and it is widely
used by companies engaged in this type of work. Figure 356 is an illustration of this form.
In our previous discussion we have mentioned the words control chart several times. Let us
now see what sort of thing this is. Referring to Fig. 356, the control chart is very much like a
highway. In the case of the highway there is a pavement, and beyond that on either side are the
shoulders of the road. And usually beyond the edge of the shoulders there is a ditch.
The width of the pavement is largely determined by the type of traffic that the road is expected to
carry. If only bicycles use the highway it can be very narrow. But, high speed automobiles
require a wider road.
The control chart is very much the same as this. The width of the central safety zone is, to a
large extent, determined by the production process used in the factory. The control limits, of
which we spoke before, are like the edges of the pavement and they determine the boundary of
the safety zone.
If a wheel of an automobile goes over the edge of the pavement into the shoulder, the driver had
better make some corrective action with his steering wheel or his brake or he will soon be in
danger. It is the same way with the control chart. As points are plotted on the chart from the
control inspection data, any tendency to approach one or the other of the control limits, or a
tendency to go over into the caution zone must be corrected before real trouble occurs.
If the automobile goes into the ditch, the driver is in real trouble. And so too in the factory, if the
products pass the specification limits and go into the danger zone (the control chart's "ditch") the
factory will be in real trouble. If this occurs, production must be stopped until the cause of out-
of-limits production is cleared up or some other drastic action may have to be taken to bring
production back into control.
When the assignable causes of variation have been eliminated from the production process to the
extent that practically all of the points plotted on the control chart remain within the control
limits, the production can then be said to be in a state of control with respect to the quality
characteristic being measured. But, when a state of control has been reached, no higher degree of
uniformity of quality can be attained with the production processes then in use. Greater quality
uniformity can only be attained through a basic change in the process itself.
Now it sometimes occurs that a state of control is achieved but the level of quality is not
completely satisfactory. This would be true when all the plotted points lie within the control
limits but are all close to one of them. In this case two corrective measures could be taken:
1. the control level could be shifted by making some basic changes in the production
processes used in manufacturing; or
2. the specification limits could be shifted to center the existing level of control.
In order that a quality control system which is to be set up might be entirely successful in its
application, the management of a company must be convinced of the good which can be expected
- 111 -
to be derived from it. A state of quality control has some definite practical advantages for the
manufacturer and also for his customers. The benefits which can be realized are:
1. with control, the variations between individual units of products will be at a minimum.
2. with control, data from samples of the manufactured products have the greatest possible
reliability as a basis for judging the quality of manufacture. This means that with control
established, the amount of inspection performed and hence the cost of inspection, and
indirectly too, the cost of manufacture can be reduced to a minimum. It often follows too,
that a sampling inspection is frequently satisfactory evidence to the customer of the
manufacturers maintenance of an established quality level.
3. with control, the percentage of products whose quality lies within any given limits may be
predicted with the highest degree of accuracy.
4. with control, there is a reliable basis for determining whether there would be any practical
advantage in changing the existing specification limits.
This question may come up in connection with deciding whether to set wide specification limits
and make assemblies by selecting particular components that match mechanically, or setting
narrow specification limits so that complete interchangeability is achieved, or in other words,
any component can be matched with any other in assembly.
5. And finally, as an advantageous selling point, with control the manufacturers product
may be accepted by the customer solely on the evidence of quality control.
The purchaser of the manufacturers product may be encouraged to accept the idea of his
not having to make an inspection, other than perhaps a check inspection, on the incoming
products as long as there is evidence of manufacturing quality control. To this extent, the
purchaser also saves money on inspection costs.
For any single product there may be one or more quality characteristics selected for control. Or,
for any product there may be one or more stages in the production process selected for control.
For example, certain important raw materials of which the product is made, and some
intermediate production process, and some final quality characteristic may all be placed under a
control system.
Then for each of the items to be controlled there would be a control chart made and control limits
would be established for each case. In addition to the separate charts there would generally be a
summarized one that would combine all of the separate information and tell at a glance the
general situation of the state of control of the product.
In setting up the control limits for the charts either of two methods could be used. One way
would be to compute them on the basis of past and present production experiences. The
manufacturing records of the product under consideration would be gathered together and the
data concerning the quality characteristic selected for control would be processed by statistical
methods. Without going too deeply into what these methods are just now, we can, nevertheless,
briefly outline the process. Groups and sub-groups of the data would be established according to
the time of production or other conditions and the average value of each of these divisions would
then be determined. The mean value of all of the data (or a sufficient amount of it to permit
- 112 -
arriving at conclusions that will be sure to be representative of the whole mass of data) is then
computed.
A frequency distribution curve, such as is shown in connection with Figure 352, can then be
drawn from the data. The abscissa of the curve will be the scale of values of the data and the
ordinate will be the number of times each particular value occurs in the data. (Refer to Figure
355.) If there is a regular distribution of data points, the resulting curve will be symmetrical on
either side of the average value. But in any case, an inspection of the curve will reveal at once
the characteristic nature and tendencies of the data. Kurtosis, skewness, and standard deviation
of the curve will be noted and can be interpreted according to our previous discussion.
From the curve, it will be possible to discover the value of the average squared deviation of the
data points from the arithmetical mean and thus arrive at a value for sigma (). An approximate
value for can be estimated by selecting a point on the vertical line that denotes the mean value,
that is two thirds of the distance down from the apex of the curve to the base line. An extension
from this point parallel to the base of the curve is then made to a point where the curve is
intersected. The horizontal distance from this point to the average value is a rough measure of
the standard deviation .
From our previous discussion it will be recalled that the algebraic sum of the mean and three
times the standard deviation ( 3 ) can be estimated to include 99.7% of all the data points.
This sum can then be the value selected for the control limits. It can be predicted that, if the
manufacturing process from which the past production data has resulted is the one still in use in
the factory, then the control limits that are established on the basis of the past data will include
99.7% of all future production.
But, there is yet one consideration that must be made. The control limits, we will say, have been
set at 3 . (Say just by way of example that the average of the data () is 7, and sigma () is
0.50. Then, 3 would be 7 3 0.50 or 7 1.50. That means that the upper limit would be
8.50 and the lower limit would be 5.50.) This must now be compared with the engineering
design for the particular characteristic under consideration. Will (the specification limits) permit
any value from 3 to 3 (for example, 8.5 to 5.5) be used? Will the product work just as
well with any of these values? Or, must the limits be set at a more narrow pair of values? This
must be answered by an engineering investigation. The question here is one of product quality
and product usefulness to determine if the product will suffer any disadvantage because of the
permitted variation.
If the limits must be more narrow, then they might have to have some value such as 2 , or
1 . But, if this is the case, we immediately know that using the present production process,
only 95%, or 68% of the production will fall inside of these control limits. The rejections will
therefore be likely to be high. We also know that if the limits need be set at a more narrow value,
that only some basic change in the production process will be able to prevent the probable
expected rejection rate. In other words, must have a new value.
The second method by which control limits can be established is by computations using formulas
that have been mathematically derived from the statistical approach to quality control problems.
- 113 -
There has been a great deal of practical use made of these formulas in actual practice and there is
much evidence of the accuracy of the theoretical approach that has been used.
The use of the formulas to determine the control limits does not take into account much of the
past performance of the manufacturing processes. In a sense, it applies an artificial boundary
since there is no direct relation made to actual plant operations as does the first method of
computation. Nevertheless, experience shows that there is usually close agreement between the
results of the two methods, and the second has the advantage of being somewhat less laborious
since there is no need to process an accumulation of data as is required by the other method of
control limits computation.
The control chart has two principal uses of interest to us here. One is its assistance in
determining whether or not a state of control does exist in the manufacturing processes in use
(See Fig. 358). The other is the use of the chart in actually attaining a state of control. (See Fig.
359)
However, the ultimate and most important purpose of the control chart is to provide a definite
operational procedure for controlling quality in the manufacturing plant. But, before setting up a
system of control of future operations, it is usually desirable if not necessary to establish a clear
picture of the past history of the quality of the product. In view of the past accomplishments of
the factory, at least some knowledge of what tentative control limits could have been used in the
past can be gained, and it will also show, in an approximate fashion, what sort of control has
existed in the past. Therefore, in putting the control chart method to work, one of its first uses is
often the analysis of previous quality records.
In achieving the use of control charts in order to determine whether a state of control exists, an
accumulation of data is divided into small groups, called rational sub-groups, wherein the unit
differences are small and therefore the variations in the data can be said to be due to unassignable
causes. Averages, standard deviations, and other measurements are determined for each sub-
group and control limits are computed from the data itself.
The sub-grouping may be based on time; for example, the products made in some ten-minute
period of each hour, or during some hour of a work shift, etc. Or, it may be based on some other
factor that affects manufacture, such as the machine operator, or the production machine itself, or
a particular lot of raw material.
Information of this type regarding the state of control would be required, for example, by a
manufacturer who wants to install a quality control system. He would have to know what the
present state of affairs is in order to know what could be expected if the control system is
established.
Also knowledge of the state of control would be required by a purchaser of materials who would
need to know about the uniformity of the goods that were being sold to him. The uniformity of
the quality of his own products would depend to a great extent upon the evenness of the quality
of the materials from which his product is made.
- 114 -
Usually it cannot safely be estimated that a state of controlled quality exists unless at least
twenty-five successive subgroups have their plotted points fall within the established control
limits.
On the other hand, a lack of control may be concluded from only one or, of course, more points
out of a much smaller number of sub-groups, falling outside of the limit lines.
The other use of the control chart, that is for the attaining of a state of control, is a continuing
record of the quality of the product while production is going on. The purpose here is to discover
assignable causes of quality variations as soon as they occur.
This is the way this system is usually put to work. A tentative standard level of control for use in
future operations is set up usually on the basis of past experience, or it could also be done by
computation, making use of the quality control mathematical formulas which were mentioned
before. Control limits are placed above and below the standard level at distances determined
with the method previously discussed. The number of observations to be taken each time the
product is sampled is then decided. A consideration that also enters here is the percentage of the
products which can be expected to fall within these limits. The number of products which will
probably be rejected can be estimated at this time.
The values obtained from inspecting the samples, recorded on such data sheets as shown in
Figure 356, are then plotted on the chart as soon as they are obtained. A plotted point falling
outside of the control limits is taken as an indication of the presence of a disturbing factor in the
production process, an assignable cause of quality variation.
This cause must be identified, and if practical, it must be eliminated. The quality control group,
upon discovering the out-of-limit point, will issue a warning statement to the manufacturing
department chief and also to the immediate supervisor concerned with the process under
consideration of which the quality characteristic is being measured. A copy of the warning
statement also goes to the production engineering group and possibly to the design engineering
group, too, since the item in question may be within their area of responsibility also.
The warning from the quality control group places an immediate responsibility upon the
manufacturing group to clear up the matter which has been called to their attention. To make the
control system effective, the obligation inherent in the warning to take corrective action at once
must be of primary importance to the production people.
But this does not mean that hysterical or unplanned action is to be taken. Rather, the problem
pointed out by the warning must be clearly identified, the present and current facts of the
situation must be determined, these must be analysed and the most proper and adequate solution
of the problem must then be planned. After this, that plan must be carefully put into practice and
the results of it checked carefully to make sure that the problem has been really solved and is not
likely to occur again.
A report of the action taken by the immediate supervisor of the process in question must be made
to his immediate supervisor so that there can be a general assurance that the problem has been
finally settled.
- 115 -
The quality control group will know if it has been settled by the plotting of subsequent data. If
the next series of points are within limits, there is no further special attention required. But, if the
condition worsens, some action more drastic than a mere warning will be required, with the
complete stopping of production activity until the problem is cleared up as an ultimate
possibility.
The control limits, which are used to initiate the procedure which has just been described, thus
serve as a criterion for action and for this reason they are also called action limits.
By repeating the method we have been discussing, the identification of the causes of variations
and their subsequent elimination again and again, and by seeking the assurance that once a cause
of troubles has been removed it will remain removed from the production processes,
manufacturing is brought closer and ever closer to an ideal state of quality control. Perfection
would be reached when all of the plotted points consistently fall on a line that is half-way
between the two limit lines of the control chart. But the practical purposes of control will be
satisfied when all of the plotted points consistently fall within the area between the control limits.
The most effective use of the quality control activity is made when the chart method we have
been discussing is applied to that part of the manufacturing system which is considered to be the
most likely to cause troubles. The control limits will then indicate the need for action with a
minimum of delay and the overall efficiency of operations will be continually enhanced. As
production goes ahead day after day and month after month, more data and other manufacturing
information will be collected and it will be possible to recalculate the control limits setting them
at new and different value, thus setting each time a new and improved quality control level, if
that is found to be both desirable and economically feasible.
So, the control chart method of controlling quality is one that is perpetually seeking to find an
improvement in the state of production affairs. And, every step taken toward the achievement of
statistical control, that is, the removal of causes of troubles in manufacturing, brings the whole
productive system closer to the highest level of economy.
Our discussion up to this point has been somewhat confined to control charts and the elements
that enter into their construction. But the function of the quality group is not limited only to the
making and maintaining of these charts and doing sampling inspections. There is another major
activity that also comes within the scope of responsibility of this control group. This is the
Quality Survey.
Quality Surveys are a complete examination of the basic engineering and manufacturing
information for a given product, a check of tool and machine accuracy and a review of the current
processes and operations and also of the past production history of the product under
consideration. Usually the product selected for survey is one that is being produced on a large
quantity basis and that is a regular item of the companys production. Depending upon the
current state of control and the availability of sufficient time for the proper persons to make an
adequate survey, the number of surveys which are made varies from time to time. The minimum
should be one per year, although in most cases it is desirable to have more than this.
- 116 -
Each survey is conducted by a committee made up of a member from the Quality Control
Department, Inspection Department, Engineering Department, and the Manufacturing
Department. (This may also include the Production Engineering Group.) The committee is only
a temporary one existing only during the period of the survey. Its members are appointed by the
general manager, or some other proper executive, on the recommendation of the department
heads concerned, and the committee membership may differ from one time to the next.
The Quality Control Department usually is responsible for recommending to the general manager
of the company the subject of each survey and the dates scheduled for its start and finish. This
executive generally passes on the recommendation before the work actually starts.
The survey is planned so that there will be sufficient time allowed before the scheduled starting
date to permit each member of the committee to circulate to the other members a preliminary
report based on his pre-analysis of the product to be surveyed. For example, the engineering
member will sift through the standards and specifications, drawings and bills of materials to
determine if they contain clear, concise, and precise information. He will make notations of any
matter in this regard that comes to his attention that he feels should be discussed and clarified.
The Quality Control member will check the manufacturing information used in the factory to
make sure that operations are prescribed in adequate detail. He will also make sure that the
factory information matches the latest engineering instructions. He will look for any changes in
instructions which might have been put into effect by the factory groups without the knowledge
or approval of the engineers concerned. The quality control member will also make analyses of
complaints related to the product under consideration regardless of whatever source they might
have come. In addition, he will check on sampling procedures being used and also factory
inspection results.
The factory member will report on his findings relating to the machinery and other production
equipment in use, materials, handling of stocks and stores, factory personnel, difficulties
experienced during production and other factors relating to and possibly having some bearing on
product quality.
The inspection member will study and advise on the condition of inspection and test equipment,
the accuracy and frequency of recalibration of the equipment, and any difficulties being
experienced in connection with the inspection work.
On the date set, the committee members meet and discuss the various preliminary reports and try
to settle any questions that might have arisen during the pre-survey study. Other persons, not
members of the committee who might be able to give expert information on any of the problems
being discussed, may be called in as needed to supply data that might not otherwise have been
available. The committee does not limit itself to the conference table but also goes into the
factory to watch and study each phase of the operations under survey even including the
inspection activities factory and quality control both.
At the conclusion of its review, the committee writes a report of its findings and all members
sign it to indicate their agreement to its contents and their sharing equally in the responsibility for
the work accomplished.
- 117 -
The survey report usually is of three parts. The first, which goes to the top management level,
indicates briefly the committees opinion as to the satisfactoriness of the engineering and
manufacturing information and the degree to which the product is conforming to the intent of the
design.
The committee may have uncovered some problems during its studies that may require corrective
action. If so, a listing is made, and what is wrong and a suggested correction or a suggested
approach to the solution of each problem is indicated along with a notation as to which group in
the company should be charged with the responsibility for solving the problem.
The second part of the report is sent to the engineering group. This is a much more detailed
analysis of each item regarded by the committee as being of sufficient importance to be worthy of
action by the Engineering Department. The problems mentioned in the first report are gone into
more thoroughly here and specific requests for greater clarity, enlargement of information, or
more adequate instructions, as required, are made.
The third part of the survey report goes to the manufacturing group and deals in detail with
problems that fall within the factorys scope. Required corrective action is outlined here in the
same manner as was done in the part of the report that was sent to the Engineering Department.
The committee is a fact-finding body and as such has no authority to require action on the part of
any department on any of the items brought out in the survey report. However, a conscientious
management will keep the report handy and will demand from time to time information from the
various departments concerned on what has been accomplished by them in successfully meeting
the challenge of the survey group. Top management may even require that periodic reports be
made which will tell what steps have been taken to solve the reported problems, the results
obtained, and the problems yet remaining unsolved. And too, management may at times feel
called upon to reconvene the survey committee to review these reports and to determine the
adequacy of the indicated accomplishments.
A third important division of the quality control function is the investigation of products or items
upon which quality complaints have been received. This is almost equal in importance to the
first two phases of the control we have been discussing statistical quality control and quality
surveys. No matter if the complainant is a customer or another part of the company organization
which uses the item in its work, an item which has proved to be unsatisfactory in use might
become a useful source of information in supplying knowledge of possibly avoidable production
faults or errors. From this point of view, it is quite worthwhile to have the product in question
analyzed and the cause of the complaint identified. Perhaps the matter can be traced back to the
factory or to the design or to some other factor and thus effect a significant quality improvement.
In some cases a study of customer complaints can turn out to be a shortcut to controlled quality.
However, complaint investigations are not and can never be a substitute for the control
procedures that are principally designed to promote the attainment of a state of control. The
value of the investigations lies in serving as added checks on the entire productive system.
- 118 -
5. Application of Cost Controls
For convenience in discussion we may consider cost controls as being of two general types. The
first or primary controls are these:
Control of basic or theoretical costs.
Control of actual costs.
The secondary controls are those for which sound planning and application contribute to the
effectiveness of the primary controls. Among these are:
Control of Organization
Control of Production
Control of Materials
Control of Wages and Salaries
Control of Methods and Manpower
Control of Line of Products
We will now review the primary and secondary cost controls both from the viewpoint of the
scope of control plans and the inter-relations and use of these control plans as "management
tools".
a. Control of basic or theoretical costs
In Section II under "Functions that are necessary to a company" we discussed the three
methods of determining costs. These were the Historical, the Predetermined, and the
Standard Cost. The first step in the control of basic or theoretical costs must be the
determination as to which of these three methods will be followed. As in the case of any
other policy determination that affects company structure or operation we must first take a
realistic view of present conditions. We must decide what can reasonably be expected in
the way of immediate objectives that are capable of achievement as well as determining
long range objectives.
There are wide differences in the present situation on cost methods and controls in different
companies. Some companies had either predetermined or standard cost structures before
the war that have not been restored. Others used, and still use, the historical cost method.
In many cases, costs are determined on a plant wide basis without any attempt at
breakdown between manufacturing units or products. In other cases the cost structure is
reasonably sound but the control plans are lacking for the effective use of cost data that are
available. Very few managements are cost conscious at all levels.
As we said earlier in the course, Historical costs do not provide an adequate basis for sound
cost control. Individuals with long experience can frequently judge whether the job is
being done with reasonable efficiency. And if data are recorded in sufficient detail, it is
possible to determine whether there are unsatisfactory variations in performance as
compared with the past. But in the final analysis all that is really known is whether the job
- 119 -
is more or less costly than it was at some prior period. We do not believe that even a
comprehensive historical cost and control setup is a good immediate objective.
As you will recall, the predetermined cost is frequently established on the basis of past
performance. However, the difference is that where such costs have a scientific basis the
historical data are analyzed and questioned. They are carefully scrutinized and the job
components studied to see whether there are better and cheaper ways of doing the job. As a
result, waste and inefficiency are discovered. Engineering background and experience are
more fully utilized, and careful detail analysis and study of overhead cost factors is
initiated. Methods and practices are changed and the costs are adjusted to reflect the
improvements.
In this way historical costs can and do grow and develop into predetermined costs that
provide a better yardstick for performance and cost control. The degree to which such
costs provide a basis for control depends on the extent to which analysis and cost
adjustment is applied to all company functions. Many companies in the United States,
particularly smaller concerns, still use predetermined costs, but the historical cost method
has been almost completely abandoned. It may well be that in most companies your
immediate objective should be a good system of predetermined costs. You will require
extensive study and analysis by competent, experienced accountants to be sure of your
objective.
The most modern, and best cost system from the standpoint of cost control is the standard
cost and a simple comparison will indicate the reason. Historical costs show what the job
did cost; predetermined costs show what the job will cost; standard costs show what the
job should cost. This is the ultimate basis for measurement and control. We believe that in
most companies a standard cost structure should be the ultimate objective.
Having decided what cost method will be used by your company (policy) what is the
second step in the control of basic cost? Logically, after determining policy, the next step
is to provide the practical means, the system, through which this policy can now be made of
practical use. We must establish cost and accounting methods for the computation of basic
costs, and since specialized knowledge is required these methods should be developed by
specialists in Accounting and Costs, with the cooperation an coordination of other
organizations.
It is not enough, however, for these specialists to develop methods for calculating costs that
include all factors of Materials, Labor and Overhead. Such information must be obtained
and we must define who is to furnish each item.
On materials we must know the amount required in the product as well as the expected
waste due to trim and normal defectives in process. Such information should be obtained
from the Engineers. We must also know what these materials cost. Where these are
purchased, such data must be obtained from the Purchasing organization. Where they are
produced within the company they must be obtained from the Cost Data for the particular
Producing Unit.
- 120 -
On labor (productive labor only) we must know how many hours are required to produce
the product, including allowances for production of normal defectives. Again, such
information must come from the Engineers either as estimates or based on Time and
Motion study. Further, we must know what wages will be paid this labor. The sound
method of establishing this, of course, is through Job Rating that we discussed under
Industrial Relations, and established Wage Rates that were reviewed in this same section.
In the case of estimated costs, the Engineers, in cooperation with the job Rating group in
Industrial relations will provide such forecasts.
Overhead will normally be divided between factory (manufacturing cost) and general
(administrative and sales). It may be and should be further subdivided between fixed
overhead and variable overhead. Information or fixed overhead must be obtained from
records of assets and estimates from Engineers on additional facilities, as well as from data
on taxes, depreciations, etc. Depreciation must be established on the basis of law, actual
experience (records) and Engineering estimates, taking into account not only wear but also
obsolescence. Distribution of fixed overhead must be based on Production Programs or a
predetermined production level in case standard costs are used.
Information on variable overhead such as expense labor (labor not contributing directly to
the production of the product such as material handling, inspection, supervision, clerical,
etc.) must be obtained from each organization of the business that is involved, based on
organization structure, production programs and engineering estimates for inspection,
material handling, etc. Here again, wages must be determined based on the same sources
of information as were used for direct labor. Other factors of variable overhead such as
maintenance, expense supplies, services, etc., must be obtained from varied sources in the
same manner.
From this brief analysis it can be seen that we must not only have accounting and cost
methods, but that we must also have, in every part of the business, the clearly defined and
correlated responsibility for furnishing information, data, and service as required. We must
have consistent methods of accumulating this information and standard forms upon which
such data are recorded. Control plans must be formulated that will insure the objective of
providing sound fundamental costs.
While the fundamental responsibility for establishing the Cost and Accounting methods and the
Control plans for determining and assuming sound basic costs is in the Finance organization. It
is evident that many other organizations have coordinating responsibilities. It may be said that
for some phase of the cost structure, labor, material, or overhead, every branch of the company
must contribute an important part.
b. Control of Actual Costs
The application of controls to actual costs will be considered in two steps. The first step is
the establishment and control of budgets.
Budget forecasts have as their primary purpose the provision of advance information
through which management can plan expenditures; determine in advance the effects of
- 121 -
production programs and organization operation plans on products costs and the financial
condition of the company; and anticipate the competitive position of the company with
regard to prices as a result of these plans and programs.
Budget forecasts have a secondary function of assuring that the management of each
Department or unit of the company does a sound job of planning, in advance, for its
operations and expenditures. They provide a means of control, if properly used, through
the accountability of each unit to meet its forecasts. Further, if sound basic costs have been
established it is possible to check budget forecasts for reasonableness.
As we have previously stated, sound basic costs presuppose a set of conditions. They
assume a defined rate of production, the efficient planning of manufacturing operation,
established levels of reasonable materials usage, sound labor productivity, efficient
organization structure, and complete data on fixed and variable overhead expense.
Now, when budget forecasts are prepared for any future period, they should also be based
on a definite production program or sales forecast. On the basis of such forecasts it is
possible to determine how much material and direct labor should be required (basic cost
data). If for any reason the estimated labor or material is higher than it should be it is
possible for management to demand an explanation of this variation. Any factor of budget
estimates that is higher than the base costs must be explained if budgets are to serve as a
means of control.
When labor "wages" or materials "prices" are higher or lower than the basic cost these
variations are capable of explanation. Such variations can serve as a sound basis for
adjusting the sales price of the product (assuming a free market and that the company is in
a good competitive position).
Probably the most difficult aspect of budgets, from the standpoints of both preparation and
of use for control, is the overhead portion. It is here that the exercise of judgement and the
application of sound principles are especially required. Because these overhead factors are
accumulated from a number of sources in many company organizations their soundness is
often difficult to check or verify. It is especially important therefore to have basic data
with which to compare both budgets and actual costs on overhead items.
There are certain factors of overhead that vary directly with production program. Such
things as the various services; electricity, steam air, gas; the amount of expense supplies
required; machine maintenance and repair, etc. These are relatively easy to budget if you
have sound accounting and cost procedures and a basic cost.
Other factors do not vary directly with the rate of production. As we said before, basic
costs, whether predetermined or standard, presuppose a certain level of production. At this
production level you will have a definite planned number of material handlers,
storekeepers, clerks, management employees, sales people and other overhead labor.
However, the number of these people does not necessarily change in direct ratio with
production changes. When production increases it usually is true in well- organized
concerns that the overhead labor does not increase proportionately. Conversely, when
- 122 -
production drops, the overhead labor cannot always be reduced in direct proportion because
there are numerous functions that must be continued regardless of production level, and in
many cases the physical mechanics of doing the job requires an irreducible minimum of
people.
Therefore your control plans, no matter how well designed, will of necessity require
application of analysis and judgement beyond the comparison of actual figures.
Budgeting requires the same detail planning of methods and routines and of control
procedures that is essential for basic cost control. To be fully effective it requires even
more extensive application because every management employee should be responsible for
his contribution to the establishment of the budget in the forecasting of what he will do. He
should also be held accountable for the meeting of his objectives.
The second stop in actual cost control application is the accumulation and use of actual
cost data for control purposes. To be effective for this purpose the Accounting and Cost
methods and control plans must assure that data are collected in sufficient detail and
presented in such form that management people can use them for practical analysis and
correction of unsatisfactory conditions.
It is not enough for the head of a Manufacturing Department, for example, to obtain a
report on actual costs that shows merely that his total labor cost was high for a particular
month as compared to budget forecasts and basic costs. If he receives only this information
he will not know whether too many hours were spent or whether the wages were greater
than anticipated. All he can do is call all of his sections together and say: "You spent too
much money for labor last month we will have to do better". He cannot ask any of his
sections why labor was too high and expect a good answer because no section will have the
cost data he needs to determine the cause. The section head cannot be held accountable
for results when they have not been given the management tool with which to do the job.
Further, the Department chief will not know which section is at fault.
The situation is even worse if the department chief (or any other management employee)
does not know anything for two or three months because the cost and accounting routines
are so complex or impractical, or the organization performing the work is so slow in
furnishing information that because of the inefficiency of new workers, or production
delays and interference beyond his control, or some other good reason, his labor cost was
high. He should be able to do this for any of the cost factors for which he is responsible,
whether labor, material, or overhead.
Or, if the condition was one over which he has control, this section chief (or any other
supervisor) should be able to state that the cause of the difficulty has been located and
action has been taken to correct it. In either case he must know what the difficulty was and
know it soon enough to take action before further losses occur.
Now the only way any management employee can know is through the prompt provision of
information that will permit investigation, analysis, and checking of his actual performance
against a yardstick of basic costs and budget forecasts. The provision of such information,
- 123 -
through sound budget and cost control plans, and accounting and cost methods and
routines, to each level of management as required for that level is the only way to
accomplish results.
c. Control of Organization
This is the first of the "secondary" controls that we will consider. In Section 3 of Controls
we reviewed this function in detail. Each phase of this function has an important bearing
on your company overhead. This is reflected in the basic costs, in budget forecasts, and in
actual cost performance.
Organization planning determines the simplest and most efficient structure that can be used
by your company.
Organization charts define the structure and provide a guide for management personnel in
understanding the plan.
Job specifications provide the guide for action within proper limits of responsibility and
authority by each management employee and further, provide a means of measuring his
accomplishment (control by superiors).
Control specifications or plans, methods and procedures, provide the management tools for
proper accomplishment of organization objectives and execution of unit and inter-related
functions.
Organization manuals provide the factual permanent record of company management
structure, functions, and inter-relations.
Without the proper integration of the functions of organization control it is obvious that
management, at any level or in any organization unit cannot accomplish any true objective
or fully exercise sound judgement. These things are essential for control of costs.
d. Control of Production
This control has two phases. The first might be termed a Top Management function. It has
to do with the determination of the future operating program. You will recall that in the
establishment of both basic costs and budgets we mentioned the rate of production. In the
case of basic costs, particularly of Standards costs, a specific rate of production is a
prerequisite. Determination of this rate is the responsibility of Top Management and, when
properly done, takes into account the consideration of company objectives (basic policies),
economic conditions, present or potential markets, present or potential products, available
or planned plan capacity, and similar items. Decision is based on the accumulation of
sound information and advice from all internal and also external sources.
For budgets and planned operations, the future operating program is usually for a specific
period, such as one year or in some cases six months. Again, the determination of this
program must be based on various sound data including actual customer orders, sales
- 124 -
forecasts, and sales objectives, and must be tempered by due consideration of economic
conditions. Such program determination is also a Top Management function.
In no case should the sole responsibility for future operating programs rest with any single
agency of the company such as the Marketing group. Control plans over this function vary
considerably with the conditions of the particular company, dependent on the types of
products, kinds of markets, organization structure, etc. Generally, however, all of the
major company functions, Finance, Engineering, Manufacturing, Marketing, and Industrial
Relations, review the various aspects of the program before final approval. Insofar as
possible, forecasts for immediate future operations should have stability from the viewpoint
of production rate in order to maintain employment at consistent levels. Such stabilization
has an important effect on actual costs through the assurance of maximum economy of
operation.
The second phase of Production Control has to do with actual operations. It is the means
through which the program objectives that have been established with Top Management
approval are achieved.
In our discussion of the manufacturing function, we reviewed briefly the functions of
production planning and scheduling, production ordering, production expediting, and
production records and reports. Each of these functions has a specific and important place
in production control.
Before proceeding further, however, it should be emphasized that there is no one best
system of production control. No production control system should remain static because
the needs of the business, as well as the conditions within a plant are constantly changing.
Further, the system that is suitable for a company producing large volumes of standardized
products will be unsuitable for a company that produces small quantities of products on a
jobbing or special order basis. Beyond this, the organization structure and the extent to
which "operations" are broken down into product lines will effect the complexity of the
production control system required.
Fundamentally, what must be considered in establishing production control plans? The
first item, rate of production, we have already discussed. It was indicated that a sound
future operating program was essential for budget forecasts and planned operations.
However, there are always changes in conditions that will cause variations in this future
program. Anticipated sales may fail to materialize or be greater than expected; machines
may break down; materials may not be delivered on time, the labor situation may change;
all sorts of things can and do happen.
Therefore, in order to assure that our program planning is realistic we must not only have
this future production program but we must also have a periodic review to make sure there
have been no drastic changes. Usually production control plans call for at least a quarterly
and sometime a monthly review and adjustment of such programs. The adjustment may be
necessary because of any of the things happening that we referred to above.
- 125 -
It is evident that no one organization, such as marketing, can entirely determine the
program adjustments. But some organization or group must coordinate all the variable
factors into a satisfactory working plan. This coordination, involving as it does the
Marketing, Manufacturing, Engineering, and other phases of the enterprise is the first
function of production control. The extent to which manufacturing programs are
economically scheduled, balanced and stabilized is dependent upon the effectiveness with
which this function is performed.
It has been stated that a good "Production" man has the ability to strategically order raw
materials for the job at hand and for the future. But to do this he must have an intimate
knowledge of the present stocks of materials in storerooms and operating processes, and
must know, through close cooperation with the Purchasing unit what the market conditions
are. Only thus can he know whether to buy one month or several months in advance in
order to assure delivery. He must also cooperate closely with the Engineering organization
to be able to anticipate changes in design that may make present materials obsolete, and
with the Inspection unit to assure acceptable materials are received. This coordination of
materials is the second function of production control.
Scheduling has been mentioned, with the necessary coordination of the various factors of
materials, production capacity, personnel, etc. Scheduling may be defined as the planning
of the start, progress, and completion of each component in an orderly fashion to meet the
completion or delivery date of the product without interference, delay, or loss of efficiency.
But this is all before the operations are actually started. There remains another major
function of production control that is the assurance that those schedules are met. This last
function of production control we described briefly under the titles of Production
Expediting, and Production Records and Reports. The control plans that are essential for
this phase must be determined on the basis of each companys individual requirements.
You will note that in the functions of production control, none of the people who are
preparing progress, schedules, issuing production orders or expediting actually do any of
the actual job of manufacturing. They are the pacemakers, the people who determine what
is to be done by the operating units, and who make sure through coordination and
cooperation that everything is available for the operations unit to use. They follow the
progress of the work to make certain that schedules are maintained, and report on this
progress.
Effectiveness of the operations unit is dependent then, on two things. The first is the
adequacy of production planning and scheduling, materials procurement, production
ordering, expediting, and the provision of actual production records and reports. The
second is the effectiveness with which management of the operations unit applies the
programs and uses the information provided for analysis and control.
- 126 -
e. Control of Materials
This subject, particularly the phase of inventory control was discussed in the first section of
the present chapter on Controls. It will be recalled that considerable stress was also laid on
purchasing controls as they affect costs and cost control.
We have indicated the necessity for cooperation of the production control function with the
purchasing function in assuring the provision of materials to meet manufacturing schedules.
It is evident that control plan for materials purchasing (procurement) and materials stocks
must assure the provision of the proper quality at the most reasonable cost and further
assure the minimum investment in stocks of materials on hand at any time consistent with
assurance of meeting product manufacturing and delivery schedules. The extent of such
control plans will be dependent upon the conditions within each company, but no materials
controls are possible without the proper definition and coordination of purchasing control;
production control, stores control, inventory control, and accounting control.
f. Control of Wages and Salaries
A number of phases of this subject have already been reviewed in our discussion on job
Rating and Wage rates as well as in our earlier review of the establishment of management
zones with properly defined types of responsibility and authority. Emphasis at this point is
on two things in relation to wages and salaries that vitally affect cost control.
The first of these is the necessity for adequate evaluation of jobs and application of sound
rates of pay on each type of job. Without such a foundation it is not possible to build a
sound product cost.
The second point is that each job and each employee should be paid what his job is worth
to the company but not more. Usually, the worth of the job takes into account what is paid
in other companies in the same area for comparable work as well as the sound evaluation,
within the company, on the basis of the job rating previously discussed.
g. Control of Methods and Manpower
When organization control is established it is logical to assume that each department has
properly defined functions and that the organization structure is efficiently planned. If this
is true it should be a simple matter to assure the continued efficient operation and control of
costs in all departments. However, experience has shown there is a constant tendency to
expend the functions and personnel (particularly the non-productive personnel) of any
department based on the argument that the added function and personnel are necessary
because of constant demands for service of one sort or another. Usually such changes are
so gradual that at any particular time they do not cause any question or concern, but they do
have a completely destructive effect on cost control.
It is therefore necessary to periodically review the functions being performed and the
practices followed to insure that any changes or additions are warranted and justified. It
- 127 -
may be argued that such a review is normally a part of management responsibility in the
preparation of budgets and the application of budgetary control. This argument is sound if
the plans for budgetary control specifically recognize the need. It is being stressed again
however, as a matter of emphasis, because of its importance in the control of costs.
h. Control of Line of Products
This control has many phases. We have discussed a number of these under the subjects of
Sales Engineering, Market Surveys, and Research and Development Engineering. From
the viewpoint of cost control the particular aspect we are considering is the verification at
frequent intervals of the ability of the company to continue to produce and sell at a profit
each of its products. Control plans for such verification are of necessity varied, but in all
cases must involve assurance that everything has been done in Design, Production
Engineer, Manufacturing, and Sales to reduce costs before it is decided to discontinue any
product. Obviously, if the Engineering, Accounting and Manufacturing methods and
controls are inadequate to determine what the product will or should cost and assure that
costs are met, there is little to be gained by attempted control over lines of products.
i. Control of Overhead Costs
We have repeatedly pointed out in many previous discussions that this factor of cost is of
major importance. However, because of the need for universal application of overhead cost
control in every phase of the business and at every management level, it should be further
emphasized. Now what should be the attitude of mind of every management employee
from the Foreman to the President in approaching this question?
First, no one should ever forget that it is a human trait to try and get someone else to do the
job if it is tiresomely routine, or difficult, or disagreeable, or if it requires a lot of careful
study or analysis. Most of us are naturally inclined to be lazy. But this trait encourages us
to request some other groups to do part of our job. Or else we devise some method of
having a subordinate do the job and thus relieve ourselves of doing it.
Now this is not always a bad idea because many new methods are the result of someone
wanting to find a less difficult way of doing a job. The danger is that we may build up our
own organization or encourage some other group to expand its activity when this is not
justified. We may be increasing our overhead or non-productive labor cost without really
improving either the operation or control of the job.
Therefore, before taking such steps we should always ask ourselves:
1. Is what I am asking or planning something that I should do myself?
2. Will this do something in the way of improving job performance or control that will
pay for itself or reduce company expense?
3. Is there some other way of doing the job more easily and cheaply?
4. Are my subordinates doing their job or are they getting someone else to do it for
them?
- 128 -
Second, when we are setting up control plans we should make certain that these plans are
not more complex than are actually needed. If they are, we increase our overhead or non-
productive labor and frequently increase the actual cost of doing productive work through
interference, delay, etc.
Third, a large part of overhead cost is in the use of physical materials. There may be either
office supplies, or in so called expense materials that contribute to, but are not a part of the
product. Frequently the control of the use of such materials is entirely overlooked and as a
result there is waste, loss and even pilferage that is a constant drain on the company.
Fourth, the use of labor for the handling of materials and of parts or components
between operations is a frequent and important cause of high overheads. Not only can the
expenditure of labor be excessive because of poor operation layout, machine installation,
etc., but also poor or inadequate handling methods, improper training and lack of
supervision can cause losses through damage to the materials, parts, or finished products.
When this happens we not only waste handling labor but also destroy the value of
productive labor and materials.
Fifth, the lack of adequate maintenance, or the failure to apply preventive maintenance
increases overhead cost. In the first case cost is increased because of the wasting of
productive labor and materials through the manufacture of unsatisfactory quality. In the
second case cost of performing maintenance is greatly increased because it is much more
expensive to repair equipment after it is so badly worn that it breaks down than it is to
maintain the equipment and make repairs before breakdown occurs.
These things we have reviewed are some of the major items that are important in the
control of overhead cost. They add up to the need for every management employee to keep
a questioning mind and be constantly inquiring and checking himself and his subordinates
to make sure the companys facilities, materials, labor, and funds are not being wasted.
j. Cost Control at Different Management Levels
We have reviewed the major aspects of cost control from the viewpoints of the companys
functions and the types of control plans that must be considered. But as a result of our
study it is evident that cost control is not possible unless all levels of management
participate in this control Control can be exercised only if the control "tools" are available.
These tools comprise the control plans and the data and reports that are used to measure
and evaluate results. Now what are needed at various management levels for cost control?
At top management levels, since the general administrative group cannot and should not
attempt to devote an appreciable amount of its time and attention to minute details of any
part of the job, information for analysis and control should be provided in summarized
form. Control data and reports will include: summarized programs for production; budget
estimates including projected programs for various company operations such as
Engineering projects, etc.; inventory investments; monthly performance on actual
operations compared to budget forecasts, showing personnel strength, labor, materials and
overhead; profit or loss; and manufacturing activity and sales results. Such reports must
- 129 -
be in form that will permit quick analyses by top management, and be supported by
adequate detail so that any question can be answered by the responsible organization head,
or a decision reached as to the need for special investigation and corrective action. To be
effective, reports must be submitted within a short time, usually three weeks or less, after
the end of a period in order for adequate application of controls.
The departmental management level is much more intimately concerned with details, but
here again an excessive amount of time cannot be devoted to minute parts of any job.
Responsibility for such detail belongs at lower levels. But since the Department Chief (if
duties are properly defined) is fully responsible and accountable for the plans, programs
and performance of his unit, he must have: budget forecasts for each of his sections; actual
cost performance compared to budget including labor, materials and overhead for each
section and product or activity; investment in materials and process inventory; plant or
departmental activity and personnel; output performance against schedules; production
forecasts, etc. Such reports must also be available promptly, usually within two weeks
after the end of a period to be effective for controls.
It is sound practice to furnish reports to each section covering the activity of that section.
Such reports, that serve as the basis for summarized reports to the department, provide the
actual controls within the section and are frequently submitted at weekly intervals to insure
closer job control. At Division and Foreman level, information is frequently provided by
the Section covering phases for which each level is responsible. In other cases the
Accounting Department may have cost units located within the unit that maintain close
contact with the Foreman and Division levels.
In general, the Foreman is responsible for the verification of employee time charges, job
assignment, and the assurance of worker efficiency. He is also responsible for the proper
use of materials and for verification of scrap before disposition where this is involved.
Further, he is responsible for usage of expense supplies, etc., and the application of expense
labor within his own unit.
At Division level the responsibilities are similar to those at foreman level but cover a
broader scope with increased responsibility for administrative phases of planning,
application of expense or overhead factors, etc. At this level it is sound practice to make
available the complete control reports that are provided the section, and in some of those
that are furnished the Department. This serves the dual purpose of broadening the
viewpoint of lower levels, and of making possible the recognition of how conditions in any
lower unit such as section, or division, affect the Departmental performance and results.
6. Application of Supervisory Controls
A definition of control is: "To exercise directing, guiding, or restraining power over". In its
proper application, control is a supervisory function of every management level or zone, and of
each management employee. The foreman or "first line supervisor" exercises control over his
workers. The next higher level such as Division chief exercises control over his foremen, and so
on right up the line.
- 130 -
In our discussion of controls and control plans we have developed the concept of the types of
controls and control plans that are essential for the management of the business. If you will
consider the three words in the definition we just gave, "directing, guiding, restraining", and
apply them to the control plans we have discussed, you will see that such plans are designed to
accomplish this triple objective.
The control of organization structure; the required functions of each phase or unit of the
business; the proper delegation of responsibility and authority; the inter-related responsibilities
of different organizations; the control product quality, the control of budgets and costs; the
control of wages, salaries, manpower and methods; the control of production; the control of
product lines; all of these are aimed at directing, guiding and restraining each management
employee (and worker). And as has been stated before, each of these controls has as a
fundamental objective the assurance of satisfactory quality or reasonable cost of the product, or
both.
We have stressed the importance of having control plans developed by competent specialists on
the particular phase of business activity involved. But it has also been pointed out that for best
results such plans must take into account the suggestions, recommendations and advice of all
management levels and organizations that are responsible for the implementation and exercising
of the controls.
No matter how excellent and adequate control plans may be, or how accurately the data and
reports measure actual results, nothing is accomplished unless each supervisor exercises the
controls that are his supervisory responsibility. Control plans and methods, and control data and
reports are only the tools. These tools are applied and used by people. Each individual
management employee is the medium through which controls are actually accomplished. But it
is not enough merely to provide the tools. The finest tools are of little value unless people know
how to use them properly. For full effectiveness in the use of any tool, whether it be the "control
tool" of the management employee or the "production tool" of the worker it is essential that the
user understand why as well as how. This "why" is the reason or principle underlying the use of
the tool that provides an understanding of purpose.
More is required than the knowledge of how controls are applied, although every management
employee must know this. The application of supervisory controls involves more than analysis.
Judgement is also required, and sound exercise of judgement is dependent upon understanding of
the basic principles involved.
The first practical step in the application of supervisory control is a planned management training
program that establishes an understanding of the basic company policies and structure.
Supervisors must know the fundamentals of the company cost and accounting structure;
principles of budgeting and budget preparation; etc. Following this should come the study of the
actual control plans as they affect the particular management level and individual supervisor.
The third step is training in the analysis of control data and reports in order to locate and arrest
difficulties. Each supervisor has the dual responsibility of learning himself and of training his
subordinates effectively And in application of controls he has the further responsibility of holding
his subordinates accountable for the accomplishment of their objectives.
- 131 -
When we say that supervisors must have an understanding of fundamentals we do not mean that
every management employee in every level or some of management should be trained identically
and to the same degree. It should not be expected that the lowest level supervisor will require or
be given the broad concepts required of a Vice President. But insofar as his own particular job is
concerned this lowest level supervisor (foreman) should understand that he is just as responsible
for quality and cost as the higher levels. He must know why the failure of his workers to meet
production rates, or to make good quality, or to be economical in the use of materials will affect
the companys economic condition and thereby affect their own job. He must be capable of
training his workers and of conveying to them in simple terms an understanding of the principles
of quality and productivity as well as their individual responsibility in the accomplishing of
objectives. In other words this lowest level supervisor must be trained so he can "exercise
directing, guiding, or restraining power over". And progressively at each higher supervisory
level such training must be planned and applied to fit the particular level and type of job.
In considering the problem of training or education of management personnel there are two
dangers which must be continuously guarded against. The first is to consider this work as
academic with little or no stress on the practical day to day application on the job. When training
is too formalized and has the atmosphere of a school classroom much of the benefit is lost. The
people who are being trained are learners, it is true, but they are more. They are the people who
are actively guiding the business and some of them will undoubtedly be your future leaders.
Therefore they must have a feeling of participation in what you are doing just as they must have
this feeling on the job. Training should be well planned but it should not be school-like.
The second danger is to assume that once a course is given its purpose is permanently
accomplished and it can be dropped. It is human nature to forget or to apply individual
interpretations to particular things dependent upon the makeup of the individual and his
experience and viewpoint. Therefore, training in any of its aspects must be a continuing job. We
need to be reminded over and over of things we know but which are overlooked or ignored due to
the pressure of day to day activities. And it is the responsibility of each supervisor to be
continuously on the alert, stimulating the minds of his subordinates, and periodically providing
the "refresher" training that is essential.
One of the most valuable and important phases of training that is frequently not realized or is
overlooked is the day to day personal contact of the supervisor with his subordinates. It is in
such day by day working together that real leadership shows up. We all learn by observing how
others work. And we unconsciously pick up mannerisms, methods of approach, and ways of
doing things from those with whom or for whom we work. Every one of us, to some degree at
least, follows the example set by someone else. The importance of setting the best example in
real leadership cannot be overstressed. Someone has said: "Show me a company where people
work in tenseness or fear, and I will show you a management of tyrants and drivers rather than
leaders".
Supervisory and worker training are only one phase of supervisory control application. A second
phase is job administration. This is the function of assuring that instructions or orders are issued;
that work is carried out; that routines are followed; that data and reports are prepared
(accurately and promptly) and that all of the necessary but sometimes annoying recording details
are properly done.
- 132 -
Most of us are inclined to be bored with many of the repetitive routines, and with the so called
"paper work" of our jobs. And it is a normal human trait to avoid or put off such things just as
long as possible. But if our control plans are sound and are not over-complex such routine is
essential and each supervisor must discipline himself and make sure that his subordinates
discipline themselves in adequately and promptly performing this part of their jobs. Failure of
supervisors to recognize the importance of job administration and a tendency to alight this control
function is a weakness not only in Japan but also in the United States.
In our discussions of cost and quality controls we covered the various forms of controls required,
but their coordination and application was not reviewed. . This work might be referred to as job
planning and is still another phase of the application of supervisory control. The effectiveness of
such planning is dependent first upon the adequacy of control plans, and second upon the proper
definition of jobs with due consideration to the needs of the supervisory level for sufficient
freedom from detail (through delegation of responsibility and authority) to permit time for
planning. It is also dependent, of course, on the adequacy of training as well as a further control -
the control over personnel - which we will discuss later.
As with other control functions this planning applies to all supervisory jobs but there is a change
in emphasis at different management levels. Little planning is required of the foreman except of
a routine nature. But as we progress toward this function it assumes greater importance, and at
high levels, it represents, or should represent, the major part of management time and effort.
Control over personnel, particularly supervisory or key personnel, is a major function upon which
the success of the company depends. By such control we mean the selection of individuals who
have the ability and capacity for adequately fulfilling the responsibilities of the job to which they
are assigned. The effectiveness of its application is entirely dependent upon the soundness of the
foundations of job analysis, definition and description and the evaluation of performance which
are used as guides in this personnel selection.
In the case of the worker it is not too difficult to evaluate performance. Three primary
measurements, all of which are capable of verification, provide the basis. These are quantity of
work (productivity), quality of work, and job attitude (dependability and cooperativeness).
However, in the case of supervisors there are other factors that might be called management skills
that are more difficult to measure. Such things include leadership ability, initiative, judgement,
administrative ability, planning ability, etc. Beyond this, the quantity and quality of work are less
tangible and therefore harder to evaluate.
Often the application of control in the selection of supervisory personnel is through an arbitrary
decision on the part of a superior that is based on unsupported individual judgement. It
frequently happens that selections are made because of friendship. This is perfectly natural
because people that you know and like are easier to work with. However, there is a danger
involved that should not be overlooked. Because you like a person, and know his character, does
not necessarily mean he has the qualifications needed for the job. Sometimes such a selection
may result in promoting a man who will not contribute to the job through good performance. He
may be just a rubber stamp for his superior, or even be so ineffectual that someone else will have
- 133 -
to carry the load. Therefore all the qualifications and requirements of the job must be weighed.
Then, and then only should friendship be a deciding factor.
Sound evaluation of personnel for supervisory or management jobs must be based on a system of
periodic ratings of every employee who is now holding such a job as well as potential future
candidates. Such a rating system must take into account all of the required qualifications and
skills as well as actual performance in order to avoid the dangers inherent in individual
judgement. This system can be called "Merit Rating".
Merit rating not only provides the guide for consideration for advancement but also can be used
as a sound basis for recognition of performance in the form of pay increases. It permits review
with the rated employee of shortcomings, and needs for improvement, as well as outstanding
performance for commendation. Frequently, also, the analyses of such ratings will indicate the
need for training to correct some general weakness that is disclosed. Such ratings can be equally
valuable for all employees, whether management or workers. Data Sheet No. III - 6.1 is the
rating form used for all civil service workers of the U.S. Government.
The last phase of application of supervisory control which we will discuss is employee morale.
When we use the term employee here we mean every person working for the company because it
applies alike to everyone. But what is the basic factor in morale? Summed up it might be
described as job satisfaction. There are a number of approaches to the analysis of job
satisfaction. One that we consider very sound was presented by Mr Thomas H. Reid in a Civilian
Personnel News Letter of the Secretary of the U.S. Army. Following is a brief excerpted
summary of his discussion that was entitled "Human Relations". He said:
"The personnel field has problems and solutions which are common to industry,
Government. This comes about because personnel management is the art and science of
dealing with people. People are pretty much the same in the mass, regardless of the suits
they wear, or the source of their pay envelopes.
Industry is learning that personnel management must become less an art, and more a
science. Haphazard methods and practices just wont do in efficient management. It can
never be a precise science as accounting is, for example, but we have come a long way
toward organizing our own job.
Our raw material is human nature and our end products are job confidence and job
satisfaction. Both these products must be obtained if management is to be successful. It is
job satisfaction that makes the difference between the interested and the disinterested
worker, between the efficient and the inefficient organization.
We need to study our raw material just as a manufacturer knows the goods with which he works.
We should learn to be as analytical in our study of human nature as the chemist is analytical in
his study of physical material. The logical way to begin is to break job satisfaction down into
component parts. Aspects of every employees human nature dictate his desire for these five
factors in job satisfaction.
- 134 -
(a) Fair Pay
The wish to survive is a basic instinct and pay is a factor of importance in that connection
so it is being put first. From the standpoint of job satisfaction, however, the fairness of pay
is just as significant as the amount of pay. The question in the workers mind is not so
much how good his pay is, but how fair it is. A janitor is rather well satisfied that his pay is
less than a vice presidents. He recognizes that this is equitable. But he does want fair pay
for the particular job he is doing. He becomes upset when a neighbour down the street who
is also a janitor receives more than he. What matters most (assuming a living wage) is that
the scale of pay differential by skills is as it should be.
(b) Security
There are three kinds of security in which the worker is interested. These are:
1. Security by the day Suppose he became ill. What about pay?
2. Security by the year What are his chances of keeping his job? How will he do on
an average annual earning basis?
3. Security for life What happens when he retires? Is there a pension? Is there
something to see to it that security is not a factor that stops
when he stops working?
(c) Opportunity
This factor is especially important to the younger employees. They are a natural desire to
get ahead, and want to know that there is opportunity for advancement. Good merit rating
and promotional planning are necessary to insure that a worker will have a chance to
advance as his abilities develop and openings occur.
(d) Recognition
This factor costs the least and yet is so often missed. The value of a pat on the back for a
job well done is frequently overlooked by supervisors. They pass by and fail to give the
praise that would improve morale and production without costing anyone anything.
(e) Participation
Some may think that this factor is merely a part of recognition but it means more. It
actually means doing things together giving the worker a chance to get into the act.
There is a feeling in the mind of every person, no matter how lowly or how high, that he
would like to be a part of things. Just analyze that aspect of human nature. The average
person who has enough money for food, clothing and shelter will spend his next few dollars
in joining some club, society, or other organization. He will go to endless time and trouble
to participate in such outside activities. If we who are paying these people for working
with us could foster t hat desire to participate, what a profitable undertaking it would be.
- 135 -
What an increase in efficiency and output we would experience if we could get people to
feel they are participating on the job as in outside activities. The factor of participation has
been overlooked to a considerable extent by management men everywhere.
These, then, are the five factors that tend to bring about job satisfaction. The analysis of these
factors must be followed by careful planning and skilful practice. No intelligent supervisor today
can get by just by being a good fellow. More and more, the art of dealing with people gives way
to the greater emphasis and improved results of the science of dealing with people.
General
Probably all of us have, at one time or another, been faced with the problem of what to do in
checking the work or performance of a subordinate, because it does sometimes happen that the
subordinate will say, or think: "You have given me a job to do. Why do you have to check what
I am doing? Dont you trust me to do the job?"
Such an attitude on the part of the subordinate is very unfortunate. He may feel that you have
caused him to lose face with his people. He may resent the "checking" and become antagonistic
or disinterested. In such a case he no longer is a part of the company team and the job suffers.
Now how can we keep such things from happening and still assure ourselves that the job is being
done? Actually, the way we approach the subordinate is most important. If you give anyone the
impression that you are trying to find something wrong to complain about, they will resent it.
That is human nature. And if you question what is being done in such a manner that the person is
embarrassed by being shown up in front of associates or subordinates he has lost face.
Of course, if you have control plans set up and have responsibility, authority and accountability
properly defined your only real problem is one of approach. It is easy to make clear to anyone
that the application of controls requires verification of what is being done. You are not checking
the individual as a personal matter, but are checking the job. This is no different than an
inspector checking the quality of work, or the foreman checking the output of the worker. And
no one questions either of these things or considers them to show a lack of trust in the doing of
the job. And each level or zone of management, since it is accountable for the results
accomplished by subordinates, must be sure that the job is properly done in order that he can give
to higher levels the true and accurate information about actual conditions. The higher levels
cannot do their job unless they are certain that plans, policies and programs are being executed as
planned.
What, then, are the things we must watch for in our approach to subordinates?
First we must be sure that we are not looking at their job from the standpoint of trying to find
something wrong. This is entirely different than making a critical analysis with the idea of trying
to do better. One is a negative approach, the other is positive. It is true that the inspector for
example, is trying to find out what is wrong. But why is this? One reason, of course, is to
protect the companys reputation for quality. But another reason, insofar as the management of
the company is concerned, is to make it possible, through teamwork, to correct the cause of the
- 136 -
trouble to do a better job. This concept of teamwork, of working together, should be basic
approach of each supervisor in the analysis of the job of his subordinates.
Second, then, we must make sure that every subordinate understands that when we question
anything or make suggestions we are part of a team that is working together to get the best
results. We cannot do this if we take the old attitude of "I am the boss do as I say". As Mr
Reid said, a feeling of participation is important to everyone.
Third, in our approach to the subordinate we must remember that he is a human being who feels
just the same as we do. If a reprimand is necessary (which is seldom if you are a leader) it
should be given in private.
Fourth, no one likes to be "short circuited". That is, he does not like to have someone pass him
by and give instructions to his subordinates. It is rarely that such direct action is necessary. It
may make you feel like a big man to show the person or tell them directly what to do, but dont
forget that it makes the subordinate that you bypass feel very small.
Fifth, if you are a good enough leader, you can usually find ways of encouraging your
subordinates to see what is needed without "telling" them. When you can do this you have
helped the subordinate to develop his own ability to think and analyze, and you have boosted his
morale by making him feel that he has contributed something, has had an idea of his own. In the
final analysis this is the true measure of your own bigness, your own ability as a leader.
- 137 -
Chapter IV. Operations
1. Plan and Organize Operations
Figure 411 is a representation of the steps we have taken as we have progressed through this
management orientation course. It also is representative of the logical development of an
industrial enterprise. To review briefly, the principle objective and the subordinate goals of the
company are defined by management by prescribing in writing the general policies which
will be used as a guide in the conduct of the company's business. Within the scope of these
policies, the necessary functions of the enterprise, the required levels of authority, the personnel,
the skills and talents, are all organized into a body designed to provide an efficient means of
translating the written plans, schedules, and decisions of management into positive effective
action.
Of course, the organization cannot run by itself. Leadership must be provided and the work of
the several parts of the enterprise must be coordinated into a unified whole. Supervision and
coordination then, must be provided by management.
But, the business executive must have some method of assuring that every action taken is really
effective. And there must be ways of determining the actual efficiency. For this purpose, there
must be superimposed upon the organization two coordinated primary controls. There must be,
first of all, a control of quality and then there must be a control of costs. These two are
fundamental. From these are derived the majority of the subordinate controls which are used in
the company to guide, govern, direct or restrain activity.
Upon analysis, certain of these secondary controls will be found to descend almost directly from
one or the other of the primary controls. For example, inspection control is generally very close
to quality control, while inventory control is closely related to the purposes of cost control. On
the other hand, production control is more or less equally derived from both quality and cost
control. However, none of the secondary controls can be considered to be entirely made up of
the characteristics of just one of the two major controls. There are always some aspects of both
in the subordinate ones although the emphasis placed upon one or the other may differ from case
to case.
Obviously, controls, and in fact the whole scheme of organization and policies have no value
except in terms of definite active functioning of the enterprise. And so finally, there must be
operations. The whole system must be put to work.
In turning our attention now to Operations, we find that this subject can be divided into four
elements. First of all, there is the work to be done. This refers to the company's various lines of
activities, each of which is a related entity in itself. It stems from and is aimed at the successful
accomplishment of the several objectives of the company. Each of these lines of activity must be
defined and specified by a clear identification. This may be a plan of action, a schedule to be
met, a project to be accomplished or other form of work specification.
- 138 -
Secondly, there is the work assignment, both in the wider sense of defining the scope of the
various departments of the company, and in the narrower sense of charging individuals with the
responsibility for performing certain particular duties.
The third element of Operations involves work execution. This includes determining and
planning the use, and making actual use of men, machines, materials, methods and money. The
final purpose of all of this is the accomplishment of the work that would be defined in the first
phase of Operations.
The fourth component of Operations is work follow-up. This entails methods of measuring,
adjusting, reporting progress, evaluating performance and in itself is a control function.
Our previous discussions have covered to some extent both work definition and work assignment.
So let us now turn our attention to work execution. In this regard, there is little doubt that
economy of operations should be the main objective of the organization for operations, -
including the factory buildings, the plant, the internal layouts of departments, machinery,
equipment, appliances, and the services that are necessary to operations.
Now, it may be said that our approach in this discussion (it will be a fundamental one dealing
with principles) is inconsistent. You do have factory buildings and your machines are actually
arranged inside the buildings. Nevertheless, it will not be entirely amiss if we take the
opportunity now to reconsider some of the problems involved in the organization for operations
so that you can make an intelligent review of your present situation in comparison with basic
principles.
The first problem that confronts us in relating economy to operations is the location of the plant
site. The factors inherent here are:
1. The economy of obtaining production materials.
2. The economy of marketing the product.
3. The economy of the labor market. That is, securing training, and holding a labor
force, and all of this in relation to the average local prevailing wage rates.
4. Financial inducements such as low tax rates, local subsidies, and the like.
Nor are these the only relationships that bear on this problem. The effectiveness of the executive
and control organization is to a great degree dependent upon the adaptability of the plant and its
facilities for the purposes of control. This, in turn, is influenced by two factors: plant location,
and the physical characteristics of the plant.
Three elements of cost are involved in the influence that plant location has in relation to the
overall problem of operations. These are (1) cost of raw materials, (2) cost of manufacture, and
(3) cost of distribution. The cost of raw materials includes not only the purchase price but also
the cost of transporting the materials to the plant. Manufacturing costs include operation
expenses and also cost of buildings (or rent), land, taxes, etc. . Distribution costs include the
charges for packing, crating, shipping, cost of sales, and transportation of the product to the
market. From this it can be easily recognized that the overall cost of the product, delivered to the
customer, is affected in no small degree by the distances which separate the plant from its sources
- 139 -
of supply and its consumer markets. The problem is further aggravated if more than one plant of
the company is concerned with manufacturing operations on the same product, and transfers of
work-in-progress must be made between plants.
It is inevitable that in selecting a new plant location or in evaluating a present site, a compromise
must be made between all the various factors which bear on the problem of location. In
approaching this logically, a list could be made of all the expenses involved, i.e. raw materials
delivered at the plant, fuel and power, operating expenses including the cost of labor, general
charges and expenses, and distribution. The cost of each of these items would be entered on the
list under each of the several different locations considered as likely plant sites. The total cost,
the sum of all the costs in a given location, which is the least by comparison with the others, will
generally turn out to be the most desirable site.
The type of factory building best suited for use is a problem that must also be considered. The
question here centers about whether a one-storey building is of more advantage than a multi-
storey one.
Some of the arguments in favour of the one-storey building are:
1. The plant usually occupies a low cost ground area.
2. There is room for plant expansion.
3. Heavy machine equipment can be used almost anywhere in the building.
4. Heavy or bulky materials can be easily handled.
5. Lighting and ventilation is a small problem.
6. Greater efficiency is possible in routing and handling materials.
7. Overall operating costs may be less.
8. Supervision may be easier and more effective.
9. Cost of building construction and maintenance is low.
On the other hand, a multi-storey building may be desirable because:
1. The plant can be built in a more desirable although high cost ground area.
2. It may make the best use of limited ground area.
3. Products that are light and not bulky can be easily handled.
4. Light and easily adjusted machinery can be worked into the factory floor plan easily.
5. It is possible to make a vertical coordination of departments.
6. Heavier operations can be put on lower floors and lighter work and assemblies on
upper floors.
7. It is relatively easy to expand when full use is not made of existing floor space.
Having considered the types of factory buildings, the next thing that comes to our attention is that
which must be placed inside the building. The layout of departments and machinery inside a
factory is of the utmost importance. A good layout will avoid waste time, it will improve
efficiency by eliminating unnecessary effort and useless movements of work-in-process. It will
also make best use of the facilities of the plant and help management perform its supervisory
functions more effectively.
- 140 -
A factory, with all of its equipment and services can be thought of as being itself one large
machine. The design and organization of this machine, the number of people required to operate
it, the number of times materials must be moved from one part of the big machine to another and
the distances involved, and the amount of time required by this production machine to convert the
raw materials taken in at one end to the finished products which emerge from the other end; all
of these factors have a direct influence on operations. Here too, then, is a relation between
factory layout and manufacturing cost.
Any plant layout that is finally chosen will be determined partly by the volume of work to be
done and partly by the production processes to be used. The responsibility of the production
engineers is therefore great in relation to this important problem of the organization for
operations. A firm foundation for this organization must be made by providing for a careful and
complete analysis of each phase of the manufacturing processes by the production engineers.
The most advantageous arrangement of departments and machines must be determined. The flow
of work must be studied, each work process must be reviewed, the machinery and equipment
itself must be reviewed. The machinery and equipment must be studied from the viewpoint of
whether they are the most adequate for the work expected to be performed.
In general, the requirements of an effective operating organization demand that these factors be
considered.
1. The desired capacity of the plant and future estimated capacity.
2. The manufacturing schedule divided into the number of parts and varieties of sub-
assemblies or finished products to be made.
3. A list of parts or materials to be used in making the product in order to determine
which are to be purchased from outside sources and which are to be made by the
company.
4. A list of the production equipment and facilities required for the desired production
capacity.
5. A study of manufacturing and assembly operations necessary to make the final
product. This would be necessary in order to check on the proper spacing of
equipment.
6. The time interval required between successive operations to check on the need for
and location of storage spaces.
7. The sequence of operations in manufacturing and assembly shops in order that
departments and equipment will be put in logical and convenient relationships so as
to obtain a progressive flow of materials.
8. Department space required to house production equipment and provide space for
aisles, storage, or sub-departments.
9. A review of various operations in the processes to determine whether certain
departments should be isolated from others for reasons of safety, noise, special
process needs or others.
10. A summary of floor space needs of the plant as a basis for estimating future needs in
the event of an expansion of plant.
- 141 -
After the plant layout has been studied, the next problem to be faced is the determination of the
main channel of flow of materials. This is usually represented by a diagram called a flow chart.
The factory shops, their areas and locations, and the arrangement of service facilities are drawn
on the chart, although more detailed charts will also show each machine and piece of equipment,
its type, physical outline and arrangement. From such pictures as these it is relatively easy to
determine the most desirable arrangements of machines and facilities. A study of the flow charts,
with the possibility of making trial arrangements on paper before making actual physical
rearrangements in the shops, will help to anticipate layout difficulties and thus to avoid them. It
will also help to determine the layout which will make the best, most effective, and most
economical use of the available floor space and the one most suited to the production processes in
use.
The type of factory layout that is becoming most widely used in industry is the so-called straight-
line-production. In this system materials always move in one direction. There is no
backtracking, but rather a continuous flow from the point of entrance of materials to the point of
shipment of the product. The machines and equipment are arranged along the line of travel of the
product. Mass production organizations are the typical users of this arrangement because (1)
there is a minimum amount of material handling, (2) this type of production is easier to supervise,
and (3) production costs are usually lower.
In a second type of layout, called the Jobbing layout, all similar types of machines are grouped
together in one place and the materials are moved from one group to another during the
fabrication of the product. Figures 412 and 413 indicate the elements of these two systems.
The main disadvantage of the line system is that it is more expensive to install and there may be a
duplication of equipment. This is avoided in the jobbing layout where the principle advantages
are the possibility of making the maximum use of the factory machines, the eventual
development of skilled operators, and a high degree of flexibility capable of taking on different
varieties of products.
The selection of the most advantageous production system will be made, as was said before, by
the production engineers after their careful study of flow charge and the actual manufacturing
activities involved.
When the system has been selected and put into operation, when the work is being executed,
management must then turn to the fourth element of Operations. In performing work follow-up,
management measures the accomplishments of the operating organization. The modern tendency
in industry is not to judge, but rather to measure the results of efforts.
In this regard, it is necessary to distinguish the difference between the collection of data and
measurement. Industrial data are generally an accumulation of results gathered over a period of
time. Thus, the facts represented in a balance sheet, a sales report, or a statement of labor costs
for a month or any other period reflect a certain condition and for many purposes are quite useful.
But, these statistical data gains in importance, and they become useful as a measure when a
comparison is made to established standards. This is one of the primary reasons for the
establishment of standards of performance, such as inspection standards, standard costs, standard
material usages, etc.
- 142 -
A more common and sometimes even more useful method of comparison is the use of ratios. For
example, a balance sheet is a statement of the accumulated values of assets and liabilities. The
difference between the liabilities and assets is a measure of the prosperity of the company. But,
from the balance sheet other comparative data can be taken and used to measure other
characteristics of the enterprise. The ratio, current assets/current liabilities, is considered a
measure of the borrowing power or credit risk of the company. In the United States a figure of 2
for this ratio is taken to indicate a satisfactory loan risk. A company whose ratio figure is less
than 2 would be less likely to receive a loan.
However, current assets may include items that can be quickly converted to cash as well as those
which may be classified as long term assets. Some banks prefer a ratio of, quick assets / current
liabilities, as a measure of borrowing capacity. In this case a figure of 1 or more indicates a
satisfactory financial condition.
Continuing this same idea, a series of ratios have been worked out for the measurement of the
various conditions of the enterprise. The information for these ratios comes from the balance
sheets and other records of the company. These ratios are:
1. Earning Power
net worth
profits net surplus
2. Profit on turnover
business of volume
profits net surplus
3. Operating efficiency
capital total
profits operating
4. Profit earned on turnover
business of volume
profits operating
5. Capital turnover
capital total
business of volume
6. Results of merchandising
business of volume
earning gross
7. Trend of operating results
business of volume
expenses and costs
8. Effect of general policies
sales and investment
expenses property
9. Cost of borrowed capital
borrowed capital of amount average
funds borrowed of cost total
10. Cost of total capital
capital total of amount average
net worth on return fair
plus capital, borrowed of cost
11. Inventories turnover
receivable accounts of amount
year for the sales of cost
12. Use of capital in receivables
receivable accounts of amount
business of volume
- 143 -
13. Turnover on fixed property
investments
equipment and plant in invested capital
business of volume
14. Credit condition
s liabilitie current
assets current
It is extremely difficult to set up industry standards against which these ratios of any individual
company could be compared. Perhaps the most common method of determining a standard for
this case is to take an average of the values obtained by other companies. But there are some
precautions to be noted if such a method is to be used.
1. A large number of balance sheets should be taken from several companies for
summarization purposes.
2. The companies supplying the data should be in a sound financial condition.
3. The different companies should be operating under somewhat the same conditions of
operations.
4. The balance sheets needed should be of recent date.
5. The deviation of individual company ratios should not differ greatly from the average
of all of them.
6. The accounting methods used in the several companies in question should be similar.
7. The business policies that affect the value of the ratios should be similar.
8. The products manufactured and sold should be similar.
The conditions stated here are of course severe. Perhaps they are so severe as to make it unlikely
that a true standard value can be set up. But in the final analysis, a wise manager will try to set
up ratios based upon an analysis of his own business which shows what he must do to make a
profit. He will not be misled by a blind following and acceptance of what someone else is doing
something that may or may not be applicable to his own case.
2. Build for the Future
In this top management group which has devoted these past weeks to the study of modern
scientific principles of industrial management are representatives from every size and type of
communications equipment manufacturing concern in Japan covering the fields of telephone,
radio, vacuum tubes and parts.
Your industry is made up of a large number of independent companies competing for government
business, consumers markets, and foreign trade. Some of you have already begun to find
practical application for the things we have discussed. However, many of you are wondering
whether and how far you can apply these principles in your own companies. Even though you
are personally convinced that practical steps can be taken we realize that you also have the
difficult task of convincing other members of your company's top management that the
principles are not only workable but are also necessary for your survival.
Throughout the course, as you know, we have presented relatively few things that are new to you.
Rather we have attempted to analyse and develop, through scientific approach, the way all of the
- 144 -
many and varied activities, functions and personalities that make up management can be
coordinated into a live, smooth-working unit for the attainment of company objectives. And as
top management executives we believe you realize that the only way you can be sure of
accomplishing these objectives is through a positive, forward-looking approach in coordination
on your part. This is one of your major functions. But, as you know, we do not mean complete
domination and personal control when we use this term.
This course in industrial management has been the easier part of the job. From here on out is the
hard part. We know that it will not be easy to find ways to overcome tradition, to modernize the
thinking and action of your company executives, to apply these scientific principles. But the
extent to which you can accomplish these things will be a measure of how much analytical
thinking for yourselves has been stimulated by the work we have done together. We believe you
are convinced of the need for action and that you can bring about the establishment of both
immediate and long-range objectives within your companies aimed at better management.
We are interested in providing practical material which may be helpful to you both in "selling"
management modernization to other executives and lower management levels, and in providing
some checks that you can apply to the things you are doing. To this end we requested, and have
obtained approval from, an American magazine, "Modern Industry", whose aim is to reach "all
management men concerned with making and marketing better products at lower costs" to reprint
digests that will be helpful in the presentation of the modern industrial management concept to
the Japanese Communications Equipment Manufacturing Industry.
Particularly appropriate in consideration of the problems of Japanese companies in improving
their management is an article appearing in the March 15, 1949 issue of Modern Industry under
the section devoted to "Men and Their Methods". This is a factual report on what one company,
Harris-Seybold Co. of Cleveland and Dayton, Ohio has actually accomplished in three years
under the guidance of an alert and aggressive top management headed by George S. Dively as
president.
We were especially interested in this report for two reasons. First, the company is not large. It
has only about 1,800 employees but now does a twenty million dollar annual business. Second, it
manufacturers a variety of products including printing presses, power paper cutters and allied
graphic-arts equipment. Such equipment is not in any sense mass-produced. Individual orders
are not for large quantities of any single product. Further, the manufacturing interval on most of
the companys products is quite long. The essentially job-shop nature of the business and long-
cycle type of operation make one of the most difficult combinations for management planning
and control. Now let us look at what this company management has actually accomplished in
spite of what might have been considered too tough a job to handle.
Dively calls their method "Programmed Management", and it grew out of the conviction that you
cant set consistent policies unless you have a goal. With programmed management the company
has solved the problem of how to set a practical goal as well as how to guide and control
operations in reaching it.
- 145 -
The structure of this programmed management has four main phases:
a. A Five-Year Guide
This is the responsibility of top executives and the directors. It is evolved from studies of
existing practices and policies, from research into markets, products, finance, and business
cycles - anything that will contribute to the arrival at sound planning.
b. A One-Year Operating Objective
Guided by the five-year program, executives of sales, service, engineering, manufacturing
finance, and personnel, take a hand in setting the annual objective. The president, aided by
the director of planning, coordinates the various departmental objectives, arriving at a
realistic annual operating target. It is authorized by the directors.
c. A Quarterly Budget Plan
This sets goals for shipments and earnings and all major operations on the basis of meeting
or bettering budget objectives on productivity and cost. It is largely developed by the
director of planning in close collaboration with administrative executives. It is tied in with
the annual goal.
d. Monthly Budgets and Control
Fitting in with the overall program, its main purpose is to check day-by-day operations.
The financial department is primarily responsible for analyzing results and ferreting out
trends. These trends must be known both up and down the line so that quick action may be
taken.
This company considers research to be the strong arm of both planning and development.
Progress is carefully watched in four research branches that are felt to be vital. These are:
(1) Product Research
(2) Market Research
(3) Industrial Engineering Research
(4) Management Research
One of the important items among the projects was the shift from committee management
to line and staff. This shift was considered essential to the programs success. The
president thinks top management might well put much more of its time on planning. He
knows it is impossible to do so if leaded with details. Therefore, through the line
organization he delegates responsibility, dealing principally with eight executives. This
leaves him relatively free to look into the future and think how best to prepare for it. He
considers that "it is important for subordinates to develop the capacity to take responsibility
and make sound decisions".
- 146 -
But delegated responsibility requires constant check to see how well it is carried. In
addition to personal contacts, information comes to the president through reports that give
him what he needs to know in a matter of minutes. Conciseness is demanded.
As every executive knows, it is one thing to delegate responsibility, and quite another to
make it stick. Dively has devised several schemes to keep responsibility pinned where it
belongs. For example:
Associates are dissuaded from running to the president with day-to-day questions by
the simple expedient of refusing to answer them, except in an emergency. He is
willing to spend all the time they want exploring the possibilities of an idea, but he
wont say yes or no.
If you, a line executive of Harris-Seybold have a question to ask you dont. Instead you
convert the question to a written recommendation and submit it for approval. You get the
facts, think the problem through, make up your mind and stand or fall by your decision.
Having put your idea on paper you sign your name. So do those who must approve and
authorize it. Once authorized, men concerned are responsible for putting the
recommendation into effect.
In addition to keeping responsibility from climbing back on the presidents shoulders, this
recommendation system has other merits. It is a most effective tool. It provides a means
for management to give direct credit for a good piece of work; and gets positive action.
And, since all recommendations do not have to have the presidents authorization, he is
spared time and distraction, because the majority of papers never reach him.
At Harris-Seybold, areas of command are well defined. Every supervisor knows what is
expected of him. He knows it because he had to work out an outline of his duties, aided
and checked by his superior, the personnel department, and an outside consulting service.
But this does not result in complete restraint of the supervisor within tight boundaries. In
speaking of this, Dively commented:
"Ive never felt that I knew enough about any mans job or his potentialities to put a
frame around him. We leave a twilight zone around every (supervisory) job
definition to give the more competent man room to expand and the less competent to
shrink, without stumbling over each other."
He wants freedom for himself and thinks everyone else should have it. Great stress is put
on raising a healthy crop of younger executives to mesh with the more experienced men in
developing a well-rounded corporate personality. But youth, with its enthusiasm and
aggressiveness, must be counterbalanced with experience. The Board chairman, vice-
president in charge of sales, and vice-president in charge of engineering have combined
service of 115 years.
Like-mindedness is not required. The executive staff is composed of eight quite dissimilar
men. This dissimilarity serves the company well by giving it the benefits of diversified
thinking. Nor is paternalism encouraged. The president considers that good employee
- 147 -
relations are best served by paying wages that are as high or higher on the average than
those paid for similar work in cities where the company operates; by promoting within the
"family"; by training supervision to apply real consideration to human problems; and by
doing a good management job not only for stockholders and customers but for all
employees.
Recognizing that two-way communications does not always flow freely, the president
meets frequently with employee groups. One of the most effective practices is the open
forum. Periodically, following a dinner get-together, written questions submitted,
unsigned, by supervisors have to be answered on the spot by the executives. Employees
thus get facts from the top, while top management gets a check on problems and policies
down the line.
Incidentally, one of the objectives of the Five-Year plan was to achieve a physical volume
2 times the pre-war average. This objective has been reached in three years since
"programmed management" was initiated.
A second article, in the July 15, 1949 issue of Modern Industry under "Executive
Methods", outlines 12 tests of a good organization. We particularly recommend that you
study these tests and compare them not only with the principles we have discussed, but also
with your present organization. And then, from time to time, check your progress by
applying these tests to the job you are doing. As you will see in analyzing these tests they
are not just "something that came out of a book". They represent the experience and
viewpoints of many executives in American companies who have gone through the things
your companies are faced with this minute.
Now what was the approach in the development of these twelve tests. Modern Industry
presents it this way:
"If we think of organization as a frame in which people can work happily and
productively, then we can judge how good our own organizations are, and how they
can be improved.
That is the point of view from which the following 12 standards have been
developed."
a. The organization is in tune with the new Problems and Tasks it faces.
Importance of industrial relations, public relations, and research has grown
enormously in the past 15 years. But in many companies their authority, standing,
and financial support haven't grown accordingly. They need strengthening as the
problems they deal with grow in number and size.
Also, new conditions have created new management functions. Control, product
development, training, and security are typical. They should be given place on the
organization chart, and recognition in line with their importance.
- 148 -
One sign of a good organization is willingness and ability to change as problems
change. If the weight of a problem isn't matched by the weight in prestige,
authority, and manpower of the department that handles it, the company is in for
trouble solving it.
Comparing the organization with the conditions it's called upon to face should
include a study of fundamentals. Is the straight-line type, the functional type, or the
line-and-staff type best adapted to life in a competitive world?
A line organization can move fast, and responsibility is clear. But line-and-staff can
free top executives from detail and bring expert knowledge to bear on critical
problems.
Each firm will decide according to the conditions it faces. But it's important to raise
the question.
b. The people who are Responsible for Results have enough Authority to get Results.
This is another way of saying "Responsibility must be matched by authority".
It's not a new point. Sometimes it's considered trite. But it's basic, and more
important now than ever.
The competitive era puts a high premium on flexibility. Yet no sizeable business can
be flexible if key executive are loaded with detail that should be handed to others; or
if the top man insists on supervising the routine of all departments. The only way to
cure either condition is through real delegation, where both authority and
responsibility are passed to someone down the line.
Flexibility usually calls for decentralization of authority putting authority as far
down the line and as close to the scene of action as circumstances and the abilities of
subordinates allow.
One warning: Authority and Responsibility are team mates; authority without
responsibility is as bad as its opposite. Encouraging people to assume more
responsibility is one of today's great challenges to management.
c. The Company has a Program, formal or informal, for Training and Broadening
Executives.
Competitive pressures in a fast-moving world bring out the shortcomings of the
narrow specialist and the merits of the man with wide knowledge and broad point of
view. But such men don't "just happen". They are created, either by themselves or
by pressure from someone else. In either case, it's important to provide the
opportunity for broadening.
- 149 -
This can take various forms. Larger companies can run their own development
programs. Even a regular Monday morning discussion hour in the presidents office,
built around planned reading of key books and periodicals, is infinitely better than
nothing and any company can afford it.
As William B. Given Jr., president of American Brake Shoe Co., observes:
"Intelligent guidance and development of those under him is the boss's most
important job. Today a company cannot afford the extravagance of managers who
are not competent teachers."
d. The organization can adjust itself swiftly to meet new conditions.
This is a critical test that will grow in importance as competitive pressure grows.
In a flexible organization, men and functions from different areas can be welded into
an efficient team on short notice. Flow of ideas and information across formal lines
is continual. Controls at the top are simple but effective. Authority is decentralized
well down the line, at the scene of action.
Such an organization can move fast in an emergency, turn around twice while
competitors begin to turn once. Yet it's difficult to achieve with a large concern,
because of specialization in the personnel.
As one answer to this problem, Dr J. Elliott Janney proposed what he calls "the
industrial equivalent of the Navy task force".
"One of the problems of the specialist" he points out, "is that he becomes so absorbed
in his techniques and so deeply identified with his department that he loses sight of
the company objectives.
"The basic principle of team work is identification. Where you have teamwork, each
member of the team feels that he belongs to a group that is bigger than himself he
puts the good of the group ahead of his individual desires.
"During the war, the Navy detached specialized units from their regular departments
the battle fleet, the air arm, and the submarine service and organized them into
a combined fighting force to carry out certain special assignments.
"We need to do more of this in business. We can apply the Navy task-force idea by
giving men from various departments a chance for common achievement in solving
difficult problems.
"Advertising agencies do this frequently, when they discard departmental lines so
they can organize working parties to handle a particular account.
- 150 -
"An example from industry is the small tool company where the customer-service
section, technically a part of the sales department, is integrated with the mechanical
superintendents section in manufacturing. With this relationship, the two work
together effectively in solving tricky problems that come upon metal working plants
using the product."
e. The organization chart is strictly up to date.
Some sort of diagram showing lines of authority and responsibility is needed in all
but the smallest companies, where one executive does everything.
Trouble appears not when charts are used but when they're misused when they
become an end in themselves, and are regarded as finished products not subject to
frequent change.
Charts need to be approached with reservations. They should, for example, be used
as a general guide to company structure; but never to discourage an informal flow of
information and ideas through channels outside formal lines of communication
between all ranks.
More important, the formal organization chart and the "informal organization" of the
company should be parallel.
Another way of saying this is: Among the people in every organization, there is an
informal group of relations that "just grows". It is built on personalities and
individual abilities, and on the requirements of the work to be done.
Thus, it is a natural setup that no amount of force can twist to fit a formal
organization that differs from it. You can see the informal organization at work in
any plant or office in the way people group themselves into teams, seek out certain
lunch companions, decide whom they'll go to for advice, counsel, or support.
If formal and informal organizations didn't match, the formal organisation would
mean little because people would tend to ignore it. But if the right men are chosen
for leadership jobs, and if the formal organisation is fitted to the work to be done, the
two organizations parallel as a matter of course.
Normally, an organisation chart is plotted by progressing from top positions to lower
ones. But one company thinks it should be done from the bottom up because it's then
more likely to fit the facts. When subordinates are asked to whom they report on
what, the answer may include more people than their immediate boss would name.
f. An organization manual has been compiled and it's revised often.
An organization manual goes a step beyond an organization chart, but the same
principles apply. Putting down in black and white the responsibilities and authority
of each function clearly, definitely, and in detail is a move many companies are now
- 151 -
making for the first time. Prepared correctly, and coupled with a statement of the
companys objectives, a manual is an essential management tool in all but small
companies, where personal contact makes it unnecessary. It offers assurance that
assignment of functions is logical, and that no overlapping will occur on some
matters while others fall in the middle.
If the organization is basically good, manuals can go a long way to pull it together, to
speed up decisions and improve their quality, and to pin down responsibility for
results.
Even more than with a chart, a manual must be kept up to the minute. Changes
should be made regularly and frequently, as conditions change from month to month
or week to week. Nothing is more confusing than an outdated and unrealistic
organization manual.
To make sure that all copies of manuals are up to date, some companies provide them
in loose-leaf form; executives receiving revised sheets must send back old sheets.
Another company pays employees for pointing out that some regulation or procedure
in the manual is unnecessary, just as it does for a more conventional type of
suggestion.
Having the men write their own job descriptions is a good idea. It will reveal their
blind spots and weaknesses; at the same time, they will include matters that the boss
might not think of. And as in other activities, men who take part in shaping it
develop loyalty and support for it.
Even if a manual is thrown away when completed, it is worthwhile. The more
activity of working on it helps to bring understanding and develop teamwork in an
organization.
g. A limited number of people report to each executive.
How many subordinates an executive must deal with directly is one good test of how
well authority and responsibility have been delegated.
Experts consider from five to eight the largest number desirable. However, the right
number varies with the work, the position, and the ability of the executive.
The chances are that a chief executive with more than six reporting to him is too
pressed to do his Number One job planning as well as he should. But if he is
unusually able and blessed with self-reliant men, six might work very well. And
eight or more reporting to him is practical for the department head whose
subordinates' duties are generally routine.
The number of men reporting to chief executives needs close study in every concern.
Most authorities agree that one of the glaring organizational faults today is the
number of top men who "don't have time to think". Only relief from detail will give
- 152 -
them the time. Because of this, one school of thought holds that the higher the
position, the fewer should be the men reporting to the executive who occupies it.
h. The duties of each executive are logically related.
As everyone knows, peoples interests, abilities, and knowledge move in channels.
Mental equipment thats good for sales promotion work isnt likely to be right for
research or credit management. So good organization sees that the duties of each
executive call for related points of view and knowledge, and that the man who gets
the assignment has the abilities needed.
The organizations size has a bearing here. Large firms can go in for narrow
groupings of duties because they can afford specialized executives. But smaller
concerns must work with broader classifications and require more versatile
executives. As Marvin Bower, of McKinsey & Co., puts it:
"In developing the organization plan, judgement is needed in striking a proper
balance between higher costs resulting from overspecialization, on one hand; and, on
the other hand, higher costs resulting from ineffective supervision of too many
activities."
i. Responsibilities are assigned clearly and definitely.
Certainly, this is one of the key factors in good organization. But to think of it as the
most important point, or the only point worth worrying about, is a mistake. No
matter how sharply responsibilities are assigned, they mean little unless the
organization is staffed with people able, and in particular eager, to live up to them.
One cause of diffused responsibility is overuse of committees. Well handled, a
committee can be fine for generating ideas and getting reactions. But its a doubtful
instrument for making decisions. And it cannot act effectively.
If a company has a ponderous line-up of committees, and if executives spend a good
deal of time in meetings, then its likely that decisions are being put off and
responsibility for results is fuzzy or being dodged altogether.
To quote Mr Bower again:
"Organization establishes positions, which consist of logical groups of activities that
need to be carried on.
"If the grouping is fitted too much to the particular man who is to fill the position,
others cant be trained well for it.
"If the activities assigned to the position are not clear, duplication may result,
confusing and frustration are inevitable, waste follows, and corporate politics will
usually not be far behind."
- 153 -
j. Communications among people in the company are good up, down, and sidewise.
Communications are the rivets that hold an organization together, without them, it
falls apart.
Good communications meet two specifications:
First, the channels provide a two-way flow in all directions. They lead to and from
the executive's boss, his subordinates, and men on his own level up, down, and
sidewise.
Second, the communications are designed as a means to an end to develop
understanding. Words are only the tools. A communications system may carry a full
load of words. But if the words that flow through communications channels fail to
develop understanding a feeling of participation and teamwork the system is
useless.
k. Proper balance is maintained between flexibility and control.
Because a competitive era calls for every bit of initiative and ingenuity possible,
flexibility in an organization is a "must". But so is some sort of control over it.
In small companies the problem may be minor. Personal contact is frequent, and it is
relatively easy to keep track of what is going on. Larger companies, though, must
depend on formal practices and procedures for control which they get all too often
at the expense of flexibility.
Less attention to control, and more to morale and outlets for initiative, would pay
many times over. True controls, those that really count, lie in the attitudes of people.
Elaborate cost controls mean little in an organisation of extravagant-minded people.
But an organization of profit-minded people has strong cost controls regardless of the
strength or weakness of its formal cost-control system.
l. Key executives realize the importance of human relations.
An organisation is, in the end, nothing more than an arrangement that makes it easier
for people to work together happily and productively. So it can be no better than its
human relations notably, those of the people at key points. They like people, get a
kick out of giving others a sense of participation.
Nevertheless, some executives act as if they just don't like people and want as little as
possible to do with them. Businesses can no longer afford to put up with this
dangerous attitude.
The great unsolved problem of management is that of getting people to work together
productively. Their attitude toward the boss is the key to its solution.
- 154 -
m. Toward better organization.
Said the late Harry Arthur Hopf, the great management authority who formulated
these points:
"It is my conviction that if progress is to be made in organization, executives must
subscribe wholeheartedly to the truth of these tenets and always act upon their
implications."
(1) To adhere to the substance of organization, rather than to worship the form in
which it is cast.
(2) To view organization as a means to an end, rather than as an end in itself.
(3) To recognize the values inherent in improvisation, rather than to rely
exclusively upon the virtues attaching to organization.
(4) To insure liberation of human energies, rather than their suppression or
regimentation.
(5) To respect the authority of knowledge, rather than the authority of position.
(6) To strive for the maintenance of loyalty on the part of executives to their
subordinates, rather than stress the essentiality of the reverse process.
(7) To develop well-rounded and intellectually well-balanced executives, rather
than one-sided and narrow specialists.
(8) To imbue executives with a spirit of tolerance toward one another, rather than
permit the existence of conditions productive of intolerance.
(9) To inculcate in the minds of executives the wisdom of rendering themselves
dispensable, rather than of cherishing the illusion that they are indispensable.
(10) To sacrifice almost any other value rather than cause injury to the foundations
upon which inspiring leadership rests.
"Modern Industry"
n. Appraising an organizations leadership.
An organization can be no better than its leadership. Here are 18 tests for measuring
a leader. They were developed by Carl F. Braun, president, Carl F. Braun & Co.,
Alhambra, Calif., producers of processing equipment.
- 155 -
(1) Do we like him, like to have him around, find him restful to be with? Or does
he stir up resentment by untactful criticism, by pushing himself forward too
much, or by other inconsiderate conduct?
(2) Does his eye seem to be fixed chiefly on his job and on the welfare of his
people? Or is he concerned rather about himself and his own welfare?
(3) Does he work well with other leaders? Or does he have a tendency to work in a
corner?
(4) Does he run his job? Or does it run him? Does he take the proper time for
organizing the work? Or does he simply attend to the daily things that press
upon him?
(5) How well does he organize the work of his group in writing?
(6) Is his ability to write in keeping with his job?
(7) Is he good at presentation in general?
(8) Does he have the qualities of a good teacher, imagination among them? And is
he consistently developing these, and applying them?
(9) How well does he maintain discipline? Remove the unfit?
(10) How much studying does he do relating to the purposes of his department?
(11) How much studying does he do relating to general social problems as
covered, say, by psychology, sociology, ethics, economics, philosophy, and
such other social sciences as apply to our work?
(12) Does he have a natural sympathetic understanding and interest in people in
individual people and their needs and problems?
(13) Does he have the enthusiasm and other qualities that create an atmosphere of
interest and friendliness an atmosphere that promotes spontaneous
cooperation and effort?
(14) Does he have the qualities of calmness, stability, steadiness, and fairness
qualities that invite confidence, that enable his men to work without confusion,
apprehension, or distrust? Or does he tend to go to extremes? Or, by a too-
nervous activity, keep people in confusion and unrest?
(15) Does he have a good sense of proportion, distributing his time, his interest and
his sympathy, fairly over his whole job? Or is he prone to favoritism either of
work or of people?
- 156 -
(16) Can he think clearly and justly, and without undue emotion?
(17) Does he have imagination for new possibilities, improved means, better
methods? Or does he just follow the rut?
(18) Does he have the ability to make decisions on insufficient evidence, and the
faith to act on probabilities?
o. Before leaving these tests let us look at a few statements by experts given in the
presentation of this article:
"Organization is a problem in human relations."
Dr J. Elliot Janney of Rohrer, Hibler and Replogle
"Organization deals with human emotions, ambitions, and personal effectiveness.
The organisation plan is the harness within which men work."
Marvin Bower of McKinsey & Co.
"Organization is not a cold organization chart and a cold manual. Its the welding of
a lot of personalities into a smoothly functioning unit. Organizations are men and
women, and they are all different individuals. The best plan in the world wont work
if the people dont."
Robert C. Trundle of Trundle Engineering Co.
p. The above articles were digested and incorporated as a part of the Industrial
Management training course of CCS, GHQ, SCAP with the approval of H. E. Blank
Jr., Editor of "Modern Industry" in memorandum dated 19 September 1949 to C. W.
Protzman.
3. Establish the Elements for Success
Repeatedly, in our consideration of management principles, we have referred to coordination as
one of the basic responsibilities of all management employees. One definition of coordination,
which is appropriate in the consideration of operations, is:
"Coordination is the process of bringing all the functions and operations into harmonious
action for the effective achievement of the companys objectives."
You will note, in studying this definition, that it is positive. Someone has to actively do
something. Actually, every management employee from the president to the foreman must bring
all the functions and operations of his immediate subordinates into harmonious action. He must
be able to take all of the individuals who make up his subordinate group, an organization form
that has been planned, and inanimate machines, tools, materials, etc., and weld all these things
into something which has unity of purpose and life.
- 157 -
The managements of the most successful companies have learned that no matter how mechanized
an industry becomes, people never become machines. In order to achieve the most lasting
success, they must make of the business something that recognizes people something that is
human. And the more complex and mechanized the business, the greater is the need for emphasis
on human values.
But how is this accomplished? We will consider three specific yet closely inter-related items in
our attempt to find an answer to this question. They are:
Leadership
Teamwork
Communications
a. Leadership
In the old days in industry, the term "leader" was synonymous with "boss". And the "boss"
was an autocratic ruler who considered his subordinates as mere cogs in his industrial
machine. He was supreme, and his people obeyed his dictates as automatons and
frequently without even thinking for themselves.
But times have changed. Management people are coming to realize that this old style
"leader" or "boss" was not truly efficient and that his concept of management was unsound.
People sometimes have to submit to autocratic domination because of economic conditions.
But they do not like it and develop a passive resistance which lowers efficiency. In time,
their resentment may flare into rebellion. One of the early causes of employees forming
unions was just such rebellion. Even today we see examples of dissension between
management and the union because either one group or the other is taking an arbitrary or
dictatorial stand and inevitably this is resented by the other group. And while such
resentment is usually not as obvious within management groups, you can be sure that it is
there, and just as strong, if the "boss" is autocratic. Because, after all, even supervisors are
people.
An excellent review of the things it takes to be a leader in the newer concept was published
in the magazine, "Modern Industry", in the April 15, 1949 issue
. Since it is so well
presented, it is incorporated here in briefed form, both as a summation of modern concepts,
and as a yardstick for measurement of your own position.
"Executive leadership the leadership needed to manage organizations is different
from other kinds of leadership, and more exacting.

Incorporated with permission of "Modern Industry"

- 158 -
"Leaders in other fields can often lead through intellectual ability alone. But thats not
enough for executive leadership. Nor is pure administrative skill. Any large organization
contains examples people who are good at getting things done themselves and at
organizing simple tasks for others, but who clearly lack the golden quality of leadership.
Nor is ability to handle people enough, if other qualities are absent.
"True leadership in executive management demands more than intellectual ability, or
ability to handle people, or administrative ability, it requires a combination of technical
skills and personal qualities that includes all three.
"Some of the leader's technical skills are in areas of management. These consist of the
knowledge of marketing, production, personnel, finance, purchasing or other function that
is needed to run a department or the division or the company. While many men have made
good in executive work without initial knowledge of the technical side, it is nevertheless a
big help to have this information at the start. Usually, it's required even to get that start;
and sooner or later the man must acquire it. The sooner he does it, the better, of course, for
himself and his firm.
"Another kind of technical skill is administrative. This includes knowledge of organization,
of how to delegate, of how to pay out work schedules, of how to select, train, and develop
people.
"These skills, too, can be acquired. No one is born with them. Every leader had to learn
them somehow.
"And what one can do, many can do.
"But technical skills are not enough. True executive leadership has something above and
beyond them that can only be described as personal characteristics.
"Many of these cannot be learned; people either have them or do not have them. On the
other hand, it is possible to acquire some of the personal characteristics of leadership, or at
least compensate for the lack of them. They are latent in a great many of us, awaiting only
awareness of what they are, of their importance and of ways to develop them.
"What research psychologist say, when you translate their terminology, is that the
personalities of the leader is the element that set him apart from other people in these ways:
They trust him.
They will follow him.
They have confidence in him.
They will submit voluntarily and eagerly to his direction.
- 159 -
"In short, the personality of the leader is made up of his point of view, his attitude, and his
actions toward other people. The central, basic fact about him is this. He is a leader
because his attitude and actions make other people willing and eager to follow him. This is
why he is so effective in handling people, in getting them to do what he wants them to do.
"What are these attitudes and actions? What are the personality guideposts to executive
leadership?
"No truly scientific answer exists. Research on the subject, though greatly needed, has only
just begun. Yet a practical answer, close to the truth, may be found by combining existing
psychological research data; studies of human motion and human motivation; surveys
among both leaders and followers; intensive interviewing among both leaders and
followers; intensive interviewing among a wide range of business executives; and a liberal
seasoning of direct experience and a observation.
"These add up to the following personal characteristics of true executive leadership:
"1. He is dynamic
"The quality of being dynamic or active is characteristic of all true leaders of men. It cant
be acquired.
"The quality of being dynamic means striving always to drive ahead, to break new trails, to
engage in new ventures, to discover new things, to move into the unknown. It is a desire
for change, scepticism of things as they are, an urge to stay ahead, to do better, more
ambitious things. It is a wish for growth and an abiding fear of stagnation. And it shows in
an urge to accomplish.
"Two points about this dynamic quality are worth particular attention.
"First, it may or may not show on the surface.
"Not all leaders, or even most of them, have high-pressure personalities; nor are all people
with high-pressure personalities leaders. Confusing high-pressure personality with
leadership ability is the reason for countless mistakes in assigning people to leadership
positions.
"The second point is a dangerous tendency, in some recent studies of management ability,
to play down the importance of this dynamic quality.
"Theres a trend toward putting most stress on the way the executive gets things done,
organizes his work, handles his people and applies his knowledge of organization and
detail.
"But unless he also has an urge to forge ahead and do new things, he is simply
administering things as they are and maintaining the status quo. In the end, he will
probably administer his company or organization right into the ground. Governments and
- 160 -
institutions are the great gathering places of this passive administrator. His eye is on a
pension, not on real progress.
"2. He has a strong sense of personal responsibility.
"The leader feels that he has definite responsibilities to the people under, around, and above
him. He feels he is answerable to them for what he does. He has a deep desire to live up to
their expectations, and to exceed them. Because of this, others find him dependable.
"Today, this leadership sense of responsibility is broadening. Not many years ago it was
limited to those immediately around the leader, or at most to the stockholders. Now this
sense of responsibility is fast being extended over other areas as realization spreads that the
great power held by the managers of industry must be matched by a sense of responsibility
equally broad and deep.
"The result is that the true business leader today makes his decisions on a far broader basis
and by drawing on a far wider range of facts. To satisfy his increasing sense of
responsibility, he must not only decide secretly from the standpoint of his associates and his
financial backers. He must also take into account the implications his decisions hold for
employees, the community, and the general public. Unless his decisions can stand up under
these tests, he is not satisfied.
"3. He earns the following of the people he leads.
"The first-rate executive leader, either instinctively or through experience, knows one thing
above all others: A leader cant be a leader unless he has followers; and followers, by
definition, follow voluntarily. A driver cannot be a true leader, and he cannot get the
results a leader will.
"Whether he does it consciously or instinctively, the leader uses a number of methods to
win followers.
"For one thing, he leads by letting others take part in the leadership. He takes his people
into his confidence, shows them where hes going and why, then gives them responsibility
and authority so they can help him reach the goals. He passes down the line the power to
make plans and decisions in order to develop a sense of participation among his followers.
"Also, he earns his peoples loyalty by being loyal to them. He knows that loyalty is a two-
way street. He stands behind their decisions because it develops their confidence and
competence, and in the end guarantees the highest possible number of right decisions: He
even supports occasional bad decisions in the knowledge that only inactive people avoid
making mistakes.
"In addition, he can inspire his people. But the method varies widely, depending on the
personality of the leader himself and the people and conditions he deals with. Sometimes
its done by pep talks, rousing speeches, or steady needling. More often, its by quiet hints,
- 161 -
indirection, setting goals for people that pull them into doing better than they realize they
can. Always he inspires his followers by showing confidence in them.
"He also leads by keeping a step or two ahead of his people, making them go forward
because he is ahead of them, pulling, rather than pushing from behind. But he is also
careful to keep within their sight; getting too far ahead of his followers is bad because it
confuses them.
"4. He has a strong feel for people.
"The leader is interested in people. He likes and respects them, and they do him. Because
he has developed the knack of putting himself in the other fellows shoes, he knows how
they react to different situations and how to use these reactions to get them to do what he
wants.
"Persuasion and suggestion are the two reins of leadership; commands or orders are used
rarely, if ever. He has tact, diplomacy, warmth, knowledge of motivation, the ability of
reading peoples minds that the psychologist calls social insight. He is thoughtful and
considerate of his followers. And he has a deep-rooted conviction of the dignity of man.
"At the same time, he isnt necessarily a good fellow. He knows that discipline of the right
kind and degree is important in reaching the goals he has set. Maintaining that discipline is
simple because he has the respect and liking of his group.
"5. He is competent.
"He knows his job and how to do it. He seeks to build other peoples confidence in his
leadership partly through sheer technical competence. He applies the principle of leading
by doing, but experience in watching the best of craftsmen fail as foremen has shown him
that this is only one side of leadership.
"He has organizing ability because the kind of leadership he must exert works only through
sound organization. He must lead through the leadership of those under him, which can be
done only if there are organizational channels for doing it.
"He has intellectual and creative capacity. Others in his group may exceed him in these
qualities. But the leader has the ability to draw on ideas and information from all sources,
to look at them from fresh angles, to synthesise them, and to come up with a final proposal
that wins the support of his group because it is better than any one of them could have
devised.
"6. He is adaptable.
"The methods of effective leaders change according to the people concerned and the
conditions that lie in the background.
- 162 -
"A sensitive subordinate requires one kind of handling, a man who takes the bit between his
teeth another, an idea man short in self-discipline still another.
"In the same way, the techniques of leadership that get results in a crisis may be bad for the
long pull.
The leader who can adapt himself to all conditions is exceedingly rare. This is why there is
so often a change of leadership in an organization when basic conditions change.
"7. He has strong and consistent standards of personal conduct and business
morals.
"High personal morals and good business ethics are the foundation of the kind of
responsibility the business leader must face today. He must set the pace and the pattern for
his group in conduct and methods as well as in goals. They must be in a consistent,
predictable pattern if his people are to follow the lead he gives them. Failure to live up,
himself, to the standards he sets for others is unforgivable in a leader.
"This characteristic of leadership high moral and ethical standards is clearly one
within the control of most people who want to be leaders. And it is one that they can
develop in themselves if they have the strength of will to do it, and if they can be made
to see the overwhelming need.
"Ethical and moral standards are one of the great differences between the man who exerts
real leadership and the one who, while possibly good a leading others, falls short of the
ideal.
"History is crammed with leaders who were false because they led to goals that are morally
wrong. Hitler and Mussolini were good technicians at leading people.
They knew all the tricks of the trade, and were masters at applying them. But the goals
they led to were false because they violated basic moral and ethical rules, and so they
failed.
"The same thing is true of Stalin and Franco, except that their lack of moral and ethical
standards hasn't caught up with them yet.
"8. He has character.
"'Character', in the last analysis, is the sum of many other qualities of leadership. It is made
up of
"Integrity a high set of moral and business standards.
"Consistency sticking to these standards, regardless of pressure or
the apparent value of expediency.
"Sincerity depth and strength of feeling.
- 163 -
"Responsibility dependability, feeling of obligation to other people,
refusal to let them down.
"Stability steady, consistent attitude toward developments and
people.
"Decisiveness ability to make decisions of a kind and in a manner
that win the confidence and backing of others."
b. Teamwork
It is a natural human trait, possessed by every one of us, to want to excel. We want to be
personally prominent, to achieve a position where we will stand out, where we will feel that
we are important, that we are necessary. In its most exaggerated form, this trait leads us to
believe we are the only one who can properly do the job, and that others with whom we
associate are all inferior in brains, ability or experience. Then we become the
"indispensable man", without whom no decisions can be made, no ideas worthy of
consideration conceived, and no sound action taken.
But along with this universal trait is another that is probably equally as strong. This is the
reaction any of us has in dealing with someone who considers himself "indispensable". We
resent the omnipotence of his decisions, and chafe because we don't have an opportunity to
express our own views, or show what we are capable of doing. And whether this person is
a superior, or an associate, we do not work together with him. As a matter of fact we avoid
him as long as he continues to take an omnipotent attitude.
However, no company can afford the luxury of permitting individuals to place their own
position or progress ahead of the good of the company, because when this happens, every
employee who has the ambition or desire to do so will have an example and precedent to
act upon his own private goal or objective. Usually, such individual goals are purely
selfish, and the result is a number of independent units or groups, each led or dominated by
a strong personality, and each going its own separate way without regard to the effect it
will have on other employees or on the company. Experience has shown, over and over,
that companies in which this condition exists will ultimately deteriorate and fail. This is
simply one of the economic facts of life that cannot be avoided or ignored.
When an individual goes to work in a company, his first interest is in making a living.
Next, he is interested in bettering his position or making a better living. If he is a workman
who is part of a group he soon realizes or is made to realize by his associates that his
contribution to the group effort is important because unless the job is done properly he will
soon be looking for another job.
But when this individual becomes a supervisor, a part of management, he often fails to
realize that he has assumed the obligation and accepted the responsibility of striving for
certain objectives of the company. These objectives are to meet the company's obligations
for programs, schedules, quality and costs. For the success of the company, and the
ultimate achievement of his personal objectives, he must work primarily for the company's
objectives. These can best be accomplished through teamwork, which can be defined as
follows:
- 164 -
"Teamwork is the work done by a number of associates, all subordinating personal
prominence to the efficiency of the whole."
If we consider this definition for a moment, we will see that teamwork is something that is
voluntary. We cannot depend on a law or a rule that says that we must have teamwork, or
cooperation. People must want to work together and must realize that by working together
they also have the best chance of reaching their own individual objectives.
But where must teamwork start? Earlier we talked about the fact that each of us, either
consciously or unconsciously, picks up mannerisms, methods of approach and ways of
doing things from those for which we work.
If our superiors are "indispensable men", then we also tend to be indispensable in the same
disagreeable and destructive way. On the other hand, if our superiors recognize the
advantages and the necessity of working together with their associates and subordinates,
then we tend to do the same.
So, for full effectiveness, teamwork and cooperation must be established by the attitude and
example of each management level from the president down. It must be encouraged by the
day-to-day manner in which every management employee does his work and deals with
other people.
The magazine "Modern Industry" established a research project some time ago in order to
determine what policy steps had been taken by successful American companies to develop
teamwork in their organizations. These were summarized in the Sept. 15, 1949 issue of this
magazine and are listed here as a practical reference based on accumulated experience in
progressive industries
.
"The complete report on MIs research project is available in Teamwork in Industry, by
William Sward, a Modern Industry Book published by Funk & Wagnalls Co., New York.
"Here is a summary of Sewards findings, which are based upon specific firms.
They include detailed case studies from such companies as Bulova Watch Co., Leeds &
Northrup Co., McCormick & Co., Metropolitan Life Insurance Co., Esso Standard Oil Co.,
Dennison Mfg. Co., Baldwin-Hill Co., The Kendall Co., Western Electric Co.
"If all elements of an organization employees as well as management are to be aware
that all have a responsibility in helping to make cooperation between management and
labor a daily reality, says Sewart, then management must be guided by 12 principles which
have been proved sound:

Incorporated by permission of "Modern Industry"

- 165 -
"1. Managements house must be in order.
"Before management may hope to bring about an improved labor-management relationship,
it must see to it that workers are paid fair wages and that good working conditions are
maintained.
"Provision should be made for such benefit plans as the situation demands, such as group
life insurance, health and accident insurance, and, whenever possible, for vacations with
pay, and athletic and recreational facilities.
"There should be a modern first-aid clinic with full or part-time services of a doctor as well
as of a nursing staff.
"2. There must be equal opportunity.
"Every worker must have the conviction that there is identical opportunity for all, that
management plays no favorites, that he has an equal opportunity to upgrade himself,
regardless of his present job or foreman.
"3. Establish promotion from within.
"The employee must be confident that whenever a new job is open in the plant, he will, if
qualified, have an equal chance with other employees to assume its duties and
responsibilities, and to realize on its larger opportunities.
"He must have the assurance that management, whenever possible, will promote from the
ranks and not go outside to fill a job, unless it calls for specialized skill or training which
cannot be provided at the plant or through the companys affiliates. That is concrete
evidence of the firms fair dealing.
"4. Decisions must be understood in advance.
"Every management decision that affects the employee in his daily job must be understood
by him, and accepted in principle, before that decision is formally announced and put into
effect.
"The bulletin-board notice or the formal announcement in the employee newspaper must
never be news to the worker but, rather, a formal confirmation of what he already knows
and understands.
"5. Management must keep workers informed.
"The worker has a natural desire to know all about those matters that concern his job, his
place of work, and the affairs of his company.
"It is to managements interest to see to it that he promptly gets accurate, straight forward,
and understandable information on all such concerns.
- 166 -
"Management must always be in a position to transmit information at the psychological
time not after the event nor so far ahead that its impact will be lost.
"6. Opportunity must be a reality.
"It is not enough to adopt the principles of equal opportunity and promotion from within.
The worker must know from actual experience that he really has the chance to get ahead.
"He must know that he may progressively advance from one job to the next, from one
supervisory position to the next higher one.
"He must be convinced that his ability to advance is dependent only on what he can do,
upon his willingness to train himself, and upon the condition of the business.
"Management must also constantly keep before workers the realization that there are other
opportunities than those that reside in the job itself, and that these opportunities are
desirable and important in themselves and help enlarge the opportunities of the actual job.
"7. Workers and management must keep in touch.
"The industrial plant is more than a place to work. It is a social institution.
"On both counts it is essential that management and the workers know what one and the
other are thinking about and doing.
"Neither workers nor management can do their best work unless the lines of
communication are always open in a two-way circuit from the bottom to the top.
"8. The worker must understand the job.
"No intelligent human being can be expected to devote himself enthusiastically to his daily
assignment unless he understands the relationship of that job, to all the others in the pattern.
"When the individual worker does grasp that relationship, he approaches his task with
greater interest and enthusiasm and is likely to be a better worker.
"9. Workers must be treated as people.
"In the century and more of our industrial civilization, the practice and principle of treating
workers as social beings has, when honestly carried out reduced labor troubles.
"It has done so because, in the very process, management has demonstrated to the workers
that, as social beings, both have the same fundamental objectives, the same hopes and
ambitions; that they have the same desire for recognition as members of a social group, as
citizens in a community, and as members of a family group.
- 167 -
"10. Workers need more than wages.
"Management must recognize the principle that the labourer is worthy of more than his
hire. He is worthy of compensation for more than a days work when he contributes more
than that.
"When the worker shares in the profits of the business, on whatever basis is deemed to be
fair and practical in a particular company, he becomes a better producer, because he has a
definite financial stake.
"When the worker can look only to wages for his compensation even though his pay
may be relatively high he does not have the same attitude toward his job as does the man
who can look forward to his fair share of what the business earns, over and above his pay.
"When a company makes it a practice to declare dividends for the workers whether
these dividends take the form of bonuses or a proportionate share in earnings or actual
dividends on stock held, or in any combination that is also, in effect, telling workers that
they are worthy of more than their hire.
"11. Employee representation: better management.
"When workers are invited and encouraged to participate in the affairs that concern them in
the daily jobs, they usually assume a greater sense of responsibility toward their work
because they, too, are managing.
"Employee representation means that the workers are given an awareness of their status as
members of the team.
"Accordingly they tend to develop a desire to do a better job for everyone on the team.
Employee representation helps release the potentials of workers, thus enabling management
to capitalize on employees' capacities for the benefit of the business.
"Employee representation, finally, has the effect of developing in workers the personal
pride that comes with participation.
"12. Management must look to own training.
In preoccupation with its many problems, including responsibilities to employees,
management is all too likely to neglect proper consideration of how its own representatives
handle their duties, and to training them for better jobs.
"Continuous training of management men is just as essential to the proper functioning of a
successful human relations program as is the day-to-day training of the men and women in
the shop.
"First, such training is necessary for the most efficient operation of the entire company.
- 168 -
"Second, training of management men emphasizes to all employees that neither training nor
opportunity stop when the management level is reached."
You will note that while the emphasis in this article is on management-worker
relationships, the policies that are outlined apply equally in the inter-relationships within
management. It would actually be impossible for the companies whose policies were
studied to develop these management-worker relationships without having first built up the
concept, recognitions and acceptances of these policies among management people.
c. Communications
The efficient operation of any business depends on the clear, understandable and rapid
transmission of: information and data (facts), instructions and orders, ideas, suggestions,
comments, and complaints or grievances between all parts and levels of the company. We
can call this an industrial communications system and it is the catalyst that makes
leadership and teamwork effective.
You will note that in defining industrial communications we say that it involves
transmissions, or communication between all parts and levels. It is not just a one-way
channel where the "boss", acting as a transmitter, broadcasts orders and instructions to his
subordinates and they merely listen and obey. Communication must be multi-directional.
In the case of every management employee, communications must go up the line to
superiors, down the line to subordinates and sidewise to associates on the same level.
Worker communications must go up the line as well as come down to them from above.
These must be definite, recognized "lines of communication" in industry just as in any
other communications system, and these must be properly maintained. In the case of other
communications systems we depend to a major extent on mechanized equipment to
mechanically and electrically make the connections. But in industrial communications, as
we are considering them, our major dependence is upon people.
Therefore, at the heart of industrial communications must be the recognition by every
employee that such communication is not only desirable but is, in fact, essential. The
sincere desire and effort on the part of every employee to keep all the lines of
communication open and working is the secret of success in this field of industrial
endeavour.
Making communications effective requires the transmission of ideas, information and
instructions in clearly understood form. The June 15, 1949 issue of "Modern Industry"
provides an excellent review of this subject. That article is summarized below.
"Success or failure of a company, or of an executives career, may depend upon a single

idea and how well it is put across by the man who had it.

Incorporated with permission of "Modern Industry"

- 169 -
"There is no market for genius in a bottle. Executive ability cannot exist in a vacuum. Like
a dollar bill, it is useless until it is put into circulation. And it should be noted that in the
world of ideas, as in the world of dollars, you cannot live forever on credit a promise to
deliver later.
"What to do with an idea after you have it seems so obvious like what to do with a dollar
after you earn it that many men are unaware they are spending their ideas foolishly
getting less than full value for the labour of their brains.
"When an individual develops a good idea, he's halfway to performing a valuable service to
his company and to himself, as well. The other half consists in getting the idea put into
action.
"The payoff comes, for both company and individual, when other people understand the
idea, accept it, and help put it in effect. This is true whether the individual is a top man,
giving leadership to the whole company, or a subordinate making a report and
recommendation to the top man.
"A scholar or a technical expert can often work up good ideas. A good salesman can sell
them. The man at the top, or the one heading for the top, should be able to do both if he's
to be a real leader.
"Unlike good looks, fortunately, ability to convey ideas effectively can be acquired,
cultivated, built up. There is an art of effective presentation.
"A handful of companies include some part of the subject in their courses in executive
training for men already arrived, as well as for those on the way.
"In a firm where the top man requires subordinates to present him not with problems but
with recommended solutions to problems, the executive down the line must know how to
make a good presentation.
"He cannot go to his boss and say, 'Here's my trouble; what shall I do about it?' He must
get his own answer, and he must present it convincingly or begin, after a few misses, to
look like the wrong man for the job.
"Such a system operates in the Bigelow-Sanford Carpet Co., where top executives are
expected to present problem solutions to President James D. Wise in such complete fashion
that he can decide 'Yes' or 'No' on the basis of the presentation made to him, without further
investigation, if he so wishes.
"Obviously the individual who may have a good idea but can't explain it or get it accepted
might as well have a bad idea or none at all.
"Fortunately, however, the very process of organizing material sharpens up the thinking
and eliminates a lot of the vague, illogical, or meaningless remarks which may deceive
anyone into thinking he's saying something, when he's only talking.
- 170 -
"Organization of material ranks high among these principles of presentation culled from the
practice of management men and consultants who have studied the problem:
"1. Put it down on paper.
"Pay your idea the respect of putting it in writing. If its sound, it will stand being written,
may be improved. If its weak or no good, trying to put it down in logical order may show
up the thin spots. Some men sell themselves on an idea so readily that they forget others
may have more sales resistance.
"Writing the idea down forces you to recheck your analysis of the problem and your choice
of solutions; may help point up other factors that have to be stressed in conveying the idea
to associates.
"2. Determine your objective.
"Is it to tell em, sell em, or ask em? Have you made a decision and do you now simply
wish to inform others of it? Do you want to persuade the group that the course you suggest
is the right one or the only one? Or do you want to consult with them and get their advice,
have them help decide the best solution?
"The objective will determine to a large extent how the presentation is made. The number
of occasions on which an executive wants merely to tell a group something is growing
infrequent, although in answers to enquiries on the subject, top men in some old-line, well-
established companies have said that 60% of their presentations were of this kind. Only
about 20% were the sell em and 20% the ask em type.
"In a younger organization, or a more progressive one, the proportion is usually closer to
25, 35, and 40%. Authoritarianism is giving way to democracy, or at least to persuasion, in
industry.
"In a modern organization, where every minor executive is encouraged to strive for the top
jobs, and professionally trained men are replacing the self-made men, questioning of the
tell em type of pronouncement from on high is natural. The leader must win support, not
command it, even in executive ranks.
"3. Tell how you came to your conclusion.
"Its a long road from problem to correct answer. The executive may arrive at the
conclusion in an initiative flash, because the reasoning follows a road thats old to him. Or
he may labour over the solution for months.
"In either case, if he gives his answer without telling how he arrived at it, he may leave his
fellow travellers far behind him. If they could reach the same conclusion in a flash, they
would probably not be his subordinates. Or the solution may depend upon special
- 171 -
knowledge that is simple arithmetic to the man whos reporting, but higher mathematics to
the one or ones hes reporting to.
"To judge his idea properly and to improve their own knowledge and ability to serve the
company the others need adequate explanation of how the idea was reached.
"4. Tell them how they can do what your proposal will require of them.
"Biggest barrier to a new idea doing a thing a new way, solving a problem differently
from in the past is often people's fear of the unknown.
"Failure to explain how those involved can do the jobs proposed for them will at best delay
their acceptance of the idea, at worst make them hunt for reasons to oppose it.
Demonstrating how to do it speeds approval.
"Extra time spent in figuring out the answers to how they can carry out your idea will
usually pay off well.
"5. Show each man the opportunities your idea offers for him to fulfil some personal
need or desire.
"Some people work for advancement, some for security, some for prestige, some simply for
the pleasure of taking on new tasks and doing them well. All, presumably, work for the
company, also, but it is folly to ignore the personal motivations in presenting an idea for
acceptance.
"The difference between ho-hum approval and coats-off support of a proposal often lies in
the proposer's ability to appeal to the highly personal interests of his audience.
"If you are an accountant and I am an engineer, a suggestion that solves a problem of yours
may leave me cold; a suggestion that solves a problem of mine may leave you cold. The
successful leader is the man who can show how his idea designed to aid our common
employer can aid each of us.
"Men who work in industrial organizations where teamwork is good can cite their own
cases. They will know how planning sessions sometimes bring out enthusiasm and ideas
that lie dormant while routine jobs are in order. Reason? Men are eager to plan the future
because they see hope of moulding it closer to their hearts' desires.
"The executive making a presentation will aim it at that hope, knowing his associates have
emotions as well as minds.
"6. Dramatize your presentation.
"Give your answer first, then explain what led up to it, and half your listeners will assume
you are rationalizing and pay no attention.
- 172 -
"Present a problem, analyze it, list the alternative solutions, keep your own choice of best
solution a surprise until the last possible moment and you'll have them listening with
both ears from beginning to end. Uncertain what the key points will turn out to be, they
must soak in all of them.
"That's one simple way of dramatizing a presentation, and a legitimate one. There are
others.
"If the idea, the problem it solves, or the thinking that led to it lend themselves to visual
demonstration, use visual aids.
"It is a fact that some people never think of using visual aids until they are talking before a
group so large no one beyond the first couple of rows can see the charts or pictures. That's
a mistake.
"A meeting of two minds is often helped along by a good graphic description as
thousands of pencil-marked tablecloths will bear witness. The jump from scribbling a
design or an outline on a tablecloth to making a chart for a meeting of three or four or a half
dozen men seems to be a touchy one. But it's worthwhile.
"Some means of showing pictures, charts, or only briefly worded outlines help not only to
dramatize an idea, but to keep discussion on the main point. Talk may veer off, or go into
details, but so long as the main theme is boldly outlined before the conferring group, the
job of keeping discussion on the subject, keeping the subject in everybody's mind, is greatly
simplified.
"7. Cultivate your speaking voice.
"Not every presentation is made as a talk, but most are. Learning the tricks of using your
voice is worth time and effort. Some do it through lessons in elocution, perhaps the most
painful way. Others by inflicting themselves on small and inconsequential social groups.
Others through company classes in speaking, or executives' clubs that specialize in giving
members an opportunity for speaking training.
"Still another, and later, technique is the use of courses that are based on books but use
records as examples and tell how to check one's own progress in training through self-made
recordings.
"An example if a method used at Westinghouse Electric Corp., soon to be issued as a
Modern Industry Book, with records, by Paul D. Stokes and Gray Carpenter.
"8. Make your language a tool, not a weapon of offence.
"Some men who can explain a matter simply to a single listener retreat into a kind of
mumbo-jumbo English that disguises their meaning instead of disclosing it, when they talk
to a larger number. This may be a result of trying to observe all the injunctions of their
- 173 -
lawyers or their public-relations men, or both. But, whatever its cause, it usually deadens
the mans personality and wraps his thoughts in so many layers of words that no one else
can be bothered unwrapping them to look at the ideas.
"Simplest solution is to try to talk naturally. Next best is to study written explanations that
you find easy to understand yourself. And if you need a guide to writing simple language,
consult The Art of Plain Talk, by Rudolph Flesch (Harper).
"9. Dont forget that there are other ways than formal presentations to put over an idea.
"Many tricks in hammering home an idea fall outside the meeting techniques.
"Without making a speech or sending out a memo, for example, the late Albert Browning,
vice-president in charge of purchases, Ford Motor Co., used to get across the idea that his
biggest interest was in saving millions by saving pennies.
"On his desk and elsewhere in his office, he had mounted before-and-after displays
showing minor changes in car parts, and listing the savings in cents per car and thousands
of dollars a year. Subordinates visiting his office needed no lectures to understand what he
was most interested in.
"At another firm, where moss grown policies held a special place in the heart of the top
man because they were old, a young engineer tried without success to sell a new process
which he thought was necessary to keep the company going, once competition revived. He
won his point only after he had given up trying to make it in his own company. He
published his idea in a technical journal, and the company had so many inquiries about it
that his own management suddenly realized it must be a whizzer.
"In a similar situation, a junior executive abandoned a frontal attack when he saw it was
getting nowhere and, instead, simply sold his idea to a variety of other junior executives,
pointing out to each how it would solve that mans particular problems. When enough of
these junior executives had brought the same idea up, top management finally became
interested through sheer quantity of suggestions.
"All three examples illustrate indirect methods of putting over an idea.
"10. With all your efforts to sell your idea, dont permit yourself to seem to be
manipulating your listeners.
"Sincerity, accord between your proposals and company interest, a good reputation for
candour and straight-shooting in the past, are the best safeguard against this appearance.
"All 10 points add up to prove a comment on presentations by Thomas Nelson, president of
Executive Training, Inc., New York:
" Too many men think that the logic of their argument or the infallibility of their data is
sufficient to establish their point.
- 174 -
" It seldom is. "
The second factor for the maintenance of successful industrial communications is keeping
the lines of communications open. This implies freedom of contact; the possibility of
contacting any other person in the company when this is necessary without restrictions or
limitations. By this we do not mean that the worker is going to talk to the president of the
company every day. Such contact is not necessary. But if for some reason the worker,
through proper lines of communication, wished to talk to the president it should be possible
for him to do so.
When you pick up your telephone to make a call you know that no one is going to interrupt
your dialling because they have decided you should not talk to the person you are calling.
The only things that will prevent your reaching that person are equipment failures or a busy
signal because that person is engaged at the moment. Of course, if you are a responsible
person, you use judgement in making the call. You do not just call someone to prove to
yourself that the system works. Rather you make a call only when you consider it
important enough to justify your time and that of the person called.
Yet in our companies we sometimes find that some intermediate person who is part of the
"line of communications" will decide that your "call" should not go through or that what
you have to say should be arbitrarily changed or restricted to suit his ideas or views. When
this happens your communication system fails and it is far more serious than a mechanical
failure in the telephone office because that will be reported and repaired whereas this
human "line block" this censor may continue to practice his interference and control
without anything being done about it. It is the responsibility of intermediate supervisory
level to analyze ideas or suggestions from lower levels and assure themselves of their
soundness before passing them along. But this is far different than arbitrary censorship.
In many cases the subordinates who are affected by censorship may be afraid to say
anything, or because their efforts seem to get nowhere they may become discouraged and
give up trying. Frequently, too, the censor's superiors may not know anything is wrong
because the reports they receive do not indicate any failure of communications.
Often the superior is the one who is at fault because he, by his attitude or actions, has
clearly shown his subordinates that he does not want to be bothered, or that there are some
things he does not want to hear or know about. And when feudalism, or dictatorial rule
prevails, the subordinates soon learn to tell the "boss" only the things this boss wants to
hear.
Another frequent occurrence is the decision by a subordinate to use his own judgement in
the carrying out of instructions or orders. For some reason he may feel that what his
superior has decided is incorrect or does not fit the conditions of the moment. So, without
saying anything, he passes on to his subordinates only what he considers proper. Here
again is censorship that destroys the effectiveness of communications.
- 175 -
We could spend a lot of time analyzing why these things happen and are sure every one has
had experience paralleling the things we have mentioned. However, we are interested,
primarily, in what each of us, what every employee of the company from the president
down, can do to improve operations through good industrial communications.
When some individual in the lines of communication is acting as a censor, all we can say is
that his superior is apt to be more at fault than the man. And two things are up to this
superior; are his responsibilities. First, he must examine himself to be sure that he
understands and follows good leadership and teamwork practices - that he is not himself the
real cause of the system failing. Second, he must learn how to properly check and verify
what is going on at subordinate levels through personal contact and observation. He can
never do this by sitting at his desk, isolated from his people, and depending entirely on
reports or information furnished him by his subordinates.
Beyond this individual or personal evaluation which every management employee must
make of and for himself, the policies, practices, methods and controls which have formed
the foundation for this management training can serve as a guide in the establishment of the
system. Whether, and how well the system functions is a matter of how good our human
relationships are.
Conclusion
When a Japanese farmer plants his wheat he arranges the field so that there is symmetry
and organization. Every row has a definite relationship to every other row and to the field.
But he does not merely go out and plant the wheat among the rice stubble in mud and
water. He knows that if he did this the grain would not grow there could be no harvest.
Before he plants his wheat he must prepare the ground. He must provide for draining away
the excess water and cultivate the ground so the seed will take root and grow. He must get
rid of the rice stubble and weeds. But when he begins preparing the ground he has a plan in
mind. As he prepares it, the rows where the wheat will be planted take shape.
Then when he plants the wheat it grows in accordance with his plans, because he has done
two things. First, he has prepared the ground to receive the seed and provide the food for
growth. Second, he has made all his preparations according to a plan so that the results will
be what he wants.
In this course on industrial management, you have been given the fundamentals for
planning, and the things that you need to assure your crop or harvest as industrial
managers. But, like the farmer, you must first prepare the ground so your crop will grow.
Your ground is the people who make up the company. You, as executives, your
subordinates, and the workers, must be prepared to receive the ideas and plans, and each
must contribute to the taking root and growing of the crop. It is up to you to be sure that
you prepare yourselves and your people by study, analysis, training, example and the
application of sound principles so that you can be assured of the final harvest of improved
quality and lower costs.
- 176 -
The Fundamentals of Industrial Management
CCS Management Course
Homer M. Sarasohn
Charles A. Protzman
Civil Communications Section
GHQ, SCAP
Charts
- 177 -
- 178 -
INDUSTRIAL POLICIES
ADMINISTRATIVE MANAGERIAL
FORMULATION OF POLICIES
ENFORCEMENT OF POLICIES
LEADERSHIP
ORGANIZATION
ORGANIZATION
FOR CONTROL
ORGANIZATION
FOR OPERATIONS
DESIGN PERSONNEL
COORDINATION
- 179 -
Fig. 112
Example: Development of New Market
1. Market survey
a. Survey proposed sales territory
b. Population
c. Wealth
d. Character of residents
e. Competition, etc.
f. Recommendations on sales possibilities
2. Advertising campaign
3. Direct approach by salesmen
a. Organized material
b. Product, delivery, credit
Fig. 123
Field
Sales
Manager
Adv.
Manager
Indus.
Manager
Service
Manager
Market
Research
Manager
( Committee
( on
( Sales
( Policy
( Advice to
( President
VICE PRESIDENT FOR SALES
Dist.
Sales
Manager
Salesman
- 180 -
Policies Related to the Marketing of a Product
A. Selling
1. Creating demand
2. Finding a market
3. Advice to buyers as to use of product
4. Negotiating price and other terms
5. Transfer of title
B. Transporting (creating placed utility)
C. Storing (creating time utility)
D. Standardizing and grading
E. Assembling
F. Dividing
G. Packing
General Business Functions involved in Marketing
H. Financing
I. Risking
J. Recording (Accounting)
- 181 -
R E L A T I O N S with E MP L O Y E E S
To Employees Responsible for Directing
The Work of Others
It is the purpose of this statement to promote a more complete understanding of the
Companys Employee Relation Policy. Attention is called to your responsibility for carrying
out all of its provisions and the methods adopted for maintaining uniformity of practice in all
departments of the company.
Although Personnel Departments have been established to advise and assist executives and
supervisors in their dealing with employees, responsibility for making the policy effective in
the every-day relationships with all employees must rest with you.
Right relations with employees is one of the fundamental elements in the success of the
Company, and must be founded upon the conviction of every employee that the policies of the
Company are based upon a spirit of justice in its dealings with every person with whom it
comes in contact.
It is the policy
I. To pay all employees adequately for services rendered.
When the individual records of all employees are reviewed periodically, it is your duty
to see that their rates of pay are adjusted fairly. Compensation should be based upon
ability, responsibility, length of service and capacity for growth, giving due
consideration to cost of living, general business conditions and wages paid by other
concerns in the same territory for comparable work.
II. To maintain reasonable hours of work and safe working conditions.
Special attention must be paid to conserving the well-being of employees in equipping
and maintaining shops, warehouses, offices, restaurants and rest rooms and other
facilities for comfort and convenience. Careful consideration must be given to hours
of work, vacations, medical service and payment in case of absence.
III. To provide continuous employment consistent with business conditions.
In the management of the business a continuous effort must be made to provide steady
work and permanent employment. When reduction in force is unavoidable,
consideration should be given to retaining long-service employees. When additions
are made to the force, preference should be given to former employees. Continuity of
employees' service records should be guarded.
- 182 -
IV. To place employees in the kind of work best suited to their abilities.
Consideration must be given to placing each employee in the kind of work which
offers opportunity for his maximum growth and usefulness. Great care should be used
in assigning employees to work when they are first employed, and trial should be given
to former employees. Continuity of employees service records should be guarded.
V. To help each individual to progress in the Companys service.
When vacancies occur, those already in the Company are entitled to first consideration.
Every employee should understand the relation of his work to that of the Company as a
whole, and there should be provision for training on the job, Variety and progression
of experience. Information and advice should be made available for those wishing to
take advantage of outside educational opportunities.
VI. To aid employees in times of need.
It is necessary for you to understand fully the purpose and scope of the Employees
Benefit Fund for giving aid in times of disability due to sickness or accident, and for
granting retiring allowances. You should keep informed regarding loan funds
available for meeting other emergencies.
VII. To encourage thrift
You are responsible for keeping your people informed and interested in the stock
purchase plan and other means available for encouraging thrift. Employees desiring
information and counsel should be put in touch with those best qualified to advise on
matters of home buying or building, use of banking facilities, insurance programs and
other personal financial problems.
VIII. To cooperate in social, athletic and other recreational activities.
Encouragement may be given by supplying facilities, by sharing in the operating
expense of organized activities of this character, and by making better use of
opportunities existing in the community.
IX. To accord to each employee the right to discuss freely with executives any matters
concerning his or her welfare or the Companys interest.
It is your duty to establish the conviction among those whom you direct or with whom
you come in contact that sympathetic and unprejudiced consideration will be given to
any employee who wishes to discuss with you and with Company executives matters
of his or her welfare or the Companys interest.
X. To carry on the daily work in a spirit of friendliness.
As the Company grows it must be more human not less so. Discipline, standards
and precedents become more necessary with size, but the spirit in which they are
administered must be friendly as well as just. Courtesy is as important within the
- 183 -
organization as in dealing with outsiders. Inefficiency and indifference cannot be
tolerated, but the effort of supervisors must be increasingly directed at building up in
every department a loyal and enthusiastic interest in the Companys work.
* * * *
- 184 -
Managerial policies are applied to such procedures as the following:
1. Development of an organisation plan for departments and subdivisions, defining
authority, nature, scope, and limitations of activities and relations and responsibilities of
each department.
2. Development of a layout plan for departments and equipment, to provide for
rearrangement where necessary and to include provisions for expansion and new
departments in accordance with the major organization plan.
3. Collection and summarization of data relating to products.
4. Collection and communication of data relating to machinery and equipment.
5. Standardisation of machines and development of a maintenance system.
6. Standardization of tools and development of a tool room system.
7. Development of a stores system.
8. Development of a feedback system (flow of instruction and returns).
9. Development of a time-keeping system to serve accounting purposes.
10. Development of a routing system including complete planning in advance of work to be
done in turning out the product.
11. Development of methods to follow up and control work in process.
12. Development of time-studies, development and standardization of operations and
operating methods and a pay system based theorem.
13. Development of a cost accounting system.
Rules for Policy Making
1. A policy should be definite, positive, clear and understandable by everyone in the
organization.
2. A policy should be translatable into the practices and peculiarities of every department
and division of the organization.
3. A policy should be flexible and at the same time have a high degree of permanency.
4. A policy should be formulated to cover all reasonably foreseeable conditions.
5. A policy should be founded on facts and sound judgement.
- 185 -
6. A policy should conform to economic principles, statutes, and regulations, and should be
compatible with public interest.
7. A policy should not prescribe minutely detailed procedure.
8. Policies are useless unless they are enforced.
- 186 -
ZONES OF MANAGEMENT
Chart #II - 1.1
MANAGEMENT
SUPERVISORY
MANAGEMENT
GENERAL
PRES.
TOP
MANAGEMENT
ZONE
DEPARTMENTAL
ADMINISTRATION
GENERAL
ADMINISTRATION
TRUSTEESHIP
ZONE
STOCKHOLDERS
(OUTSIDE
BOARD
OF
DIRECTORS
WORKERS
LOWER, OR
SUPERVISORY
MANAGEMENT
ZONE
- 187 -
ZONES OF MANAGEMENT
TRUSTEESHIP ZONE
TYPICAL COMPOSITION
President
Vice President or Managing Director
" " " " "
" " " " "
" " " " "
Other Directors (Including Outside Directors)
NORMAL TYPES OF RESPONSIBILITY AND AUTHORITY
1. Represent the stockholders )
2. Safeguard the stockholders interests )
3. Determine basic policies ) Authority within the
4. Determine general course of business ) limits defined in the
5. Appraise adequacy of overall results ) by-laws of the company
6. Protect company assets )
7. Assure effective use of assets )
8. Approve general administrative )
policies, programs and objectives )
ACCOUNTABILITY
Fully accountable to the stockholders for the Security, Success and Progress of the business.
Data Sheet #II - 1.2
- 188 -
EXAMPLE U.S. COMPANY
MATTERS REQUIRING ACTION BY THE BOARD OF DIRECTORS
All matters involving major transactions or policies require action by the Board of Directors.
This instruction specifies those matters, on which action of the Board of Directors is required,
which occur most frequently in the regular course of business. Executive and administrative
officers shall refer such additional items to the Board, as in their judgement require its action.
General
Definite commitments in respect to matters on which action of the Board is required shall not
be made prior to such action except on the approval of the President or his delegate.
Items to be included in the agenda of a meeting of the Board shall be submitted to the
Secretary not later than the fourth working day prior to the meeting.
The Secretary shall give appropriate notification of action taken by the Board; to those
interested or involved.
The Comptroller shall show reference to action taken by the Board on all financial and
accounting transactions in connection with which action of the Board is required.
Specific Items Requiring Board Action
Specific action is required in respect to the matters listed below, unless otherwise specified in
footnotes as having been covered by blanket action or by delegation to officers.
a) Employees
Employment at rates in excess of $______ per annum.
Specific cases of recommended changes in rates of pay when present or proposed rates
are in excess of $______ per annum.
All extra compensations.
Retention in service of employees who are 65 years of age or over, submitted annually.
Changes in employees pensions and other benefit plans.
b) Organization
Election of officers of the Company.
Appointment of members of the Executive Committee and other committees.
c) Operations
Qualification or withdrawal of the Company as a foreign corporation in any state,
territory or country.
- 189 -
Plant acquirements and disposals (routines therefore shall be specified in general
accounting directions).
Annual budget of the Companys operations.
Development expenditures (routines therefore shall be specified in general accounting
directions).
d) Purchase or Sales
Purchase or sale of a going business.
Purchase or sale of patents when amount involved exceeds $________ .
Purchase or sale of securities and subscriptions thereto.
Purchase or sale of Companys own stock or bonds.

e) Borrowing and Loans
Issue of bonds.
Issue, discount, and renewals of notes .
Loan of Company funds.

Advances to other companies.
Mortgages of lands, buildings, or other assets of the Company.
f) Payments
All dividends.
All payments to the Trustee of Company's Pension Fund.
All contributions.
g) Contracts and leases
Contracts, other than routine contracts entered into in the ordinary course or business.
Contracts or agreements involving the acquisition or grant by the company of a license
under patents where the amount of royalties or other money payments under such
license exceeds $______ over the term of the license.
Leases or premises where the rental for the full term of the lease exceeds $______ or
the rental for a period of one year or less exceeds $______.
h) Legal
Change of location of principal place of business in any state when Board action is
deemed necessary by the Legal Department.
Designation of agents to accept services of process.
Execution of surety bonds and guarantees, other than those required in the ordinary
business of the Company.
i) Profits and Reserves

The General Accounting Direction covering "Approvals Required on Payments " indicates the items on
which the Board of Directors has taken blanket action or has delegated approval or authority to officers of the
Company in respect to payments involved under these matters.
- 190 -
Accounting transactions involving Undivided Profits or Surplus except routine closing
of Profit and Loss and Undivided Profits Accounts.
(j) Reports to stockholders
Reports to stockholders.
(k) Depositories
Designation of depositories for Companys funds and Securities.
- 191 -
ZONES OF MANAGEMENT TOP MANAGEMENT SUB-ZONES
Chart #II - 1.4
President
Quality
Control
Prod.
Control
Manufacturing Manufacturing
Prod.
Engineering
Administrative Marketing Manufacturing Engineering Finance
GENERAL
ADMINISTRATION
SUB-ZONE
DEPARTMENT
ADMINISTRATION
SUB-ZONE
- 192 -
ZONES OF MANAGEMENT
TOP MANAGEMENT ZONE
GENERAL ADMINISTRATIVE SUB-ZONE
TYPICAL COMPOSITION
President
Vice President or Managing Director (Marketing)
" " " " " (Finance)
" " " " " (Manufacturing)
" " " " " (Engineering)
NORMAL TYPES OF RESPONSIBILITY AND AUTHORITY
1) Establish overall operation policies ) Within the scope of basic policies
2) Establish overall organization policies ) and authority delegated by the
3) Establish general control policies ) Board of Directors
4) Define Department function and authority ) Subject to approval by the
5) Establish overall sales programs ) Board of Directors
6) Establish overall production programs )
7) Establish overall engineering programs )
8) Establish overall financial programs )
9) Provide : Data, Reports, Recommendations for Board of Directors.
10) Verify application of basic and general policies.
11) Coordinate and direct activities of departments
12) Approve: Departmental plans, policies, programs budgets.
13) Assure, through supervision and control, the attainment of objectives.
14) Act on suggestions and recommendations from lower levels.
ACCOUNTABILITY
Fully accountable, through the President, to the Board of Directors for the successful
management of the business enterprise.
- 193 -
VICE PRESIDENT (MANUFACTURING) DUTIES AND RESPONSIBILITIES
1. To have charge of the Manufacturing Department and to supervise the plans,
construction and safety of all company owned buildings.
In connection therewith to be responsible for:
1.1 Development of manufacturing procedures, methods, plant and equipment.
1.2 Determining whether materials and products shall be manufactured or purchased.
1.3 Engineering relations with Research and Development organization pertaining to
practicability, facility, economy, and quality of manufacture.
1.4 Plans and construction of all company owned buildings and service systems.
1.5 Safety of occupancy and compliance with statutory and insurance requirements of
all company owned or leased plants including:
1.5.1 The approval of plans covering the installation of any equipment which
may effect the structure of buildings or service equipment.
1.5.2 The periodic inspection of plant and for issuing the necessary directions to
insure proper maintenance.
1.6 Maintaining satisfactory employee relations and for carrying out fully the
companys established personnel policies.
1.7 Exercising supervision over:
Works Managers )
Production Engineering ) Examples
Production Control )
Quality Control )
- 194 -
ZONES OF MANAGEMENT
TOP MANAGEMENT ZONE
DEPARTMENT ADMINISTRATIVE SUB-ZONE
TYPICAL COMPOSITION
Vice President of Managing Director Manufacturing (Gen. Administrative Head)
Mfg. Dept. Head (or Works Manager)
Production Engineering Dept. Head
Production Control Dept. Head
Quality Control Dept. Head
NORMAL RESPONSIBILITIES AND AUTHORITY
Establishes departmental operation policies ) Within scope of
Establishes departmental organization policies ) policies and
Establishes departmental control policies ) authority delegated
Gen. Administration
Defines supervisory function and authority ) Subject to approval of
Establishes departmental programs and budgets ) Gen. Administration
Provides: Reports, Recommendations, Data for General Administration
Verifies and insures application of: Basic, General, Department, Policies and Controls.
Coordinates and directs the activities of supervisory zone.
Reviews and acts on: Plans, Programs, Suggestions, Recommendations of Supervisory
Zone.
Assures, through supervision and control, the attainment of department objectives.
ACCOUNTABILITY
Full accountability to general administrative head for attainment of objectives and the internal
management of the department.
- 195 -
MANUFACTURING DFEPARTMENT HEAD (OR WORKS MG'R)
DUTIES AND RESPONSIBILITIES
1. To be responsible for the operation of the Works in accordance with prescribed methods
and at authorized rates of production.
2. To be responsible for the personnel relations with all employees in the Works
organization, and for the fullest application of the Companys personnel policies.
3. To be responsible for maintaining the Works in a satisfactory and safe operating
condition and at the prescribed capacity, and for conformance to applicable statutes and
regulations.
4. To be responsible for maintaining wage scales consistent with those prevailing in the
district, and for utilizing labor in conformance with standard occupational
classifications.
5. To employ wage incentive plans and establish piece rates for the remuneration of labor
in conformance with approved standards.
6. To be responsible for the cost of the product, including joint responsibility with the
Manufacturing Engineering Department for realization of estimated costs on new
designs.
7. To be responsible for the accuracy of accounting and financial reports covering the
results of the operations of the works.
8. To be responsible as a landlord for buildings, grounds and services of the works
locations.
9. To maintain civic and commercial contacts to insure for the Works its proper place in
the community and in industry.
- 196 -
ZONES OF MANAGEMENT SUPERVISORY MANAGEMENT ZONE
SUPERVISORY
MANAGEMENT
ZONE
FOREMAN
DIVISION
SECTION
DEPT
MGMT
PARTS
FINAL
ASSEMBLY
MANU-
FACTURE
SUB-
ASSEMBLY
Chart #II 1.8
- 197 -
ZONES OF MANAGEMENT
SUPERVISORY MANAGEMENT ZONE
Normal Responsibilities and Authority
Section
1. Planning and execution of section activity to meet productivity, cost and quality
objectives.
2. Preparation of personnel and budget forecasts for the section.
3. Coordination of activities of divisions.
4. Analysis of division and section performance against objectives of productivity, quality
and cost.
5. Discipline, including approval of action or recommendations of divisions (as required
and within limits authorized by defined authority).
6. Observance of all policies, rules and regulations.
7. Morale (grievances, complaints, suggestions, etc.).
8. Cooperation with other organizations at section level.
9. Preparation, verification and submission of data and reports to higher levels.
10. Approve operational recommendations and decisions of divisions.
Accountability
Fully accountable to the Department head for performance and internal functioning of the
section.
- 198 -
ZONES OF MANAGEMENT
Division
1. Planning and execution of division activity to meet productivity cost and quality
objectives.
2. Preparation of personnel and budget forecasts for the division.
3. Coordination of activities of foremen.
4. Analysis of division and foremen performance against objectives of productivity,
quality and cost.
5. Training and education of foremen (supervisory development).
6. Discipline, including approval of action or recommendations of foremen (as required
and within limits authorized by defined authority).
7. Morale (grievance, complaints, suggestions, etc.).
8. Maintenance of facilities for productivity.
9. Safety and housekeeping.
10. Observance of all policies, rules and regulations.
11. Cooperation with other organizations at division level.
12. Preparation, verification and submission of data and reports to higher levels on
productivity, personnel, cost performance, etc.
Accountability
Fully accountable to section chief for performance and internal functioning of the division.
- 199 -
ZONES OF MANAGEMENT
Foreman
1. Training of workers.
2. Coordination of worker activity.
3. Verification of worker performance (quality and productivity).
4. Observance of all policies, rules, regulations.
5. Discipline (within limits of defined authority).
6. Worker morale (grievance, complaints, suggestions, etc.).
7. Safety and housekeeping.
8. Availability of facilities, tools, materials, etc., for workers.
9. Minor decisions on matters affecting productivity.
10. Conditions of worker facilities (maintenance).
11. Cooperation with other organizations at foreman level.
12. Submissions of data and reports for budgetary and performance measurement as
required by higher levels.
Accountability
Fully accountable to division chief for worker performance and the meeting of objectives of
productivity, quality and cost.
- 200 -
LINE ORGANIZATION
Chart #II - 3.1
FOREMAN
DEPARTMENT
DEPARTMENT
PRESIDENT
DEPARTMENT
WORKERS
- 201 -
LINE AND STAFF ORGANIZATION
FUNCTIONAL ORGANIZATION
PRESIDENT
FINANCE
MANUFACTURE ADMINISTRATION ENGINEERIN MARKETING
ACCOUNTING
DEPARTMENT
INDUSTRIAL REL. PROD. ENG. SALES
COSTS
SECTION
PERSONNEL PROCESS PROGRAMS
DIVISION
DIVISION
DIVISION DIVISION DIVISION
FOREMAN
FOREMAN
FOREMAN FOREMAN FOREMAN
(STAFF
- 202 -
PRESIDENT
ADMINISTRATIVE
MARKETING
FINANCE ENGINEERING MANUFACTURING
ADMINISTRATIVE MARKETING FINANCE ENGINEERING MANUFACTURING
Chart #II -
- 203 -
ENGINEERING
1. Research
a. Fundamental
b. Practical
2. Development
a. Product Development
b. Product Design
c. Standardization
3. Production
a. Operating Standards
b. Process
c. Manufacturing Layout
d. Inspection
e. Machine and Tool Design
f. Time and Motion Study
g. Safety
4. Sales Engineering
a. New Products
b. Product Adaptation
c. Application
- 204 -
FINANCE
1. General Accounting
a. Accounting and Business Methods )
) Standard
b. Cost Methods ) Practices
c. Financial Statements
d. General Accounts (Bookkeeping)
e. Government Accounts (Bookkeeping)
f. Credit
g. Billing and Collection
h. Pricing
i. Cash Receipt and Disbursement
j. Insurance
2. Cost Accounting
a. Payroll
b. Cost Analysis
(1) Labor
(2) Material
(3) Overhead
c. Assets
(1) Records
(2) Inventories
(3) Valuation
(4) Depreciation
(5) Real Estate
c. Cost Statistics and Reports
3. Budget Control
4. Cost Control
5. Auditing
- 205 -
MANUFACTURING
1. Production Planning and Scheduling
2. Production Orders
3. Production Expediting
4. Production Records and Reports
5. Materials
a. Receiving
b. Storing
c. Distribution
d. Inventory and Control
e. Scrap recovering and disposition
6. Manufacturing Operations
7. Inspection
a. Purchased Materials
b. Process
c. Final
8. Quality Control
9. Purchasing
10. Plant Construction and Maintenance
11. Machine and Tool Construction and Maintenance
12. Power steam, gas, air, heat, etc.
13. Storing and Packing Finished Products
14. Shipping Materials and Finished Product
15. Storing and Inventory Tools, Fixtures, Machines, etc.
16. Installation and Relocation of Equipment, etc.
17. Plant Protection and Fire Protection.
- 206 -
MARKETING
1. Market Surveys
2. Sales
3. Customer Service
4. Product Distribution
5. Advertising
6. Sales Forecasts
- 207 -
INDUSTRIAL RELATIONS
1. Labor Relations
a. Labor Contracts
b. Labor Negotiations
2. Personnel Relations
a. Employment
b. Placement
(1) Promotion
(2) Demotion
(3) Transfer
c. Training
d. Employees Service
(1) Health
(2) Welfare
(3) Recreation
e. Safety
(1) Workmens Compensation
(2) Safety Inspection
(3) Sanitary Inspection
(4) Safety Education
f. Job Rating
(1) Analysis
(2) Specifications
(3) Wage Rates
- 208 -
SECRETARY
1. Secretarial Duties
2. Legal
Treasurer
1. Stocks and Bonds
a. Records
b. Issuance
c. Transfer
2. Stockholders Meetings
3. Negotiations of loans (Capital)
Miscellaneous
1. Public Relations
2. Organization Controls
- 209 -
ENGINEERING IN INDUSTRY
RESEARCH
DEVELOPMENT PRODUCTION
SALES
STANDARDIZATION
MATERIALS & PRODUCTS
OPERATING STANDARDS
INSPECTION STANDARDS
SAFETY
FUNDAMENTAL PRACTICAL
PRODUCT
DEVELOPMENT
PRODUCT
DESIGN
PROCESS INSPECTION
MACH. &
TOOL
DESIGN
NEW
MODIFIED &
ADAPTED
PRODUCTS
IDEAS
USE
CONCEPT
PRELIM.
DESIGN
FINAL
DESIGN MANUFACTURING
FACILITIES
MATERIALS
LABOR
PRODUCT
FOR
CUSTOMER
USE
Chart #II -
- 210 -
POINT METHOD OF JOB EVALUATION
First Second Third Fourth Fifth
Characteristics degree degree degree degree degree
Skill:
1. Education 14 28 42 56 70
2. Experience 22 44 66 88 110
3. Initiative and ingenuity 14 28 42 56 70
Effort:
4. Physical demand 10 20 30 40 50
5. Mental or visual demand 5 10 15 20 25
Responsibility:
6. Equipment or process 5 10 15 20 25
7. Material or product 5 10 15 20 25
8. Safety of others 5 10 15 20 25
9. Work of others 5 - 15 - 25
Job Conditions:
10. Working conditions 10 20 30 40 50
11. Unavoidable hazards 5 10 15 20 25
Total points 500
National Electrical Manufacturers Association
- 212 -
INCREASE OF RELATIONSHIPS WITH INCREASE OF SUBORDINATES Fig. 254
Number of Subordinates 1 2 3 4 5 6
Value of S 1 2 3 4 5 6
Value of G 0 1 3 6 10 15
Value of X 0 1 4 11 26 57
TOTAL 1 4 10 21 41 78
- 214 -
PRINCIPLES OF ORGANIZATION Fig 254
1. Objective: Each part of the organization should be the expression of a definite
purpose in harmony with the objective of the enterprise.
2. Definition: The duties, authorities, responsibilities, and interrelationships of
everybody in the structure should be clearly and completely prescribed
in writing.
3. Assignment: The duties of every person should be largely confined to a single
leading function.
4. Homogeneity: An organization, to be effective, efficient, and operate without friction,
should bring together only duties and functions that are similar or
directly related.
5. Authority: A clear line of authority must run from the top to the bottom of the
organization.
6. Responsibility: Responsibility for the execution of work must be accompanied by the
authority to control the means of doing the work.
7. Ultimate Authority: The higher authority is responsible for the acts of the subordinates.
8. Span of Control: The number of subordinates reporting to a superior should generally
not exceed six.
9. Exceptions: Managerial efficiency is enhanced by concentrating attention solely
upon those executive matters which are questions of policy or are
variations from routine, plans or standards.
10. Effectiveness: The final test of an organization is smooth and frictionless operation.
- 217 -
ORGANIZATION MANUAL Fig. 256
1. PROVIDE THE CAPITAL
The Stockholders
In addition to providing the capital, the Stockholders usually perform other functions. They
select the Board of Directors, pass on matters of broad, long-range general policy, and
receive and consider the report of the management covering the period since their last
meeting.
2. DETERMINE THE GENERAL POLICIES
The Board of Directors
The Board of Directors establishes the basic general policies, settles financial matters of
major importance, and selects the Executive Committee and the officers of the company,
determining their compensation. It also receives reports from the management on operation
since the last meeting and passes judgement as to whether or not the results have been
satisfactory. Emergency action taken by the management between meetings is generally
submitted to the Board for ratification. It declares the annual dividend. It is responsible
only to the Stockholders.
3. DETERMINE THE EXECUTIVE POLICIES
The Executive Committee
In the larger companies an Executive Committee, elected by the Board of Directors,
determines the way in which the basic general policies of the company shall be carried out.
It occasionally takes emergency action between meetings of the Board of Directors
submitting such matters to the Board at its next meeting for ratification. It is responsible to
the Board of Directors.
4. GENERAL ADMINISTRATION
The President
The President is the chief executive officer of the company and directs the carrying out of
the policies established by the Board of Directors as well as those determined by the
Executive Committee. He is usually a member of the Executive Committee and the Board
of Directors and is responsible to the Board of Directors.
4.1 LEGAL ADMINISTRATION
The Secretary
The Secretary is usually considered the legal officer of the company and often is its
General Counsel. He directs the keeping of the minutes of the meetings of the Board
of Directors, the capital stock records, the dissemination of corporate information,
- 218 -
and the employment of counsel both general and special. He is responsible to
General Administration.
4.2 PROPERTY ADMINISTRATION
The Treasurer
The Treasurer is the financial officer of the company and is the custodian of all the
companys property. He keeps the capital and property accounts, invests the
companys surplus funds, makes all real estate transactions, insures the companys
properties and interests, and makes all payments from the companys general funds.
He is responsible to General Administration.
4.3 ENGINEERING
Vice President for Engineering
The Vice President for Engineering is the chief technical officer of the company and
head of the Engineering Division. He establishes the Technical and Engineering
policies and directs their execution. He is responsible to General Administration.
4.3.1 RESEARCH AND DEVELOPMENT
Director of Research
The Director of Research initiates and carries out all research, development,
and experimental work on the companys products, endeavouring always to
keep them up to date and ahead of competition. He also carries on such
experimental work on processes and methods as requested by the Process
Engineer or by duly approved employee suggestions. He is responsible to
Engineering.
4.3.2 DESIGN
Chief Engineer
The chief Engineer directs all design both on products and processes. He is in
charge of the general drafting room and executes such designs, layouts, etc., as
requested by other department heads in the Division as well as those designs
requested by the Process Engineer and the Plant Engineer. He is responsible
to Engineering.
4.3.3 LABORATORIES
Chief Technologist
The chief Technologist directs such chemical, metallurgical, and other
laboratories as are maintained by the company for controlling the quality of
materials, the excellence of the product, and the accuracy of process. He is
responsible to Engineering.
- 219 -
4.3.4 APPROPRIATIONS
Appropriations Engineer
The Appropriations Engineer reports on desirability of all projects for which a
request for appropriation has been made. He estimates the cost and the
benefits to be gained and upon completion of the project compares actual
costs and benefits with the estimates. He is responsible to Engineering.
4.3.5 APPLICATION
Application Engineer
The application Engineer endeavours to find new applications for and
extended uses of the companys products. He carries on field tests and
experimental runs striving continually to increase the scope of the products.
He is responsible to Engineering.
4.4 MARKETING
Vice President for Marketing
The Vice President for Marketing directs the Market Division and all the companys
new business activities. He directs all sales, the making of contracts, advertising,
public relations activities, and the technical experts of the Division. He is responsible
to General Administration.
4.4.1 SALES
Sales Manager
The Sales Manager directs the companys sales forces. He is responsible to
Marketing.
4.4.2 CONTRACTS
Contract Manager
The Contract Manager negotiates all the contracts for the services of the
company other than sales contracts for the companys standard products. He is
responsible to Marketing.
4.4.3 ADVERTISING
Advertising Manager
The Advertising Manager directs all the companys advertising. He is
responsible to marketing.
- 220 -
4.4.4 PUBLIC RELATIONS
Public Relations Manager
The Public Relations Manager directs all activities having a bearing on the
companys goodwill. He arranges or clears all speaking engagements for
officers and employees. He edits all papers and articles published by officers
and employees where the companys name is used. He makes such other
arrangements as he thinks will add to the companys standing. He is
responsible to Marketing.
4.4.5 SALES TECHNICAL
Sales Engineer
The Sales Engineer directs the making of sales to technical consumers or
others where technical knowledge of the product and its applications is a
factor. He is responsible to Marketing.
4.5 ACCOUNTING
Comptroller
The Comptroller is the chief accounting officer of the company and directs the
Accounting Division. The name derives from the French word compter meaning to
count. He is responsible to General Administration.
4.5.1 GENERAL ACCOUNTS
Chief Accountant
The Chief Accountant directs the keeping of the general accounts of the
company and is responsible to Accounting.
4.5.2 PAY ROLL ACCOUNTS
Pay Roll Accountant
The Pay Roll Accountant directs the making out of all pay rolls and
deductions therefrom. He also directs the paymaster and keeps all pay roll
accounts. He is responsible to Accounting.
4.5.3 COST ACCOUNTS
Chief Cost Accountant
The Chief Cost Accountant directs all cost accounting of the company and is
responsible to Accounting.
- 221 -
4.5.4 CREDITS AND COLLECTIONS
Credit Manager
The Credit Manager directs all credit investigations and determines whether or
not credit will be extended to customer, and in what amount. He also directs
the billing of customers and the collection of monies due. He is responsible to
Accounting.
4.5.4 GOVERNMENT REPORTS
Tax Accountant
The Tax Accountant directs the preparation of all tax returns whether Federal,
state, or local and prepares and files all required government reports. He is
responsible to Accounting.
4.6 PERSONNEL
Director of Personnel
The Director of Personnel directs the Personnel Division. He determines the policies
of the company in dealing with its employees and is responsible for the maintenance
of cordial relations with them. He is also usually charged with the function of plant
protection and is responsible to General Administration.
4.6.1 EMPLOYMENT
Employment Manager
The Employment Manager directs the procurement, hiring and placement of
all employees and is responsible to Personnel.
4.6.2 MEDIAL AND SAFETY
Medical Director
The Medical Director, usually a physician, performs or directs all medical
examinations of employees as prospective employees, instructs all employees
in hygiene and safety, and directs hospitalization and first aid. He is
responsible to Personnel.
4.6.3 INDUSTRIAL RELATIONS
Director of Industrial Relations
The Director of Industrial Relations is responsible for the maintenance of
cordial relations between the company and its employees. He negotiates
union contracts, adjusts grievances of importance, and is responsible for the
proper evaluation of all jobs. He executes the personnel policies of the
- 222 -
company as determined by the head of the division and is responsible to
Personnel.
4.6.4 EMPLOYEE TRAINING
Training Manager
The Training Manager directs all employee training both for new employees
and in order to increase the stature and effectiveness of the older ones. He is
responsible to Personnel.
4.6.5 PLANT PROTECTION
Chief of Police
The Chief of Police directs the protection of the companys property and
personnel from fire, theft, riot, and other contingencies. He directs the police
force and the watchmen. He is responsible to Personnel.
4.7 OPERATIONS
Vice President for Operations
The Vice President for Operations directs the Operating Division and is sometimes
called the "Executive Vice President". He determines the operating policies of the
company and heads what is generally known as the "manufacturing activities of the
company". He is responsible to General Administration.
4.7.1 PRODUCTION CONTROL
Production Manager
The Production Manager directs the planning and control of production, the
procurement and movement of materials and other traffic, and reports
regularly to management on the status of all orders and contracts. He is
responsible to Operations.
4.7.1.1 PRODUCTION PLANNING
Planning Manager
The Planning Manager directs the preparation of delivery and
production schedules, the machine loading controls, and the
dispatching of work orders. He is responsible to Production Control.
- 223 -
4.7.1.2 MATERIAL CONTROL
Material Control Manager
The Material Control Manager directs the keeping of stock, stores,
and the records thereof, usually some form of perpetual inventory, as
well as the receiving and shipping activities. He is responsible to
Production Control.
4.7.1.3 PROCUREMENT
Purchasing Agent
The Purchasing Agent buys all materials, supplies, purchased
finished parts, and facilities as well as arranges for all subcontract
work. He is responsible to Production Control.
4.7.1.4 TRAFFIC
Traffic Manager
The Traffic Manager directs all transportation of materials, supplies,
etc., outside the confines of the plant and arranges for automobile and
railroad transportation for company employees travelling on company
business. He is responsible to Production Control.
4.7.1.5 REPORTS
Report Clerk
The Report Clerk prepares all reports on production required by
management for purposes of overall control. He is responsible to
Production Control.
4.7.2 INSPECTION
Chief Inspector
The Chief Inspector directs the work of all the inspectors except that which is
done in the laboratories under the direction of the Chief Technologist. He is
4.7.2.1 OUTSIDE INSPECTION
Outside Inspector
The Outside Inspector directs or performs all inspections of materials,
parts, etc. made off the companys premises. He is responsible to
Inspection.
- 224 -
4.7.2.2 RECEIVING INSPECTION
Receiving Inspector
The Receiving Inspector directs the inspection of all materials, parts,
tools, facilities etc., before certification for payment. He is
responsible to Inspection.
4.7.2.3 IN PROCESS INSPECTION
Parts Inspector
The Parts Inspector directs the inspection of all materials, parts, and
subassemblies during processing or manufacture. He is responsible
to Inspection.
4.7.2.4 FINAL INSPECTION
Final Inspector
The Final Inspector inspects the finished product, before packing for
shipment, making such performance tests thereon as are specified.
He is responsible to Inspection.
4.7.2.5 INSPECTION REPORTS
Inspection Clerk
The Inspection Clerk compiles all inspection records, calculates
ratios and percentages, and prepares such reports as required by the
management. He is responsible to Inspection.
4.7.3 PROCESS ENGINEERING
Process Engineer
The Process Engineer directs the determination of the methods, tooling,
processes, and standards for all operations. He evaluates performance and is
4.7.3.1 LAYOUT
Layout Engineer
The Layout Engineer determines the most economical and efficient
layout for tools and processes and keeps it continually abreast of
changes and practice. He is responsible to Process Engineering.
- 225 -
4.7.3.2 METHODS AND ROUTING
Methods Engineer
The Methods Engineer determines the most economical and efficient
methods to be employed, the best speeds and feeds for the various
machines, and the correct routing of material and parts. He prepares
the operation sheets and is responsible to Process Engineering.
4.7.3.3 STANDARDS AND PERFORMANCE
Performance Engineer
The Performance Engineer determines and keeps up to date, by time
studies or other means, proper standards for employee and machine
performance. He compares actual performance with the standards,
and, in collaboration with the personnel division, he sets piece and
incentive rates of pay. He is responsible to Process Engineering.
4.7.3.4 TOOL DESIGN
Tool Engineer
The Tool Engineer directs the design of all tools, jigs, and fixtures
and inspects them before placing in service. He is responsible to
Process Engineering.
4.7.3.5 TOOL ROOM AND CRIBS
Tool Foreman
The Tool Foreman directs the making of all tools, jigs, fixtures, the
operation of the tool cribs, and all tool grinding. He is responsible to
Process Engineering.
4.7.4 PLANT ENGINEERING
Plant Engineer
The Plant Engineer is a department head and is sometimes referred to outside
of the automobile industry, as the Master Mechanic. He directs all
maintenance, construction, and repair works as well as the utilities and
services in the plant. He is responsible to Operations.
4.7.4.1 POWER PLANT
Power Engineer
The Power Engineer operates the power plant. He is responsible to
Plant Engineering.
- 226 -
4.7.4.2 CONSTRUCTION AND ALTERATION
Construction Foreman
The Construction Foreman directs all construction, alteration, and
repair work on the buildings and installs new facilities or moves
existing ones where directed by the Layout Engineer. He is
responsible to Plant Engineering.
4.7.4.3 MAINTENANCE
Maintenance Foreman
The Maintenance Foreman directs all maintenance work, both
preventive and repair, on the machinery and other manufacturing
facilities. He is responsible for the proper lubrication of all
machinery and is responsible to Plant Engineering.
4.7.4.4 INTERNAL TRANSPORTATION
Transportation Foreman
The Transportation Foreman directs the movement of all materials,
parts, supplies, and facilities within the confines of the plant except
those which are carried on conveying equipment. Under his
jurisdiction are the life trucks, tier trucks, auto trucks, and medium
and heavy cranes. He is responsible to Plant Engineering.
4.7.4.5 SWEEPING AND CLEANING
Janitor
The Janitor directs the cleaning and sweeping forces and is
responsible for the general housekeeping throughout the plant and
offices. He is responsible to Plant Engineering.
4.7.5 MANUFACTURING
Plant Superintendent
The Plant Superintendent directs all actual manufacturing activities and is the
top man in the plant. He is responsible to Operations.
- 227 -
4.7.5.1 FOUNDRY SECTION
Foundry Superintendent
The Foundry Superintendent directs all operations in the Foundry
Section and is responsible to Manufacturing.
4.7.5.1.1 PATTERN SHOP
Master Pattern Maker
4.7.5.1.2 MOULDING AND CORES SHOP
Foreman
4.7.5.1.3 MELTING AND POURING SHOP
Foreman
4.7.5.1.4 CHIPPING AND CLEANING SHOP
Foreman
4.7.5.1.5 SAND CONDITIONING
Foreman
4.7.5.2 MACHINE SECTION
Machine Superintendent
The Machine Superintendent directs all operations in the Machine
4.7.5.2.1 TURNING SHOP
Foreman
4.7.5.2.2 BORING AND PLANNING SHOP
Foreman
4.7.5.2.3 MILLING AND BROACHING SHOP
Foreman
- 228 -
4.7.5.2.4 DRILLING SHOP
Foreman
4.7.5.2.5 GRINDING SHOP
Foreman
4.7.5.3 ELECTRICAL SECTION
Electrical Superintendent
The Electrical Superintendent directs all operations in the Electrical
4.7.5.3.1 MOTOR SHOP
Foreman
4.7.5.3.2 CONTROLS SHOP
Foreman
4.7.5.3.3 INSTRUMENT SHOP
Foreman
4.7.5.3.4 SUBASSEMBLY SHOP
Foreman
4.7.5.3.5 WIRING SHOP
Foreman
4.7.5.4 SHEET METAL SECTION
Sheet Metal Superintendent
The Sheet Metal Superintendent directs all operations in the Sheet
Metal Section and is responsible to Manufacturing.
4.7.5.4.1 SHEAR SHOP
Foreman
- 229 -
4.7.5.4.2 SLITTING SHOP
Foreman
4.7.5.4.3 STAMPING SHOP
Foreman
4.7.5.4.4 FORMING SHOP
Foreman
4.7.5.4.5 FASTENING SHOP
Foreman
4.7.5.5 ASSEMBLY SECTION
Assembly Superintendent
The Assembly Superintendent directs all operations in the Assembly
4.7.5.5.1 ASSEMBLING SHOP
Foreman
4.7.5.5.2 ERECTING SHOP
Foreman
4.7.5.5.3 PAINT SHOP
Foreman
4.7.5.5.4 TESTING SHOP
Foreman
4.7.5.5.5 PACKING SHOP
Foreman
- 230 -
COMPTROLLER FUNCTIONS AND DUTIES Fig. 257
1. Accounting
a. Administration of accounting staff.
b. Devising, installing and maintaining the system of accounts.
c. Custody and control of general books and records.
d. Jurisdiction over accounts
e. Preparation of invoices sent to customers.
f. Taking and pricing of inventories.
2. Auditing
a. Administration of the auditing staff.
b. Recording and checking purchase invoices.
c. Verification of the cash account.
d. Audit of all books of accounts, expenses, expense accounts, and all other ledger
activities of the company.
3. Reports, statistics and analyses
a. Administration of the statistical department.
b. Preparation of analyses and interpretation of all reports and statistics compiled from
accounting records.
c. Advise and cooperate with all officers and department heads in all matters in which
the accounts or statistics are a source of information or where they may be affected.
4. Budget
a. Supervision of preparation of cash and income budgets and comparison of actual and
estimated results.
- 231 -
5. Standards
a. Preparation and revision of standard manuals of accounting and auditing methods and
procedures.
b. Control of design preparation and issuance of all printed forms.
c. Control of standards for office supplies, furniture, and equipment.
6. Miscellaneous
a. Supervision of stenographic, mail, telephone, filing, and reception services.
b. Supervision of tax accounts.
c. Supervision of insurance accounts.
d. List of stocks and bonds.
e. Such other duties as assigned by the president which are not inconsistent with the
scope of duties normally associated with any other department.
- 232 -
Weekly Budget Comparison Operations with Budget Fig. 314
Monthly Expended Daily Av. Expended
Budget to Budget per day
Items of Operating Cost Allowance date Allowance to date
Direct Labor 24,000 7,944 1,090 1,135
Non-variable Overhead 17,600 5,600 800 800
Indirect Labor 9,000 3,392 450 484
Stores 3,850 1,503 175 215
Compensation Insurance 700 230 30 33
Fuel Oil 8,800 2,817 400 402
Coal 2,750 779 125 111
Sundry 5,300 1,835 240 262
Total Overhead 48,000 16,156 2,220 2,387
Total Manufacturing 72,000 24,100 3,310 3,187
Estimated Production per month 200,000 per day - 9,100
Actual Production to date 61,500 per day - 8,807 96.8% of Standard
Direct Labor Allowance
On Actual Production 7,398
Direct Labor Actually Spent 7,944 107.4% of Standard
Overhead Allowance on actual
Production 14,796
Overhead Allowance Actually
Spent 16,156 109.2% of Standard
- 233 -
Analysis of Expense Labor Report Fig. 315
Actual
Objective Expense Actual
ITEM per unit per unit Expense
Miscellaneous $0.030 $0.022 $89.79
Sweepers & Chipmen .030 .028 113.60
Movemen .040 .040 161.11
Repairs to Furniture & Fixture .020 .043 174.16
Inspectors .080 .063 252.76
Supervision .130 .116 464.63
Allowances .010 .025 101.12
Machinery Repair .040 .056 226.30
Tools and Tool Repair .140 .197 792.59
TOTALS 0.520 0.592 2376.06
- 234 -
Report of Idle Machine Time Fig. 316
Week ending ________________________
Machine Operating Idle Idle Time Cost of
No. Hours Hours Burden Rate Idle Time Reason
A1 42 2 .40 .80 No job card
A2 43 1 .40 .40 " " "
A3 43 1 .40 .40 " " "
A4 41 3 .40 1.20 Breakdown
A5 44 - - Full Capacity
B1 39 5 1.05 5.25 No job card
B2 41 3 1.05 3.15 " " "
C1 43 1 .75 .75 " " "
C2 40 4 .75 3.00 Repair
C3 42 2 .75 1.50 No job card
Total 418 22 16.45
Cost of idle time last week 48.30
Remarks: Planning department is to take immediate action to see that job cards are provided
on time.
- 235 -
Routine Handling of Purchase Orders in Purchasing & Receiving Departments Fig. 317
Purchase Requisition
received from Department
Record card attached
to Requisition at card desk
Requisition marked for
Supplier by Purchasing Agent
Purchase Order typed (6 copies)
Requisition date stamped
Purchase order checked
signed and original
sent to supplier
#2 Copy
(file) & Purchase #3 Copy #4 Copy #5 Copy #6 Copy Department
record card Accounting Receiving Receiving Follow-up Requisition
Record of purchase #3 copy sent Receiving Stamped with Follow orders Filed
entered on card to Department Department date of goods for delivery numerically
at card desk with goods received and check delivery
#4 sent to Department quantity date
#2 copy file account Amount, count, with goods
to vendor & number or weight of goods Filed by When completed
received marked Amount, count or number in filed by number
Record of Purchase on #3 weight of goods Receiving
card filed received marked on #4 Department
Sent to
Accounting Sent to Revenue
Department
#4 filed by
vendor & number
- 236 -
Standard Instruction Card Fig. 318
Class of Work ____ Department ____ Order No. ___
Prepare Time per
Piece
Description of Operation Time Work
Should take
For Bonus do
work in
Time basis
Shape Cuts Time in
of No. Feed Speed Minutes
Detailed Instructions Tool Depth
1. Put piece in L .32
2. 1.44 Rouch Turn A 2 .025 2.50
3. 1.17 Rouch Turn B 2 .020 1.40
4. Turn End for End .38
5. 1.17 Face Head 2 .015 2.40
6. .80 Chamfer .60
7. Turn End for End .33
8. 1.17 Face End 2 .015 1.50
9. 1.44 Fin Tarn A 2 .0166 1.50
10. 1.17 Fin Face B 2 .070 .60
11. .80 Groove for Thread 1.00
12. .93 Turn C 3.50
13. File 3.00
14. Setting Tools 10.00
15. Loosen & Remove .15
When work cannot be done as ordered Date
Report must be made at once to man Signed
Who signed this card
N
a
m
e

o
f
I
n
s
t
r
D
r
a
w
i
n
g
M
a
c
h
i
n
e
P
a
r
t
C
a
r
d
N
o
.
N
o
.
W
t
.
O
.
D
.
F
a
c
e
B
o
r
e
M
a
t
e
r
i
a
l
N
o
.
L
o
c
a
t
i
o
n
- 237 -
* Newly published books of reference on "Management Educational Program" courteously
recommended by Mr Protzman.
October 19, 1949
* "TEAMWORK IN INDUSTRY", by William Seward, 221
pages, $3.00
Contents:
Good Human Relations start with Workers Leadership
We just Return to Fundamentals
The Worker Wants to Know the Score
Every Job is Important
Treat Every Workers As a Social Being
What is Opportunity?
Communications ought to be a Two-way Circuit
The Worker Wants Participation
Wanted: A New Attitude
Twelve Principles to Guide Management in Operating a Human-Relations
Program
An Operational Plan: Ten Steps in the Organization of a Human-Relations
Program in an Industrial Plant
Index
* "MANAGEMENT MEN AND THEIR METHODS", Edited by
Luis J. A. Villalon,
284 pages, $3.00
Contents:
Editor's Note What makes an Executive Modern Management's New Role
How to be a Good Top Executive
Developing Tomorrow's Executive
From Engineer to Top Executive
New Life for Fifty-Year-Old
The Executive and Local Government
Successful Arbitration
A New Technique in Company Organization
Building a Business
Making Good in New Industrial Regions
Modern Budgeting for Profit
Getting Results in Machine Design
Keeping Pace with the Big Competitors
New Ways to Sell Industrial Products
Hard-Hitting Merchandising
Keeping Sales Policies Up To Date
Line Simplification for Profit
Diversification for Simplicity
- 238 -
Opportunities in Close-to-Home Markets
Shaving Shipping and Handling Costs
Building Good Human Relations
Living at Work 1950 Style
Using Psychology to Boost Production
Two-Way Employee Communications
Modern Training Techniques
Management's Part in Plant Safety
Cutting Indirect Labor Costs
Important Extras for Worker Morale
(Above items are written by Executives of existing companies respectively.)
* "AFTER (BUSINESS) HOURS", Contributed by Top Executives,
384 pages, $4.00
Ideas about:
Copywriting
Style-Grammar punctuation
Art-Layout Typography
Advertising Campaigns and Advertisers
Industrial Relations
Public Relations
Products Prices Profits
Research
Media Prices Profits
Research
Media Markets Consumers
Service Complaints Adjustments
Why People Buy
Competition
Free Enterprise and Opportunity
Why Advertise?
Plan now for Tomorrow
Showmanship or Show-off-ship
Business Conventions and Sales Meetings
How to become an Adman
- 239 -
* "FUNK & WAGNALLS READING COURSE IN EXECUTIVE TECHNIQUE",
Payable $2.50 in 10 days, $5.00 monthly
50 Top Executives give their Working Methods.
Among subjects covered:
Management Problems
Coordinating and Controlling Operations
Manual of Organization
Use of Statistics
Job Analysis Selection of Employees, Training, Compensation, Promotion
Collective Bargaining
Manufacture Control
Inventory Control
Reducing Costs
Fundamentals of Distribution
Development and Marketing of New Products
Advertising Sales Training
Financial Control Analysis of Statements
Modern Office Management
Efficient Purchasing Practice
Plant-Community Relations
* "SUPERVISION IN BUSINESS AND INDUSTRY", by Robert D. Loken
* and Earl P. Strong, 314 pages, $3.50
Covers:
Job Management Key Points in Supervision, Steps in Organizing, Planning
and Control
Man Management The New Employee, Building Workers through Training,
Making an Analysis of Duties Performed. Problems of People at Work,
Evaluating, Supervisory Methods.
Appendix Sample Job Analysis, Sample Training Plan.
* "FOUNDATIONS FOR CONSTRUCTIVE INDUSTRIAL RELATIONS",
by R. Carter Nyman, 224 pages, $2.85
Contents:
Science and Administration
The Nature of Human Beings
The Processes of Human Nature
Factors of Social Conditioning
The Principle of Integration
Constructive Human Relations
The Structure of Administration
- 240 -
Administrative Organization
Organizing Relations with Labor
Administrative Procedure
Managing Labor Problems
"Integrating" Education
Capital, Labor & Government
The Powers of Management
The Problem of Unionism
* "BARGAINING WITH ORGANIZED LABOR", by Richard C. Smyth and
Mathew J. Murphy,
314 pages, $3.75
Contents:
Introduction
Type of Union-Employer Relationship
Preparing for Collective-bargaining Negotiations
Negotiating the Collective-bargaining Agreement
The Nature and Scope of the Collective-bargaining Agreement
Union Security
Management Security
The Grievance Procedure
Arbitration
Seniority
Wages Fringe Issues, and Hours
* "TESTED TECHNIQUES IN LABOR ARBITRATION"
by George W. Torrence,
256 pages, $2.50
Contents:
Why this book
The preparations
The preliminaries
The Unions Case
The Cross-Examination
The Companys Case
* "MANAGEMENT CONTROLS FOR FOREMEN AND SUPERVISORS".
By Harry J. McCaully, Jr.,
324 pages, $2.65
There are sections outlining the objectives, purpose and operation of such functions as:
Production Control
Material Control
- 241 -
Purchasing Control
Industrial Engineering Control
Quality Control
Cost Control
Budget Control
* "WAGE POLICY FOR MANAGEMENT" by Sumner D. Charm,
235 pages, $2.75
Practical pointers on these subjects:
The How and Why of Wages, Selling the Incentive Plan,
Selling Workers on Job Analysis, Need for Merit Ratings,
The Technique of Job Analysis, Background and limits to Bargaining,
The Technique of Job Evaluation,
Developing an Incentive Plan, Practical Negotiating.
End
* * * * * * * * * * * * * * * *
PRESIDENT
BRANCH SALES
OFFICES
(6 OFFICES)
MANUFACTURING
DEPT (5 DEPTS)
(ABOUT 18 PLANTS)
TECHNICAL LIAISON
CONFERENCE
PRODUCTION
CONFERENCE
PLANNING ROOM
CONFERENCE
MANAGER
WELFARE
OFFICE
ADVERTISING
SECTION
PLANNING ROOM SECRETARY
BRANCH
BRANCH
OFFICE (2 OFF)
GENERAL
ADMIN. DEPT.
P
R
O
P
E
R
T
Y

U
T
I
L
I
Z
.

S
E
C
T
.
P
A
T
E
N
T

S
E
C
T
I
O
N
G
E
N
.

A
F
F
A
I
R
S

S
E
C
T
.
S
H
A
R
E
S

S
E
C
T
.
D
O
C
U
M
E
N
T

S
E
C
T
.
A
C
C
N
T
.

S
U
P
V
.

S
E
C
T
.
A
C
C
O
U
N
T
I
N
G

S
E
C
T
.
FOREIGN RELATIONS
SECTION
PERSONNEL SECT. HOSPITAL
BUSINESS SECTION OFFICE
MANUFACTURING
SECTION
PLANT ADMINISTRATIVE
SECTION
PLANNING
BRANCH
BUSINESS
BRANCH
1ST SALES
BRANCH
2ND SALES
BRANCH
DELIVERY
BRANCH
SPEC. APPAR.
BRANCH
D
I
S
T
R
I
C
T

G
R
O
U
P
S
P
E
A
K
E
R

G
R
O
U
P
M
O
D
E
L

S
H
O
P
C
O
N
D
E
N
S
E
R

G
R
O
U
P
A
U
D
I
O

T
R
A
N
S
.

G
R
O
U
P
V
A
R
I
A
B
L
E

R
E
S
I
S
.

G
R
O
U
P
H
I
G
H

R
E
S
I
S
T
A
N
C
E

G
R
O
U
P
P
I
C
K
-
U
P
G
R
O
U
P
G
E
N
E
R
A
L

A
F
F
A
I
R
S

G
R
O
U
P
D
I
S
T
R
I
C
T
G
R
O
U
P
S
A
L
E
S

P
L
A
N
N
I
N
G

G
R
O
U
P
P
L
A
N
T

L
I
A
I
S
O
N

G
R
O
U
P
S
A
L
E
S
A
D
M
I
N
G
R
O
U
P
S
E
R
.

S
T
A
.

G
R
O
U
P
R
E
C
O
R
D
I
N
G

G
R
O
U
P
T
A
X
A
T
I
O
N

G
R
O
U
P
T
E
C
H
N
I
C
A
L

G
R
O
U
P
S
A
L
E
S

G
R
O
U
P
R
E
C
O
R
D
I
N
G

G
R
O
U
P
D
E
L
I
V
E
R
Y

G
R
O
U
P
T
R
U
C
K

S
E
R
V
I
C
E

G
R
O
U
P
V
I
C
I
N
I
T
Y
-
P
R
E
R
.

G
R
O
U
P
G
R
O
U
P
PARTS DEVEL.
BRANCH
TECHNICAL SECT.
PARTS RESEARCH
BRANCH
S
E
M
I
-
C
O
N
D
U
C
T
O
R

A
P
P
A
R
.
A
C
O
U
S
T
I
C
A
P
P
A
R
.
G
R
O
U
P
SPEC APPAR.
RESEARCH BRN
V
H
F

G
R
O
U
P
S
H
I
P
B
O
R
N
E

T
R
A
N
S
M
I
T
T
E
R
F
M

T
R
A
N
S
M
I
T
T
E
R

G
R
O
U
P
M
E
A
S
U
R
I
N
G

A
P
P
A
R
.

G
R
O
U
P
S
E
C
T
I
O
N

O
F
F
I
C
E

G
R
O
U
P
RECEIVER
BRANCH
C
.
R
.
O
.

R
E
S
E
A
R
C
H

G
R
O
U
P
F
M

R
E
C
E
I
V
E
R

G
R
O
U
P
R
E
C
E
I
V
E
R

G
R
O
U
P
W
A
R
E
H
O
U
S
E

G
R
O
U
P
2
N
D

P
U
R
C
H
A
S
E

G
R
O
U
P
1
S
T
P
U
R
C
H
A
S
E
G
R
O
U
P
S
U
P
P
L
Y

P
L
A
N
N
I
N
G

G
R
O
U
P
SUPPLY
BRANCH
GEN. AFFAIRS
BRANCH
WELFARE
BRANCH
LABOR
BRANCH
ACCOUNTING
BRANCH
G
U
A
R
D

G
R
O
U
P
G
E
N
E
R
A
L

A
F
F
A
I
R
S

G
R
O
U
P
R
E
P
A
I
R

G
R
O
U
P
E
L
E
C
T
R
I
C

P
O
W
E
R

G
R
O
U
P
D
I
S
P
E
N
S
A
R
Y

G
R
O
U
P
W
E
L
F
A
R
E

G
R
O
U
P
D
I
E
T
G
R
O
U
P
O
F
F
I
C
E

G
R
O
U
P
A
C
C
O
U
N
T
I
N
G

G
R
O
U
P
F
I
N
A
N
C
E

G
R
O
U
P
R
E
C
O
R
D
I
N
G

G
R
O
U
P
P
A
Y
M
E
N
T

G
R
O
U
P
L
A
B
O
R

G
R
O
U
P
P
E
R
S
O
N
N
E
L

G
R
O
U
P
PROD.PLAN
GROUP
ACCOUNT
GROUP
COST CALC.
GROUP
MAINTAIN
GROUP
STANDARDS
GROUP
PROD PROC
GROUP
MECHAN
GROUP
GENERAL AFFAIRS
BRANCH
EFFICIENCY RESEARCH
BRANCH
ASSEMBLY SHOP
WOODWORK
SHOP
TECHNICAL
BRANCH
LUMBER
BRANCH
MATERIAL
CUSTODY
PLANT
ADMIN
PRE-ASSY
SHOP
ASSY
SHOP
LACQ
SHOP
I
N
S
P
E
C
T
I
O
N

G
R
O
U
P
S
P
E
C
I
A
L

T
E
C
H

G
R
O
U
P
E
F
F
I
C
I
E
N
C
Y

G
R
O
U
P
W
O
O
D
W
K
G

T
E
C
H

G
R
O
U
P
P
U
R
C
H
A
S
E

P
L
A
N

G
R
O
U
P
1
S
T

P
U
R
C
H
A
S
E

G
R
O
U
P
2
N
D

P
U
R
C
H
A
S
E

G
R
O
U
P
D
R
Y
I
N
G

G
R
O
U
P
C
U
S
T
O
D
Y

G
R
O
U
P
M
A
C
H
I
N
E
R
Y

G
R
O
U
P
P
L
Y
W
O
O
D

G
R
O
U
P
T
O
O
L
S

G
R
O
U
P
H
I
G
H

G
R
A
D
E

C
A
B
I
N
E
T
1
S
T

O
R
D
I
N
A
R
Y

C
A
B
I
N
E
T
S
E
C
O
N
D

O
R
D
I
N
A
R
Y

C
A
B
I
N
E
T
O
F
F
I
C
E

G
R
O
U
P
O
P
E
R
A
T
I
O
N

G
R
O
U
P
M
E
T
A
L

L
A
C
Q
U
E
R
I
N
G
H
I
G
H

G
R
A
D
E

C
A
B
F
I
N
I
S
H
I
N
G

G
R
O
U
P
O
R
D
I
N
A
R
Y
G
R
A
D
E
C
A
B
TECHNICAL
BRANCH
PURCHASE
BRANCH
WORK
SHOP
P
L
A
N
N
I
N
G

G
P
I
N
S
P
E
C
T
I
O
N

G
P
3
R
D

D
R
A
W
I
N
G

G
P
G
R
O
U
P
G
R
O
U
P
G
R
O
U
P
D
E
S
I
G
N
I
N
G

G
P
F
A
C
T
O
R
Y
T
E
C
H
G
P
1
S
T

D
R
A
W
I
N
G

G
P
2
N
D

D
R
A
W
I
N
G

G
P
T
R
I
A
L

P
R
O
D

G
P
P
U
R
C
H
A
S
E

G
P
I
N
S
P
E
C
T
I
O
N
G
P
W
A
R
E
H
O
U
S
E

G
P
S
P
E
C
I
A
L

A
P
P
A
R
S
H
O
P

O
F
F
I
C
E

G
P
E
F
F
I
C
I
E
N
C
Y

G
P
P
R
E
P
A
R
A
T
I
O
N

G
P
1
S
T

A
S
S
Y

G
R
O
U
P
2
N
D

A
S
S
Y

G
R
O
U
P
F
I
N
I
S
H
I
N
G

G
R
O
U
P
ACOUSTIC
SHOP
SHOP
ADMIN
T
E
C
H
N
I
C
A
L

G
P
I
N
S
P
E
C
T
I
O
N
G
P
P
U
R
C
H
A
S
E

G
P
O
P
E
R
A
T
I
O
N

G
P
WORK
SHOP
E
F
F
I
C
I
E
N
C
Y

G
P
S
P
E
A
K
E
R

G
P
P
I
C
K
-
U
P
G
P
C
R
Y
S
T
A
L

M
I
K
E
E
L
E
C
T

C
O
N
D

G
P
T
E
C
H
N
I
C
A
L

G
R
O
U
P
I
N
S
P
E
C
T
I
O
N

G
R
O
U
P
P
U
R
C
H
A
S
E
G
P
O
P
E
R
A
T
I
O
N

G
P
E
F
F
I
C
I
E
N
C
Y

G
P
P
A
P
E
R

C
O
N
D

G
P
H
I
R
E
S
I
S
G
R
O
U
P
T
E
C
H
N
I
C
A
L

G
P
I
N
S
P
E
C
T
I
O
N

G
P
P
U
R
C
H
A
S
E

G
P
O
P
E
R
A
T
I
O
N
G
P
E
F
F
I
C
I
E
N
C
Y

G
P
V
O
L

C
O
N
T

G
R
O
U
P
CONDENSER
SHOP
TRANSFORMER
SHOP
RESISTANCE
SHOP
H
I

F
R
E
Q

T
R
A
N
S
T
E
C
H
N
I
C
A
L

G
P
I
N
S
P
E
C
T
I
O
N

G
P
P
U
R
C
H
A
S
E

G
P
O
P
E
R
A
T
I
O
N

G
P
E
F
F
I
C
I
E
N
C
Y

G
P
L
O
W

F
R
E
Q

T
R
A
N
S
PLANT ADMIN
BRANCH
TECHNICAL
BRANCH
PARTS
SHOP
ACOUSTIC
SHOP
IRON CORE
SHOP
METAL
SHOP
O
F
F
I
C
E

G
R
O
U
P
O
P
E
R
A
T
I
N
G

G
R
O
U
P
P
U
R
C
H
A
S
E

G
R
O
U
P
R
E
P
A
I
R

G
P
I
N
S
P
E
C
T
I
O
N

G
P
E
F
F
I
C
I
E
N
C
Y

G
P
M
A
C
H
I
N
E
R
Y
G
P
M
O
L
D

G
P
M
A
T
E
R
I
A
L

G
P
M
O
L
D
G
P
P
U
N
C
H
I
N
G

G
P
A
S
S
E
M
B
L
Y

G
P
F
I
N
I
S
H
I
N
G

G
P
P
R
E
S
S

G
R
O
U
P
P
M
O
L
D

G
R
O
U
P
P
M
A
T
E
R
I
A
L

G
P
P
R
E
S
S
G
R
O
U
P
M
O
L
D

G
R
O
U
P
M
A
T
E
R
I
A
L

G
R
O
U
P
- 211 -
STOCKHOLDERS
BOARD OF DIRECTORS
PRESIDENT
EXECUTIVE COMMITTEE FINANCE COMMITTEE
Operations Staff
V.P. Export
Group
Legal Staff Assistants to Pres.
Technical Appropriation Organization
V.P.C.R. &
Truck & Inter
Co. Parts Group
Publicity Staff
Director General
Attornies
General
Counsel
V.P. Affiliated
Companies
Group
Vice-President
Accessories
Group
Financial Staff
Vice-President
General Manager
Dayton
Eng. Lab. Company
General Manager
Inland
Manufacturing
General Manager
Fisher
Body Corporation
General Manager
G.M. Export
Company
General Manager
Inter-Comp
Parts Group
General Manager
Buick
Division
General Manager
Delco Light
Company
General Manager
Delco Remy
Ltd.
General Manager
A.C. Spark
Plug Company
Manager Director
General Motor
Ltd.
General Manager
Saginaw
Prod. Div.
General Manager
Cadillac
Division
General Manager
Harrison
Radio Co.
General Manager
Jaxon Steel
Prod. Division
General Manager
Gen. Leather
Company
Manager Director
G.M. Inter-
national A/S
General Manager
Saginaw Malleable
Iron Division
General Manager
Chev.
Division
General Manager
Hyatt Roller Bearing
Division
General Manager
Klaxon
Division
General Manager
Dobler Die
Casting Co.
General Manager
Overseas Mtr.
Serv. Inc.
General Manager
Muncie
Prod. Div.
General Manager
G.M. Truck
Division
General Manager
Hyatt
Ltd.
General Manager
Landcaster
Steel Prod. Co.
General Manager
Northway
M & M Division
General Manager
Pontiac-Oakland
Division
General Manager
New Departure
Manufacturing Co.
General Manager
Remy
Elec. Division
General Manager
Armstrong Spring
Division
General Manager
Olds
Division
General Manager
Brownlipe
Chapin Division
President
Universal Motors
Service
General Manager
of Canada
Division
Vice-President
Assistant to
Vice-President
Pres.G.M.
Acceptance
Corporation
Government
Taxes
Vice-President
Treasury
Section
Treasurer
Asst Treasurers
EMP Savings
Stock Subscription
Advisory Staff
Vice-President
Director
Purchase
Section
Director
Patent
Section
General Manager
G.M. Building
Corporation
Director
Traffic
Section
Asst Treasurers
New York Office
Asst Treasurers
Bonus Payroll
Asst Treasurers
Financial Analysis
& Statistics
Stock Transfer
Dividends
Auditing Franchise
Local Excise
Tax
Accounting
Section
Comptroller
General
Purchasing
General
Technical
Operations Institutional
Advertising
General
Sales
Assistant Comp.
Insurance
Assistant Comp.
Operations &
Plant Records
Assistant Comp.
General Records
Assistant Comp.
General Records
Assistant Comp.
Standardization
Interdivisional Relations
Committee
General Manager
of Canada
Division
Assistant to
Vice-President
Staff
Section
Director
Power &
Construction Sec.
General Manager
G.M. Research
Corporation
Director
Real Estate
Section
President Dayton
Wright
Corporation
Director
Industrial Rel
Section
Director
Sales
Section
General Manager
Modern Housing
Corporation
Director
Factory
Section
Advisory Service Vice-President
Marysville
Factory
Organization
Standards
Department
Assistant
to
Director
Vice-President
Flint
Production
Engineering
Department
Products
Department
Vice-President
Pontiac
Detroit
Laboratory
General Manager
Warehouse
Experimental
Machine Shop
Photo &
Blue Print
FIG. 252
- 213 -
BOARD OF DIRECTORS
STOCKHOLDERS
EXECUTIVE COMMITTEE
PRESIDENT
TREASURER SECTION LEGAL SECTION
OPERATIONS ACCOUNTING
GENERAL ACCOUNTS
PAYROLL ACCOUNTS
COST ACCOUNTS
CREDIT COLLECTION
GOVERNMENT REPORTS
PERSONNEL
EMPLOYMENT
MEDICAL & SAFETY
INDUSTRIAL RELATIONS
EMPLOYEE TRAINING
PLANT PRODUCTION
MARKETING
SALES
CONTRACTS
ADVERTISING
PUBLIC RELATIONS
SALES TECHNICAL
ENGINEERING
RESEARCH & DEVEL
DESIGN
LABORATORIES
APPROPRIATIONS
APPLICATION
MANUFACTURING INSPECTION
OUTSIDE
RECEIVING
IN PROCESS
FINAL
REPORTS
PRODUCT CONTROL
PRODUCTION PLANNING
MATERIAL CONTROL
PROCUREMENT
TRAFFIC
REPORTS
PLANT ENGINEER
POWER PLANT
CONSTRUCT & ALTER.
MAINTENANCE
TRANSPORT
JANITOR
PROCESS ENGINEERING
LAYOUT
METHOD & ROUTES
STANDARD & REFORM
TOOL DESIGN
TOOL ROOM & CRIB
SHEET METAL SECTION
SHEARING
SLITTING
STAMPING
FORMING
FASTENING
ASSEMBLY SECTION
ASSEMBLY
ERECTING
PAINTING
TESTING
PACKING
MACHINE SECTION
TURNING
BORING & PLANING
MILLING & BROACH
DRILLING
GRINDING
FOUNDRY SECTION
PATTERN SHOP
MOULDING & CORES
MELTING & POURING
CHIPPNG & CLEANING
SAND CONDITIONING
ELECTRIC SECTION
MOTORS
CONTROL
INSTRUMENTS
SUB-ASSEMBLY
WIRING
LINE STAFF AIRCRAFT ACCESS CORP.
FIG. 255
- 215 -
PRESIDENT
GENERAL MANAGER
GENERAL MANAGER
SUPERINTENDENT
OF
PRODUCTION
CHEMIST ENGINEER
FOREMAN FOREMAN FOREMAN FOREMAN
(WORKMEN)
GASOLINE PLANT FUNCTIONAL
- 216 -

CCS Manual Complete

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

CCS Manual Complete

Caricato da

Copyright:

Formati disponibili

Homer M.

is called Gaussian Curve, or, the curve of normal distribution.

Incorporated with permission of "Modern Industry"

Incorporated by permission of "Modern Industry"

"Success or failure of a company, or of an executives career, may depend upon a single

Incorporated with permission of "Modern Industry"

Purchase or sale of securities and subscriptions thereto.

Purchase or sale of Companys own stock or bonds.

Potrebbero piacerti anche