As the first modern business enterprises, the railroads became the administrative model for comparable enterprises when they appeared in other forms of transportation as well as in the production and distribution of goods. The railroads were highly visible; the American businessman could easily see how they operated. Railroad managers, even at the lowest, the division management level, were men of high status in their business communities. These men often compared notes with friends and neighbors about the nature of their work. Of more importance, every businessman who produced or distributed goods in volume had to work closely with railroad managers. In carrying out their own businesses they daily observed the operations of the railroads.
No enterprises were more intimately related to the railroads than those operating in other transportation and communication activities—that is, in other parts of what economists term the infrastructure of a modern advanced economy. In the United States the railroads were at the center of a basic and fast growing transportation and communication infrastructure. Besides providing the rapid all-weather transportation so essential to the emergence of modern processes of production and distribution of goods, they provided the right-of-way for the telegraph and telephone lines. Their coming also led to the formation of a modern postal system. In addition, by the end of the century the railroads had come to operate nearly all the country’s domestic steamship lines. Finally, their stations were central points in the new urban traction systems.
Precisely because the other new forms of transportation and communi- cation intensified the speed and volume of the flow of goods, passengers, and messages, they too came to be operated through large modern business enterprises. Like the railroads their operation called for careful administra- tive coordination provided by a hierarchy of full-time salaried managers. A small number of steamship lines, where coordination was less necessary to efficient operation, remained the exception. In urban transportation, the new electric-powered equipment was costly and technically complex to operate and passenger traffic was dense, so a small number of large managerial enterprises came to administer a city’s traction lines. In communication the increased speed and volume of mail made possible by the railroads led to the reorganization of the postal service. The far greater speed and volume of the new electrical telegraphic communication brought the telegraph network under the administration of a single business enterprise, Western Union. That company’s managerial hierarchy was soon coordinating the flow of hundreds of thousands of messages generated daily by thousands of operating units. And not long after the invention of the telephone, a single enterprise, American Telephone and Telegraph, built, operated, and coordinated the flow of long-distance telephone calls. The operational requirements of the new technology in communication and transportation thus brought, indeed demanded, the creation of modern managerially operated business enterprises.
Nevertheless, neither American Telephone and Telegraph, Western Union, the urban traction systems, nor the largest steamship lines ever became as complex to manage as a railroad system. Although the two communication enterprises were as large in terms of assets and employees as a large railroad system, they were involved in handling only a single kind of traffic. This was also true of the postal service that carried only mail, and of the urban traction systems that moved only passengers. The steamship lines handled a larger variety of goods, but the volume carried and the number of transactions handled by the largest of the profitable steamship lines were much smaller than those of a major railroad system. Managers of the other forms of transportation and communication, therefore, often adopted the procedures of railroad management rather than creating new ones of their own.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.