The histories of American Tobacco and Armour illustrate the methods of organization, the processes of growth, and the ways of competition for enterprises that grew by integrating high-volume production with national and global mass markets. In such enterprises the marketing organization had the responsibility for maintaining and coordinating transportation, storage, distribution, and sale of goods to a number of widely scattered customers. The experience of Singer Sewing Machine and McCormick Harvester, on the other hand, illustrates organization,
growth, and competition in the other type of integrated enterprise—that which depended on its marketing organization to supply specialized services of demonstration, installation, after-sales service and repair, and consumer credit. These enterprises included not only other makers of sewing machines and agricultural equipment but also producers of office equipment, elevators, boilers, pumps, printing presses, electrical equip- ment, and other standardized heavy machinery. In setting up their market- ing organizations, a few machinery makers followed Singer’s example by building a network of retail stores. Many more imitated the McCormick Harvester scheme of depending on retail franchised dealers whose activities were coordinated and supervised by the company’s sales force.
The place to begin the review of the operations and growth of Singer and McCormick is with the reorganizations of their sales departments in the late 1870s.48 Before these reorganizations, both companies relied on independent distributors as they expanded their output (see Chapter 9). At Singer, however, Edward Clark had for some time been patiently replacing these agents with salaried employees whenever he found men competent for the task. After he became president in 1876 he and his vice president, George Ross McKenzie, determined to speed up and complete the slow transformation of Singer’s marketing network.
Clark outlined the final plan for the reorganization in a circular that went out to all regional offices in November 1878.49 The sales department was to operate on three levels. At the lowest level were the retail branch offices. Their managers reported to a regional sales office, usually designed a “general agency.” The middle managers in these offices in turn were responsible to one of three headquarters, one in the United States and two in Europe.
For Clark the retail branch office remained the core of Singer’s market- ing and distributing network. The branch manager’s salaried staff included at a minimum a general salesman, an instructor, a mechanic, and a book- keeper. Clark believed that the smallest area covered by a branch office, or “depot” as they became known later, would serve an area with a population of at least 5,000. He hoped to blanket the world with such offices.
The primary task of the branch office manager and his staff was to supervise the work of the canvassers who sold machines, collected pay- ments, and arranged to have customers’ machines serviced. These can- vassers each received a small weekly salary and commissions of 15 percent on sales and 10 percent on all collections. If the branch office territory was geographically large, small subunits or depots were often set up. The branch manager and his staff assigned the canvassers territories, gave them instructions, and advised and assisted them in their work. It was the can- vasser on whom Clark relied to maintain and expand Singer’s market.
At the next level of management the salaried “general agent” in the regional office was key man. He had a sizable staff to assist him in moni- toring the performance of the branch managers serving under him and in assisting them in carrying out their functions. The regional manager was also responsible for the recruiting and training of new managers and for assuring a steady flow of machines from the factories to the branches and of cash flow from the branches to the main office. His office included a shipping clerk, collector, machinist, lease account clerk, bills receivable clerk, and chief clerk or auditor. In addition a “traveler” helped to keep the manager in close personal touch with the branch managers. In 1879 McKenzie added a “second man” to each of the foreign agencies “so that neither sickness, death, nor any other circumstances may interfere with the smooth working of the business to any great extent.”50
The establishment of such an organizational structure on a global scale would, McKenzie believed, give the company a maximum coverage by its sales force and provided for “entire control of our men, perfect knowledge of their work, and the power to so direct them that each knows his work, and does it without loss of time or interference.” The managerial force would become an “organized, and responsible army, instead of a confused and unmanageable mob.” This plan, McKenzie and Clark felt sure, would make the sale of machinery more systematic and effective and collections more regular and certain. Besides assuring a continuing flow of cash, the structure permitted a firmer control over inventory and a more certain delivery of products to the retailing units. Such coordination was essential in preventing the major cause for loss of sales, the failure of the retailer to have the machines in stock or to deliver them at an agreed- upon time.51 Finally, the new arrangements provided a detailed flow of information into the central office about market and general business conditions throughout the world.
The reorganization at Singer was unhurried. In proposing the scheme Clark urged the “agents to use their judgment in working GRADUALLY into the new organization.”52 The location and performance of each branch office were carefully reviewed. Some were closed, others were consolidated. New ones were established as soon as competent men could be trained. To control the network more effectively, McKenzie had headquarters send out, first abroad, and then in the United States, a force of traveling auditors to provide a direct check on all the business transactions of each branch. These accountants not only reviewed regularly and systematically the accounts of the branch offices but also reported on any new and useful procedures developed by a local unit in order to transmit them to others. This was to assure, McKenzie wrote, “a certain uniformity … in the ways of doing business in a most advantageous manner.”53
The careful attention Clark and McKenzie gave to this reorganization assured their company’s dominance abroad as well as at home. Grover & Baker, by not building up a large sales force of its own, had already gone under in the depression of the 1870s. Wheeler & Wilson responded to Singer’s initiative by completing its own general agency and branch-office network. Challenged by Singer’s success, it moved precipitously, failing to give careful attention to the selection of personnel, the development of procedures, and other organizational matters. The senior executives at Singer were fully aware of their competitor’s error. “I am certain,” the head of Singer’s British office wrote to Clark, “the W & W will lose by these operations this year more than ^50,000. This business cannot be made in this slap bang style.”54 He was right. Wheeler & Wilson never developed an organization as effective as Singer’s. And in markets unprotected by tariffs and patents, organization remained the key to competitive success. Singer soon had a near monopoly of world markets. In 1906 it absorbed Wheeler & Wilson.
By the first decade of the twentieth century the company’s branch offices in the United States had grown from 200 to 1,700, operating under six regional offices.55 As the number of branches grew, the boundaries of the regions (the general agencies) remained much the same, but were themselves subdivided into eighty-two district offices. Thus, at Singer the sales force had by 1900 two levels of middle management. Abroad, where the growth was comparable, the basic organization perfected in the early 1880s remained much the same. In the 1880s the New York office through its “export agency” supervised the agencies in Latin America, Canada, and the Far East. The Hamburg office had the responsibility for sales in north- ern and central Europe; while London was responsible for Great Britain and the rest of the world.56 Then in 1894 New York took over from London the activities it had supervised outside the United Kingdom.
Manufacturing remained concentrated in large plants. Those at Eliza- bethport, New Jersey, and Kilbowie, Scotland, were by far the largest sewing machine factories in the world. Each had the major responsibility for purchasing its supplies and raw materials. Each maintained close contact with the marketing territories assigned to receive its products. The pattern was repeated when Singer moved into the Russian market after 1897 and set UP a third major factory there.57
The essence of Singer’s economic power thus lay in its organization. That managerial hierarchy recruited, trained, and carefully supervised the canvasser-collector; provided long-term consumer credit; assured continuing servicing of the machines sold; and, finally, permitted a smooth and reliable distribution of the 20,000 to 25,000 machines shipped each week to all parts of the world. It was the underlying reason why Singer was able to maintain and expand world markets for low-priced sewing machines.
Some machinery enterprises such as National Cash Register dominated their businesses by setting up comparable networks of branch retail units administered by regional offices. Most machinery makers, however, de- cided such a retailing network was too expensive to build and too difficult to staff. They preferred, as did the McCormick Harvesting Machine Company, to use franchised dealers who operated their own retail busi- nesses, usually selling the machines on commission. The manufacturers soon found that such dealers were rarely effective unless they were backed up by a well-organized and disciplined sales department.
When Cyrus McCormick began to reorganize his sales force in the late 1870s, his machines still reached many local dealers through independent distributors. The Chicago office had little control over these distributors and had little information about the work of their salaried “general agents.” In 1876, for example, the company did not even have a list of the names of the dealers used by their own agents. By 1881, however, the independent distributing agencies had been replaced by company managers in the midwestern and plains states, and the central office had achieved a much tighter control over these regional offices.58 By 1885 this was true for newer agencies in other parts of the nation.
During the 1880s the regional or general agency became the central unit in McCormick’s sales organization. By the 1890s the salaried general agent normally supervised and evaluated the work of ten to fifteen district managers who maintained direct contact with the dealers in their assigned territory. The regional executive was also assisted by four functional man- agers for service, traffic, collections, and accounts. The machinists in the servicing office were responsible for assembling the machines, which were sent “broken down” from the factory, and for their maintenance once they had been purchased. The traffic managers worked closely with the transportation department at the Chicago central office, where control of shipments became increasingly centralized. By the 1890s a new central office department, the order and shipping department, had been given the task of receiving orders, seeing that they were properly filled, and arranging for their shipment.59 The fourth regional executive, the collection manager, kept an eye on bills receivable and on maintaining a continuous flow of payments back to Chicago. The usual payment terms were one- third in the first fall after the purchase, one-third the following fall, and the last third after the third harvest. An interest charge of between 6 and 8 percent was added on the second and third payments. Unlike Singer, McCormick kept collections completely separate from sales. They were either done directly from the collection managers office or by local merchants and banks on commission. A carefully worked-out collections policy assured McCormick, as it did Singer, receipts of cash that flowed in with the same clock-like precision as that of Marshall Field and other mass marketers. These were the ways, then, that the general agents monitored the marketing of the product and coordinated the movement of machines to customers and flows of cash back from them.
In the early 1890s, as competition intensified with the development of the binder, McCormick and other harvester companies expanded their regional offices in order to maintain sales. They hired canvassers to assist the dealers in selling, to make sales of their own, and to maintain ties with customers.60 By 1900 the McCormick Company employed 2,000 canvassers working for a salary of $50 to $70 a month.61 The franched dealers, then totaling over 12,000, continued to be paid by commission.
At the turn of the century McCormick’s impressive sales network in- cluded sixty-five regional offices in the United States and six in Canada. The company’s overseas marketing organization was still small, however. The agricultural implement firms began to sell abroad extensively only after the coming of hard times in 1893 reduced demand at home.62 At first they relied, as they had done earlier at home, on large independent dis- tributors. But by the late 1890s they were beginning to learn that such independents failed to push the sales of their products or to provide satis- factory after-sales service or credit arrangements. In areas where volume of sales permitted, they set up general agencies similar to those in the United States. By 1901 McCormick still sold through distributors who purchased machines outright in Latin America, Africa, New Zealand, and parts of Europe. But in Australia and the major grain-growing areas of Europe, the company already had by 1901 eight general agencies of its own, each with canvassers, machinists, and accountants. These differed from those in the United States only in that the franchised retailers purchased the machines outright, rather than on commission. This had been the practice of the independent distributors and one that the dealers were willing to continue. As was the case in nearly all of the new large machinery companies, the reorganized and enlarged sales force encouraged expansion of output in the decade of the 1880s. McCormicks annual production rose from 20,000 to 55,000 annually between 1880 and 1884. This increase in turn led to the expansion of the purchasing office and to the buying of sawmills and timber tracts.63 As a result there were almost as many middle managers at McCormick’s Chicago central office building in the 1890s as at the headquarters of American Tobacco, Armour, Swift, and Singer Sewing Machine. The central offices included the domestic and foreign sales departments, two production departments—one for machines, the other for twine—and the purchasing, collection, transportation, and order and shipping departments. An “experimental department,” housed in the reaper works, concentrated on improving methods of production and the quality of a product.
The accounting department remained relatively small and concerned itself largely with auditing the accounts of the sales and manufacturing units. McCormick appears to have had a smaller auditing division than Singer. The accounting unit generated detailed and accurate figures on prime costs, but paid relatively little attention to selling costs, and still less to the detailed allocation of overhead costs. Nor did the company, as the Bureau of Corporation investigators discovered, carefully evaluate assets or determine depreciation.64 It apparently used the same type of renewal accounting as the railroads and other early large industrials.
Like the other early integrated enterprises, top management at both McCormick and Singer enterprises remained small and personal. At Mc- Cormick Harvester, where the McCormick family held all the stock, the senior executives throughout the nineteenth century were Cyrus Mc- Cormick, his son Cyrus, and the heads of the manufacturing and sales departments.65 At Singer, where descendants of Clark and Singer controlled the stock, the top group included the president, vice president, and company secretary.66 In both these machinery companies the top managers concentrated almost wholly on day-to-day activities. Plants were enlarged and, in Singer’s case, occasionally new ones set up, but only when a clear demand existed for increased output. With the exception of Clark’s building of the sales network, these managers did almost no long- run planning.
The basic difference between top management decisions at McCormick and Singer resulted from the nature of their competition. Whereas Singer, like American Tobacco, dominated its industry, McCormick, like Armour, had one large competitor, Deering, and several small ones.67 After the 1880s the competition in the harvester business came to be through product improvement as well as aggressive marketing. Competition in the design of the machines led to a series of innovations, including the wire self-binder, the twine binder, the “push type” harvester, and the “header” harvester. Demonstrations, harvesting contests between competing makes, advertising, credit terms, and persistent salesmanship all played a part. Pricing was only one tactic in making sales,68 and when used, price cutting resulted primarily in the reduction of dealer’s commissions. Because com- petition involved much more than pricing, attempts at cartelization failed and mergers were slow in coming. This was even true when William Deering wanted to sell out and when the McCormicks were tiring of competition. Significantly, the initiative for the first successful merger in the harvester industry in 1902 came from Judge Elbert Gary, chairman of the board of Morgan-financed United States Steel Corporation, and not from the harvester manufacturers. Gary had made his proposal because he feared plans of McCormick and Deering to integrate backward by building their own rolling mills meant the loss of major customers.69
The merger of McCormick, Deering, and three smaller firms, completed in the summer of 1902, created an effective horizontal combination. The new International Harvester Company controlled close to 85 percent of the American harvester and reaper market. Like the organizers of other combinations of the period, the promoters of International Harvester quickly learned that horizontal combination was not a profitable strategy. During the fifteen months after merger the company earned less than 1 percent on its net assets.70 In January 1904 the directors centralized ad- ministration under Cyrus McCormick. They failed, however, to unify the activities of the constituent companies. Finally, in 1906, at the insistence of George W. Perkins, the Morgan partner who was chairman of the Harvester board, the managers and facilities of the other companies were consolidated into the core organization of the old McCormick firm.
Once administration had been fully centralized, International Harvester began to develop a full line of agriculture products—plows, harrows, seeders, spreaders, and the like—to utilize more fully the company’s facilities. After 1906 the company also began to expand its overseas operation. Producers of these other types of agricultural implements soon responded to International Harvester’s moves. John Deere, Moline Plow, J. I.Case, Advance-Rumely, and others began to make and sell harvesters and reapers and expanded their overseas activities.71
By 1917 a number of large vertically integrated, full-line agricultural machinery makers were competing for the same markets in the United States and abroad. As in comparable industries, the larger companies— International Harvester and John Deere—became the price leaders. These firms continued to contest for their share of the market by advertising, after-sales service, credit, and aggressive canvassing. They also competed by improving their products—the coming of the gasoline engine hastened such product innovation—and by speeding up the processes of production. All enlarged their experimentation or research departments. They concentrated much more on foreign markets than they did before 1900. For example, by 1911 International Harvester was operating plants in Canada, Sweden, France, Germany, and Russia.72 In Russia it was developing a fully integrated operation comparable to that of Singer. By that year, Mira Wilkins notes, 40 percent of the International Harvester business and even a higher portion of its net earnings came from foreign sales.
The patterns of growth and competition in the agricultural machinery industry were fully defined well before World War I. The same firms continued to dominate their industry for the rest of the century. They continued to grow by internal expansion and, as did meat packers, by diversifying into markets that made use of their existing facilities and management. Their organizations and their methods of competition dif- fered from those of the packers and the cigarette companies because they produced durable rather than perishable or semiperishable goods; because their products were far more costly and complex; and because both the product and the processes of production lent themselves to continuing technological innovation. The marketing and distribution of such goods required the creation of a disciplined, trained force of salaried employees to make the sales, to provide continuing servicing, to handle the long-term credit arrangements, and to coordinate flows of goods to the customers and of cash to the central office. Their production required close attention to improving the techniques of mass production through the fabricating and assembling of interchangeable parts.
The manufacturers of heavier but relatively standardized machines— generators, motors, streetcars, subway systems, telephonic transmitting equipment, elevators, pumps, boilers, steam engines, printing presses, radiators, shoe machinery, and the like—operated under comparable con- ditions. The difference was that their processes and products were tech- nologically even more complex. The installation and maintenance of their products were tasks which often only the manufacturer had the necessary skills to handle. Moreover, the makers of the products usually knew more about their potential uses, their standards of performance, and their oper- ating requirements than did the customer. Such machinery was expensive. Payments required long-term arrangements tailored to the customer’s needs. So competition in these industries was even less on the basis of price than it was in the light machinery trades.
In these industries, product improvement and innovation became an even more powerful competitive weapon, far more effective than adver- tising or canvassing. Such product development called for the closest cooperation between the engineers who designed the product and the managers who were responsible for its manufacture. As Harold C. Passer, the historian of the electrical manufacturers, has written about marketing at General Electric and Westinghouse in the 1890s: “The competition in reality was between the engineering staffs of the two companies. If the engineers of one company were able to design a motor that met the cus- tomers’ wants better than the second company’s motor, the engineers of the second company had to improve their motor or run the risk of losing their market.”73 The sales force provided the engineers with information on the customer’s specific wants and the types of performance they expected from a machine. The engineers in turn had to be in constant conversation with the managers of the production department if the factory was to have the equipment to manufacture the product desired. In such industries coordination meant more than maintaining a high- volume of flow of goods through the processes of production and dis- tribution. It meant coordination between customers with technologically complex requirements and manufacturers with even more complex pro- ducing equipment. The flow of ideas as well as goods had to be co- ordinated.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.