The Modern Business Enterprise: The Professionalization of Management

The techniques of industrial management developed at General Electric, Du Pont, and General Motors spread rapidly. During the 1920s the new accounting, budgeting, and forecasting methods were becoming normal operating procedures. Once the strategy of diversification created or intensified the need for a multidivisional structure, that organizational form was speedily adopted.

One reason for the rapid spread of the new techniques was the growing professionalization of the managers of large industrial enterprises. Such professionalization took much the same form as it had with the railroad managers in the 1870s and 1880s and with mechanical engineers in the 1890s and 1900s. Professional societies were formed, professional journals published, and professional courses established in major American colleges and universities. In the early years of the twentieth century, such societies, j ournals, and courses appeared first for the functional middle managers, in finance, marketing, and production, and then for general top managers.

Salaried managers in financial offices of the new enterprises were the first to develop such a professional apparatus partly because their activities were the most closely tied to earlier developments in railroad and factory operations. The modern accounting profession in the United States had two roots, the auditors and the cost accountants.12 Managers in the auditing and accounting departments of railroads had formed their own national association in the 1880s. During the 1880s and 1890s investment bankers had brought certified public accountants to New York from Britain to assist them in railroad reorganization. For example, in 1890 the British firm of Price, Waterhouse & Co. opened a branch in New York, and during that decade other English and Scottish firms followed suit. In 1897 members of these firms helped to form the American Association of Public Accountants, which included railroad comptrollers as well as executives from accounting firms. That association grew quickly after the merger movement created a demand for auditors and certified public accountants in industry as well as in railroads. In 1905 the association that had published the proceedings of its meetings began to support the monthly Journal of Accountancy. In 19 16 it attempted to broaden its appeal to other types of accountants by changing its name to the American Institute of Accountants in the United States of America, but it continued to be primarily an association for auditors.

The pioneers in cost accounting were, on the other hand, the industrial engineers who developed new techniques as they systematized the factory management and attempted to make it more scientific. During the first decade of the new century these men continued to describe their work primarily in the Transactions of the American Society of Mechanical Engineers and in Engineering News and the American Machinist. Alexander H.Church, Harrington Emerson, H. L. Arnold, L. P. Alford, and other cost accounting innovators were publishing numerous articles in these journals dealing with overhead standard costing, factory burden, and accounting controls.13

During the second decade of the century both financial and cost ac- counting began to be taught extensively in colleges and universities. In 1900 accounting courses were given in only 12 institutions of higher learning, and these courses were little more than surveys of commercial bookkeeping. By 1910 , 52 colleges and universities offered accounting courses, and by 1916 the number had risen to 1 16 . 14 By then, these courses included auditing, public accounting, and cost accounting. Significantly, the first association to include cost accountants was the American Association of University Instructors in Accounting, formed in 1915 , which became the American Accounting Association after the First World War. In 1926, when that association began to publish The Accounting Review, a separate National Association of Cost Accountants had already been formed.

Marketing lagged somewhat behind finance and accounting in devel- oping comparable professional activities. Trade journals had flourished since the 1850s, first in the basic dry goods, hardware, grocery, drug, and other trades, and then in more specialized ones. These journals, however, concentrated on discussing commodities and markets. Then in 18 88 PrintersInk was established as a journal for advertising managers and firms. Neither Printers’ Ink nor the trade journals devoted space to more general methods and procedures of distribution, marketing, and purchas- ing. On the other hand, such topics made up the agenda of the meetings of the first national marketing association founded in 1915 . Articles about these matters appeared in its Proceedings and later in the association’s Journal of Marketmg. These themes were also at the core of courses on marketing that had been established by 191 o in the new schools of business. And as was the case with the cost accountants, these teachers formed the first professional marketing association.15

Professional organizations and journals for factory and production managers grew out of those originally formed by mechanical, electrical, and other types of engineers. The leaders of the movement for scientific management were particularly anxious to find a more congenial home than the American Society of Mechanical Engineers. The ÂSME, they complained, paid too much attention to engineering and too little to man- agement.16 The small American Association of Industrial Management was started in 1899. Then in 1911 Frank Gilbreth formed the Society for the Promotion of the Science of Management which later became the Taylor Society. Still later it merged with the Society of Industrial Engineers to become the Society for the Advancement of Management. Until World War I these management associations were concerned largely with factory management and production engineering.

Immediately after the war, however, general managers formed their own organizations. In 1919 the founding of the Administrative Management Association created a forum for papers and discussion on more general management problems. Its meetings, the contents of its Proceedings, and its monthly Administrative Management Magazine appealed to managers in both government and business administration. Then in 1925 a small association of specialists in personnel matters reorganized their society to form the American Management Association, which quickly became the leading professional organization for top and middle management in American business corporations. Its meetings and its publications focused on the overall administration, operation, and control of the modern business enterprise.

A major periodical devoted to general management had appeared even before the formation of the American Management Association in 1925 . Before the war, Engineering Neves began to carry articles that dealt with more than factory management. In 1916 it changed its name to Industrial Management. Earlier, System, which Arch W. Shaw had made the most successful periodical devoted to general business affairs, occasionally published pieces on enterprise management. By 1921 the demand for such material led to the founding of Management and Administration, a journal designed specifically to meet the needs of corporate management. It was in this periodical that Donaldson Brown, Charles S. Mott, and other senior executives at General Motors in 1924 explained in detail the organizational control and accounting procedures they had devised during the reorgani- zation of their giant enterprise.17 During the 1920s many of the leading experts on corporate management as well as managers of major corpora- tions contributed to this journal.

Central to the professionalization of management in the new multiunit business enterprises were modern business schools. Their appearance marked an educational development that was at that time unique to the United States. In the late nineteenth century, business education consisted of little more than the teaching of bookkeeping and secretarial skills in small specialized private schools of commerce and, increasingly, in public high schools. Only the University of Pennsylvania’s undergraduate Whar- ton School of Commerce and Finance, founded in 18 81 , offered courses in business, and these included little more than commercial accounting and law. In the decade after 1899, business education became part of the curriculum of the nation’s most prestigious colleges and universities. The University of Chicago and the University of California set up undergraduate schools of commerce in 1899. In 1900 New York University and Dartmouth, with its Amos Tuck School of Administration and Finance, followed suit.18 By the time Harvard opened its Graduate School of Business Administration in 1908, professional postgraduate business education was already off to a good start.

The initial offerings of the new Harvard Business School indicate a concern from the start with the training of managers for large multiunit enterprises.19 The three required courses—accounting, commercial law and contracts, and a general course on the commerce of the United States— reflected the older commercial orientation of the American economy. But the electives were on the management of transportation, industrial, and marketing firms. In railroading the electives included Railroad Organization and Finance, Railroad Operation, and Railroad RateMaking. In finance there was a course in corporate finance as well as one in banking and one in life insurance. By 1914 the required course in American commercial activities had become one in marketing, focusing on management rather than on specific trades or commodities. As the school’s historian has explained about this course: “Marketing comprehended the whole process of physical distribution, demand activation, merchandising, pricing, and other activities involved in the exchange of products and services.”

From the start Industrial Organization was one of the most popular courses. It always included more than just the study of factory manage- ment. The course was set up by Arch W. Shaw, who came to the Harvard Business School after turning over the administration of his Chicago pub- lishing house to subordinates. At first Shaw relied quite heavily on outside lecturers. In 191 o these included Frederick W. Taylor, Harrington Emerson, Carl Barth, Morris Cooke, Charles Day, and C. H. Going, all leading practitioners of the new systematic and scientific management. Also lec- turing were two senior managers from General Electric. One, W. C. Fish, spoke on “decentralized management.” The other, Russell Robb, had his talks on organization later published.

In the academic year 1911-1912 the school offered a course on Business Policy. Resulting from a series of discussions between Dean Edwin F. Gay and Arch Shaw, “its purpose was to develop an approach to business problems from the top management point of view.”20 At Shaw’s urging, this course and others used the case method of instruction in a manner similar to that developed at the Harvard Law School. Business Policy soon became the core course of the curriculum at the Harvard Business School, and the case method its primary method of teaching. In developing cases and in making assignments, the instructors at Harvard and the other new schools of business were able to draw on the wave of books appearing after 1910 on accounting, finance, marketing, and industrial organization, written by Taylor, Going, Robb, Shaw, Paul T. Cherington, Dexter Kimball, Ralph S. Butler, Hugo Diemer, Lewis D. Haney, Edward D. Jones, and many others.

Another evidence of professionalism was the appearance of the man- agement consultant. Before World War I engineering consultants like Taylor, Emerson, and Cooke were giving professional advice on more than just factory management. By the end of the First World War, firms like Arthur D. Little, Inc., Day & Zimmerman, and Frazer and Torbet had become primarily management rather than engineering consultants.21 As early as 1911, Arthur D. Little was advising General Motors on the creation of a Technical Laboratory. In 1921 Day & Zimmerman had provided, at the request of the bankers who helped the du Ponts refinance General Motors, advice on its internal reorganization. Frazer & Torbet, formed in 1917, advised on the reorganization of both corporate and governmental structures. An early associate and partner, James O. Mc- Kinsey, in 1925 set up his own firm which became and remained one of the leading management consulting firms in the world. By the^ 1920s comparable consulting firms provided expert advice on functional activities, including the newer ones of personnel and public relations.

The appurtenances of professionalism—societies, journals, university training, and specialized consultants—hardly existed in the United States in 1900. By the 1920s they were all flourishing. Even then they were still uniquely American, and did not appear in any strength in other economies until after World War II. They developed in American industry, much as they had in railroading, to provide channels of communication through which managers could review and discuss similar problems and issues. And by providing communication and personal contact they helped to give the corporate managers a sense of self-identification. By attending and partici- pating in the same meetings, by reading and writing for the same journals, and by having attended the same type of college courses, these managers began to have a common outlook as well as common interests and concerns.

The impact of these professional activities was, of course, gradual. In the 1920s the societies were still small, the journals not too widely read, and the business school graduates still in the lower ranks of management. By the mid-twentieth century, however, professionally oriented, salaried career managers were the men who had taken charge of the large multiunit enterprises dominating the critical sectors of the American.economy.

Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.

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