The Railroads in 1850s-1860s: Structural Innovation

Such constant coordination and control were, however, fundamental to the management of the railroads. Once a large road was financed, con- structed, and in operation, the next challenge t was that of management. Without the building of a managerial staff, without the design of internal administrative structures and procedures, and without communicating internal information, a high volume of traffic could not be carried safely and efficiently. Obtaining the full potential of the new technology called for unprecedented organizational efforts. No other business enterprise, or for that matter few other nonbusiness institutions, had ever required the coordination and control of so many different types of units carrying out so great a variety of tasks that demanded such close scheduling. None handled so many different types of goods or required the recording of so many different financial accounts.

The men who faced these challenges were a new type of businessman. It is worth emphasizing again that they were salaried employees with little or no financial interest in the companies they served. Moreover, most had had specialized training. The pioneers of modern management—George W. Whistler of the Western, Benjamin Latrobe of the Baltimore & Ohio, Daniel C.McCallum of the Erie, Herman Haupt and J. Edgar Thomson of the Pennsylvania, John B. Jervis of the Michigan Southern, and George B. McClellan of the Illinois Central—were all trained civil engineers with experience in railroad construction and bridge building before they took over the management of their roads.21 Because they worked for a salary and not a share of the profits, because they had professional training and had developed professional expertise, their way of life was much closer to that of the modern manager than to that of the merchants and manufacturers who owned and operated business enterprises before the coming of the railroads.

To meet these unprecedented challenges these engineers had little to go on. The operation of the early canals and turnpikes provided few clues. The first railroads with their small size and light traffic developed only a modicum of useful experience. Nor did the managers of the first large roads borrow directly from the practices and procedures of military or other nonbusiness bureaucracies. Of the pioneers in the new managerial methods, only two—Whistler and McClellan—had military experience, and they were the least innovative of the lot.

The military model may, however, have had an indirect impact on the beginnings of modern business management. Because the United States Military Academy provided the best formal training in civil engineering in this country until the 1860s, a number of West Point graduates came to build and manage railroads. Some of these West Point trained engineers had served in or had an acquaintance with the Ordnance Department or the Corps of Engineers, two of the very few professionally manned, hierarchical organizations in antebellum America.

Yet even for such officers, engineering training was probably more important than an acquaintance with bureaucratic procedures. There is little evidence that railroad managers copied military procedures. Instead all evidence indicates that their answers came in response to immediate and pressing operational problems requiring the organization of men and machinery. They responded to these in much the same rational, analytical way as they solved the mechanical problems of building a bridge or laying down a railroad.

These administrative challenges first appeared in the 1850s when the railroads grew large enough to require the coordination of the activities of several geographically contiguous operating divisions. The operations of the early small roads remained relatively simple, although even the earliest railroads required the management of more varied activities than did a contemporary textile mill or armory. An early road from thirty to fifty miles in length with relatively heavy traffic employed about fifty workers and was administered by a superintendent who had under him a manager responsible for each of the road’s major functional activities: transportation and traffic, maintenance of way, and maintenance of locomotives and rolling stock. On lightly traveled roads the superintendent himself often supervised the functional activities and arranged for and maintained train schedules.

On these early roads personal management was easy; the superintendent and his functional assistants worked out of the same office. As in a New England textile mill, the superintendent conferred weekly with the treasurer or president, and occasionally with the board of directors. The treasurer maintained the books which were, in the words of the Boston & Worcester directors, “kept in a strictly mercantile style, according to the Italian method of bookkeeping by double entry.”22

The coordination of the movements of trains and the flow of traffic did not yet raise complex scheduling problems. For example, on the busy forty- four-mile Boston & Worcester Railroad, passenger trains left each terminal at precisely the same time—6: oo A.M, 12:00 noon, and 4:00 P.M.23 One daily freight train departed immediately after the morning passenger train. The trains would meet at the mid-point, Framingham. Neither train would move on to its destination until the other had pulled into the station. On the longer but more lightly traveled roads to the south, trains ran one way one day and the other way the next. Except for the Western, which in 1840 became the first intersectional railroad in the country by connecting Worcester and Albany, no road before 1850 demanded a complicated operating structure.

As the Western neared completion, the inadequacies of the traditional, personal methods of management became clear. That road, which was just over 150 miles in length, had been built in three different sections or divisions. As each came into operation, each became a separate operating division with its own set of functional managers. Because of the road’s length, the morning passenger train that started from Worcester at 9:30

A.M. did not reach the western terminal on the Hudson River until late that afternoon. As the company ran three trains a day each way (two passenger trains and one freight), the trains moving in opposite directions met twelve times daily. Since they ran on a single track, without the benefit of telegraphic signals, through mountainous terrain, such scheduling threatened tragedy. It came quickly. Even before the road had reached the Hudson River, the Western suffered a series of serious accidents, culminating in a head-on collision of passenger trains on October 5, 1841, killing a conductor and a passenger and injuring seventeen others.

The resulting outcry helped bring into being the first modern, carefully defined, internal organizational structure used by an American business enterprise. After the accident, the Massachusetts legislature launched an intensive investigation into the operations of the Western. The American Railroad Journal and Mecha?iics Magazine called for administrative reform. The company’s directors, fully agreeing, appointed a committee of three directors (two Boston businessmen and a physician) and the engineer in charge of construction, Major George W. Whistler, to find a remedy.

The solution outlined in the committee’s “Report on Avoiding Collisions and Governing the Employees” was, in the words of the road’s historian, to fix “definite responsibilities for each phase of the company’s business, drawing solid lines of authority and communication for the railroad’s administration, maintenance, and operation.”24 The new organizational structure called for a comparable set of functional managers on each of the three geographically contiguous operating divisions and then the creation of a headquarters at Springfield to monitor and coordinate the activities of the three sets of managers. Each division had its assistant master of transportation (later called division superintendent), its road- master, and its senior mechanic or foreman in charge of roundhouses and shops.

On each division the assistant masters of transportation were responsi- ble for the movement of trains and of freight and passenger traffic, the roadmasters for the maintenance of way, and the mechanics for the repair and maintenance of locomotives and rolling stock. The assistant masters of transportation reported to the master of transportation at Springfield headquarters, the mechanics to the master mechanic, who headed the main shops in Springfield and who also reported to the master of transportation. The roadmasters, on the other hand, reported directly to the superintendent and not to the master of transportation as did those in the other functional departments. The superintendent (soon to be the general superintendent) was responsible to the president and directors for the operation of the road. All managers were to make regular reports based on the information received from their subordinates: station agents, conductors, locomotive engineers, the shop foreman, and the foreman of repair gangs. To prevent accidents, precise timetables were determined by the division superintendents working with the master of transportation and the general superintendent. These were given to the conductor who had “sole charge of the train,” and who was given detailed instruction about how to handle delays or breakdowns.25 No changes could be made in the schedules without written permission from the master of transportation and then only after consultation with his three division managers.

The need to assure safety of passengers and employees on the new, high- speed mode of transportation made the Western Railroad the first American business enterprise to operate through a formal administrative structure manned by full-time salaried managers. This embryonic modern business enterprise included two middle managers—the master of trans- portation and the master mechanic—and two top managers—the super- intendent and the president. The latter, who became in 1852 a full-time officer, was the link between the full-time salaried managers and the part- time representatives of the owners elected to the board of directors.26

When other long and heavily traveled lines came into operation in the early 1850s, the most important of these being the lines that connected the east and the west and the first major lines in the west, they began to create organizational structures similar to that of the Western Railroad. By then it was the volume and velocity of traffic rather than the need for safety that demanded better organization. The coming of the telegraph in the late 1840s, as well as the perfection of procedures first developed on the Western, helped to make rail travel relatively safe. But the great increase in the volume of the railroad’s business made a smooth and efficient coordination of the flow of trains and traffic increasingly difficult. Where the Western as late as 1850 ran freight trains for a total that year of 453.000  miles, the Erie in 1855 ran a total of 1,676,000 miles; and where the Western carried 261,000 tons of freight in 1850, the Erie moved 842.000  in 1855. By 1855 the Erie was operating 200 locomotives, 2,770 freight, and 170 passenger and mail cars.27 Freight had become a more important source of income than passengers or mail for all the large roads.

Rising costs of moving freight underlined the problems of operating these longer lines efficiently. To their surprise, the managers and the direc- tors of the larger roads quickly realized that their per mile operating costs were greater than were comparable costs on smaller roads. The basic reason, argued Daniel C. McCallum, general superintendent of the New York and Erie, was the lack of proper internal organization:

A Superintendent of a road fifty miles in length can give its business his personal attention, and may be constantly on the line engaged in the direction of its details; each employee is familiarly known to him, and all questions in relation to its business are at once presented and acted upon; and any system, however imperfect, may under such circumstances prove comparatively successful.

In the government of a road five hundred miles in length a very different state exists. Any system which might be applicable to the business and extent of a short road, would be found entirely inadequate to the wants of a long one; and I am fully convinced that in the want of system perfect in its details, properly adapted and vigilantly enforced, lies the true secret of their [the large roads] failure; and that this disparity of cost per mile in operating long and short roads, is not produced by a difference in length, but is in proportion to the perfection of the system adopted.28

In perfecting such a system the senior managers on three of the four east-west trunk lines, none of whom had had military experience, made significant innovations in the management of modern, multiunit business enterprise. Benjamin Latrobe of the Baltimore & Ohio concentrated on the needs of financial accounting as well as operational precision. McCal- lum of the Erie articulated the principles of management for this new type of business enterprise; while J. Edgar Thomson of the Pennsylvania worked out the line-and-staff concept as a means of integrating more effectively the functional activities of several regionally defined operating units. The fourth trunk line, the New York Central, which had not been constructed like the others as a single work, but formed by a consolidation of many small lines, continued to be operated by merchants and financiers rather than by engineers. That road contributed almost nothing to the development of modern management.

The Baltimore & Ohio first reshaped its organization when it began to complete earlier plans to cross the mountains and reach the Ohio at Wheeling. In 1846 its president, Louis McLane, and its chief engineer, Latrobe, decided that the rapid growth of traffic, particularly from the newly opened coal mines, “the great augmentation of power and machinery demanded by the increasing business,” as well as the anticipated further expansion of traffic when the Ohio was reached, demanded “a new system of management.”29 Assisted by a committee of the board, Latrobe outlined a new set of regulations “after diligent investigation, with the aid of the experience of other roads in New England and elsewhere.” The objectives of the new plan were clearly defined:

[They] consisted in confining the general supervision and superintendence of all the departments nearer to their duties, and, by a judicious subdivision of labor, to insure a proper adaptation and daily application of the supervisory power to the objects under its immediate charge; in the multiplication of checks, and to effecting a strict responsibility in the collection and disbursement of money; in confining the company’s mechanical operations in their shops to the purposes of repairs, rather than of construction; in promoting the economical purchase and application of materials and other articles needed in every class of the service; and in affecting a strict and more perfect responsibility in the accounting department generally.30

The plan itself as set forth in a printed manual, Organization of the Service of the Baltimore & Ohio Railroad, began by departmentalizing the road’s functions into two basic activities: “First, the working of the road. Second—the collection and disbursement of revenues.”31 The second task was far more complicated than it had been in the early factories where only the mill agent or his clerk handled money, or on a canal where toll masters and senior engineers did the same. On a large railroad, scores of individuals—conductors, station agents, freight and passenger agents, purchasing agents, managers and foremen in charge of shops and round- houses and of the repair of track and roadbed—all had sizable sums of money pass through their hands each day.

Under the new system of management on the Baltimore & Ohio, finan- cial responsibility was centralized in the company’s treasurer, who not only supervised internal transactions but also handled external financing, including making the routine arrangements for assigning shares of stocks and bonds to the merchants and bankers who had agreed to market them, assuring the proper recording of sales and other transfers of securities, and sending out dividends and interest payments. Directly subordinate to the treasurer was the secretary who was wholly concerned with internal transactions. (In a short time the secretary’s duties became those of the comptroller.) He inspected all passenger and freight accounts and super- vised those who routinely handled the company’s monies. Under the secretary was the chief clerk, into whose office in Baltimore flowed receipts and reports from all agents and conductors who received or disbursed funds along the road line. The chief clerk’s office not only compiled and audited these accounts but also began to issue “daily comparisons of the work done by the road and its earnings with the monies received therefor.” Daily figures were in turn summarized into monthly reports. These data thus became tools of the management as well as checks on the honesty and the competence of railroad employees. The reports remained, however, only records of financial transactions. Though detailed and numerous, they were not yet consolidated and reorganized to permit a realistic analysis of the costs involved in operating the road.

In organizing the operating department, Latrobe set up a structure similar to that of the Western to integrate the three major types of functional activities in the two (and when the road reached Wheeling, three) geographical divisions.’2 He reshaped the lines of responsibility for operation “by confining the departments of transportation, of construction and repairs of the road, and of repairs of machinery to a separate superintendency, each being subject to the immediate supervision of a professional engineer, under the direction of the President.”33 The heads of these departments were responsible for carrying out their carefully defined duties and for appointing subordinate managers and employees, usually with the “concurrence of the General Superintendent and the President.” The functional managers of the Baltimore & Ohio then reported directly to their superiors in the central headquarters. As on the Western, the managers in the transportation department became responsible for the movement of traffic as well as the movement of trains.

The general superintendent was the key administrator. The organiza- tional manual described this manager as “an officer of general duty . . . who besides duties peculiar to himself is charged with the supervision and control of the whole system, subject to the President and Directors.” Into his office flowed a series of reports. Each of the operating departments forwarded weekly and monthly statements. The master of machinery, for example, was to report on “the condition and performance during the week of each locomotive and engine in service or under repair—the condition of the cars, and also the stationary machinery and workshops— and will present a monthly estimate of the probable expenses of their repair during the ensuing month.” Besides reading reports, the senior operating executive maintained constant communication with department heads regarding problems and policies, inspected the road’s facilities, and conferred with the president and the road’s financial officers.

Daniel C. McCallum of the Erie further shaped the organizational form developed on the Western and the Baltimore & Ohio. After its completion in 1851 the Erie had been plagued by high operating costs. These threatened to become intolerable when, in the spring of 1853, the short lines along the Erie Canal consolidated to form a single enterprise, the New York Central, and so make that route a much more effective competitor for through traffic. That autumn Erie’s board sought to reorganize its administrative structure in order to insure a more precise accountability and control over expenses and a more effective appraisal of men and managers. The directors hoped to achieve this objective by making available “comparisons of the expenses of the various operations with those of similar roads, with the several divisions of the road itself; and the expense of different conductors, engine-men, etc. with each other.”34

To carry out this task the directors promoted McCallum from super- intendent of one of the road’s five operating divisions to general superin- tendent. When McCallum took office, the Erie had already adopted a structure similar to that of the Western and the Baltimore & Ohio.35 Although he did define more precisely the lines of authority and respon- sibility, McCallum’s major contribution consisted, first, of enunciating “general principles” of administration and, second, of perfecting the flow of internal information so essential for top and middle management to coordinate complex widespread activities and to monitor and evaluate the performance of the large number of managers handling them. McCallum emphasized that a definition of “general principles” was particularly necessary because “we cannot avail ourselves to any great extent of the plan of organization of shorter lines in framing one for this, nor have we any precedent or experience on which we can fully rely in doing so.”36 For McCallum the six basic principles of. general administration were these:

  1. A proper division of responsibilities.
  2. Sufficient power conferred to enable the same to be fully carried out, that such responsibilities may be real in their character [that is, authority to be commen- surate with responsibility].
  3. The means of knowing whether such responsibilities are faithfully executed.
  4. Great promptness in the report of all derelictions of duty, that evils may be at once corrected.
  5. Such information, to be obtained through a system of daily reports and checks, that will not embarrass principal officers nor lessen their influence with their subordinates.
  6. The adoption of a system, as a whole, which will not only enable the General Superintendent to detect errors immediately, but will also point out the delinquent.

In putting these principles into practice, McCallum gave the superintendents in charge of geographical divisions the power to carry out their responsibilities for the day-to-day movement of trains and traffic by an express delegation of authority. These regional officers were to be:

held responsible for the successful working of their respective Divisions, and for the maintenance of proper discipline and conduct of all persons employed thereon, except such as are in the employment of other officers acting under the directions from this office, as hereinafter stated. They possess all the powers delegated by the organization to the General Superintendent, except in matters pertaining to the duties of General Ticket Agent, General Freight Agent, General Wood Agent, Telegraph Management, and Engine and Car Repairs.

This power included control over the hiring and firing of subordinates, subject to the veto of top management. In McCallum’s words, each officer had “the authority with the approval of the President and General Superintendent to appoint all persons for whose acts he is held responsible, and may dismiss any subordinate when, in his judgment, the interest of the company will be promoted thereby.” The Erie’s general superintendent stressed the value of adhering to explicit lines of authority and communication. “All subordinates should be accountable to and be directed by their immediate superiors only; as obedience cannot be enforced where the foreman in immediate charge is interfered with by a superior officer giving orders directly to his subordinates.”

McCallum, nevertheless, failed to define precisely the relationship between the geographical division superintendent and the other functional managers of the division who reported to the general superintendent. He saw the problem clearly enough, pointing out that there were “some exceptions” to the rule that subordinates can communicate only through their senior officers. For example, “Conductors and station agents report, daily, their operations directly to the General Superintendent,” and not to their division superintendents. He thought that the general superintendent would have the time and information needed to coordinate these activities. To illustrate more clearly these lines of authority, McCallum drew up a detailed chart—certainly one of the earliest organization charts in an American business enterprise.

McCallum stressed that channels of authority and responsibility were also channels of communiation. He paid close attention to improving the accuracy of the information and the regularity and speed with which it flowed through these channels. Hourly, daily, and monthly reports were more detailed than those called for on the Baltimore & Ohio. The hourly reports, primarily operational and sent by telegraph, gave the location of trains and reasons for any delays or mishaps. “The information being edited as fast as received, on convenient tabular forms, shows, at a glance, the position and progress of trains, in both directions on every Division of the Road.” Just as important, the information generated on these tabular forms was filed away to provide an excellent source of operational information which, among other things, was useful in determining and eliminating “causes of delay.” McCallum’s use of the telegraph brought universal praise from the railroad world both in this country and abroad. What impressed other railroad managers was that McCallum saw at once that the telegraph was more than merely a means to make train movements safe. It was a device to assure more effective coordination and evaluation of the operating units under his command.

Daily reports, the real basis of the system, were required from con- ductors, agents, and engineers. These were then consolidated into monthly statements. Reports on each locomotive, for example, included miles run, operating expenses, cost of repairs, and work done. Such data, flowing regularly from the division superintendents and other operating officers to the general superintendent, were supplemented by further detailed information provided both by the divisional managers and the heads of the functional departments. This information, so essential for regular and economical flow of trains and traffic, also made possible the comparison of work of the several operating units with one another and with those of other railroads. It provided the comparative statistics that the directors had asked for in the 1853 report. In order to have a constant and impersonal evaluation of the performance of the road’s operating managers, “it is very important,” McCallum insisted, “that principal officers should be in full possession of all information necessary to enable them to judge correctly as to the industry and efficiency of subordinates of every grade.” In order to permit a more effective evaluation McCallum called for each of the five operating divisions to have its own separate and detailed set of accounts.

Central to coordinating flows and evaluating performance, these statis- tical data were also, McCallum pointed out, essential in understanding and controlling costs and in setting rates. The Erie and other roads had recently raised their rates, which they had found to be “unremunerative,” only to discover that in so doing higher rates had threatened to “destroy this business.”38 By cutting traffic they had reduced net revenue. “To guard against such a result, and to establish the mean, between such rates as are unremunerative and such as are prohibitory, requires an accurate knowledge of the cost of transport of the various products, both for long and short distances.” Important too was an understanding of the traffic flows along the line, for prices should be “fixed with reference to securing, as far as possible, such a balance of traffic in both directions as to reduce the proportion of ‘dead weight’ carried.” Unused or excess capacity on a return trip warranted lowering prices for goods going that way. McCal- Ium’s concern, however, was almost wholly with operating costs and revenues. He said little about what costs should be allocated to construc- tion or capital accounts. Nor did he consider ways to account for longterm depreciation of engines, rolling stock, rails, and other equipment.

McCallum’s organizational innovations received wide attention. Henry Varnum Poor, the editor of the American Railroad Journal, was particularly impressed by his achievements and devoted much space to them. For example, Poor noted in 1854 that McCallum was already increasing the Erie’s efficiency at the same time he reduced the size of its work force. Moreover, he continued:

By an arrangement now perfected, the superintendent can tell at any hour in the day, the precise location of every car and engine on the line of the road, and the duty it is performing. Formerly, the utmost confusion prevailed in this department, so much so, that in the greatest press of business, cars in perfect order have stood for months upon switches without being put to the least service, and without its being known where they were. All these reforms are being steadily carried out as fast as the ground gained can be held.39

Poor had McCallum’s organization chart lithographed and offered copies for sale at $1 apiece. Douglas Galton, one of Britain’s leading railroad experts, described McCallum’s work in a parliamentary report printed in 1857. So too did the New York State Railroad Commissioners in their annual reports. Even the Atlantic Monthly carried an article in 1858 praising McCallum’s ideas on railroad management.40

McCallum’s principles and procedures of management, like his organi- zation chart, were new in American business. No earlier American busi- nessman had ever had the need to develop ways to use internally generated data as instruments of management. None had shown a comparable con- cern for the theory and principles of organization. The writings of Montgomery and the orders of plantation owners to their overseers talked about the control and discipline of workers, not the control, discipline, and evaluation of other managers. Nor does Sidney Pollard in his Genesis of Modern Management note any discussion about the nature of major principles of organization occurring in Great Britain before the 1830s, the data at which he stops his analysis.41

McCallum’s methods and concepts of administration were tested and further rationalized on the Pennsylvania rather than on the Erie. Before the end of the 1850s the Erie had fallen into the hands of unscrupulous financiers who, like its notorious treasurer Daniel Drew, cared little about efficient administration. McCallum soon left the road to develop a profita- ble bridge-building business. On the Pennsylvania, however, engineers rather than financiers continued to run the road. J. Edgar Thomson, the builder and first superintendent of the Georgia Railroad, had come to the Pennsylvania in 1849 to take charge of its construction. In 1852, he became its president and controlled its destinies until his death in 1874. When Thomson took command, he modified the centralized administrative structure set up by Herman Haupt, a highly successful civil engineer who had been the general superintendent of the road since 1849. Thomson’s first move was to follow the example of his competitors and to separate the road’s financial and operating departments.42 The modified organization remained quite adequate until 1857.

Then increasing traffic plus rising costs and the onslaught of a business depression brought a major reorganization. Thomson enlarged his central office, this time separating the accounting from the treasury department and creating a secretary’s office and a legal department.43 The legal depart- ment was similar to one Latrobe had set up on the Baltimore & Ohio. The two were among the first such departments to be established in an American business firm and handled the ever-increasing legal work in- volved with contracts, claims, and charters. Thomson appointed a new middle manager “controller and auditor” as the head of the new accounting department and placed under him two “assistant auditors” and several senior clerks. At the same time, Thomson set up a purchasing department to handle the centralized buying of supplies for the company as a whole. Finally he greatly expanded the staff of the general freight agent. Both the new purchasing and the enlarged freight office were placed in the trans- portation department.

Thomson’s major achievement was to clarify relations between the functional offices of the division and those of the central office. In so doing he relied heavily on the Erie model. The organization manual which Thomson signed in December 1857 included many of McCallum’s words and phrases. Thomson’s plan, however, differed from McCallum’s because  he centralized the authority, as well as the responsibility for the moving of trains and traffic, and put this authority in the hands of the division superintendents in charge of transportation. They were explicitly delegated the authority to give orders to men and managers in the other functional departments. In the words of the 1857 manual:

The Division Superintendent shall, on their respective Divisions (subject to the directions and approval of the General Superintendent), exercise all the powers delegated by the organization to the General Superintendent, for the control and the use of the road, its branches and connections, for the transportation of Freight and Passengers, including the movement of Motive Power employed thereon, whether engaged in the transportation of Freight and Passengers, or in the construction and repairing of the road, or the supply of fuel and materials. They shall also have general charge of all employees connected with Motive Power and Transportation on their respective divisions, and see that they perform the duties assigned them, and shall render such assistance to the Master of Machinery in preserving discipline, in the arrangement of the Locomotives to their particular service, in securing the services of competent engine men, and other responsible persons for the Motive Power, as the General Superintendent and the best interests of the company may require. They shall be furnished with copies of all rules and regulations, and orders to foremen of shops, and others holding positions of responsibility and trust connected with the Motive Power or Transportation of the company, and shall enforce their observance.

Thus the division superintendent was on the direct line of authority from the president through the general superintendent. All orders con- cerning the movement of trains and traffic went out of the division superintendent’s office to workers in the motive power, maintenance of way, and transportation departments. The master of machinery set rules and standards for “the discipline and economy of conducting the business of the shops,” and he or his divisional assistants hired, fired, and promoted people in their departments. But even in these activities, they were to have, as the new organizational manual emphasized, the “assistance” of the division superintendents.44 In a short time the same became true for the chief engineer and his subordinate engineers responsible for the main- tenance of way.45 This line-and-staff concept, by which the managers on the line of authority were responsible for ordering men involved with the basic function of the enterprise, and other functional managers (the staff executives) were responsible for setting standards, was first enunciated in American business by the Pennsylvania Railroad in December 1857.

The decentralized line-and-staff divisional form of organization initially put into operation on the Pennsylvania became, in the years after the Civil War, widely used, though often in a modified form, by other large Ameri- can railroads, including the Michigan Central, the Michigan Southern, and the Chicago, Burlington & Quincy.40 On these and other roads the division engineers (responsible for maintenance of way) reported at first to the chief engineers who remained primarily responsible for completing the construction of the road. Once the road was built the chief engineer joined the staff of the general superintendent as a “consulting engineer” and the division engineers reported directly to their division superintendent. Once construction was completed, large American railroads had two major departments: one for operations and one for finance. Only in the 1870s did they add a third—the traffic department. Figure 2 is an organization chart showing the line-and-staff structure on a large railroad in the 1870s. By then full-time vice presidents headed the major functional departments. (The largest roads might have as many as nine divisions and three general superintendents.)

Not all railroads adopted this decentralized divisionalized structure. Indeed, a more “natural” form of organization was generally used by the British and European railroads.47 In what became known as the “depart- mental” structure, the president and general superintendent did not dele- gate their authority. Instead, the functional managers on the geographical divisions—transportation, motive power, maintenance of way, passenger, freight, and accounting—reported directly to their functional superiors at the central office. This was true of the New York Central and a number of other American roads, particularly those where managers gave little attention to the problems of organization.48 In time, however, nearly all the railroads in the United States carrying heavy traffic over long distances came to use the divisional line-and-staff type of organization.

By the coming of the Civil War the modern American business enter- prise had appeared among American railroads. The needs of safety and then efficiency had led to the creation of a managerial hierarchy, whose duties were carefully defined in organizational manuals and charts. Middle and top managers supervised, coordinated, and evaluated the work of lower level managers who were directly responsible for the day-to-day operations. In the 1850s large roads were already employing from forty to sixty full-time salaried managers, of whom at least a dozen and often more were middle or top management.49 In the 1850s top management included the president, the general superintendent, and the treasurer. By the 1870s it also included the executive in charge of the traffic department and a general manager who supervised the work of two or three general super- intendents. By then middle management included the general superin- tendents, their assistants, and the heads of machinery (motive power and rolling stock), maintenance of way, telegraph, freight, passenger, and purchasing offices within the transportation department; the controller and his assistants and the treasurer’s assistants within the financial depart-ment; and the heads of the legal department and secretary’s office. In addition, on the roads still being built, there were the chief engineer and his assistants who had charge of construction. No private business enterprise with as many managers or with as complex an internal organization existed in the United States—nor, except for railroads in Britain and western Europe, in any other part of the world.

Figure 2

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

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