General Electric adopted the centralized, functionally departmentalized operating structure even more readily than did American Cotton Oil and National Lead, not only because many senior executives were trained as engineers and its financiers were experienced students of railroad organization, but also because the merger was one of integrated firms that already had functional departments. Except in the metal-working industries, nearly all mergers were between single-unit, nonintegrated manufacturing firms. Integration came only after combination. And many firms moved far more slowly than had Standard Oil, American Cotton Oil, and National Lead from horizontal combination to vertical integration. Directors, like those of American Sugar and the earlier corn products companies, were reluctant to abandon the older strategy of horizontal combination. These efforts to maintain the status quo delayed still longer the adoption of a new administrative structure. Constituent companies continued as operating as well as legal units. The heads of the consolidated enterprise paid little heed to administrative problems and needs and thus rarely looked to other firms or other industries for administrative models.
The United States Rubber Company was just such a merger. Although that company was formed in 1892, eight months before General Electric came into being, its managers took two decades to perfect an organiza- tional structure comparable to that of General Electric. The manufacturers who put together the merger had little engineering training, and the financiers who assisted them had little direct connection with railroad management. Neither paid attention to long-term strategy or organiza- tional structure.
In 1892, after the merger, the many small rubber footwear and glove companies continued to operate much as they had done before con- solidation. In the following year, the holding company made a move to centralize purchasing.51 It then started to tighten its control over the manufacturing plants of its subsidiaries. By 1895 it began to set up its own branch regional sales offices to sell to jobbers. Soon it was buying out large wholesalers and transforming them into branch stores managed by salaried executives. A little later it began to integrate backward by building its own felting, wool boot, and boot hardware plants. Nevertheless, as it inched toward vertical integration and administrative centralization, it continued a policy of buying out competition. Its most important purchase came in 1898 when it obtained control of the Boston Rubber Shoe Company, an aggressive entrepreneurial enterprise that had built an effective national sales organization (with one major office abroad) and had remained the largest independent in the industry.52
As the rubber company’s annual reports bring out, administrative centralization was often painful. Formerly independent factory owners disliked taking orders from the central office. The heads of selling com- panies who became salaried managers had the same response. The annual report of 1896, in reviewing the company’s policies, noted that: “It may be that thereby some local interests have been antagonized and possibly some feelings of antagonism developed in individuals, but your management has sought to move on lines of general benefit without any personal motives.”53 By 1901, almost a decade after its formation, the United States Rubber Company was still in the process of transition.
With the coming of a new president in May 1901, the company’s top management began for the first time to think explicitly about strategy and structure.54 The new man, Samuel P. Colt, was an honors graduate of the Massachusetts Institute of Technology who, after some legal training and political and industrial experience, took charge of a rubber company that joined the 1892 consolidation. On becoming president, he decided to transform United States Rubber into a modern industrial corporation. In marketing he called for a major expansion of the branch stores that did the company’s wholesaling and appointed a manager with a separate office at sales headquarters to administer these units. In purchasing he formed the General Rubber Company in 1904 to buy crude rubber. This organization soon had offices in Liverpool and London and the rubber-growing areas of Brazil and the Dutch East Indies. In 1909 the company obtained the first of its rubber plantations in Sumatra. As early as 1904, the board decided to produce its own sulphuric acid plant for its rubber reclaiming processes and to have its own fleet of tank cars. Then, to house the enlarged company headquarters, Colt moved at the end of 1904 into a large building at 42 Broadway.
The organization chart of September 1902 (figure 9) outlines Colt’s first attempt to define the rubber company’s organization structure.55 It emphasizes the company’s evolutionary development. The constituent companies still retained operating functions as well as legal status. Middle management at U.S. Rubber was still small in numbers, and the lines of communication and authority were fuzzy. Boston Rubber Shoe had not yet been brought fully into the larger organization. Supervision of the plants was minimal. The company continued to rely on regular meetings of the plant superintendents, started in 1893, to set basic policies and procedures.56 The central sales staff, larger than that of manufacturing, included an advertising manager and a traffic office responsible for the coordination of the flow of goods from the factories to the wholesalers and in some cases large retailers. Financial accounts were not yet consolidated. Many of the operating units were apparently financially as well as legally autonomous. In 1902 uniform accounting was only beginning to be instituted throughout the company.57
Although its top management was still small in 1902, the company’s central office organization was becoming like that of General Electric. A first vice president had general supervision of operations, the second vice president of finance. Its financial staffs were growing. An executive committee had become the top decision-making unit. Unlike General Electric’s, it consisted of full-time managers. In fact, a majority of the board members were already such “insiders.”58
Once Colt and his managers had their company well on the road to vertical integration and administrative centralization, they turned to diversification as a way to use fully their existing facilities and organization. The production of belting, hose, insulating and flooring materials, sheeting and other industrial rubber products, and, above all, tires, for the new automobile market promised a different and steadier demand than that for footwear, whose market was seasonal and dependent on the weather. The development of such lines promised to make use of the company’s worldwide purchasing organization, its new chemical company, some of its production facilities, and its central office advertising and traffic departments. So, in 1905, United States Rubber purchased the Rubber Goods Manufacturing Company, a merger formed in 1892 and enlarged and reorganized in 1899.59 Colt quickly consolidated the Rubber Goods Company’s manufacturing operations and set up a small, separate sales organization to sell products that went to very different markets than did footwear. Tires were also sold through this same organization. Then, as the demand for tires boomed, the sales network was greatly enlarged.60
Not until 1912 did the company form a separate, central Development Department. Headed by Raymond B. Price, a chemist who had been in charge of the testing and control laboratories (the first established in the industry), the department took over administration of the company’s chemical activities. It quickly set up its central research laboratories and then extended its functions to include research in rubber growing, crude rubber processing, as well as product improvement.”1
Figure 9. Organization chart of United States Rubber Company, September 1902
The top decision makers at United States Rubber, like those at Standard Oil, rarely thought in terms of organization qua organization. Even after Samuel Colt’s appearance, little careful and systematic attention was given to organization problems. Offices were built, managers hired, and respon- sibilities defined in order to handle immediate and usually pressing needs that resulted first from the company’s forward and backward integration and then its expansion into new markets.
As the company’s organization chart for 1917 (figure 10) reveals, its structure was moving toward what became defined in the 1920s as the multidivisional form. By 1917 the company managed footwear, its original business, through an integrated division. On the other hand, tires and industrial rubber goods continued to be sold through a single sales force, even though they went to very different markets. The number of top managers had increased and the central staff included offices to handle purchasing, research and development, traffic, advertising, legal affairs, and finance. But the relationships between the central staff and the divisional managers and the staff and the general executives on the executive committee were not yet clear. Overlapping functions and activities existed, as well as confused lines of communication, authority, and responsibility. These remained until the company underwent a complete administrative reorganization in the late 1920s. The experience of United States Rubber, like that of Standard Oil, suggests that unless close attention was paid to organization matters, administrative confusion resulted.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.