THE SMALL, THE LARGE, THE GROWING BUSINESS 249 still small and when bOth their competence and their VISion was adequate to the job. As the company grew, the job grew. Ⅱ was lifted up if by geological pressure. But the man did not grow with the job. There is the bookkeeper who became comptroller of a large company because the accounting department grew under him and pushed him up. There is the plant superintendent who finds m ・ self in charge Of twenty plants because he was the senior foreman when the company started. These men Often dO not know how tO manage. lndeed, they 0ften d0 not even realize that these things are れ ow required of them. They still behave as if their job were t0 keep the cash ledger or t0 supervise four production foremen. As a result, they stifle, frustrate and crush the men under them. And because managements—with commendable senument—do not like to hurt these old-timers by promoting ople around them, they become a bottleneck depriving the entire company Of management talent. Growth always requires new and different competence in tOP management. lt requires that top management realize that its own function iS no longer tO know what goes on in the plant or in the regional sales Offces. lt is important indeed for top manage ・ ment t0 learn that the problem 0f size cannot be met by trying tO keep in communication with managers and employees as far down possible—that this is neither required nor even desirable. As the business gets larger, the job of top management acquires a different time dimension; the larger the business the further ahead in the future top management operates. lt requires a different ratiO between objective-setting and dOing; the larger the business, the more will top management concern itself with setting objectives, the less will it be concerned with the steps tO their attainment. lt requires different relations inside management. The emphasis in communication shifts: the larger the enterprise the less will top management be concerned With communications down, the 1 ore it will have tO work on establishing communications upwards, from lower management tO itself. Growth demands 0f management the understanding and applica ・ む on Of principles, rigorous emphasis on organization structure,

THE SMALL, THE LARGE, THE GROWING BUSINFSS 229 One example would be a large management consulting firm. "Large" here means about tWO hundred employees (which in an insurance ( om ・ pany would tiny and in the automobile industry impossibly small). Yet the business has all the "feel" of a large company, requires the organization structure and the attitudes and behavior Of large ・ company management. The reason is, of course, that everybody in a management consulting firm (excepting only se.cretaries, messengers and file clerks) is top management or at least upper middle management. A management ( on ・ sulting firm, like the Romanian Army, has only generals and ( 010nd5. And a senior management group Of tWO hundred men is large busineg indeed. Conversely, companies with a large force of employees may well fairly small business in every other respect, and_ especially in the demands on management structure and behavior. The best example I know is a water company supplying a large metrc» politan area. The company has 7 , 58 employees. But as the company's president puts it: "We don't need more management than a toy store does. " Being a franchised monopoly, there is no competition. The danger water's becoming obsolescent is remote. A good de of technical skill is needed in the building Of reservoirs, filter stations and pumping sta- tions, but the contractors supply that; all the engineering the company has to do can be done by the president himself ⅵ山 two engmeering draftsmen. CO ( 0n501 in meter-reading and billing is important; but again there are no business decisions here, only careful procedures WO て k. The only area that requires management 0f any sort are the relations with the s Public Utility Commission, the City Council and the public. But, as the president points out, they would be the same whether the company had 75 or 7 , 58 employees. Another example was the Hudson MOtor Car Company which was managed successfully as a medium-sized company until its recent merger with Nash-KeIvinator. lt had well over 20 , 000 employees. But it was only a margmal producer in the automobile market, supplying less than 3 per cent Of all cars 91d. Ⅱ was actually [ 00 small tO exist in an industry that must have national distribution and service; and in the end it had tO merge with another company, precisely because it was の 0 small. During the thirties, however, it prospered because it understood what means tO be a small company. lt understood, for instance, that a marginal supplier cannot get anywhere by undercutting price except intO bank ・ ruptcy. But it shrewdly competed by putting a higher price tag on its cars, which enabled it tO Offer a larger trade-in price for its used cars.

238 THE PRACTICE OF MANAGEMENT ence if they are as qualified as non ・ family members' but they should never be appointed or promoted in preference tO a better qualified non-family member Of management. The most important rule, howeven is tO make sure that planning' thinking, analyzing are not slighted under the pressure 0f action decisions. TOP management in the S Ⅱ 1a11 and in the fair-sized busi- ness should at least set aside one week each year for a planning and review conference. This conference should be held outside the offce. lt should be attended by every senior member 0f manage ・ ment. lt should focus on the needs 0f the company five years ahead and lead t0 the setting 0f objectives in all key areas. lt should ap- praise results in these areas achieved during the past year. And it should assign responsibility for performance in each area tO dividual members 0f the oup ・ T んど Pro と襯 $ 可おれ $ The first problem in the large and very large businesses is the organization and scope 0f the chief-executive job. What is the j0b? How should it be organized? What decisions should be made at the top? The means to tackle this problem have all been described. They ( on ・ sist pardy 0f the proper structural pri nci ples, partly 0f proper organiza tion of the chief-executive job as a team job, partly 0f proper 社肥 0f the Board Of Directors. An analysis Of the activities, decisions and relations 0 ー the chief-executive job is also needed. Still, there is an enormous amount Of study tO be done on the way top ・ management people should spend their time' before we know all the answers to the problem of the chief executive in the large and very large business. For the chief executive of the large business is a new thing. What it is, what it does and what it should dO are all new questions that still are not fully explored. The second problem of the large, and especially of the very large enterprise, is the tendency Of its management group tO become in ・ grown and inbred, smug and self-satisfied. lt is a bi010 c law that the larger an organism 0W3 the greate is the ratiO between its mass and its surface, the le exposure tO 山に outside there is for the cells on the inside. As living organisms ow they have therefore to develop 5 ci organs of breathing, perspiration and

236 THE PRACTICE OF MANAGEMENT J0b and 0 [ the business structure will go a long way toward prevent ・ ing unmanageable size. The application 0f federal decentralization' for instance, and the proper organization Of the chief-executive team should cure top ・ management dropsy. And I know 0f no case where the excess levels Of management are really necessary. But in most 0 [ the very large companies there is also no require ・ ment of public policy or 0f public convenience compelling organi- zation in one company. TOP managements in the very large com・ panies should therefore always ask themselves: HOW close are we t0 unmanageability? And if the answer is close' or very close' they owe an obligation t0 the stockholders' the managers and the public to find a way 0f dividing the business. T んど乃℃尻ど襯 5 可 Smallness Each Of the stages Of busincss not only requires a distinct management structure. lt has its own problems and its typical weaknesses. The main problem 0f small and fair-sized businesses is usually that they are [ 00 small t0 support the management they need. The top-management positions in the small and fair-sized business may require 部℃ ater versatility than the corresponding positions the large or very large company. They may well require as much competence. 、 OP management iS as in the larger supported by a host 0f highly trained technical and functional people. But the fair-sized business in particular is Often t00 small tO be able tO Offer its managers adequate inducements. Financially it may not be able tO pay what a first-rate man can get in a large business even in lower-ranking positions. lt cannot easily develop tomorrow's managers in adequate number or quality. Above all' it does not, as a rule, Offer the challenge and scope in management positions which the large business offers. The perennial problem in the fair-sized business iS the gap between the demands on manage ・ ment and the competence Of management, a gap that, only t00 Often, cannot be closed as long as the business remains fair-sized. Another typical problem 0 [ the small or fair-sized business arises out Of the fact that it is Often family-owned. Senior management position are therefore frequently reserved tO family members. ThiS is all right as long as it does not lead tO the vicious practice

THE SUPERVISOR 327 the 記 ys who 5 ね靆 0 with a chip on their shoulder nor the dis. illusioned innocents who quit when they find out they aren't going be plant managers ⅲ 5 ⅸ weeks. " And, finally, 山 e 代 as been a 祀 im- provement in 社ⅲ on relations. For years the plant had been plagued by minor but painful union friction. Union relations at the top are 5 ll anything but good; but in the plant the supervisor can れ ow operate without every step ・ s becoming a union grievance, a precedent for the entire plant and cause for a slowdown. n ly , the supervisor's unit should be much larger in numbers than it tends tO be at present. The number itself will 0f course, vary with the circumstances of the job. But by and large we should aim at supervisory units at least twice and perhaps three umes as large those we now have. This will give the supervisor the status he needs tO represent the worker in management. lt will prevent his "supervising' people; instead, he will have to manage by setting objectives for his men, by placing them, training them and planning and scheduling their work. lt will also allow us to pay a supervisor a decent management salary instead Of the " 10 per cent above the highest-rated rank-and-file job" that one finds today—a phrase which in itself reveals the If between reality and the fantasy Of the supervisor's being management to the worker. (Yet, the larger salary for fewer supervisors will cost less money than today's 10W salaries for t00 many, even the bill for the supervisor's new staff is included. ) If the supervisor has a genuine manager's job; if he is adequately supported by his own staff; if he has real authority; and if his unit is big enough—then his j0b will have become manageable again ・ lndeed, he will have much more time to work with his ople than he has れ ow. And he will know what work to do. And the supervisor's job can again become the major gateway tO opportunity it has traditionally been in this country. Being a ・ j0b instructor" trains a worker for a JOb as supervisor and tests him in actual performance. lt is no accident that IBM is れ Ot much con ・ cerned with the problem 0f selecting candidates for supervisory positions—a problem that plagues practically every other manu ・ facturing company. lt is Ⅱ 0 accident that IBM management not have tO worry about the acceptance 0 [ a new supervisor by the men whose colleague he was only yesterday; accomplishment as "iob

240 THE PRACrICE OF MANAGEMENT a few people from the even intO management tions. The large and very large enterprise' like the large animal' must systematically develop special organs Of respiration and excre- tion. And the best and quickest way t0 bring a breath 0f fresh air right into the middle 0f the big mass that is the large business' is t0 bring intO a management position executive whO grown up in a different environment• The very thing 山 a 【 will make an outside executive unpopular at first—his tendency [ 0 be critical Of the conventions, mores and axioms Of hiS new associates¯is what makes him useful and important• But more important than any specific practice is a basic attitude. The large and very large business tends [ 0 expect 0f its managers tOday that they make the company the center Of their universe. But iS far t00 "lives for hiS business,' a man WhO, as the phrase nanow. Since the company is his life he clings t0 it with despera ・ tion; he is apt tO stifle the development Of the younger men SO as to make himself indispensable and t0 postpone the horrible day 0f retrrement intO an empty world. ln its own management should encourage serious outside interests on the part Of its execu ・ tives. Nor should it limit these interests tO community affairs that help the company's public relations, or tO participation in trade associauons and professional societies that are good for the com・ pany's standing in the industry. TO be known as a minor poet (as was the late Field Marshal Lord Wavell) is an asset rather than a liability in that otherwise unpoetic institution, the British Army. TO be known as an ardent and scholarly student Of insects ()r Of Roman COins) iS a definite recommendation in a Catholic priest. lt is high time that the large businesses, t00 , realize that the man who "lives for the company" is a danger t0 himself and t0 the enterprise, and likely tO remain a perennial boy scout. ' T んど立耘ど S 地 2 d T んど Em 5 The large and the very large enterprise face another serious prob ・ lem : the danger that central 0 用 ( e service staffs will become "staff emprres. ' I am doubtful about the popular use 0f the terms "line" and "staff ” [ 0 describe vanous kinds Of activities within the business enterprise. The terms themselves derive from the military. They

BUILDING THE STRUCTURE 209 Because Of this, functional organization leads tO levels upon levels Of management. lt can rarely train or test a man in business performance, and almost never in a position where he has full responsibility for results. And, largely because it needs many levels, it tends [ 0 erode the meaning Of each JOb and tO make it appear nothing but a steppingstone tO a promotion. F ど d ど D ど化れ〃 0 れ ThiS is the reason why federal decentralization—that is, organiza ・ tion by autonomous product business—is fast becoming the norm for the larger company. ln the last ten years it has been adopted or fully developed by Ford and ChrysIer (GeneraI Motors has had ⅱ since 1923 or (o), General Electric and Westinghouse, all the major chemical companies (except duPont wh0 had developed れ by 192 の , most Of the large Oil companies, the largest insurance companies and so for 山 . And the principle is being expounded in articles and speeches, in management magazines and management meetings SO that by now the phrase at least must be familiar to every American manager. These are the main reasons for itS emergence as the dominant structural principle Of modern large business enterprise: 1. lt focuses the vision and efforts Of managers directly on busi- ness perfonnance and business results. 2. Be.cause Of this the danger Of self-deception, Of concentrating on the 01d and easy rather than 0 Ⅱ the new and coming, or of al- lowing unprofitable lines t0 be carried on the backs 0 [ the profitable ones, is much lessened. The facts d0 月 0t stay hidden under the rug 0 [ "overhead" or "total sales figures. " 3. The advantages are fully as great in respect tO management organization. Management by objectives becomes fully effective. The manager Of the unit knows better than any one else how he is doing, and needs 0 one t0 tell him. Hence the number 0f people or units under one manager no iS limited by the span Of control; it is limited only by the much wider span 矼 managerial responsibility. A Sears Roebuck vice ・ president may have a hundred stores under hirn— each an autonomous unit, responsible for marketing and for profits. And each store manager may ha 、℃ thirty section managers undcr him, each

THE SMALL, THE LARGE, THE GROWING BUSINESS 233 chief action executive. But both the manufacturing vice-president and the sales vice-president may spend a considerable part of their time as top action Officers in addition tO their functional duties. Similarly, there may be an executive vice-president concerned full time with over-all objectives. Or ()s is quite usual) the chairman of the Board, semi-retired from active executive offce, may spend practically full time on objectives. At the same time the company s treasurer, itS chief engineer and itS personnel vice-president may all spend a large part Of their time on setting objectives for the company ・ ln the large business the federal principle of management organi- zation iS always the better one. ln most large businesses it is the only satisfactory one. This rmses a problem 0 [ the relationship be ・ tween tOP management and the autonomous managers Of federal businesses. The last stage of business size is the どヴ耘 g どと″れど . lt is characterized first by the fact that b0th the action and the over-all objective ・ setting part Of the chief-executive JOb must be organized on a team basis. And each jOb requires the full-time services 0 [ several people. Secondly, it can only be organized on the federal principle Of management structure. The business iS t00 big and t00 complex t0 be organized any other way. FinaIIy, the organiza ・ tion Of the chief executive and its relationship tO operating manage ・ ment tend tO become major problems which engage the attention and energy of top-management people before everything else. lt in the very large business that systematic organization Of the chief- executive jOb is bOth most diffcult and most needed. 日 0 Big T00 Big? There may be yet another stage: the れ襯 0 加 g とり big しど . How big can a very large business grow? What is the upper limit of manageable business organization? IS there such a limit? There iS little reason tO believe that mere size alone is against the public interest. Ⅱ need not lead t0 monopoly. lt need not curtail SOCial or economic mobility (indeed, the fastest turnover in our economy is among the smallest and the hundred largest companies). The very large business, contrary to folklore, does not inhibit the

THE SMALL, THE LARGE, THE GROWING BUSINESS 235 This danger is particularly great in the business that originated in a common technology, such as chemistry or electrical engineering. As the technology unfolds it creates more and more diversified products with different markets, different objectives for innovation —and ultimately even with different technologies. The point is finally reached where top management cannot know or understand what the diversified businesses require—or even what they are. The point may be reached where objectives and principles that fit one business ()r group Of businesses) endanger another. This problem has been realized, it seems, by the big 0i1 companies. The petroleum business is highly complex and closely integrated. But there are only a small number 0f main products—and they are closely inter- related in production and marketing. Hence even a giant 0il company, operating on a world-wide scale, remains manageable. But when petro• leum chemistry came along the big 0i1 companies put their new chemical businesses intO separate companies, retmning financial ownership but turning over the management JOb Of chemical businesses tO new C01 Ⅱ - panies. ThiS deliberate break with their own tradition Of close integra ・ tion was their solution of the problem of unmanageability. The new technology may make this danger of overdiversity the most serious problem Of manageability. For Automation does not require larger businesses—it may well make smaller ones possible in many industries. But it requires that each process be concei 、 'ed Of and managed as a separate, integrated whOle. Management policies and decisions taken for one process may not fit another; and manage ・ ment policies and decisions taken for one function or one area rather than for the enure process may not fit at all. This not only makes federal organization essential; it alSO may well set narrow limits tO the diversity Of product businesses any one top manage ・ ment can administer. lt is, I think, no accident that the Oil com・ panies have chosen not tO integrate their chemical businesses but tO separate them out; after all, the 0i1 companies had Automation long before the word was invented. And larger companies in the industries that are about tO move intO the new technology might well consider seriously the 0i1 industry's example. There is a great deal a business can dO tO counteract the forces making for unmanageability. Proper organization Of the manager's

THE SMALL, THE LARGE. THE GROWING BUSINESS 241 may have meaning in military organization. Applied tO business, they can, however, only confuse. There are tWO kinds of activities in any business enterprise: busi- ness-producing functions such as marketing and innovatlon, and supply functions. Some supply functions provide physical goods such as purchasing and production; some provide ideas such as engineering; some provide information such as accounting. But none Of these iS a Staff function. None either advises another func- tlOn or acts for it. lt would actually be undesirable [ 0 have any staff functions. As far as I have been able tO grasp the concept, tO be ・・ staff" means tO have authority without having responsibility. And that is destructive. Managers d0 indeed need the help 飜 functional specialists. But these men primarily dO their own jOb rather than advise the man ・ ager how t0 d0 his. They have full responsibility for their work. And they should always be members 0f the unit t0 whose manager they render functional service rather than part Of a special staff. ln the small or fair-sized business, staff is usually confined tO one area: the managing Of worker and worker. Even there ()s we shall see in Chapter 2 1 ) the confusion created by the staff conce-pt has done serious damage. But in the large and in the very large business the staff concept has had the more serious result Of creating a number Of central Offce service staffs: groups Of professional spe- cialists attached tO headquarters whO are supposed tO service and advice tO operating managers in a particular area. Typically we find in the large business a central-offce marketing staff, a central- Offce manufacturing staff, a central-office engineering staff, a central- Offce personnel staff, a central-offce accounting Staff and SO forth. These central-offce staffs seriously impede the performance 0f top management. concern for each Of the key areas Of business perform- ance should be the specific responsibility 0f someone on the chief- executive team. ln the small business all eight key areas may well be assigned tO one man, whO is the "thought man" for the company. The very large company, on the other hand, may have t0 have a separate full-time executive for each key area: market in- novation, productivity, supply 0f resources' profitabilitY' manage- ment organization and personnel' employee performance and at- titudes and public responsibility. But if these men are alSO supposed tO run a service staff, they dO