REVIEW OF REVIEWS

Why Big Business Fails

Caution And Accuracy in Management Cannot Replace the Essential Quality—Vision.

PHILIP CABOT May 15 1922
REVIEW OF REVIEWS

Why Big Business Fails

Caution And Accuracy in Management Cannot Replace the Essential Quality—Vision.

PHILIP CABOT May 15 1922

Why Big Business Fails

REVIEW OF REVIEWS

Caution And Accuracy in Management Cannot Replace the Essential Quality—Vision.

PHILIP CABOT

THE VERY size to which some businesses have grown, has been detrimental to their comprehensive and satisfactory management. They have lost the definite personal interest that means constructive effort, and are given it is true good management, but management without vision. This is the general contention of Philip Cabot writing in the World’s Work.

World’s Work.

“In the old days, capital and management were practically one; enterprises were small. The men who managed the enterprise put their own money into it and went on managing it. But we have long outgrown that. The enterprises are now so large that that sort of thing is wholly impossible. The securities of the corporation have to be divided among thousands of people—many thousands, and, as a matter of fact, the responsibility for choosing the management falls upon the financial godfather of the enterprise— the banker. It is a very, very important and very difficult operation, but it is not paid for.

“The common practice is that the banker conscientiously does the job without being paid for it. He is not paid and he does not pay himself. When you do not pay a man to do a job, naturally, being a human being, he minimizes the labor as much as possible. His first operation—the first thing he has to do— is to choose a Board of Directors, and he

naturally turns to his friends; his associates—other associated bankers, a few large capitalists, perhaps his customers, and he fills in with the office boy. So it very commonly happens that Boards of Directors are hardly capable of real direction of the enterprise; they are either too busy or too ignorant. The banker then has to select the executive management. There he must have capacity, but he naturally strives to minimize his risk, to get a safe man, a trained man, a man who will tell him accurately in advance what he can do with that enterprise and will do it. By a gradual process of evolution that has resulted in recent year in the selection of engineers, or w’^L^ amounts to the same thing, opp^^g'; men, to manage the large enterpriser Tt is a curious and an interesting that the very great majority of all che railroads in the United States ara led to-day by hien essentially of operating and engineeringtraining. The traffic men, the men of the salesman type, have been largely eliminated, and that tends to be true in all large enterprises.

“Now what is the type of the great engineer? What are his essential characteristics?—the character innate in the man, accentuated by his training? He is essentially born cool, steady, and balanced. His mind tends to be a mathematical mind, a scientific mind, and he tends to become over fond of formulae. He makes estim-

ates. He is trained—has years of training—in making estimates, and if he is successful it is because he can live within those estimates. He spends endless time in preparing estimates with the greatest care, and then, as I used to see with astonishment, he puts in a factor of safety from 15 per cent, to 50 per cent. One of the most successful promoting and constructing engineers in this country told me that after he had finished his estimates of cost he doubled them; after he had finished his estimates of earnings he cut them in two; after he had finished his estimates of operating expenses he doubled them, and if he then could show 6 per cent, he went ahead.

“That is a safe man; that is the kind of man that a banker likes to bank on; he won’t run away; he is a safe man, and that is the sort of man that the banker necessarily loves. When he has secured a man like that, the banker can go off and do something else and the directors can do what they are expected to do—they can go to sleep; they won’t be bothered. Occasionally the thing breaks down, and then the management are suddenly hauled out of bed and asked what they have been doing. They had been doing nothing. That was just the trouble.

“This field of management of big businesses is a great opportunity for the engineer—the current is all his way. He is the man that the banker will go for, and what he has got to do is to equip himself for the job. In some ways he is admirably equipped: he has the scientific mind, he has had scientific training, but he comes up against this difficulty, which, in some cases, is fatal: Large enterprises commonly involve the employment of large bodies of men. Now leadership of a great body of men requires enthusiasm, heat, great imaginative vision, and power. Your great leader is always a great enthusiast; he must have enthusiasm himself in order to inspire it in others, and our engineer, by training, tends to keep his enthusiasms under control. That is the first thing they tell him when he goes to school and the last thing he hears when he goes to bed. But your great captain of industry must have other qualities. They are not essentially incompatible with the qualities of the engineer, but they are fully as essential in the men who are to lead great enterprises.

“Sometimes, before telling how to do a thing it is well to tell how not to do it, and one would think from the examples of the railroads of the United States that they furnish perhaps the best possible example of how not to do it.

“The roads are bankrupt. Enormous economies, the greatest ability, the greatest power have been expended on them, and all to no purpose. The railroads have had the wrong type of leader. The men who originally planned those roads and led them were men of a different type. They were traffic men. They were striving to build up a business, and compared with the operating men who are in charge of the roads to-day, they were children—babies in operation. But the roads paid. To-day, with the highest engineering capacity and operating ability in charge of them, they cannot get a new dollar for an old one.

“But it is possible to combine in the same man the scientific spirit of the engineer and the vision, the imagination, the enthusiasm of the promoter using that word in its best sense—the great builder.

“If the public is going to expect the banker to choose men who have vision, imagination, enthusiasm as well as scientific attainment, they must bear in mind that those men are liable to brain storm; they are, at times, wild men ; they are not safe men unless they are controlled. We must have men of that type, but we must not have men of that type without adequate control. We must harness with these men boards of directors who can and will direct. There are such men, but they will not work for nothing. Directors must therefore be adequately paid.

“The banker is to-day, by force of circumstances, in a false position. All he undertakes to do, all he is paid to do, is to advise as to the financial structure, and to place the securities he has received, but perhaps his most important function is the selection of management, direction, control, and for that he is not paid. He is in a false position, and if he is able to get out of it, he will do not only to himself but to the community a very great