Inefficiency of Unorganized Effort Curiously enough, in this socialistic colony with all its intellectual and natural advantages, no provision had been made for organization, for discipline, for management. "If the colonists thought at all, which is doubtful, they resolved that there were to be no such drones and parasites as organizers, bosses, or accountants." As a result, the moneys which should have been invested in permanent improvements were spent as rapidly as they came in for food, clothing, and other current demands. As stated by the writer, "I perceived that even the immense natural endowments of land with its fertility, of lumber for buildings and for firewood, of inexhaustible sea supplies, of a market for every product, were not sufficient even for earnest men and women in their young maturity if there were no far-reaching plan, no organization, no iron discipline, no bookkeeping. The Brotherhood of Man did not prove a success." Requirements of Good Management Inefficiency in greater or less degree is so wide-spread as to be the normal condition in human activity. Good managementefficiency-that plans and gets the best results from men, mechanisms, and the working hours, is rare. It requires a carefully planned and a co-ordinated organization, and organizing ability is not easily found. We talk about organization in a very matter of fact, offhand manner, as if it were an easy simple thing. But we cannot have the goods and service upon which our lives depend without organization, yet how very few of us have the capacity for it! Human beings, materials, tools, equipment, working space and appurtenances must be combined. They must be brought together systematically and co-ordinated effectively to accomplish the desired object of providing what the world needs. The human beings in the organization are always the most important and difficult problems. Yet they are useless without tools and equipment, and the mechanism cannot function and does not function until that force which we call management leads, guides and directs the whole combination. Unseen Losses of Inefficient Management Bradstreet, reporting on the causes of business failure, ascribes 32.5 per cent of the failures of the year 1920 to lack of efficient management. Here, the effects of poor management are so disastrous as to be clearly seen. In most cases the results are not so apparent. When a chauffeur drives over an embankment, smashing his car and killing its occupants, the fact is published to the world. When, however, he merely drives his machine into the curbing, damaging a wheel or a mud-guard and jarring its occupants, the world at large is not informed. Yet it is safe to say that the loss from the minor mishaps to automobiles which continually occur is, in the sum total, a hundredfold greater than that resulting from the more sensational and disastrous accidents which occasionally occur. So in the world of business; when inefficient management results in bankruptcy, the fact is given all publicity; when it merely results in losses, few, if any, know that anything is wrong. In considering the question of management, this should never be lost sight of the fact that a failure to make the profits that might be secured by good management is as real a loss and as costly a blunder as to lose money actually in hand—that a manager who fails to increase profits when they might be increased, is losing money for the concern just as surely as is the manager who depletes its assets. Both lose money and it is only a question of amount. But the manager who fails to make money that might reasonably be made is perhaps the more dangerous so far as the future of the business is concerned, for his failure is difficult to discover. The books of account will-if properly kept-show 2 Albert Atwood in Saturday Evening Post. VOL. 1-4 unfailingly any loss of capital assets, but they cannot show how much is lost through profits that might have been, but were not made, no matter how great their amount. It is through these unrecognized losses that bad management deals its heaviest blows to business. A Valuation of Good Management In speaking before a group of Wall Street financiers who were discussing the possibility of obtaining the very large sum of money required to carry out a project under consideration, a prominent banker said: "Gentlemen, this matter of money is the least thing we have to think about! There is only one problem. Where are we to find the man big enough to handle the job? I speak as a banker and not in my personal capacity when I tell you that if you will show me the right man to put through the plans we are discussing, you need not give the money a single thought." The financing of the project was to him a comparatively simple problem. The finding of the right kind of man to handle it was the difficult matter. 3 The reorganization some years since of the Sulzberger Company of Chicago afforded a striking recognition of this paramount importance of efficient management. The Sulzberger Company was an old-established and at one time a very profitable packing house, ranking as one of the great packing houses of the country. At the time of the Great War, however, it had become decadent. As told by an authoritative writer on finance, it had outstanding $8,000,000 of debenture bonds which matured June 1, 1916. As the date of maturity approached, the money market was unfavorable, making the refunding of these bonds difficult. In addition the company needed more money to carry on its business owing to the increased cost of raw materials, and "it lacked aggressive management." New York banking houses agreed in March, 1916, to assume responsibility for the company and to supply these requirements, provided that the group was allowed a syndi 3 Gowing," Developing Executive Ability." 4 Dewing, "Financial Policy of Corporations." cate profit on the refinancing and a substantial interest in the new company at a bargain price. These banking houses agreed to buy $12,500,000 of the Sulzberger bonds at 90 and $2,500,000 at 95. In return for this the Sulzbergers, who owned the entire common stock of the company -par value $20,000,000-agreed to sell to the bankers $10,775,ooo par value of stock for $601,500. This carried the control of the company. The bankers' first consideration was to find someone capable of managing the reorganized and refinanced company. Thomas E. Wilson, former president of Morris and Company, was selected for the position and "was to receive in part consideration for undertaking the management of the company, $1,500,000 voting trust certificates-i.e., common stock-and an option to buy $3,500,000 more at $10 a share (par value $100) within five years. Of the $1,500,000 stock to go to Thomas E. Wilson, one-half was to be contributed by the Sulzbergers and one-half by the bankers; of the option stock $475,000 was to be contributed by the Sulzbergers." In other words, the financial considerations which induced Mr. Wilson to take over the management of the new company-which was renamed Wilson and Company-were as follows: 1. $1,500,000 face value of common stock which at the price the bankers paid was worth $5.50 per share, or $82,500 for the 15,000 shares. 2. An option on $3,500,000 face value of stock (35,000 shares) at $10 per share, payment to be made at any time within five years. To show the practical working out of this arrangement, on November 1, 1916, Mr. Wilson sold 7,000 shares of his common stock for $54 a share. With the proceeds he paid for the 35,000 shares he held under option, which gave him 43,000 shares with "a value of at least $2,150,000, and which were appraised by the New York Stock Exchange on January 1, 1919, at $3,140,000." During 1920, the stock of Wilson and Company ranged in price from a low of $46 to a high of $82.50 per share. A more concrete and striking illustration of the value of good management could hardly be given. The sound enterprise was there; the bankers were willing to supply all the money that could profitably be used; management alone was needed. Mr. Wilson supplied the management, but it came high-well up in the millions. The results have apparently justified the payments made to Mr. Wilson. A Case of Bad Management Notwithstanding the importance of the managerial factor, there is often a singular indifference as to its character. An enterprise will perhaps be selected and investigated with the greatest care. Money will be supplied freely for its development and operation. Everything up to this point is done in the best possible way, but then the directors of the undertaking look around for a low-priced manager to put in charge. Worse economy could hardly be imagined. A few hundred or a few thousand dollars a year saved on a manager's salary may make all the difference between failure and success, and in itself be the very worst of management. In a business of any real importance, the annual loss involved in poor management, or in any management short of the best, quickly amounts to many times a good manager's entire salary. A good manager rarely, if ever, is paid more than a tithe of what he makes for his concern. An excellent illustration of the disastrous effects of bad management is found in the experience of a co-operative grocery store started some years ago in a pleasant New Jersey town not far from New York City-a town noted for its prosperous and public-spirited people. A better place for such an undertaking could hardly have been selected. The people received the suggestion of a co-operative store with enthusiasm. Subscriptions |