Cyclopedia of Commerce, Accountancy, Business Administration, v. 01 (of 10)

by American School of Correspondence

CHARTING THE ORGANIZATION

6. What may be termed the anatomy of an industrial body, is most graphically shown by means of charts. Free use of charts will be made throughout these papers. With properly designed charts the logical divisions of authority or expense can be clearly shown.

Fig. 1 furnishes a graphic illustration of the principal components of the organization under discussion. In the first group we find the owners (stockholders) whose line of communication with the business is through the board of directors. Subordinate to the board of directors are its own executive officers, the executive committee, and general manager.

The connecting lines show the executive committee to be in direct communication with the board of directors, while the general manager is in direct communication with both the executive committee and the board of directors.

Under the general manager are the commercial and manufacturing divisions, over both of which he has direct supervision.

7. Working Authorities in Large Enterprises. The next logical step in the development of our organization is a study of the working authorities and responsibilities of the different officers and their assistants. We have seen that the administrative authority is for practical purposes centered in the general manager. It is not to be supposed, however, that in a large industrial organization he will personally supervise all of the details of operation of the commercial and manufacturing divisions. His time must not be taken up with details which can be as well handled by subordinates. He should be free to devote his time to questions of policy, the providing of finances, the consideration of new fields of endeavor, and the making of the more important contracts. His immediate assistants will be a Comptroller and a Superintendent.

The comptroller fills a position identical with that of a business manager or an assistant manager. His duties are mainly in connection with the commercial division. It is his business to devise systems of accounts and systems for recording the activities of every department, and have reports compiled, in proper form for presentation to the general manager. His is a statistical department, filling a place between the general manager and the subordinate departments, and, while not closing the avenues of communication between these departments and the general manager, it is here that reports and records of results are concentrated.

Fig. 1. Chart of a Corporate Manufacturing Enterprise

The superintendent is in immediate charge of manufacturing operations and is responsible for the custody of all property used in manufacturing. His position does not close the avenue of communication between factory departments and the general manager.

Fig. 2 illustrates the subdivisions of the commercial and manufacturing branches. This chart does not go back of the administrative section of the organization, as the stockholders have no direct connection with the actual operation of the business.

We find the subdivisions of the commercial branch in charge of the following: Chief Accountant, with direct supervision over all bookkeeping and accounting records; Chief Stenographer, in charge of all stenographic and circularizing work; Advertising and Sales Managers, in charge of publicity and selling campaigns; Credit man, in charge of credits and collections.

The manufacturing department includes the Purchasing Agent, who purchases all manufacturing stores, materials, and supplies; Chief Stores clerk, in charge of the storage of all materials and supplies; Chief Engineer, who designs new products, new machinery for the manufacture of that product, and conducts all experimental work; Chief Draftsman, who superintends the work of the drafting rooms; Assistant Superintendent, in charge of maintenance of power and heating plants, internal transportation facilities, machinery and buildings; Foremen, in charge of shops employed in production work.

As shown by the lines of communication, represented by the heavy lines, the authorities of the comptroller and superintendent extend to every phase of the work of the commercial and manufacturing branches. The comptroller is in communication with the manufacturing branch since the making of schedules, time keeping, and the assembling of cost statistics are all centered in his office. He does not, however, assume any of the duties of the superintendent, and while their work is closely related, the two officers conduct their departments without conflict of authorities. It must be remembered that they are equally responsible to the general manager, which of itself requires cordial coöperation.

Fig. 2. A Chart of Working Authorities in a Manufacturing Business

8. Organization Applied to Small Business. We have referred only to large manufacturing enterprises divided into many departments, necessitating a division of executive duties among a large number of minor executives. While, in the organization of a smaller enterprise, not all of these department heads will be required, the principles of organization, so far as division of authority is concerned, remain the same.

In the small corporation, we find the same board of directors elected by the stockholders. This board may be small, consisting of no more than five, or even three members, but the same executive officers are elected. One man may hold more than one office, as secretary and treasurer, or vice-president and treasurer, yet each office is filled. If the board is small the executive committee may be omitted, in which case the board itself performs the duties of the executive committee. There is the same general manager; at least the duties exist even though there be no such office in name. The president may act as the executive head, and be recognized as the actual manager of the business, but in so doing he is acting in an entirely different capacity than that pertaining to the office of president.

Extending the illustration to a small manufacturing enterprise, the general manager may assume all of the duties of the comptroller in the operation of the commercial branch; he may be his own sales manager or credit man; or in the manufacturing branch, he may act as superintendent.

The treasurer of the corporation may be the accountant and also act as credit man. The advertising and sales managers may be one, or the superintendent may be the purchasing agent as well.

The point intended to be emphasized is that there are certain duties to be performed, certain responsibilities to be met, certain authorities to be assumed even though it be but a one-man business. And in this is illustrated the importance of creating any business organization without regard to individuals.

9. Organization of Mercantile Business. Leaving for a time the organization of a manufacturing enterprise, we will consider the application of the principles of organization to a trading business. In such a business, the administrative section remains the same: stockholders, directors, officers, executive committee, general manager. At this point the business naturally divides into the departments of buying and selling.

Fig. 3. A Chart of a Corporate Trading Enterprise

The buying department is subdivided into purchasing, stock, and shipping. The subdivisions of the sales department are sales and accounting. Our chart of the organization shown in Fig. 3, follows the same lines as Fig. 1, the only change being in the main divisions.

Advancing the next step we find the executive officers in charge of the several divisions of the work, corresponding very closely to those shown in Fig. 2. The buying department is in charge of the Purchasing Agent, Chief Stock Clerk, and Shipping Clerk, or Traffic Manager, as he is sometimes known.

The selling department is in charge of the Chief Accountant, Advertising Manager, Sales Manager, and Credit Man. This is shown clearly in the chart, Fig. 4.

Lest an erroneous impression be gained, it may be well to state at this point that the advertising and sales managers must work in perfect harmony. Indeed, advertising is one branch of the sales department and the success of one is so closely interwoven with the other that no important step should be taken by either independently.

In many large concerns, the sales manager is the real advertising manager, even though another may supervise the actual routine of preparing advertising matter. A competent advertising man makes a successful sales manager, and every sales manager should have advertising training, for the purpose of advertising is to create a demand and assist in making sales.

Referring again to Fig. 4, it is seen that both buying and selling departments are under the control of the general manager, from whom direct lines of communication lead to every division of these departments. Direct communication is also maintained between the two departments. The accounting division keeps the accounts of the buying department; the sales division must be in communication with the purchasing and stock division in respect to maintaining the stock to be sold, and with the shipping division in respect to the filling of orders.

10. Universal Application of Organization Principles. When we go into all of the ramifications of business we find many establishments where minor variations of our plan of organization appear necessary, but in the final analysis, the fundamentals prove to be the same.

Fig. 4. Chart of Working Authorities in a Trading Business

Reduced to its simplest form, we will suppose the business under consideration to be a small retail establishment conducted by two partners. No thought has been given to the principles of organization, yet they are applied in that little store just as surely as in the immense manufacturing plant.

Ask any commercial salesman calling on the firm who is the man to see regarding the introduction of a new line of goods, and he will probably answer, "Mr. Jones is the man to see; he does the buying." With no thought of organization, the owners of this little business realize that it is best for one man to do the buying. Perhaps the other may inspect samples, his opinion may be asked, he may even place an occasional order, but it is not the rule of the establishment. By placing the buying in the hands of one partner, confusion is avoided. He can keep in closer touch with prices, and the results are far more satisfactory.

Advancing to the larger retail business of the department store, whether the general store of the small town or the big store of the city, we find a different problem. Here the buying is further specialized, for one man buys for one, or at most three or four departments. The same men act as sales managers and buyers in the departments for which they are responsible. The manager of a department in a big store is selected as much for his ability as a buyer as for his salesmanship. But we do not get away from fundamental principles, for in buying and selling the manager is performing two entirely separate and distinct functions.

No matter what the business, we find the same two fundamental functions, that is, buying and selling. As illustrations of the application of this principle to different businesses we give the following:

Publishers of newspapers and other periodicals buy editorial work, manuscript, engraving, paper, printing; sell subscriptions, advertising space.

Publishers of books buy editorial work, manuscript, engraving, paper, printing; sell books.

Railroad companies buy equipment, rails, lumber, coal, supplies, labor; sell freight and passenger transportation.

Schools and colleges buy textbooks, supplies, services of instructors; sell instruction.

Professional men buy their instruction, books, instruments, office furnishings, clerical assistance; sell their services.

In every undertaking, revenues are produced through salesmanship. Every business and every profession has something to sell, and its financial success depends largely upon the quality of salesmanship employed. Whether it be a professional man with nothing but his services to sell and no other means of advertising than through work well done, or a gigantic commercial organization with its extensive advertising campaign and many salesmen, a selling organization exists in some form. And before anything can be sold it must be procured, or bought.

On this question of the universal application of the principles of organization, we quote from a valuable contribution in The Engineering Magazine, by C. E. Knoeppel:

"While business as it is now conducted is not as simple as it was in the barter days, it must not be inferred that this segregation of authority is synonymous with complexity, for its very purpose has been to simplify, and that is what it has accomplished. It is only where this segregation has been the result of lack of thought and proper attention, or other like causes, that we find a complex and unsatisfactory condition of affairs. In fact, there is all about us sufficient evidence that many commercial enterprises are being conducted along lines that, as far as evolutional development is concerned, are several stages behind the times.

"Let us suppose a case, which will apply in a greater or less degree to the majority. In the earlier development, we will say that the founder of the business was able, on account of its small size, to make what sketches he needed, solicit orders, see that they were filled, perhaps take a hand at the making if occasion required, see to the shipments, and attend to the collections and the keeping of his few accounts. He finds that the business grows, and eventually places a man in charge of certain branches while he looks after others. The accounts eventually require more attention than he can give them so he engages a bookkeeper in order that he may be relieved of the work. He finds that the quantity of materials received and shipped amount to enough to warrant a receiving clerk as well as a shipping clerk, and, to handle this material from its inception to shipment he conceives the idea of placing a man in charge as stock clerk. He then adds a purchasing agent, in order that he may be relieved of the detail and that purchases may be made most economically; a man is placed in charge of the orders; foremen are placed in charge of certain men in the shops; the details connected with making plans, drawings, estimates, etc., are taken over by a practical man; his manager is given a man to look after the shops or engineering branch; while the commercial branch with its many details is placed in the hands of another. As the evolution continues, the selling branch is assumed by one man; cost details are looked after by another; a chief inspector is added in order that all work may be shipped according to specifications; the engineer, who before had been a sort of jack of all trades, is placed in charge of certain work, while an electrician is engaged to look after this particular work; and so this segregation continues as the development continues.

"Perhaps it is not to be wondered at that the founder, in looking backward, is inclined to pat himself on the back when, in a reminiscent mood, he considers what he terms 'remarkable development.' He considers that he has been wonderfully successful in building up a business which at the beginning was so small as to admit of his supervising every detail, while today he employs a dozen men to do the work he once did. There is no getting away from the fact that it is this same feeling of self-satisfaction that is responsible for a large number of faulty organizations, for if we should tell this manufacturer that his business is far from being as successful as it is possible for it to be ... he would vigorously resent any such accusation; but the fact remains that it is not the success it should be, for the very reason that the development has been allowed practically to take care of itself. New men were added, new offices created, only when absolutely necessary, each newcomer being given a general idea of what was expected of him, and not knowing, not thinking, or perhaps not having the time to give more than passing attention to the matter, the proprietor did not consider the fact that his business was a unit, with each worker a part, having a distinct relation with every other worker. Hence, as the efficiency of any organization is directly in proportion to the care with which these relations are considered and treated, his organization naturally fails to attain that degree of efficiency obtainable, and for this condition he, and he only is responsible."

11. Departmental Authorities. The next logical step in the development of our organization is an analysis of the departmental organizations. We have seen how the operations of the business are divided among several divisions or departments. The reason for such divisions is apparent. In a large business no one man can personally supervise all of its activities. Each division is engaged in certain activities that demand the immediate supervision of specialists. One man is a specialist in advertising, another in sales plans, others in purchasing, specific manufacturing operations, or the design and maintenance of appliances intended to improve the product or to reduce costs.

To reach the highest state of efficiency in every department of the business, these specialists must be employed, which is another reason for organizing a business along the line of its activities, and without respect to individuals.

Before we can decide what manner of man should be placed at the head of this or that department, we must study the duties of the position, the responsibilities involved, the authorities to be assumed. To present this problem in graphic form, the chart (Fig. 5) is designed. While the arrangement is not inconsistent with Fig. 2, this chart of the same class of organization is laid out along the lines of authority. It shows both the authority of the department head and the necessary activities of his division.

We have selected the organization of a large industrial establishment for the very reason that many divisions and departments are necessary. The smaller organization will have a less number of divisions, but it is much easier to condense than to expand a given plan. Any man who understands the requirements of a large organization can readily adapt those ideas to a smaller establishment. He can apply the plan so far as it can be used to advantage. Some variations of the application of the plan will be pointed out in our departmental analysis.

Fig. 5. A Chart Which Shows the Duties, Responsibilities and Authorities to be Assumed by Each Department Head

It is perhaps unnecessary to say that while the authorities of some of the department heads have been referred to in preceding pages, this analysis is intended to exhibit these authorities in greater detail.

12. General Manager. As a rule the general manager has general supervision over the commercial and manufacturing branches. In conjunction with the president and executive committee, he formulates all policies to be followed in purchasing, manufacturing, sales, and advertising, establishing credits, and accounting methods. He is responsible to the executive committee and board of directors for procuring materials, their manufacture and sale, and the maintenance of buildings and machinery.

It is his duty to keep in touch with the operations of every department and to post himself on the general efficiency of all classes of workmen. Through reports he will keep informed in regard to the results of the operations of every department.

While in direct communication with all department and division heads, he will have for his immediate assistants, a comptroller and a superintendent. It is from the comptroller that he will receive statistics and reports of the activities of the business in all its branches, while to the superintendent he delegates his authority in the actual operation of the manufacturing branch.

13. Comptroller. "A controller or manager" is a standard definition of the term comptroller. In the organization under consideration, he is a controller of the business by virtue of the fact that he is responsible for the accounting and recording of all activities of the business.

He occupies the position of auditor and is the real systematizer of the business. He creates all systems of commercial accounting, cost accounting, departmental records, time keeping, and pay rolls, reports of superintendent, perpetual inventory, sales statistics, and, in fact, all records of the business. He prepares all balance sheets, comparative statements, trading, manufacturing, and profit and loss statements, and reports to the general manager or executive committee, or both, on the condition of finances, materials, and finished goods.

Since the formation of important policies may hinge on the reports and statistics of his department, he occupies an office next in importance to the general manager. The training and experience gained in his office place him in direct line for promotion to the office of general manager.

His authority is absolute over the accounting and stenographic departments, while his authority extends to other departments only in respect to their record systems. In the accounting department, his direct assistant is the chief accountant; and in the stenographic, the chief stenographer.

In a smaller organization the comptroller may not require the services of a chief accountant, in which case he performs the duties of the position. Or the treasurer may occupy the office of comptroller.

Chief Accountant. The chief accountant is in immediate charge of the commercial and factory accounting. His assistants are cashier, bookkeepers, factory accountant, cost clerks, time clerks.

This department accounts for the receipt and disbursement of all moneys and properties, figures costs and pay rolls, and prepares statistics necessary for the use of the comptroller in making up his reports and statements.

It is evident from this that the comptroller is in a sense the custodian of all property belonging to the business, since he must, through his accounting department, account for its receipt and disbursement. This explains why the comptroller prescribes all systems for the care and recording of stores, supplies, and finished product.

Chief Stenographer. The chief stenographer is at the head of the correspondence department, with authority over all stenographers, typists, filing and mailing clerks.

Stenographers are supplied to all divisions by this department. This plan of having all stenographers in one department subject to the call of those having need of their services is now adopted by most large concerns, except in a few cases where stenographers act as private secretaries to the officers. The plan is an economical one, for only the number actually required to handle the work of the establishment need be employed. Under the old plan of employing one or more stenographers in each department, it is common to find them idle in one department while in another the work is behind. Another strong point in favor of the more modern plan is that each stenographer becomes familiar with the dictation of all departments, and no stenographer has an opportunity to become familiar with the secrets of the business.

In the stenographic department, the work of addressing and mailing form letters, catalogues, and circulars is done.

All correspondence is filed by this department.

Records of office supplies, stationery and printed matter are maintained in this department.

The chief stenographer has charge of and accounts for all postage, but secures postage by requisition from the cashier or accountant.

14. Sales Division. By far the most important division of the entire commercial branch is the sales division. This division is responsible for finding a market for the output of the business.

It must create a demand for the product through advertising, open new fields, study the demands of the trade and the products of competitors, ascertain as far as may be the possibilities of marketing new products, and, above all, sell goods at a profit.

The selling division of some of the largest industrial establishments is in sole charge of a general sales manager, who has authority over the advertising as well as selling. In our chart we have divided responsibility for the conduct of this division between sales and advertising managers, placing the advertising manager on an equality with, rather than subordinate to, the sales manager. This combination will produce the most satisfactory results for most enterprises.

Advertising Manager. The advertising manager has charge of the preparation of all advertising literature, catalogues, copy and designs for all periodical advertising and usually the placing of all contracts for printing and engraving.

He has authority over all artists and copy writers employed regularly and for special work.

With the sales manager and general manager, he makes up appropriations for periodical advertising and places contracts when these appropriations have been approved.

He confers with the sales manager on all questions pertaining to his work, no printed matter for the use of the selling division being ordered until approved by the sales manager. Thus, coöperation of the sort that makes for success is assured.

Sales Manager. The sales manager has authority over the sale of goods and filling of orders, and his department is divided into selling and filling. The selling department is further subdivided into salesmen and mail orders.

One subdivision represents that portion of the sales made by personal salesmen. The active work is carried on by salesmen who call on the trade under the orders of the sales manager.

The sales manager hires all salesmen, prescribes their territories and routes, and supervises their expense accounts.

He compiles reports and statistics of their work for presentation to the comptroller or general manager, and keeps the records prescribed for this department.

The mail order division is engaged in the sale of goods by the use of letters, circulars, and catalogues. Lists of customers and prospective customers are maintained, and sales follow-up systems are operated under the immediate supervision of this division.

In the filling department, the chief order clerk is in charge of entering sales orders, making shipping orders and manufacturing orders. He maintains a record of sales and manufacturing orders so that he can keep informed on manufacturing or stock requirements. All invoicing of shipments is done in this department.

The shipping clerk maintains records of rates of transportation by rail, water, or truck, and keeps posted on routes and facilities. He supervises the packing of all goods, and secures proper receipts from transportation lines.

Credit Man. The position of the credit man is an important one in any establishment.

He collects and records information about the financial responsibility and credit standing of customers. When necessary, he makes special investigations, and on the basis of his information extends or limits credit. Every order from a new customer must be approved by the credit man before it can be accepted.

When accounts have been opened, it is the duty of the credit man to collect them when due, or, if not paid promptly, to use every means to secure a settlement. His work brings him in contact with both the sales and accounting departments.

The credit man is assisted by such clerks and collectors as may be necessary for the conduct of his department.

15. Superintendent. The superintendent is given general supervision over the manufacturing branch of the business. His authority extends directly to the engineering and drafting departments, the work of the assistant superintendent, foreman of tool room, and shop foremen. His relations with the purchasing department are advisory rather than managerial.

His immediate assistants are the chief engineer, assistant superintendent, and shop foremen.

It is his duty to execute orders for the manufacture of goods, operate the plant in the most economical manner, study and introduce processes and methods that tend to reduce manufacturing costs, and keep informed generally on the efficiency of men, machinery, appliances, and materials in all manufacturing departments.

With the assistance of the purchasing agent he provides all materials and supplies required in the manufacture of goods or for the operation of the plant.

Chief Engineer. The chief engineer designs all special machinery and appliances to be manufactured for use in the plant, designs and plans all new products for which there appears to be a demand, and personally supervises the experimental department. The installation of new equipment is also done under his supervision.

His authority extends to the drafting department which is in charge of a chief draftsman. This department draws all designs, plans of new machinery or product, and all plans not classed as architectural.

In a plant where many special tools are made, the chief engineer also has authority over the tool room.

Assistant Superintendent. The assistant superintendent is responsible for the maintenance in efficient condition of all power, pumping, heating, and lighting plants, internal transportation facilities, and the repair of buildings and equipment.

Except in the larger plants, he has authority over the tool room which is placed in charge of a tool room foreman. This department is responsible for the custody of all tools, repairs to tools, and their manufacture. Tools are issued only on requisition and perpetual inventories are maintained according to systems prescribed.

In some very large industrial plants, like a steel plant, there are several assistant superintendents, each having specific duties. There may be a superintendent of power, superintendent of transportation, superintendent of machinery, superintendent of buildings, superintendent of stores, etc. In a small plant, the superintendent will personally perform the duties here assigned to the assistant superintendent.

Shop Foremen. As the name indicates, the shop foremen are in charge of the various shops or manufacturing departments. It is the duty of the shop foreman to lay out the work called for by the orders of the superintendent, and to assign the work to his men. He will make provision for the prompt execution of orders by making requisition for the number of men that can be profitably employed in his department. It is his duty to keep all of his men supplied with work.

16. Purchasing Agent. The purchasing agent has charge of the purchase of all materials for the manufacturing branch, and in some cases for the commercial branch. In a purely trading concern, his duties would be in connection with the commercial or selling branch, but in a large industrial enterprise, the purchase of office supplies, advertising literature, etc., is usually under the supervision of the comptroller, chief accountant or advertising manager.

He procures catalogues, price lists, names of manufacturers and dealers, and keeps generally informed as to sources of supply. He obtains samples which are submitted to tests by the engineering department or otherwise.

With the superintendent and general manager, he makes schedules of materials, secures bids, and places orders. Records of orders and all information needed in his office are kept according to the systems prescribed by the comptroller.

He has full authority over the store rooms, in which he is assisted by the chief stores clerk. This department receives all goods, checks receipts with orders or invoices, stores the goods, delivers them on properly executed requisitions, and maintains perpetual inventory records as prescribed.