Monday, July 11, 2016

The Twelve Principles of Efficiency - Part 1


Twelve Principles of  Efficiency give us twelve different directions of attack on inefficiency.

1. Clearly defined ideals.
2. Common sense
3. Competent counsel
4. Discipline
5. The fair deal
6. Reliable, immediate and adequate records

(1 to 6 covered in Part 1)
7. Despatching
8. Standards and schedules
9. Standardized conditions
10. Standardized operations
11. Written standard-practice instructions
12. Efficiency-reward
(6 to 12 covered in Part 2)


Excerpts from the Book of Harrington Emerson - 12 Principles of Efficiency


The First Principle :Clearly Defined Ideals

The First Principle was “Clearly defined Ideals”.


In large organizations, number operators and managers are very often without definite conceptions and purpose for which plant is working. Worker & Foreman at the lower end of the line organization are so far from the top  managers,  who are  responsible setting the enterprise ideas (objectives and goals). Persons at lower levels are driven to create minor ideals and inspirations of their own, these being often at variance of ideals of those above them.

If all the ideals animating all the organization from top to bottom could be lined so as to pull in the same straight line, the resultant would be very powerful effort. If ideals are in diverse directions, the resultant force might be negative. These kind of conflicting ideals are very common in american plants, even among the higher officials.

For example, a handy man in a railroad repair  examined cylinders for  cracks, They were often so unimportant that they could be safely repaired by a patch, but he swelled with pride when the recommendation for new cylinder has been heeded. A patch may cost $30 and new cylinder cost $600.  When in doubt he always decided  in favor of new cylinder. Here the ideals of engineering economy  was submerged and conflicting ideal of individual aggrandizement was substituted.


VAGUE IDEALS AND PERSONAL IMPULSE

Vague Ideals and understanding

 A superintendent ordered a large automatic lathe , having no idea of economies realized. He felt that automatic lathe will do cheaper work, but in reality the material wasted cost more than normal cost by a  worker on a normal lathe.

 Personal Impulse

Many American explorers have succeeded in achieving great feats due to personal impulse
However this reckless confidence in impulses, this reliance on individual initiatives, is often responsible for many failures in industrial organizations.



Ideals of the British railroad were clear-no grade, no curve, no grade crossing and good passenger terminals. These ideals cost them $375,000 /mile.

James J Hill was great American railroad executive who built up dominant railway system in 20 years. Another great railroad executive was J.W Kendrick who considered disagreement with labour as time consuming, destructive to peace and loyalty, and therefore he resolved to setup a high standard of discipline by efficiency reward.

Ideals of one company are that its customer shall be treated with absolute fairness, that its employees shall be of higher skill and better paid than neighboring competitors. Ideals of good company is to see employee prosperity, well paid, not overworked.

If  every manager of an organization formulates ideals, promotes them in plant, posts them everywhere, inoculate every employee and official with them, organization can achieve high degree of excellence.

In setting up ideals,  managers have two choices.  One course is to set up his own ideals and reject all efficiency principles that do not accord with them and other is to accept the organisation and principles of efficiency and to create ideals that are congruent with them

THE SECOND PRINCIPLE: COMMON SENSE

Managers must develop in themselves supernal common sense.


Each person  is quite sure that he possesses all the common sense needed, and this is also an important instinct,  since without it people would lack self-confidence, initiative, and they would be deficient in the ability to do, to accomplish.

But the common sense of theirs is the alert common sense of the surf rider. It is not yet, either nationally, corporately, or individually the common sense of the far-knowing captain of the ship, and what is needed is not more common sense or more alertness, but a diametrical change in the point of view. The boy must forget his surf skill for a while and go to the mountain top and learn to know the stars so that he will hold them as friends whatever sea or desert he navigates or traverses.

The American, from presidents of the United States or of great corporations down to cubs in
office or shop, in spite of his natural motherwit, finds himself struggling against quick sands of tradition, whirlpools of immediate necessity, fogs of current practice, of near common sense.

The elimination of waste through the application of the efficiency principle of common sense is a more difficult task than the elimination of waste from gold-mining operations by the use of better processes. Better extraction from ores, better exploitation of mine tailings, is easily attained by the use of better methods, which do not in any way clash with the training ideals and conceptions of a progressive manager.

To apply all the principles, a manager has to learn a lot, forgetting much that he thought of value, adopting, adapting, becoming adept in new lines of thought. At the start he finds himself enmeshed in an offensive, destructive type of organization which he must use an unfamiliar common sense to modify and remake into a defensive, upbuilding type. Even if he is in a position of highest authority at the top, this is not easy as he must run counter to most of the ideals and life-long practices of an
extended line of subordinates. Even if he succeeds in making his organization constructive, he must then use an unfamiliar Common sense to overcome in himself and others a long series of vague, discordant, at best opportunist and near ideals, substituting for these, not Utopian and unrealizable, but worldly-wise standards as high as the particular activity will commercially stand.

If a manager has succeeded in modifying the organization, if he has succeeded in emphasizing the governing ideal so that all may understand it and work for it, he suddenly meets new difficulties probably from both customers and government, who will make the occasion of his efforts to eliminate waste, to make better use of materials, of labor, of equipment, an excuse to demand a physical valuation of the material property as a basis on which to regulate freight rates or other charges, thus imposing a direct penalty on efficiency.

It is impossible to lay down rules or to give specific directions as to how we shall convert prejudice and ignorance from without, near common sense within, into supernal common sense.

THE THIRD PRINCIPLE: COMPETENT COUNSEL

Staff assistance in efficiency improvement has to be used by line managers.



By co-ordinating the two elementary ideals of management,    line, for permanence, authority, discipline; staff for development of high functional efficiency "scientific management" restores, both to the job and the man, the identity the individualism which under ordinary management is lost by a policy of wholesale dealings and mass relations. CHARLES BUXTON GOING.


The best practice in any line depends today on such a vast range of experience and knowledge that no one man, even in a very limited field, can master it all. No modern captain has a pilot's license for all harbors, and the wiser the captain, the larger the vessel he commands, the more willing and anxious he is to depend on local knowledge, even if the expert be an Arab, a Malay, a Kanaka, a Maori, or an Eskimo.

In the vanishing era of elementary achievement, efficiency mattered not, but legality did; therefore long ago lawyers were consulted. Efficiency did not matter in the building of the pyramids, but engineering did; and from that time to this the engineer has been supreme in his own department.

But the railroads and industrial plants almost without exception are operating without efficiency counsel, efficiency problems of momentous import being decided off-hand by intuition. Is it to be concluded that efficiency is of minor importance?


Because they are not competently advised as to the economies in operation and maintenance that would flow from efficiency, the railroads overlook the great gain within their grasp while they pursue the much smaller gain from greater rates they may not succeed in securing.

The total annual salary and labor bill of the railroads of the United States in 1908 was $1,035,437,528. An examination of the sub-divisions shows that the average equivalent obtained is not quite 80 per cent, that a preventable waste occurred of over $200,000,000.

In contemplating this enormous waste,  we would like to see other figures from the efficiency counselor other figures of far greater practical import.

The other annual bills for operating expenses were, in 1908, $653,780,115, of which about
$500,000,000 was for material. Is the efficiency of material used more than 60 per cent? Wherever it has been carefully and scientifically checked, in railroad operation, efficiency has scarcely reached 40 per cent.

 Similarly a counselor as to efficiency would not pretend to be an expert as to all efficiency, but it would be his duty to be in touch both as to men and scientific reports with all that was latest and best and make it all available for his employer whether individual or corporation.

If the corporation were large it would be the duty of the efficiency counselor to install and develop an efficiency organization, extending from top to bottom even as the accounting department extends from top to bottom. Each minor official would have his own staff of efficiency experts working directly for him, but also even as the timekeeper to a superintendent is subject to the comptroller, so also would each efficiency expert be subject to the direction of the efficiency officer above him.

The chief efficiency counselor would initially advise as to type of organization; he would ascertain what the ideals were and strive for their realization; he would represent supernal common sense ; but it is chiefly as to the standardizing of the other operative principles that his organizing ability would be applied. In most operating plants both discipline and fair deal are defective, records are neither reliable, immediate nor adequate, despatching is so elementary as scarcely to be beyond the stage of putting into the shop an order for work, there are few, if any, scientifically made work schedules, there are no standard-practice instructions, no standardized conditions, no standardized operations, and efficiency rewards are defective.

Competent counsel must permeate every efficient organization, and if competent counsel
cannot be carried into operation, it is because the organization is defective, because some staff is lacking, and the staff that usually still awaits creation is the efficiency staff.



Competent counsel well deserves to be one of the Twelve Principles of Efficiency, and nowhere else is competent counsel more needed than in the application of the eleven other principles.

THE FOURTH PRINCIPLE: DISCIPLINE


Thinking and doing aren't the same. Good ideas are only seeds. They must be planted and tilled be-
fore they can produce. HERBERT KAUFMANN.


Now hundreds of trains sweep over the nearly thousand-mile stretch between Chicago and New
York to a set schedule. They start on the minute, they pass each station on the minute, they arrive on the minute; if there are delays, the passengers grumble mightily and the railroads pay rebates. The institution built up on time schedules has become mightier than the man and the man is immensely benefited by the discipline of the institution.

 In the railroad towns also, there is discipline.  People had clocks in their houses and watches in their pockets ; they went to the railroad station on railroad schedule time; the coming and going of the daily trains became definite, regulating and educational events even to those who never traveled; they fell into the habit of keeping other appointments; they were beginning to learn that the institution was greater than the individual.

Discipline is the greatest regulator of conduct is the spirit of the organization.

Under the best management there are scarcely any rules and there are fewer punishments. There are standard-practice instructions so that every one may know what his part in the game is, there is definite responsibility, there are reliable, immediate and adequate records of everything of importance, there are standardized conditions and standardized operations and there are efficiency rewards.





Fine manifestations of disciplined perform ance are the four eighteen-hour trains each day between New York and Chicago. So unobtru- sive is the perfect discipline that the passenger sees no rules or orders given, he does not see the far-ahead light or semaphore signals that govern progress, he sees still less the tele- graphic messages flashed by the despatchers to the signal towers, he knows little of the dupli- cate orders issued to conductor and engineer. The discipline is that of the velvet paw armed with the sharpest claws, infraction possibly resulting in destruction of the whole train, a trans-human punishment; infraction, even if there is no immediate disaster, resulting in reprimand or dismissal.


I also noted that capital and labor in com- bination are not enough, that the essential to
direct both is after all the organizer, the dis- ciplinarian; and I perceived that it was the
discipline of St. Francis, the discipline of St. Dominic, the discipline of Ignatius Loyola, that
made these great monastic and religious orders enduring and successful century after century.

So great is inefficiency of all kinds everywhere that the application of even this one principle of discipline has produced great re sults through military or church organizations.


 but we owe the continuance of civilization to the citizen efficiency and standard-practice engineers, en and women, heads of great institutions, govern- ments, corporations and enterprises, who de-
sign and erect the firm skeleton of discipline that maintains in place the units of individual-
ism, lest the whole aggregation tumble to ruin at the first shock in earth or air.

Supernal discipline is inspired by a greater emotion than fear.

Discipline begins before the applicant is taken on. Nine-tenths of all the harder discipline ought to be applied to exclude undesirables, men who by reason of bad character, bad and offensive habits, destructive tendencies, laziness or other faults are unfit to become working members of a high-class organization. It is before he is admitted that the applicant should hear of the ideals of the busi-
ness, of its organization, of its methods.

A few hours' investigation would determine whether an applicant for a working position
were really qualified, but the few hours are rarely given.

The type for the great newspaper is set up by linotype operators. Apprenticeship is rig-
orously limited. Some operators can never get beyond the 2,500-em class, others with no more
personal effort can set 5,000 ems. Do the em- ployers test out applicants for apprenticeships
so as to be sure to secure boys who will develop into the 5,000-em class? They do not.
They select applicants for any near reason ex- cept the fundamentally important one of innate
fitness. It is not a question of wages, though payment is for timework, but it is a question
of rapidity, of more news at a later hour, of a better utilization of an expensive machine, of
lessened rent for space in fact, of greater output in less time at less cost.

In railroading, why should each conductor and engineer be compelled to secure a watch of
the best grade, why should this watch be peri- odically inspected, yet the future conductors
and engineers be recruited in the most hap- hazard fashion? There is scarcely any greater
or crueler injustice to a boy or to a young man than to allow him to enter on a career for
which a competent examining committee would tell him he was unfit, there being other careers
for which he is better adapted.

The principles of efficiency are not vague platitudes; they are intensely practical, tested,
tried out, and successful. The strong leader who employs them prevents wastes, prevents the
losses caused the State and community by the cessation of labor of hundreds of thousands of
men, prevents the greater misery and suffering due to the enforced idleness of heads of fami-
lies.

It is not enough for the owners to have ideals; they must be transmitted to the em-
ployee, and nothing is easier, as any one who has studied the psychology of crowds knows;
but it is idle to expect the average worker to rise above the spirit of the place he works in.
If it is untidy, disorderly, filthy, if the accommodations for his necessities are lacking or
vile saw-tooth lighting, compound condensing engines, imposing steel and concrete construc-
tion, and all the over-equipment to which in the past we have pinned our faith, will not in-
spire the worker.

The way to guard against trouble is to make the position desired by a superior man, to al-
low it to be filled only by a superior man, to maintain the position at a high level. If the
owners and managers of a plant of any kind are orderly, enthusiastic, loyal to the work,
punctual, courteous, decent, competent ; if they feel their obligations toward those they direct ;
if they are honest, economical, diligent and sound in health, they can well demand similar
qualities in all the employees. I have placed order first, believing in the spirit of the pro-
verb that order is nature's first law and also the remark which Goethe puts into the mouth
of Mephistopheles : "Make use of time, it is so fleeting, but order saves time." No man ought
to be allowed to enlist who cannot start in with order, enthusiasm, loyalty, reliability,
who is not courteous and decent ; no man ought to expect to stay who is not competent, a good
brainworker, honest, economical and diligent. If in addition he has good health, so much the
better.

No efficiency principle stands alone, each supports and strengthens all the rest, each is
supported and strengthened by the other eleven. They are not as mutually interdepen-
dent as the stones of an arch, each a keystone which if removed brings about the collapse of
all the others ; they are more like the stones of a dome, any one of which can be taken
out, leaving a weakened, but not destroyed.



THE FIFTH PRINCIPLE: THE FAIR DEAL

Fixing Wage Rates must be fair to both Employee and Employer


Justice without discretion may do much; discre- tion without justice is of no avail. CICERO.

The best basis for peace, for harmony, for high performance, is selection of the human
thoroughbreds, exclusion of the undesirable human Texas long-horns.

It is in this manner that our future officers, military and naval, are recruited. Having been carefully selected by education tests, by physical measurements, and with some reference to moral antecedents, they are then given the fair deal. There is, therefore, owing to these elementary, obvious but insufficient pre- cautions, a diminution in the army and navy (compared to civil and industrial organizations) of dishonesty, of boorishness, of flagrant going wrong. During good behavior they remain; their promotion is sure although slow, their position is high, they are welcome guests in society and at the most exclusive clubs.


The fair deal, based on the exclusion of the many, the selection of the few, must primarily
spring from the master, not from the man, "With what measure the employer metes it
shall be measured to him again, therefore all things whatsoever ye would that men should do
to you, do ye even so to them." But mere kind- liness of heart, mere desire to be fair, does not
accomplish anything. Most boys would be better off in a severe school than under their
loving, indulgent and weak mothers.



In practice it is difficult to put up a fair deal unless there are three qualities, and these are
rarely found in the same person. The qualities are sympathy, imagination, and above all a
sense of justice. Though the combination is rare, the difficulty is not insuperable, for many
men competent to be leaders through other qualities possess one or the other of the three
essentials;

In selecting human assistants such superficialities as education, as physical strength,
even antecedent morality, are not as important as the inner aptitudes, proclivities, character,
which after all determine the man or woman.

The empiricist in outward signs of human character has, like the Tartar, splendid powers
of observation, excellent judgment, and very valuable knowledge, but may lack familiarity
with the conclusions of science based on very recent investigations. The modern brain stu-
dent may be deeply versed in special lines yet lack practical familiarity with everyday mani-
festations.

It is of the utmost importance that there are specialists, a very few, who are supplementing
intuition, observation, and good judgment with physiological, psychological and anthropologi-
cal research and study and are thus able to give the most important competent counsel that
can be given for both the fair deal and for mutual success, through advising both employer
and applicant in advance of engagement whether the latter is or can possibly be fitted
for the work that must be done. In the past, employers have recklessly engaged anybody,
however unfit, and have then applied the rem- edy of reduction of wages or of discharge. The
victims of this arbitrariness both in employ-ment and in discharge have for protection
joined unions, and influenced the unions to in- sist that wages per hour, not performance,
shall be the unit, to insist that no equitable relation shall be established between work and
pay, to object therefore to any determination or record of equivalency.


 It is about wages, directly or indirectly. that most serious disputes arise.

It is for this reason that wages loom up as the most important question in industrial life
today, although aptitude, therefore pleasure or success in the work undertaken, is more funda-
mental to individual, corporate, and national welfare. The individual is born with the in-
stinct of self-preservation, of race-preserva- tion, of acquisition and hoarding,  We have interposed the device of wages between basic need and its satisfaction. Wages therefore acquire the importance of both, and wages are also the cushion between anarchy and civilization.


No other subject is so disturbing as wages, or requires so much of the "fair deal."  If plans
for wage amelioration, successfully tried on a large scale, have been at best only experimental,
they at least have interest as showing how this delicate subject was approached with the fair
deal in mind.

The worker wants as high pay as he can enforce; the employer wants his output to be
as cheap as that of his competitors, for if it is not he will be driven out of business. The
worker cannot be expected to work for an em- ployer for less pay than is paid under similar
conditions for the same class of work by an- other employer. The wage payer cannot be
asked to pay higher wages than the current rate. Because this question is a dangerous
explosive, because any stray spark, concussion, or blow may set it off, it should be as far as
possible standardized and nine-tenths of the opportunities for clash be eliminated.


Piece rates have offered no solution. They were tried in order to abolish status and sub-
stitute contract and individual effort. Status cannot be wholly abolished. A shop is more
highly organized than a flock of sparrows or gulls. There must be regular hours, there are
so many dependent sequences that individuals must conform to the general plan. A piece rate
is, however, an endeavor to establish an equiv- alent in output for money paid.

As to this most delicate of wage questions, peace and harmony have followed the follow-
ing fair-deal provisions:

1. Decimal wage rates per hour are established.

2. These decimal wage rates run as local conditions require, from $0.20 an hour down
and up in full two-cent intervals, therefore $0.16, $0.18, $0.20, $0.22, $0.24, $0.26, etc.,
perhaps down to $0.06 and up to $0.60 or more.

3. The wage rate at which a man is engaged or retained is subject to negotiation and
agreement between him and the employer.

4. Men shall not be required to work over ten hours a day without a bonus.

5. Normal hours shall be nine a day.

6. A time equivalent shall be determined for every operation.

7. No worker is under any obligation to at-tain the time equivalent. His wages do not de-
pend on it, but on the time he is under orders.


8. Time equivalents are subject to revision either up or down as conditions change, never
because of high individual skill.

9. Revision is made by competent disinter- ested specialists and both parties know why,
when, where, and what revisions are made.

If all these provisions are part of the stand- ard practice of the shop, if they are accepted
when a man contracts his time, serious dis- agreements can arise only as to (3). It is in-
evitable that wages will from time to time rise or fall, partly because of varying cost of living,
partly because of supply and demand.

Standards could, to a large extent, automati- cally govern promotion from one class to an-
other on account of gain in experience, in- creased age, or meritorious record. A time
ought to come when a wholesale advance or recession in basic rate could be referred to
arbitrators or advisory commissions so as to minimize opportunity for disagreement.




It is conceivable that a man working 8 hours can do a full rational day's work. The same
work could be done with less wear and tear in 9 hours. Would I prefer to walk 3 miles an
hour for 9 hours, or to walk 3.375 miles an hour for 8 hours? I think I might prefer to
walk 2.7 miles an hour for 10 hours. A normal work day of 9 hours with temporary variations
in gangs between 8 and 10 hours has been found to work well. If, in balance with the
shop, a ten-man gang is working 9 hours a day and one man drops out, until he returns or can
be replaced the gang must either work harder, work longer, or disturb the balance of de-
pendent work. Rather than drive harder it is more equitable to pay for the extra normal
time required.

Longer hours than 10 are wholly deleterious to both worker and shop. I never knew any
advantage to result from promiscuous overtime. It should always be a serious emergency re-
source, and the bonus should be very high to men, the loss of shop efficiency and increased
cost be brought home to each official.

Like the other efficiency principles the fair deal should be standardized; it should be
moulded by each of the other eleven; it should be under the particular care of a very com-
petent staff official, aided and assisted by many specialists, character analysts, hygienists,
physiologists, psychologists, bacteriologists, safety-appliance and light and heat engineers,
economists, wage specialists, accountants and lawyers in short, by all the available and ap-
plicable knowledge in the world. Provided for in the organization, founded on ideals, on com-
mon-sense; developed by competent advisers, simplified by vigorous exclusion of the unfit, the
unfair, it should be carried into effect through reliable, immediate and adequate records,
through standard practice, definite instructions,through schedules and through all the other
efficiency principles.

The fair deal is the last of the five altruistic principles, principles so fundamental that we
find them applied by a she-bear to the bringing up of her cubs; principles inculcated by Old
and New Testament, by every great religion.

The object of collating wise practices of administration under a few simple heads is that
each may regularly survey his own task from the point of view of each one of the principles,
and thus not only prevent the backsliding that ultimately results in disaster, but make for-
ward progress so that he who started as a disciple soon becomes a master to whom we
turn for competent counsel.


Chapter VIII THE SIXTH PRINCIPLE: RELIABLE, IMMEDIATE, ADEQUATE, AND PERMANENT RECORDS

The Importance of Cost Accounting and Related Records is Brought Out in This Principles


The object of records is to increase the scope and number of warnings, to give us more information than is usually received immediately through our senses. A steam boiler with water in it, a fire under it, and all outlets closed, is more dangerous than a hot poker. There is very little to indicate the imminence of disaster. It is too hot to touch with the hand, although it is conceivable that a spot in it
might be so insulated as to permit the engineer to tell by feeling whether it was becoming too
warm. A thermometer would give a better record; but usually there are three recording instruments, each reliable and immediate, one of them in addition adequate. The engineer watches his pressure gauge, he watches his water-level glass, and the safety valve will pop even if he has fallen asleep. It is because of these three devices, one of which is independent of the man, that there are so few boiler explosions. All around us are many natural forms of advice, of records — the word is throughout
used in its largest sense.

The object of records is to annihilate time. It is to bring back the past, to look into the future, to annihilate space, to condense a whole rail-road system into a single line, to magnify the thousandth part of an inch to foot-rule measurement, to gauge the velocity of a distant star by the shifting of the lines in the spectroscope, to annihilate temperature by enabling us to read the millionth of degree or the 10,000-degree difference between moon and sun heat.




Records are anything that give information. Men have always felt the need of records, but they have not always known what they wanted nor how to secure them. In the great industrial plants one knows not whether to marvel most at the absence of reliable, immediate, and ac-curate records, or at the superabundance of permanent records, collected with painstaking and at great expense, but neither reliable, immediate, nor adequate. Even if the latter have all these qualities, there is often great duplication, and as a consequence we find an immense amount of accumulation of very little value,
which has cost far more than it need. An ex-ample of duplication may be found in the coal
records for locomotives. Expenses of operating locomotives are generally recorded per mile,
but suddenly a parallel set will crop up showing miles run per ton of coal. It has not been unusual in a great corporation's records to find a great variety of monthly tabulations, and when inquiry is made it is finally unravelled that twenty years before some president wanted a certain set of records, that his successor wanted a different set, which were started in parallel, that a third and fourth incumbent added their requests, but the old tabulations continue to be made and painstaking clerks work their monotonous lives away in neat compilation that no one has looked at, much less used, for a decade.

When the tramp piled and repiled the same cord of wood first on one side of the yard, then on the other, he was working efficiently but to no purpose ; and having the soul of an artist he finally rebelled.



There are records of all kinds, many of them essential to our continued existence. There are
in a much more limited way records of cost; and between the two extremes of universal
records (as the swing of the earth in its sea-sons or the slow aging of every living and in-
animate thing) on the one side, and cost rec-ords on the other, come records of efficiency,
and these are what we particularly need in the present phase of industrial life. We have not
yet learned to use to any great extent the con-ception of efficiency. We are interested in what
eggs cost per dozen, not in the weight of each egg; we ask the price of coal per ton, but
rarely know whether it contains 10,000 or 15,000 heat units per pound; we violently re-
sist a demand for a 10 per cent increase in wages, but we tolerate a 50 per cent inefficiency
in the worker. Not one in ten thousand knows even approximately the cost of food. Its price
is known, but not its value, and if a curve of food values per pound should be drawn, and
above each item its price, the line would look like the record of the seismograph during an
earthquake, or the record of a magnetic needle during an eruption on the sun.

The whole United States was frantic in 1896 over the money question, and not one in a
thousand of the gold advocates knew that owing to violent fluctuations in supply and use
gold had varied in value more than any other staple, not from hour to hour, as gold bonds
and gold stocks fluctuate in value on the stock exchange, but from decade to decade. One of
the tasks of modern scientific management, of efficiency and standard-practice engineering —
two names for the same ideals — is to convert efficiency records into cost records, since the
language of costs is understood by all, the lan-guage of efficiency only by the few. It is, of
course, generally true that costs will decline as efficiency increases, but this is not always so.

A jeweller may work with the same efficiency setting on one day a $2,500 diamond in a gold
stickpin and the next day setting a $0.25 bit of glass in a brass pin. Costs have varied, but not
efficiency. A Japanese miner may work for $0.20 a day and an Alaskan miner for $15.00 a day.
Each may work with equal efficiency, but the cost is very different. On the other hand, a
farmer, from the same field, planted to the same crop, plowed by the same man, team, and plow,
raises increasing crops of the same grain ; but wages, land values, and the price of horse feed
might also increase so that decreased cost will not always directly flow from increased efficiency.

In the refinement essential for the control of modern operations, it becomes increasingly
necessary to state efficiencies even if we talk costs.

If we know in advance the standard or theoretical costs, if we know the current efficiencies,
we can predetermine actual costs. What we all desire is to make the industrial machine as
efficient as possible, to bring efficiencies up to 100 per cent, and when we do this actual costs
will be the same as theoretical costs. We must first attack the problem theoretically. We must
have standards and we must have efficiencies. When a pump or steam engine is tested, by
every means we ascertain ideals ; we then compare actualities with the ideals and we ascer-
tain efficiencies. Similarly, in the great industrial problem we set up ideals, we measure
against them actual performance, and we as-certain efficiencies, and as for pumps, and for
steam engines, so also do we use these efficien-cies to prophesy future costs.

When actual and ideal performances are both recorded the relation in one month will gener-
ally serve to predetermine efficiencies in the next month, the relation of one year to prede-
termine efficiencies in the next year.

The elementary formula is, however, wholly inadequate for a real determination of efficien-cies and has in fact led to most serious miscon-ceptions and consequent mistakes.

By buying better coal, better furnace, better boiler, better engine and better service, coal
consumption can be reduced to two pounds, in some instances to one.


T cannot indefinitely decrease, neither can W indefinitely increase, and experimentally we
must determine what combination of TW re-sults in minimum cost.

More than ever before would it be necessary to make motion studies and time determination
and to set up standards of supply, of distribution, of use as to every item of work. If wages
per hour are arbitrarily increased, the increase can be safely provided for by increased effi-
ciency, and in no other way. If efficiency is arbitrarily increased, wages will inevitably rise,
or effort will diminish.

We have again and again found that ma-chines were not in operation over half the time
of a 9-hour day. When in operation they were inefficient. It is not so long ago that a loco-
motive-tire lathe would be run 18, even 30 hours, to turn up a single pair of tires, work
that on the same machine ought not to take over 3 hours.

The machine end-efficiency in some plants is not over 4 per cent of the guaranteed capacity.
Eight hours out of 24 gives a work time-efficiency of 33 per cent, not running half the time
during shop hours gives a shop time-efficiencyof 50 per cent; many machines exceed the re-
quirements of the work put to them, as when a big planer is used instead of a shaper, this form
of efficiency dropping often to 70 per cent ; and finally, machines are often run so slowly as to
show a speed efficiency of only 3.5 per cent. When we reflect that there are other dependent
sequences in the material inter-relations, in the work, and in the machine inter-relations, that
there are dependent sequences between ma-terial and labor and machine, as when unneces-
sarily hard material lengthens the time of both man and machine, or when defective machine
spoils material and wastes workers' time, or when unskilled man spoils material and injures
machine — the marvel is not that industrial operations are so inefficient, but that, considering the dependent sequences, they are in each term of the sequence so high*

It is a law that it usually pays to increase quality of materials, that it usually pays to in-
crease quality of labor, that it usually pays to increase quality of equipment, provided ma-
terials are efficiently used, labor efficiently used, equipment efficiently used. Equipment
has hours about half those of labor when it ought to work as long as materials, be con-
stantly on the job.


This relation of rate per hour to time is gen-erally lost sight of. It is because it has been
lost sight of that over-equipment is the rule in America. Materials, service and equipment are
worked up to the general cost formula :

Total cost=Materials+Service+Investment charges.
Total cost= QP +TW+ T'R

Usually only the greatest of industrial man-agers realize that Q is more important than P ;
that T is more important than W, that R is more important than T', and that minimum
total cost is realized when QP is minimum, TW the minimum, and T'R the minimum.

This formula shows what records are wanted, namely, the six items of standard cost and the six or more items of corresponding efficiencies. No manager, no accountant, knows where he stands unless his records show him as to every operation :

The standard quantity of material

The efficiencies of material use

The standard price of material unit

The efficiency of price

The standard quantity of time units required
The efficiencies of time
The standard rate of wages for work of the character done
The efficiency of wage rate
The standard quantity of time for equipment
The efficiencies of time use of equipment
The standard equipment rate per hour
The efficiencies of equipment use
The formula is equally applicable to a totalized operation costing one mill, as the page of  a periodical, or to the operation of all the rail- roads of the United States as one great unit.

Records as to each detail, aggregated into records as to the whole, are one of the efficiency
principles; records as to each item and every item today, records as to each and all items
throughout a long period of time. He who has records of quantity and price — efficiencies of
both, of every unit of material used, whether ton of rails or pint of oil ; who has records as
to time and wage rate for every operation, and the efficiencies ; who has records as to time and
investment charge per hour for every operation — he is in a position to apply the other practi-
cal principles and thus bring actual up to ideal. Records of this kind are simpler, cost less to
keep up, than the usual industrial and cost records of great companies.

Cost accounting can be very simply and easily developed from the cost formula. The elabora-
tion would carry us too far from the subject of records, reliable, immediate, adequate and per-
manent.











1. Clearly defined ideals.
2. Common sense
3. Competent counsel
4. Discipline
5. The fair deal
6. Reliable, immediate and adequate records
7. Despatching
8. Standards and schedules
9. Standardized conditions
10. Standardized operations
11. Written standard-practice instructions
12. Efficiency-reward

No comments:

Post a Comment