Chapter XV EFFICIENCY PRINCIPLES APPLIED TO MEASUREMENT AND CURE OF WASTES
The ideal that inspires the formulation of the principles of efficiency is elimination of waste, of wastes of all kinds resulting finally in wastes of the collective human soul.
Elimination of all wastes may indeed be a Utopian ideal, not to be realized in the life of our planet, but any waste elimination brings its immediate reward.
The ideal of the Twelve Efficiency Principles is waste elimination, and to this end they have been formulated. The mere purpose for which waste is to be eliminated is not important.
No navigator, whether pirate or merchant-man, can make best time for himself and his
ship who does not know great-circle courses, the shortest path from port to port, who does
not modify his course as little as possible on account of intervening land, shoals, adverse
winds, or currents. No man can achieve greatest success for himself, whether malefactor of
great wealth or captain of industry, who does not eliminate wastes from his own operations.
There are ultimate ideals like universal peace, but a tremendously efficient present naval and
military organization may further universal peace far more effectively than inefficient senti-
mentality and, even as an efficient navy would be most reluctant to enter on an unnecessary
struggle (since its personnel by reason of its efficiency knows better than anyone else the
hideous waste and cost of war) , so it is almost impossible to conceive of an efficient leader
being a great malefactor, or of a great male-factor being efficient.
It would not be a risky experiment to imbue a criminal of any kind with the principles that
eliminate waste and to induce him to practice them, for in the end criminality and waste-elim-
ination are incompatible, and also virtue and waste are incompatible, and there is more hope
of bending the efficient sinner into paths of rectitude where he will accomplish much, than
there is of making ethical progress with the inefficient.
Why should we formulate principles?
Caesar, Hideyoshi, English statesmen, the founders of the United States,
Napoleon, Bismarck and von Moltke, transmitted organizations founded on principles.
Most American industrial plants and business houses have come to grief in the second genera-
tion, and even corporations resting on special privilege like railroads and street-car lines,
have passed into receivers* hands and undergone drastic reorganizations. In trying to con-
trol the great corporations, our statesmen, although men, are governed by intuitions not by
principles, fail to swing the general government into line to do its part ; they make the general
government maintain disastrous and wasteful competition when what is wanted is principles
that would work for elimination and equitable distribution of the immense gain.
Will the United States Steel Corporation endure? Not unless it succeeds in substituting
principles, efficiency principles, for the intuitions of Carnegie, of Schwab, substituting effi-
ciency principles even for the intuitions of that great genius, J. Pierpont Morgan.
The task before Judge Gary is a greater one than making steel, a greater one than harmoniz-
ing the steel producers of America, of the world; it is to inculcate those principles that
It has often happened that in industrial plants where high efficiencies were being ob-
tained, visitors confounding system with efficiency have come, have collected devices, cards
and forms, have gone away supposing they had the secret of efficiency. It is as if a man should
appropriate a lawyer's library and think this made him proficient in the law. There are mil-
ions of devices, forms, cards ; no one can grasp them all, understand them all, and the chances
are that not one of them will exactly fit in an untried place, even as no eye-glasses exactly
suit any other pair of astigmatic eyes.
When, however, all the devices and methods can be collected under a few heads — ten, twelve,
fifteen ; when it is possible to show that a few principles cover all the possible devices — then
the thinker can work backwards and ask himself what devices or methods or plans has he
that will maintain (for instance) ideals, or that will give him reliable, immediate, and adequate
It is easy to test the efficiency of a plant because inefficiency is due to one of two causes.
Either the principles of efficiency are not known, or they are not applied. If the principles are
not used, high efficiency is impossible; if they are theoretically approved but not applied, high
efficiency is also impossible. One of the main purposes of the principles is to give instruments of precision wherewith to test efficiency.
In going into a plant, seeing the evidences of great inefficiency, the first step is to find out
what is ; next, to set up standards ; then to insist on the use of the principles, first to test the
administration, and then to direct the plant,
knowing with absolute certainty that if they
are applied by a valiant and competent man,
standards will inevitably be attained. There is,
of course, no absolute and final standard. The
standard initially adopted is always one plainly
within sight, easily attained. A standard of 54
miles an hour from New York to Chicago is at-
tained today; it would have been ridiculous
twenty years ago. A speed of 25 knots an hour
across the ocean was planned for and attained
by the Mauretania and Lusitania ; it would have
been absurd in 1862, when the fastest steamer
took 9 days and other good steamers were 12 to
13 days on the ocean*
Having ascertained what is, having set up standards, the plant manager and his counsel-lors ought not to go out and collect forms and devices and cards, ought not to install clocks and devices and checks, systems and methods, but ought to go into retirement and search their own minds and hearts and by some device or
method test the extent to which they can ap-ply principles. A convenient device is to assign a score card to each principle, to draw on the card a checker-board of a hundred squares, and by marking out squares record his judgment and that of other experts as to the extent to which efficiency principles are being applied.
The questions are not as to the number of
employees, or whether the buildings are brick
or wood, the equipment new or old, the em-
ployees men or women, white or black, free or
unionized, nor where the plant and what the
product is ; but the first question is, "What are
To illustrate the method we can tentatively
apply it to the greatest industrial corporation
the world has ever seen — the United States
Steel Corporation. From every point of view it
ranks high, higher than most corporations. Or-
ganized only ten years ago, it started with the
ideals of 1901, and if we have any belief in
progress these were higher than the prevailing
standards when the Standard Oil Company was
struggling to the front. There is as much differ-
ence between the ruthless methods of the old
Standard and the friendly dinners of Judge
Gary as there is between the "eye for an eye"
of the Old Testament and the Golden Rule of
the New Testament.
Twelve years ago the steel business of the
country was greatly disorganized. Every man
did what was good in his own eyes. There was
always a feast or a famine, very profitable or
very ruinous prices; it had become an axiom
that the condition of the iron trade was an in-
fallible barometer of general business condi-
tions. Very able men, financiers, lawyers,
great steel producers, combined to bring order
out of chaos, and the United States Steel
Corporation was formed. It has been man-
aged with great prudence and wisdom, perhaps
with as great wisdom and prudence as indus-
trial knowledge at that time made possible.
It has recently been investigated and it is inter-
esting to gather from the mass of testimony the
ideals of both investigator and investigated.
The ideals of the Corporation seem to have
(1) Law abidence.
(2) Rational publicity.
(3) Steady prices at a high level.
(4) Maximum tonnage.
(5) Permanence for its own business by the purchase of large ore and coal reserves.
(6) Rapid improvement of the properties so as to make them worth the capitalized value.
(7) Maintenance of a high level of wages.
(8) Identification of the worker with the profits of his work, thus increasing his interest in his occupation.
These ideals are summed up by Judge Gary in a declaration in an address at Brussels to 160 representatives of steel interests in Europe and America, in which he declared that "There should be established and continuously main-tained a business friendship which compels one to feel the same concern for his neighbor that he has for himself. It is nothing less in principle than the Golden Rule applied to business/'
Critics have carpingly suggested that the
principle should be called "The Golden Rule
Limited'' since it takes no account of mankind
outside of steel. This is both unjust and nar-
row. The actual price of anything is not im-
portant, the relative price is, and even more im-
portant is it that relative prices should not
fluctuate but gradually sink compared to labor.
It is the immense merit of the Corporation that
it has maintained prices of products and com-
pensation per hour of labor, also that by elimi-
nating useless wastes in selling and in fighting
competitors it has been able to make good the
ideals of corporate value set up in 1901.
The criticism ought not to be that it has elim-
inated several hundred million dollars of waste
without any detriment whatever to the Com-
monwealth, but that it has not been able to
eliminate more waste, and from the gain not
only add to its own profits but also gradually
lower price of products as measured in dollars,
and increase the compensation, measured in dollars, of efficient workers, thus doubly adding to
the purchase power of wages efficiently earned.
It will be interesting to use the United States
Steel Corporation as a concrete example of the
way the principles of efficiency might be of ser-
vice to those who direct and administer large
Waste elimination in production expense has
not yet become one of the effective ideals of the
Corporation. Does it cost less or more to pro-
duce steel today than it did twelve or fifteen
years ago? Is it not costing less per ton to
transport freight, less per mile to transport
passengers on the railroads, than it did fifteen
years ago? Has the Steel Corporation attained
a present rational low limit of cost of produc-
tion ? If it is not applying systematically all the
principles of efficiency to every minutest opera-
tion, then naturally its costs are unduly high,
and if it did apply these principles, its costs
would be lower, with gain to all !
The Corporation has not applied the principles firstly because there were other vital and
elementary problems more pressing, and secondly because the principles had not yet been
formulated and their value to a very limited and almost unknown extent been demonstrated
by F. W. Taylor, H. L. Gantt, James M. Dodge, W. J. Power, E. E. Arison and many others.
If the United States Steel Corporation were
to be checked up by efficiency principles, ideals
would be first formulated that would be of
universal application, and the lesser ideals of
the Corporation would be checked up in com-
parison. By this test as to the first prin-
ciple, Ideals, it would be given high credit for
some, fair marks on others, and as to others it
would be found very defective. It could not be
otherwise, since there have been men highly
connected with the Corporation in whom the
public could not have any general moral confi-
fidence either as to their comprehension or ex-
ecution of ideals except of the lowest order.
Tonnage, the shibboleth of steel production, is
a low ideal working havoc in more ways than
Taking the next square, Common Sense, the
Corporation has steered a remarkably wise
course along a channel beset with many difficul-
ties and with the materials at hand wonders
have been accomplished. The Corporation is
vulnerable only to small degree for what it
has done, but to a large degree for what it has
not done. It is not by any means as up-to-date
as a modern American battleship which can
concentrate repeated heavier salvo fires on a
target at a greater distance in a shorter time
than any other battleship in existence.
The square of Competent Counsel. Here
again there appears to be deficiency of omis-
sion. Counsel has been taken in many direc-
tions, legal, financial, political, technical, but in
other directions competent counsel has neither
been invoked nor secured because its need was
In one Pittsburg shop there are fifty-six dif-
ferent nationalities employed, men of many dif-
ferent races. In London there has just met a
Universal Races Congress with delegates from
all nations and all the races in the world. (I
know private American businesses that have
sent members to this Races Congress in order
to be better prepared to handle the race prob-
lems that occur in American shops.) Is the
Steel Corporation represented there? If not,
how could it afford to miss the opportunity ?
Discipline and the Fair Deal, recognized as
principles, have both been conspicuously in-
sisted on, and both are intensely desired by the
Corporation in spite of local murmurings and
occasional sore spots, occurring solely because
the principles have not been worked down far
When it comes to the application of the prin-
ciples of Reliable, Immediate and Adequate
Records and of Determination of Standards, the
Corporation does not rank high because it is
only a systematized business, not one scientifi-
cally managed, because it has not yet emerged
from the antiquated standards of accounting so
beautifully developed by the Venetians shortly
af er the adoption of Arabic numerals. The old
principles of accounting plainly in evidence in
a modern bank are three in number: (1) Des-
tination; (2) authority; (3) balance.
In a deposit bank it is imperative to know
where to credit a deposit, the destination of the
account ; it is so imperative to have proper au-
thority for drawing out money that if a man's
wife, or partner, or best friend attempted to
check on his account the bank would be horri-
fied and call on all the minions of the law to
prevent and punish such sacrilege. The bank is
happy when as to the whole and as to each ac-
count there is balance.
These ideals are fine, important and desir-
able, but wholly inadequate. The bank does not
care how the depositor acquired the money nor
how he spends it after it is withdrawn. Its
supervision covers a very limited field. It is
this limited field that corporation accounting
has to date covered. It is not broad enough.
In the Illinois Central Railroad car-repair
frauds under which the road lost about $5,000,-
000, destination was perfectly observed, for
bills were charged to definite accounts ; also as
to every voucher authority was forthcoming,
each being approved by some official; finally
there was perfect balance between vouchers and
expenditures. When the frauds were revealed,
President Harahan pathetically mourned that
trusted friends had deceived him.
The modern cost-accounting fundamentals
are Standards, Efficiencies, Equivalents. The
Lusitania in crossing the ocean steams a meas-
ured number of miles, in a recorded time. To
do this requires about 60,000 horse-power, each
horse-power hour requires a pound and a half
of coal. I know nothing of the records of the
Lusitania, I have never seen any of them, but
off-hand I can estimate that it takes about 1,000
tons a day to run the ship. This is a standard,
not a record.
There is, as to the Lusitania and all other
large steamers in regular service on definite,
fixed and measured courses, a predetermined
standard of expense for coal ; and against this
standard, actual consumptions are checked, or
may easily be checked for every voyage, closely
compared, and keenly scrutinized.
If the Illinois 'Central had had standards for
car repairs, any standard — $31 per car per year
as Turner attained on the Pittsburg and Erie ;
$35 per car per year as Van Alstyne attained
on the Northern Pacific ; $42 per car per year
as some railroads might think sufficient; $56
per car, an amount that any competent investi-
gation will show to be too much; $70 per car
per year, about the average of all the railroads
— then the Illinois Central cost at the rate of
$140 per car per year would have shown the
following efficiencies according to the different
Standard Cost Efficiency at per Car $140 per per Year.* Car per Year.
$31 22 per cent
$35 25 per cent
$42 30 per cent
$56 40 per cent
$70 50 per cent
and there would have been instant inquiry by
officials, by Wall Street, by shareholders, by
* Repairs per freight car owned is a defective unit, but the illus-
tration holds good, as any other unit, repairs per car mile, would
still show Turner and Van Alstyne in the lead, the Illinois Central
Interstate Commerce Commission, by rivals and
critics, as to the why and wherefore of the low
efficiencies, as to the absence of equivalence be-
tween moneys spent and results obtained.
The United States Steel Corporation has rec-
ords of productive cost which it may think are
standards, but they are not; they are mere
records of what has been accomplished in the
past, and there is absolutely no direct connec-
tion between what has been and what ought to
be. Records grope in the past, standards reach
into the future, ultimate standards are always
ahead of what has ever been. Practical stand-
ards hang like stalactites from the roof of ideal
standards, records are built up like stalagmites
from the floor of actual performance ; it is only
when stalactite tip and stalagmite tip join and
fuse that both become a column of efficiency
strength. Does the Steel Corporation know as
to every detail what ought to be as well as it
knows what has been? If it does not, it is
merely systematized; it cannot measure its
losses, and where there is no standard there is
inevitably waste, and very great waste.
We next consider the application of the prin-
ciples of Standardized Conditions and Stand-
ardized Operations. Are conditions standardized to the same extent as in a railroad track,
as in railroad cars and locomotives, always maintained in a high degree of efficient repair,
because life is at stake if they are not?
Poor belting, poor abrasive wheels, poorly
maintained machines, delayed deliveries of ma-
terial, do not endanger life in the operation of
an industrial plant; therefore nobody cares
very much, and because nobody cares, because
no alarm clock goes off, lax and slack conditions
prevail. It is not even necessary to prove that
laxity and slackness exist; the legitimate as-
sumption is that they do unless the contrary is
An eight-year-old child who has never been
to school presumably cannot read, and to pre-
vent arrest by the truant officer proof of effi-
ciency has to be furnished by the parent to the
municipal authorities. So with corporations
who have not learned the alphabet of efficiency.
In the Corporation have single operations been
standardized, not only the centralized, super-
vised and oft-repeated operations, but also the
decentralized, unsupervised, occasional opera-
Continual hammering on the same spike will
ultimately sink it into very hard wood, it is an
oft-repeated operation; but it is much harder
to throw a stone straight. Therefore we ham-
mer as did prehistoric men ; the operation was
almost as perfect then as now; but we have
had to develop a staff of thirty men working all
together to standardize such an unusual opera-
tion as throwing a 1,000-pound shot at an en-
Has the Steel Corporation so standardized
conditions and operations as to enable it to
draw up Standard-Practice Instructions cover-
ing all details? No one standardizes without
reducing the standards to written form. The
object of surveys is to make maps, more or
less elaborate, that all may profit. If there are
no maps of a region it is safe to assume that
there are few and imperfect surveys. By its
collection of standard-practice instructions the
Steel Corporation could demonstrate its effi-
ciency status, whether very elementary or far
advanced. With a good chart in his hands one
captain can replace another without danger
even in risky waters. In industrial plants most
of the charts are under some foreman's or
worker's hat, and it would not be possible (as
it ought to be) , without loss, to walk in a new
industrial army, privates and officers, and take
up interrupted work, without delay or loss.
As to the next principle, Despatching, it is
undoubtedly applied by the Corporation on a
wholesale scale but not in detail. Large steam-
ers laden with ore are regularly despatched
from the far end of Lake Superior to the lower
end of Lake Erie. Big apparatus is used for
loading and unloading these steamers; but is
each scoopful handled with the maximum of
efficiency? As railroads have found out, it is
quite as important to despatch passengers into
trains and out of them again as to despatch the
trains. In the despatching of minor operations
all except standardized industrial concerns are
Finally we come to the principle of Efficiency Reward. As to every human effort, for the
highest result and for joyful, healthful effort, three conditions must prevail :
(1) There must be pleasure in the work; it
must be a game, not a task; it must be what
learning to ride on a bicycle or learning to skate
is to a boy, or learning to dance is to a girl, or
playing golf is to the elderly business man, or
auto speeding to the automobile driver.
(2) There must be a definite end in view, a
definite accomplishment in a given time, not a
vague, never-ending grind.
We are not accustomed to endless day or end-
less night; both are depressing, and so also is
a perfect unchanging climate or sea. Men
want change, always change, the sting of the
blizzard with the certainty of the broil of the
camp fire at the end of the tramp. The ordi-
nary man will scarcely hold his breath a full
minute, but if trained by a single lesson and
nerved to a definite task, timing himself, he can
hold his breath for a minute and a half, for
two minutes, for three minutes, or even for
four. He acquires form.
(3) Form is the third requisite for easy,
graceful, pleasurable work. Compare the
skilled skater with the novice, compare the
skilled man riding horse or bicycle, scarcely a
muscle in use, with the frantic efforts of the
learner, compare the dexterity of the juggler
with the clumsiness of the imitator.
The Steel Corporation has installed the plan,
the duty of profit sharing, but has it recognized
the principle of Efficiency Reward in the great
army of its workers ? Has it set up a standard
task in a standard time? Is there immense joy
in each one's work ? Is there perfected form in
doing the work?
Minimum effort put forth in best form to attain a standard in definite time gives the joy of
work, and this joy is added to the pleasure of securing the special reward for proficiency.
Are these the conditions under which the steel workers labor? If not, the workers cannot be
efficient and wastes are occurring.
Whether we check up the making of a pin and its cost or the operations for a decade of
the greatest corporation in the world, the same methods can be applied to reveal weaknesses
and to show the need of special remedies. The principles of efficiency are to the industrial
plant what the principles of hygiene are to life.
If man, woman or child does not have constant-
ly changing air of sufficient purity, an abund-
ance of good food and water, plenty of exercise
as well as rest and sleep, constant keen inter-
ests and sudden changes, health will suffer, no
matter what the occupation.
No matter what the occupation, no act is efficient if the principles on which efficiency is
based are lacking.
Franklin collected thirteen principles to cover the small amenities of daily life. They
were: Temperance, silence, order, resolution, frugality, industry, sincerity, justice, modera-
tion, cleanliness, tranquility, chastity, humility. Each week he picked out one and practiced it
diligently, thus creating a habit. Each year he practiced each one a full week in each quar-
ter, thus covering them all four times each year. He kept this up for many years. The uncouth
Franklin of early manhood who found fault with his wife for giving him a silver spoon and
a china bowl for his bread and milk instead of a pewter spoon and earthenware crock, devel-
oped into the statesman and man of the world who won the respect of Englishmen, the ad-
miration of Frenchmen, and the gratitude of Americans. In a similar way ought the prin-
ciples of efficiency to be applied and reapplied.
It is interesting to note that now philosophy of lean system is said to be Elimination of Waste.
Updated 19 April 2015
3 October 2013