Administration Departments 
 By MELVILLE W. MIX 
 
 President of the Dodge Manufacturing Company 
 THE FUNCTIONS OF THE ADMINISTRATIVE DEPARTMENT 
 
 I have been asked to address you on the subject of administrative 
 departments. This request was subsequently made more specific by a 
 telegram which I received from Mr. Porter, advising me that the 
 v-^dministrative departments were understood to cover the board of 
 * directors, the executive committee, the general manager, planning, en- 
 Kigineering, and the legal departments of the busmess. 
 
 It is impossible, in the brief time at our disposal, to cover every 
 ^^one of these subjects in anything approaching a detailed and adequate 
 manner. I have, therefore, chosen to confine my discussion to a con- 
 Xpsideration of the administrative departments as a whole, meaning 
 ^thereby those departments of the business which have to do with ^e 
 direction and operation of the business as distinct from the selling 
 
 :^and manufacturing departments. 
 
 The final success of any business depends upon the efficiency ot its 
 administrative department. The administrative department is the 
 V brains of the enterprise. A strong, efficient organization, directed by 
 an incapable administrative department, is ineffective, and necessarily 
 -""'falls short of achieving the results which the same organization, 
 ^ capably directed, would secure. 
 
 < Organized, as we are, to study every phase of efficiency in connec- 
 tion with industrial effort, it becomes a part of our work to study from 
 o the broad point of view the efficiency and deficiency of the adminis- 
 .ji^trative departments of American business. 
 
 THE TEST OF ADMINISTRATIVE EFFICIENCY 
 
 We all recognize that efficiency is the relation between the deter- 
 O, - mined standard and the actual performance. Before we can speak of 
 
 Read at the first meeting of the Efficiency Society, heid in New York City, March .8 
 _ and 19, 1912* 
 
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Kvb'i'So- 
 
 efficiency concretely, we must measure the standard and the perform- 
 ance. To measure accurately the performance of an administrative 
 department is impossible; to set a definite standard, equally so. 
 
 Obviously the idea of every administrative department must be 
 to secure the greatest possible success for the business operated. The 
 only difficulty is to define the greatest possible success. Is it to extract 
 for the shareholders or owners the largest possible profits? It does 
 not seem so. To operate a business with the greatest degree of suc- 
 cess includes far more than that. 
 
 I believe that it involves a triple service, and that each master must 
 be served faithfully. 
 
 (1) Capital, as represented by the owners. 
 
 (2) Labor, as represented by the employees. 
 
 (3) The consumer, as represented by the public. 
 
 Properly to correlate and measure the various factors in this equa- 
 tion would require a more complicated slide rule than that astute 
 mathematician, Barth, ever conjured up in his wildest mathematical 
 dreams. But, while it is impossible to measure the efficiency of an 
 administrative department in a scientific way, a measurement of its 
 efficiency in terms of the various services it must perform, is con- 
 stantly being made by the owners, the employees, and the public. 
 
 It is as much a part of the duty of this organization to study and 
 promote efficiency of executives and the administrative departments 
 which they dominate, as it is to study and promote the efficient use of 
 material and the efficient operation of labor. 
 
 You will no doubt agree with me in the statement that any admin- 
 istrative department — speaking of the subject in the broad sense — 
 analyzes to the basic element of some one dominating individual, no 
 matter what his official position may be. The efficiency of the admin- 
 istration of the business which he dominates is a reflection of his own 
 efficiency. Its deficiencies are, in a way, the summing up of his own 
 deficiencies. If we consider then the efficiency of the dominating 
 executive, we will, at the same time, be considering the efficiency of 
 the administrative departments which he directs. 
 
 THE DEFICIENCY OF EXECUTIVES 
 
 I believe that the great majority of executives in this country are 
 not more than 25 per cent, efficient, measured by the standard of per- 
 formance of the comparatively few really efficient ones. In other 
 words, I believe that a greater percentage of inefficiency exists in the 
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administrative departments of our business than exists in our shops 
 and clerical departments. I believe this to be as true for big business 
 as it is for little business. I believe that this lack of efficiency in big 
 business is more likely to increase than diminish, as time goes on. 
 
 I realize that in making these statements I am laying myself open 
 to challenge and criticism ; however, they are made with sincerity and 
 deliberation ; a careful study of a great many business administrations 
 made by myself and my associates in the last fifteen years will bear 
 out the statement. ' 
 
 Don’t think that I am speaking from any imagined position of 
 superiority. I do not fail to recognize the deficiencies in my own 
 administration of the business which I dominate — we are all tarred 
 by the same stick. A redeeming feature — if I have any — is that I am 
 able to recognize some of these deficiencies and struggle against them. 
 
 I often remind myself of a man I knew in the little Illinois village 
 where I first had acquaintanceship with real work thrust upon me. 
 This man kept the general store in our town, and, bad as general 
 stores were in those days, this one was worse. Al. Becker was the 
 chief executive, and dominated the administrative department, which 
 consisted of himself and a worn-out old darkey, who also filled the 
 position of chief of the shipping and sales departments. 
 
 Becker was a man of great fertility of imagination, and full of 
 ambition for better things ; he would spend hours with his customers, 
 explaining all the things he was going to do to that store as soon as 
 he got around to it ! Better fixtures, a horse and wagon, stocks that 
 never gave out — all that a storekeeper and his public could want — 
 ‘‘as soon as he got around to it.” The only trouble was, he never did. 
 
 At last Brother Martin, who had waited patiently for two weeks 
 for a new pipe which he needed, and which Becker had promised would 
 be in in a day or two, lost patience, and, after expressing his feelings 
 with more eloquence than propriety, wound up by saying in a wither- 
 ing tone: “So you’re waiting till you get around to it, are you? 
 Guess you don’t wait till you get around to your victuals, do you? 
 If you did, you might starve.” 
 
 Becker looked grieved. “Martin,” he said, “don’t you go makin’ 
 no foolish talk about waitin’ to get around to victuals; victuals have 
 to be et.” 
 
 That may be the trouble with most of us, gentlemen — if we don’t 
 have to do things, many of us don’t do them as expeditiously as we 
 should. 
 
 Returning to efficiencies of administrative departments, let us con- 
 
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sider, first, some of the deficiencies of the administrative department ; 
 second, the reason for these deficiencies; and third, the steps that can 
 be taken, whether stimulated internally or externally, to correct and 
 improve these deficiencies. 
 
 INADEQUATE RETURNS ON CAPITAL INVESTED 
 
 According to the ordinarily accepted standard for business success, 
 the first great deficiency is the failure of the administrative depart- 
 ment to secure for the business which it is directing, an adequate profit 
 or return on the capital invested. 
 
 I think you will all agree with me that the actual capital invested 
 in any enterprise, outside of a natural monopoly where the returns are 
 as nearly sure as anything human can be, is entitled to a return of at 
 least 15 per cent, after adequate charges for depreciation and mainte- 
 nance have been deducted. How many businesses in this country, out- 
 side of those controlling a natural monopoly, are securing this return 
 on the actual capital involved? Unquestionably a great many, but a 
 great many more are not. 
 
 Too much capital in a business is more disastrous from the stand- 
 point of net results than too little capital. A careful study of the 
 capital involved and the profit secured in the various lines of industry 
 reported on by the United States Census Bureau will show that in 
 the great majority of industries the return on capital is considerably 
 less than 7 per cent. 
 
 There are many notable exceptions, and there are many concerns 
 that are making much more than this from the capital which they use. 
 This merely shows how efficient an administrative department can be 
 from the profit point of view, and the wide margin that exists between 
 the theoretical efficiencies and the actual efficiencies which most of 
 them obtain. 
 
 A grave deficiency of the administrative department of many of 
 our large businesses lies in the fact that they are administered more 
 for the benefit of the speculator than for the small investor, who prob- 
 ably owns the majority of their shares. 
 
 Where the capital with which a business is operated is supplied 
 by a number of small stockholders, each owning a few shares, and 
 representing by their very number a relative lack of individual impor- 
 tance, unable to exercise the control which concentrated capital is able 
 to exercise, the responsibility of the administrative department to the 
 capital becomes an even more important factor than in the case where 
 
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the responsibility is to capital in a large mass. How many times this 
 attitude on the part of the administrative departments dominating our 
 larger businesses has been violated in the past, it is unnecessary for 
 me to tell you. 
 
 Measured in terms of efficiency, the presidents, boards of directors, 
 or general managers who operate their business from the point of view 
 of stimulating speculative interest in their stock, of making it a fea- 
 ture in the stock market, are more inefficient than the common laborer 
 who sleeps away his day in some secluded corner of the factory. 
 
 FAILURE TO BUILD FOR A FUTURE 
 
 The inefficiency of many of our administrative departments is their 
 failure to build the business on a permanent basis. They intend to go 
 ahead from day to day, making goods, and selling them at as large a 
 profit as they can secure. They trust to lower prices and the efforts 
 of their sales department to keep their goods moving. 
 
 There is, in my opinion, no more definite responsibility laid on the 
 administrative department of any business than to build for a perma- 
 nent future. Many administrative departments consider that money 
 spent in advertising trade-marks and establishing trade-names with 
 the public are direct operating expenses. It seems to me that expendi- 
 tures of this nature should be regarded as investment rather than as 
 expense. 
 
 Consider some of the well-known trade-marks which have been 
 established in this country, and which have created a demand for the 
 goods sold under these trade-marks, which will continue for years, 
 irrespective of price or other consideration. Take such names as 
 Steinway, Tiffany, Dunlap, Heinz, McCormick, Castoria, Sapolio. Is 
 it not true that the money and effort which have been spent in making 
 these trade-marks what they are, constitute one of the greatest assets 
 of the business which controls them? Have not the administrative 
 departments of the business which have developed and established such 
 trade-marks shown a remarkably high degree of efficiency in this most 
 important feature of business success? 
 
 FAILURE TO MAINTAIN PROPER WAGE STANDARDS 
 
 Going over the elements by which the efficiency of the administra- 
 tive department should be judged, and considering the results accom- 
 plished in connection with the duty which the administrative depart- 
 
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ment owes to labor — the employee — it is as much a part of the duty 
 of the administrative department to pay its labor a wage that will 
 enable it to live according to American standards as it is to provide 
 the capital involved with an adequate return. Here you will find that 
 most of the administrative departments which are efficient from the 
 return on capital point of view are sadly deficient. 
 
 Consider the labor condition of many of our large corporations 
 which are making more than adequate return on capital, and you 
 will find that in most of these cases their average wage is below the 
 standard agreed on as capable of sustaining family life in accordance 
 with our American standard. It is inefficiency of this sort which is 
 creating the spirit of unrest and the growth of socialism, which are 
 becoming so marked a feature in our national life at the present 
 time. 
 
 Failure to maintain proper wage standards is a breach of trust, 
 not only to the employee, but also to capital. The dissatisfaction and 
 unrest, which inadequate wages invariably cause, will become eventu- 
 ally a far graver menace to capital than a slight lowering of the divi- 
 dend rate. I claim that those administrative departments which fail 
 to pay adequate wages are just as inefficient and are as much in 
 need of having their efficiency increased as are those administrative 
 departments which fail to secure an adequate return for the owners. 
 
 FAILURE TO MAINTAIN REASONABLE PRICES 
 
 Consider the third feature in the measurement of the efficiency of 
 the administrative department — the duty which the administrative de- 
 partment and the business which it directs owes to the public. This 
 duty is to place in the hands of the public the goods or service which 
 the public needs or wants, at a reasonable price. 
 
 I do not believe that it is good efficiency to charge the public $10.00 
 for an article which could just as well be supplied for $8.00 if the 
 business were properly organized and directed. Yet, this is what many 
 businesses which are efficient, from the capital and labor standpoint, 
 do to the public. 
 
 It is inefficiency of this sort which leads to the demand for govern- 
 ment ownership, supervision, and price-setting, which is growing up 
 among us. The public never has grudged and never will grudge a 
 fair profit to capital, or a fair wage to labor. The public, however, 
 will not stand and should not stand indefinitely for higher prices than 
 are necessary to secure this reasonable return and reasonable wage. 
 
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THE IDEAL EXECUTIVE 
 
 To what are these inefficiencies due? Generally speaking, to the 
 same things that cause inefficiency on the part of labor : lack of knowl- 
 edge, lack of judgment, lack of interest, lack of training, lack of in- 
 telligence, and lack of energy. 
 
 The ideal executive is the man who, after careful training in a 
 well-run establishment, embarks in business on his own account with 
 his own money, dependent upon his own efforts for his success or 
 failure. Such a man has the training already secured in his years of 
 preliminary experience. As he usually starts in a small way, he be- 
 comes familiar personally with every detail of his business. He knows 
 it from the financial side, from the manufacturing side, and from the 
 selling side. Granted that he has cultivated good judgment — he has 
 the interest, the knowledge, and the personal touch, which should lead 
 to success. 
 
 As the business becomes larger, through his success, he is able 
 gradually to lessen his attention to details, and to maintain his personal 
 grip on the situation through statistics and reports prepared in accord- 
 ance with his directions. Every report he receives he interprets in 
 terms of the personal equation. He is constantly checking, by definite 
 statistics and reports, the personal impressions received in his daily 
 intercourse with his subordinates. 
 
 If such a man is broad enough to recognize his duties to his em- 
 ployees and the public, he should become, and generally does become, 
 the highest example of efficiency in the executive, and builds up a 
 highly efficient administrative department. It is this type of man that 
 has made American business what it is to-day, and it is on this type 
 of man that the success of American business in the future must 
 depend. 
 
 THE INABILITY OF BIG BUSINESS TO DEVELOP EXECUTIVES 
 
 The great weakness of our big businesses — of our trusts — lies in 
 the scarcity of men of this type. The success of the various units of 
 which our trusts are composed has generally been brought about 
 through years of effort on the part of a man of this type. 
 
 When the trust is first organized these men are retained, and, hav- 
 ing better tools to work with, or more resources at their command, 
 they are usually able, while they remain in control, to show better 
 results with the larger business than they have been able to show 
 with their individual units. Presently, however, these men begin to 
 
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retire or die off. They must be replaced. From what source can 
 they be replaced? Men of this same type are running their own 
 businesses — are making good. They cannot be lured to the employ 
 of the trust, even if the trust were able to find them. 
 
 If you think it is easy to find loo-point executive men, based on 
 any reasonable expectation as to standard of performance, take a 
 contract to find a dozen or so of them within an ordinary limit of 
 time. Your efforts will be covered with about the same success as 
 was that of the individual who camped near a frog swamp in Jersey, 
 and thought a contract he had made for furnishing 1,000,000 frogs’ 
 legs per week to New York hotels was one of the really sure things 
 of his time. The visions of plutocratic indulgence that he had under 
 consideration were knocked into a cocked hat before the first week 
 was over when he learned to his sorrow and chagrin that there was 
 absolutely no mathematical relation between the noises he had heard 
 and the number of frogs available on his contract. . 
 
 The trust must fall back to the higher executive, to a man devel- 
 oped through trust methods. However able such a man may be, how- 
 ever good a use he may be able to make of statistics and reports, he 
 cannot possibly have that close personal touch with the various details 
 of which the trust is built as the man who originally put it together 
 and directed it. 
 
 The headquarters of the corporation, usually being situated in 
 New York City, or some other large city, or in a foreign country, are 
 far removed from the actual scene of operations. The plants are scat- 
 tered around the country, and no man, however active, can hope to 
 become intimately and personally acquainted with all of them. The 
 administration becomes gradually more machine-like, more and more 
 red tape is introduced, and the human element is eliminated. 
 
 Who, for a moment, imagines that the sugar trust, as adminis- 
 tered to-day, is as well handled, from the owner’s point of view, as 
 when administered by Havemeyer? Who imagines that the Standard 
 Oil Company, which has reached the highest efficiency in all possible 
 directions, under the administration of Rockefeller, could have con- 
 tinued that efficiency, even if it had not been interfered with by our 
 courts, with Rockefeller’s dominating influence withdrawn? 
 
 It is in these facts that the inherent w’eakness of big business and 
 our trusts lies. Their successful operation in the future depends on 
 the solution of these problems. 
 
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THE NATURAL INEFFICIENCY OF HUMANITY 
 
 The inefficiency of the administrative departments of smaller busi- 
 ness is due to the natural inefficiency of humanity. The majority of 
 men are satisfied with well enough, instead of the best possible. The 
 majority of administrative departments are satisfied to operate their 
 businesses along old lines, with a moderate degree of success, instead 
 of studying themselves and forcing themselves on to greater activity 
 and greater success. 
 
 Many of the executives of these small businesses have neither the 
 training nor the knowledge which is required to operate a business 
 successfully. They may depend wholly upon the personal touch, when 
 we all know the personal touch must be backed by the general reports 
 and statistics. They may depend wholly upon reports and statistics, 
 when we know that reports and statistics must be backed by personal 
 familiarity with every detail of the business involved. They content 
 themselves with doing what others have done before them, rather 
 than putting forth any new lines of action, new lines of activity. 
 
 What is true as to the individual regarding his inability to maintain 
 a constant high pressure of enthusiasm and initiative, when the easy 
 things have been done, when the novelty has been worn off, or as in 
 the case of athletics — ^when the candidate '‘goes stale” — is equally 
 true of an administrative department; applying to all branches of the 
 service, as well as to the organization as a whole. These periods are 
 called “plateaus” by one noted writer; and be it here stated that any 
 executive department or individual who takes root on a plateau is 
 hopelessly lost. 
 
 Having knowledge of these possibilities, as we study results from 
 the efficiency standpoint, the wise administration will adopt prompt 
 corrective measures, and see that the entire organization does not get 
 stale at the same time. The executive “punch” is just as essential as 
 the individual punch, and provisions must be made for continuing a 
 reasonably good punch at all times and an exceptional one every once 
 in a while — as often as the candidate is good for it. 
 
 HOW TO INCREASE ADMINISTRATIVE EFFICIENCY 
 
 The problem before this organization is to increase the efficiency 
 of these administrative departments in big business and little business. 
 Better methods for executives to follow must be marked out. We 
 must secure from executives and administrative departments which 
 3—9 
 
are undoubtedly efficient a definite statement of how that efficiency is 
 obtained. We should circulate the results of this investigation. 
 
 Standards should be gradually established for return from the capi- 
 tal, for wages to be paid employes, and for excess of selling price 
 over actual labor and material cost, from the point of view of the 
 public. We should establish ways of measuring actual results accom- 
 plished in terms of these standards, and encourage executives to apply 
 these measurements to their own conditions. We should encourage 
 executives to submit their results and their methods to a committee of 
 expert executives for criticism and suggestion. 
 
 In my opinion the greatest opportunity for increasing efficiency of 
 the business world as a whole lies in increasing the efficiency of its 
 administrative departments. 
 
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