TION IN THE CHEMICAL INDUSTRY* FRANK J. CURTIS Monsanto Chemical Company, St Louis, Missouri
IN THIS series of papers I hope that it will be possible to make a little clearer to those who expect to enter the chemical industry-and even other industries-the framework in which they will live. The hard part of it for me is to realize that, having been immersed within this framework for so many years, everything is not ohvious to those who have been not so conditioned. A fish has never had a chance to be dry and cannot conceive of what a dry world would be like. To those who do not intend to enter the industrial world, and particularly the industrial chemical world, perhaps I may sucreed in giving a picture by which they can understand the situation, and in the case of those who are teachers, hy which they can transmit to students a visualization of what is ahead of them. Fundamentally we hope to produce a better understanding between the industrial nnd educational groups, an understanding which a t t,imes seems to be woefully lacking on both sides of the fence.
other end we have rubber, petroleum, soap, lime and cement, and others. And still further out there are industries which have decided chemical aspects such as food and textiles, becoming more and more consumers of chemical goods. Much that I will have to say applies to all of these industries as well as what we might call the kernel of the chemical industry, the manufacture of chemicals themselves. But why have an organization anyway? Let us take the man with an idea, as a starting point. If nothing is done beyond talking, no organization will be necessary, and no results will be accomplished. Unfortunately, this seems to happen in a great many ca es. However, the first thing such a man must do is to find out if the idea works. Immediately he is up against the necessity for finance, for either he has to work on the idea himself or hire someone to do it. At any rate, it adds up t o providing research and pilot planting, however embryonic. Whether the inventor does his own work or not is beside the point, because if he were not working on this OUTLINE O F SERIES he could sell his services elsewhere and therefore he is In this first lecture I hope to sketch for you why we really spending money. If the research work looks suchave to have an organization, what it consists of, the cessful he or someone must spend money for design and various types we have to choose from, and why we make plant construction, must provide steam and power, wat,he choices we do. In the second lecture I will trace the ter supplies, sewers for effluents. So we involve engirourse of the idea through research, development, en- neering and finance. gineering t o production, and the ways in which these When the plant is built he or someone must run it, invarious steps are integrated. volving choosing, hiring, and handling of labor, purchasSince no one, a t least willingly, produces goods to ing of supplies and raw materials, and the calculating of store in warehouses, the third lecture will discuss the costs So now we have added to our staff, personnel and means we have developed for getting these products lahor relations, purchasing, accounting, and again fifrom the laboratory into active commercial sales. In nance for the working capital, the latter a weight often these three lectures we will be talking about things, neglected. However the product has no value unless it their conception, production, and distribution. But is sold and resold. Nobody ever made a path to a men are more important than things, and although in mousetrap unless he had heard of it. Yet no sales force, talking of human values, it will be with particular ap- even the Fuller brush men, can hope to reach all the poplication to engineering, by a few simple changes in tential customers, hence he must do advertising. If the wording, what I say will be applicable to almost any product is unique, it should be patented, and thus there walk of life. must be legal advice. Obviously one man cannot do all of these things, and INTRODUCTION when two men work together organization begins. You The chemical industry is a rather peculiar one. I t will remember that lack of organization ruined the Garseems to have no beginning and no end. .On the raw den of Eden. Organization defines the relation between material side it merges into mining or even sometimes human beings working together, and administration into metallurgy. I n the center we may suppose there keeps the scheme moving. While the illustration above should be included the manufacture of chemicals, phar- has been drawn from the chemical industry, all typea of maceuticals, plastics, and so forth. But over on the industry, trading, and farming have similar problems. So now we have all these various functions to be put *This is first of a. series of four talks given by Frank J. Curtis ali together. We have finance and research, pilot plants the University of Illinois in the fall of 1948. 20
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and engineering, construction and labor relations, purchasing and accounting, sales, advertising, patents, legal matters. How are they to be meshed into a smoothly running machine? I n the organization of industry first came the sole owner with full liability, a plan satisfactory in the simple beginnings, but obviously limited by the capacity and fallibility of one man. Then followed the partnership with the division of responsibility between several but still a few men, each of whom had full liability for the company, a t least in the primitive form. This was a great advance and served quite well for medium sized operations and where great aggregations of capital were not necessary. Finally the big frogs had to call on the little frogs and we now have the limited liability company where the most you can lose is your own share. Obviously with thousands of shareholders no one of them can devote much time to the business, so that the management, that is, the administration, is in the hands of hired help, responsible to the shareholder-owners for results. While organizations for administration differ somewhat in these three stages, we are largely concerned in the chemical industry with the third or limited liability company and will confine our attention to that. There are two main types of organization to be indulged in, centralized and decentralized. There has seemed t o be a tendency to move from the former to the latter, and for the smaller companies to be in the centralized class and the larger in the decentralized. Plenty of examples can be given contrary to these generalizations, which seems to be the fate of generalizations in general. CENTRALIZED TYPE
I n the centralized type all of any given function is headed by one individual, and in turn all of the functions by one man. Let us build up a chart for this type of organization. We may have considerable variation within the principle of centralized control. For instance, patents may be under research; purchasing and personnel may be under production; in small companies research, engineering, and production may be under one head, and sales and administration under another. All possible variations may be played on the tune, provided one keeps the key of one man control. The centralized type of organization has something to commend it. As a matter of fact, if it were not for some of its major faults, it might well be the best type. I t should be possible t o make quick decisions and to have quick action in each of t,he major fields. However, in practice the necessity for each layer getting the approval of the layer above, increases the viscosity beyond the ability of any viscosity index improver to resolve. Coordination across the fields is easy, because, as we have drawn the chart, there are only five men involved. In this type everyone is in a definite niche. He knows his prerogatives and his limitations, a comfortable if not progressive feeling. However, there are only five top jobs to be aspired to by the whole organization.
This puts a limit to the number of the ambitious, who fly to more open country. ,One poor executive in a top position can be disastrous. The organization tacitly assumes that in a given field, one man can know everything, and the assumption of omniscience seems to be attractive to the human race. Above the group leadersupervisor level there is very poor opportunity for training, and expansion is limit,ed t,o t,he capacities of a few individuals. DECENTRALIZED TYPE
In the decentralized type most functions are split up between a number of men. I t is a form largely applicable to the bigger companies, particularly those with a number of scattered plants or diverse operations. Let us build up a chart of this type of organization. Here we have the possibility of unlimited expansion in area and diversity of operations. Under the centralized plan, area expansion is not so difficult, but a desirable degree of diversity is hard to attain. For instance, the manufacture of chemicals and plastics follows quite widely differentt,ypes of operation. Their marketing is distinctly in differentclasses. I n the first, the market is largely to other manufacturers by rather good-sized contracts. I n the second there are hosts of small molding companies and manufacturers of plastic objects, who buy almost from day to day and sometimes from hour to hour. The same differenceexists between the production and marketing of products which are intermediate in further manufacture, and the fabrication of final products. How often will the same type of organization handle both functions satisfactorily? Most. companies who have attempted to produce retail products and sell them through the organization merchandising intermediates, have failed. There seems to be a degree of mental conditioning necessary to fit either field, which conditioning like most is not interchangeable. Under the decentralized system there are a number of top jobs in each category; that is, there are as many research direct,ors,and so forth, as there are divisions, and often there is a central research laboratory as well, independent of the divisions. This gives more men to choose from for topmost jobs and more top opportunities t o be looked for. Such a situation builds men. Building men is the prime and most difficult job of any company. I n the decentralized case no one executive can ruin the company. He may make a big dent but he usually cannot destroy. Nearly always there arises competition between divisions, resulting in keeping the staff thoroughly on its toes, intramnrally and extramurally. This intramural competition, while on the whole beneficial, does lead to the big difficulty with the decentralized type of organization, namely, lack of coordination. If one gives the control of each division to an active and pushing general manager-and no other kind is worth while-it is obvious that each one of them is going to try to outshine the other, and there may be a tendency to hold the cards close t o the chest. Overlauuine. par&ularly in selling, may take place. Instances have A
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been known where salesmen from two divisions call on the same customer to sell two different products for the same purpose. Overlaps also can take place in research and production, without a competent coordinating authority. Rivalry t o excess can be as bad as planning ad nauseam. CRISSCROSSING
JOURNAL OF CHEMICAL EDUCATION to research they were the forgotten men. Since engineers rarely lack for tongue the complaint need not be taken a t its face value. However, we have set up an Engineering Coordination Group which is now in the process of evolving its own means of coordination be tween the engineering forces of the different divisions. Their methods will not be the same as those of research, but we believe they will be equally effective. Recently a further move has been made. Two vicepresidents have been appointed, one t o coordinate sales policies and practices, and the other t o coordinate research over the company a t large. To the first has been assigned direct charge of the Foreign and Advertising Departments, which are part of sales, with a coordinating function over the sales activities of the various divisions, the direct authority remaining as in the past in the hands of the general managers. The vice-president in charge of coordinating research operates in a similar manner with direct charge of the Central Research Department, the Patent and General Development Departments, and a coordinating function over the divisional research laboratories. To say that the gentlemen in question must be supreme diplomats, is putting it mildly. Whether the system will work any better or not, is hard to say, but we are attempting bravely t o solve the problems of coordination of a decentralized organization without falling into the trap of one man control.
Any intelligent person after a little study can see that there are many possibilities of combining the two main types of organization, and the degree to which they can be combined will depend much on individual preferences and circumstances. I n the decentralized type, coordination is capable of a considerable amount of development, and I will sketch to you what has happened over the years in the Monsanto Chemical Company in the coordination of research. When we first split the company in 1939 into a number of divisions, each with its own research department, it became obvious after a short period of time that there was a considerable tendency for the research departments to diverge and pay no attention to the activities of each other. Many times duplication of effortexisted. We formed therefore what has been called the General Research Committee, which in the beginning met about three times a year, and consisted of the heads of the various research departments, a few general executives, and the heads of the technical sales and divisional commercial development departments. Over a period of years a number of organs of coordination were evolved. FACTORS IN INFLUENCING CHOICE I t so happened that each research director bad to preHow should one choose between these two possibilipare for his general manager a condensed monthly re- ties and the crisscross variations? ,There is no mistake port of the activities of his department. It was there- about it that personal preferences enter in. Those who fore agreed that each of them would send copies of this are natural autocrats will choose the centralized type. report to a11 of the others, so that in a matter of a couple They will feel that dependence upon a few good deof hours' reading per month, each research director was ciders, oftentimes extracted from companies where they enabled to keep in touch with what the others were do- were brought up under similar influences, will be more ing, not in great detail but in sufficient to enable him to advantageous than the building up of men themselves. judge wh~therthe problem worked on was of interest to To my mind this is a predatory point of view. Stealing his division or not. I t was interesting to note a big in- executives is a confession of failure to plan. The size of crease in crossdivisional correspondence between re- the operation is undoubtedly a factor, but there can be search directors after the inauguration of this system. no exact limits in the line of demarcation. I t is possible Eventually a plan was also set up whereby, whenever that one might take the figure of $50,000,000 of sales a final research report was produced by any one divi- per year as a rough dividing line. At least I think that sional laboratory or the Central Research Laboratory, a you will find that in the chemical industry most comnotification of title, author, and a brief abstract was sent panies above this size have a considerable degree of deto all the others, who were then free, if the subject was centralization. of interest, to ask the issuing division for a copy of the The more widespread geographically the plants are, report. Finally we evolved a research gossip sheet, the more is the tendency to favor a decentralized orwhereby tidbits from the monthly progress reports were ganization. It is impossible for an executive in a cenput together on one sheet of paper and circulated tral city to know enough about the details affecting opthrough the developmental forces of the company, often erations in a dozen widely different localities, to make asking for ideas, telling what products were available intelligent decisions in finite time. Good guessers may for further work, and what special techniques had been win for a short period, but the cards are stacked against evolved, and occasionally what new products were be- them for the long game. Likewise a wide variation in ing placed on the market by other companies which types of products favors the decentralized type. It is could be regarded as likely new raw materials. difficult enough to know all the factors in one kind of After this system had been a t work for a few years we business without being skilled in two or three. The net began to hear grumblings from other groups, particu- result of overburden is slipshod operation. Decisions larly the engineers, who claimed that with respect are made by hunch or emotion. I would not have you '
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think that hunch or emotion play no part, they do. But anyone with scientific training realizes that it will be wise to keep them to a minimum. The genius may operate by criteria of his own, and does. But how do you know when you have got one? Therefore I would say that if the company is a small or medium-sized one, with a small number of plants located closely together, making only a few categories of products, it is possible that the centralized system &.ill be best. But if this is not so, I would strongly advise spreading the risk.
Money may be vulgar but it is extremely necessary, and where does the money come from? Finance is usually the business of the Executive Committee, assisted by internal and external assistants, and checked and approved by the Board of Directors. Sources are several. Few companies pay out all of their profits in dividends and the undistributed profits are put back in the company for Further expansion. It does not take much knowledge of arithmetic to see the effect of the so-called excess profits taxes. If, as was the case during the recent war period, the profits are taxed to the extent of ADMINISTRATION 85 per cent, there is very little left t,oput back into new In the decentralized type of organization the Execbuildings and equipment. Expansion lags and few new utive Committee is usually free of detailed administrajobs are created. Another method of financing is by obtive duties. It is their job to sit back and study the taining loans from banks or insurance companies and by company as a whole, set policies, and to exercise finanthe issuance of debentures which in essence are also cial control. Each year every division and department loans from the individual investor, paying a fixed rate of is required to set up their budget for the following year. interest and usually with provision for a definitely The sales departments figure out how much they can timed method of repayment. Somewhat similar is the sell of each product during the coming year. They utisale of preferred stock to the public, carrying a fixed lize the services of statisticians, of market and economic rate of dividend. In both of these the company guaranresearch personnel, and the best guesses of their own tees some of its investors a preferred position or lien on salesmen. It is surprising how well they can do it, as at the profits, though of fixed amount. Common stock is least in our company they rarely are off more than five the real venture capital, the real life blood of industry, per cent. It is a mass effort of a large number of men by the purchase of which the investor becomes a real with their fingers close on the pulse of customer indusshareholder, taking his chance with the ups and downs tries, conditioned by the reflections of the general execof business fortunes. If there are no profits, all lose. If utives viewing the larger picture. there are some, the loans and debentures may have first It is much simpler for the production departments to call, and the preferred stock next. I t is what is left that take these sales figures and guess a t the cost of manufacgoes as dividends to the common stock and to the undisturing the items involved. Both must make allowance tributed profits, which in the long run serve to increase for the new products coming out of research and develthe value of the common stock, to which it belongs. opment, a field naturally more difficult to guess and The choice of different methods of financing has to be more likely to be wrong. Advertising is also built on watched very carefully. There are times when it is profthe estimate of potential sales of old and new products, itable to use any one of these methods. Financial acuand one must watch out to see if the spectacularly new men consists of picking the most advantageous, and the is not unduly favored over the bread-and-butter old. strength of the corporation depends quite as much on Each division also estimates its expected capital exits financial structure and the handling of money as on penditures for the year, which gives a guide to financing. research and engineering programs, a fact somewhat forIn most companies there is a graduated scale for apgotten by technically trained minds. proval of capital projects, with a certain sum allocated to general managers of divisions on their own responsi- CONCLUSION bility, a larger sum requiring approval of the project An organization, no matter what its structure, is as by the executive committee, and beyond that the approval of the Board of Directors. After the budgets good as the human beings in it. Therefore the choice of have been agreed upon no changes may be made with- those who comprise the organization is of supreme imout the approval of the Executive Committee within portance, far greater than the type of processes, and their degree of authority, or if beyond that, by the design of plant involved. Education plays a tremendous part and fundamental human values even a greater Board of Directors. The line organization, by which I mean the general one. Spirit starts a t the top. Whatever the top of the managers and their staffs, settles questions of research organization is, so will be the bottom. Men who grow and engineering programs within the budgets ap- are few and we do not yet know what makes them do so. proved, makes project estimates, handles production, It is the tremendous problem of our educational instilabor, costs, and sales. These questions do not come to tutions to find out those who have within them capathe Executive Committee beyond the setting of the bilities for indefinite growth and to see that they have budget unless things go wrong. Then the heat begins. the means to attain the limit of their possibilities. It is The staff departments function within their budgets the tremendous problem of our whole social organizaand must sell their services to the line organizations, tion to see that those who fundamentally have these qualities are given the necessary training to bring them this demands the greatest ability of the staff director.
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to fruition. That problem is far from solved, nor are we in agreement as to the methods which should be taken. We have built up a tremendous machine for imparting mental knowledge, but we are woefully lacking in instruments of teaching spiritual wisdom. The function of the chief officers of any company is t,o
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build teamwork and to train their successors. He who makes himself indispensable remains in the same spot. Given the right kind of men, almost any organization can be made to work, hut thougha hobbleskirt may satisfy the demands of decency, it is hardly a wise costume for a hundred-yard dash.
