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ME2 Management and Business for Engineers


To trace the origins and development of modern management and its linkages
with engineering

1. Introduction
We live in a world of huge organisations. In spite of the economic crisis, the
automotive sector, for example, is dominated by four or five major producers, as
are petro-chemicals, pharmaceuticals, financial services and consumer
electronics. Wal-Mart stores employ 1.5 million people worldwide, while HSBC
employ 200,000 and operate in 80 countries. McDonald’s operate over 30,000
restaurants in 119 countries and serve in the region of 64 million customers daily
(profits in Europe currently up over 6% since last year). A few major corporations
(such as Microsoft, Intel, Apple and Samsung) are pre-eminent in the world of
information technology, while Amazon, Facebook and Google have become
household names. In line with all of this we have become comfortable with a
marketplace dominated by brands and constantly stimulated by advertising.
Companies compete with each other to become and remain ‘market leaders’ and
consumers display ‘brand loyalty’ or not depending of their whim. All of this,
trivial as some of it might seem, demands the ability to muster and deploy
immense resources and none of it can be left to chance — in a word, it must be
‘managed’. This brings us to the subject of this lecture i.e. the origins and
development of modern management.

2. Industrialisation and technological development

The driving force behind the development of management was the transition
from an advanced organic economy based on agriculture, to a mineral economy
based on coal, iron and associated manufacturing. Technological change,
together with the concentration of labour, was made possible by the widespread
establishment of factories and generated massive improvements in productivity.
Urbanisation and rapidly increasing populations provided ever expanding
markets for manufactures. The rise of mass markets eventually prompted the
development of mass production. The ability to get products to consumers was
enhanced by the creation of extensive transport networks.
The linked phenomena of industrialisation, urbanisation and population increase
were first experienced in the UK but rapidly spread to continental Europe and
subsequently the USA, Japan and more recently to South East Asia, China and
India. Industrialisation stimulates an entirely new approach to such issues as:-

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• Division of labour;
• Design and utilization of machinery;
• Anticipated levels of production;
• Returns on capital employed;
• The significance of time;
• The control of work;
• The design of products.

3. The division of labour and the development of the factory system

In his book The Wealth of Nations (1776) Adam Smith provided an extensive
account of the improvements in productivity that could be anticipated as a result
of the division of labour. Smith saw the division of labour as the key to economic
growth and the means of escaping scarcity and sustaining population growth. In
his plan for the Panopticon penitentiary of 1791, the philosopher Jeremy
Bentham put forward a design for a prison in which the inmates would be kept in
a state of constant inspection, or what we would now term surveillance. The
Panopticon was never constructed but the plan strongly influenced the design of
prisons, asylums, workhouses, hospitals and, above all perhaps, factories.
Although the factory system never fully dominated manufacturing its advantages
in terms of efficiency and control of labour were self-evident to thinkers such as
Charles Babbage (On the Economy of Machinery and Manufactures — 1832) and
Andrew Ure (The Philosophy of Manufactures — 1835). Both these writers were
interested in the replacement and enhancement of human and animal effort by
machines. Ure was also an enthusiast for the replacement of skilled workers by
semi-skilled and unskilled operatives. As he put it, ‘the grand object … of the
modern manufacturer is through the union of capital and science, to reduce the
task of his work people to the exercise of vigilance and dexterity’.
The process of replacing skilled workers with machines was paralleled by
experiments in the bulk production of interchangeable parts that allowed
workers to assemble the finished products quickly and in large quantities. In
1803 a series of machines for manufacturing pulley-blocks were installed at the
Royal Naval dockyard at Portsmouth. The machines were designed by Marc
Brunel and built by Henry Maudslay and provided perhaps the first example of
mass production using all metal machine tools. In 1812 Eli Whitney took a similar
approach to the manufacture of rifles. What became known as ‘the American
system of manufacturing’ placed emphasis on analysing mechanisms, breaking
them down into inter-changeable constituent parts and designing them for what
became known as mass production. During the nineteenth century these
techniques were applied progressively to the production of guns, clocks, bicycles,
sewing machines and, most importantly, automobiles.

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Although the UK led the world in manufacturing during the mid-nineteenth

century it began to lose its edge as the century progressed and competitors such
as France, Germany and the USA underwent industrialisation. In 1880 there were
approximately 2,700,000 workers employed in manufacturing in the USA. By
1900 the figure had increased to 4,500,000 and by 1920 it had reached 8,400,000.
New systems of manufacturing prompted American business to invest in ever
larger production units. Although steel plants and locomotive works initially led
the field it was automobile manufacture which ultimately yielded the largest
plants. Henry Ford’s Highland Park Plant, for example, employed almost 13,000
workers in 1914 and 33,000 in 1916. By 1924 it was employing 42,000 workers
and Ford’s new River Rouge plant had almost 70,000. It is perhaps worth
mentioning that the Taiwanese company Foxconn currently employ around
400,000 workers at the Longhua Science and Technology Park (so called iPod City)
in Shenzen, China
The rapid development of industrialisation in the USA, together with increasing
levels of technological complexity, gave rise to the emergence of professional
managers, particularly in mechanical engineering. By the 1880s the American
Society of Mechanical Engineers had already become the focus of discussions on
the development of techniques for the efficient management of industry. It was
in this context that F. W. Taylor formulated his ideas on what became known as
scientific management which will be examined in the next lecture.

4. What do managers do?

Early industrialisation was dominated by owner-managers, entrepreneurs who
took responsibility for the entire range of activities undertaken by the enterprise –
indeed Henry Ford continued with this approach deep into the twentieth century.
Increasingly, however, the scale of operation and complexity of business
organisations determined that professional managers, rather than owners,
became responsible for running corporations. Owners delegated the running of
the business to managers. Probably the first attempt to provide a systematic
account of what managers do was made by the French industrialist and mining
engineer Henri Fayol in 1916. He identified five elements of management as
• Planning — attempting to assess the future and making provision for it.
• Organizing — ensuring that the organisation was provided with everything
necessary to its functioning, including raw materials, equipment, capital and
• Command — obtaining the optimum return from all the staff in the
interests of the whole concern.

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• Co-ordination — ensuring the harmonization of all the elements involved in

the organisation such as sales to production, expenditure to income and
stocks to consumption.
• Control — ensuring that everything which occurs in the organisation
conforms with the adopted plan.
Management control forms the central topic of Lecture 2. For the moment,
however, we shift from the historical to the contemporary to examine the subject
of supply chain management (basically the process by which raw materials,
components and finished products are transported, marshalled and supplied to
end users) which brings all of Fayol’s five elements into play. Supply chain
management has become increasingly important, sophisticated and significant as
the process known as globalisation has gathered place since the latter part of the
20th century. As Jocoby has observed:
“Perhaps the most significant catalyst to the growth of SCM was the growth
of long supply chains as a result of globalisation. For thousands of years,
world trade was minimal compared to today’s levels. Between the 1950s
and 2000, world trade grew on an average of 5-6% per year. Then between
1990 and 2000, the rate of growth accelerated to 8-9%, and from 2000 to
2008 it doubled again to 17-18%. Trade between Asia and the rest of the
world has been the biggest change… The number of parties involved in
buying and selling goods increased dramatically as world trade grew (and)
the explosion of world trade triggered a boom in international
transportation… Containerisation increased dramatically, to the point
where today 108 million cargo containers move worldwide each year and
90% of manufactured goods move by container” (Jacoby, 2009, pp. 8-9).
The issues and impact of containerisation will be examined further in later
lectures, together with the rise of so called ‘customer power’, but for the moment
we can end with the thought that in order to achieve anything significant in
engineering an understanding of management is crucial.

References and background literature

Jacoby, D Guide to Supply Chain Management, The Economist, 2009.


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