T O D A Y ' S T H I N K I N G ON T O M O R R O W ' S M A N A G I N G

THE TWO F A C E S OF OUR F U T U R E ECONOMY

RICHAP, D C. ANDERSON

MOST ~¢ISTn~rG management practices are based on certain principles. While these principles seem rational and are apparently the result of experi- ence, recent developments indicate that a fresh look at them is in order.

Decentralization is merely a management de- vice, and not a sine qua non for successful busi- ness operation. Management should determine where authority is really needed, rather than insist on decentralization for the sake of decentralization.

Headquarters-field relationships should be es- tablished according to the requirements of the in- dividual organization. Whether the "straight line," the "decentra~zed," or the "functional con- trol" type of organization is used will depend on the circumstances of the particular case.

The line.staff concept may be obsolete. Line and staff units each have both executing and serv- ice functions to perform.

The role of the manager needs to be reviewed, the qualities of a good manager reappraised, and the idea that only the men "at the top" are success- ful abandoned.

Status and privilege should satisfy the need for recognition, but they should be used as aids to performance, not as favors to the few.

Good communications are a result of sound management, not a cause of it. They require an atmosphere of mutual respect, rather than elabo- rate programs or "techniques."

4 BUSINESS HORIZONS - - WINTER, 1 9 5 8 - 5 9

JOHN P. LEWIS

THERE ~rlE tWO faces to the future of the U.S. economy. On the one hand, in terms of a domestic economy, freed to pursue its fate without foreign distractions, the country's long-term economic "challenge" would seem to be that of coming gracefully and constructively to terms with the problems of opulence-with a threatening redun- dancy of output and with issues posed by declin- ing physical toil and increased leisure time. For all their exotic flavor, these may prove to be very real problems.

But such worries may be premised upon an ex- ceedingly parochial view of the world's most fa- vored economy. Seen in a world setting, the pri- mary attribute of the United States' future appears to be not opulence but national insecurity -insecurity stemming not only from the Cold War but from the economic revolutions now under way in Asia, Latin America, and Africa. There is a need to meet these challenges-part/cu- larly to help moderate the relative economic in- feriority of underprivileged nations as a means of preserving (but narrowing) America's own eco- nomic superiority. These needs may maintain the same kind of national security pressures upon out- put which have operated to varying degrees ever since the beginning of World War II.

Our status in the eyes of the rest of the world is lessened somewhat by the stigma of richness, by our association with colonial powers, and by our reputation for narrow-minded capitalism. But if we are to recognize our opportunities, the pro- ductive resources of the United States will prove ample for meeting the challenge posed by the turbulent world around us;

G O V E R N M E N T E X P A N S I O N : W H Y A N D H O W M U C H ?

HERBERT V. PROCHNOW

SINCE ITS origin, the federal government of the United States has progressed through three phases. Prior to 1860, it was primarily a producer of goods and services; fi'om 1860 to 1940, it func- tioned more as a regulator of business; since 1940, it has become the most important single customer of business.

With the present state of world affairs, there is no indication that the role of the federal govern- ment will diminish in the future. Defense expend- itures, foreign aid, farm programs and veterans' benefits are, all either fixed or increasing expenses. Furthermore., demands for governmental services are expanding in every area-from slum clearance to tariff protection.

Some of these demands involve legitimate func- tions of the federal government; some do not. But before we complain of the increasing size of gov- ernment, we should realize that our own demands are responsible for its growth.

The vast changes in our society brought about by increased production, population, and incomes will never permit a return to, the type of govern- ment sufficient for 1790. However, the average citizen can help ensure that the federal govern- ment maintains its proper role by keeping informed, by refusing to join special interest pres- sure groups, and by becoming an active partici- pant in local, state, and national government.

A R E G R O W T H S T O C K S R E A L L Y P R O F I T A B L E ?

NORMAN O. MILLER

INTEREST in "growth stocks," stocks that will ex- perience unusually quick growth in market value and in size of dividend payments, has been strong for some time. It is not the case that they are found usually in "growth industries." Some industries are increasing their sales in dollar amounts, but the increase may actually be falling below the rate of expansion of the total economy.

This survey measures the absolute growth of nine major industries in relative profitability, or the rate of profit on total capital. Some facts sup- port the growth industry approach to common stock selection, while others are inconsistent with the idea. A particularly favorable growth trend, for instance, might upgrade fixed assets, but the upgrading could result in increases in labor ex- pense and other fixed costs.

6 BUSINESS HOI~IZONS ~ W I N T E R , 1 9 5 8 - 5 9

There may be a basic tendency for the more rapidly growing industries to improve, their earn- ings on total capital to a greater extent than indus- tries growing less rapidly, but the tendency is only one of a number of variables affecting earnings and dividends per share of common stock and the value o~ stock in the market.

The more cyclical industries seem to have bet- ter experience profitwise, while rapidly growing industries improve their earnings to a greater ex- tent than do industries growing less rapidly. Other economic trends, such as price inflation and change in intensity of competition, affect the prof- itability of different industries in varying ways.

I N 2 . ~ U S T R Y R E D I S C O V E R S T H E R I V E R

JOSEPH 1:{. HARTLEY

SINCE WORLD WAR II, there has been a major in- vestment boom in new plants along America's navigable rivers.

To use the Ohio River as a case example, steam generating plants, aluminum smelting plants, steel mills, chemical plants, the atomic energy in- dustry, and metal alloy plants have all rushed to the Ohio Valley to use the river's bountiful water supply and its cheap transportation facilities for coal, petroletlm, and other raw materials. The concentration of these basic industries along the Ohio and other rivers is sparking a secondary boom of fabricating plants, such as GE'S Appli- ance Park at Louisville.

This trend is as paradoxical as it is pronounced. The rivers had their heyday during the coloniza- tion of America, but went into virtual eclipse after the coming of the railroad. What has caused the sudden revival of the economic use of the inland waterways? Why has barge traffic quadrupled since 1945 while total domestic freight traffic has only increased by one-thlrd?

The rebirth of river traffic is due to fundamental new forces that will cause continuing industriali- zation of the river banks for many years. Barge transportation service is so radically different from the old steamboat of Mark Twain's time that it is literally a new form of transportation. It now affords dependable, tailored transportation serv- ice at a remarkably low cost per ton-mile of bulky industrial raw materials. Not every firm can use river sites for optimal location of its plants, but selection of plant sites will be improved as execu- tives learn the pros and cons of being near a navi- gable waterway.

A B L U E P R I N T F O R L O N G - R A N G E P L A N N I N G

TULLY SHELLEY, JR./ANDRALL E. PE~mSON

PLANNING is an essential ingredient in most suc- cessful businesses. With benefits already accruing h'om short-term programs, it is clear that long- range planning can multiply these benefits. Lra, is simply a formalized extension of the decision- making process that goes on all the time in any well-run business.

Accurate prediction of the future is subordinate to establishing well-conceived goals and adequate programs to meet them. If the objectives are well- grounded and realistic and the programs sound, the business will be relatively better off regardless of economic or competitive pressures. In this con- cept of LB:P, success is measured hy progress in goals and programs more than by the achieve- ment of projected sales and financial targets.

Long-range plans should concentrate only on key requirements for long-term success. This will help focus management attention and greatly limit the scope of the planning job.

Dealing with major long-term opportunities facing the business will serve the further purpose of avoiding compartmentalized long-range plans. For these major opportunities can only be capital- ized uponby establishing over-all goals, subgoals, and programs.

Finally, our approach to practical long-range planning involves:

• Starting with a foundation of knowledge about the industry, the company, and the result- ing strengths and weaknesses

• Establishing goals and programs for each major segment of the business (within the indus- try and company analyses)

• Relating short-term to. long-range plans as a means of making better annual plans, and ensur- ing periodic review and modification of the long- range program

Wasted time is a pitfall to guard against. Ex- cessive fact-gathering and missed deadlines are two byways leading to misused time.

H A W A I I - - I S L A N D P A R A D I S E W I T H E C O N O M I C P O T E N T I A L

THOMAS K. HITCH

Trm CONCEPT of Hawaii as nothing more than a bahny South Seas paradise is fast becoming out- moded. This may have held true prior to World War II, but since that time the massive change to a modem society and economy has been dra- matically swift.

8 BUSINESS HORIZONS ~ WINTER, 1 9 5 8 " 5 9

Hawaii, about equal in size to Connecticut, has been able to make this shift with comparative ease because its strategic place in mid-Pacific makes it a convenient stop between the U.S. and the Far East. Its climate is relatively cool and steady, making possible many subtropical industries.

Even though many fields of potentially valu- able minerals have been recently discovered in land previously used for agriculture, sugar and pineapple production remain the area's chief industries. The islanders find these, plus the many military installations, to be the main source of employment.

Another great "industry" is the tourist trade. Since World War II the number of visitors has doubled every four years, and there is no indica- tion that this increase will cease.

There are many "diversified" industries in this island chain. Native fruits and flowers give prom- ise of sizable markets in the future, but the largest of these industries ar e garment manufacturing and furniture making. The one is aimed at the mainland markets, while the other capitalizes on the island market.

Hawaii is relatively recession-proof, since the peculiar properties of the main industries make them fairly stable. The labor picture is better than in many mainland areas although a vulnerable spot is the effect of strikes that disrupt overseas transportation.

Hawaii, then, is a pleasure-filled vacationland with an affluent, modem, and progressive econ- omy. It should soon take its place as the fiftieth state.

A L A S K A m F R O M F R O N T I E R T O F O R T Y - N I N T H S T A T E

GEORGE W. ROGERS

ALASKA, our first noncontiguous state, is an "is- land" separated from the rest of the U.S. by Can- ada. This large peninsula between the Arctic and Pacific Oceans contains a land area equal to one- fifth the total area of the other 48 states.

Although the description of its physical char- acteristics requires superlatives, Alaska's present state of economic and social development is mod- est. The expansion in population has been phe- nomenal in recent years, but in 1957 its density was only 0.33 persons per square mile, concen- trated in a handful of places. High seasonality is a general characteristic, both in population and in employment.

Overexploitation of resources have combined

The Difference

To You...

experience The present partners of Goodbody & Co., founded in 1891, have led the firm during periods of prosperity and inflation as well as through economic depressions and two major wars. Through good times and bad, the firm renders to clients guidance based on seasoned experience in every type of market. This factor can be invaluable in the success of your investment program. Through its major Research Department, Goodbody & Co. publishes many invest- ment reports on companies and industries that, in their opinion, reveal significant investment values such as income, growth, short-term appreciation. Each study is based on the principles of c r e a t i v e re- s e a r c h and reveals the firm's forward look- ing attitude toward investment opportuni- ties. Why don't you visit the nearby office of Goodbody & Co. to learn how you can put our services and experience to work for you? There's no obligation and you're sure of a friendly welcome.

GOODBODY & CO. ESTABLISHED 1891

Members ot Leading Stock and Commodity Exchanges

1 NORTH LA SALLE STREET

CHICAGO 2, ILL.

TEL: CEntral 6-8900

Offices in 3.5 C i t i e s

10 BUSINESS H O R I Z O N S - WINTER, 1958-59

to cause a steady decline in the canned salmon, gold, and fur industries, the three main props of the pre-1940 economy.

Since 1940, defense activities and defense- related construction have become the dominant elements in Alaska's basic economy. The expan- sion of forest products, an "oil boom," and the rapid increase in military and civilian personnel have caused the population rise.

A number of labels have been applied to Alaska in attempts to put the finger on its essential mean- ing. I t has been called "The Last Frontier"; the fighters for statehood characterized it as a "col- ony" of certain "stateside" interests and the fed- eral bureaucracy; now it will be referred to as the forty-ninth state of the, Union.

Alaska is not something that is or has been; it is a promising potential of something that can be. The key to this potential is Alaska's strategic geo- graphic location, which gives its natural resources new significance in the world of t o d a y - a n d to- morrow. Our new state might well become the bridge between its sisters and the other side of the world.

M A N A G E R I A L O V E R H E A D : H A N D L E W I T H C A R E

C. EDWARD WEBER

MANY COMPANIES are under great pressure to cut costs as a result of the present recession. The ex- pansion of sales has been reversed or slowed down, and the break-even point has become un- comfortably high. The surprising growth of ex- ecutive and technical personnel in the postwar period makes managerial overhead a prime target in any cost-cutting program.

Arbitrary cuts in the number of managerial per- sonnel can be short-sighted, since the greater ratio of management personnel may be important to the success of the firm. The pursuit and achieve- ment of dynamic goals is dependent upon a rela- tively larger managerial organization, and may be necessary to insure the profit and well-being of the company. A company that must innovate and adapt to innovation should be building its managerial organization, not tearing it down.

Empire building and indifference to cost may sometimes be responsible for the relative growth. Even in such situations, arbitrary cuts are not an effective way to control managerial overhead. Vital additions to the line and staff may be blocked, and the prestige of larger empires may be inflated. There is no substitute for a systematic and judicious review of managerial overhead. Such a review is admittedly difficult, but it is es- sential to the leadership of a company.