Centralized Control

By Jamec B. MctrGon Secretary of the East Bay Lumbennen's Club and Forrrec Director Builders Exchange, Alaneda County

The necessity for centralized control of business in the building industry, is urgent and vital to the life of such buslness, more so at this time than at any other time in the past, for this reason: fndustry today is evolving from the pld formula of destructive competition among its units, to a new era of constructive development for its entire craft as a whole. and this development requires new methods of operation, failure to. d-evelop new methods at this time means continuing financial hazard. This condition exists at present in severa"l groups.

In other groups that are alive to the transition. and who have entered this new development, we find a heaithy financial condition that exists throughout its entire craft. The units of these groups were not always'.in.,a, standardized condition. They became so because <if\their hrrst efiorts towards- stabilizing'their industry as a wtrbte.

. An indus-try does not become progressive, uirtil the native, fear of each unit that it may tie ddprived of its competitivb activities, are dissipated.

This fear is real, since the life of the unit in its original creation was maintained through a competitive stru-ggle, and the dom_inating force of its &istence has been com[6ti- tive. But this competitive factor should be a servicebr a gost_ factor, when it is degenerated into a price factor, the life blood of the industrv.

(Profit) is bein_g jeopaidized so that in time the industry becomes one of financial hazard,.

The -argument that some of the units are prosperous in spite of this condition, <ioes not hold; their -proiperity is generally one of strategic value, and if the induslry i, " whole is not in a prosperous condition this strategii posi- tion is not earning its, added, cornpensation to thJ naiural one, and time will sgon diss,ipate ,its!va.lue.

Successful merchandising ixists only because of its fac, tor of distribution. Goods are valueleis unless they can be ottiiS*:hinery of distribution is the life factor of the industry. Whatever method is used for this distribution must be under centralized control to operate profitably.

If no control exists, if the machinery ls running at random, is unprofitable, then new machinlry or new"rnethods must be used to continue this distributi,on.

In some lines efforts ire being made to eliminate the wholesaler and deal with the retail"er direct. Other lines are attempting to eliminate the retailer and wholesaler and deal with the consumer direct.

Why is this attempt made?

It is made because the wholesaler or retailer has not concerned himself with controlling the distributing factor.

Industry is divided into two factors, one of"production and one of distribution. .Whers qpmplete conlrol exists these factors are amalgamated arlil are fused into one solid gr-o!p, such as public-service iorporations.

Where this condition is riot practicable, a number of groups make up the industry,,and"it does not matter which group assumes ,control of the department of the industry,, provided that the control is for the improvement and col operation of all the factors dxccirt,ttri5 j The'lroup that asi sumes control is in the dictatorial position, and ttrll positiori, is maintained solely through the group ability to administer an equitable condition to all factors in the craft. If this does noCoccur the purpose of the control is lost and antagonistic efforts will be stimulated against, instead of for, sup- port of the control.

In manufacture, it is more in the line of self preservation for the present distributing group to develop control of the craft than for the productive factor to do so, for the reason that the productive factor may will to develop new methods of distribution, but an organized distributor controlling the craft for its (the crafts) benefit. will eliminate the necessity for this move.

Organization will devise new methods of distribution, and will.eliminate loss cif profit, thus stabilizing the industry, stabilizing the price in relation to cost. And this cooperative control is not a conspiracy against the public good-on the contrary it is a brake on the public's destruction, for the public is ever alive to destroy profit, and is the combating element against profit.

The industry then being a profit-making business, contributes to the public prosperity by standardizing the pub- lic's investments, and the profit should be a substantial compensation, consistent with the service rendered.

Business Associations in the past were good as far as they went, but no control existed. Based on mutual agreements only, the varying degrees of selfishness in the membership created varying degrees of effort to outwit the agreement, sharp bargaining was then the accepted method, but as Mr. B. A. JarviS and C. W. Wood point out in an article in F-orbes Magazine, July issue: "It requires cleverness to be an expert bargainer, while one does not need to be exceptionally clever to understand that the day of bargaining is passed. Sharp bargaining requires brains, but using one's brains today against the other fellow is equivalent to using them against one's own best interests. The key to success then does not lie in the development of such super-acumen but in a simple understanding and a simple acceptance of conditions as they are. The trouble with many business failures is not that they are lacking in ability to play the game, but that they have not perceived that the game which they are playing is one which is no longer being played. Those who are succeeding are succeeding through co-ordination. They may not be exceptionally bril, liant but they are devoting such talents as they have to the learning of this new art."

The advanced method for control is the merg'er, but this only in such business where individual competition against the merge is not practical. Where a merge would plrmit entering destructive competition, the next best plan is cooperation and collective control, particularly when a business such as the building industry is centralized.

Assuming that the above is sound, it would seem to be the first concern of the group affected to engage in a concerted effort to securing the proper plan for organization; failure to en€fage in this effort during this present readjustment of business methods, may mean a complete breaking down of their present distributing factors.

Quoting Forbes' again, "Another problem which ceases to be a problem as soon as it is examined from the modern point of vierv, is the trade association. Some business men still hesitate to join with their competitors, still hoping to outwit them in certain business Dractices. To be sure thev never clo outwit them. The most they usually accomplish ii to outwit themselves by exhausting their capital in price cutting. But there was a time, many years ago, when men did seem to succeed by preserving their trade secrets. That time has passed fo,r6ver."

If it is conceded that the present trend of business in general is toward craft organizalion, a resum6 of the temperament of organizations in the past might be in order.

Without going into the causes that lead to a confused condition of business (causes for overproduction, both in manufacturing and over-production in the distributing end) it might be well to analyze the motives of organizations in the past.

The fundamental reason for the organization of an industry is profit. Any other reason must be relegated to the background as it is only through reasonable profit that an industry can be standardized and develop to its dignified position in the world of trade. All ideas of an ethical nature are good, but unless means are created to increase the physical values of the industry, the organization quickly loses support.

Unfortunately, in most organizations of trade in the past, while the idea of profit rvas paramount, sufficient attention was not given to the effect of the human element in the movement, and it is this element that is generally "the fly in the ointment."

The form or set-up of the organization, while in most cases was arranged to satisfy the desire. viz.: the securing of profit, the membership gave no thought or attention to bring about the improvement of conditions throughout the entire industry, but was concerned only with its individual life, or the life of its individual unit of the craft.

It was not concerned with a development of service, or a means to regulating the distributing end of its merchandise, but only in the immediate profit that could be gotten, measured in dollars and cents, without thought as to the continuing of legitimate profit and the cutting of costs to the consumer, and without any idea as to its existence except the quick scramble for immediate profit.

This resulted in a race for business while "the going was g'ood," and a "devil may take the hindmost" attitude, which resulted in a failure of the movement.

Today men are realizing that to secure reasonable and steady profit, and to protect these profits, it is necessary that the industry as a whole be first brought up to a standardized condition through a uniform mode, or code of operation.

In operating a unit or several units of an industry, a mechanical element is the major feature, the system of ope- rafion is almost identical in each instance.

But in operating an organization, a human element is the major feature, and it is this proper dealing with the human element that spells success or failure to the enterpriseHence the policy ol organization should be one that can remove as far as possible the human element and devise a set-up that leans primarily to a mechanical element. This stimulates the industry to a deep concern in the operation of the organization, but this concern should be only in an advisory capacity, or in the controlling of the policies of the organization. The actual executive end of the business should be removed and apart from the industry.

An illustration of this is e.vident in our State Commissions. The railroad commission is devised to function as an intermecliary between the public and the public service corporations, a sort of a referee, offering equitable conditions to bofh sides, protecting the public .against overcharge.

The inclustrial organization should be devised on the same lines, protecting the competitor against undercharge; protecting the public also in that it offers the public a standardized value.

It is not meant ttr be inferred from the above that the organization should be devised as a money-making institution. This smatters of a "Racket" but it should be devised so as to regulate the trade at large to such an extent that the tone of the industrv becomes substantially elevated in character, and this through reasonable and guaranteed profit.

What is meant by reasonable profit? Reasonable profit to a rvater company or a public service utility does not ne'cessarily mean reasonable profit to a merchandizing or manufacturing utility. It does 4ot mean an arbitrary sum that can be secured for the time being, but it'iieans a profit commensurate to the service rendered. By this service rendered is meant, plus the accommotlation value, plus the investment necessary to render the service..a. profit determined upon the total consumption of the commodity in the locality affected, and the relation of this consumption to the capital and labor necessary to render the service.

These necessary profits for the successful continuing of the service are real property, both present and future, and should bear the same relation to the industry or business as the merchandise or real estate. And when these profits are attacked by ruinous competition, or other means, they should receive the same degree of defense and protection that the law affords for a destructive attack on anv oersonal ot"oitil'it is the protection of this property, u"u ,n. ,"*lation of the means for securing this profit, that should be the first concern of an industrial organization.