History of Rail Transport in North America - Industrial Organization

Industrial Organization

As the railways grew larger they devised increasingly complex forms of management. They invented the concept of middle management, set up career paths for promotion of aspiring employees, and established uniform bureaucratic rules for hiring, seniority, firing, promotions, wage rates and benefits.

The large-scale problems of management became obvious in the middle of the 19th century with the rise of the great railroad systems, such as the PRR and the B&O. New methods had to be invented for mobilizing, controlling, and apportioning capital, for operating a widely dispersed system, and for supervising thousands of specialized workmen spread over hundreds of miles. The railroads solved all these problems and became the model for all large businesses. The main innovators were three engineers, Benjamin Henry Latrobe, II of the B&O, Daniel McCallum of the Erie Railroad, and J. Edgar Thomson of the PRR. They devised the functional departments and first defined the lines of authority, responsibility, and communication with the concomitant separation of line and staff duties which have remained the principles of the modern American corporation.