Andrew Carnegie - What they don't teach in Business School

By: Hank Cranmore  Feb 2004

Andrew Carnegie was a troubled man who only after selling off the business did he find his peace. His past was marked by an episode of sudden poverty on the part of his parents and his family was forced to get on a boat and relocate to America to survive. This shock during his childhood drove him during adulthood to take coldhearted advantage of everyone and every opportunity to make the most money possible in the shortest time period without regard to the consequences. His great success has stood out as an unfortunate example for the modern day corporate world.

After working for others and saving money. He started with a middleman service of procuring steel for the railroads. Then he moved into actually producing it and was in the right place at the right time to be the one to provide the steel for the Brooklyn Bridge. Early on he maintained cash flow by lowering his workers wages and crushing their unions to allow himself to get every penny he could into his pocket and then expanded from there with extreme ruthlessness. The fact that money was stockpiling beyond the normal means to spend it was either of no concern to him or he had not planned for that outcome. He simply continued to be ruthless in its accumulation at the expense of the local citizenship and community.

Just like the victims of the great depression who cluttered the rest of their lives with vast collections of material possessions, mainly junk, and passed this trait onto their children of today, Carnegie was driven to do the same by squeezing every penny he could out of every transaction in the shortest period of time. Even when he did not need the money he would destroy a competitor or crush the unions or lower wages just to show the fastest profit possible. Anything less was unacceptable to his fear.

Establishing company towns that deducted pay for rents and many other charges, the steel corporations thrived off of the economic slave labor of its poor workers. These workers sought quality of life, yet their poverty gave them only their labor as a resource to this means. In response, this became the age of the unions and strikes to gain benefits and better pay.  Carnegie publicly supported unions yet crushed them in his own mills.

The Homestead Strike of 1892 was a clear example of this. Ten people died in a gun battle along that industrial bank of the Monongahela River when 300 Pinkerton guards were hired to break the union lockout. (The Pinkerton Detective agency long played a role in history as the ground forces of the corporate world in combating striking American workers who sought to raise their standards of living and form unions.) They were brought by barge from Ohio in an amphibious landing and clashed with union workers July 6, 1892.  At the end of a day of gunfire, cannon fire and casualties, the Pinkerton force surrendered to the local workers and the governor of Pennsylvania called up 8,500 members of the National Guard to occupy the town and restore order. The widows and children of workers who were killed were ordered evicted from their company-owned homes. This later provoked an assassination attempt on the life of Andrews business partner Henry Clay Frick who had carried out the dirty work without a second care.  Ultimately, on a weird side note, a domino effect was set into motion by the lover of this would be assassin.  Years later driven by the thought of her lover rotting in prison, she fueled the anger of and thus manipulated the man responsible for the assassination of President William McKinley.

This single incident at Homestead broke the unions nationwide and the steel industry operated full throttle and union free for the next 45 years. With this historical loss and decisive turning point, over a period of time, American workers have lost their voice in community politics, their capacity to speak freely and have became dependant upon corporations.

Andrew Carnegie had no room for quality of life for workers in his business model. He was ruthless, not to be trusted to do the correct thing for the workers and possessed by his fears. He had rushed into his business model full speed and now there was a strategic defect in it and he could not change it. Now he also was a slave to it and he knew this and actually expressed concerns in a written letter to himself that he would be consumed by it and be lost permanently. Yet he could not take the time to slow down and stop and make changes. Only after selling his company to JP Morgan did he find the time to stop and spend time thinking. He secretly felt guilty of causing his workers to live in poverty and of all the terrible things he did to ensure his wealth and desired to make amends. Thus he spent the latter part of his life giving his money away.

He did do the right things for the benefit of the corporation. He invested heavily in modern technology and new manufacturing procedures and this allowed him a technological business advantage. Yet he did not do the right things for the workers and local communities when he should have.

There is a joke about the difference in the US Army and the Air force that sums this up the difference in leadership and management decision making. In the Army, when a new base is established, the first things planned to be built are the command buildings, roads, water sewer and electrical functionality, repair facilities, then the training areas and about that time they are over budget and have to cut back on the quality of the barracks, the family housing areas and troop commissary, shopping and entertainment facilities and the hospital. 

Now, when the Air Force builds a new airbase, they first construct the roads, utilities, then the hospital, shopping areas, the housing areas and troop barracks and then they start on the command buildings and admin areas, then the training areas and support needs. Finally they are halfway done with the airstrip when they run out of budget money and congress is forced to approve the additional funding to complete it.

Had another man with different and better values taken this place in history our modern world could have been a much better place to live.

Although achieving success in the quantity sense,  He set the terrible example of a defective model of doing modern business. It is the underlying problem of modern corporate America.  Quantity over quality in a de-humanized environment.

If a person has no leadership skills they can always default to leading by intimidation. This is preached in the corporate world and built into its policies and procedures almost to the point there is no longer a real need for true leadership.

And finally, if you have no skills at building a real business success, you can always follow the default path staked out by Andrew Carnegie. Cut the cost of production (at workers expense), undercut the competition (ruthlessness), corner the market (monopoly),  profits take care of themselves.

It has been observed that the corporate system of repression of worker rights stifles initiative and destroys healthy citizenship that will most likely cost the nation as a whole in the long run.  Imposing long work hours will destroy family life along with quality citizenship in the local communities.

This weakening of American values and citizenship may very well become the internal threat to national security that could cost America its country and freedom.

The basic defect in the modern business principles taught today is the unneeded cost of quality to the workers life’s and the incorrect focus on quantity and speed instead of quality. 

Doing things fast will cause problems and mistakes on the part of management. The defect becomes apparent as these mistakes build over time, yet there is no time to fix them as the workers suffer as they have to bear the brunt of working harder to compensate for a defective business model. The unthinkable is to lose profits or contracts to shut everything down to fix problems. Thus eventually, the workers quit or get burned out and the business fails as integrity is lost and the managers move on to other business’s in hopes of doing better next time.

Even Andrew Carnegie himself suffered a poor quality of life at the hands of the business model he had created. He was glad to sell it off and be rid of it to JP Morgan. Over the years many leaders associated with Carnegie realized what they had done to the local economies and donated as much as possible to compensate for years of community neglect in the form of proper schools, libraries and other public buildings.

J.P. Morgan was personally not the brightest or educated about advanced business strategy and technology and just simply hired and surrounded himself with smart people to do it all for him. Not understanding the current welfare capitalism/economic slavery system that had resulted from years of the Carnegie Business Model,  he became confused and perplexed by why these people had lost their spirit and lived in such poverty and it was so easy for him to be rich.  He could not properly grasp it yet he had a gut feeling something was wrong.

As a result, he commissioned Napoleon Hill to research this and write books about it just so he could understand and also try and help the people out of this.

Modern day corporations and aggressive sales company's have once again done their jobs and tainted and twisted these learning’s of history in order to motivate and manipulate workers. Mainly in the sales force. Countless self help books using this material have been produced in the name of profit and worker manipulation. From “throwing fish” to “finding cheese” to “penguin cartoons” the spirit of the American worker continues to be eroded under increasingly devious methods of psychological manipulation.

The past is the past. You should learn from its examples, adapt and develop it for the present. However, If you simply copy it, the same mistakes will be repeated over and over.

Is there a better business model?   YES!   Hanks business model.

You need a business model where profit is not the focus and true quality of the product or service is. The fastest way to understand, identify and obtain the greatest levels of quality should be the goal of any sane and wise individual.

A truly responsible business model will seek to promote quality of worker life and quality of citizenship in the community.

1.) Establish a strategic business development and support group. One person or several who are motivated to brainstorm and research without pressure and support each other. Teamwork, management, leadership and productivity is all born and developed here with this group and must succeed here first or will set a bad or defective model for the business.

2.) Cut the dependency  for maximum or fast business profit. (No high cost start-up expenses, no loans or credit or high pressure to pay back a loan, manage shareholder/investor expectations,)

3.) Cut the need for multiple layers of management.  (Upper management works from home when possible. Cut need for vast corporate admin/operating offices, support the local economy with quality outsourcing and sub-contracting)

4.) Improve the quality of life and citizenship for the worker.  (Shorter and more flexible work schedules, better pay and benefits, lower expectations of individual worker productivity rates down from 100% to 90%, hire more workers if needed and give more breaks,  (Average humans tend to perform naturally at 60% productivity in any low pressure work environment), reward those who naturally work harder,  if you have too, establish a neutral results/productivity department that monitors the average and individual performance on a daily basis, sets worker goals based on peer performance up and down averages and learning curves, hire more workers if needed, make firing a worker the absolute last option, fairly promote community functions, and support the local economy (have the company take a few hours to volunteer paid labor time to pick up trash somewhere, perform services at a hospital or build a park together and get your team development in also)

5.) Develop and nurture true leadership and teamwork.  (Intimidation is bad, initiative and lead by example good) (Be nice to each other and work together with care and understanding for each other.) Management and leadership success is measured by three things, 1) Did the manager/leader accomplish the mission/task? Yes/no? 100% or partially?  2.) Did they do it efficiently? (Waste-not want-not) (In the military it is like a leader sending in a single sniper with one bullet ($5000 - $10,000 cost includes round trip air ticket, labor cost, lodging and supplies and cost of bullet) to take down Saddam verses sending in an entire army that was overkill and expensive and difficult to manage.  3.) The final measurement of true leadership is did they "bring 'em back alive"? This means taking care of the workers and equipment to ensure safety, care and retention. In corporate America it means turn-over rate, any manager that averages a high employee turnover rate fails in this area and should be fired or mentored. In the military it means loss of life or casualties. It is often easier for a poor leader to take short cuts and order people to their deaths especially when replacements are available than to attempt to plan and train properly and employ better strategy.

So as a business owner/leader ask yourself the following. What is your mission success rate? How efficient are you? What is your "casualty" rate?  "Casualty" rate is critical for quality and can translate into worker life quality/burn out and turnover loss, damaged or lost equipment, and unhappy customers, botched jobs and lost contracts.

6.) Develop quality products and services.  (Simply take the proper time to research, beta-test, train and practice. Do not allow yourself to feel the pressure to constantly undercharge or underbid. Open the doors only when fully capable to achieve 100% success based on the three measures above)

7.) Develop quality processes.  (Make your best better. Strive to obtain and use the best technology and procedures possible, Manage productivity and products to ensure 100% quality is delivered even if it means hiring a few extra workers.)

8.) Support the local economy.

9.) Quality takes care of itself.

10.) Consumer choice takes care of the business. 

Everyone wins and the world is a better place.

Hmmm... What if we suddenly started to see Bill Gates begin to give away free software? Perhaps he read this article?