Brief History of Operations Management

Industrial Revolution 1760 to 1880

Scientific Management 1910 to 1950s
Human Relations Movement 1950s -Today
The Influence of Japanese Manufacturers 1980s
Outsourcing and High Tech Manufacturing Late 1980s- Today
The Industrial Revolution 1760 to 1880

British economic historians tend to agree on the start of the Industrial Revolution: 1760. They
tend to disagree on the date when the Industrial Revolution ended. For some of them the IR
ended in 1820. For most of them, as well as for most U.S. economic historians, the IR had two
stages; the first one ending in 1840 and the second one ending in 1880. Thus, for most British
and U.S. economic historians, the IR went from 1760 to 1880.

Friedrich Engels, the German (Prussian), sociologist/journalist/businessman published in

1845 his book: The Condition of the Working Class in England. In this book he described the
living conditions of the workers in the city of Manchester. In this book he used the term
Industrial Revolution to describe the process that had transformed the economy of Great Britain.
This book became popular among journalists, university professors and, in general, among the
educated classes of Europe of that time. For this reason, the term Industrial Revolution was, and
still is, attributed to Friedrich Engels. The term Industrial Revolution, however, was coined by
French historians: la Rvolution Industriel.

French historians and artisans noticed, in the 1760s, that a growing number of manual
tools and consumer goods (mostly textiles), were coming from Great Britain. They rapidly
concluded that such large quantities of tools and consumer goods that have the same
characteristics, could not have been produced using traditional methods; i.e., the quantities and
standardization of the tools and consumer goods indicated that these products were not being
produced in traditional shops, but rather in large shops where production processes had been
designed for massive production. They called these shops la industrie and the entire process that
was taking place in Great Britain la Rvolution Industriel.

According to British economic historians, Great Britain was the cradle of the IR because
GB had: a well developed system of canals, which greatly facilitated the transportation of raw
materials, people and finished products; large supplies of coal and iron; probably the most
productive agricultural sector of Europe; a group of universities that had developed a very good
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scientific community; and a government convinced of the economic, military and political
advantages of using scientific and technological knowledge to develop industry, commerce,
health care and transportation. France, Holland, Sweden, Switzerland and the German
principalities also had good scientific communities and governments that were fully aware of the
importance of science and technology; however, none of these countries had the other advantages
that Great Britain had.

The accumulated scientific and technological knowledge that British entrepreneurs and
inventors used to design machines, production processes, tools and consumer goods was
generated mostly, but not exclusively, by British universities. British entrepreneurs and inventors
used scientific knowledge generated, before and during the IR, by scientists and engineers of
other nations like Antoine Laurent Lavoisier (a French chemist known as the father of modern
chemistry), Gottfried Wilhelm Leibniz (a Dutch mathematician who developed calculus at the
same time as Newton), Rne Descartes (a mathematician and philosopher), Baruch Spinoza (a
philosopher and promoter of science), Pierre Simon Laplace (a French mathematician who
studied electricity and the solar system), and Blas Pascal ( a French monk and mathematician
who formulated the basic algorithm to do the operations that calculators do).

The very rapid increase in the production of consumer goods and tools that resulted from
the IR was not the exclusive result of technological and engineering advances. This rapid
increase was also result of the economies of scale that accompanied industrial production, the
development of standard gauging systems and the division of labor, mentioned by Adam Smith
in his book: An Inquiry into the Nature and Causes of the Wealth of Nations. The development
of standard gauging systems was the direct result of government intervention, especially of the
British and French governments.

As mentioned above, for most British and U.S. economic historians, the IR had two eras
or two stages; the first one ending in 1840 and the second one ending in 1880. During the first
stage the steam engine, fueled by coal, was the source of power in the factories. This engine was
developed by Thomas Savery and Thomas Newcomen. It was, however, James Watt, an
instrument-maker at the University of Glasgow, Scotland, who designed and constructed, in
1763, the prototype steam engine that would be used to power the factories during the first stage
of the IR.

During the first stage of the IR, the steam engine also played a crucial role in
transportation, where it was used to power the locomotives of the trains. By 1,800 there were 200
miles of tramways servicing coal mines, but it was until 1820 when a real locomotive, powered
by a steam engine, was used to pull wagons carrying materials and passengers between Stockton
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and Darlington. The designer of this engine was James Stephenson. The advantages that the
trains provided induced the British government to expand as fast as possible the railroad system;
thus, by 1836, there were 1,000 miles of railroad tracks and by 1852 there were at least 7,000
miles of railroad tracks in GB.

By 1840, the IR had spread to northern Europe (Sweden and Denmark), France, Belgium,
the Netherlands, Switzerland, the German principalities*, Austria, Bohemia (today's Czech
Republic), the provinces of northern Italy and the U.S. In these nations, governments and
entrepreneurs were using scientific and engineering knowledge generated domestically and
abroad to develop their own industries.
* At that time there were 27 German states or principalities. Germany began to emerge as a nation in1848.

In Portugal, Spain, Poland, Ukraine, Hungary, Romania, Bulgaria, Turkey, and the
countries that used to be part of Yugoslavia, the IR arrived at the end of 19th century. In these
countries the arrival of the IR consisted of the establishment of factories equipped with British,
French or German machinery. In these countries the arrival of the IR was neither preceded nor
followed by the development of a domestic scientific sector; i.e., in these nations the arrival of
the IR consisted of the importation of machinery.

In the late 1860s and early 1870s, the internal combustion engine became the power
generator in industry and in transportation. The thermodynamic theory that explained how this
engine works was developed by the French physicist Sadi Carnot in 1824. It was, however, until
1863 when Nikolaus Otto, a German engineer, patented and assembled what is considered the
first modern internal combustion engine. Later on 1884, the British engineer, Edward Butler,
assembled the first petrol (gasoline) internal combustion engine that had spark plugs, a starter
and a carburetor. As the use of the internal combustion engine expanded, the oil industry, a new
industry at that time, also began to expand.

The first commercially viable oil well was located in Ontario, Canada; it started
operations in 1857. In the U.S. the first oil well started to operate in 1859, in Titusville,
Pennsylvania. In Europe the oil industry started a few years later, but it began to grow quite
rapidly during the 1890s when the British started to develop this industry in Eastern Europe and
in Transcaucasia (mostly in the city of Baku, Azerbaijan).

At the end of second stage of the IR, the production and use of electricity started to
spread in the U.S. and Europe, but it would be until the first two decades of the Twentieth
Century when the production of electricity became a major industrial activity. During the entire
IR, 1760 to 1880, the leading industries were: textiles, steel, coal mining and chemicals.

The IR generated a rapid, very visible and unprecedented economic progress. Such
economic progress led Robert Lucas (the 1995 Nobel Prize winner in economics) to state the
following about the IR: "for the first time in history, the living standards of the masses of
ordinary people have begun to undergo sustained growth ... Nothing remotely like this economic
behavior is mentioned by the classical economists, even as a theoretical possibility." What Prof.
Lucas is referring to, is the unprecedented increase in consumer and industrial goods that the IR
produced and that resulted in the, also unprecedented, increase in consumer welfare across
society. The standard of living achieved during the IR was not, however, unprecedented. This is
indicated by using life expectancy as a measure of the standard of living.

Life expectancy 34 years after the end of the IR, at the start of World War One, was about
40 years. This was also the life expectancy reached in the Mediterranean provinces of the Roman
Empire in the year 100 AD, at the height the Pax Romana (27 BC to 180 AD). This life
expectancy was also reached in the early 1500s in central Mexico and in the highlands of Peru.
In the Roman Empire, like in Central Mexico and in the highlands of Peru, the main causes of
their relative long life expectancies were: good public hygiene practices, good knowledge of
natural medicine, and a good road infrastructure that allowed the transportation of food (mostly
grains) and other materials.

Great Britain, already a military power before the IR began, used the rapid expansion of
industry as well as the scientific knowledge and technology that their universities were
generating to become the dominant political, economic and military power during the period of
1815 to 1914; a period known as the Pax Britannica (during these years, GB was also, the selfappointed, global policeman). For British historians the Pax Britannica began on Sunday, June
15, 1815, at the Battle of Waterloo, when British forces under the command of the Duke of
Wellington, allied with Prussian forces under the command of Gebhar Von Blucher defeated the
French under the command of Napoleon; thereby ending the Napoleonic Wars and bringing
peace to Europe for the first time in decades.

During this era, Great Britain controlled 10,000,000 square miles and over 400,000,000
people. It was the time when English became the lingua franca of international business and
when English companies built power plants, textile factories, shipyards, railroads and industrial
(modern) mines in Asia, Latin America, Africa and in practically all the nations that were part of
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the United Kingdom (Among the nations that, at that time, formed part of the UK were: Canada,
Australia, New Zealand, India, South Africa and Kenya). During these decades, however, the
language of diplomacy, and the lingua franca of the oligarchies in Europe, Latin America,
Northern Africa and parts of Asia was French; while German was the lingua franca of the
sciences.

German became the lingua franca of the sciences during the times of the Pax Britannica
for several reasons. Two of them were: 1) the relatively large number of German speaking
universities that existed in Europe (From Freiburg in the west to Wroclaw, a city in today's
Poland, in the east); and 2), the substantial financial support that the governments of the German
principalities gave to scientific research activities.

During the times of the Pax Britannica, the U.S. developed a university system and a
scientific community that were, quite possibly, at least as good as the British and German
university systems and scientific communities. English did not, however, become the language of
science during these years because U.S. and British scientists had a rather small presence in
continental Europe.

The good, and well funded, university system and scientific community that the U.S. had
developed during the times of the Pax Britannica, received an infusion of talent during the
second part of the 1930s. Such infusion consisted of European scientists and professors,
including Albert Einstein, who migrated to the U.S. to escape the Nazis. Once the European
scientists became members of the U.S. scientific community, they helped, through their writings
and scientific work to make English, by the early 1950s, the lingua franca of science.

Great Britain sent its navy, its merchants, its engineers and its industrialists to as many
countries of the world as possible for two fundamental reasons: to find markets for the products
manufactured by its rapidly growing industry and to find primary goods, from iron to grain, for
its industry and population. The economic, political and military rewards that the establishment
of British businesses around the world produced for the British government and for the British
upper classes were, of course, another motivation that the British government had for looking for
more markets for British products and for more sources of raw materials for British industry. The
British government failed, however, in one very important task: the education of its people. At
the height of the Pax Britannica, in 1890, only fifty percent of the British population was literate
and the universities were, almost exclusively, for the youth of the upper classes. Great Britain
would pay dearly for this socioeconomic and political mistake during World War One and during
the 1920s.

By the 1880s, like Great Britain, France and to a minor extent Germany, Belgium and
Holland were also using the industries and the scientific and technological knowledge that they
were developing to sell their products in different countries and to find sources of primary goods.
In fact, during the 1890s the French were already building power plants and developing modern
mining operations throughout Asia and Latin America (Mexico's first power plants were built by
French companies).

The value of the industrial output of the U.S. was already larger than that of Great Britain
by 1910. The U.S., unlike Great Britain did not venture aggressively abroad during the time of
the Pax Britannica. The U.S. at that time had used its industrial power to build a large navy, a
large army and a large merchant navy. The U.S. government used these forces, in friendly and
unfriendly manners, in Central America, in Mexico and in few other places of Latin American
and Asia to develop infrastructure and businesses that the U.S. government saw as necessary for
the development of the U.S. economy. The U.S. government and U.S. industry ventured very
little abroad during the times of the Pax Britannica because, due to immigration and to a rapidly
growing domestic population, U.S. industry could find markets for its products within the
country; and because, due to its large territory and huge endowments of unexploited natural
resources, U.S. industry could find most of the primary goods it needed within the boundaries of
the U.S.

Germany, France, Holland, Sweden, Switzerland and Japan had also become, by 1910,
industrial powers. Their industries were, however, quite smaller than the industry of the U.S. Yet,
regarding the issue of quality, the industries of these six nations, as well as the industry of Great
Britain, were significantly ahead of U.S. industry.

Scientific Management 1910 - 1950s

The creator of Scientific Management was Frederick Winslow Taylor, a mechanical engineer
from Philadelphia. He studied industrial operations and found ways to do these operations in a
more efficient way. His emphasis was in the maximization of output. In 1911 he published his
famous work, The Principles of Scientific Management. In this year he also defended his theories
before Congress. He had to this because the workers saw his methods as a way to increase
worker productivity but without compensating them.

Henry Ford applied Taylor's principles and also introduced his own innovations to
manufacturing; among them: the moving assembly line and the standardization of parts and
products. Ford also introduced the rigorous division of labor in his factories, which was a
principle of management first discussed by Adam Smith.
Like Taylor, Ford had little concern for the workers. He considered them as uneducated,
somewhat lazy, and not very clever. He considered that to deal with these negative
characteristics, workers have to be strictly supervised and paid the wages established by free
labor markets; that is, as little as possible.
Ford and Taylor were not alone on their views of the workers. Their view was generally
accepted across the world by governments, the upper classes and even by some members of the
poor and working classes. These views were rooted on the demographic and economic changes
that happened from the start of the IR in 1760 to the start of the Twentieth Century. It was a time
when oligopolies and monopolies dominated the economies of the U.S. and Europe. This was
also a time when in Europe and the U.S there was an excessive supply of labor in most labor
markets. In Europe, migration from poor rural areas to the cities was one important contributor to
the labor surpluses in urban areas; while in the U.S., one of the causes of the labor surpluses was
the immigration of semiliterate and illiterate Europeans. The plight faced by the workers at the
start of the Twentieth Century is described, quite adequately, in Upton Sinclair's "The Jungle."
Not surprisingly, socialism became popular among workers and few politicians at that time.
In Europe, specifically in France, the mining engineer Henri Fayol formulated a theory of
management in his book, published in 1916, "Administration Industrielle et Gnrale." His theory,
consisting of 14 points, was more humanistic than the one of Taylor, but still was a theory that
tried to maximize output and technical efficiency without paying much attention to the needs of
the workers.
Other contributors to the development of scientific management between 1915 and the
start of World War Two were: Henry Gantt, F.W. Harris, and Frank and Lillian Gilbreth. Henry
Gantt had a simple but lasting and significant contribution to production management: The Gantt
Chart. It is widely used to schedule activities.
F.W. Harris formulated the first mathematical model for production management. It was a
model that dealt with inventory control. The basic equations are still discussed in most textbooks
of production management.
Frank Gilbreth, and his wife Lillian Gilbreth study motion and worker fatigue. Frank died
in 1924; so it was she who published their findings during the 1930s. Due to the Great
Depression, their findings attracted little attention.
In 1942, the Royal Air Force developed optimization methods using matrix algebra.
These methods were used to program bombings of German cities. These were methods used to
optimize the use of resources, airplanes and bombs, to maximize output, the destruction of
German factories.

During the 1940s, Olga Taussky Todd, a Czech mathematician used matrix algebra to
analyze a variety of engineering problems for the Air Force. Her findings were later used in
commercial aviation.
In 1947, the methods developed by the Royal Air Force were improved and applied to
industry by George Dantzig, a U.S. mathematician and Stanford professor, who developed the
Simplex Method. This method became the essence of Linear Programming.
During the 1950s and 1960s, matrix algebra became a widely used mathematical tool in
economics. It was used to measure relationships between economic variables, that is, to do
econometrics. Jan Tinbergen and Ragnor Frisch were some of the pioneers of this discipline.
Their techniques were used for forecasting in industry, commerce and macroeconomics. Their
work gave them the first Nobel Prize in economics. Later, for other applications of matrix
algebra to macroeconomics, land utilization and steel production, Leonid Vitaliyevich
Kantorovich and Tjalling C. Koopmans won this prize in 1975.
Human Relations Movement 1950s -Today
The human side of production management had been a concern for academics,
government officials, politicians, few industrial managers and even for a good number of church
leaders since the start of the IR. Yet, it was until the 1930s when the Human Relations Movement
started. Its founder was Elton Mayo, an Australian born psychologist and Harvard professor who
was the first one to do studies about worker motivation and productivity. He published his
findings and his theory in his book The Human Problems of an Industrialized
Civilization (1933), and in his Hawthorne Studies. Mayo's work, although quite important,
attracted little attention due to the economic, social and political conditions that prevailed during
the 1930s and 1940s. In the 1950s, as economic and demographic conditions changed, Mayo's
ideas and propositions began to have significant influence.
Other important contributors to the study of the human side of production management
are: Abraham Maslow, Frederick Herzberg, Douglas McGregor and William Ouchi. Abraham
Harold Maslow, an American psychologist, proposed a theory about the needs of the individual;
according to this theory there is a hierarchy of needs. According to this hierarchy, once the basic
needs are satisfied, the individual tries to fulfill higher needs ending in self-actualization. One of
his best known books is Motivation and Personality (1954).
Frederick Herzberg proposed the Two Factors Theory or Motivator-Hygiene Theory in
1959. According to Herzberg's theory, people are influenced by two groups of factors, namely:
hygiene factors and motivational factors. Hygiene factors: nice work settings, clean bathrooms,
comfortable furniture, etc. Hygiene factors do not motivate people, but their absence lowers
motivation (absence of hygiene factors generates negative attitudes or negative motivation).
Motivational factors are expected to generate positive attitudes toward work, some of these
factors are: job recognition, work of benign nature, potential for advancement in the
organization, etc.

Douglas McGregor, an American social psychologist, published his book The Human
Side of Enterprise in 1960. In this book, he proposed his X-Y theory. McGregor's X-Y Theory
continues to be quite important for organizational development and for the improvement of
organizational culture. According to McGregor's theory there are two fundamental approaches to
managing people:

Theory X ("authoritarian management" style)

The average person dislikes work and will avoid it whenever he/she can.

Therefore, threats and punishments must be used to force workers to work toward
organizational objectives.
The average person prefers to be directed, avoid responsibility, has little or no
ambition and, above else, wants security.

Theory Y ("participative management" style)

Effort in work is natural.

People will use self-control and self-direction in order to achieve the objectives of
the organization; there is no need for threats and punishments.

Commitment to objectives is a function of rewards associated with their

achievement.

In general people like to be empowered; they look for and accept responsibility.

Most people are capable of using imagination, ingenuity and creativity to solve
organizational problems.

In general: "In industry the intellectual potential of the average person is only
partly utilized."

William Ouchi, was born in Hawaii. Professor Ouchi is the author of the book Theory Z:
How American Management Can Meet the Japanese Challenge published in 1981. Theory Z is
the seventh most widely held book of the 12 million titles held in 4,000 U.S. libraries. In 2003
professor Ouchi published Making Schools Work: A Revolutionary Plan to Get Your Children the
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Education They Need. Prof. Ouchi proposes a decentralized management of schools. According
to Ouchi's Theory Z, employee loyalty to the company can be significantly increased by
providing a job for life with a strong focus on the well-being of the employee, both on and off
the job. Theory Z management promotes stable employment, high productivity, and high
employee morale and satisfaction. "Japanese Management" and Theory Z itself were based on
the 14 points of Dr. W. Deming. Dr W. Deming was an American engineer and scientist whose
management and motivation theories were more popular in Japan, and even in Germany, than in
the United States. Dr. Deming theories were crucial for the Japanese organizational development
of the 1980s. Deming's theories are summarized in his two books, Out of the Crisis and The New
Economics, where he describes his "System of Profound Knowledge".

Until the early 1970s, quality was, at least within the U.S. industry, practically ignored.
The rapidly growing markets as well as the oligopolistic and monopolistic structure of most
economic sectors induced industry to pay little or no attention at all to the issue of quality. In the
1930s there were, however, three individuals who did something about this issue. They were:
H.F. Dodge, H.G. Roming, W. Shewhart . They developed, while working for Bell Telephone
Labs, statistical procedures for sampling and quality control. By the 1970s and 1980s, the high
cost of having ignored the issue of quality would become quite visible.

Influence of Japanese Manufacturers

Japanese manufacturing techniques emerged after World War Two. The height of their
prominence was during the 1980s. The basic characteristics of Japanese manufacturing are:
1. Design processes that optimize efficiency
2. Strong commitment to quality.

The most widely known collection of Japanese manufacturing techniques is the Toyota
Production System, or TPS. The core of this system is JIT, just-in-time or lean manufacturing.
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The pioneers of this system were: Taiichi Ohno, a former Toyota executive; and, Shigeo Singo,
an engineer. The basic features of the TPS are:
1. Eliminate waste to reduce costs.
2. Minimize the use of manpower and minimize inventories to reduce the
possibility of overproduction.
3. Reduce the time of production cycles; i.e., reduce retooling time*.
4. Production orders should guide production decisions and production processes.

assembling

*Lower the complexity of the tasks: standardize the tools in the production
process, use parts and tools than can only assemble a component if the
is done correctly.

This was a model based upon severe resource scarcity, an aging and very well educated
labor force, and the need to enter foreign markets.

Like the Japanese industry, the German industry has also been an example of efficiency
and quality. German industry has been, however, ahead of the Japanese industry in
environmental practices. The similarities of the German and Japanese industries are due, to a
large extent, to the fact that these two nations also share the following economic and
demographic characteristics: very limited supplies of natural resources, aging and well educated
labor forces, and an industry that has the need to export. Germany's labor force, however, is not
aging as rapidly as the labor force of Japan because Germany, unlike Japan, has received, albeit
not enthusiastically, a large number of immigrants.

Outsourcing and High Tech Manufacturing

"Outsourcing is the strategic use of outside resources to perform activities traditionally handled
by internal staff and resources." It is a strategy by which a company contracts out functions to
specialized providers. This is done to reduce costs and increase flexibility. These providers tend
to become valued partners. Outsourcing is more than hiring contractors, since it involves
substantial restructuring of business functions, including the transferring of staff from the mother

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company to a specialist. The specialist is usually a smaller company that has the required core
competencies (this company could be located overseas).

In management theory, outsourcing became a business strategy during the 1980s as

competition increased. However, U.S., Japanese and European companies have been outsourcing
since the 1960s (U.S. companies began outsourcing assembling operations to northern Mexico in
1964; 30 years before the North American Free Trade Agreement, the NAFTA).

Stages of outsourcing:
1. Functions for which the firm has no competency and support services: plant
maintenance, security, transportation
2. Functions needed to run the company but not related to the core of the business
core of the company: accounting, legal services, marketing.

service,
stores.

3. Formation of strategic partnerships and outsourcing of core functions:

assembling plants in foreign countries, product design, customer
maintenance and repair of appliances bought in department

High tech manufacturing began in the late 1980s. It includes all kinds of manufacturing
operations; from the production of shoes and clothing, to the production and assembling of the
most sophisticated medical equipment.
The leaders in high tech manufacturing are: U.S., Japan, Germany, Great Britain, France,
Holland, Sweden, Finland, Korea and Singapore. In these nations as well as in developing
nations like Colombia and Mexico, high tech manufacturing has certainly eliminated thousands
of factory jobs. Yet, it has also created thousands of well-paid, knowledge-intensive,
manufacturing jobs.
Sources
Encyclopedia of Business, second edition.
Habashi, F. (2000). The First Oil Well in the World. History of Chemistry, Vol. 25, Number 1.
Headrick, D. R. (1981). The Tools of the Empire. Technology and European Imperialism in the
Nineteenth Century, Oxford University Press.

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Kenwood, A.G., and Lougheed, A. L.(1999). The growth of the international economy 18202000, fourth edition, Routledge, New York, NY.

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