This is the 5th blog post in the Organising for Outcomes series. It is helpful to understand where we’ve come from, how today’s ways of working have evolved, and the context that those ways of working evolved in. This helps us to understand why we’re working the way we’re working and what we might want to change in today’s context, which has changed significantly compared to previous technology-led revolutions.
In the previous post we looked at the impact that the first Industrial Revolution had on ways of working, much of which has carried through to today. In this post we’re going to take a look at a management innovation which was first introduced in the second Industrial Revolution.
The world’s first organisation chart, Sept 1855
Fast forward 60 years, from the beginning of the first Industrial Revolution, to 1829 and the beginning of the second technology-led revolution, the Age of Steam and Railways. Steam engines revolutionised power, making more of it, making it portable and hence increasing mobility.
Factories no longer needed to be in rural areas close to fast flowing rivers, which enabled the growth of ‘Cottonopolis’, the nickname for Manchester, UK, peaking at more than 108 mills in 1853, using a third of all raw cotton produced globally.
Steam power enabled the mobility of people and goods, with transport no longer restricted to human, wind or horse power. Stephenson’s ‘Rocket’ steam locomotive won the Rainhill Trials competition on the Liverpool and Manchester Railway in 1829 marking the start of the second technology-led revolution. The Liverpool and Manchester Railway was the first inter-city railway in the world and the first to rely exclusively on steam. The railway was built primarily to provide faster and cheaper transport of raw materials and finished goods from the Port of Liverpool to the cotton mills in Manchester, one technology revolution fuelling another.
The world’s first org chart
It’s now 1855, 25 years after Stephenson’s Rocket, and Daniel McCallum, who is 40 years old, sits back in his comfortably worn leather armchair, in a smoky office on 28th Street in New York City. He takes a puff on his pipe. It’s a hot summer, and through the windows comes the sounds and smells of horse-drawn carriages, clattering along the street below.
He is a large and powerfully built man, with a flowing beard. He has a reputation as a strict disciplinarian, not unusual for the time, and yet he is also of a genial and cheerful disposition.
McCallum is the General Superintendent of the New York and Erie Railroad. He reports to the President of the company, with responsibility for 5,000 employees in 28 job roles, covering more than 500 miles of railroad, with 203 locomotives, $5m of revenue p.a. and $26m of debt (almost $1bn in today’s terms). The Railway Mania bubble in the UK had burst 8 years earlier, railroads and the surviving railroad firms are now firmly the new normal.
In the office with McCallum is George Henshaw, 24 years old, already a talented engineer and draftsman. Henshaw previously led the drawing office for canal construction in Virginia.
(The following text is mostly McCallum’s own words, from the New York and Erie Railroad 1855 Annual Report to Stockholders).
“George, I’ve been thinking” said McCallum. “Theoretically, a long railroad, such as ours, should be operated for a lower cost per mile than a short one. But we see that the reverse is the case! We are more expensive per mile! I believe that we must look to other causes than the mere difference in length of roads for a solution to this difficulty.
A Superintendent of a small railroad fifty miles in length can give its business his professional attention and may be constantly on the line engaged in the direction of its details; each person is personally known to him, and all questions in relation to its business are at once presented and acted upon. Any system may under such circumstances prove comparatively successful.
However, George young man”, said McCallum pointing his pipe at Henshaw, “in the government of a railroad five hundred miles in length a very different state exists. Any system which might be applicable to the business and extent of a short railroad is found entirely inadequate to the wants of a long one. I am fully convinced that the lack of a system perfect in its details, properly adapted and vigilantly enforced, lies the true secret of the failure of longer railroads; and that this disparity of cost per mile in operating long and short roads, is not produced by a difference in length, but is in proportion to the perfection of the system adopted.“
Henshaw nodded contemplatively and was listening intensely, taking notes. McCallum was on a roll and continued:
“We cannot avail ourselves of the Plan of Organization of shorter railroads in framing one for ourselves, nor have we any precedent upon which we can fully rely in doing so. Under these circumstances, a few general principles are necessary in its formation, amongst which are:
A proper division of responsibilities
Sufficient power conferred to enable the same to be fully carried out, that such responsibilities may be real in their character
The means of knowing whether such responsibilities are faithfully executed
Great promptness in the report of all derelictions of duty, that evils may be at once corrected
Information, to be obtained through a system of daily reports and checks that will not embarrass principal officers, nor lessen their influence with their subordinates
The adoption of a system, as a whole, which will not only enable the General Superintendent to detect errors immediately, but will also point out the delinquent
I have designed a Plan of Organization and I’d like you to draw it up George. I have a pencil sketch of a plan here, I’ll talk you through it:
We will have the following Divisions, each reporting into myself:
Division and Branch Superintendents (matching each the five main railroads)
Master of Engine Repairs
Car Inspectors
General Freight Agent
General Ticket Agent
General Wood Agent
Superintendent of Telegraph
Foreman of Bridge Repairs
Each Division will have a Divisional Superintendent, who is held responsible for the successful working of their division, and for the maintenance of proper discipline and conduct of all persons employed thereon. They possess all the powers delegated by the organization to the general superintendent.
Furthermore, George, each officer possesses all the power necessary to render his position efficient, and has the authority to appoint all persons for whose acts he is held responsible, and may dismiss any subordinate when, in his judgment, the interest of the company will be promoted thereby.
I hope you’re keeping up George! I want to see a summary of this on the diagram you’re going to draw.
Next, all subordinates should be accountable to and be directed by their immediate superiors only; as obedience cannot be enforced where the foreman in immediate charge is interfered with by a superior officer giving orders directly to his subordinates.
And, it is very important that principal officers should be in full possession of all information necessary to enable them to judge correctly, as to the industry and efficiency, of subordinates of every grade. In my opinion, a system of operations to be efficient and successful should be such as to give to the head of the running department, a complete daily history of details in all their minutiae.
The comparison of Division accounts will show the officers who conduct their business with the greatest economy, and will indicate the relative ability and fitness of each for the position he occupies. It will be valuable in pointing out the particulars of excess in the cost of management of one division with another, by comparison of details; it will direct attention to those matters in which sufficient economy is not practiced; and it will have the effect of exciting an honorable spirit of emulation to excel.
Whats more George, the importance of ascertaining the particulars connected with delays cannot be over- estimated, as they are frequently the result of mismanagement, are often the primary cause of accidents, and in their history is developed a class of facts and delinquencies which could not be so easily detected in any other way. By these means, the prevailing causes of delays are made known, and an opportunity is given to apply the corrective action, where the nature of the case will permit.
I hope that was clear George, now, off you go, here is my pencil sketch, please draft a diagram of this Plan of Organization, to make it clear for all to understand!”
Henshaw replied with a brisk “Yessir!” and went off to draw the world’s first organisation chart.
And what an org chart! It is a work of beauty.
Leaders are at the bottom
The diagram is drawn in an organic manner, representing nature, drawn with leaders of the organisation, not at the top of the picture, but rather at the bottom, with reporting lines drawn as if they are branches of a plant with people drawn as leaves or flowers on the branches.
The system that McConnell put into place, prompted by the latest technology-led revolution, was adopted across other railways and eventually became foundational for all large businesses. This was a significant moment.
There are a number of Ways of Working firsts in this ‘Plan of Organization’ which are still relevant today:
Let’s take a closer look at each of these:
McCallum’s is the first known writing on Ways of Working involving the control, discipline and evaluation of other managers, whereas earlier writing was only on the topic of the control and discipline of workers. Railroads were the first organisations to require large numbers of managers to coordinate and lead the activities of a number of widely distributed operating units.
Implications for today: what got you here, won’t get you there.
In order to optimise for outcomes, there is a need to continuously innovate ‘How you do What you do’, suited to your unique and changing context. Organisations are Complex Adaptive Systems, they are not predictable, therefore a success pattern is to have outcome hypotheses and run experiments, whilst minimising time to learning. Amplify the experiments that work and dampen the ones that don’t.
McCallum innovated with autonomy and multidisciplinary teams, made necessary by the long distances. He also innovated with a more scientific approach, insisting on detailed data, enabling a feedback loop and hence improvement.
Human systems exhibit entropy. Without an explicit focus on the How, the weeds grow, processes and behaviours regress, slowing time to value, with a higher cost of failure (learning). ‘That’s just how it works around here’ is often heard. Not improving is not standing still, it is going backwards. Hence, continuously improving the ‘How’ needs to be a high priority, in order to realise better value, sooner, safer and happier.
Every organisation is as dysfunctional as its profitability allows.
Impediments are not in the path. Impediments ARE the path.
2. Principle Led
McCallum took a principle-led approach and communicated the principles clearly in the 1855 Annual Report, as opposed to taking a one size fits all approach with a set of fixed practices. Being Principle-led is a success pattern, as Principles apply across many unique and changing contexts. They help to guide millions of daily decisions and behaviours. Principles, both organisational and behavioural, enable scale, rather than trying to solutionise practices for every possible situation and context up front. Principles enable autonomy with clear guardrails for decision making.
The Why for change at the NY & Erie Railroad is also clear. McCallum clearly articulates the problem statement in the current diseconomies of scale of the longer railroads.
The first two Principles cover:
a clear division of responsibilities with authority
delegation of power, giving autonomy, to enable those responsibilities to be carried out
McCallum’s Principles 3, 4, 5 and 6 are all about a fast feedback loop. This is also a success pattern for scaling of people both by numbers and geographic distribution. A fast data feedback loop, i.e. fast learning, is essential for genuine business agility. The data feedback loop enables people to inspect and adapt, to get insights, to learn, to pivot, with the cheapest cost of learning, in order to optimise for desired outcomes.
Implications for today: Clearly articulate (1) your Why for change and (2) Leadership Principles which apply across many different, unique contexts, informing decision making and daily behaviours.
Choose language which nurtures psychological safety. Not a one-size-fits-all design or set of practices, which will not cater to the uniqueness and complexity of a large group of people trying to realise value and continuously improve how that realisation of value is done. Guiding Principles are decision making and behavioural guardrails which enable increased autonomy, with alignment. Where they are behavioural, they can nurture culture.
3.Data feedback loop & Continuous Improvement
McCallum was ahead of his time in creating transparency and visualising what is happening in the system of work, to enable improvement actions to be taken.
This is making the invisible, visible. The data feedback loop helped to make the unknowable, knowable. It is sense-making in a complex environment. By insisting on daily reports, this enables a quick time to learning and hence value, with the cheapest cost of failure (learning).
McCallum is again ahead of his time regarding the daily availability of information to enable continuous improvement.
He made it clear that the data needed to be transparent and available for leaders at all levels, to be able to see and then act on any issues.
The language of efficiency of subordinates is less than ideal, rather than focussing on the system of work or the culture, a reflection of the prevailing mindset. This will drive a blame culture and hence low psychological safety, which will inhibit people experimenting in improving.
Implications for today: Visualise the system of work. Have a real time view of the How, the system of work.
It is essential to have a data feedback loop to be able to know if improvement actions are having a beneficial effect or not. It is critical to measure desired outcomes for improving How you do What you do. For example, Better (quality), Sooner (time to value, flow efficiency), Safer (compliance with minimal viable mandatory controls) and Happier (customer satisfaction, colleague engagement, ESG) measures.
Today, very few organisations visualise and measure the How. It is often a case of flying blind, relying on goodwill, with an incentive to pull the cart with square wheels harder, rather than take time to investigate round wheels.
4. Autonomy
To improve outcomes at a growing scale, due to a significant increase in the number of people, geographical distance and complexity, McCallum delegated authority to the officers in charge of the regional Divisions and the staff functions which apply across the lines.
McCallum was explicit on leaders not overstepping their mark and ensuring that autonomy was felt at every level. Given the new and unique challenge of communicating and coordinating across distributed teams over long distances, there may well have been historical issues with conflicting directions being given, which would have been difficult and slow to reconcile. McCallum ensured that it was clear how to communicate, that there was clear accountability, enabling autonomy at each level. The existence of the Plan of an Organization itself is also a very clear communication tool.
Implications for today: Autonomy > Order Giver & Order Taker
If we want to optimise for the most value, with the quickest time to value, with engaged colleagues and therefore satisfied consumers, we’ve known for a long time that we should be delegating autonomy to those closest to the information.
It’s not a laissez-faire delegation, the wild west, where people do whatever they want to do. It needs to be within clear minimal viable guardrails. A wide road with high kerbs.
Clear accountabilities, behavioural principles, minimal viable guardrails (non-negotiables), multidisciplinary teams, shared outcomes (providing high alignment) and a transparent data feedback loop are needed to enable effective autonomy.
Increased autonomy, with these factors, leads to sooner speed to decision making, sooner time to value, earlier monetisation, cheapest cost of learning, continuous improvement, increased consumer satisfaction and colleague engagement.
5.Multidisciplinary teams
As we saw in the previous point, the five Divisional Superintendents have complete authority for their line and the people working on that line. Taking a closer look at the organisation chart, it’s apparent that all of the principal officers are leading multidisciplinary groups of people. For example, roles within the Western Division include conductors, baggage and brakemen, enginemen, firemen, wipers, bridge foreman, divisional foreman, carpenters, blacksmiths, watchmen, labourers, switchmen, porters and dispatchers. In this context, not every team needs to be multidisciplinary, however, aligned to the flow of value, there are all of the capabilities needed all of the time, under the authority and direction of line managers.
This optimises for outcomes, as all the skills that are needed all of the time are available, the people are closest to the value, the information and the consumers and we have the soonest time to learning and value, with minimal hand-offs.
The organisation chart is not a hierarchical organisation grouped by job role, with communication and or work waiting in queues between role silos, with slow time to learning and value.
Implications for today: Long lived multidisciplinary teams aligned to long lived products (value), with long lived consumers.
In the context of change as usual, with unique, unknowable work, in order to enable speed of decision making, to minimise work waiting in hand offs, to optimise for the soonest time to value & learning and for engaged people, we want long lived multidisciplinary teams, aligned to long lived products (i.e. value).
Role based silos, with work passing, does not optimise for sooner, happier, value, in the context of unique work in complex adaptive systems. We don’t want baton-passing, we want teams that move up and down the pitch together with the ball.
6.Line-and-Staff (i.e. Value Streams and Shared Service Value Streams)
It is the introduction of large railroads in the US where we see what was known as the ‘line-and-staff’ concept for the first time. Line managers are responsible for the core function of the enterprise (e.g. Divisional Superintendents) and staff managers are responsible for setting standards and supporting the line groups (e.g. Master of Engine Repairs, Ferry Agent, Ticket Agent, Freight Agent, Finance, etc.)
‘Line’ is equivalent in terminology to ‘Value Stream’. I.e. core provision of value to consumers. For example, travelling by train from New York City to Lake Erie.
‘Staff’ is equivalent in terminology to ‘Shared Service Value Stream’. I.e. supporting the consumer facing Value Streams. For example, finance, sale of passenger tickets, sale of freight movements, procurement of wood, coal and locomotives.
A federated line-and-staff organisation became the new normal for US railroad companies and then for large, geographically dispersed organisations across industry sectors.
Federated is not fully centralised (which usually becomes a bottleneck, leading to slow time to value and poor flow efficiency), nor is it fully decentralised (which usually leads to reinventing the wheel, unnecessary complexity, inconsistent standards, a lack of shared learning and higher costs).
This organisational design, this Way of Working, did not evolve from previous Ways of Working. Previously, with textile mills or short railroads, there was close proximity of people. Management by walking around was feasible. Rather, this new organisational design was explicitly invented to improve outcomes triggered by the latest technology-led revolution.
The ‘federated line-and-staff’ concept is a success pattern which carries through to today.
Implications for today: clearly articulate your Value Streams (VS), with all the skills that you need all of the time, and your federated Shared Service Value Streams (SSVS).
Federated optimises for outcomes, rather than fully centralised (which is slow) or fully decentralised (which is expensive, leads to duplication, high complexity and usually leads to going slower over time due to the duplication, complexity and high cognitive load).
Usually, there will be a small central team for each SSVS (e.g. the chief engineering team for the railroad) providing principles, standards and governance, with the majority of people with that skill (e.g. engineers) being in a multidisciplinary team (business and technology), in the consumer-facing Value Stream.
To enable high autonomy, there needs to be high alignment. There is a need for shared goals, such that incentives are aligned. People in Value Streams should have the same goals to work towards as multidisciplinary teams.
McCallum and his counterparts at other railroads were innovators, they were trailblazers. They exhibited courage in challenging the status quo, in leading the way on new and better ways of organising and behaving, in order to optimise for outcomes. The innovations above became the new normal on all large US railroads.
Today, approx. 170 years and three more technology-led revolutions later, there are still learnings above that organisations today would benefit from.
In the next post, we take a look at the third technology-led revolution, the Age of Steel Electricity and Heavy Engineering, to see what lessons we can learn from the past and to further understand why our more recent ways of working are what they are.
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Also see:
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Learning resources:
If you found this article useful, you might be interested in additional Sooner Safer Happier learning resources to enable you to lead with these behaviours:
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References:
Carlota Perez, Technological Revolutions and Financial Capital. The Dynamics of Bubbles and Golden Ages (Edward Elgar Publishing Limited, 2003).
‘Liverpool and Manchester Railway’, in Wikipedia, 27 October 2023.
Alfred Chandler, Jr., The Railroads: Pioneers in Modern Corporate Management (Business History Review, 1965).
Alfred Chandler, Jr., The Visible Hand (Belknap Press, 1977).