INDUSTRIALIST ANDREW CARNEGIE: His Innovations Led The U.S. Into The Steel Age

 andrew carnegie on leadership

Fourteen-year-old Andrew Carnegie saw his messenger job at Western Union as one thing – an opportunity to move up. He had a concrete plan too: Do more than was expected, so he’d ge noticed by his bosses.

He started by memorizing names, addresses and faces of people to whom he made frequent deliveries. Soon he recognized many of them on the street and cut his delivery time. Then he taught himself to operate the telegraph.

His plan worked. Shortly thereafter, he was promoted to telegraph operator.

“The battle of life is already half won by the young man who is brought personally in contact with high officials,” Carnegie said. “Everybody should do something beyond the sphere of his duties – something (that) attracts the attention of those over him.”

andrew carnegie -01Carnegie [1835-1919] went to found Carnegie Steel Co. and become one of the richest men in the world. The manufacturing innovations he introduced lowered the price of steel, affecting virtually every aspect of life – from machinery (and productivity) to skyscrapers and low-cost housing, historian Pauls Johnson wrote in the July 1999 issue of Commentary magazine.

“By achieving economics of scale, (he) turned the luxuries of the rich into the necessities of the poor and thereby reduced the real price of almost everything,” Johnson wrote.

Carnegie was born in Dunfermline, Scotland. His father was a weaver who lost his job when the looms were automated. The family moved to Pittsburgh in 1848.

Young Andrew, just 12 at the time and with only five years of schooling behind him, went to work as a bobbin boy in a textile mill and then in a factory tending a steam engine and boiler. Each time, he tried to do  his best and then some. In late 1849 he joined Western Union.

In 1853 he took a position as personal telegrapher and assistant to Thomas Scott, an executive with the Pennsylvania Railroad. To make sure he understood everything that happened around him, Carnegie studied the railroad’s operations in depth.

51NzQbEwnXLcarnegieHe became so knowledgeable about them that he often suggested innovations. For example, he proposed that the railroad burn cars after accidents rather than try to remove them from the tracks. His suggestion cleared the tracks more quickly.

Not surprisingly, when Scott was promoted in 1859, Carnegie jumped at the chance to take his place as superintendent of the Pennsylvania Railroad’s Western Division. By then, though, Carnegie could’ve supported himself from his investments.

He’d always been careful with money. “Take care of the pennies, and the pounds will take care of themselves” was a motto he lived by. Even when he earned just $2 or $3 a week, he’d put a little aside. In 1856, he invested his savings and a small bank loan in the Woodruff Sleeping Car Co., which shortly began returning $5,000 a year to him – double his annual railroad salary.

After several others successful investments (including one in the first major oil strike in the U.S. at Titusville, Pa.), Carnegie decided he wanted to sink his money into something he’d  build. He quit the railroad in 1865 and helped found the Keystone Bridge Co. to replace wooden bridges with iron.

Then, in 1872, he saw Henry Bessemer’s blast furnaces during a visit to England. The steel that Bessemer’s new process could forge inspired Carnegie. He immediately saw the possibilities of steel as structural material because of its strength and flexibility.

c01f066cdd551e19ef64fac7ffccbf28He returned to the U.S. and planned his first steel mill in the business that was to become Carnegie Steel. To gain attention for new business, he deployed a clever marketing strategy: He named the plant the Edgar Thomson Works after the president of the Pennsylvania Railroad.

Not surprisingly, Carnegie’s first order was for 2,000 steel rails – from the Pennsylvania Railroad.

Although his business was successful from the beginning, Carnegie knew he couldn’t keep up the pace or the quality all by himself, wrote Julie M. Fenster in her book, In the Words of Great Business Leaders. “He admitted that he had ‘no shadow of a claim to a rank as inventor, chemist, investigator or mechanician,’” Fenster wrote.

He hired those who did. He hired a chemist to find out exactly what happened inside his furnaces and to ensure that they operated at maximum efficiency. (He was one of the first industrialists to use scientists to research his own business.) He hired top accountants who instituted strict cost-accounting measures.

As a result, he reduced the cost of rails from $160 a ton in 1875 to $17 by 1890.

78512241_custom-1d555203a990e9bb8ee3a4c304667aec6817eb8e-s6-c30Once he hired people, Carnegie didn’t micromanage. According to Fenster, Carnegie believed that “a good executive did not hold the reins of day-to-day management. His job was to implement a progressive system, install worthy employees and chart an accurate course. If he had to watch over the employees to get the best out of them, then they were flawed and so was the system.”

That isn’t to say Carnegie kept his hands off the business; instead, he chose his moments to get involved.

For example, “If you want (to win) a contract,” Carnegie said, “be on the spot when it is let.” He believed that unforeseen circumstances could come up after bids were submitted and that being on hand at the letting could make the difference between winning and losing a contract.

In fact, he added, whenever possible, “stay on hand until you can take the written contract home in your pocket.”

Carnegie ensured that when a company dealt with Carnegie Steel, they got a high-quality product. “Subject all products to more rigid tests than the purchaser requires,” he said. “A reputation for producing the best is a sure foundation on which to build.”

To keep his perspective fresh, Carnegie spent as much time as possible out of the office, Fenster says. He took up to six months a year traveling in Europe. “He did not want to allow his mind to carve itself into a rut,” Fenster said.

That fresh viewpoint might have given him the strength to swim against the economic currents.

andrew carnegie - 04“Carnegie Steel always expanded during panics of depressions,” Fenster wrote. Even as stock prices fell, taking the market for metals with them, “Carnegie would put every penny he could into building up his facilities.”

Carnegie believed in doing one thing and doing it well. When he expanded, he didn’t go into collateral businesses but expanded steel production or bought coal, coke mines and ships to transport raw materials to – and finished goods from – his plants.

“Put your eggs in one basket,” he said, “and watch the basket. That’s how to make money.” He disdained executives who invested in “faraway enterprises” rather than modernizing their own factories.

If Carnegie’s well known for what he built, he’s equally renowned for what he gave away. He believed the wealthy had a moral obligation to act as stewards for society. “The man who dies rich dies disgraced,” he said.

In 1901, he sold Carnegie Steel to J.P. Morgan for $480 million. Before Carnegie died in 1919, he gave approximately 90% of that away, establishing foundations or distributing it himself.

Source: “BUSINESS LEADERS & SUCCESS – 55 TOP BUSINESS LEADERS & HOW THEY ACHIEVED GREATNESS” (With an introduction from William J. O’Neil, founder of INVESTOR’S BUSINESS DAILY, New York: McGraw-Hill, 2004, pages 15-18. 

Jakarta, 6 April 2014 

Frans Indrapradja

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