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Wednesday, 2 February 2011

Size and Performance - Did the number of railway managers affect company performance?

In my recent work I have been considering the decline in profitability of the late Victorian Railway industry. Many of the commentators have attributed this decline to many factors, such as management trying to build empires, inefficient operating practices and the external pressures such as high wage costs or traders service demands. However, to my knowledge no historians have looked at the link between the number of managers the railway companies employed and their profitability. In short, did the size of a companies’ management class affect its performance?

While information on the railway companies’ financial performance is easy to find for the entire 1870- 1914 period, employment data is a bit more elusive. The only year from which accurate data is available can be found is 1884, when the companies submitted a return of how many individuals they employed in all grades to the government. Thus, for this blog post I will look at the link between the number of managers companies’ had and their profitability in 1884 in Britain’s 14 largest railway companies. The central measure of company efficiency is the Operating (OR), which measures the company’s expenditure as a proportion of revenue. Thus, while imperfect, it does give some indication as to corporate performance. This will then be measured against the number of senior managers and administrators the companies’ had as a proportion of their total workforce, and also against the number of managers and administrators they employed per route mile operated.

Firstly, I looked at the OR against the number of senior managers as a proportion of the overall number of staff. This is shown below:-

As can be seen, there is no discernable correlation between how many senior managers the company employed to administer the staff and company performance. The one return that is out of place was the Taff Vale Railway, in which 0.63% of all employees were managers, a fact probably reflecting its smaller size.

I have then expanded the sample to include all the companies’ ‘administrators.’ By this I meant all the individuals that had a chance to go into management, such as clerks, station masters and inspectors. Thus, the next graph shows the OR against the number of administrative staff as a proportion of the companies’ total workforce:-

Once again, there is seemingly no strong correlation between the size of the management class proportional to the companies’ total workforces and the performance of them.

However, on discovering these results it didn’t conclusively prove that in 1884 the number of managers affected company performance. So, I wanted to take this further and decided to look at the number of managers per route mile open against the OR. The graph below shows this.

Again this reenforces the fact that the number of managers within companies did not affect their ORs in any real sense. The one ‘high’ figure was the Midland railway which seemingly had a very large number of senior managers per route mile operated (69.40). Contrastingly, the Taff Vale Railway, which had the same operating ratio of 53%, had the lowest number of managers per route mile operated (4.57).

Lastly, I looked at the number of administrators per route mile open against the OR. This is shown in the last graph below.

This is probably the graph that has the highest level of correlation between two data sets that I have chosen, showing, very weakly, that as the number of administrators per route mile open increased, so did the operating ratio. However, given what has been discovered above, I cannot conclusively say that incereased administrators per route mile increased the operating ratio.

Overall, what my very quick piece of research has shown is that in the very largest companies in Britain in 1884 the size of an organisations’ established executive and management class had almost no affect on their profitability. Companies with larger managements proportional to the staff or per route mile did not seem to gain from this fact, whereas those with smaller ones did not suffer devistating efficiency losses. Therefore, this suggests that by 1884 railway companies appointed managers based on the needs of operation and not based on an internal logic that dictated that increased management meant increased profit. It further suggests that in 1884 that British railway companies were not ‘top heavy’ in that they had too many managers.

Conversely, it has been well documented that 19th century Britishrailway companies’ were over-centralised, a factor that meant the numbers of senior managers in the industry was small proportional to the total workforce. Thus, what this evidence cannot show is whether significantly increased numbers of managere may have had an affect on companies’ performance in the long run as I have essentially measured the companies against their piers. Indeed, the fact that British railway companies managed themselves in very similar ways means that these figures may be of more use if compared with railways in other countries. Naturally, as with all things I post, this area of work needs more research...

2 comments:

  1. This is really interesting. My dad (obviously not a Victorian) was in British Railways admin all the time I was growing up in the 60's and 70's. They had a staff bank and there were lots of promotion opportunities in railway management. It would be interesting to see how the companies are managed now and compare over time. (This is the labour market and employment researcher in me coming out...!)

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  2. Intriguing - you should get together with a cliometrician and write a neat little paper on this. A 10% variance in operating ratio, such as you have here, is actually quite important, - lots of accountants would love to save 10% of costs, so its amazing that saving on managerial salaries had no apparent effect on this! I would suggest comparing with US railroads in the same period, as the conventional wisdom is that they were professionalising management.

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