Plant Management and Business Structure

Plant Management:

In managing his steel company, Carnegie had a large focus on minimizing costs. He used an accounting system developed by William Shinn, which outlined the operating costs and profits of his business.¹ Carnegie would then use the reports, which included information such as material and labor costs and rail prices, to make more informed decisions on where costs could be minimized. For Carnegie, a reduction in operating costs did not mean that there would be a reduction in quality. He worked to ensure that the quality of his steel products remained top of the line while continuing to cut down on the costs of production.

Of course, Carnegie could not be present in the daily operations of his plants, so each steel plant would have its own overseer or plant manager. One of the more well-known plant managers was William Jones, who managed the Edgar Thomson plant. Jones was a manager who was well respected by both the men of the plant, and by Carnegie as well. He worked tirelessly to ensure that the workforce at Edgar Thomson was the best that it could be. Jones often acted as a spokesman between the laborers and Carnegie, helping to resolve many disputes. One of Jones’ more notable contributions to the Edgar Thomson plant was convincing Carnegie to establish an eight-hour workday.² The policy would end up lasting around ten years before it was repealed, returning to twelve-hour workdays despite proof that the plant operated better using the eight-hour system.

The ore docks at Conneaut, Ohio

Vertical Integration:

Vertical integration is the structure of a company where the entire production process, from acquisition of raw materials to transportation, to production, is all streamlined and owned by one single company. With that in mind, it is easy to see that the Carnegie Steel Company was one of the most vertically integrated companies in American History. There are three basic ingredients for making steel: iron ore, coal coke, and limestone. Carnegie Steel would end up having majority ownership interests in the Frick Coke Company and the Pittsburgh Limestone Company, which provided guaranteed access to the latter two materials.³ Carnegie would go on to purchase his own ore mines in the Lake Superior region, in addition to entering a deal with John D Rockefeller to gain access to assured sources of iron ore. By September 1897, Carnegie had successfully become self-sufficient in the raw material necessary for steel production.⁴

Of course, Carnegie would need a cheap way to transport the enormous quantities of raw materials from the mines to his steel plants in Pittsburgh. In 1898, Carnegie purchased and refitted the docks at the port of Conneaut, Ohio, in addition to acquiring six ore hauling boats for transporting the raw iron down the Michigan coastline.⁵ For a time, he utilized the rail lines of the Pennsylvania Railroad Company to transport the raw materials, but when shipping rates became too high for his liking, Carnegie simply built his own rail lines between Conneaut and his steel plants. ⁶