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CHAPTER XVI

FACTS AND THEIR VALUE

The Value of Correct Trade Information

Every sincere business man is seeking the truth about his business, and its position relative to the industry of which it is a part. To have his business influenced by groundless rumor, incorrect information, or to be without information altogether, is to have his house built on shifting sands. To learn the truth, however, is not easy. A man may know all the facts in connection with his own company, but it is an extremely difficult thing to secure exact and trustworthy knowledge of the industry as a whole.

It is surprising that for so many years industries have gone along without much knowledge about essential conditions, either within their own fields or in relation to general business. That is one of the reasons why American industries, in spite of many advantages of situation, have not progressed coordinately with those in Europe.

Destructive Competition the Result of Trade Ignorance

The principal reason for destructive competition, as has been stated earlier in this book, is not any inherent, belligerent desire on the part of an individual manufacturer to crush his competitors; it is rather the lack on his part of reliable facts to provide a sound basis for his judgment. When the average business man is supported by an intelligent knowledge of facts, he is a man of good judgment. Give him the exact truth about a situation, in a form that he comprehends, and the great majority of competitive conflicts will take care of themselves.

Eliminating Market Fluctuations

One certain result of a knowledge of market conditions within an industry over a period of years will be the automatic elimination of market fluctuations. This is not a theory but a proved fact. When the manufacturers in an industry have clearly before them the condition of stocks in the market and the relation of supply to demand, the supply will adjust itself accordingly; there will be neither feasts nor famine in the placing of orders. This evenness of production benefits materially the ultimate consumer since, if a manufacturer who deals in a staple product can keep up his production twelve months in the year and can equalize and reduce his overhead costs, he will be able to sell his product at a lower price. But if a manufacturer is surfeited with orders three months of the year and is practically without any for the rest of the time, his turnover is very small, the expense of carrying stock on hand is great, and often he becomes overstocked and has to shut down.

Shut-Downs Expensive

A shut-down is an expensive expedient for all concerned. Employees are thrown out of positions and often migrate to another industry in their search for work. Then they must be replaced by new hands, who spoil products in learning how to make them, and the general organization of the factory is considerably disrupted. During a shut-down the factory overhead goes on just the same, without any compensating production to relieve it. Hence when production begins again the prices have to bear the burden of the shut-down. But if a knowledge of supply and demand in the market is in the hands of every manufacturer and he independently governs his actions accordingly, the industry adjusts itself, avoids an unequal distribution of business, and is able to keep in reasonably constant operation.

This statement, of course, does not apply to industries which are seasonal; such industries always adjust themselves to the product which they happen to handle, and the ultimate consumer expects to pay the extra cost simply because he is buying a seasonable product.

The Advance of Business Research

"Research" is the key-note today in factory, department store, and wholesale center, as well as in the university laboratory. This had begun to be true before the World War, but undoubtedly the war did much to make clear to business men everywhere the value of scientific planning and accurate knowledge of facts as the basis for such planning. Not only has research been rapidly extended to the fields of production, but the managers of business enterprises have found it necessary to apply its principles to the methods of purchasing and selling goods, to market conditions, to prices and costs, and to the factors by which market fluctuations may be anticipated. The president of a large corporation recently closed a discussion with his executives with these words:

You have your opinions about this matter and I have mine. My opinion is as good as yours and yours is as good as mine. Probably neither is worth anything. Get the facts and figures and let's decide the matter on facts and figures and not on opinion. Get enough facts and enough figures and they will decide any problem without argument.

The tendency to standardize research methods in all forms of business is interestingly discussed in a highly scientific article on the subject by Horace Secrist in the March, 1920, issue of the American Statistical Association's quarterly publication. As to the application of scientific methods to presentday conditions, this writer says:

Research implies a laboratory from which facts may be secured or in which they may be developed. Because of the

frame of mind which the war developed and nurtured, business today, in many respects, constitutes an ideal laboratory. Merely as the result of daily operations, great masses of comparable facts which may be statistically expressed are currently developed. Some of these are crude, it is true -they are "in the rough." This is especially so in small businesses where accounting principles are neglected or ignored, or where competition, state control, or public necessity has not required comparable records to be kept. In the larger industries, however, where markets are wide and competition severe, and where large-scale production, utilization of waste, and the creation of by-products is the rule, the facts are far more nearly satisfactory. Not for all purposes, of course, for no business fact, however carefully prepared, is equally good for all purposes. Definition, measurement, and use are interrelated; they cannot be divorced from one another. The field for business research is ready or in preparation; the sanction for research is daily being extended to private and public agencies. This sanction must neither be abused nor destroyed.

In the effort to standardize business facts Mr. Secrist adduces six prime requisites:

1. Statistical units must be homogeneous.
2. Statistical facts must be representative.

3. Facts must fit; they must be germane.

4. Facts must be stable; they must relate to purposes and conditions that are essentially uniform.

5. Both the facts themselves and the conditions of measurement must be comparable.

compared with like.

6. Facts must be essentially accurate.

Like can only be

In his book "Industrial Research," Dr. C. S. Duncan, of the University of Chicago, special expert of the United States Shipping Board, predicts a new era of co-operation and coordination and a greater stimulus on the part of business men in the use of scientific knowledge.

In the preface of his book Dr. Duncan says:

1. The immediate and primary need of business today is intelligent direction and control, individually, generally.

2. Intelligent direction and control of business can be had only by a better knowledge of business principles.

3. A better knowledge of business principles can be derived only from a careful and comprehensive survey of business facts.

4. To secure a careful and comprehensive survey of business facts is a problem for business research.

5. Therefore, the immediate and primary need of business today can be met only by business research.

This means, also, that the research work so well begun in the field of production should be carried over into trade, into buying and selling. The beginning and the end of every business enterprise is a marketing problem. The problems of marketing, therefore, like factory problems, must be isolated, abstracted, analyzed after the scientific method. More deliberate, concentrated, prolonged, and undisturbed thinking ought to be applied to business problems. They are of vital importance to success; they are fascinatingly interesting in themselves; their very difficult complexity is a stimulating intellectual challenge; the rewards which their correct solution offers have no determinable limit.

No matter how astute or well informed a manufacturer may be in the theory of business, it is his manner of applying his knowledge which affects his product. The constant acquisition of new facts about market conditions is not an innovation and is not "theoretical"; it is business sense. Many a manufacturer whose father got along by himself without paying much attention to other concerns has been surprised to find out how much better he could do than father, after he has informed himself as to wnat the others were doing and as to his own relation to them. And many an industry has been immensely improved in prosperity by realizing that all those interested were conducting their business with a knowledge of facts. Definite knowledge of facts has benefited not only the

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