Andrew Carnegie The Rise of Big Business

Andrew Carnegie The Rise of Big Business Andrew Carnegie was born in Dumferline, Scotland, in November of 1935. His parents were Will and Margaret Carnegie. He also had a brother, Tom. The main income for the geographic location where he grew up was weaving linen. The people who engaged in this type of employment considered this an art since it had relatively unchanged since medieval times. Andrew’s father was one of those craftsmen. Since there had been so little change in this type of work, they were really caught off guard when machine production came around. For some, this industrialization was good. The Carnegies were lead to believe that this was the way they should be headed. At first the returns were good for them, but prices and demand fell, and they were left without anything. The whole looming industry was virtually gone; and with that, it was clear that there would be no trade for Andrew to learn. They had received letters from time to time about the possibility of work in America. After the looms fell through for them, they realized that they didn’t have much of a choice of what to do. So, they borrowed the money for the voyage from Scotland to New York in the hopes of having a fresh start. Losing everything they had didn’t sit well with Andrew or his mother. The family left in shame and determined to make it in there new environment. Upon arriving they immediately set out for work. Will found door-to-door work with a loom, Margaret with shoe binding, and Andrew found work as a bobbin boy in a local textile mill. Andrew was a hard worker and had the ability to adapt to any type of work. He was offered a job as a messenger boy for a telegraph company and he jumped at the opportunity to get out of the terrible conditions of the mill. Andrew seemed to be in the right place at the right time for his advances. He was also willing to do anything to succeed. He was working long hours and still had the drive to attend classes. With the messenger job, Carnegie not only was able to “network” with most everyone, but he kind of knew how to manipulate or pursued people; he learned how to say what people wanted to hear. Carnegie was making steps toward becoming successful in whatever he did. From the factory to office boy, messenger, part and full time telegrapher, Carnegie seemed to be destined for greatness. Because of Andrew’s abilities and understanding of the telegraph system, he was offered a job by one of Pennsylvania Railroad’s superintendent of its western division, Tom Scott. He hired Carnegie to be his personal telegrapher and to assist him in dispatching trains over the western division’s mountainous main line. Here Andrew was able to really maximize the opportunity set before him. He did public relations work, observations into how shipments were made and received, and mastered the controlling of the division’s operations. In 1859, Scott was promoted to vice-president and appointed Carnegie superintendent of the western division. This was Andrew’s big break. His knowledge of operations and innovative thinking pushed him to the top of his field. From the years1859-1865, Carnegie expanded the road and increased traffic to an all time high. By doing this, cost per ton-mile fell. This process was his calling. The ability to lower costs. From there Carnegie learned how to make money without lifting a finger: investing. He also learned that it didn’t matter whose money was being used for the transactions as long as the return exceeded the cost. It was this type of mentality that led him into investing in sleeping cars, oil companies, and bridge companies at that time. All of these business adventures were not all successes, though. The bottom line for him at this time was to invest no matter what. Carnegie also learned that he could make money off of selling bonds and shares of stock. He had an amazing ability to understand the working structures of the business world. Nothing could escape him. All of this knowledge seemed to be building up in to something immense; “Big Business”. Even though Carnegie was destined for greatness, he lied at times, concealed information, and misrepresented facts to get to the top of his game. In November of 1872, Carnegie went from capitalist to entrepreneur by forming a company to manufacture Bessemer steel. This company was set up to use the money that he obtained while working for the railroad as well as his knowledge about new cost-based management techniques. Carnegie’s philosophy was to cut costs as much as possible and the rest would take care of itself. He did this by carefully tracking where every penny was spent and was able to “scoop the market”. The two ways to cut costs were to speed up production and cut labor costs while maintaining those production levels. He also believed in the cannibalization of his equipment which meant that he would produce as much as possible even if it meant sacrificing his machines. Machines cost less than men. His hunch paid off and prices were kept down and production was high. Carnegie was driven on returning profits form his company back in to his company to expand growth. He was the master at this technique and he knew it. This process was great for expansion and for profits, but for the people that had shares invested, a waiting game of when they would get a return had started. Andrew was also on the cutting edge of updating his machinery and the use of different techniques to improve production and to lower costs. He even hired a full time chemist on his staff to be on top of the scientific aspect of steel production. Carnegie proved that he would stop at no lengths to cut labor costs even going as far as tying steel prices to wages on Jan. 1st, 1888. At one point though, he may have gone a little too far. With wages dependent upon steel prices, wages rose if prices did. There was a bottom for the reversal of this practice, though. The Homestead strike was partly caused by this practice and the fact that Carnegie and Frick wanted to eliminate the union. Many live were lost in this battle which started when Frick ordered the Pinkertons to come down river on barges and attempt to be smuggled in to the plant and re-open the plant with non-union workers. The plan didn’t work. After the strike there were some years (1893-1894) that were considered depression years. Carnegie pushed through these tough time and managed to push costs down even more and come out with an amazing $4,000,000 net profit; the next closest competitor had a $1,000,000 loss for the same time period. Andrew was quite amazing in his ability to make money. His company posted record profits in the next few years topping out at $40M in 1900. After a meeting with Charles Schwab in Jan. of 1901, Carnegie decided to sell out. He sold his company to J.P.Morgan for $480,000,000. The sale of this company was combined with another company to become United States Steel. Much of his fortune was given away in the years that followed. This gave him inner peace. He gave libraries, church organs, and founded institutes and established schools. He passed away on August 11, 1919; and he had given it all away.


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