Tuck School—An Explanation
ALL business may be defined roughly as enough money to purchase enough material and labor to manufacture or create enough product or service to be sold at a profit.
A simple statement which logically divides all business into three major functions, finance, production and distribution. But the word "enough" implies some knowledge of conditions both within and without the organization, so that wise decisions can be made for each department performing these major functions.
Moreover, the information upon which this knowledge is based must be accurate, complete and immediately available if we are to control wisely and to administer sanely, our business. Hence, as secondary functions, business has developed the accounting function useful and necessary for the accumulation and presentation of figures and facts necessary to control all business, and statistics, to present these facts and figures, as well as the facts and figures of conditions surrounding the business, in graphic, easily readable form.
BUDGETARY CONTROL
For example, we now hear of the operation of business under "Budgetary Control." It sounds ominous, hard to understand and administer. As a matter of fact, it is simple, easy to operate and when understood seems merely the application of sound common sense to business problems.
To illustrate; suppose you had decided to spend $40,000 for advertising. Obviously, your immediate consideration would be to decide which advertising mediums you would use, and how much you would "spend" for each. If we assume that you would spend $20,000 for magazines, $10,000 for newspapers, $5,000 for window displays and $5,000 for radio, the advertising control figures would set up the amount to be spent in each medium and as each amount was spent, it would be deducted from the appropriation and the balance shown either in dollars, percentage or both. (Illustrate.) This is plain common sense applied in an organized way to show the expenditures at any one time and to prevent exceeding the appropriation. This form or plan, then, is the "Budget" for advertising.
Or in sales, assume that you had planned sales of $1,500,000 for the selling year to be secured at an expense not exceeding 6%. This expense figure gives us $90,000 as the total sales expense and we must budget it so that we can check our total expense at any time and check our tendency to exceed the 6% appropriation allotted for sales. In this budget the time element might be most important. We might get the greater part of our sales in August, September, October and November, with few sales in January, February and March, and slightly increased sales in May, June and July. All of these facts would be taken into consideration and our planned sales would take a form something like this: (illustrate).
Again we have set up a budget without knowing it. We begin to see that, after all, the budget is in essence the plan that controls all expense based on an agreed quota of sales.
In production, the budgeted operation is even more easily understood. The factory has the sales quota; it must purchase enough raw materials and hire enough labor, to produce this quota. In addition, it has set a price for the product to the selling organization, and it must plan its production in such a way as to meet the sales requirements and not exceed its quoted price to the sales department. It therefore breaks down its budget of operations into planning, preparation, scheduling, production and inspection, establishes the amount of time, money and labor to be spent for each and establishes a checking system to prevent any deviation from its planned production.
Now, if we have understood the individual, functional operations of the budget, it is easy to see that the master budget is merely the combination of all the separate budgets into one plan of control, or Budgetary Control of the business.
FINANCE FUNCTION
The finance function, of course, is to provide just enough money to carry out such plans as we have mentioned; to check constantly the plans of the other departments; to apply correctives when needed and to be responsible for the receipt and disbursement of all funds handled by the business. Thus, the administration of any business being concerned with the successful operation of all of its component parts, must have a Master Budget by which it can exercise control of all component parts.
The Tuck School is, in a sense, a Master Business Educational Budget, charged with the control and operation of all of its component parts to the end that each shall function wisely, smoothly and with profit to each part. As in business, the Tuck School has departmentalized each function of business and its master plan establishes just what part each department must play to make the whole plan successful.
In finance, therefore, you are taught current forms of organizations, methods, technique and philosophy. You are given problems to develop your own thinking and to assist you in translating and applying your knowledge in a practical way.
In management, you are shown how business is set up, you are familiarized with departments and the functions they perform. You study planning, preparation, scheduling and inspection from the point of view of controlled planning and production. You learn that each operation must be carried on at maximum efficiency and you familiarize yourself with the methods used to secure and check constantly, the production you have planned.
But in management you learn that while aspects of material control are vital, they are not as vital as labor. It is a truism to state that it costs much more to scrap a man than to scrap a machine. Therefore, you are introduced to the labor problem in terms of selection, hiring, training and supervision. You are taught present methods of securing the total welfare of the employe while at the same time, you have secured his maximum efficiency. You secure a glimpse of the application of science to this problem in terms of personnel and psychiatry. It is not too much to say at this point, that this information is potentially the most important that you will receive in the school since the human factor is, by all odds, the most important factor in business.
In distribution you are taught the marketward movement of the great crops, the costs of the various functions performed in distribution and the dependence of other business upon these great crops. As a preparation for the next semester's work, you become familiar with raw materials, their costs and their effect on the market price of manufactured merchandise. You learn that we are over-produced, that our sales and advertising costs are entirely too great and that there are still tremendous wastes in distribution.
By studying each factor involved in the distribution chain, you learn how wastes are being eliminated and how to approach the problems of eliminating those that remain.
ACCOUNTING AND STATISTICS
Each of the departments and functions outlined to you would be practically helpless without the aid of accounting and statistics. Facts must be known and then expressed in readable form; the position of the business in relation to business in general and to competitive business must be always before the executives. Statistics present this information in simple, concise form that he who runs may read. But, more important, statistics offers a tool not only for correlating and presenting past performance but also for anticipating future trends and developments.
No man can definitely say where his business career will lead him. In these days of rapid changes in all forms of business, nothing has been so clearly proven as our dependence upon foreign business. You are therefore introduced to the problems in this field and familiarized with some of the definite methods, techniques and economic factors affecting foreign trade. You are given the opportunity to familiarize yourselves with one or more foreign languages as a material aid in this field.
This, then, is our budget; to broadly prepare you for your entrance into business by specifically familiarizing you with the detailed operation of each business function. We believe that such a preparation does broadly prepare you for business, make you better informed regarding the general and specific operations of business and able, if you will, to adjust yourself quickly to whatever business you may undertake and at the same time, to view the business and its interrelationship as a whole.
To check up the progress of our planning we require problems, written work and examinations. We know that it is vital for you to be able clearly and intelligently to express yourself on paper. We know that a well written report containing worth while information will advance you in your work more than a week's conversation. Therefore, because a large experience has proven this conclusively, you must bear with us in our insistence that your written work be clear, concise, legible and well expressed; that your problems be accurate and well presented and that your examinations shall show that you have mastered the theory and can make a practical application of the theory.
In last week's Literary Digest there appeared the following cartoon; "too much oil, too much grain—too much poverty." In various reputable newspapers there have been editorial comments on our vast grain, manufactured products and capital surplusses and rather caustic remarks about our 5,300,000 unemployed. The question is asked, "must we have poverty and unemployment—the dole perhaps, with surplusses mounting into the millions?"
LACK OF LEADERSHIP
Where is our economic leadership? Where is it, indeed. We are being led not by economic giants but by economic runts. Capital has forced new businesses into fields already crowded; in sales, there has been an entire lack of leadership obsessed with only one idea, "Beat last year;" in production "Mass production" has had entire sway and our volume secured by mass production rots on the shelves and in the bins while our 5,300,000 unemployed form bread lines.
Such a condition is a terrible indictment of American business. Such a condition will be continued by each of you men here in this room if you go out from this school believing that the theory, methods and technique that you have been taught here are all important. Unless you can see that the economic welfare of the whole is all important, you, in your niche, will continue to view yourself and your business as an end, and not as a means to an end.
The methods and techniques of business are simple. The mastery of the mechanics in each business field does not require any great amount of intellect. What does require intelligence of a high order is the ability to understand the significance of business in all fields and all ramifications and either to fit your business into its proper position in the economic scheme of things or to influence all business toward a better way and a better day.
There is no sentimentality about a statement of that kind. If you fear sentiment, if you doubt altruism, translate coldly the whole problem in terms of "better business." It does not require the intellect of a mental giant to perceive that 5,300,000 men out of employment means that with this shortage of pay envelopes, manufactured merchandise must remain on the shelves and great raw materials rot and mold in the bins.
If we have succeeded only in teaching you methods and manners by which you can unfairly "beat" your fellow men, we better have been engaged in teaching high-way, Bank Robbery and second story work, for with the granting of your diplomas, society would at least know what to expect.
Society and we expect from you the larger social view point. We expect from you willingness to encounter and study new ideas based on the general welfare. We expect that having lived through one of the most changeful periods of American business and social life, you will appreciate that further changes are inevitable and that you will meet these new issues with an open, helpful mind.
Delivered as lecture at opening of second semester of Tuck School.
