During the 1850's and 60's, the railroad revolution rocked the industrializing world, in much the same way that the internet revolution is changing things today. In the United States, the best-managed railroad company was the Pennsylvania Railroad. Its master, J. Edgar Thomson, was the foremost management practitioner of his time.

The following passages are quoted from:

J. Edgar Thompson, Master of the Pennsylvania. James A Ward., Greenwood Press, Westport, CT, 1980.

In January 1975, Fortune magazine established a business Hall of Fame and selected its first nineteen honorees. Although such notables as E.H. Harriman, James J. Hill and Commodore Vanderbilt were not included, Thomson was prominently featured along with the more widely known Henry Ford, Thomas Edison and Pierpont Morgan....[T]he editors praised him for setting a pattern of rail construction and organization that was long imitated. They noted he expanded his railroad system from 250 miles to over 6,000 miles as his company's profits rose from $617,000 to $8.6 million during his years in charge; they were particularly impressed by the fact that in large part those profits came from his ability to cut costs, from 1.909 cents per ton mile in 1864 to 0.978 cents in 1873. But Thomson would have been proudest of the editors' personal tribute - their simple declaration that "no scandal touched this man." (p.221)

The financial crisis was the catalyst that finally prompted Thomson to overhaul his company's organization. The old departmental operating structure that dated from 1852, when the road was still incomplete and traffic levels were much lower, had provided for staff officers centrally located to direct the company's operations, finances, construction, repair, freight and passenger business, and maintenance, and motive power. Since then, the road's gross revenues had more than doubled, and in the year of the crisis, Thomson had thousands of employees strung out over 400 miles, handling almost $5 million annually. He desperately needed more accurate and up-to-date information on his costs in order to set competitive rates that could still make a profit. At a personal level, he had to lift some of the burdens form his own shoulders.

Thomson's new organizational structure, completed by December 1857, was eventually copied all across the country. Thomson's thought processes lend themselves to creating organizational solutions to complex problems; his engineering background trained him to think logically, to recognize cause and effect relationships, and to create mechanisms that operated with a minimum of friction. Furthermore, his appreciation of others' talents and his belief in allowing young subordinates the greatest measure of freedom wherever possible, naturally led him towards a more decentralized structure. His starting point, however, was the work of another engineer, the Erie's general superintendent Daniel C. McCallum, who had outlined a new organization for his road just two years earlier. McCallum had experimented with breaking his line down into operating divisions. Thomson took this idea and merged it with his rival B&O departmental structures to create the first line and staff managerial organization in American corporate history. Thomson's scheme allowed men at the lower levels enough authority to demonstrate their talents, although always under the oversight of higher line officers. To accomplish this, the line between Philadelphia and Pittsburgh was divided into sections, each with a divisional superintendent responsible for everything in his bailiwick. A general superintendent was placed over all divisional officers to coordinate operations. Thomson's plan clearly delineated the lines of authority from employees at the lowest divisional levels through the general superintendent. Motive power, maintenance of way, and accounting officers were carefully included in the chain of command at all levels. Forms were standardized, and information flowed smoothly through prescribed channels. Responsibility was widely spread, and many of the road's future leaders gained their first taste of authority at the lower levels of the company's line organization. A divisional superintendency quickly became a springboard to the front offices; Scott, Carnegie, James McCrea, and Robert Pitcairn, all gained valuable experience and notice in that job.

At the staff level, the president, vice presidents, assistants, general superintendent, controller, auditor, and treasurer, made general policy and...dealt with things. By contrast, the line organization handled people. Thomson's old engineering corps was the only department that did not fit into the new scheme. Its loyalties were divided. Resident engineers in staff positions were responsible for the planning and upkeep of the while road, an arrangement consistent with Thomson's earlier views on the importance of the profession, while the divisional superintendents directed the work of engineers assigned to them at the line level. (p107, 8)