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Corporate Learning and Quality Control at the Bell System, 1877–1929

Published online by Cambridge University Press:  13 December 2011

Paul J. Miranti
Paul J. Miranti
Affiliation:
PAUL J. MIRANTI is professor in the Department of Accounting and Information Systems at Rutgers Business School.
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Abstract

From 1877 to 1929 the Bell System extended its qualityassurance capabilities, a step that was critical to the company's ability to certify the reliability of its equipment and apparatus and to provide economical service. Learning in this context involved the gradual development of an organizational structure for coordinating and controlling quality-assurance activities at both the staff and line levels and between the corporate elements of the Bell System. Over the course of the initiative, innovative methods of analysis emerged that provided useful new insights into the manufacturing process. The company's adaptation of probability theory, for example, enabled it to launch a comprehensive inspection regime, which became known as “statistical quality control” (SQC). Based on this new approach, Bell succeeded in broadening its manufacturing knowledge, quantifying definitions of quality, reducing costs and risk, thus assuming the more reliable operation of its vast telephone network. Eventually this upgrading of learning led to the formation of a new profession of quality engineering, which found adherents across many industries in the United States and abroad.

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Articles
Information
Business History Review , Volume 79 , Issue 1 , Spring 2005 , pp. 39 - 72
Copyright
Copyright © The President and Fellows of Harvard College 2005

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21 See attachment to letter from Hammond V. Hayes to F. P. Fish, 31 Dec. 1906, in Annual Report of the Engineering Department, 1906, file 250-06-18, AT&T Archives.

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26 In letter from J. J. Carty to E. J. Hall, 17 July 1907, in file 87-01-01-02, AT&T Archives; also quoted in Fagen, History of Engineering and Science, 852. See also Adams and Butler, Manufacturing the Future, 78.

27 Fagen, History of Engineering and Science, 851–53.

28 For a cogent discussion of the organization of the Hawthorne plant, see Adams and Butler, Manufacturing the Future, 80–84.

29 See Juran, Architect of Quality, 83–84, for a brief discussion of classification of workforce at Western Electric in the early 1920s.

30 Ibid., 75, 92.

31 Ibid., 75.

32 Fagen, History of Engineering and Science, 853–59.

33 Ibid.

34 Memorandum from Engineering Inspection Department entitled “Routine,” 7 Mar. 1906, in file 87-01-01-02, AT&T Archives.

35 See Adams and Butler, Manufacturing the Future, 78–80, for the origins of the colony system.

36 Juran, Architect of Quality, 93.

37 For criticism of the colony system and its associated plant layout, see transcript of comments of Joseph M. Juran from video interview prepared through AT&T Service Center, pp. 29–36 and 38 in Box 113, W. Edwards Deming Papers, Library of Congress. See also Juran, Architect of Quality, 97.

38 See Garnet, The Telephone Enterprise, 150–54, 158.

39 See Smith, The Anatomy of a Business Strategy, 136–37.

40 The staff of the Federal Communications Commission in their 1936 investigation of the Bell System characterized this change in policy as the beginning of a new marketing plan to overcome a flat trend in earnings. They argue that this transition was first evinced in articles by Vail that appeared in the Atlantic Monthly 3 (Mar. 1913): 307, and Printer's Ink 89 (6): 66. These articles are quoted and related to the change in policy in Federal Communications Commission (FCC), Engineering Department “Exhibits, Comments and Reports of the Special Investigation,” Box 5, Telephone Investigation, Special Investigation Docket No. 1, Report on the American Telephone and Telegraph Company, The Hand Set, December 14, 1936, 56–59, in Record Group 173, National Archives. The material in these FCC staff reports was based on the analysis of data and memoranda entered into evidence by AT&T.

41 The economic significance of telegraph loading on multiplex lines is discussed in Stehman, J. Warren, The Financial History of the American Telephone and Telegraph Company (Boston, 1925), 147–54Google Scholar.

42 The development of the telegraph through the Bell System during the Vail period is described in Fagen, History of Engineering and Science, 147–54. The development of teletype technology at the Bell System during this era is described in Fagen, History, 744–98.

43 See Annual Report of the Directors of the American Telephone and Telegraph Company to the Stockholders for the Year Ending December 31, 1915 (New York, 1916), 53–54.

44 FCC, Report on American Telephone and Telegraph–The Telephone Hand Set, 56–57.

45 Ibid., 62–63.

46 Ibid., 78–79.

47 Ibid., 65–69.

48 Ibid., 81–85.

49 Ibid., 94–97.

50 Ibid., 78–81.

51 Ibid., 111–14.

52 Ibid., 85–88.

53 Ibid., 88–90.

54 Ibid., vi–ix. The FCC estimated that the net profit resulting from the introduction of the handset between 1918 and 1936 amounted to $23.9 million, and that the average annual return on investment on the new device between 1927 and 1936 amounted to 25.2 percent. The present worth of savings in the wire plant through 1936 was estimated to be $85.4 million.

55 Ibid., 115.

56 “Then when Mr. Vail passed out of the Telephone Company there was a long period of lack of centralized management of the System during which Mr. Benton [Enos Benton, president of Western Electric] in gratification of his personal ambitions, gave the most of his thought to the development of the company as a general electrical manufacturing company, at the cost of hundreds of thousands of dollars to the company and some humiliation to himself. When Mr. Vail came back, the firm hand came back and organization of the companies as a system.” “He arranged that … American Telephone and Telegraph Company … should canvas the field and inform the Manufacturing Company as to System requirements, of apparatus by quantity and kind. That only meant that from its relation to the System it could do it more efficiently and economically.” See memorandum of Henry B. Thayer to Walter P. Gifford, 29 Apr. 1929, in file 125-03-01-20, AT&T Archives. “3. Consolidate work now being one by American Telephone and Telegraph and Western Electric under a single head with resulting increase in economy and efficiency,” from a memorandum of Walter P. Gifford, 29 Sept. 1924, entitled “Bell Telephone Research Laboratories, Inc.,” which specified the goals of forming the laboratory, in file 125-03-01-20, AT&T Archives.

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58 AT&T was consistently able to defend these charges during the early 1920s. See, for example, Missouri ex rel. Southwestern Bell Telephone v. Public Service Commission, 262 U.S. 276 (1923), and Re: New England Telephone and Telegraph Company Public Utility Reports, 1925 E, 739–61. Sensitivity to this issue continued to increase in this period, as shown in a case brought initially by the City of Chicago in 1923, Smith v. Illinois Telephone Company 282 U.S. 133 (1 Dec. 1930), and in Re: Wisconsin Telephone Company Public Utilities Report, 1932 D, 173–284, and 1935 E, 97–101,101–34, 135–49. The question of intercorporate transacting within public-utility holding companies is discussed in Bonbright, James C. and Means, Gardiner C., The Holding Company: Its Public Significance and Its Regulation (New York, 1932), esp. 176–83Google Scholar, and in the very critical study by Danielian, N. R., AT&T: The Story of Industrial Conquest (New York, 1939), 365–72Google Scholar, which analyzes the connections with Western Electric. The latter study was based on the findings of the Federal Communications Commission, Investigation of the Telephone Industry in the U.S. (Washington, D.C.: 74th Congress, House Doc. 340, 1939)Google Scholar.

59 A somewhat later overview of the focus of these activities was presented in E. G. D. Paterson, “An Over-All Quality Assurance Plan,” Industrial Quality Control (May 1956): 32–37.

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62 Hallenbeck, “The Inspection Engineering Department,” 243–47.

63 Ibid.

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69 Campbell's contribution to the development of the loading coil and long-distance telegraphy is discussed in Wasserman, Neil H., From Invention to Innovation: Long-Distance Telephone Transmission at the Turn of the Century (Baltimore, 1985), chs. 4–5Google Scholar. See also Campbell, George A., “Mathematics in Industrial Research: “Selling” Mathematics to the Industries,” Bell System Technical Journal 3 (1925): 550–57CrossRefGoogle Scholar.

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71 Transcript of interview with H. F. Dodge, 13 Jan. 1967, pp. 3–5, in file 84-07-01-03B, AT&T Archives; Dodge, H. F., “Notes on the Evolution of Acceptance Sampling Plans Part I,” Journal of Quality Technology 1 (Apr. 1969): 78–79CrossRefGoogle Scholar.

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73 Ibid, 79–80; H. F. Dodge, Memorandum for file, I. M. 118, “Inspection Methods-Case 18105, An A Priori Method of Handling the Problem of Sampling Inspection,” 22 July 1925, in file 84 07 01 02, AT&T Archives; and Dodge, H. F. and Romig, H. G., Sampling Inspection Tables: Single and Double Sampling (New York, 1944), ch.1Google Scholar.

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75 Transcript, “AT&T Series Interview with Joseph M. Juran,” undated, p. 33, in papers of W. Edwards Deming, Box 113, Library of Congress; Campbell, G. A., “Probability Curves Showing Poisson's Exponential Summation,” Bell System Technical Journal 2 (Jan. 1923): 95–113CrossRefGoogle Scholar; and Dodge, “Notes on the Evolution of Acceptance Sampling Plans, Part I,” 80.

76 A. O. Beckman, “Synopsis Memorandum Classifying Material According to Subject Matter,” 10 June 1926, in file 299-09-03-06, AT&T Archives.

77 See J. M. Juran, “Early SQC: A Historical Supplement,” Quality Progress (Sept. 1997): 75.

78 See memorandum of W. L. Roberts to R. L. Jones, entitled “Application of Statistics to Inspection Methods,” dated 8 Apr. 1926; and memo of E. D. Hall to R. L. Jones, entitled “Rating of Manufactured Product,” dated 29 Apr. 1926, both in file 299-09-03-06, AT&T Archives.

79 See memorandum of R. L. Jones to W. L. Robertson, entitled “Application of Statistical Methods to Inspection Methods,” dated 10 May 1926, in file 299-09-03-06, AT&T Archives.

80 See memorandum of W. L. Roberts to R. L. Jones, entitled “Application of Statistics to Inspection Methods,” dated 8 Apr. 1926; and memorandum of E. D. Hall to R. L. Jones, entitled “Rating of Manufactured Product,” dated 29 Apr. 1926, both in file 299-09-03-06 at AT&T Archives.

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85 Ibid., ch.8.

86 Ibid., 96–98.

87 Ibid, pp. 43–50. See also Walter A. Shewhart and W. Orvis, “Burning in Carbon Transmitters,” 24 Mar. 1924, in file 255-05-01-03 at AT&T Archives; and G. E. Moore, “Early Career of Walter A. Shewhart,” in file 86-09-01-07; and various Memorand a for Files relating to case 32185 covering carbon filter study by P. S. Olmstead, in file 299-09-03-01 at AT&T Archives.

88 The three standard-deviation limit was chosen because it was a magnitude “customarily used in engineering practice.” See Shewhart, W. A., Statistical Method from the Viewpoint of Quality Control, ed. Deming, W. Edwards (New York, 1939, 1986), 62Google Scholar. It was also a standard for identifying significant variations in science defined by Yule, G. U., in An Introduction to the Theory of Statistics, 6th ed. (London, 1922), 276–77Google Scholar, an authority that Shewhart relied on in his carbon-crackling experiments. See Shewhart and Orvid, “Burning in Carbon Transmitters,” 17, n23.

89 Shewhart, Economic Control of Manufactured Product, 146–48.

90 See letter of R. L. Jones to C. G. Stoll, dated 25 Aug. 1925, in file 299-09-03-06 at AT&T Archives.

91 Memo of R. L. Jones to W. L. Robertson, “Application of Statistics to Inspection Methods,” 10 May 1926, in file 299-09-03-06, AT&T Archives.

92 Memorandum for File prepared by H. F. Dodge, “Rating of Hawthorne Product, Inspection Methods Case 18015, 13 May 1926, in file 299-09-03-06, AT&T Archives.

93 See transcript of telegram from R. L. Jones to E. D. Hall, 11 June 1926, in file 299-09-03-06 at AT&T Archives.

94 A. O. Beckman, “Synopsis Memorandum Classifying Material According to Subject Matter,” 10 June 1926, in file 299-09-03-06, AT&T Archives.

95 “Minutes of Conference to Study Ratings of Manufactured Products,” 15–16 June 1926, in file 299-09-03-06, AT&T Archives.

96 See “Minutes of Conference to Study Rating of Manufactured Product,” 9–10 Nov. 1926, in file 299-09-03-06, AT&T Archives.

97 See “Report of Subcommittee on Rating Manufactured Product,” 19–22 Apr. 1927, in file 299-09-03-06, AT&T Archives. The demerit rating system was described later in H. F. Dodge and M. N. Torrey, “A Check Demerit Rating Plan,” Industrial Quality Control (July 1956): 1–8.

98 Letter of E. B. Craft to E. H. Colpitts, 27 July 1927, in file 299-09-03-06, AT&T Archives.

99 Memo of R. L. Jones to E. B. Craft, “Inspection Methods—Case 18015–2,” dated 5 Dec. 1927, in file 299-09-03-06, AT&T Archives.

100 See Juran, “Early SQC: A Historical Supplement,” 80.

101 For activity of this committee, see memoranda from R. F. Vacin and S. M. Osbourne, 12 July 1926; R. F. Vacin and H. F. Dodge, “Special Comments on Inspection Statistics and Report of Committee,” 22 July 1926; H. F. Dodge to W. A. Shewhart, “Inspection Methods—Case 18015–2,” 12 Jan. 1927; “Reports of Special Committee on Inspection Statistics and Economy,” 19–22 Apr. 1927, 24–28 Oct. 1927, and 17–20 Apr. 1928; and H. G. Romig, “Memorandum for File: Discussion of Sampling Inspection Methods Developed by Western Electric Company,” 28 Mar. 1929. All are in file 299-09-03-06, AT&T Archives.

102 See Dodge and Romig, Sampling Inspection Tables, 30, 54–58; Juran, “Early SQC,” 77–78.

103 See Dodge and Romig, Sampling Inspection Tables, chs. 2–3.

104 See transcript of interview with H. F. Dodge, 13 Jan. 1967, pp. 8–18, in file 84-07-01-03B, AT&T Archives. See also Dodge and Romig, Sampling Inspection Tables, chs.1–3. The latter volume also presents single- and double-sampling inspection tables on pp. 70–101.

105 Memo of H. F. Dodge to R. L. Jones, “Inspection Methods—Case 18015–2,” dated 18 Nov. 1927, in file 299-09-03-06, AT&T Archives.

106 See Juran, Architect of Quality, 139.

107 Ibid., 150–51.

108 For a discussion of the original introduction of the colony system, see Adams and Butler, Manufacturing the Future, 78–80; for the connections between sampling and the new achievements of engineering management, see transcript entitled “AT&T Series Interview with Joseph M. Juran,” undated, in Box 113 of the papers of W. Edwards Deming at the Library of Congress, pp. 29–36, 38.

109 Thomson, Henry C. and Mayo, Lida, United States Army in World War II, The Technical Services, The Ordnance Department: Procurement and Supply (Washington, D.C., 1960), 327–29, 472Google Scholar.

110 Ibid., 329–31.

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112 Hopper, Kenneth, “Creating Japan's New Industrial Management: The Americans as Teachers,” Human Resources Management 21 (Summer/Fall 1982): 13–34CrossRefGoogle Scholar; and Adams and Butler, Manufacturing the Future, 151–55.

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