How John H. Patterson Modernized Industry - The Objective Standard

John H. Patterson, an industrialist who flourished at the turn of the 20th century, changed the way retail businesses handled money—literally. His company manufactured the first commercially successful cash registers, thus helping to solve a widespread problem: the loss of profit due to employee theft and shoddy bookkeeping. In building his company and developing the cash register, Patterson helped to bring business into the modern age.

During his first business venture in Dayton, Ohio, in the early 1880s, Patterson owned and managed a general store. Despite having almost no competition and relatively high margins, the store lost $3,000 ($75,000 in 2019 dollars) in three years.1 Upon investigating, Patterson discovered that his clerks were stealing from the cash drawer. At the time, cash drawers often were left unlocked, and sales receipts were a novel concept.2

Patterson soon learned of a machine invented in Dayton—the cash register—which reduced employee theft by automatically and accurately recording a shop’s sales, which the shop owner could compare to the contents of his cash drawer.3 Patterson bought two cash registers sight unseen. After six months of using them in his general store, he made a $5,000 profit, more than recovering the cost of the machines.4

The inventor of the cash register, however, had failed to make it a commercial success. Patterson, looking for a new business venture, bought the patent rights to the machine. In 1884, he and his brother Frank also bought National Manufacturing, the company that built the cash registers, and Patterson renamed it National Cash Register Company (NCR).

Initially, few shop owners saw the value of the cash register, and many clerks resisted the machine, regarding it as an insult to their integrity. Other clerks saw it as an end to their easy graft. In short, Patterson had a product with no demand.5 To create demand, he would have to invent entirely new business practices.

According to business writer Isaac Marcosson, at this time the demand for most products usually outpaced supply.6 These products essentially sold themselves, and scarcely anyone recognized a need for trained salesmen. In fact, many believed that a salesman’s success resulted entirely from his personality—not from any skills he developed. As Marcosson writes, “For years the saying: ‘Salesman [sic] are born not made,’ ruled American selling.”7

Patterson disagreed.

He asked his best salesman, Joseph Crane, how he sold cash registers. Crane replied that he devised a logical presentation of the cash register’s benefits and gave each prospective customer the same sales talk. Impressed with Crane’s presentation, Patterson had it recorded by a stenographer and typed up in what became the first sales manual, which all NCR salesmen were required to memorize.

To train his salesmen effectively, Patterson also started the first sales school in the United States.8 There, students learned how to deliver sales talks, address a prospective customer’s objections, and give a demonstration of the cash register’s features. In order to provide his students a realistic training environment, Patterson had built mockups of shops, which included dummy merchandise.

Contemptuous of “academic theorizing,” Patterson made it company policy that all sales school instructors be recruited from among the best NCR salesmen, enabling students to benefit from instructors’ experiences in the field. Patterson appointed Joseph Crane to be the school’s first instructor.9 The school also offered refresher courses, to keep salesmen informed on the features of the latest NCR products; and courses on business practices, such as merchandising and bookkeeping.

Patterson’s sales school became so successful and widely known that many today credit it as the precursor to the MBA. Many who were serious about becoming businessmen or improving their skills went to NCR for training.10 Sales school alumni included Thomas Watson, president of IBM; Hugh Chalmers, president of the Chalmers Motor Car Company; and more than two dozen others who went on to become high-level executives or managers elsewhere.11

A common sales practice at the time was for companies to allow salesmen to wander wherever they pleased while selling. This led to duplication of effort and to territorial disputes. Patterson eliminated these problems by establishing the first fixed sales territories for NCR salesmen. Every sale in the territory was credited to the assigned salesman, so others had no incentive to encroach on his area.12

Patterson also established the first sales quotas, which he noticed led to friendly competition among his salesmen, thereby increasing sales. So he started annual conventions and invited only those who exceeded their quotas.

Just as Patterson worked ceaselessly at improving his salesmen’s effectiveness, he did the same toward improving his products and resolving customers’ complaints. He incorporated new technology—including an electric motor to turn the cash register’s gears—and sought to expand its capabilities.13 Realizing that no single machine would meet every customer’s demands, Patterson invested heavily in research and development. By 1890, NCR owned eighty-six patents for various devices and innovations—including some for factory machinery.14

All of these innovations paid off. In its first year, NCR sold 395 cash registers.15 Five years later, it had sold more than sixteen thousand.16

In 1894, however, NCR experienced a major setback: An order of cash registers worth $50,000 was returned because the machines were defective.17 To investigate the cause of the poor workmanship, Patterson moved his desk to the factory floor, where he could interact directly with his workers.

Like many factories of the day, his was dark, dirty, and poorly ventilated. Injuries were common. Water for drinking and washing was unsanitary. Unhappy with the working conditions and pay, many skilled workers were quitting. Patterson realized that he had not given his workers a reason to care about the quality of their work.18

He quickly had the factory cleaned and ventilation systems installed. He was among the first industrialists to introduce safety measures for using dangerous equipment. And he built subsequent factories with massive windows, allowing adequate lighting for his workers. These became known as the first ever “daylight” factories.19

These changes improved working conditions enormously. Morale increased, turnover decreased, and poor workmanship all but ceased. Whereas many of his contemporaries held that laborers were a commodity to be bought cheaply and worked to the bone, Patterson learned that a workforce is an incredible asset—one worth investing in. And he invested heavily.

Over time, Patterson introduced measures to increase the value that employees derived from working at NCR. He started a company medical department with staff that treated employees and their families, and he offered health benefits and life insurance to employees at low cost. He later added dining rooms to his factories and office buildings where employees could purchase hot meals for five cents.20 And he offered night classes in which ambitious employees could learn new skills to advance their careers.

Understanding that happy employees are more productive, Patterson also sought to enrich their lives outside of work. He hired renowned landscapers to improve the grounds at NCR and in the surrounding neighborhood. He also built recreational parks on part of his own estate and made them available to employees and their families. The parks contained golf courses, baseball fields, and places for picnics, cookouts, and concerts.

Mindful of the fact that his workers were better situated than he to improve production processes, Patterson started a suggestion department. Employees could offer suggestions for improvement on any aspect of business operations, and Patterson awarded cash prizes for those that were adopted. The suggestion department was a huge success, and productivity soared. In 1911, NCR sold its millionth machine.21

Although Patterson earned the loyalty of his employees, he was difficult to work for. Stanley Allyn, who would become NCR’s CEO, later reflected that Patterson could be “tyrannical and arbitrary.”22 Patterson reportedly fired one executive for being completely satisfied with his department. According to Marcosson, Patterson equated satisfaction with complacency and ruthlessly weeded it out. Marcosson writes that Patterson also had high expectations for resourcefulness: “The phrase, ‘It can’t be done,’ spelled immediate dismissal for an employee.” In his search for the ideal executive, Patterson became infamous for firing people “with almost lightning rapidity,” including Watson and Chalmers—who went on to run successful companies.23 Allyn also writes:

Mr. Patterson was concerned with every employee’s health, his diet, his hobbies, recreations, and community service, his wife’s social schedule, his children’s education. . . . There was one best way to do everything, he said, and everyone should be required to learn and to follow the prescribed correct course.24

According to Allyn, Patterson held that every aspect of a person’s life should serve to increase his productivity at work. But “under the confinements of [his] temperament,” he writes, “several great minds quit him.”25

Nonetheless, Patterson led NCR to dominate the market for cash registers in the United States, Europe, Asia, and South America. By 1910, NCR was selling 95 percent of all cash registers in the world.26

Naturally, NCR’s success attracted many competitors to the growing market. But, unable to compete with NCR on their own merit, some of these competitors engaged in patent infringement and spread misinformation about NCR’s machines.27 Patterson responded with lawsuits.

Sometimes, defendants countersued, resulting in legal battles that lasted for years. One such legal battle culminated in a federal trial.28 In 1912, under the Sherman Antitrust Law, the Department of Justice charged Patterson and more than twenty NCR executives with criminal conspiracy.29

The department argued that the mere fact that NCR had “captured” 95 percent of the market was evidence of conspiracy. The prosecution accused NCR agents of harassing competitors’ customers, bribing their salesmen, and producing and selling inferior replicas of their machines that were designed to fail.30 The prosecution’s case was bolstered when Hugh Chalmers—Patterson’s vengeful former second in command—agreed to testify against NCR. NCR was found guilty of three out of thirty-two charges.31

In fact, NCR’s success resulted almost entirely from its own honest efforts. Patterson’s investments in product development enabled NCR to produce better cash registers than did their competitors. His improvements in working conditions and production processes enabled NCR to produce them cheaper. And his efforts at improving his team’s salesmanship resulted in more—and more satisfied—customers.

But the presiding judge refused to allow NCR’s attorneys to submit these facts to the court.32 Patterson was convicted, ordered to pay a $5,000 fine, and sentenced to a year in jail.

On March 25, 1913, while Patterson’s attorneys were preparing an appeal, a tragic flood struck Dayton. Fourteen thousand homes were destroyed, leaving fifty thousand people without shelter, food, or drinking water. Nearly nine thousand people were stranded in upper stories or on rooftops.33

Patterson immediately directed NCR to shift gears and aid flood victims. He ordered a train full of supplies and rushed food and bedding to the factory on any vehicles he could find.34 His medical staff set up an emergency hospital, and his kitchens prepared hot meals for flood victims and volunteers. His woodworkers built 275 boats for rescuers, reaching a rate of one boat every eight minutes.35

By 10 that morning, NCR employees launched their first rescue boats.36 They rescued thousands of people, taking them to the NCR complex where, after they received medical treatment and a meal, they were housed in relative comfort until the water receded a few days later.37

When representatives of President Woodrow Wilson reached Dayton, they acknowledged that they could do nothing that Patterson hadn’t already done. Five weeks after being branded by the Department of Justice as a criminal, Patterson became known as a national hero. People across the country telegraphed the president, asking that he pardon Patterson for his “crimes.”

When Patterson learned of these requests, he sent his own telegraph to the president: “Our case is still in the courts. I do not ask for, nor would I accept, a pardon. All I want is simple justice.”38

In March 1915, he got his wish; the U.S. Court of Appeals overturned his conviction. Patterson continued to lead NCR to dominate the cash register market until his death in 1922. Today, NCR still offers point-of-sale solutions, including ATM software, self-checkout kiosks in grocery stores, mobile apps, and much more.39

Patterson’s devotion to quality, his complete disregard for convention, and his quest to improve all aspects of his business did more than lead NCR to success. He molded an entire generation of entrepreneurial minds, training many directly and setting the standards by which countless others judged success. He demonstrated to business owners the benefits of investing in one’s employees. And he showed the world what so many “greedy industrialists” are made of: an enduring will to remake the world as it could and should be—and on their own terms.

John H. Patterson showed the world what so many “greedy industrialists” are made of: an enduring will to remake the world as it could and should be—and on their own terms.
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Endnotes

1. Mark Bernstein, Grand Eccentrics (Wilmington, OH: Orange Frazer, 1996), 22.

2. Isaac F. Marcosson, Wherever Men Trade: The Romance of the Cash Register (New York: Arno Press, 1972), 21.

3. Marcosson, Wherever Men Trade, 14–15.

4. Reports of the number of machines Patterson bought and the resulting profit they enabled differ. Marcosson claims that Patterson initially bought three machines sight unseen for his general store and, when they earned him a profit of “several thousand dollars” within six months, bought two more for his other business concerns (Wherever Men Trade, 23). Bernstein claims that Patterson bought two registers sight unseen, which earned him a profit of $5,000 after six months (Grand Eccentrics, 23).

5. Marcosson, Wherever Men Trade, 32–34.

6. Marcosson, Wherever Men Trade, 110–11.

7. Marcosson, Wherever Men Trade, 109–12.

8. Marcosson, Wherever Men Trade, 114.

9. Marcosson, Wherever Men Trade, 116.

10. Bernstein, Grand Eccentrics, 97.

11. Marcosson, Wherever Men Trade, 127–29.

12. Marcosson, Wherever Men Trade, 143–45.

13. Marcosson, Wherever Men Trade, 60.

14. Marcosson, Wherever Men Trade, 93–94.

15. Bernstein, Grand Eccentrics, 26.

16. Marcosson, Wherever Men Trade, 39.

17. Marcosson, Wherever Men Trade, 47.

18. Bernstein, Grand Eccentrics, 40.

19. Marcosson, Wherever Men Trade, 225.

20. Bernstein, Grand Eccentrics, 41.

21. Marcosson, Wherever Men Trade, 41.

22. Stanley C. Allyn, My Half Century with NCR (New York: McGraw-Hill, 1967), 25.

23. Marcosson, Wherever Men Trade, 49–50.

24. Allyn, My Half Century with NCR, 17.

25. Allyn, My Half Century with NCR, 26.

26. Marcosson, Wherever Men Trade, 103.

27. Marcosson, Wherever Men Trade, 95–96.

28. According to Marcosson, this legal battle began in the early 1890s when Henry S. Hallwood bought some patents for a drawer-operated cash register and started the Hallwood Cash Register Company. Hallwood later admitted in an affidavit that his purpose in doing so was to become enough of a nuisance to force NCR to buy him out. Instead, NCR sued. Hallwood countersued for $100,000, “alleging unfair competition and conspiracy to restrain trade.” Over the next eighteen years, Hallwood started several failing cash register businesses, which eventually became American Cash Register Company. NCR then sued American for patent infringement. When American realized its countersuit was ineffective, it filed a complaint with the Department of Justice in 1910. See Marcosson, Wherever Men Trade, 100–101.

29. Accounts of the exact number of executives convicted in the antitrust case differ. Allyn states that Patterson and “his top twenty-seven executives” were convicted (My Half Century With NCR, 30). A newspaper headline from Dayton, Ohio, reporting on the appellate court’s ruling on March 13, 1915, reads “Sweeping Victory Won by President Patterson and 26 Associates” (Lisa Rickey, “The court decision in John H. Patterson’s case was announced . . . ,” Out of the Box, March 18, 2015, https://www.libraries.wright.edu/community/outofthebox/2015/03/18/the-court-decision-in-john-h-pattersons-case-was-announced/.) Marcosson, who was present with Patterson at the appellate court’s ruling, refers to an address Patterson gave to his supporters in which he mentioned “twenty-one colleagues” who were also convicted (see Wherever Men Trade, 106–7).

30. Bernstein, Grand Eccentrics, 134–35.

31. Marcosson, Wherever Men Trade, 103–4.

32. Marcosson, Wherever Men Trade, 103.

33. Bernstein, Grand Eccentrics, 144.

34. Marcosson, Wherever Men Trade, 51–52.

35. Bernstein, Grand Eccentrics, 144.

36. Bernstein, Grand Eccentrics, 144.

37. Marcosson, Wherever Men Trade, 52.

38. Marcosson, Wherever Men Trade, 105.

39.“Solutions to Move Your Business Forward,” NCR, www.ncr.com/solutions (accessed May 7, 2019).

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