University of Kentucky UKnowledge Business University Press of Kentucky 1960 Blazer and Ashland Oil: A Study in Management Joseph L. Massie University of Kentucky Click here to let us know how access to this document benefits ou.y Thanks to the University of Kentucky Libraries and the University Press of Kentucky, this book is freely available to current faculty, students, and staff at the University of Kentucky. Find other University of Kentucky Books at uknowledge.uky.edu/upk. For more information, please contact UKnowledge at [email protected]. Recommended Citation Massie, Joseph L., "Blazer and Ashland Oil: A Study in Management" (1960). Business. 4. https://uknowledge.uky.edu/upk_business/4 BLAZER AND ASHLAND OIL PAUL G. BLAZEH Blazer and Ashland Oil A Study in Management by JOSEPH L. MASSIE UNIVERSITY OF KENTUCKY PRESS Copyright© 1960 by the University of Kentucky Press Printed in the United States of America by the Division of Printing, University of Kentucky Library of Congress Catalog Card No. 60-8519 The publication of this book has been made possible partly through a grant from the Margaret Voorhies Haggin Trust, established in memory of her husband, James Ben Ali Haggin. To all of those in management who give voluntarily of their time in the interest of empirical research, this book is dedicated. This page intentionally left blank PREFACE SOME STUDENTS of management have been impressed by the universals of the administrative processes in the various areas of application and have ignored the specific setting of a man­ agerial problem. Others prefer to qualify their statements by references to the surrounding facts of the specific situation. This study represents research based upon the second viewpoint. In this case, access to the details of the company history and to the executive organization has made possible a comprehensive study of the managerial processes as they evolved through time. These processes have been determined in part by events in the history of the company, in part by the institutional setting, and in part by personal characteristics of the individual executives. Many works on management and organization have given greatest emphasis to the largest corporations, the civilian govern­ ment, and the military forces. The managerial problems have been assumed to be the same-but simpler-for the smaller operators. This study raises the question of whether the ap­ proach to management by the chief executive of the smaller company might not be somewhat different from the approach indicated by writers who have studied the large firms. The available sources of information made possible a com­ prehensive study of Ashland Oil & Refining Company, Ashland, Kentucky, a relatively small firm. Annual reports, audit reports, minutes of the board of directors, and the company magazine were available. In addition, letters, which from the company's inception had been written monthly by Paul G. Blazer, the chief executive, to the members of the board of directors, explained in detail the facts of the preceding month, current operational problems facing the company, decisions made and reasons for them, alternative courses of action, and opinions on the man- PREFACE agerial processes. A complete file of these letters was located after an extended search and formed the basis for the research. In this way, it was possible to determine the detailed thoughts at the time of an action without depending upon memory. These written sources provided the foundation for a series of personal interviews with those who had knowledge of the company's operations. Interviews were secured with a majority of the members of the board and all principal operating execu­ tives. Competitors, a union leader, and an investment counsel offered comments that helped to round out the complete picture of the company's organization and operations. However, by far the most important interviews were those with Blazer over a period of two and a half years. In these, the chief executive was able to elaborate on comments in the monthly letters and to add to his previous observations concerning his ideas on management. A tape recorder provided a means for more careful study of the facts and opinions expressed in many of the interviews. By replaying the recordings, it was possible to appraise the comments analytically with due regard for intensity of emphasis, inflection of voice, and other indications of the ultimate meaning of comments. By comparing the tape-recorded comments with the statements in the letters, it was possible to delineate the basic trend in Blazer's thinking. Rationalization could be detected more easily. Throughout most of the interviews a nondirective approach was relied upon, except in those instances in which certain specific information was desired for continuity. By these methods it has been possible to approach the core of the thinking of one chief executive over a period of time and to organize his concepts of management in light of the factors as he saw them at the time and place of the specific decision. References to Blazer's written and verbal comments will be made extensively in order to support the principal statements. In order to interpret managerial decisions and the fundamental managerial philosophy upon which they were based, it is man­ datory to consider them as within the framework of the economic Vlll PREFACE conditions and personal relationships which existed at the time. This study, therefore, examines the economic structure and functioning of the oil industry. The techniques of the business historian are required to establish the chronological development and the personal factors so necessary to a sound evaluation. This study, undertaken initially for a doctoral dissertation at the University of Chicago, was made possible by the cooperation of Paul G. Blazer, former president and chairman of the board of directors of Ashland Oil & Refining Company. On September 15, 1952, he consented to make all company documents available which were necessary for an intensive study of the management. His interest in business research motivated him to devote his time to interviews. All requests for information were granted. Company executives gave me their enthusiastic support. Arthur J. Points, controller, served as a valuable liaison between the operating personnel and myself. I am indebted especially to the following members of the board: E. L. McDonald, Lexington, Kentucky; the late James L. Martin, Chicago; Walton T. Davis, Louisville; and Robert D. Gordon and William C. Freeman, Chicago. Valuable information was provided in inter­ views with former owners of predecessor companies, including Earle M. Craig, Freedom, Pennsylvania, and W. H. Bennett, Buffalo, New York. Earl Wallace, Lexington, Kentucky, former vice president of the Standard Oil Company (Ohio), furnished valuable infor­ mation about Ashland Oil over its entire history as seen from the viewpoint of a competitor. J. Fred Miles, Louisville, granted interviews and access to early records in his possession. Although the facts upon which this study is based have been made available from company records and other related sources, the members of the management of Ashland Oil & Refining Company do not subscribe to my interpretations and conclusions, which are the product of my own judgment and for which I accept personal responsibility. J. L. M. lX This page intentionally left blank CONTENTS PREFACE page vii EXHIBITS xiii ILLUSTRATIONS XV 1. THE SETTING FOR SUCCESS Ashland Oil's Place in the Petroleum Industry 1 2. WILDCATTER IN KENTUCKY The Operations of Swiss Oil Corporation 22 3. ECONOMIES OF OBSOLESCENCE The Operations of Ashland Refining Company 42 4. RELUCTANT ENLARGEMENT Ashland Oil-A Medium-Sized Company 68 5. RAPID GROWTH BY MERGER The Transformation to Large-Scale Operations 93 6. PIPELINES AND TOWBOATS The Transportation of Oil and Its Products 117 7. JOBBERS AND BRAND NAMES The Pressure for Markets and Promotion 145 8. OBJECTIVES OF MANAGEMENT Concepts of the Role of the Chief Executive 170 9. FLEXIBILITY AND INFORMALITY Blazer's Concepts of Business Management 190 10. SUCCESS AND SUCCESSION The Evaluation of Policies and Practices 228 INDEX 243 This page intentionally left blank EXHIBITS 1. Some Corporate Acquisitions of Ashland Oil & Refining Company page 4 2. Chronology of Acquisitions of Major Antecedent Companies, Ashland Oil & Refining Company 6 3. Net Income after Taxes, Ashland Oil & Refining Company and Major Oil Companies, 1924-1956 8 4. Ratio of Net Income after Taxes to Stockholders' Equity, Eighteen Major Companies, Nineteen Independents, and Ashland Oil & Refining Company, 1929-1950 10 5. Area of Operations, Ashland Oil & Refining Company 16-17 6. Swiss Oil Corporation, Balance Sheet, December 31, 1921 26 7. Percentage of Total Capital Expenditures Placed into Production of Crude Oil, Ashland Oil & Refining Company, 1924-1956 34 8. Average Daily Net Production of Crude Oil, Ashland Oil & Refining Company, 1924-1956 36 9. Ratio of Net Production of Crude Oil to Refinery Runs to Stills, Ashland Oil & Refining Company, 1924-1956 38 10. November 1-1923 Average Returns per Barrel of Kentucky Crude Refined at Various Points 48 11. Comparison of Actual Results of Refinery Operations Using Original Equipment with Estimated Results Using Fractionating Towers, July, 1925 52 12. Geographical Location of the Cumberland Pipeline 62 13. Percentage of Total Capital Expenditures Placed into Refining Operations, Ashland Oil & Refining Company, 1924-1956 74 EXHIBITS 14. Total Assets and Total Sales, Ashland Refining Company and Ashland Oil & Refining Company, 1924-1956 94 15. Relative Financial Status at Time of Merger, Ashland Oil & Refining Company and Allied Oil Company 100 16. Percentage of Total Capital Expenditures Placed into Transportation, Ashland Oil & Refining Company, 1924-1956 126 17. Percentage of Total Capital Expenditures Placed into Marketing, Ashland Oil & Refining Company, 1924-1956 150 18. Estimated Percentage of the Gasoline Market Sold by Ashland Oil & Refining Company in Eleven States, May, 1951 162 19.