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Deja Vu

The Auto Industry, Too, Shifted from Entrepreneurs to Smart Teams.
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In the first decades of the century, cars were to the American economy what electronics is today. The giants of the industry were Henry Ford, whose assembly line had defined how best to build cars, and William C. Durant, whose segmented marketing defined how best to sell them. But as the industry expanded, these entrepreneurial geniuses failed to develop the management resources and methods to keep pace. It would be left to a second generation of team managers to take these industries to maturity.

Henry Ford ran his company as if it were a "twentieth-century absolute monarchy," according to his biographer, Keith Sward. He disdained the idea of developing strong executives, insisting on placing his mark on virtually every major initiative. When one manager dared to question his ideas, Ford cut him off with the taunt, "Get out and send me an optimist."

It was not surprising, then, that independent-minded executives tended to have short stays at Ford. They were often replaced by men whose loyalty to Ford had an almost thuggish quality: one group of employees discovered that they'd been fired when they returned to their offices one morning to find their desks had been axed into pieces. Among Ford's more celebrated lieutenants was Harry Herbert Bennett, a former prizefighter who learned a knack for getting along with the boss during many years of service to Detroit's underworld.

Ford could get away with such practices as long as his competitors were not any better managed -- and for a while they were not. At General Motors Corp., Durant ran the shop by the seat of his pants, with power and responsibility spread widely -- some thought haphazardly -- throughout the company. The weakness of this extreme decentralization became apparent when the recession hit after World War I, and Durant found himself with too many cars to sell and too little cash on hand. A desperate GM board was forced to turn to more professional managers.

Among them was Alfred P. Sloan Jr., who went on to serve as the company's chief executive for 23 years. Although personally well disposed toward Durant, Sloan believed that General Motors needed a more scientific and rational management process.He took the various entities that had made up GM and reorganized them into autonomous operating units, each with its own product development and manufacturing, sales, and pricing strategy. Each division was encouraged to develop its own identity and strategy, and individual managers were given the chance to shine. At the same time, Sloan made sure his central office was staffed with the best and the brightest, to coordinate the various divisions, spot problems, and plot the long-term strategy of the corporation and the industry. It was to become the most celebrated, and perhaps the most successful, smart team in American business history.

From Dearborn, Mich., Henry Ford watched the reorganization at General Motors with disdain, convinced of the power of his own personal genius. "To my mind," he wrote, "there is no bent of mind more dangerous than that which is sometimes described as the 'genius for organization."

Dangerous, perhaps, but also profitable. Fed with fresh market intelligence from his various divisions, for instance, Sloan realized the necessity of producing a wide range of cars in a variety of colors for the growing automobile market. Soon General Motors was cutting deep into Ford's once-dominant market share. Ford thought it all just too frivolous. The customer, he is said to have declared, could have any color he wanted, "as long as it's black."

To the end, Sloan remained respectful of his entrepreneurial forebears. "Both Mr. Durant and Mr. Ford had unusual vision, courage, daring, imagination, and foresight," he wrote years later. "Both gambled everything on the future of the automobile at a time when fewer were made in a year than are now made in a couple of days. . . . They were a generation of what I might call personal types of industrialists; that is, they injected their personalities, their 'genius,' so to speak, as a subjective factor into their operations without the discipline of management by method and objective facts."

Responding to some unkind characterizations of his management style, Sloan had this to say: "Though I have often been taxed, by people who do not know me, with being a committee man -- and in a sense, I most certainly am -- I have never believed that a group as such could manage anything. A group can make policy, but only individuals can administer policy."

By mid-century, Sloan's concept of a multidivisional structure, with its emphasis on smart teamwork and rational decision making, had become the rule for the U.S. auto industry. It was also working at such nonautomotive corporations as General Electric Co. and E.I. Du Pont de Nemours & Co. Sloan's thinking influenced a generation of business theorists and historians, from Alfred D. Chandler Jr. to A. A. Berle to John Kenneth Galbraith. At MIT, a prestigious school of business and management bears Sloan's name, and continues to teach his gospel.

Will entrepreneurs of the future heed the lessons of history about the inevitable rise and fall of autocratic entrepreneurs? It is doubtful. More likely their attitude will be similar to that of their spiritual forebear, Henry Ford, who once proclaimed that "history is more or less bunk."

Last updated: Feb 1, 1986




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