Even in the middle of a great expansion at General Motors (NYSE:GM – News), Alfred Sloan looked beyond the results.
Sloan joined the company as a vice president in 1918. In 1919-20, GM almost doubled its production of cars and trucks from the level of 1917-18.
“I had been struck by the disparity between substance and form: plenty of substance and little form. I became convinced that the corporation could not continue to grow and survive unless it was better organized,” Sloan wrote in “My Years With General Motors.”
Financial controls were lacking. In October 1920, purchases of raw and semifinished materials exceeded the budget for them by $59 million.
The bill of disorganization came due as 1920 came to a close. “The task before General Motors was reorganization,” Sloan wrote. “As things stood, the corporation faced simultaneously an economic slump on the outside and a management crisis on the inside.”
It was up to Sloan, vice president in charge of operations, to come up with a reorganization plan. He believed that because American industry hired people from a common pool of technology, the variable was management. And the best management was decentralized.
“From decentralization we get initiative, responsibility, development of personnel, decisions close to the facts, flexibility — in short, all the qualities necessary for an organization to adapt to new conditions,” Sloan said.
He set out to develop an organizational structure that was coordinated from a strong central office without losing the advantages of decentralized management. “I would say that my concept of (management) of a great industrial organization, simply expressed, is to divide it into as many parts as consistently can be done, place in charge of each part the most capable executive that can be found (and) develop a system of co-ordination,” Sloan wrote in “Adventures of a White Collar Man,” with Boyden Sparkes.
The first year of reorganization was 1922. GM sold 457,000 vehicles vs. 215,000 the year before and netted a $61 million profit. The next year, 800,000 vehicles were sold and GM saw an $80 million profit.
Sloan became president and CEO of GM in 1923 and chairman of the board in 1937 before retiring in 1956. In 1934, he started the philanthropic Alfred P. Sloan Foundation, which funds research and education in business and medicine.
Under Sloan, GM became the world's largest corporation. “I recognized that my election to the presidency of the corporation was a big responsibility and a business opportunity that come to few,” he wrote. “I resolved in my own mind that I would make any personal sacrifice for the cause, and that I would put forth all the energy, experience and knowledge I had to make the corporation an outstanding success.”
Sloan initiated a system of checks and balances to determine company direction. “On many occasions when I was chief executive officer, I had individual responsibility for initiating policy. However, it is doctrine in General Motors that, while policy may originate anywhere, it must be appraised and approved by committees before being administered by individuals,” he said.
Sloan's vision was to build a company that made business decisions carefully based on all available facts.
Once decisions were reached, they still had to be sold to those who had to carry them out. “I got better results by selling my ideas than by telling people what to do,” Sloan said.
Sloan wrote that he focused GM on “making money and not just making cars. The strategic aim of a business (is) to earn a return on capital.”
Sloan's business philosophy of decentralized management and committee approvals helped GM react quickly to changing economic waters. During the Great Depression of the 1930s, GM's sales plunged, but it still made a profit and paid dividends each year.
Bad economic times didn't stop or scare Sloan. “Some people cannot see beyond a slump, but I have never yielded to economic pessimism and in times of decline have kept in mind the eventual upturn of the business cycle and the long-range dynamics of growth,” he said.
During the sales slump after 1920, Sloan wrote that he and GM believed in the future of the car as well as of the economy. “I mention this because confidence is an important element in business; it may on occasion make the difference between one man's success and another's failure,” he wrote.
To keep GM growing, Sloan saw the big picture. That reflected his business philosophy and his belief in America. “We do things in a big way in the United States. I have always believed in planning big, and I have always discovered after the fact that, if anything, we didn't plan big enough,” Sloan said.
By the late 1920s, GM had surpassed Ford Motor in sales, in part because Sloan believed in constant change. At that time, Ford was so entrenched with its Model T that it stopped making new models.
Sloan called the importance of introducing new model cars the “the spur to which the organization must respond or die.” Upon reorganizing GM, Sloan created five car divisions: Buick, Cadillac, Chevrolet, Oldsmobile and Pontiac. Each division manufactured cars for different price ranges, and each had the freedom of creativity to help introduce new models.
This story originally ran April 17, 2002, on Leaders & Success.
