Reinventing The Company

Alfred Sloan's restructuring of GM let the company soar -- and set many standards we still follow

As part of its anniversary celebration, BusinessWeek is presenting a series of weekly profiles of the greatest innovators of the past 75 years. Some made their mark in science or technology, others in management, finance, marketing, or government. In late September, 2004, BusinessWeek will publish a special commemorative issue on Innovation.

Alfred Sloan
Some innovators, like Thomas Edison and Alexander Graham Bell, develop products that change the way we live. Others, such as Martin Luther King Jr., force us to see the world through a new moral lens. Alfred P. Sloan Jr.'s contribution is both more abstract and more elemental: He invented the very idea of the modern American corporation. Sloan was the first Organization Man, a visionary devoted to bringing discipline to the impulsive, informal, often chaotic capitalist enterprise of the early 20th century. Sloan saw that the business of business could be rationalized, the output measured, and managers rewarded in a way that pushed them to reach for excellence. His ideas, which are now the model for virtually every large corporation, are almost invisible because of their ubiquity. But when he introduced these principles to General Motors Corp. (GM ) in the 1920s and 1930s, they were revolutionary.

Born in 1875, his was a life of study and analysis. As a boy growing up comfortably in Brooklyn, N.Y., he preferred preparing for school over playing; he graduated from Massachusetts Institute of Technology with an engineering degree after just three years. Sloan went to work for a ball-bearing manufacturer in New Jersey, persuaded his father, a coffee importer, to buy the troubled company, then proceeded to revive it in just six months. Sloan ran the business for 17 years before selling it in 1916 to William C. Durant, the stock market buccaneer and dealmaker who had founded GM eight years earlier.

Sloan joined GM and over the next half decade studied the company in meticulous detail. By the time Durant left in 1920, Sloan was ready to revamp the business. He presented his ideas in The Organizational Study, the first management treatise and one whose guiding principle was that of checks and balances; among Sloan's sources of inspiration was the U.S. Constitution. By breaking down giant GM into smaller divisions that could operate autonomously as long as managers met their financial goals, he hoped to create structures that would allow people to be creative, even bold. He believed senior executives must exert some central control but mostly should not interfere with the decisionmaking in each operation.

Sloan also brought his rational mind to bear on that most irrational of matters: Americans' aspirations. GM was a pioneer of market research, advertising, and public relations. It may be too much to say that Sloan invented our consumer culture, but he certainly shaped it. From the workaday Chevrolet to the regal Cadillac, he made sure GM had "a car for every purse and purpose." Says Edgar H. Schein, professor emeritus at MIT's Sloan School of Management: "His ideas were so clearly correct that we have forgotten that they were an invention."

When Sloan took over as chairman and president in 1923, GM had less than one-fifth of the market, while Ford Motor Co. (F ) had more than half. By 1931, GM, with its new organizational might, had surpassed Ford once and for all. Under Sloan's three decades of leadership, GM became the largest industrial corporation the world had ever seen.

By David Welch

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