GM: Lessons from the Alfred Sloan Era

Last week's historic bankruptcy filing by General Motors has pundits pointing to places where the fallen car giant can learn important lessons as it seeks to revive its fortunes—rival Toyota (TM), for example, or AT&T (T), which newly named GM Chairman Edward Whitacre helped turn into the world's largest telecommunications company.

But here's another, less obvious model of managerial success to consider: General Motors.

It was the GM of 60 years ago, after all, that helped define the discipline of management, having served as the subject of Peter Drucker's landmark book, Concept of the Corporation. "When this book was being written…the corporation had barely been discovered and was totally unexplored—resembling somewhat the Africa of the medieval mapmaker, a big white space across which was written: 'Here elephants roam,'" Drucker remarked some four decades after the book's publication in 1946. "Books on the corporation itself and its management could have been counted on the fingers of one hand."

As noted previously in this space, Concept of the Corporation—and GM's head-in-the-sand reaction to its mild criticisms—foreshadowed an insularity that would ultimately prove crippling to the automaker.

Yet it's also worth recalling that Drucker found many, many things to admire about GM—and especially its chairman, Alfred Sloan. In an introduction to Sloan's autobiography, My Years With General Motors, Drucker credited the no-nonsense executive with being "the first to work out systematic organization in a big company, planning and strategy, measurements, the principle of decentralization" and more. Sloan's role "as the designer and architect of management," Drucker added, "surely was a foundation for America's economic leadership in the 40 years following World War II."

defining the professional manager

Indeed, as Drucker saw it, Sloan was the pioneer who transformed management into a real profession, establishing the standard that the professional manager is duty-bound to put the interests of the enterprise ahead of his own. Sloan, Drucker wrote, also made clear that "the job of a professional manager is not to like people. It is not to change people. It is to put their strengths to work. And whether one approves of people or the way they do their work, their performance is the only thing that counts." Sloan's definition of performance, Drucker was quick to explain, meant much "more than the bottom line. It is also setting an example. And this requires integrity."

But of all the pointers Drucker picked up from observing Sloan, there is one in particular that today's GM might want to pay close attention to: reaching difficult decisions (Hummer or hybrid?) demands healthy dissent.

David Garvin, a professor at Harvard Business School, says one of GM's fundamental problems over the years—an inability to make the right strategic calls—has been caused, at least in part, by a dearth of open debate among top managers. Rather than frankly and candidly working through various options, executives would often line up needed votes before meetings, like a group of Chicago ward heelers, and gather privately at "pre-meetings" to eliminate any surprises at the regular session.

"All too many decisions were pre-cooked," says Garvin, who wrote a 2004 case study on GM's process for determining policy. Garvin points out that Sloan's basic challenge was in some ways the opposite of that faced by his successors. He had to take a collection of highly independent, entrepreneurial car companies and coordinate their actions. As time has rolled on, GM has had the burden of figuring out how divisions scattered all over the world could tailor their lines to meet varying customer needs.

test opinions against facts"

But whether you're talking about the Alfred Sloan era or the Ed Whitacre era, there are a couple of common denominators: First, the company must provide absolute clarity as to who is responsible for deciding what. This, says Garvin, got "fuzzier and fuzzier" at GM as the organization became "progressively more complex" and layered with bureaucracy.

Second, when the time comes for a major decision to be made, such as which products to pursue and which to abandon, all the alternatives must be vetted honestly.

"Gentlemen, I take it we are all in complete agreement on the decision here," Drucker quotes Sloan as saying. After everyone around the table nodded affirmatively, Sloan is said to have continued: "Then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

Sloan, Drucker wrote in 1967's The Effective Executive, "was anything but an 'intuitive' decision-maker. He always emphasized the need to test opinions against facts and the need to make absolutely sure that one did not start out with the conclusion and then look for the facts that would support it. But he knew that the right decision demands adequate disagreement."

That said, perhaps we can all agree on this: The New GM would be wise to study up on the GM of old. Return to the General Motors' New Landscape Special Report Table of Contents

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