By Alfred P. Sloan, Jr.
Alfred Sloan published My Years with General Motors in 1964. The Beatles were on the top of the pop charts and Sloan's General Motors also reigned supreme, topping the FORTUNE 500 as the most profitable company on the planet. Sloan's book sold more than 50,000 hardcover copies when issued. When re-issued in 1990, Peter Drucker touted it as "the best management book ever."
That's strong praise!
Believing that "a manager does not criticize subordinates in public," Sloan refused to publish My Years with General Motors as long as any of the GM people mentioned in the book were still alive. Given his age, many were fearful his work would never be published, but Sloan released the book for publication on the day the last person mentioned in the book passed away. Sloan himself died just two years later.
About Alfred P. Sloan:
Alfred Sloan was born on May 23, 1875 and died on February 17, 1966. He was an engineer, an entrepreneur, a "captain of industry," a visionary, a thinker, a competitor, a Republican who distrusted Franklin D. Roosevelt, and a philanthropist. Above all he was the man primarily responsible for General Motors' meteoric rise to become one of the largest corporations (if not largest at that time) in the world. Sloan was CEO of GM for twenty-three years and a member of the board for forty-five. You can read, "Alfred P. Sloan Jr. Dead at 90; G.M. Leader and Philanthropist" by the New York Times for an excellent summary of Sloan's life.
How Sloan Organized This Book:
My Years with General Motors tells the story of GM from it origins until the early 60's. One of the "pivotal facts" of this story is the downfall of Ford "after achieving its historic purpose" (4). Sloan organized the book (broadly speaking) around three concepts:
1. GM's decentralized approach to business
2. GM's financial controls
3. GM's concept of business as it applies primarily to the automotive market
The latter is most significant in that at the time of writing GM accounted for half of the automobiles produced in American, ten-percent of the passenger cars and trucks made outside of the United States. The corporation, however, also produced locomotive, diesel and gas-turbine engines, and household appliances. The book is divided into two parts:
Part One: The GM Story, focusing on the "corporation's basic management concepts in the areas of organization, finance, and product. Sloan puts primary focus on the period after 1920, and particularly from 1923 to 1946, when he served as president and chairman.
Part Two: Individual sections dealing with engineering, distribution, overseas operations, and war production as well as other aspects of the enterprise.
Lessons in Leadership & Management:
1. Seeing The Trends (vs splurges):
Ford sold 500K Model T's in 1916 and more than 2M in one year in the early 20's, but the trend was away from his model. "The downfall of that great car in later years, after it had served its historic purpose, is one of the pivotal facts of this story" (4). GM recognized that buyers had moved away from the automobile as "transportation's utility machine" to one marked by style, taste, and variety. Sloan writes:
Mr. Ford’s concept of the American market did not adequately fit the realities after 1923. . . . Middle income buyers … created the demand, not for basic transportation, but for progress in news cars, for comfort, convenience, power, and style. This was the actual trend of American life and those who adapted to it prospered (163).
This resonated with me in that, as a leader of an educational enterprise, we must determine how we will react to a changing market (demographics, modalities, needs, cultural nuances).<
2. Know yourself. Play to your strengths:
General Motors was founded in 1908 by William C. Durant, Stewart Mott, and Frederic L. Smith with Durant serving as the CEO. Sloan heralded Durant and Henry Ford as men with "unusual vision, courage, daring, imagination,and foresight" (4). Durant would build Chevrolet into a major player in the automotive industry. But Sloan also notes, "Mr. Durant was a great man with a great weakness--he could create but not administer" (4). Durant operated "by the seat of his pants" (52). Poor administration forced him to step aside from managing GM in 1910, though he took over the company again (1916-1920) before it ultimately passed to Alfred Sloan. Sloan writes:
Thanks mainly to Mr. Durant, General Motors had then the makings of a great enterprise. But it was in good part physically unintegrated and in management uncoordianted (sic); the expenditures for new companies, plants and equipment, and inventories were terrific--some of them not to bring a return for a long time, if ever--and as they went up, the cash went down. General Motors was heading for the crisis from which the modern General Motors Corporation would emerge (16).
Sloan said he was of two minds about Mr. Durant. He admired his automotive genius, imagination, integrity and loyalty. But he felt that Durant was too casual as an administrator, overloading himself (by not decentralizing), hence stalling important decisions until he was free (25f).
3. Your team makes you or breaks you:
William Durant's number two man was Charles W. Nash. Sloan writes, "He had been with Mr. Durant in the Durant-Dort Carriage Company for about twenty years and had stayed on as a manager there when Mr. Durant first went into the automobile business. He was as steady and careful and Mr. Durant was brilliant and daring--or reckless, as you may choose to call it" (8). This duo proved powerful until Durant's "reckless ways" led to his initial demise and the more careful Nash became president of GM in 1912 before leaving in 1916 to start the Nash Motors Company. See also the relationship between Mr. du Pont and Mr. Raskob (43).
4. Clarify your organizing principle:
Sloan inherited a General Motors that was feeling the effects of a Durant presidency, i.e. a company that had been led by a man whose administrative style would be described as "in his own way," and "by the seat of his pants." It was part of his brilliance to recognize the necessity to maintain (as Jim Collins would later identify as) loose/tight properties. At the time GM had many divisions, each with chief executive. Sloan said that each organization headed by its chief executive "shall be complete in every necessary function and enable[d] to exercise its full initiative and logical executive" (53). However, Sloan also recognized that "Certain central organization functions are absolutely essential to the logical development and proper control of the Corporation's activities" (53). He writes:
It has been a thesis of this book that good management rests on a reconciliation of centralization and decentralization, or "decentralization with coordinated control" (429).
To that end, Sloan envisioned centralized "control of all the executive functions of the Corporation in the President as its chief executive officer" (54). In decentralizing, Sloan never wanted to minimize the administrative power of the chief executive officer. Exercise power with discretion was his theme: "I get better results by selling my ideas than by telling people what to do" (54). He believed in limiting "as far as practical" the number of executive reporting to the president. He also worked to ensure all executive branches were organized in such a way that the development of each would be constructive to the whole.
5. Know your differentiator:
Sloan notes that companies compete in broad policies as well as specific products. Over against the Ford policy of one car for the masses, the product policy GM proposed was three-fold:
(1) Produce a line of cars that corresponded (in price) to national income brackets.
(2) Keep price gaps at a level that generated quality at each level while leaving enough gap to create a "step" or "leap" to the next level. Chevrolet . . . Pontiac . . . Oldsmobile . . . Buick . . . Cadillac
(3) No duplication by the corporation in the price fields or steps.
This principle seems axiomatic, but it caused me to work to continually clarify our differentiators, for example in online education. We will deliver an education that is:
(1) Missional
(2) Biblically integrated
(3) Exceptional
(4) Marked by high personal touch in a digital age
GM's ability to provide that clarity enabled them to leap over Ford and become the dominant player in the automotive industry. However, without that clarity, GM floundered. In 1920 they had 17% of the market, in 1921 only 12%; Ford on the other hand rose from 45% to 60% over the same time period (62).
GM's journey to eclipse Ford moved on the path of differentiation: Sloan writes: "Chevrolet's internal statement of policy [in 1924] was that it was our objective to get a public reputation for giving more for the dollar than Ford. As a matter of fact, when the Ford and Chevrolet were considered on a comparable-equipment basis, the Ford price was not far below that of Chevrolet. On the quality side we proposed to demonstrate to the buyer that, though our car cost X dollars more, it was X plus Y dollars better. Too, we proposed to improve our product regularly. We expected Ford, generally speaking, to stay put. We set this plan in motion and it worked as forecast" (155).
6. Why growth matters: "Growth, or striving for it, is, I believe essential to good health of an enterprise" (xxii).
7. The price of leadership:
Alfred Sloan's understanding as to the cost of leadership is worth pointing out. He writes:
I recognized that my election to the presidency of the corporation was a big responsibility and a business opportunity that comes to few. 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. General Motors has been for me a dedicated activity ever since, perhaps to a fault(98).
8. Determining the propriety of proposed projects:
a. Is the Project a logical or necessary one considered as a commercial venture?
b. Has the Project been properly developed technically?
c. Is the Project proper, considering the interest of the Corporation as a whole?
d. What is the relative value of the Project to the Corporation as compared with other projects under consideration (return on investment/need)?
Sloan built in these guidelines as a means of improving financial controls (120). His basic elements of financial control for GM were: cost, price, volume, and rate of return on investment (140). See also chapter 11 (e.g. 198).
9. Careful communication:
Alfred P. Sloan was not a captivating communicator as far as I can tell, but he excelled in providing timely, consistent, and clear communication. We see in memos to committees, letters to key constituents (e.g. To Harry Basset of Buick to convince him of the need for styling, 267), or to Charles Kettering (260), to GM executives (see 320). Sloan's communication was marked by formality (Mr. So and So), clarity, and politeness.
10. Behind household names, often lie people with an idea:
Many familiar with automotive brands will be interested to know the people behind them. For example:
a. The Chevrolet Motor Company: Brainchild of Louis Chevrolet
b. Champion spark plugs: Named after Albert Champion, former president of AC Spark Plug Co
c. Nash Motors Company: Named after founder and former GM President, Charles W. Nash.
d. Fisher Body Company: Initially carriage builders, the Fisher brothers (who were devoted to their mother) built this company, which was ultimately acquired by GM. You must see the picture on page 194.
e. Buick Car Company: The oldest surviving car company in the US was started by automotive pioneer David Dunbar Buick.
f. Oldsmobile: Ransom E. Olds launched the "Olds Motor Vehicle Company" in 1897. It was acquired by GM.
g. Diesel engines: Rudolph Diesel intended his engine to run on powered coal, but ended up using petroleum oil instead at the urging of assistant engineers (343).
11. Sometimes seeing the obvious takes time:
Addressing the open-top touring cars vs closed body touring cars: "For twenty years we protected ourselves with a variety of rubber coats, hats, lab robes, and other makeshift things. For some reason or other, it took us a long time to realize that the way to keep dry in a motorcar was to keep the weather out of the car. With the closed car came styling as we know it today" (267).
12. The incredible impact of the right "player."
It is worth the time to read Chapter 15 (Styling) both for the power of a concept applied (styling) and the impact of one person for a company and that concept (Harey Earl). Earl not only "made the difference" for GM when it came to design, but he also influenced the entire automobile industry. See my review of Fins: Harley Earl, the Rise of General Motors, and the Glory Days of Detroit.
13. Don't let derision keep you from your vision:
After GM bought the German company Opel, which had been producing about 45,000 cars a year, Sloan visited their factory to cast vision for the Opel of the future. At the meeting of some five or six hundred employees, Sloan noted that the production might run as high as 150,000 vehicles a year. "When the statement was translated into German, it was received with a good deal of derision. I was viewed as another impractical, visionary American. Yet as I write this, the capacity has been brought up to 650,000 vehicles" (327). See also diesels and locomotives (352).
Quotes worth quoting:
1. On influence: "I got better results by selling my ideas than by telling people what to do. Yet the power to act must be located in the chief executive officer" (55).
2. On executive confidence (here in reference to the burgeoning automobile market): "Confidence is an important element in business; it may on occasion make the difference between one man's success and another's failure." At the same time enthusiasm does not guarantee success. Charles Kettering, a brilliant engineer and inventor, was very enthusiastic for his "copper-cooled" engine, which proved to be a very expensive failure for GM (See chapter 5).
3. On slumps: "The slump had the effect of show up all kinds of weaknesses, as slumps usually do" (63).
4. What groups cannot do: 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" (100).
5. Responding to change: Speaking of Henry Ford and his loss of market share, Sloan writes: "The old master had failed to master change. Don't ask me why. There is a legend cultivated by sentimentalists that Mr. Ford left behind a great car expressive of the pure concept of cheap, basic transportation. The fact is that he left behind a car that no longer offered the best buy, even as raw, basic transportation" (162). "Mr. Ford, who had so many brilliant insights in earlier years, seemed never to understand how completely the market had changed from the one in which he made his name to which he was accustomed. . . . [his] concept of the the American market did not adequately fit the realities after 1923" (163).
6. On debt: "I think it would be generally agreed that, in principle, debt enhances the return on the stockholders' investment, while at the same time increasing the risk involved" (205).
7. On resolving uncertainty and enhancing efficiency: "Uncertainty must be eliminated. Uncertainty and efficiency are as far apart as the North Pole is from the South. If I could wave a magic wand over our dealer organization, with the result that every deal could have a proper accounting system, could know the facts about his business and could intelligently deal wit the many details incident to his business in an intelligent manner as a result thereof, I would be will to pay for that accomplishment an enormous sum and I would be fully justified in doing so" (287).
8. On recognizing success: "When your competitors follow you, that's the medal in business" (290).
9. On getting the facts: Addressing a group studying partnerships overseas: "that you should take nothing for granted--every point should be studied and approached with an "Open Mind," without prejudice and with the sole purpose of getting the facts wherever they may lead us. As a matter of fact, this is one of the most important steps from the standpoint of capital investment and expansion . . ." (325).
Conclusion:
My Years With General Motors is a fascinating, if at times, a tedious read. It conveys, however, the genius of Sloan, the complexity of organization, and what happens when ideas, mental fortitude, and courage are combined to act. As Harold Hamilton, president of Electro-Motive in 1929, who was considering utilizing GM's diesel engine technology to propel his locomotives, said "that he was not attracted to General Motors merely by the corporation's great economic strength. '. . . we had more than that in General Motors,' he commented. '. . . of the companies that I knew at that time, many of them with plenty of financial resources, none of them had the mental approach to this problem that was necessary to take it at that stage that it was in the, and the courage that went along with it to move it to that point of success'" (348). That is Albert P. Sloan: Ideas, organizing genius, mental toughness, and the courage to act.
I heartily recommend My Years With General Motors. He will not spell out his principles of effectiveness, but they are there for those who want to see them. And that is exactly what Sloan wants you to do: search, see, and apply.
