The Sloan Legacy
In June of this year, General Motors filed for bankruptcy. The company's legacy as an automotive juggernaut may be in doubt; but there is no question that one of GM's early leaders, Alfred P. Sloan, has left an enduring mark on management science – and on London Business School whose Sloan Fellows Programme is now forty years old.
Clarke Simmons reveals what still can be learned from Sloan.
"Gentlemen, I take it we are all in complete agreement on the decision here." The assembled General Motors executives nodded their heads in agreement. "Then, I propose we postpone further discussion of this matter until the next meeting to give ourselves time to develop disagreement, and perhaps gain some understanding of what the decision is all about." Alfred Sloan thus closed a management committee meeting - and revealed something of his success as the fabled leader of GM from 1923-1956.
Sloan, the organisational genius, shaped the modern corporation and the discipline of management science. His influence and innovations are woven into business school curricula worldwide. Sloan revolutionised organizational design in the 1920s with GM's divisional structure. He perfected innovations such as market segmentation, car loans, annual product cycles, decentralised operations, centralised financial controls, management incentives, public relations and consumer aspiration-oriented marketing.
Born in 1875 to a coffee and tea merchant father, Alfred Pritchard Sloan, Jr., graduated from the Massachusetts Institute of Technology (MIT) in 1895. His Bachelor of Science degree was in the pioneering subject of electrical engineering. During a 70-year career between MIT and his death in 1966, Alfred Sloan built the modern GM and left behind a lasting legacy.
After college, Sloan found a draftsman's job with the Hyatt Roller Bearing Company of Newark. When Alfred's father and another man bought control of the struggling company for $5,000, Alfred became Hyatt's president in 1901 at the age of 26. His natural talent for industrial management quickly became apparent, and Sloan focused Hyatt on supplying axle bearings to the booming automotive industry. Henry Leland, the exacting patriarch of Cadillac and later Lincoln, mentored Sloan on quality control.
Starting in 1908 with the Buick Motor Company, energetic deal-maker William C. Durant assembled GM through the mergers and acquisitions of numerous automobile manufacturers and parts suppliers such as Cadillac, Chevrolet and Delco. In 1916, Hyatt was acquired by a GM affiliate for $13.5 million, and Sloan eventually became a GM vice president. After Durant lost control of GM in 1920, Pierre du Pont made Sloan GM's president in 1923. Sloan was elected chairman in 1937.
Sloan systematically organised a chaotic early GM into a smooth-running, industrial behemoth of such scope and profit that it was seen as a proxy for American economic might at large. During Sloan's tenure, GM's US market share rose from 12 % in 1920, overtook Ford by 1930, and had reached 52 % when he retired as GM's chief executive in 1956. Throughout the Great Depression, with automobile sales down 75 % industry-wide, Sloan managed to keep GM profitable and built market share. He oversaw successful branch businesses in Frigidaire refrigerators, Allison aircraft engines, and Electro-Motive diesel locomotives.
Hailed among the leading industrialists of his day, "Motormaker Sloan" was twice on the cover of Time - in 1926 and 1945. Both the mantra "The business of business is business" and the term "professional manager" have been attributed to Sloan.
Sloan led through persuasion, delegation and the organizational mechanisms he devised. He preferred to work behind the scenes and was known as "Silent Sloan" to company workers. Always addressed as "Mr. Sloan", management by walking about the factory floor was not his style. Regular tours around the country visiting plants and dealers, however, kept him in direct touch with production and demand.
The selection and professional development of his engineers, managers and executives was very important to Sloan. He attracted and retained talent by devolving power, encouraging initiative, supplying resources and examining results fairly. Sloan utilised then revolutionary management incentives, in the form of bonuses and stock, to reward performance both individually and collectively.
Sloan said he took a "factual approach to business judgement". He would write, "The final act of business judgement is of course intuitive... But the big work behind business judgement is in finding and acknowledging the facts and circumstances concerning technology, the market and the like in their continuously changing forms. The rapidity of modern technological change makes the search for facts a permanently necessary feature of the industry."
Effective bureaucracy
In perfecting GM, Sloan laid the foundation of modern corporate management theory and practice. In 1920, his "Organization Study" became the blueprint for how GM was structured. It featured a sort of federal-style corporate constitution based upon "decentralisation with coordinated control". Reflecting his engineer's mindset, this cornerstone document was influenced by Durant's poor example, the favourable example of DuPont and experienced contemplation. Seeking balance, decentralised divisional operations were centrally serviced by shared functional activities. Coordination was achieved through myriad committees, policy statements and periodic reports. Organisation charts were manifold. Data collection, research and analysis underscored GM's policy-based decision making and administration. An effective industrial bureaucracy shaped by the communications and information technologies of the period arose.
Sloan believed in financial controls and management oversight of operations. Through centralised treasury services and capital allocation mechanisms, Sloan regulated autonomous GM business units. He also pushed through the first independent audit of General Motors. Sloan made sure consumer demand was carefully forecast so as to avoid excessive inventory production. Return on investment was his guiding metric toward shareholder value.
GM under Sloan is known for stratifying car makes according to market segment. "A car for every purse and purpose," said Sloan. Chevrolet was the volume car for the working masses. Pontiac came next, then Oldsmobile, then Buick. Top-of-the-line Cadillac introduced innovations such as electric starters and offered luxurious prestige to those who could afford it. Socioeconomic status and consumer aspirations stepped upward with the GM brands.
Sponsored fellows
In 1930, Sloan presented MIT's Erwin H. Schell with a problem. Sloan lamented that his GM engineers understood little about management. Schell proposed a training programme for mid-career engineers with executive potential. "Sponsored fellows" would build upon their experience, study business subjects and broaden their perspective. The programme would prepare them for senior management positions. The world's first university-based executive education programme, the MIT Sloan Fellows, was thus created under Sloan's patronage. Further pursuing Sloan's vision of educating the "ideal manager", a $5.25 million Sloan Foundation grant launched MIT's Sloan School of Management in 1952.
A second Sloan Fellows Programme was launched at Stanford University in 1957. It was Alfred Sloan's idea to establish a third Sloan Fellows Programme at London Business School, but it was not realised until after his death. The Sloan Foundation grant and charter to start a programme at the fledgling London Business School did much to boost the school's early fortunes. The first programme director, Charles Handy, oversaw the 1968 inaugural intake of London "Sloans".
Many large corporations have used Sloan fellowships to groom promising individuals. These fellowships are designed to provide advanced management training during "a mid-career sabbatical for selected executives". In select companies like BP, having been a "Sloan" is virtually a prerequisite for top jobs. Today, the three Sloan programmes at Stanford, MIT and London Business School still share similar traits and adhere to the purposes Sloan first envisioned.
In 2005, Forbes ranked Alfred P. Sloan "the 12th most influential businessman of all time". Many great car companies are named after their founders, but Sloan's name never graced a vehicle. Unlike Daimler, Ford, Toyoda, Renault, or Sloan's close friend, Walter Chrysler, Sloan's name is instead fittingly tied to a foundation, a business school, a hospital and three management training programmes.
Today Sloan's methods pervade management texts and corporate practice worldwide. Yet, perhaps the most successful of Sloan's management techniques remains his insistence on drawing out the best decision by encouraging differing views - especially when a group of high-paid managers nod their heads in mindless assent.
Clarke V. Simmons (clarkesbox-article@yahoo.com) is the Offshore Wind Programme Manager at The Carbon Trust and a Sloan Fellow of London Business School.