One result of the company’s irritation with The Concept of the Corporation, according to Drucker, was that Alfred Sloan determined to write his own book “to set the record straight.”10 The actual origins of Sloan’s book, My Years with General Motors, which appeared two decades after Concept, were actually quite different. Indeed Drucker’s claim so incensed John McDonald, Sloan’s cowriter, that he set down to correct this misrepresentation and to tell of the struggle to get the book published.11 McDonald, a former Trotskyist writing for Fortune Magazine and an early publicist for game theory, was specializing in “strategic situations where individuals, institutions, and groups of various kinds interacted independently and thought in ways—both cooperatively and non-cooperatively—that escaped common classical economic and decision theory.” As he worked with Sloan in the early 1950s on an article on these lines about General Motors, the two realized that there was sufficient material for a book.12 They worked together on this project for the rest of the decade but on completion, publication was blocked by General Motors’ corporate lawyers.13 Their concern was that the U.S. Government might use the documents cited in the book as the basis for an antitrust action. It took five years and a civil lawsuit filed by McDonald before My Years with General Motors was finally published, to great acclaim in January 1964.
Their research assistant was Alfred D. Chandler, Jr., a young historian who came from a well-connected family, linked to the mighty DuPonts (who provided his middle name). He was also great-grandson of Henry Poor, of Standard & Poor, whose papers provided the basis of his Ph.D. and stimulated his interest in business organization. As did Drucker, who influenced his thinking, Chandler felt proper attention should be given to how businesses organized themselves. It was necessary to move beyond the opposing stereotypes of “robber barons” or “industrial statesmen” to more rounded and subtle depictions. In 1962, while Sloan’s account was still blocked, Chandler described General Motors’s corporate history in his book Strategy and Structure. Strategy was not a word used by Drucker, other than a single reference to the distinction between strategic and tactical decisions in The Practice of Management. Neither did the word appear in My Years with General Motors, despite McDonald being a great aficionado of strategy.
Chandler’s use can be compared with that of Edith Penrose, who was thinking about organizations along very similar lines at the same time. She is now often credited with the creation of “resource-based” business strategy in her 1959 book The Theory of the Firm.14 Yet she did not use the term strategy except in a more traditional sense when referring to “successful empire-building entrepreneurs” who were “aggressive and clever in the strategy needed to bargain with and successfully out-maneuver other businessmen.” So it was Chandler who gave the concept of strategy prominence in a business setting. It was, however, a particular sort of strategy that he highlighted. He had picked up the concept when teaching the “basics of national strategy” at the U.S. Naval War College in Rhode Island in the early 1950s.15 He defined strategy in terms of planning and implementation, as “the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”16
Thus, from the start, strategy was established as a goal-oriented activity, geared to the long term and closely linked with planning. This approach flowed naturally from Chandler’s particular focus on internal organizational response to market opportunities, and again this had a continuing influence on the way that strategy was understood in its early business incarnations. It was not linked to problem-solving or competitive situations in which a variety of outcomes was possible. This focus was expressed in Chandler’s formula that strategy led to structure, the “design of organization through which the enterprise is administered.” Chandler’s innovation was to see strategy in how management addressed issues of diversification and decentralization. His big theme was the multidivisional structure, also lauded by Drucker and for which Sloan took credit.17 Management consultants—including McKinsey, which was advised by Chandler—encouraged other companies to follow this model.
The advantage of the multidivisional structure, the so-called M-form, in Chandler’s view lay in the separation of strategic from tactical planning. It “removed the executives responsible for the destiny of the entire enterprise from the more routine operational activities and so gave them the time, information, and even psychological commitment for long-term planning and appraisal.”18 By avoiding the distractions of second-order issues, the corporate headquarters could formulate policy, evaluate performance, and allocate investment, while stopping heads of units from distorting general strategy for parochial reasons.
This was not, however, the whole story. Freeland points to Sloan’s appreciation of the importance of retaining the consent of the units of General Motors to the strategy of the center. Crude hierarchies had their dangers. If middle managers were excluded from goal formation they would be less committed to goal implementation. In this way planning would be separated from doing. This had to be balanced against the desire of the DuPonts, who were the majority shareholders, to be closely involved in key decisions and their reluctance to accept any delegation of power to the heads of the divisions. Sloan had got around this tension by finding informal ways of engaging the division heads in long-term strategy and resource allocation. This structure worked well until the Depression, when divisions other than the low-price Chevrolet struggled to stay in the black. The company decided to consolidate the divisions, thereby destroying local autonomy, but without any obvious detriment to company performance. Two conclusions could be drawn from this experience. First, the relationship between structure and strategy was more complex than described by Chandler. Second, order within a company would reflect complex “social and political processes, involving bargaining and negotiation.”19
Chandler paid scant attention to either of the contentious issues of antitrust and labor. Antitrust legislation was clearly on the corporate mind of General Motors (for good reason), which was why it wanted no provocations that might trigger the interest of the Department of Justice. The government opposition to individual firms dominating specific areas of production by expanding sales, reflected in the 1950 Celler-Kefauver Act, had created an incentive to expand instead into distinctive and new product lines. This explained the proliferation of “conglomerates.”20 Although Chandler had access to the General Motors archives, he was unable to “use this evidence in his own scholarship because of the overriding fear among executives of antitrust action.”21 Chandler generally considered business behavior in isolation from broader political developments, which is why he also played down the significance of labor issues. His was an “industrial universe in which labor’s position was entirely that of the dependent variable.”22 Louis Galambos, who admired Chandler for his pioneering contributions to business history, complained that he also narrowed its scope, stepping too “daintily around questions of power” and assuming that “transformations of business take place without social friction or a problem of agency.”23
On the eve of the boom in business strategy, the field was therefore given a narrow focus, shying away from questions of power within the corporation and between the corporation and its external environment. Instead the strategists focused on the many other issues facing senior executives: shaping organizational structures, deciding on products and investment priorities, controlling costs and dealing with outside suppliers, and so on. The focus was on big business, secure in its position, with the sort of hierarchy that seemed natural in all large organizations, including the military and government. The Sloan model also reflected the impact of strong leadership. Jack Welch, who made his name as the successful head of General Electric, later criticized this method for allowing managers to become lazy and for being driven by bureaucracy rather than customers. He described a Sloanist company as one with “its face toward the CEO and its ass toward the customer.”24
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Planners
In 1964, when Drucker sent a publisher his draft of a book which concentrated on executive decision-making, he entitled it Business Strategies. The publisher found that this elicited little enthusiasm among his potential corporate audience. The word strategy was associated with the military and possibly with politics, but not with business. The book was called instead Managing for Results.25 “Almost the next day,” Matthew Stewart reports, “strategy became the hottest word in management circles.”26 He explained the surge in interest to two events—the publication of Igor Ansoff’s Corporate Strategy and the arrival of the Boston Consulting Group offering a specialist expertise in strategy.
Walter Kiechel III described the “corporate strategy revolution” as starting earlier, in 1960, and then argued that before this there had been no business strategy. The word was barely used and there was no systematic set of ideas that pulled together the key elements that determined corporate fates, in particular what he called the “three Cs”: costs, customers, and competitors. Companies had plans, often no more than extrapolations of what had gone before and, at the top, an often intuitive “sense of how they wanted to make money.” This was comparable to the claim that there was no military strategy before 1800, when the word began to be used. There was novelty in the specific forms that business strategy developed for the rest of the century, but in the more traditional sense of the word, figures such as Rockefeller and Sloan never lacked for strategy. Given the predilection among “captains of industry” for military metaphors, it would actually be surprising if a number had not reflected on military strategy as they prepared their campaigns. Moreover, even the new forms of strategy that were developing, as Kiechel acknowledged, were building on what had gone before. He used the term “Greater Taylorism,” except that instead of seeking efficiencies in the performance of individual workers, the new strategic focus was on the totality of a firm’s functions and processes.27 The underlying theme was the continuation of the attempt to organize business affairs on a rationalist basis.
The change that did occur can be discerned by considering the key figure at Harvard through the 1950s and 1960s, running the course on “business policy,” Kenneth Andrews. He was an English graduate who had written his Ph.D. on Mark Twain. His own writing could be stodgy, but he had a clear view about strategy. Like Chandler, he was concerned with “the long-term development of the enterprise.”28 It was the product of a leader’s choices and therefore of all the issues that had to be confronted in the business environment and the wider society, including values and organizational structures. With so many variables to take into account, the single-minded pursuit of a single goal at the expense of everything else was impossible or at least usually unwise. The chief executive therefore had to be a generalist and accept that every situation was unique and multidimensional. There could be no sure templates, formulas, or frameworks. The nearest Andrews and his colleagues at Harvard got to a framework was the simple (but still widely used) SWOT analysis (Strengths and Weaknesses of organization in the light of the Opportunities and Threats in the environment). His approach fit the favored Harvard teaching method of the case study, asking students to examine individual examples of business success and failure. This reinforced the view that strategies had to be case specific, working for particular companies in a given environment rather than derived from general theories.
It also fit the established concept of rational action as internally consistent, feasible in the light of available resources, and consonant with the environment. It assumed a sequence of careful thought preceding action, so that once a strategy was formulated then implementation (or as Chandler put it, structure) must follow. Because it involved the production of a single, unique product, Henry Mintzberg has labeled this “the design school” and presented it as the foundation for much of what followed elsewhere. He criticized it for a command and control mentality, so that a decided and definitive strategy would be handed down. Implementation would be a quite separate process, reducing the possibilities for learning and feedback.29
As the environment in which businesses operated became increasingly complex, sustaining rationality in decision-making required processes to take in all the internal and external information and turn it into a guide for action. This is what Igor Ansoff sought to do in Corporate Strategy, a standard text first published in 1965, earning the author the accolade of “father of modern strategic thinking.”30 Ansoff had grown up in Russia, moved to the United States, studied engineering, and—after a spell at the RAND Corporation—gained practical management experience with the defense manufacturer Lockheed. He worked on identifying companies to buy for purposes of diversification before moving in the early 1960s to Carnegie Mellon University. His view of management strategy therefore came from the innards of a large corporation with a focus on getting a mix of products appropriate to the market. In a familiar theme, he sought to transform management strategy from an intuitive art into a science, by incorporating—in the most systematic and comprehensive way possible—every factor of possible relevance.
He brought a very particular view of strategy to this effort. Ansoff noted an “unfortunate coincidence” in definitions of strategy. He sought to distinguish between “strategic decisions, where ‘strategic’ means ‘relating to the firm’s match to its environment,’ and of ‘strategy,’ where the word means ‘rules for decision under partial ignorance.’ ”31 No decisions could take place with perfect knowledge, though the planning model suggested that they might, and that all decisions of consequence had implications for the relationship to the environment. Yet there was certainly a difference between the conduct of a specific campaign, which could have the whiff of battle about it—a sense of urgency and crisis—as efforts had to be geared toward a pressing problem, and deliberations about current challenges and future possibilities that could take place in slower time, providing a general orientation to an environment. The planning model could never be about coping with crisis; it was about avoiding crisis, maintaining a strong position by paying attention to the total environment and ensuring that resources were used to maximum effect.
This holistic approach, with its exhaustive attention to detail and attachment to systematic process, reflected Ansoff’s engineering background. The presentation was marked by lists, boxes, diagrams, matrices, charts, and timelines, with the environment typically appearing as an “irregular blob,” organizational units in boxes, and concepts in circles or ellipses.32 The result was, as Kiechel put it, “filigreed to an overwrought fault,” with the finale a one-page diagram on which were to be found fifty-seven boxes of objectives and factors, with arrows ensuring that they were each considered in the proper order.33 The process was so rigorous and demanding that it required that strategy moved from the chief executive to a specialized bureaucracy. It was the demands of planning that led Galbraith to see a shift in power to the technostructure.
This importance of planning, and a sense that this was an arena where the Soviet Union was stealing a march on its capitalist rivals, reinforced the cult of managerialism. Its exemplary figure in this mobilization of management to serve the nation was Robert McNamara. From early in his career he had illustrated how skills might be transferred from the spheres of business to military affairs and back again. McNamara was teaching accounting at the Harvard Business School when the Second World War came. He was recruited with a number of his faculty colleagues into the Army Air Corps to join the Office of Statistical Control, a group led by Charles Bates “Tex” Thornton. Combining a relentless pursuit of hard data with rigorous quantitative analysis, this group imposed order on the chaotic accounting systems in the Air Corps, so that personnel numbers were known and correct spare parts were connected to aircraft in their hangars. They also moved into operations research, showing how resources could be used more efficiently (for example, linking bombs dropped to petrol consumption and aircraft capacity). Their analyses not only saved money but also influenced deployment
s.34
After the war Thornton offered the services of his group to the Ford Motor Company. It was a perfect fit. When his son and anointed successor, Edsel, succumbed to stomach cancer in 1943, Henry Ford returned to lead the company, but he was ailing and unstable. He soon relinquished control to his grandson, Henry Ford II, who was still only in his late 20s. With considerable drive and energy, young Henry set about modernizing the company. As one of the key problems was a complete lack of financial discipline, he seized on Thornton’s offer. The team’s collective impact on the company was huge, probing systems and accounting methods, asking so many questions that they became known as the “Quiz Kids” (a popular radio program of the time featuring very clever children). As the group’s methods bore fruit, this moniker changed to the “Whiz Kids.” They epitomized rationalism in decision-making, deploring reliance on intuition and tradition, and were unbothered by their lack of industrial experience. For them, the company was about organizational charts and cash flows rather than industrial processes. Over time, the limitations of this approach became apparent: it was too dependent on the quality of the data; tended to ignore what could not be easily measured, such as customer loyalty; and gave insufficient credit to the long-term benefits of investment when there was no early gain. In the short term, however, the results were impressive. Ford was the first company to introduce a new car after the war. The Whiz Kids got the company on the road to recovery.
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