My Years With General Motors

by Alfred P. Sloan Jr.

  His administration was an active one for him. He withdrew from his home in Pennsylvania, just outside Wilmington, Delaware, in which he took pride and satisfaction, and divided his time between New York and Detroit in alternate weeks. He made frequent trips into the field to inspect the properties and to discuss problems that could be better evaluated on the spot. Days were spent in inspection and observation, nights in discussion; and even then it was hard to keep up with the problems. Mr. du Pont's administration might be called one of evaluation and construction. As a result we were able to identify the elements of the business and, through the process of much trial and many errors, to construct the foundation upon which the modern corporation has been built.

  Mr. du Pont's administration adopted in principle a sound scheme of organization and in principle a sound approach to the product line. At the same time, system was introduced into accounting and finance. A most comprehensive incentive plan was developed by John J. Raskob and his former du Pont associate Donaldson Brown, and it was supplemented by an opportunity for the more important executives to participate in the financial gains of the business. The plan for executive participation known as the Managers Securities Plan (described in a later chapter) was made possible by Mr. du Pont's belief in the validity of a partnership relationship between shareholders and executives. Mr. du Pont also liquidated unprofitable divisions, such as Samson Tractor, and guided a vast financial reorganization that put the corporation on a sound and solid basis.

  An administration may also be measured by the caliber of the men brought in or retained by it. In or associated with the corporation in one place or another in 1923 was a large number of men who were to make a mark in American industrial history. Some of them had already begun to make it. There were the Fisher brothers, led by their dean, Fred Fisher. In Anderson, Indiana, as factory manager of the Remy Electric Division, was young Charles E. Wilson, who would one day be president of the corporation and afterward Secretary of Defense of the United States. James D. Mooney was vice president in charge of General Motors' overseas business. Down at Dayton, in charge of Delco Light, was Richard H. ("Dick") Grant, who would guide Chevrolet's sales through the twenties, and so become the top salesman in the United States. The comptroller of the AC Spark Plug Division was Harlow H. Curtice, who would be president during the great post-Korea expansion of General Motors. There was William S. Knudsen, who directed Chevrolet for some years before he, too, served as president of the corporation. John Thomas Smith was general counsel; he was later to serve on the Executive Committee, and I might say that his advice and influence in the corporation were of a very high order in moral and public-policy matters as well as in the law. The manager of manufacturing for Chevrolet was K. T. Keller, later to be president and chairman of the Chrysler Corporation. Albert Bradley, who would one day be chairman of General Motors, was then a young and important member of the Financial Staff. And so on; these and many others, together with those I have mentioned earlier—notably Charles S. Mott, Charles F. Kettering, John J. Raskob, Donaldson Brown, and John L. Pratt, the latter three of whom came from the du Pont organization—were a great team of experienced or promising automobile and financial men.

  As to myself, 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. My becoming president involved few changes in the activities for which I had been responsible as vice president in charge of operations. The work flowed on without a break. I became president under the auspicious fact that many of my basic views had become the accepted policy of the corporation. The period of development lay ahead.

  But to Pierre S. du Pont must go the credit for the very survival of General Motors and for laying the foundation of its future progress.

  Chapter 7 - Co-Ordination By Committee

  The atmosphere in the corporation in the fall of 1923 was one of excitement at the prospect that the industry's first four million car-and-truck year had opened up, and there was a great desire for reconciliation of the organizational issues raised by the copper-cooled engine. The experience with that engine had a profound effect on General Motors. At the same time the power of the great demand for automobiles acted as a disciplinary force. It was clearly time to gather ourselves to meet the challenge of the boom twenties, and to gather meant to co-ordinate.

  The problem of co-ordination was one of developing the practical means of relating the various functions of management. We had the principles of organization which were laid down in the "Organization Study" of 1919-20. We needed now concretely to coordinate such very different bodies in the corporation as the general office, the research staff, and the decentralized divisions. The divisions in General Motors are self-contained units combining the functions of engineering, production, and sales—the profit-creating activities, in other words. Corporation staff work in each of these functions cuts across these divisional units. For example, the function of staff engineering is potentially and sometimes immediately related to the engineering activities of any or all of the self-contained operating divisions. The junctures between staff and line are critical, as we had learned the hard way. The experience with the copper-cooled car showed what a paralyzing effect one of these junctures could have if it were turned into a battlefield.

  The broad problem of co-ordination and decentralization began at the top of the corporation, and was now my responsibility. What I did about it I had already begun to do in the first period of the new administration. In my notes on the situation in the corporation, which I had written at the end of 1921, I introduced the question of decentralization in relation to the activity of the top executive group. First I set down a declaration of principle, as follows:

  ...That I approached the matter [of organization] from the standpoint of a thorough belief in a decentralized organization. I still, after a year's experience, [am] just as firmly of the same belief that a decentralized organization is the only one that will develop the talent necessary to meet the Corporation's big problems, but certain things, notwithstanding a decentralized organization, must be recognized and I appreciate these much more than I did before...

  The main questions, I said, looking forward to the liquidation of the emergency of 1921, were related to the Executive Committee itself, the highest body in the operating structure. These questions were: the role of the Executive Committee as a policy-making group, the representation from the operating side, and the need for authority in the person of the president. I wrote:

  a. That the Executive Committee [should] confine itself more particularly to principles which should be presented to it by the [operating organization], properly developed and thoughtfully carried out rather than to constitute itself as it is now, a group management.

  This needs little explanation in view of what I have already related. But let me say that, though 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. At that time, and in particular in relation to the copper-cooled engine, the four of us on the Executive Committee were, in my opinion, trying to manage the divisions.

  My next point was not specifically aimed at the lack of automotive experience, but at the need for integration of the top executive committee and the operating organization:

  b. The Operating side on the Executive Committee is not strongly enough represented. This should be corrected by the increase of the Executive Committee, and I suggest Messrs. Mott, McLaughlin and Bassett as additional members. The Executive Committee to meet not oftener than every two weeks and perhaps once a month.

 
I then proposed that the president should assume not less but more authority. This is not as surprising as it may seem at first sight, for it followed the principle that an individual and not a group should administer. In actual fact general operations had devolved on me at the time I was vice president of operations, and we had a situation of confused authority. I wrote as follows:

  c. Whoever is in charge of Operations should be designated with real authority to be used in case of an emergency. It will probably be best if the President of the Corporation could absolutely have charge of Operations. If this is not feasible, somebody should be so appointed and whoever has charge should develop a reasonable organization to contact with the Operations side as well as the Executive Committee.

  I then gave examples of the distinction between policy and administration. Over-all pricing policy, I said, should be reserved to the Executive Committee. Obviously, since we were working with divisional price classes, we were not likely to want Cadillac to produce a car in the Chevrolet price class.

  And on the question of Executive Committee action on the character and quality of product, I wrote as follows:

  It would seldom be suitable for the Executive Committee to approve the specifications of contemplated product, or even the principal characteristics unless they be of peculiar significance as involving the entry into new fields, or the possibility of undermining the position of existing profitable lines. The Executive Committee should treat with the question from the standpoint of policy and in the direction of regulating the general quality of product of divisions respectively so as to gain a wholesome distribution of product by class ranges, and the avoidance of undue interference between divisions. A carefully designed policy should be enunciated that will convey to each division a complete understanding of the general quality of product that should be attained or maintained and all major alterations of design should be submitted to the Executive Committee for approval from this standpoint. The Executive Committee should not attempt to pass upon the mechanical features, but must rely upon some competent individual or body in the operating organization.

  In general, the activity of the Executive Committee should be guided along the lines of establishing policies and laying the same down in such clear cut and comprehensive terms as to supply the basis of authorized executive action...

  I cannot recall how Mr. du Pont expressed himself on these proposals. I think he must have agreed, for he co-operated in bringing them into effect. In 1922 he caused to be elected to the Executive Committee Mr. Mott and Fred J. Fisher, both experienced in operations. And later, in 1924, when I was its chairman, he concurred in adding Mr. Bassett, Mr. Brown, Mr. Pratt, Charles T. Fisher, and Lawrence P. Fisher, making ten in all, seven experienced in operations, two in finance, and Mr. du Pont himself. The Executive Committee thus achieved an identity with the operating organization, which, under one title or another, it has maintained ever since. Eventually the Executive Committee limited itself to policy matters, and left administration to the president.

  Now the question of the relation of the staff, line, and general officers. I shall describe here the steps which, when completed, put form into the organization.

  Two early steps, one in the area of purchasing, the other in advertising, assisted in pointing the way to a practical form of organization. The setting up of the General Purchasing Committee was a task I undertook in 1922. There are two things about this committee which it is important to consider. One was its value or lack of it in its own right; the other was its incidental value as a lesson in coordination, which is more germane to the story here.

  Centralized purchasing was not an original idea with us. In those days it was considered to be an important industrial economy, and in some circumstances I believe it was. I had experience with volume economies at Hyatt as a supplier to Ford. But centralized purchasing, in which a single purchasing office executes contracts involving more than one division of an enterprise, was an oversimplified notion, as we discovered. The problem for General Motors, as I saw it in 1922, was to get the advantages of volume by buying on general contracts such items as tires, steel, stationery, rags, batteries, blocks, acetylene, abrasives, and the like, and at the same time to permit the divisions to have control over their own affairs. In a preliminary memorandum I argued that co-ordination of purchasing would save the corporation an estimated five to ten million dollars a year; that it would make it easier to control—especially to reduce—inventory; that in an emergency one division could obtain materials from another, and that the corporation's purchasing specialist could take advantage of price fluctuations. I conceded, however, the peculiar difficulties that arise "when one considers the extremely technical character of practically all the Corporation's product and recognizes that we are dealing with many personalities and viewpoints developed through years of contact with certain products as compared with others." In other words, it was a question of acknowledging the natural constraints of decentralization that were built into both the technology of the product and the minds of the managers. The latter were not long in making precisely this point when I first proposed to have a purchasing staff do the co-ordinating. They gave as argument their long experience, the variety of their requirements, and the loss of divisional responsibility in an area which could affect their ability to carry out their car programs.

  To meet these objections I proposed the General Purchasing Committee, with a membership drawn mostly from the divisions. The divisions supported the proposition when they learned that they would be represented and would participate in deciding on policy and procedures for purchasing, determine specifications, and draw up contracts, and that their decisions in the committee would be final. Thus it was arranged that in the committee the representatives of the divisions had the opportunity to draw the balance between their special needs and the general interest. A corporation purchasing staff was to administer, but not dictate, the committee's decisions; that is, the relation of committee to staff was to be that of "principal and agent." The Purchasing Committee lasted about ten years and worked reasonably well during that time. But a number of limitations on its value arose:

  The first was that quantities of any particular product needed for one division were generally large enough to justify the supplier giving the lowest possible price to that division.

  The second was the question of administration. For instance, if the corporation made a contract available to all divisions it sometimes happened that a supplier who did not get the contract would go to one of the divisions and make a lower price, even though he had participated in the original offering. That would cause confusion and unhappiness.

  Third, a large number of parts and supplies to be purchased had no common denominator. They were special items applicable to a particular engineering concept.

  Therefore, I think the General Purchasing Committee itself cannot be cited as an unqualified success. It caused us, however, to make a strong effort to standardize articles where possible. This and the description of standardized production were very important matters. The General Purchasing Committee's real and lasting success was in the area of standardization of materials.

  Also, this committee provided our first lesson in co-ordination. It was our first experience of inter-divisional activity, combining line (at the level of a divisional function), staff (a general purchasing section), and general officers (I was the first chairman of the committee). Two years later, reviewing its work, I wrote:

  ...The General Purchasing Committee has, I believe, shown the way and has demonstrated that those responsible for each functional activity can work together to their own profit and to the profit of the stockholders at the same time and such a plan of co-ordination is far better from every standpoint than trying to inject it into the operations from some central activity.

  The next significant step toward co-ordination was in the area of advertising. I had had some consumer studies made in 1922, and we found that people throughout the United State
s, except at the corner of Wall and Broad streets, didn't know anything about General Motors. So I thought we should publicize the parent company. A plan submitted to me by Barton, Durstine, and Osborn, now BBDO, was approved by the Finance Committee and by our top executives. But since divisional matters would come into the picture, I asked both divisional personnel and other executives in Detroit for their viewpoints on the propriety of such a program. It was agreed that the plan was worthwhile, and Bruce Barton was given full responsibility for conducting the campaign. We then formed the Institutional Advertising Committee, consisting of car division managers and staff men, to assist Mr. Barton and "to effect the necessary co-ordination with other phases of the Corporation's publicity." I made a rule that if any advertising theme dealt with a particular division, it must have the approval of that division. It was another little lesson in divisional relationships.

  The really big step forward in co-ordination, however, followed from the copper-cooled-engine experience. When that issue was concluded with the parties to it divided against one another—particularly the research engineers on the one hand and the divisional engineers on the other—something had to be done to heal the wounds, and to resolve this fundamental conflict between those seeking new concepts and those with the responsibility for producing automobiles. First of all, what was needed was a place to bring these men together under amicable circumstances for the exchange of information and the ironing out of differences. It seemed to me preferable that such a meeting of minds should take place in the presence of the general executives, who would in the end have to make or approve the big decisions on forward programs.