As I watch General Motors’ ongoing struggle to regain its competitive edge, I sometimes find myself wondering, “What would Alfred P Sloan do?”
As a student at MIT in the 1960s, I could not help knowing that this MIT alumnus had been chief executive of GM from the early 1920s to the late 1940s. Sloan also founded the first executive education programme in the world in 1931 and two decades later, he created what would become the MIT Sloan School of Management.
But only after I joined the MIT Sloan faculty in 1977 did I realise that this Brooklyn-raised son of a coffee, tea, and cigar merchant had, in many ways, invented the modern, multi-division corporation. And it took a close reading of his book, My Years with General Motors, fully to appreciate both his achievement and his influence. I agree with Bill Gates, who calls that work “probably the best book to read if you want to read only one book about business. The issues [Sloan] dealt with in organising and measuring, in keeping [other executives] happy, dealing with risk, understanding model years and the effect of used vehicles, and modeling his competition all in a very rational, positive way is inspiring.”
Sloan, of course, did not go to business school, because there weren’t any in his day. Nor could he derive his management methods from abstract theory. Rather, he reasoned from common sense and a keen understanding of human behaviour and market processes. His book shows us how he identified problems, how he thought his way through to solutions, and how those solutions worked.
After graduating from MIT with a degree in electrical engineering in 1895, Sloan became president of a machine shop, which became swept up in the wave of mergers and acquisitions that would result in this jerry-built, wildly decentralised company called General Motors which, as Sloan would later write, no one really had any idea how to operate. When GM nearly collapsed in 1920 and a new chief executive was brought on board, Sloan was put in charge of operations.
He created a head office and defined its functions, particularly in the area of capital budgeting and the measurement of performance, while preserving key aspects of GM’s original decentralised, multi-divisional structure. Sloan then proceeded to rationalise the product line and invigorate R&D, based on a clear understanding of the competition and the marketplace. In short, Sloan systematically took a jumble of assets and turned GM into a model for modern corporations.
Far from being a numbers-driven, quarterly earnings kind of executive, Sloan constantly utilised strategic thinking to run GM successfully for a long time. When he learned that Harley Earl Jr was doing a nice business in Hollywood building special bodies on top of chassis from GM and others and selling them to movie stars and wealthy Californians, he brought him to Detroit and in 1927 put him in charge of all GM design. This type of strategic, gut decision-making, informed by a clear understanding of the evolving market, was crucial.
Sloan thought management should be a profession and that managers should serve shareholders rather than their own interests. (Though his years at GM made him wealthy, I believe he would be appalled by the compensation of some of today’s executives, particularly those whose companies performed poorly for their owners.)
He also believed that good management practices could be – and needed to be – taught. Not only did he fund the creation of executive education and a school of management at MIT, he regularly lectured to classes and was on campus talking with students, converting his practical experiences into solid lessons for management, until his death in 1966.
Not that all students necessarily understood him – literally. According to people who knew him, Sloan’s Brooklyn accent was so strong that foreign students were mystified when he would begin a discussion with the phrase, “Foist, you…”
But they and countless other students learned from this master of management. MIT, after all, is fundamentally about getting important work done in the world. In the early years, Sloan and those running MIT’s management programme believed that experienced practitioners should play the dominant role in teaching – the first dean was an MIT alumnus hired from Sears Roebuck. In the late 1950s and 1960s, however, MIT and other management schools began to apply the tools and concepts of economics, applied mathematics, and behavioural science to advance the practice of management in a systematic way.
While this approach has had great success, critics charge that management schools became less closely connected with practice than they should be. At MIT Sloan and elsewhere, the pendulum is swinging back toward more closely coupling education and research with the practice of management.
As a result, Alfred P Sloan Jr would be more comfortable here now than he might have been a few decades ago, though he might still be surprised by how academic his school has become.
But as his book makes clear, he would look at the facts before passing judgment and, in the best MIT tradition, he would appreciate the importance of combining theory and practice to give students both conceptual tools and useful skills.
We would be able to show him that all this pointy-headed research has improved the day-to-day management of companies. And to him, that would count “foist.”
Richard Schmalensee is John C Head III Dean of the MIT Sloan School of Management and Professor of Management and Economics. He steps down as dean at the end of this academic year.
