February 3, 2009
Staff Picks: Two from The 100
Can't wait another day for The 100 Best Business Books of All Time? The following essay compares two of the books contained therein that couldn't be more different upon first inspection. Sloan's My Years With General Motors is a massive undertaking, containing excruciating details spanning many decades that dissect and explain almost every move he made with the company, while Watson's A Business and Its Beliefs is a quick and inspirational read. The men who wrote them are as different as the books themselves, but both did a great deal to shape the companies they led, and the world we live in today. This essay was written in early Spring, 2008, and was done so independently of The 100 Best (it was actually part of the application process for the job I currently occupy). Hope you enjoy it regardless.
I don't think there is much argument that two of the greatest changes to the way we live our lives that occurred in the last century were affected by the internal combustion engine and the computer. This is not only true in our personal lives, but also in the lives of nations, in how they interact and go to war. The two giants in these fields of enterprise are General Motors and IBM, and I, as I think most do, tend to view these corporations as monolithic behemoths, bereft of human quality. Upon closer inspection, and for me this was the reading of My Years With General Motors by Alfred P. Sloan and A Business and its Beliefs by Thomas J. Watson Jr., something a bit more human emerges. It's in the story of the company itself, how it came to be and how it grew. It's the story of the men who managed these companies into prominence. Both of these corporations had complex and storied births. Both were given their guiding principles and policies, as well as their lasting structures, by individual men and the management of the companies they headed.
General Motors and IBM both began as a combination of smaller enterprises. IBM, then known as CTR (Computing Tabulating Recording Corporation), came into existence in 1911 through the merger of three smaller companies into one. The merger was the brainchild of Charles Flint, who we'll hear from again briefly as the man who brought Thomas J. Watson into IBM. General Motors was founded in 1908 by William Durant, who swiftly went about acquiring companies such as Olds(mobile), Cadillac, Elmore, and Oakland (now Pontiac) to form what we would now recognize as GM. Durant would later lose control of the company and leave its folds to start Chevrolet, which he would use as leverage to regain control of GM in a stock buying campaign. There were other notable names in that early venture, most notable among them the DuPonts, but they are not of much, if any, interest to the discussion here.
Another person of note from GM at that time is of primary interest, however, and that is Alfred P. Sloan. Sloan came to GM in 1916 when the company he was running at the time, Hyatt Roller Bearing Company, was bought by General Motors for $13.5 million dollars. Mr. Sloan would be running all of GM by 1923, and had an enormous influence on the shape the company would take. Because GM was made up of so many formerly separate companies, it was extremely decentralized and made up of numerous divisions. This was soon recognized as a great strength by Sloan and became an operating principle of the company. One key reason this was true was that GM's divisions produced a variety of cars of differing quality (or luxury if you like) with a great range of prices. Each division had its own incentive to strengthen its position in its own field, and therefore within the company. But there were also certain weaknesses in the system. One key drawback early on was that, even though they had cars in many price brackets, some divisions were manufacturing cars of similar quality and price that were competing with each other in the marketplace. Another was that the operations people, engineers, salespeople, and purchasing departments of the various divisions were not in any way coordinated to find out what the strengths of the larger corporation were, and what policies would best maximize those strengths. Sloan came up with and suggested many solutions to these problems while he was still vice president of the company in the years before he began running the company himself. All were sound ideas, and most were agreed to in principle by management, but few were fully implemented until he became president. For example, the company worked toward standardizing its product line with cars in each price bracket (and eliminating redundancy within brackets) at Sloan's suggestion as VP, but the work wasn't fully accomplished until he took over the company. When he did become president, he finally finished the work when he filled the holes in their line by establishing Pontiac and finally making Chevrolet competitive with Ford in the low price arena. He also corrected the weaknesses of decentralization by setting up committees to coordinate activity across division lines. They had always had Executive and Finance Committees, where corporate level decisions were made. What Sloan did was set up new committees on advertising, engineering, sales and overall operations to find the strengths of each division that promoted the corporation as a whole, and implemented the strengths of each division across the corporation.
Thomas J. Watson came to IBM in 1914 after he was fired by NCR (National Cash Register) Corporation. He was hired by Charles Flint to run IBM, who had financed the merger of the three fledgling companies that combined to form the company. Although IBM was a combination of three companies, it was a very centralized company by the time Watson took the reigns, and also very much in trouble. His first order of business was also to focus on the organization, but the problems of IBM were very different form those at GM. It was a demoralized organization, and he set out to change the atmosphere and inspire the workers he inherited the management of. Even though the company was badly mismanaged, no one was fired when he took over. He put on concerts, set up company picnics and made speeches constantly. He instilled into IBM three basic beliefs. The first is that the corporation must maintain a deep and profound respect of the individual. The most important part of this was Job Security, which was demonstrated in his refusal to lay any one off upon his arrival. It also included respecting the dignity of each employee, and giving them the opportunity to advance within the company. One of the first things he did at the company was enact an "open door policy," meaning anyone with a grievance in the company could come directly to him with it. The second basic belief was a commitment to customer service. He attracted the best salespeople he could find with the use of then revolutionary practices such as sales commissions, advances, and guaranteed territories. He set up schools for salesmen and regular training courses for the customer engineers who maintained the equipment in the field. He also made it a point to ask what their customers needed, and provided equipment to meet those needs rather than forcing them to alter their business practices around the equipment provided. The final belief he instilled within the company is that "an organization should pursue all tasks with the idea that they can be accomplished in a superior fashion." He would often say "It is better to aim at perfection and miss it than aim at imperfection and hit it."
As you can probably gather just from my brief discussion of each man's policies and practices, their management styles in business were vastly different, as were their backgrounds. Thomas J. Watson was an extraordinarily gifted salesman before he came to head IBM, and sold the workers of the company on the beliefs he instilled in it, inspiring them in their jobs. Mr. Sloan, on the other hand, had an engineering background, and effectively engineered the workings of his corporation. Many have even criticized him as viewing the plant floor worker as another cog in the machine, and their wage as nothing more than a production cost. In direct contrast to that, Watson always said that, in his company, people occupy more management time than products. GM, under Sloan, developed a four-step grievance procedure for employees, one that ends when it gets to the personnel staff that negotiates with the UAW Union. IBM under Watson, as earlier noted, developed an open door policy in which any employee of the company can take their grievance directly to the head of the company. No one ever heard Watson utter anything similar to Sloan's statement that "General Motors is an engineering organization, our job is to cut metal and in so doing to add value to it." He also once stated that the job of the corporation was not to make automobiles, but to make money. These statements, though some may think them cold, are certainly true and are even quite beautiful in their own way. The have an almost Zen-like quality, and are pristine examples of clear thinking in business. I believe the same can be said of Watson's thoughts on business, though. He realized that any enterprise is, at its base, a human enterprise. Watson's organization had its weaknesses in the other direction. Under the extreme centralization of his organization, there were simply too many things ending up on the executive's desk. IBM later had to restructure, adding the decentralization that GM had from the beginning, and which Sloan realized as its greatest strength in organization. As he went about coordinating the different divisions in the company, he always made sure to maintain the autonomy of the divisions, thereby maintaining the ingenuity and incentive of small organization. Watson always tried to maintain the small business atmosphere, and maybe in tone he did, but the sheer size of the company forced a change in its structure that Watson never foresaw. Their ideas of competition were also philosophically opposed. Sloan believed in "competition as an article of faith, a means of progress, and a way of life." Watson loathed competition, and was even convicted of violating anti-trust laws during his tenure with NCR Corporation (leaving him a convicted felon until the ruling was overturned). To be fair, I should note Sloan's involvement in the Great American Streetcar Scandal, in which GM subsidiary National City Lines bought up most of America's streetcar companies and slowly replaced them with buses. In theory, at least, they were certainly opposed.
In the reading of these two books, I glimpsed the human hand in industries I've known growing up only as logos and consumer products, and that in my adult life I usually only see as stock symbols streaming across the bottom of my television while watching the news. These books demonstrate the idealism and analysis of human thought in these corporations. I am loathe to suggest one man's approach over the other, as each has their strengths, and I think every manager in any industry leads with the personality and temperament they have, and the skill sets they have acquired on their way to the top. I will say that I believe a company is only as strong as its people, and the job of any manager is to organize and inspire those people, leaving them free to accomplish what can with the vision of the company.