Salutary lessons from the downfall of a carmaker

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The decline of GM is as instructive as its rise. The challenge of how to reconcile professional management with a culture of innovation remains for ever a central issue for management thinkers.

General Motors is stumbling towards oblivion. The failing giant was the iconic corporation of the 20th century. It implemented mass production, created the idea of professional management and defined a structure for the diversified industrial corporation. These features of our industrial landscape, today obvious and inevitable, were novelties a century ago.

At one Financial Times breakfast, we debated which were the most important business books ever published. I nominated three. Peter Drucker’s Concept of the Corporation pioneered the intellectually rigorous analysis of management issues. Alfred Sloan’s My Years at General Motors is the most thoughtful business autobiography. Alfred Chandler’s Strategy and Structure turned business history and corporate strategy into academic disciplines. Only then did I notice that all were about GM. The history of modern business is the history of GM, and vice versa.

Adam Smith saw that the division of labour was the key to prosperity and economic growth. Frederick Taylor translated the division of labour into what he called “scientific management”. Everyone would be assigned a discrete task whose performance could be precisely measured. Henry Ford made these theoretical concepts a practical reality. On an assembly line, barely skilled workers would be employed to manufacture cars.

Ford’s mass production was quickly imitated, and in the 1920s his company was overtaken by its principal rival. The contrast in the names of these organisations – General Motors versus the Ford Motor Company – tells you most of what you need to know. Ford was the creation of an idiosyncratic, irascible genius. The genius of Sloan was to create a company that did not depend on any particular individuals.

Drucker shadowed Sloan for almost two years, but relations between the two deteriorated. Drucker commented acerbically that Sloan’s book should have been called GM While I Was There. Sloan’s personality rarely intruded because his view of management allowed little role for personality.

GM emerged from a collection of businesses thrown together by the entrepreneurial Billy Durant. Durant’s ambitions ran ahead of his capacity to manage large and complex businesses – a theme often repeated. Sloan gave structure to the conglomerate Durant created, as Chandler explained. Chandler’s vision was that professional managers would make diversified businesses efficient through decentralisation. The centre’s role was to monitor and direct strategy through a focused range of controls.

By the 1950s GM was the most successful company in world history. Yet the globalisation of world markets became the source of this giant corporation’s downfall. Consumers became more discriminating and other groups were able to deploy narrower competitive advantages on a world scale. GM’s share of world car sales peaked and began a long, steady decline.

The factors that had once been the company’s strengths were now weaknesses. Mass production and piece-rate incentives created a workforce with little pride in the quality of the product. The cadre of professional managers became a complacent, inward-looking bureaucracy. The diversified corporation became a collection of competing baronies.

The decline of GM is as instructive as its rise. Mass production is now an activity for low-income, low-cost locations. Successful western carmakers will focus on market niches. Fordism and Taylorism, in which pay is closely related to individual performance, has had similarly dire effects on overall corporate performance – about which no one really cares – when applied to assembly lines, boardrooms and trading floors. The challenge of how to reconcile professional management with a culture of innovation remains for ever a central issue for management thinkers.

If the success of GM defined the management agenda for the 20th century, its failure equally defines the management agenda for the 21st.

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