Managers doomed to repeat the mistakes of history

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The Whiz Kids’ capacity for analysis far exceeded their knowledge of the world to which it was applied.

After the Japanese attack on Pearl Harbor, a young man called Tex Thornton was appointed to manage a statistical control group for the US Air Force. Thornton recruited a group of individuals like himself – smart, self-confident and very numerate – who were nicknamed the “Whiz Kids”. They brought order to the chaos of US military logistics.

The Whiz Kids went on to deploy these methods across American corporate life. Their activities would change the ways people thought about both business and public policy, although not always in the ways they intended. The most famous Whiz Kid was Robert McNamara, who died last week.

In 1946, Thornton sold the services of the Whiz Kids as a group to Henry Ford II. Henry had just taken over a business left in chaos. But, hedging his bets, he also hired a group of General Motors executives. Thornton quickly clashed with the inward-looking culture of the Detroit motor men, and left to develop his own company, Litton Industries.

Litton was built on the premise that if you controlled the numbers, it didn’t really matter what the product was. The company’s activities included shipbuilding, electronics and convenience foods. Litton pioneered the model of the acquisitive conglomerate. By the 1960s, it was high on lists of most admired corporations. The legend was international: the British management journalist Robert Heller wrote of it that “every so often one particular American company acquires in British eyes a legendary reputation, a strong status as a management enterprise whose virtues dramatically point out British faults”.

McNamara stayed at Ford, increasingly influential, until in 1960 Henry named him president of the company. But not for long. The newly elected President John F. Kennedy, trawling for the best and brightest of US business leaders, offered McNamara – whom he had not yet met – the post of defence secretary. McNamara went to Washington, began the task of streamlining America’s military bureaucracy, and stood at Kennedy’s side as the president faced down the Russians in the Cuban missile crisis.

Those years of the 1960s were the heyday of planning. Thornton’s Litton Industries and McNamara’s defence department stood for the belief that the computational techniques which had cracked codes, built jet fighters and taken troops to Berlin could be applied across all aspects of business and politics.

Computers would transform the management of business. Planned development strategies would enable former colonies to move quickly towards the standards of living of their former colonial masters. Even advanced economies would benefit from the implementation of national plans. The greatest worry was that such planning would enable the Soviets to deploy advanced technology and overtake the west both economically and militarily.

But the dream of the Whiz Kids was already falling apart. The myth of Litton lost its lustre. As with all such conglomerates, the trick was to use overvalued paper to make ever larger acquisitions. Once earnings growth lost momentum, the share price faltered, and the business began to unravel. Through the 1970s, Litton would struggle for survival.

As America became entangled in Vietnam, McNamara managed the campaign by numbers; but reporters and returning soldiers told how these numbers bore little relationship to what was happening on the ground. In 1968, McNamara went to the World Bank, where he presided over huge lending growth. The optimism of these expansive years faded into the Third World debt crisis.

One of the most intelligent men ever to hold public office, McNamara mused in retirement on why a project that promised so much had gone so badly wrong. Decentralised markets had systematically outperformed central plans, planned development strategies had failed. Detroit’s obsession with numbers had fallen victim to the Japanese passion for quality, and the American military machine was defeated by the forces of North Vietnam.

In his memoir In Retrospect McNamara recognised that the world was a more complex place than his decision-making tools had acknowledged, and many of the complications defied quantification: “Our misjudgment of friend and foe alike reflected our profound ignorance of the history, culture and politics.” The Whiz Kids’ capacity for analysis far exceeded their knowledge of the world to which it was applied. With Russian archives opened, McNamara recognised that the Cuban crisis had brought the world much closer to annihilation than Kennedy had understood. America had completely failed to understand the culture and motivation of Vietnam.

But the mistakes of that era are repeated. McNamara described 11 errors in Vietnam: every one was also made in Iraq and Afghanistan. And when Litton crashed in 1969, Forbes wrote that the time had returned when investors were going to talk about products, not earnings curves. Forbes spoke at least 40 years too soon. McNamara began his memoirs with a quotation from T.S. Eliot: “The end of all our exploring/ Will be to arrive where we started/ And know the place for the first time.” Perhaps the acquisition of such knowledge might be his memorial.

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