Management Gurus: Alfred Sloan. Part 2.
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Although he was not an old man, Sloan was already suffering from hearing problems. For that reason, he always used a hearing aid in meetings. When he wanted to listen, he switched it on; before he spoke, he always switched it off. It was once described as the greatest management tool in history. At the meeting to decide GM’s future direction, he listened carefully to the ideas of his colleagues.
‘We need to learn the lessons of Mr Ford,’ said one manager. ‘We must learn to produce our cars as quickly and as cheaply as possible. That’s the only way to succeed in this business.’
‘I don’t agree,’ said another manager. ‘We have a choice. There are two main markets for cars in this country. We can sell expensive upmarket cars to people who have good taste and plenty of money, or we can sell cheap downmarket cars to people who have neither.’
Everyone in the room laughed.
When Sloan had heard all the managers’ ideas, he switched off his hearing aid with a loud noise. The managers all turned towards him and waited for him to speak.
‘Thank you for your ideas, gentlemen,’ said Sloan. ‘But I must disagree with you. Our company has more choices than you have described. I believe that General Motors should sell a car for every pocket and every purpose.’
The managers looked at each other.
‘Let me explain what I mean,’ continued Sloan. ‘We own a number of companies at the moment. The problem is that they are all fighting in the same market. First, I suggest that we reduce our number of companies to five. Second, I suggest that each of these companies sells its cars to a different part of the market. For example, Cadillac could sell its cars to the rich people with good taste that you talked about earlier. We could sell Buicks to younger people with a little less money. Oldsmobile could be sold to richer families; Pontiac to poorer ones. Chevrolet, perhaps, could sell its cars to the working man. Do you follow my thinking?’
One of the managers held up a finger to show that he wanted to ask a question. Sloan switched on his hearing aid again.
‘How does this affect the organization of the company?’ the manager asked.
There was another noise from the hearing aid.
‘That,’ said Sloan, ‘is a very good question. You see, gentlemen, ‘I want an organization with five different companies selling cars to five different markets. I’m sure there will sometimes be competition between these five companies. If that happens that’s fine with me. But General Motors doesn’t just need competition. The company must also understand where it’s going. There must be some central control. That’s why I am here. We must have a clear direction and we must also have central financial control. If we can do this, then I am sure that General Motors will have a great future.’
Sloan was right. The careful mix between central control and competition produced a company that could compete with Ford and even beat it. While Ford continued to build the same old black Model T, GM produced new cars and new ideas all the time. Customers were offered not just a choice of five different cars, but a choice of colours, too. Every year, GM produced cars with a few small differences, so that people didn’t keep the same car for years and years; instead, they always wanted to buy the latest model. Just three years after Alfred Sloan’s appointment, General Motors left Ford behind and became the USA’s biggest car company.
The 1920s was a good time for the US car business. The government built roads across the country and small businessmen built all kinds of things beside them. Before long, US roads were lined with petrol stations, cinemas, hotels and restaurants. Every American wanted to be on the road and General Motors went from one success to another. It seemed that nothing could stop the car.