Alfred P. Sloan

Alfred P. Sloan

Alfred P. Sloan in 1937
Born Alfred Pritchard Sloan, Jr.
(1875-05-23)May 23, 1875
New Haven, Connecticut
Died February 17, 1966(1966-02-17) (aged 90)
Memorial Sloan Kettering Cancer Center, New York City
Education Brooklyn Polytechnic Institute,[1] Massachusetts Institute of Technology
Known for President & CEO of General Motors

Alfred Pritchard Sloan, Jr. (/sloʊn/; May 23, 1875 – February 17, 1966) was an American business executive in the automotive industry. He was a long-time President, chairman and CEO of General Motors Corporation.[2] Sloan, first as a senior executive and later as the head of the organization, helped GM grow from the 1920s through the 1950s, decades when concepts such as the annual model change, brand architecture, industrial design, automotive design (styling), and planned obsolescence transformed the industry, and when the industry changed lifestyles and the built environment in America and throughout the world.

Sloan's memoir, My Years with General Motors,[3] written in the 1950s but withheld from publication until an updated version was finally released in 1964,[4] exemplified Sloan's vision of the professional manager and the carefully engineered corporate structure in which he worked. It is considered one of the seminal texts in the field of modern management education, although the state of the art in management science has grown greatly in the half century since.

Sloan is remembered for being a rational, shrewd, and very successful manager, who led GM to become the world's largest corporation, a position it held for many years after his death. His rationality and shrewdness are also remembered by his critics as extending even to cold, plutocratic detachment or avarice. However, the magnitude of Sloan's philanthropy suggests that he saw himself differently: as a man with greater talents and greater responsibilities than others, who was thus entitled to great authority but also obligated to, and committed to, beneficence.

Sloan and the management of GM in the 1930s and early 1940s – the time of the Great Depression, German re-armament, fascism, appeasement, and World War II – are part of a larger narrative about the complex nature of multinational corporations and how nationality of their members was irrelevant in some ways but relevant in others. The national governments on both sides of the Allied–Axis divide used the industrial capacity of GM – the Allies using Detroit and Vauxhall, the Axis using Adam Opel AG, GM's German subsidiary – to churn out materiel for their war efforts.

Like Henry Ford – a contemporary of Sloan's with a rather special relationship to him as the other "head man" of an automotive colossus – Sloan is remembered today with a complex mixture of admiration for his accomplishments, appreciation for his philanthropic legacy, and unease or reproach about his attitudes during the interwar period and World War II.[5]

Life and career

Born in New Haven, Connecticut, Sloan studied electrical engineering initially at Brooklyn Polytechnic Institute, then transferred to and graduated from the Massachusetts Institute of Technology in 1895. While attending MIT he joined the Delta Upsilon fraternity.[1]

Cover of Time magazine (December 27, 1926)

Sloan became president and owner of Hyatt Roller Bearing, a company that made roller- and ball-bearings, in 1899. Oldsmobile was Hyatt's first automotive customer, with many other companies soon following suit. In 1916 Hyatt merged with other companies into United Motors Company, which soon became part of General Motors Corporation. Sloan became Vice-President of GM, then President (1923), and finally Chairman of the Board (1937). In 1934, he established the philanthropic, nonprofit Alfred P. Sloan Foundation. GM under Sloan became famous for managing diverse operations with financial statistics such as return on investment; these measures were introduced to GM by Donaldson Brown, a protege of GM vice-president John J. Raskob. Raskob came to GM as an advisor to Pierre S. du Pont and the du Pont corporation; the latter was a principal investor in GM whose executives largely ran GM in the 1920s.

Sloan is credited with establishing annual styling changes, from which came the concept of planned obsolescence. He also established a pricing structure in which (from lowest to highest priced) Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac—referred to as the ladder of success—did not compete with each other, and buyers could be kept in the GM "family" as their buying power and preferences changed as they aged. These concepts, along with Ford's resistance to the change in the 1920s, propelled GM to industry-sales leadership by the early 1930s, a position it retained for over 70 years. Under Sloan's direction, GM became the largest industrial enterprise the world had ever known.

In the 1930s GM, long hostile to unionization, confronted its workforce - newly organized and ready for labor rights - in an extended contest for control.[2] Sloan was averse to violence of the sort associated with Henry Ford. He preferred spying, investing in an internal undercover apparatus to gather information and monitor labor union activity. When workers organized the massive Flint Sit-Down Strike in 1936, Sloan found that espionage had little value in the face of such open tactics.

The world's first university-based executive education program—the Sloan Fellows—started in 1931 at MIT under the sponsorship of Sloan. A Sloan Foundation grant established the MIT School of Industrial Management in 1952 with the charge of educating the "ideal manager", and the school was renamed in Sloan's honor as the Alfred P. Sloan School of Management, one of the world's premier business schools. Additional grants established a Sloan Institute of Hospital Administration in 1955 at Cornell University-the first two-year graduate program of its type in the US, a Sloan Fellows Program at Stanford Graduate School of Business in 1957, and at London Business School in 1965.[6] They became degree programs in 1976, awarding the degree of Master of Science in Management. Sloan's name also lives on in the Sloan-Kettering Institute and Cancer Center in New York. In 1951, Sloan received The Hundred Year Association of New York's Gold Medal Award "in recognition of outstanding contributions to the City of New York".

The Alfred P. Sloan Museum, showcasing the evolution of the automobile industry and traveling galleries, is located in Flint, Michigan.[7]

Sloan maintained an office in 30 Rockefeller Plaza in Rockefeller Center, now known as the GE Building.[8] He retired as GM chairman on April 2, 1956. His memoir and management treatise, My Years with General Motors,[3] was more or less finished around this time; but GM's legal staff, who feared that it would be used to support an antitrust case against GM, held up its publication for nearly a decade. It was finally published in 1964. Sloan died in 1966.[2]

Sloan was inducted into the Junior Achievement U.S. Business Hall of Fame in 1975.

Philanthropy

The Alfred P. Sloan Foundation is a philanthropic non-profit organization established by Sloan in 1934. The Foundation's programs and interests fall into the areas of science and technology, standard of living, economic performance, and education and careers in science and technology. For year ending December 31, 2014 the total assets of the Sloan Foundation had a market value of about US$1.876 billion.[9]

The Sloan Foundation bankrolled the 1956 Warner Bros. cartoon Yankee Dood It, which promotes mass production. In the late 1940s, the Sloan Foundation made a grant to Harding College (now Harding University) in Searcy, Ark. The foundation wanted to fund the production of a series of short films that would extol the virtues of capitalism and the American way of life.[10]

According to Edwin Black, Sloan was one of the central, behind-the-scenes founders of the American Liberty League, a political organization whose goal it was to defend the Constitution. In turn, the League would finance other groups with openly more extreme agendas. One such group was the Sentinels of the Republic to which Sloan himself made a $1000 check. After a Congressional investigation into this group went public in 1936, Sloan issued a statement pledging not to further support the Sentinels.

Also according to Black, the GM chief continued to personally fund and organize fund-raising for the National Association of Manufacturers, which was critical of the New Deal.[11]

The Sloan Foundation has made two grants, of US$3 million each, to the Wikimedia Foundation (WMF). These are some of the largest grants that the WMF has received.

Criticism

Overly rational and profit-driven orientation

According to O'Toole (1995),[12] Sloan built a very objective organization, a company that paid significant attention to "policies, systems, and structures and not enough to people, principles, and values. Sloan, the quintessential engineer, had worked out all the intricacies and contingencies of a foolproof system." But this system left out employees and society.[13] One consequence of this management philosophy was a culture that resisted change. Proof that the system did not remain foolproof forever was seen in GM's problems of the 1980s, 1990s, and 2000s.

In fact, Sloan's memoir and management treatise, My Years With General Motors,[3] foresaw some of these problems. About them, Sloan implied that only vigilant, intelligent management could meet them successfully. He predicted that remaining at the top [of its industry and the economy] would prove a bigger challenge for GM than was getting there; and it turned out that he was right. But he also seemed confident that the management style of GM under his leadership, if continued and adapted, could meet these challenges. He said, "There have been and always will be many opportunities to fail in the automobile industry. The circumstances of the ever-changing market and ever-changing product are capable of breaking any business organization if that organization is unprepared for change—indeed, in my opinion, if it has not provided procedures for anticipating change. In General Motors these procedures are provided by the central management, which is in a position to appraise the broad long-term trends of the market. […] As the industry has grown and evolved, we have adhered to this policy and have demonstrated an ability to meet competition and the shifts of customer demand."[14] As these words of Sloan 1964 show in juxtaposition with the words of Peter F. Drucker, 1946, Sloan (and his fellow GM executives) never agreed with Drucker on the lessons that Drucker drew from his study of GM management during the war. However, unlike many GM executives, Sloan did not put Drucker on his blacklist for writing the 1946 book; Drucker, in his new introduction [foreword] for the 1990 republishing of Sloan's memoir, said, "When his associates attacked me in a meeting called to discuss the book, Sloan immediately rose to my defense. 'I fully agree with you,' he said to his colleagues. 'Mr. Drucker is dead wrong. But he did precisely what he told us he would do when we asked him in. And he is as entitled to his opinions, wrong though they are, as you or I.'"[15] Drucker related that for 20 years after that meeting, Sloan and Drucker had a good relationship, in which Sloan would invite Drucker to lunch once or twice a year to discuss Sloan's philanthropic plans and the memoir that Sloan was working on assembling (what became My Years). Drucker said, "He asked for my opinions and carefully listened—and he never once took my advice."[15] History seems to have vindicated Drucker in his belief that Sloan's faith in rationality alone—and in the ability of other white-collar managers to be as astute as he himself was—was overardent, because 40 years later, the management and board of directors who had run the original General Motors Corporation into the ground by 2009 were not "in a position to appraise the broad long-term trends of the market"—or were in that position, but not doing the job successfully therein.[16]

O'Toole described Sloan's style as follows:[17] "[W]hereas Taylor occasionally backs off to justify his ardor for efficiency in human terms, not once does Sloan make reference to any other values. Freedom, equality, humanism, stability, community, tradition, religion, patriotism, family, love, virtue, nature—all are ignored. In the one personal element in the book, he makes passing reference to his wife: he abandons her on the first day of a European vacation to return to business in Detroit. His language is as calculating as that of the engineer-of-old working with calipers and slide rule, as cold as the steel he caused to be bent to form cars: economizing, utility, facts, objectivity, systems, rationality, maximizing—that is the stuff of his vocabulary."[17]

Accounting system drawbacks

In 2005, Sloan's work at GM came under criticism for creating a complicated accounting system that prevents the implementation of lean manufacturing methods.[18] Essentially, the criticism is that by using Sloan's methods a company will value inventory just the same as cash, and thus there is no penalty for building up inventory.[18] Carrying excessive inventory is detrimental to a company's operation and induces significant hidden costs. This criticism must be viewed in the context that it is provided in hindsight. During the period in which Sloan advocated carrying what would now be considered excess inventory, the industrial and transportation infrastructure would not support what is now known as just-in-time inventory. During this period, the auto industry experienced incredible growth as the public eagerly sought to purchase this life-changing utility known as the automobile. The cost of lost sales due to lack of inventory was likely greater than the cost of carrying excess inventory. Sloan's system seems to have been widely adopted because of its significant advancement over previous methods. In his memoir, Sloan (who would freely acknowledge that he was not a trained accountant) said that the system that he implemented in the early 1920s was far better than what it replaced (which was, in so many words, an undesigned cacophony in which financial controls mostly didn't exist). He said that years later, a professional accountant (Albert Bradley, longtime CFO of GM) "was kind enough to say [that it] was pretty good for a layman."[19] Sloan was far from the sole author of GM's financial and accounting systems, as GM later had many trained minds in accounting and finance; but regardless of authorship, GM's financial controls—at one time considered top-notch—eventually proved to have latent drawbacks. Systems similar to GM's were implemented by other major companies, especially in the United States, and they eventually undermined the ability to compete with companies that used different accounting, according to Waddell & Bodek's 2005 analysis.[18]

Sloan's memoir, particularly Chapter 8, "The development of financial controls",[20] indicates that Sloan and GM appreciated the financial dangers of excess inventory even as early as the 1920s. However, Waddell & Bodek's 2005 analysis[18] indicates that this theory was not successfully implemented in GM's practice. For all of the intellectual understanding, the reality remained slow inventory turnover and an accounting system that functionally treated inventory similarly to cash.

Streetcar scandal

See also Great American streetcar scandal and History of General Motors > Criticism > Great American streetcar scandal.

During Sloan's leadership of GM, many public transport systems of trams in the US were replaced by buses in what became known as the Great American streetcar scandal. Some critics, such as Edwin Black, claim that Sloan was also instrumental in the demise of public city transport streetcars throughout the United States. GM was found guilty of violating anti-trust laws, but the penalties imposed were nugatory, even for the time: a $5,000 fine for the company and $1 fines for each convicted executive.

Nazi collaboration

Main discussion: History of General Motors > Criticism > Nazi collaboration.

In August 1938, a senior executive for General Motors, James D. Mooney, received the Grand Cross of the German Eagle for his distinguished service to the Reich. "Nazi armaments chief Albert Speer told a congressional investigator that Germany could not have attempted its September 1939 Blitzkrieg of Poland without the performance-boosting additive technology provided by Alfred P. Sloan and General Motors".[5][21][22] During the war, GM's Opel Brandenburg facilities produced bombers JU-88, trucks, land mines and torpedo detonators for Nazi Germany.[21]

Charles Levinson, formerly deputy director of the European office of the CIO, alleged in his book, Vodka-Cola:[23]

Alfred P. Sloan, James D. Mooney, John T. Smith and Graeme K. Howard remained on the Opel board . . . in flagrant violation of existing legislation, information, contacts, transfers and trade continued [throughout the war] to flow between the firm's Detroit headquarters and its subsidiaries both in Allied countries and in territories controlled by the Axis powers. The financial records of Opel Rüsselsheim revealed that between 1942 and 1945 production and sales strategy were planned in close coordination with General Motors factories throughout the world.... In 1943, while its American manufacturers were equipping the United States Air Force, GM's German counterpart were developing, manufacturing and assembling motors for the Messerschmitt 262, the first jet fighter in the world. This innovation gave the Nazis a basic technological advantage. With speeds up to 540 miles per hour, this aircraft could fly 100 miles per hour faster than its American rival, the piston-powered Mustang P51.

Sloan's memoir presents a different picture of Opel's wartime existence.[24] According to Sloan, Opel was nationalized (along with most other industrial activity owned or co-owned by foreign interests) by the German state soon after the outbreak of war.[25] Sloan presents Opel at the end of the war as a black box to GM's American management—an organization that the Americans had had no contact with for 5 years. According to Sloan, GM in Detroit debated whether to even try to run Opel in the postwar era, or to leave to the interim West German government the question of who would pick up the pieces.[24]

Defending the German investment strategy as "highly profitable", Alfred P. Sloan told shareholders in 1939 GM's continued industrial production for the Nazi government was merely sound business practice. In a letter to a concerned shareholder, Sloan said that the manner in which the Nazi government ran Germany "should not be considered the business of the management of General Motors...We must conduct ourselves as a German organization. . . We have no right to shut down the plant."[5]

After 20 years of researching General Motors, Bradford Snell stated, "General Motors was far more important to the Nazi war machine than Switzerland ... Switzerland was just a repository of looted funds. GM's Opel division was an integral part of the German war effort. The Nazis could have invaded Poland and Russia without Switzerland. They could not have done so without GM."[5]

Post-war

As the war drew to an end, most economists and New Deal policy makers assumed that without the massive government spending of the war, the pre-war Great Depression and its huge unemployment would return. The famous economist Paul Samuelson warned that unless government took immediate action, "there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has faced." The prevailing Keynesian economic wisdom predicted economic disaster when the war ended.[26][27]

Sloan though, felt otherwise and predicted a post-war boom. He pointed to workers' savings and pent-up demand, and predicted a huge jump in national income and a rise in standard of living. He was right, and the New Dealers were wrong.[26][27]

Despite a precipitous cut-back in government spending and the wholesale closure of defense plants, the economy boomed. One of the greatest periods of economic expansion in American history resulted.[26][27]

See also

References

Notes

  1. 1 2 "Who was Alfred P. Sloan Jr.?". Alfred P. Sloan Foundation. Retrieved 2015-06-09.
  2. 1 2 3 "Alfred P. Sloan Jr. Dead at 90; G.M. Leader and Philanthropist; Alfred P. Sloan Jr., Leader of General Motors, Is Dead at 90". The New York Times. 1966-02-18. Alfred P. Sloan Jr., who shaped the General Motors Corporation into one of the world's largest manufacturing enterprises, died of a heart attack yesterday afternoon at Memorial Sloan-Kettering Center here. He was 90 years old.
  3. 1 2 3 Sloan 1964.
  4. ↑ McDonald & Seligman 2003.
  5. 1 2 3 4 Dobbs, Michael (1998-11-30). "Ford and GM Scrutinized for Alleged Nazi Collaboration". The Washington Post. Retrieved 2009-06-01.
  6. ↑ Educational Information & Advising Center OSVITA Archived June 10, 2015, at the Wayback Machine.
  7. ↑ Sloan Museum
  8. ↑ Harry S. Truman: Letter to Alfred P. Sloan, Jr., Concerning Cooperation by the Broadcasting Industry in the Highway Safety Program. December 3, 1948.
  9. ↑
  10. ↑ "Animating Ideas: The John Sutherland Story," Hogan's Alley #12, 2004
  11. ↑ Black, Edwin (2009). Nazi Nexus, America's Corporate Connections to Hitler's Holocaust. Dialog Press. ISBN 978-0914153092.
  12. ↑ O'Toole 1995, p. 174.
  13. ↑ Drucker 1946.
  14. ↑ Sloan 1964, p. 438.
  15. 1 2 Sloan 1990 [1964], foreword, pp. v–vi.
  16. ↑ Chao, Larry (2009-02-02), "Hi! managers: How 'culture' crippled General Motors", The Nation.
  17. 1 2 O'Toole 1995, p. 176.
  18. 1 2 3 4 Waddell & Bodek 2005.
  19. ↑ Sloan 1964, p. 48.
  20. ↑ Sloan 1964, pp. 116–148.
  21. 1 2 Black, Edwin (2006-12-01). "Hitler's Carmaker: How General Motors helped mobilize the Third Reich". J Weekly. Retrieved 2015-05-05.
  22. ↑ Higham, Chares Trading with the Enemy. New York: Doubleday, 1982
  23. ↑ Marriott, Red (2006). "How the Allied multinationals supplied Nazi Germany throughout World War II". libcom.org. Retrieved 2009-06-18. Excerpted from Higham, Charles. Trading with the Enemy - The Nazi-American Money Plot 1933-1949 New York: Doubleday, 1982.
  24. 1 2 Sloan 1964, pp. 328–337.
  25. ↑ Sloan 1964, pp. 330–331.
  26. 1 2 3 Herman, Arthur. Freedom's Forge: How American Business Produced Victory in World War II, pp. 338-9, Random House, New York, NY, 2012. ISBN 978-1-4000-6964-4.
  27. 1 2 3 Parker, Dana T. Building Victory: Aircraft Manufacturing in the Los Angeles Area in World War II, pp. 131-2, Cypress, CA, 2013. ISBN 978-0-9897906-0-4.

Bibliography

Further reading

External links

Wikimedia Commons has media related to Alfred Pritchard Sloan, Jr..
Business positions
Preceded by
Lammot du Pont II		 Chairman General Motors
1937–1956 		Succeeded by
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1923–1946 		Succeeded by
Charles Erwin Wilson
Preceded by
Pierre S. du Pont		 President General Motors
1923–1937 		Succeeded by
William S. Knudsen
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