Tuesday, May 14, 2013

My Years With General Motors

Alfred Sloan became CEO of General Motors in 1923, and stayed on for several decades. In that time, he transformed GM from a rag-tag collection of unfocused, poorly-performing businesses into the largest company in the world. In My Years With General Motors, he discusses how he did it. Bill Gates calls his book "[P]robably the best book to read if you want to read only one book about business."

When Sloan became involved in GM's upper management (mostly by way of his parts-supply business having been acquired by GM), Henry Ford was kicking the industry's butt with his Model T. This low-cost car had dominant market share, and even though GM had a number of car companies under its umbrella, none could come close to matching Ford in any way, shape or form.

But as Sloan describes, GM's operations at that time were a mess. There was no co-ordination between these various subsidiaries (so that sometimes they would compete against each other). Capital allocation decisions weren't even determined centrally, causing the company to have to frequently reach out to capital markets to fund the bloated budgets of the company's various divisions.

Sloan and his team changed all that. With help from DuPont (an investor which helped save GM from bankruptcy), capital decisions were made based on expected return on capital. Some level of co-ordination was introduced among the car companies, so that things like R&D expenses and benefits could be shared, but decentralization was maintained so that leaders were rewarded/punished according to their own abilities. A process of continuous improvement was implemented, so that each year a new car model would be introduced that was superior to its previous version. Eventually, this won over the customers, as the ever-improving Chevrolet managed to steal share from the stagnant Model T, even at a higher price point.

Some of these managerial moves will make perfect sense to today's management student. But when this book was written, the field was not where it is today. These were very much new concepts pioneered by Sloan, which turned GM into a behemoth, dwarfing its competition, including the previously heralded Ford. If you're a student of history, you will probably enjoy Sloan's description of how he made GM the envy of the world.

1 comment:

Justin said...

Found it interesting that there's actually a book about the book!

"A Ghost's Memoir: The Making of Alfred P. Sloan's My Years with General Motors" by John Mcdonald.

John was the ghostwriter and details how the book was almost not published/suppressed by GM.

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