Strategy (88 page)

Beyond industrial matters, he campaigned actively against war. He toyed with politics and was touted as presidential material in 1916, until he eventually threw his considerable weight behind Woodrow Wilson. In 1918, he ran to become a senator for Michigan. He refused to actually campaign but still only lost by a narrow margin. His loss was largely due to his past pacifism and anti-militarism now that the country was at war. Over time, his attitudes began to appear idiosyncratic and, in the case of his virulent anti-Semitism, downright dangerous.

Ford was an autocrat, encouraging sycophancy and unable to grasp the major changes in the social and political context in which he was operating. When he was riding high he used his dominance to prevent any interference in the development of company policy, whether from partners, stockholders, or independent-minded managers. He sought personal control and oversight over what had become a massive company, with hundreds of thousands of employees and sales in the millions, yet ran it “as if it were a mom and pop shop.”
¹²

The company reached its peak in 1923, when it produced two million cars as well as many tractors and trucks. But by then competition was developing from General Motors and Chrysler. While Ford stuck with the Model T, the others set the pace with a greater range of new cars. By 1926, Ford's production barely reached 1.5 million vehicles. The competitors also offered new forms of payment, accepting credit and installments. With his horror of debt, Ford was unwilling to offer similar terms. Convinced that price was all that mattered, he put pressure on his workforce to increase productivity and on his dealers to accept the risk of unsold cars. His reputation as an enlightened man of the people became tarnished. He did not even appreciate how consumers, whose aspirations he had championed, were becoming more demanding about products, fickle in their tastes, interested in style, and self-indulgent in their spending. He assumed that low prices would continue to
persuade customers to forego the novelties and gadgets offered by his competitors. He even fought with his son Edsel, who argued the case for modernization of both products and practices. Henry considered Edsel to be weak and prone to panic. It was only as evidence of falling sales became impossible to ignore that he accepted the need for a replacement for the Model T. By the time the production run ended in 1927, some fifteen million had been sold. The price had come down from $825 in 1908 to $290.

By 1933, with the Great Depression taking hold, Ford was selling only 325,000 cars, less than Chrysler's 400,000 and half of the 650,000 produced by General Motors. Now an elderly man, Ford appeared distracted. Moreover, with the arrival of the Roosevelt administration and the New Deal, the days of a lax and benevolent attitude of government to big business were over. The accent was now on reform and regulation, including support for labor unions. Ford became a bitter opponent of the New Deal. He saw it as promoting collectivism, sapping energy and enterprise from the economy, and motivated by an urge to redistribute wealth rather than support its creation.

Ford had long been hostile to the unions, along with the notions of class antagonism they supposedly fostered. Their aim, he believed, was to claim for themselves the benefits of mass production rather than pass them on to the consumer. They were in the same parasitical category as financiers. Ford paid good wages in the early 1920s, but as the company struggled in the 1930s, the demands on workers had become excessive. In 1925, 160 men produced 3,000 units; by 1931, the same number were expected to produce 7,697 units. The productivity was maintained through worsening conditions policed by a security force, often likened to mafia enforcers. Workers could be dismissed for minor infractions.

Ford was prepared to use physical force to keep the unions out. This became apparent in March 1932 when there was a battle between some 2,500 unemployed workers, urged on by communist activists, and the police. The skirmish involved stones on one side and tear gas and water hoses—and eventually guns—on the other. It ended with four men dead. For a while the intimidation worked, helped also by the divisions within the union movement. By May 1937, unionism had received a political boost through President Franklin Roosevelt's New Deal and the 1935 Wagner Act, which tilted the law more in favor of the unions. After a wave of sit-down strikes, General Motors and Chrysler had both given in to demands to allow the United Auto Workers sole rights to represent their workers. When union leaders tried to do the same with Ford, they were set upon and beaten up by security men. The result was more dire publicity for the company. And although Ford continued to resist, his position became more isolated. When
the state ordered a poll of workers it turned out that 70 percent favored unionization. Ford's subordinates wanted to accept the result. Ford appeared ready to resist whatever the consequences until his wife, fearing bloodshed, persuaded him to relent.

Though a great innovator, Ford was a terrible strategist. He was absolutely sure in his own views and put himself beyond challenge in the running of his company. So long as others agreed then all was fine, but he expected business to be undertaken on his terms and showed no flexibility when he faced resistance, whether from his own executives, workers, the government, or even consumers. He saw no need for advice from anybody else. “When you have to solve a problem that nobody has yet thought about, how can you learn the solution from a book?”
¹³
In his memoir,
My Life and Work
, he was contemptuous of “experts,” associating them with a state of mind where everything was already known and therefore new methods were deemed impossible. “If ever I wanted to kill opposition by unfair means I would endow the opposition with experts.” There was an obvious connection with Taylor, with whom Ford was often twinned. Ford's own ideas were infused with the same spirit of rationalizing the labor system, and the dangers of a thinking workforce. It is unlikely he had read Taylor. He reached his conclusions through his own experience, and much of his push for higher productivity came from innovations in techniques and materials. Nonetheless, many of those around Ford were well aware of Taylor's approach and considered that they were working in the same spirit. Certainly Ford's success could be taken as further validation of the approach. Both “Taylorism” and “Fordism” became bywords for advanced manufacturing methods.

His early paternalism might have been embraced by the human relations school, who would have endorsed his determination to transcend the capital-labor divide, but his treatment of his workforce became increasingly harsh and suspicious, and the result was the surge of industrial unrest which concluded when he had to give ground to the unions. The administration of Franklin Roosevelt gave no support to those who thought that labor unions represented outdated thinking based on conflict. By the 1930s, almost submerged by competition and defeated by the unions, Ford was also a poor model for the aspiring business strategist.

The man who came to fit this bill was Alfred P. Sloan, the presiding genius of General Motors for some thirty-six years, first in charge of operations, then
president, chief executive, and eventually chairman, until he retired in 1956. The company, also based in Michigan, was founded in 1908 by William C. Durant. While Ford was aiming for his universal car, General Motors grew through the acquisition of small companies until it got into so much debt that it was taken over by a bankers' trust and Durant lost control. Sloan, who had studied electrical engineering at MIT and then become president of a subordinate company, was put in charge of operations at General Motors in 1920. He became president in 1923, when the industry faced a slump. From the start he set about transforming the company's structures and products in ways that were widely copied in corporate America.

Sloan's position was different from Ford's in three key respects. First, and most obviously, Ford led the pack. Second, Sloan had a range of cars to sell, produced by the companies that had been brought together under the General Motors umbrella, rather than just one “universal car.” Third, Sloan had to take account of his major stockholders, the DuPont family. It was the DuPonts, alarmed at the reckless way the company was being run, that bought Durant out. At first Sloan was reporting to Pierre DuPont, who was chairman and chief executive. This meant that, unlike Ford, Sloan had to have an internal strategy as well as one to deal with the competition. He had to debate company policy with colleagues and take care of a range of distinctive and possibly conflicting interests. For example, DuPont backed a bold scheme to challenge Ford by developing a new type of copper-cooled engine. If the scheme failed, as Sloan suspected it might, the result would be disastrous. Sloan was careful not to fight the project: he just made sure that there was a fallback position based on a safer, water-cooled engine, if it failed, which it did.

Over the 1920–1921 period, Sloan came up with two related sets of ideas that reshaped the modern corporation as well as the automobile industry. The first was a set of proposals about getting the best out of General Motors' complex structure while still providing a central lead. His plans were set out in a 1920 document known as the “organization study,” later described as having a “canonic quality” and as a “touchstone for management theory and practice.”
¹⁴
Sloan presented this study as a result of his scientific approach, as a man “who followed the factual approach to business judgment.” He drew solely on his own business experience. He had not been in the military and was not a book reader. Had he been, he noted, “I would not have found much in that line in those days to help.” The plan was adopted because it met the needs of a board that “desired a highly rational and objective mode of operation.” It depended on two propositions that apparently contradicted each other. The first was that the company should be split up into divisions, each
with its own chief executive with a responsibility for its operation that “shall in no way be limited.” The second proposition was that certain “central organization functions are absolutely essential” to the Corporation's development and control. Sloan saw the contradiction between the two as “the crux of the matter.”
¹⁵
One was about the ability to get on with the business without constant interference from the center; the second was about doing so within clear financial and policy guidelines. The intellectual breakthrough was to recognize that there was a tension and that this presented the core challenge for management. It introduced what Sloan's biographer described as “a new kind of corporate music, a symphony of controlled, decentralized production, operation, and administration in which there is a reward for the virtuoso performer and regard for the conductor.”
¹⁶

The key question of strategy was what to do about Ford, which at the start of the decade accounted for some 60 percent of all cars sold in the United States. Against the legendary Model T, General Motors had ten models produced by a number of divisions, some at the luxury end of the market and others more basic. In principle, the product range catered to all sections of the market, but in practice the company's cars were competing against each other in some areas. As things turned out, Ford was the ideal adversary, complacent and stubborn. But even if Sloan suspected this he could not rely upon Ford failing to respond to the challenge he intended to pose. His script for General Motors dared not assume complete stupidity on Ford's part. Sloan could, however, assume that he had some time. Ford was under no pressure in 1921 to abandon the Model T when it had served him so handsomely. Moreover, Ford's eventual likely response was also predictable, as he had the financial clout to push the price of the Model T lower to see off any direct competition.

Through the summer of 1921, Sloan headed a task force charged to address this conundrum. According to Sloan:

We said first that the corporation should produce a line of cars in each price area, from the lowest price up to one for a strictly high grade, quantity production car, but we should not get into the fancy price field with small production; second that the price steps should not be such as to leave wide gaps in the line, and yet should be great enough to keep their number within reason, so that the greatest advantage of quantity production could be secured; and third that there should be no duplication by the corporation in the price field or steps.
¹⁷

The genius of this formulation was that these classes did not reflect any existing market reality. They represented a new way of thinking about the
market, about how customers might respond to variations in price and quality. If Sloan was right, then the market could be shaped to suit the company as it rationalized and marketed its range, under the slogan a car “for every purse and purpose.” He was not so much relating to the external environment; he was completely reshaping it.

The test of the approach would be at the lower end of the market where a revamped Chevrolet, then with barely 4 percent of the market, would be pitched against the mighty Model T. Sloan saw this competition taking place within the price category of $450–$600. Ford took pride in the position of the Model T at the bottom end of this price range. Sloan judged it “suicidal” to compete with Ford head on. “The strategy we devised,” he later explained, “was to take a bite from the top of his position, conceived as a price class, and in this way build up Chevrolet volume on a profitable basis.”
¹⁸
This meant aiming for higher quality in order to justify a higher price. The intention was to get sales from those prepared to pay a bit more, but also to pick up sales from those looking at the next class up who might prefer to pay a bit less. Ford was left the low-class slot in the knowledge that he would be inclined to stick with his existing strategy and ignore the insurgency. Once Chevrolet was profitable it would have a secure basis from which to mount further and progressively more damaging inroads into Ford's space.