Alfred P. Sloan

According to O'Toole (1995),[17] 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.[18] 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."[19]

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.'"[20] 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."[20] 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 Sloan himself — was over-ardent. 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.[21]

O'Toole described Sloan's style as follows:[22] "[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."[22]

In 2005, Sloan's work at GM came under criticism for creating a complicated accounting system that prevents the implementation of lean manufacturing methods.[23] 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.[23] 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 advance 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."[24] 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.[23]

Sloan's memoir, particularly Chapter 8, "The development of financial controls",[25] indicates that Sloan and GM appreciated the financial dangers of excess inventory even as early as the 1920s. However, Waddell & Bodek's 2005 analysis[23] 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.

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][26][27] During the war, GM's Opel Brandenburg facilities produced Ju 88 bombers, trucks, land mines and torpedo detonators for Nazi Germany.[26] Charles Levinson, formerly deputy director of the European office of the CIO, alleged that Sloan remained on the board of Opel.[28]

Sloan's memoir presents a different picture of Opel's wartime role.[29] 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.[30] But Opel was never factually nationalized and the GM-appointed directors and management remained unchanged throughout the Nazi period including the war, dealing with other GM companies in Axis and Allied countries including the United States.[31] Sloan presents Opel at the end of the war as a black box to GM's American management, an organization with which the Americans had had no contact for five 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.[29]

Defending the German investment strategy as "highly profitable", Sloan told shareholders in 1939 that 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]

• Drucker, Peter F. (1946). "Concept of the Corporation". New York, New York, US: John Day. LCCN 46003477. {{cite journal}}: Cite journal requires |journal= (help)
• McDonald, John; Seligman, Dan (2003). A ghost's memoir: the making of Alfred P. Sloan's My Years with General Motors. Boston, Massachusetts, US: MIT Press. ISBN 978-0-262-63285-0.
• O'Toole, James (1995). Leading change: overcoming the ideology of comfort and the tyranny of custom. San Francisco, California, US: Jossey-Bass. ISBN 978-1-55542-608-8.
• Sloan, Alfred P. (1964), McDonald, John (ed.), My Years with General Motors, Garden City, NY, US: Doubleday, LCCN 64011306, OCLC 802024. Republished in 1990 with a new introduction by Peter Drucker (ISBN 978-0385042352).
• Sloan, Alfred P. (1941). Adventures of a white collar man. New York: Doubleday, Doran. ISBN 978-0-8369-5485-2.
• Waddell, William H.; Bodek, Norman (2005). Rebirth of American Industry: A Study of Lean Management. Vancouver, Washington, US: PCS Press. ISBN 978-0-9712436-3-7.