Alfred Sloan Shifted General Motors Into No. 1

January 30, 2013
Alfred Sloan took over the GM presidency in 1923 and had the company passing Ford by the end of the decade.

Alfred Sloan took over the GM presidency in 1923 and had the company passing Ford by the end of the decade. View Enlarged Image

In 1916, Alfred Sloan pocketed $5 million, worth $100 million today.

The cash came from selling his ball-bearing firm to a sister company of General Motors (GM).

He could have had a comfortable retirement at 41.

Yet he was too ambitious for that. The way Sloan saw it, this was his cue to rise in the GM ranks.

By 1923, Sloan was the company's president. And when he died at age 90, GM was king of the road, with annual revenue of $20.7 billion.

"Sloan was a business genius who turned GM into the largest company in the world," David Farber, author of "Sloan Rules," told IBD. "And he, more than any other individual, invented modern corporate management and created the form of consumer capitalism that characterized much of 20th century America."

Sloan (1875-1966) was born in New Haven, Conn., and moved to Brooklyn, N.Y., with his family when he was 10.

MIT And On A Roll

Sloan's Keys

  • Led General Motors from the 1920s to 1950s.
  • Overcame: Lack of management and financial controls.
  • Lesson: Without accurate information, it's tough to make good decisions.
  • "Think big."

His father, making good money importing coffee and tea, sent his son to the Massachusetts Institute of Technology in 1891. Three years later the young man had a degree in electrical engineering.

Sloan went right to work for Hyatt Roller Bearing Co. in Newark, N.J., a maker of billiard balls and ball bearings. Soon he convinced his father to buy it for a few thousand dollars, based on its potential to supply the nascent car industry with anti-friction bearings.

By 1916, Hyatt had annual sales of $10 million — worth $211 million today. It was acquired by United Motors Corp. that year for $13.5 million, and the Sloans split their $10 million profit.

Sloan Jr. was put in charge of UMC for the next two years. After it merged with GM in 1918, Sloan became vice president under Pierre du Pont, who was also president of DuPont Co. (DD).

In 1923, du Pont handed over the presidency of GM to Sloan, who prioritized the reorganization they had agreed on. This required a deep knowledge of the company.

"Sloan wanted to be in touch with every aspect of the business, but it wasn't easy," said Dan Alef of Titans of Fortune. "He traveled in a special railroad car to practically every city in the U.S., often meeting with 10 dealerships in a day to get their suggestions and criticisms. He was so focused on the industry that he rarely read anything other than corporate reports."

Said Farber: "He and his fellow executives put in brutal hours to make sure every relevant fact was gathered and analyzed before a key decision was reached. There was no shortcut, he frequently said.

"At the same time, without fail he escaped twice a year on extended vacations. Time off, he believed, was as important as hard work in keeping his mind agile and his focus sharp."

Sloan's management lesson is that hard work isn't the same as smart work, and taking breaks is essential to making good decisions.

Paul Joskow, president of the Alfred P. Sloan Foundation, lauds Sloan for crafting a firm structured around rational principles to funnel information to precisely those decision makers who needed it.

"He was the first, and arguably the best, practitioner of data-driven management," Joskow said. "He was convinced that success required a comprehensive and unbiased view of the facts, and that managers needed to discard their hunches and gut feelings and follow where the facts led them."

Crucial was stopping competition between divisions and providing corporatewide guidelines for operations.

"When he became president, every division carried its own research and development, engineers, advertising and so forth," said Jeremy Dimick, curator of collections at the Flint, Mich., Sloan Museum, which showcases the evolution of the car industry. "There was no unified sales strategy, and he centralized policy and decentralized administration, laying the foundation for the company's tremendous success."

On The Go

By 1929, GM had surpassed Ford (F) in sales in large part due to Sloan's innovative branding strategy. While Ford offered one color — black — and a low price, GM introduced two revolutionary concepts:

• The annual introduction of new models with styling and technology changes.

• What Sloan called "the ladder of success," with each division marketing to a different segment of customers. As customers' earnings and lifestyle improved, they would move from the inexpensive Chevrolet to GMC, then Pontiac, Oldsmobile, Buick and ultimately Cadillac.

The Great Depression of the 1930s forced some carmakers out of business. GM maintained a profit of about 10% throughout the decade except 1932 by closing plants, laying off workers, improving efficiency and lowering prices — resulting in increased market share.

GM sales dropped from $1.5 billion in 1929 to $432 million in 1932 before growing again.

"Sloan often said that picking the right people for the right job was the most important thing he did," said Farber. "And when he picked that person, he put the whole weight of his authority behind him.

"Memorably, after he decided to hire the Hollywood custom car stylist Harley Earl to revolutionize design at GM, he told everyone that if Earl wanted to wear chartreuse suits and paint the walls bright colors to inspire his people, that was fine with him.

"Sloan was a very button-down man, but he recognized that other people had their own way of working. Results, not appearance, were what mattered."

Sloan's management lesson is to hire the best people, empower them and get out of their way.

In 1937, Sloan became GM's chief executive, turning over the day-to-day management responsibility to the president, William Knudsen.

This was accompanied by another reorganization that merged the executive and finance committees in one far-reaching policy committee. That reduced DuPont control.

War Footing

When President Franklin Roosevelt chose Knudsen as head of America's wartime production, Sloan and Knudsen's replacement, Charles Wilson, oversaw GM's conversion to making military hardware.

Sales from these government contracts soared by 1945 to $13.4 billion — worth $167 billion today.

Sloan's autobiography, "My Years With General Motors," largely written in the 1950s, was not published until 1964. In keeping with his philosophy, it reveals little about him, instead emphasizing the need for companies to succeed with professional management, not a cult of personality around a founder or CEO.

Sloan's management lesson is to aim for your company, not yourself, to earn the positive headlines.

After retiring in 1956, Sloan dived into philanthropic activities.

"He believed that a systematic understanding of the world driven by science would advance human welfare, and he spent his fortune to support scientists and improve and expand science education," said Joskow.

"He was instrumental in the creation of the Sloan-Kettering Cancer Center in New York, the world's leading cancer research facility. He financed the creation of the Sloan School of Management at MIT, which is devoted to teaching scientific industrial management methods. Our foundation spends some $75 million a year in support of science, technology and economics, and the fellowship program has provided crucial early-career support to more than 5,000 of the nation's brightest researchers."

By the time he died at age 90, Sloan's foundation had assets of $305 million and had already donated $130 million, while he still retained $250 million, wrote Farber.

His legacy, GM, is the world's largest carmaker by unit sales and employs 202,000 people.

(Ads will not print)