Job Advice: The Concept of the Corporation Chapter 2

He ends with leadership. He ends with the advice we give to new graduates. Work for a small company first. Your will learn more. You will get a better understanding of the business. You will move into leadership ranks faster.

“A senior executive of one of the big divisions after speaking at length
about the advantages of his centralized organization, concluded by saying that they were attainable only because the smaller decentralized divisions supplied the top leadership,” Drucker noted. It works “very much in the manner in which a big baseball club will get its talents from its small farms, but its revenue from the
big.timers. (127)

Annual Model Year: The Concept of the Corporation Chapter 2

In his autobiography, Sloan presents the annual model change as a way of improving the product. He is a little more or a Taylorist than Drucker.

Drucker argues that it is a way of bringing market forces to bear on units that cannot be decentralized.

We all see what we admire in the picture.

In a note that shows how thoroughly this discussion is rooted in 1946, Drucker notes that few organizations could afford an annual model change. “the annual model is something few industries could have”. (124) Many, many industries run on production cycles that are far shorter than a year. That is one of the changes that has happened in the past 50 years, a change that could not have been managed without software.

Golden Tower of the Fisher Building: The Concept of the Corporation Chapter 2

Nearing the end of Chapter 2.

If you know Detroit, you know the Golden Tower of the Fisher Building, which is on West Grand Avenue, which is more or less the active and healthy section of downtown. The General Motors building is across the street from it. The Motown artists lived north of it.

I was going to do a bit of a note about how the Fisher Building represented the decentralization of General Motors but that idea fell apart. First, Fisher Body never occupied the Fisher Building. The family build it after they sold Fisher Body to General Motors. (For the record, I worked for Fisher Oldsmobile, which was owned by minor and distant branch of the family.)

Second, Fisher Body was not very decentralized. They had one plant for each of the major GW auto lines, which were all managed out of Detroit. Third it was highly efficient as a centralized unit.

Drucker argues that it was able to survive as a centralized unit because it made a single, simple products. That may be the case or not. There is aways a question of why it existed as a distinct unit at all and was not divided and merged into the different automobile lines.

It was originally an artifact of the early manufacturing process. People bought automobiles without the body and then bought a body later. Certain carriages apparently worked on a similar principle. It survived because it survived because it used a specialized manufacturing technique – stamped sheet metal – that was not common in other parts of the company.

Drucker’s example of Fisher Body may not tell us much about how to a company any more than the Fisher Building tells us much about GM. It is not centralized. It seems to work. It may not be a logical division of the company. It certainly is no longer. It was dissolved in 1984.

Dealer Council: The Concept of the Corporation Chapter 2

Drucker spends little time with this. The idea is obvious. GM has a council of 36 dealers that represent the 12,000 in existence in 1946. It’s a good ideas. It helps with the flow of information. It helps GM executives imagine what it is to be a dealer. However, it does not really balance power.

Used cars : The Concept of the Corporation Chapter 2

Apparently General Motors had to develop expertise in the used car market in order to support its dealers. When I worked in the business, that market was international, though confined to North America. Michigan cars were taken to Mexico and sold there, as they were generally in poor shape because of the salt used on the roads in winter. Used Cars from Texas and Florida were brought to Michigan, as they were in better condition and could be sold for more.

Once or twice a month, the used car team appeared at the dealership. They were gypsies of a sort, moving north and south, dealing for cars, and notifiying their carriers when and where to pick up their purchases and deliver their sales. I drove them on and off the trucks, a frightening task, though I don’t recall that I ever dropped a car off the rail. I think I came close on at least one occasion, though.

The used car team communicated with our dealership through a stream of telephone numbers, phone booths I suppose, that they left at the dealership like a trail of bread crumbs. Cell phones and the internet must have made that process much easier.

Good will: The Concept of the Corporation Chapter 2

Drucker spends a bit of space arguing that the repubation of a dealership and its community relations were assets. Is that a new concept in 1946? I can’t believe it is. But it does represent a issue that we will track. The value of a good name.

Dealer Relations : The Concept of the Corporation Chapter 2

Profit comes not only from buying low and selling high but also from increasing turnover and reducing risk. In the auto industry, turnover is connected to the model year and will be dealt with later. The reduction of risk is connected directly to dealer relations and making them feel that their commitment is secure.

I don’t know the kind of dealer that Drucker is describing. I helped the local Oldsmobile dealership move from a 1950s era building to a 1970s. The 70s building was a substantial investment and the owners were quite proud of it. The 1950s, though showing its age, was nice for its time. Judging from old pictures, the original owners clearly felt that they had moved into a new class.

What came before? Was it basically a field and a shack? Drucker is suggesting that dealers may have been little more than an open field because he talks about General Motors guaranteeing that dealer contracts will run for at least 2 years and will give at least three months notice. It seems to me that my dealership could have gotten the kind of loan that they would have needed to build either the 1950s or 1970s facilities on those kind of terms. But perhaps that is what the dealer policies were offering. General Motors had a strong market research group. Drucker hints that they had a strong sense of what the 1950s automarket would look like. The central administration was probably trying to protect their ability to terminate contracts while offering enough security for local dealers to get decent loans.

In business, nothing is ever free.

ReConversion : The Concept of the Corporation Chapter 2

Drucker clearly loves the story of how GW converted to war production and then reconverted to civilian production. An example of decentralization at work. No unified plan for the company, Drucker claims, but a series of principles that the company attempted to use to shape its approach to the war. This section largely deals with the relation between central and divisional management, which is Drucker’s chief concern, and it largely presents the story as successful. The company did what it did and started reconversion to a peace time economy in the spring of 1943.

It is hard to read this without thinking of the stories of war fraud. The Truman Commission. All My Sons. Still, the most interesting point to me is one that is unexamined. In the section about reconversion, the central management decides on a major expansion program even though they anticipate that the domestic demand for automobiles will be of short duration. What did they foresee for the post-war years? Did they know that most of the productive capacity of the world would have been bombed to pieces? Did they anticipate the GI bill, or the Cold War? This seems unlikely. Why did they make such plans? General Motors faced its greatest crisis of the first half century in the 1922 post war recession. Drucker is writing as if that event never existed.

Organic Growth: The Concept of the Corporation Chapter 2

Perhaps I was too cynical yesterday. Perhaps I was too impressed with the similarities in language between Hard Times and Concept of the Corporation. In fact, I’ve been in organizations run by opinions and know the frustrations of dealing with demons.

Drucker balances the insistence of fact against the idea that General Motor’s decentralization was not imposed by a dictatorial power but grew naturally and adjusted to needs of people and organizations.

Human organizations often have to take detours, he notes. “Being human they run never aspire to perfection and must thus make imperfection workable. Being human they also have to reckon with the very considerable differences of temperament, ability and rhythm between individuals.”

This split, which marks the difference between the human and the absolute, is the issue that makes Drucker interesting.

Freedom and Informality: The Concept of the Corporation Chapter 2

This chapter begins with a disturbing thought. It claims that GM was once an informal and relaxed company. I have gotten used to the idea that GM was once the largest defense contractor and that Detroit was once the wealthiest city in the country, though I suspect that claim wilts a bit when you look at New York carefully. Still, the GM I knew in my youth was not a bastion of casual activity.

Still, that is what Drucker claims: “There is little emphasis on title, rank or formal procedure. Indeed, the one thing that is most stressed by all executives is the “informality” that exists in the relationships among the members of this group and in the division of their work.” (p 63)

It is a description that reminds me of the early days of Silicon Valley, when news reports were full of casual clothes and undisciplined hours. At the time, I thought that this approach came from a combination of California weather and money from the military industrial complex. In fact, it probably had more to do with the fact that the reporters were describing engineering complexes rather than production facilities. Engineers have a different relationship to their tools than workers.

Still, this picture of Detroit in the 1940s is not Detroit in the 1970s. If it was true, and I will assume that it was, Drucker is clearly using it to claim that the management of General Motors was a good. It was a good place to work, he is saying, so the management must be good.

Decentral Operations: The Concept of the Corporation Chapter 2

Drucker makes an interesting literary decision. He introduces the benefits that he sees in decentralization in the context of one of his interviews. It moves the discussion away from his opinions and gives it the appearance of being more objective, more analytic. If you look carefully, the benefits tend to be the benefits to central management or the corporation than to individuals. They don’t quite deal with the three categories that Drucker identifies at the start of the book, though I suspect that he will return to those points and try to make the connection between the inner and outer world of the corporation.

The five benefits of having a central manager, articulated by an unidentified central executive, are:

1. The central management gets broad goals for the divisions;
2. Unifies the divisions into a whole and limits their authority;
3. Tracks progress and problems;
4. Relieves divisional directors of certain task (Financial, legal, public relations etc);
5. Offers best advice from central legal, accounting, etc staff.

All of these things can be good things but they can also seem like impositions on division leaders who are anxious to acquire more authority. The complaints can be major or they can be petty – too much red tape, interference by bean counters, and so on.

Tale of Two Buildings : The Concept of the Corporation Chapter 2

There is a General Motors Building in both New York City and Detroit. Or at least their once were buildings of the same name in both cities but then GM moved into the Renaissance Center on the Detroit River and the original General Motors Building was renamed Cadillac Place. OF course in 1946, the year of this book, the GM Executive Offices were in 1775 Broadway, now 3 Columbus Circle.

The point is that General Motors had a strong presence in both cities. Detroit was the industrial hub, the home of operations. New York was the financial center, the place where the company raised funds and dealt with the corporate world. The separation mirrored the corporate structure of GM, though the physical locations don’t perfectly map onto the company structure. By 1946, GM had 30 divisions and each was almost a complete company. The corporate office provided certain central services – legal, financing, etc. – that held the group together.