May Alfred Sloan R.I.P.

By Mark Edmondson

When Alfred P. Sloan was promoted to president of General Motors in 1919, he created the first management system capable of leading a large corporation: managing by the numbers. Leading by monitoring key performance indicators was a breakthrough that enabled his senior management to understand their business units well enough to make strategic decisions.

Forty years later, when Harold S. Geneen took the helm of conglomerate International Telephone & Telegraph, the next evolution of the management system for large organizations was born: the professional manager. While Sloan was a manufacturing man, Geneen had begun his career as an accountant. That put him in the vanguard of a trend: In 1939 just 7% of CEOs came from financial backgrounds; by 1969 the figure had climbed to 20%. (A decade later it was 31%.)

This new generation of polymaths would push Sloan's managerial revolution to its extreme. With the right financial tools, they believed, smart managers could run any assortment of businesses, whether it was (in ITT's case) making lawn products, publishing books, manufacturing auto parts, or selling Twinkies. The product wasn't the important thing. It was all about the numbers. It freed them from the details about their operations and people, and christened the era of the professional CEO. And Geneen had a supercomputer's capacity for absorbing them. "The drudgery of the numbers," he preached, "will set you free."

Then there were the meetings. By Geneen's own reckoning, the company devoted some 200 days a year to "meetings at various organizational levels," the most important of which took place every month in Brussels. There, for four days straight, sometimes 14 hours at a stretch, 120 ITT executives gathered around a green horseshoe table with a large screen displaying statistics. Each executive's presentation was subject to a withering cross-examination by Geneen.

Sound painfully familiar?

The successful professional CEO didn’t need first-hand knowledge of his operations. Indeed, the CEO was rarely seen on the production floor - he delegated that to his professional COO.

For a long span, Geneen made it all work. FORTUNE called him the "man widely regarded as the world's greatest business manager." Yet by the time of his retirement in 1977, the "Geneen machine" was losing steam. The slow disintegration of ITT and the other conglomerates began: Managing by the numbers, as opposed to understanding what lay underneath them, wasn’t competitive with the new global competition.

Today, we know that Sloan’s and Geneen’s model of managing by the numbers isolates leadership from operations, and breeds cynicism for management amongst employees.

Today, we know that we need a better management system that provides an efficient structure for your management team to lead on a daily, weekly, monthly, quarterly, and annual basis.

Today, we know that we need a better management system that encourages first-hand knowledge of operations by your management, enables continual radical change, and eschews the status quo

Today, we know that we need a better management system that encourages “everyone, everyday” to be engaged in continuous improvement.

Today, we call this better management system “lean”.

(For an historical perspective and comparison between the “Sloan” management system practiced by most of American companies and lean, I recommend Bill Waddell’s groundbreaking new book Rebirth of American Industry.)

Mark Edmondson is president of LEAN Affiliates, a network of leading Lean Enterprise Transformation consultants across North America. His perspective is drawn from working with over 200 companies as an operations executive, business process consultant, consulting principal, ERP and supply chain solutions executive, global alliance executive, and change agent. He earned an MS and BS in Management and Industrial Engineering from Stanford University and a BA in Management and Economics from Claremont McKenna College.