A brief history of American
Industry with emphasis on the
auto industry
1955 Fortune 500
Rank Company
Revenues($ m)
1 General Motors
9,823.50
2 Exxon Mobil
5,661.40
3 U.S. Steel
3,250.40
4 General Electric
2,959.10
5 Esmark (Swift & Co)
2,510.80
6 Chrysler
2,071.60
7 Armour
2,056.10
8 Gulf Oil
1,705.30
9 Mobil
1,703.60
10 DuPont
1,687.70
11 Amoco
1,667.40
12 Bethlehem Steel
1,660.30
13 CBS
1,631.00
Profits($ m)
806
584.8
195.4
212.6
19.1
18.5
1.6
182.8
183.8
44.4
132.8
117.2
84.6
Revenues
14 Texaco
1,574.40
15 AT&T Technologies
1,526.20
16 Shell Oil
1,312.10
17 Kraft
1,210.30
18 ChevronTexaco
1,113.30
19 Goodyear Tire & Rubber
1,090.10
20 Boeing
1,033.20
21 Sinclair Oil
1,021.50
22 Navistar International
994.1
23 RCA
941
24 Union Carbide
923.7
25 Firestone Tire & Rubber
916
26 Douglas Aircraft
915.2
Profits
226.1
55.8
121.1
37.4
211.9
48.1
37
91.6
36.3
40.5
89.8
40.5
36.2
Historic Objectives:
Efficiency – Economies of Scale
Productivity
Freedom from Suppliers
This was the model of business for many decades.
What went wrong?
1531
1841
1776
Four Functions of Any Organization
1. Management: Ensure long term survival
2. Operations: Improve productivity
3. Marketing: Maximize market share
4. Finance: Maximize shareholder wealth
1945 - 1955
War Over
Chandler
U. S.
Industries
Productivity
1945 - 1955
Cheap
Labor
Chandler
U. S.
Industries
Productivity
1945 - 1955
Isolationist
Nation
Chandler
U. S.
Industries
Cheap
Labor
Productivity
1945 - 1955
Anti-Trust
Laws
Chandler
U. S.
Industries
Isolationist
Nation
Productivity
Cheap
Labor
1945 - 1955
Unions
Chandler
U. S.
Industries
Anti-Trust
Laws
Isolationist
Nation
Productivity
Cheap
Labor
1945 - 1955
Finance
Chandler
Anti-Trust
Laws
Productivity
U. S.
Industries
Isolationist
Nation
Cheap
Labor
Unions
Brief History of Auto Industry
1) Factors of production must be used efficiently, or they will be
lost. A fragmented industry, by definition, is inefficient.
2) Competition always drives returns to the point where marginal
costs equals marginal revenue. This is because someone sees
that by establishing efficiencies it is possible to make more
money on volume than on separate items.
These rules of economics have not changed, and are not likely to
change
Brief History of Auto Industry
1769
Nicolas Cugnot fitted a wagon with a steam engine, fired it up and
ran it across a field in France, thereby becoming, as far as we
know, the first person to make and operate a powered vehicle.
Cugnot's machine did not handle well and he ran it into a wall, the
world's first auto accident.
Legend has it he was arrested for his trouble and so might also be
credited with the world's first moving violation.
Brief History of Auto Industry
1876 invention of the four stroke, internal combustion
engine by Nikolous Otto of Germany.
1885 saw the first motorized, three wheel vehicle
made by Karl Benz, also of Mannheim, Germany. It
was not the first time a vehicle had propelled itself. What was new was that
Benz perfected his machine, put it into production and people bought it.
His vehicle (and all subsequent vehicles until the
1920s) was called a ‘motorcycle’
Brief History of Auto Industry
Shifting now to the U.S., the
development of the automobile was a
Mid-West phenomenon.
The Mid-West was the bread basket for
the country.
Brief History of Auto Industry
Early pioneers of the industry (at the turn of the 20th century) were:
Ransome Olds – Oldsmobile and Reo
Henry Leland – Lincoln and Cadillac
Walter Chrysler – Chrysler
David Buick – Buick
James Packard – Packard
Frank Duryea – Duryea
John Dodge – Dodge
John Maxwell – Maxwell, which later became part of Chrysler
Louis Chevrolet – Chevrolet
Roy Chapin – Hudson (remember Hudson Hornet from the movie “Cars”?)
Thomas Jeffery – Rambler
There were hundreds of auto makers
Brief History of Auto Industry
1908: Durant creates GM with Olds & Buick lines
Hupmobile was introduced.
Durant’s contribution was the start of consolidation of a very fragmented
industry.
He was borrowing from ideas created by Carnegie and others who
brought economies of scale to their industries.
Brief History of Auto Industry
• Olds: First mass produced auto in U.S.
• Ford: Achieved economies of scale to product a
car for ‘every man’ (Low Cost)
Brief History of Auto Industry
Proof of that economic theory:
1908: Ford’s 1st model T produced. Price $850 ($16,800
today) Construction of Rouge River Plant begins.
1923: Model T sold for $265 ($2,930 today)
Brief History of Auto Industry
Ford Rouge plant, 1927
Largest industrial complex in the world with 93 structures, 90
miles of railroad tracks, 27 miles of conveyors, 53,000 machine
tools and 75,000 employees.
Motivation: Economies, & freedom from suppliers.
Mission: An automobile for every person (Low Cost)
Brief History of Auto Industry
1923
Alfred P. Sloan, Jr. organized GM management along
the lines of the German Army under Bismarck, using
the line - staff concept. Created Cost Accounting.
1924
The mission was a vehicle for every purse and
purpose. (Differentiation)
General Motors’ market segmentation circa 1925
Their mission: An automobile for every purse and every purpose
Cadillac
Oldsmobile
Buick
Pontiac
Chevrolet
Imperial__
Chrysler__
___De Soto__
____Dodge__
Plymouth__
Relevance of Auto Industry
1996:
Depending on whose figures you accept,
one in six or one in seven working
Americans is (was) engaged in the
building, selling or maintenance of motor
vehicles.
Culture – circa 1950s
All of these factors led to the ‘American Dream’ being born – jobs for
life became an expected norm.
What was good for business was good for the country!
Nothing exemplified this more than the ‘freedom’ provided by the
automobile.
Remember the material from the Global Economy work.
Look at this video and notice carefully what they are selling
http://www.youtube.com/watch?v=qhR8GZ_WWMM
Culture – change through the 1990s
What I wanted you to see from the video was that they were not selling
the car, but the freedom, and individuality from automobile ownership.
Here is an updated version of the advertisement. Maybe they are
learning the importance of selling the vehicle rather than the deal.
http://www.youtube.com/watch?v=JD7EsyYlqlU&feature=related
(From the 2011 Super Bowl)
Culture
All of this would have been great, but the world changed and the
dream didn’t. People began to feel ‘entitled’ and privileges became
rights. Power of unions increased. Interest in ‘management’ waned.
Very little thought for tomorrow, and even less concern.
We were not blind-sided. We were blind.
Outsourcing lead to demise of many industries. Among these:
Ship building
Aircraft manufacturing
Steel
Basic Research
Electronics
and now, Automobiles
Here is what went wrong at GM.
Recall that a strategy is management’s THEORY about how a business
works.
Obviously, this theory requires some assumptions about how the world
works.
Assumptions made by GM:
1. Markets are homogeneous.
2. Values are stable.
3. Income groups are stable.
Assumptions about how business works:
1. The assumptions about environment define what an organization is paid for.
2. The assumptions about mission define what an organization considers to be
meaningful results; in other words, they point to how it envisions itself
making a difference in the economy and in the society at large.
3. Finally, the assumptions about core competencies define where an
organization must excel in order to maintain leadership
DEALING WITH CHANGE
1. Defensive
2. Ignore
3. Patch
There is a need for preventive care --that is, for building into the
organization systematic monitoring and testing of its theory of the
business . There is a need for early diagnosis. Finally, there is a need
to rethink a theory that is stagnating and to take effective action in
order to change policies and practices, bringing the organization's
behavior in line with the new realities of its environment, with a new
definition of its mission, and with new core competencies to be
developed and acquired.
Without systematic and purposeful
abandonment, an organization will
be overtaken by events.
Culture
The most advanced auto plant in world.
Now try this video made more recently:
http://info.detnews.com/video/index.cfm?id=1189
Not just the culture of the Auto Industry –
the national culture
“We will win and you will lose. The seeds of your
failure are within you.”
Akia Morita to Jack Welch (circa 1985)
Add to that the idiocy of the purpose of a business
being to maximize shareholder wealth (an idea
added in the 1970s), the arrogance of power and
position, and you have a recipe for disaster.
Nothing shows this better than the recent history of
GM.
Last Board of General Motors
Percy Barnevik
Retired Chairman, AstraZeneca
Operations
Erskine Bowles
President, University of NC
???
John Bryan
Armando Codina
Retired Chairman, Sara Lee
Chairman, Flagler Development
Marketing or operations
Land development
Erroll Davis
George Fisher
Chancellor, University System of Georgia ???
Retired CEO, Eastman Kodak
Operations
Neville Isdell
Chairman, The Coca-Cola Co.
Marketing or operations
Karen Katen
Senior Advisor, E W Health Ventures
Management?
Kent Kresa
Philip Laskawy
Chairman Emeritus, Northrop Grumman
Retired Chairman, Ernst & Young
Operations
Finance
Kathryn Marinello
CEO, Ceridian Corp
Business Services/Finance
Eckhard Pfeiffer
Retired CEO, Compaq Corp
Richard Wagoner
CEO, General Motors
Operations - defunct
Insider w/finance
background
What Should We Be Doing?
• Chandler’s Logic of Managerial Enterprise
• Understand what the global economy
means
• Avoid making decisions based on
numbers
Japan
• In the 1950s was in serious trouble. We
went in to help.
• Toyota and unions
W. Edwards Deming
The 14 Points
Or, the Real Business Policy
• Create constancy of purpose toward
improvement of product and service, with
the aim to become competitive and to stay
in business, and to provide jobs.
W. Edwards Deming
• Adopt the new philosophy. We are in a
new economic age. Western management
must awaken to the challenge, must learn
their responsibilities, and take on
leadership for change.
W. Edwards Deming
Cease dependence on inspection to achieve
quality. Eliminate the need for inspection on a
mass basis by building quality into the product
in the first place.
Improve constantly and forever the system of
production and service, to improve quality and
productivity, and thus constantly decrease
costs.
W. Edwards Deming
•
Eliminate slogans, exhortations, and targets for
the work force asking for zero defects and new
levels of productivity. Such exhortations only
create adversarial relationships, as the bulk of
the causes of low quality and low productivity
belong to the system and thus lie beyond the
power of the work force.
–
–
Eliminate work standards (quotas) on the factory
floor. Substitute leadership.
Eliminate management by objective. Eliminate
management by numbers, numerical goals.
Substitute leadership.
W. Edwards Deming
• Institute a vigorous program of education
and self-improvement.
• Put everybody in the company to work to
accomplish the transformation. The
transformation is everybody's job.
W. Edwards Deming
• Learning is not compulsory…neither is
survival.
Purpose of Business
For those who are still skeptical about the
ideas from this course, just one question:
Where is the money!
Role of Government
• Establish Infrastructure that will attract
factors of production.
• To Maximize shareholder wealth is to
TRANSFER wealth.
• To satisfy a need is to CREATE wealth.