Decentralized Operations with Co-ordinated Control

Exerpted from My Years with General Motors, Chapter 3, “Concept of the Organization”
©1963, 1991 Alfred P. Sloan, Jr.

The two types of operating problems, one arising from too much centralization [e.g., du Pont] and the other from too much decentralization [General Motors], were soon to be met by many large American manufacturing enterprises … I became convinced that the corporation could not continue to grow and survive unless it as better organized, and it was apparent that no one was giving that subject the attention it needed.

… a half year before the actual economic and management crisis began, I drafted the “Organization Study” and circulated it unofficially. It became a kind of “best seller” in the corporation all during 1920:

"The object of this study is to suggest an organization for the General Motors Corporation which will definitely place the line of authority throughout its extensive operations as well as to co-ordinate each branch of its service, at the same time destroying none of the effectiveness with which its work has heretofore been conducted.

"The basis upon which this study has been made is founded upon two principles, which are stated as follows: —

1. The responsibility attached to the chief executive of each operation shall in no way be limited. Each such organization headed by its chief executive shall be complete in every necessary function and enable[d] to exercise its full initiative and logical development.

2. Certain central organization functions are absolutely essential to the logical development and proper control of the Corporation’s activities.’

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Looking back on the text of the two basic principles, after all these years, I am amused to see that the language is contradictory, and that its very contradiction is the crux of the matter.

The next point in the study was how to carry this philosophy into action:

"3. To definitely determine the functioning of the various divisions constituting the Corporation’s activities, not only in relation to one another, but in relation to the central organization."

That was a big chew, but it is correct. If you can describe the functions of the parts and the whole, you have laid out a complete working organization, for by implication the apportionment of responsibility for decisions at various levels is contained in the description.

"4. To determine the status of the central organization and to coordinate the operation of that central organization with the Corporation as a whole to the end that it will perform its necessary and logical place.

"5. To centralize the control of all the executive functions of the Corporation in the President as its chief executive officer."

In brief, the study presented a specific structure for the corporation as it existed at that time ... It expressed in its way the concept that was later to be formulated as decentralized operations with co-ordinated control.