Where The Current Management Approach Came From? (Part 6)
As we know, the pioneer of Mass Manufacturing in the 1920s, the Ford Motor Company and its successor General Motors set the foundation for the contemporary management systems. It all started with Ford’s Model N automobile when the company started utilizing a sequence of production steps instead of grouping them by product type. Sequence means that the car’s chassis moves along the production line, with all parts being integrated onto or into it in each step. The first sequence includes the application of the engine, the next one front and rear suspension, and goes on. The sequential flow proved to be way more efficient than grouping. Then the approach was applied in the production of Model T from 1910 in the Highland Park Plant and, also, it was applied in the fabrication of its parts.
But still, some assembly processes were performed in the old approach. In other words, one worker was assigned to assemble a part by complete all the tasks required on his own. The approach lasted for even more years.
However, in a matter of years, the demand for Model T carried on rising, and it ended up with Ford not being able to catch up with the market. Then, in 1913 the engineers started pondering about the improvements and came up with a plan to use that very sequential production on the flywheel magneto. After that, they witnessed a considerable increase in productivity.
The holistic view would reveal that then Ford used the sequential production methods in the production of parts and the final assembly of cars. That guaranteed a huge increase in overall effectiveness and efficiency.
The Vision: Ford Approach (the 1910s)
Henry Ford was enthusiastic about improvement, and he intended for perfection. So, the company wanted to keep going forward and started a project of making the whole car production from raw materials to finished automobiles into a sequence flow. To get closer to the vision, they built a six-story factory in 1914, and it included parts production on the upper floors and final assembly on the ground floor. The materials were in a flow from top to bottom.
The most interesting part here is that the company had a vision, and they continuously tried to move towards it. They were trying to create one connected flow of production with zero wastes. Toyota has the same mindset of moving towards the vision that may truly be impossible to achieve but the one that is worth pursuing.
There comes the vision of Henry Ford:
Our big changes have been in methods of manufacturing. They never stand still.
The 1x1 flow of production constitutes that the production takes place as one flow with no inventories and zero wastes. Ford did come close to that level in the 1910s, as they only produced Model T; they did not have any other models. But the market kept changing, and in the 1920s, customers were demanding more models and new models emerged. So, the two new challenges being the assortment and a changed product lifecycle affected the factory operations, and structure in the six-story factories had to be adjusted and redesigned or decoupled to return them to their old state. The manufacturer chose the decoupling option; in other words, they opted to separate the processes in the value stream and make them siloed.
Furthermore, General Motors came into the game and got popular with its management-structure-focused mindset. They achieved a big success, and everybody turned to them as a role-model.
The GM Approach (1920s-present)
Ford Motor Company, in its time, as we mentioned, focused on the vision in terms of production and paid less attention to the management structure. On the other hand, General Motors concentrated on developing systematic management and the organizational structure, which became the cornerstone of today’s systems.
Firstly, GM relied upon the rate-of-return analysis to decide which projects to invest in. The founder of that management approach, Alfred Sloan, once mentioned that:
We are not in the business of making cars, we are in the business of making money.
Secondly, they focused on maximizing the outcome of an individual process rather than a stream. Their main problem was to lower the costs by achieving economies of scale and increasing the utilization rate.
Lastly, putting the accounting targets in the first place. In detail, each department receives a target that is based on quantitative data.
Success
With that approach, GM achieved tremendous success and made others imitate. Moreover, the approach became the general standard. Numerous researches were conducted, MBA students taught, and companies started to be managed by it. However, the world is in constant flux, so no approach or process is sustainable without a change. Until the 1960s, it worked, but after that, the approach proved to be inefficient. The world demanded a change.
