The Whiz Kids / Tex Thornton and Robert McNamara at Ford (CMC, Thursday, Week 9)
coming-of-managerial-capitalismyear-twoIn 1946, Ford is in dire straits. They hire ten former Army Air Corps officers who revolutionized the use of statistical analysis in the military during WW2.
Problems with Ford in '46:
GM is now market leader
Losing $10M/mo, about three years away from bankruptcy
Finance, accounting, control = nonexistent
Chaotic organizational structure
Where did the problems start? Henry Ford...
Fired his accountants, hired bad managers, churned out cars, averse to innovation (produces the original Model T for 19 years), no plans, abusive manager
Brings to mind another stellar individual:
"John Patterson, the founder of National Cash Register and one of the greatest businessmen of the gilded age, once notified an employee that he was being sacked by setting fire to his desk." -- Economist article
So Henry Ford's grandson (28 y/o) becomes President and hires the Whiz Kids.
Performance drivers in auto firms:
Assembly process (manufacturing)
Cycle time (parts and inventory)
==>>> Good cost accounting => Whiz Kids!
Labor efficiency
==>>> Design (emotional experience) -> Henry Ford?
The Whiz Kids bring focus on results, data-driven approach to turn-around, outsider's perspective, and they're brilliant. BUT they know nothing about the auto business.
Presages continual tension between quantitative analysis and qualitative operational knowledge.
How the Whiz Kids implement change:
-- FINANCE at the center => easy to measure
-- Everybody hates them; clash extensively with hires from GM.
-- Itemize car parts (coherent plan for costing)
-- Measure outcomes => produces short term focus? hurts R&D? long-run problems?
Robert McNamara --- presides over the greatest product flop in modern business, the Ford Edsel:
But he didn't want to bring it to market! Cause or effect --- who knows?
Rises to become President of Ford, moves over to SecDef, the rest is history...
The McNamara Fallacy:
"The first step is to measure whatever can be easily measured. This is OK as far as it goes. The second step is to disregard that which can't be easily measured or to give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what can't be measured easily really isn't important. This is blindness. The fourth step is to say that what can't be easily measured really doesn't exist. This is suicide." -- Dan Yankelovich
Legacy of McNamara
-- Intellectual arrogance, rigid division between managers and workers (leaders are anointed MBAs with book-learning).
-- Anything that cannot be quantified is meaningless.
-- Was he really quantitative? Plenty of suggestions that McNamara usually made up his mind first and then tried to find data to support it...