1970s

The 1970s marked a crisis in the organizational model that had helped American corporations mass-produce goods cheaply and efficiently. As managerial layers accumulated, authority concentrated at the top, and information struggled to move across the company, firms lost some of their ability to coordinate their own parts. The decade’s decline showed that hierarchy is not a substitute for information processing: large organizations need both the local knowledge and initiative of their members and ways to make their contributions useful across the whole.

A hierarchy under strain

For much of the twentieth century, the American corporation had few serious rivals in its capacity to coordinate mass production. But by the 1970s, that capacity had weakened. Command-and-control management appeared to offer an easy answer to coordination—leaders could simply issue orders—but trying to run an entire company that way was costly in time, required executives to handle more information than they should, and diminished the initiative of both workers and managers. Coordination that arose within an organization, rather than being dictated from above, could make a company lighter and more flexible. Yet concentrated power and layers of managers gave employees reason to keep ordering one another around.

The contrast between Ford and Toyota made the distance between their structures concrete. At Ford, more than fifteen managerial layers separated the chairman from a factory-floor supervisor; at Toyota, there were five. The disparity was not merely a matter of organizational charts. Every layer could delay the passage of information and make it harder for people responsible for separate parts of a company to understand the larger work they were doing.

Information lost on the way up

The problem was visible on the factory floor. At a General Motors plant in Van Nuys, California, two assembly-line workers repeatedly failed to install a bracket that held a car’s sunshade in place. If the bracket was missing, a repair worker at the end of the line had to tear out the carpet and weld the part into place. When a supervisor showed the workers what happened, one woman was surprised to learn what the bracket did: she had been doing the job for two years without being told what part she was welding. The episode showed how a narrowly assigned task, cut off from its purpose, could prevent workers from seeing the consequences of their own work.

Information had to navigate obstacles higher in the organization as well. A chart reproduced in Thomas J. Peters and Robert H. Waterman’s In Search of Excellence showed 223 possible routes through an unnamed company’s bureaucracy for a new product idea seeking approval. With so many managerial layers between executives and workers in the field, senior leaders could not be sure that their picture of the company corresponded to what was happening inside it. And the people carrying information upward had reasons to be cautious: a 1962 study found that young executives more anxious to advance communicated problem-related information less accurately, while another study of fifty-two middle managers associated career advancement with withholding news of problems. Fights and budget difficulties, among other unwelcome facts, could disappear before reaching the top.

Insulation from difference and competition

Hierarchy compounded a lack of cognitive diversity among senior managers. Many major American companies faced little competition from foreign firms or smaller businesses, and their leaders were consequently insulated from both outside perspectives and the pressure to adapt. Ford’s investment of hundreds of millions of dollars in the Edsel in the late 1950s, despite the absence of a consumer market for it, illustrated the forecasting risks of such isolation. Few major management or product innovations emerged from American companies during the 1970s and 1980s; executives in protected positions had limited access to the information needed to anticipate changes or devise new organizational responses.

The competitive environment shifted in the early 1970s, when Japanese and West German companies began bringing better products to market faster and paying closer attention to consumer preferences. American corporations had to confront competition after a long period in which their postwar hierarchies had been serviceable in markets with captive customers and middling rivalry. Ford’s Pinto, introduced in 1971, became an emblem of the decade’s limits: an unattractive car with a weak four-cylinder engine that could catch fire when struck from behind. Ford sold a million Pintos during the decade, but that success did not reverse the larger decline.

Economic consequences and the limits of the model

Over the course of the 1970s, American corporate profits, market share, and productivity growth fell sharply. By the end of the decade, Chrysler and Lockheed required government bailouts, while Ford appeared to be at risk of needing one as well. The deterioration displaced the myth of American corporate excellence with an account of a country managing its way into economic decline. The change was not simply a matter of individual companies making poor choices: the organizational structures that had once coordinated large enterprises were ill-suited to the faster product and organizational changes demanded by stronger competition.

The decade therefore serves as evidence against the assumption that integration, hierarchy, and concentrated authority necessarily produce success. The chapter’s alternative is not a rejection of coordination, but a distinction between coordination by command and coordination supported by information and distributed initiative. When the people closest to a problem can act on their knowledge, and their information can travel beyond its point of origin, decentralization can make an organization more capable. Without those channels of communication and aggregation, local insight remains local—and a large corporation can become less informed than the people doing its work.