Best Defense

Rules of Innovation (8): You Need to Be Backed by a Robust Headquarters That Tracks and Understands the Environment

This is another one of those counterintuitive rules: An innovative organization must have a strong, well-staffed headquarters.

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This is another one of those counterintuitive rules. (It really should have come right after Rule 3, about the importance of adapting the organization.) This rule is: An innovative organization must have a strong, well-staffed headquarters.

A good example here is the competition between Ford and General Motors in the 1920s. Henry Ford made all the decisions in his outfit and so had a tiny headquarters. That worked fine as long as he made only one product, the Model T. Yet he “found it extremely difficult to develop other products, such as airplanes or tractors, or other cars, like the Lincoln, or even new models of his single product. His whole organization was fashioned rigidly around the Model T.”

General Motors, under Alfred Sloan, had developed a top office capable of coordinating, appraising, and policymaking. “Such a structure permitted General Motors to diversify with a minimum of strain into other product lines based on the internal-combustion engine when the demand for automobiles leveled off and began to decline in the late 1920s and early 1930s.”

Henry Ford also failed to recognize a fundamental change in the car market. He specialized in selling the entry level car. Yet as the automobile industry aged, his major competitor became not General Motors, but the used car. “Mr. Ford failed to realize that it was not necessary for new cars to meet the need for basic transportation,” remembered Sloan in his autobiography.

Image credit: Wikimedia

Thomas E. Ricks covered the U.S. military from 1991 to 2008 for the Wall Street Journal and then the Washington Post. He can be reached at ricksblogcomment@gmail.com.

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