New Frontiers for Professional Managers (Part 2)

What follows is an excerpt from the 1956 book New Frontiers for Professional Managers by Ralph Cordiner of GE Corporation.

Within our own country, the lag between theory and practice is reflected in wasteful frictions and antagonisms between government, business, unions, education, and other institutions. Because of the national obsession with concepts that are no longer relevant—concepts of old world capitalism and old world socialism—each of these groups finds much of its own work frustrated or attacked on the basis of wholly obsolete assumptions as to the nature of economic life in the United States today.

This situation is increasingly recognized by educators, businessmen, and other informed people. It will require the efforts of all to bring an adequate resolution. The McKinsey Lectures, by recording the experiences and philosophies of men engaged in the management of large enterprises, may be helpful in reducing the gap between economic theory and practice.

Let us begin with some commentary on the rise of large-scale economic enterprises.

Whenever a society industrializes, one of the most important characteristics is a great increase in the scale of its undertakings. The drive toward more complex technologies, toward more massive use and guidance of the forces of nature, toward mass production and mass distribution, necessarily results in the development of large-scale economic organizations. England has them, Russia has them, Germany has them, other industrial nations have them, and the United States has them. Their size is generally related to the size and technical capacity of the national economy in which they operate. Without these large-scale economic enterprises, a nation today is a second-rate power and its people suffer both lower standards of living and greater vulnerability to attack by aggressive nations.

In the United States, with its deep dedication to human liberty and its competitive economic system, the characteristic form for these large-scale economic enterprises is the modern corporation, of which General Electric is an example. In other countries, with other traditions, they may take the form of state-owned or state-regulated organizations, with all that is implied in terms of state control of the life and work of the citizens. In Russia, for example, we see the strange distortion of a state which can produce thermonuclear explosions and advanced jet aircraft, yet is unwilling to provide enough bread, shoes, and housing for its people. It appears that freedom is required to assure that these large enterprises will serve the people most effectively.

The modern American corporation certainly poses problems of its own, both social and political. But on balance, most observers agree that it has delivered the goods more abundantly than any visible alternative anywhere in the world.

When I say delivered the goods, I mean that the people have in their hands, not promises, but an abundance of the material things that are desired by this country's citizens. As a consequence of this abundance, people in the United States have awakened to new opportunities for cultural and spiritual attainment, new dimensions of freedom, that become possible in an economy where the basic physical needs can be taken almost for granted.

ROLE OF LARGE ENTERPRISES

Because these lectures deal specifically with the management of large enterprises, it might be worthwhile to summarize, briefly, their role in our national life. It is a creative role which might be characterized in three points:

First, the large enterprise is a source of innovation. It operates on a scale large enough to afford the staff of managers, scientists, engineers, production men, marketing men, employee and public relations men, financial men. and other functional specialists required to create—continuously—new knowledge, new products, and new markets. Out of these innovations come that stream of new industries which we take almost for granted these days, the new industries that provide fresh business opportunity for small and large companies and provide employment for our expanding population.

Second, the large enterprise is a source of mass production and mass distribution. It has the capacity to take new-product ideas out of the research and engineering laboratory and, in a relatively short time, make them generally available to the people. Here again, it is important to remember that smaller companies always do much of the work involved in processing materials, making components, providing supplies and services, performing sales and distribution functions, and carrying on other profitable portions of the over-all business flow. But generally it is the large enterprise that energizes the great flow of work involved in serving a mass market. Without the human and material resources of the large enterprise, and its ability to take large, long-term risks, these mass-production and mass-distribution processes simply would not get started and probably would not even continue to operate successfully.

Third, the large enterprise is a source of advanced technical capacity. It is the developer, designer, producer, and distributor of the complex, advanced products and systems of our age: the turbines, the atomic-power reactors, and even the advanced defense-weapons systems that cannot be produced with limited resources either of men or facilities.

One might add other categories in describing the role of the large enterprise, but these three—innovation, mass production and distribution, and advanced technical capacity—indicate how the large enterprise serves as an energizer of business activity. It sets up a dynamic flow of work and money which moves swiftly through the nation's highly integrated economy and provides much of its living, expansive power.

I have spoken in terms of the large manufacturing company, but the description applies with equal force to the large financial and service institutions, the large power-supply and transportation enterprises, or any other large economic organization. The large enterprises provide innovation, mass service, and advanced technical capacity.

This is not the place to take up the distinctive contributions of other segments of the economy— the smaller enterprises, the professions, universities and colleges, the unions, the government, and others. But it is important to see their interdependence, each relying on the other to perform some necessary function in getting the nation's work accomplished.

The purpose of this prologue on the nature and function of large enterprises has been to indicate why it is in the public interest that the large corporations continue to be expertly, profitably, and responsibly managed. They are business enterprises. They must serve, survive, and grow in a competitive business system. They must therefore make healthy profits, as an incentive to investors to risk their savings, and as a resource for the forward-driving work of innovation which provides so much of the vitality of our expanding economy.