Decentralized Structure
In 1946, Drucker wrote “Concept of the Corporation,” which explores the evolution of the business corporation and its impact on society. The result of 18 months of interviews and observation, the book discusses the beliefs and management style of Alfred P. Sloan, GM’s creator.
Drucker noted that GM gave its divisions great independence, which was uncommon by the standards of the day. “In over 20 years of work…Mr. Alfred P. Sloan Jr. has developed the concept of decentralization into a philosophy of industrial management and into a system of local self-government.” GM had 50 divisions, and Drucker estimated that all but 5 percent of decisions were within the control of the divisions.
Decisions that did require head office approval had to do with the financial function, pricing, labor costs and capital deployment. Drucker invented the term “profit center” to describe a division, and noted that these groups were held
highly accountable for results.
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