The Golden Passport

by Duff McDonald

  Born in 1916 to Robert J. and Claranel McNamara, Robert S. McNamara spent his childhood in a middle-class area of Oakland. An academic standout, he attended the University of California, Berkeley, and after graduating in 1937 applied for a Rhodes Scholarship at Oxford. When he didn’t make the cut, he decided to continue his education at Harvard Business School. The fit was a good one. McNamara took to the case method of discussion, and classmates recalled him as a dominant force in the battle for airtime. “He started taking off for the higher altitudes when we were still at the foothills,” remembered classmate Walter Haas, who went on to run the family business Levi Strauss.1 He also swallowed the ethos of Ross Walker’s Aspects of Budgetary Control whole.

  After graduating in 1939, McNamara took a job at Price Waterhouse, but Donham lured him back to HBS as an assistant professor of accounting in 1940. As previously mentioned, McNamara was soon drafted to work alongside Professor Edmund Learned and others in the Army Air Forces Statistical School. Journalist John Byrne calls the Stat School the “back office heroes”2 of the war—a bunch of suits who somehow figured out how to win a war with math, by improving the flow of information from the front lines back to headquarters and back again. McNamara was part of the team (along with Myles Mace) that worked with Colonel Charles “Tex” Thornton in devising the military equivalent of management control—the use of data gathering and statistics not just to present a static picture but to tease out meaning and suggest a course of action.

  HBS effectively became a school of accounting and statistics during World War II, and Robert McNamara was right in the center of the action. The thousands of officers trained in the “Harvard Method” of analysis rationalized the management of hundreds of thousands of aircraft and an equal number of air force personnel by “[imposing] order on the chaotic accounting systems in the Air Corps.”3 In 1943, McNamara and Mace were commissioned as Stat Control captains in the Army Air Forces in England, where they worked on projects such as establishing inventory systems in airplane maintenance depots. McNamara was later credited with helping the air force get 30 percent more flying hours out of its B-29 bombers by scheduling them more efficiently. About this, there is no debate: Robert McNamara and his colleagues at HBS played an important role in helping the United States win World War II.

  Thornton’s Stat Control group was a more elite group than anything HBS had produced to that date. For starters, Thornton recruited from among the top 10 percent of those attending Officers Candidate School in Miami. But those recruits also had to successfully graduate from the Stat School. The result: Every member of the group, writes Byrne, “had passed through the same fine screen, had the same training, could speak in the same stylized patter.”4 All the more reason to try to keep those men together when the war ended—which is exactly what Thornton intended to do. His new goal, while slightly less momentous than winning a world war, was pretty close: They were going to save one of America’s great institutions from itself. All they had to do was find one willing to be saved.

  Thornton’s group put together a brochure to sell their services to industry. Their pitch: “No decision is better than the facts upon which it is based.”5 And their experience, according to Thornton, was nothing short of successfully managing the largest global operation ever undertaken by man. The outreach resulted in a few promising leads, but everyone kept coming back to the obvious—a car company. In midcentury America, the automobile industry wasn’t just the country’s largest, it was practically synonymous with America itself.

  Ford seemed the most likely candidate, as Henry Ford II had taken the reins of the company on September 21, 1945, and new bosses tend to be more open to new ideas than old ones—even when they’re the old boss’s son. What’s more, General Motors, which had snatched the industry lead from Ford in most dramatic fashion, didn’t need anybody’s help. Thornton sent a telegram to Detroit less than a month after Ford II took over, with an offer to discuss the “system” they had developed during the war. The twenty-eight-year-old bit, and asked Thornton to provide his proposed team and their salaries. The only problem: Myles Mace and Robert McNamara were both inclined to return to HBS. They’d enjoyed their work in Stat Control, but both men considered themselves professors at heart, and HBS was offering salaries in the $5,000-a-year range.

  Mace returned to HBS. McNamara was open to persuasion, although for an unfortunate reason: Both he and his wife had come down with polio in August, and while his case proved mild, hers did not, and large looming medical bills played a part in his career calculation. Thornton made him an offer he couldn’t refuse: $12,000 a year. The team that was eventually known as “the Whiz Kids” arrived in Detroit in early 1946 with a mandate to function as a “control” group at the top of the company, reporting directly to Ford II himself. Thornton was named director of planning, and McNamara his assistant director.

  What they found was an organization in desperate need of an overhaul. If an increasing number of large American companies were eagerly reorganizing themselves into M-form hierarchies and installing HBS-inspired management control systems, the Ford Motor Company had deliberately not done so. The company’s founder, Henry Ford, hadn’t just loathed organizational charts—he’d forbidden them. While other companies had turned their accounting departments into an arm of strategic planning, Ford’s was still used solely for tax purposes, not budgeting or control. The company’s books had never been audited, even once.

  “In many ways it reminds me of those early days in the Air Force,” McNamara wrote to Ed Learned, “when there was no information on which to base decisions, no organization patterns, and when it seemed as if everyone was running round like chickens with their heads cut off. Ford must be rebuilt from the ground up. . . . Channels of communication are poor, controls are lacking, organization is non-existent, planning is unheard of, and the personnel problem is serious beyond belief.”6 The results of the chaos were plain to see: Between 1927 and 1939, when General Motors made more than $1 billion in profit, Ford had merely broken even. Even Chrysler, the perennial bronze finisher, had made more than $700 million.7

  So the Whiz Kids rolled up their sleeves and got to work. They put together the first coordinated production schedule in the company’s history, the first cash forecast, the first capital budgets, and the first organization charts. The first coordinated production schedule, in particular, was pure HBS: While the company’s engineering, purchasing, and manufacturing departments all had their own schedules, no one had thought to integrate them. The Whiz Kids did. To detail the turnaround that the Whiz Kids accomplished at Ford over the next ten years is worth a book in itself—Byrne’s The Whiz Kids lays it out in gripping detail—but a few salient points bear mention:

  The larger and more successful a company is, the greater the likelihood that standards will deteriorate out on the margins. Powerful fiefdoms develop, information gets bottlenecked, employees start making decisions that have more to do with their own wants and needs than those of the organization. This is human nature. In this situation, a dose of corrective control can be just what the doctor ordered—and that’s what the Whiz Kids brought with them to Detroit, along with their wingtips and their double-breasted suits. The first company to introduce a new car after the war, Ford by the 1950s boasted the “best financial controls in all of American business.”8 Pretax profit nearly touched $1 billion in 1955.

  McNamara stood out even in Thornton’s group of intellectual thoroughbreds. Said Henry the Deuce himself: “Mr. McNamara is the kind of fellow who had facts and figures in his head that other people have to look up.”9 While they were doing that, McNamara was ascending Ford’s managerial hierarchy at a clip: He was named company controller in 1949, general manager of the Ford Division in 1956, and president of the entire company in 1960. The last step had been facilitated by his long-running internal opposition to the Ford Edsel, one of the most expensive product failures in business history.

  Harvard MBAs had been climbing the ranks of
American icons for decades, but McNamara’s success at Ford was seen as the realization of something much bigger than one ambitious man’s potential. Indeed, it seemed to ratify the raison d’être of HBS itself. His HBS colleague Robert N. Anthony recalled a conversation with McNamara while the latter was still at Ford. “Bob described the [control] system he had installed in Ford, and I congratulated him on it,” said Anthony. “He replied, ‘Thanks, but you know full well that this system is based on what we both learned from Ross Walker.’” In a 2007 interview, McNamara repeated the acknowledgment, saying that Walker’s course had “a tremendous influence on my behavior” both at Ford and as secretary of defense.10

  “McNamara was one of a new breed of executives,” writes Byrne, “more comfortable with balance sheets than blueprints, more likely to know the cost of a unit of production rather than engineering details, and inherently more interested in market projections than in product quality.”11 Even more than that, he represented the triumph of facts and data over intuition, credentials over experience, of the young over the old. When McNamara was named president of the company, the September 1959 cover of BusinessWeek said it plainly: “Ford Hands the Wheels to Youth.” Indeed, McNamara was one of those people that seem a distillation of everything about their choice of career and philosophy—he was a prototype of the technocratic manager in the golden age of rational management.

  HBS has always made the implicit promise that the abstractions of business it relies on are close enough to the real thing to be an acceptable substitute for it. It has claimed that its students gain more “experience” in the classroom than they otherwise would via actual experience—that the essence of a business can be grasped in a case, that if you’ve got the numbers, you’ve got what you need. It has taught that those numerical abstractions aren’t actually abstractions, but reality—nay, truth—itself. Robert McNamara bought into all of it.

  McNamara wasn’t the first HBS grad to swallow its teachings whole. But he was the first to exemplify them. He arrived at Ford supremely confident in his own abilities, despite the fact that he knew almost nothing about cars. What he did do was surface data and analyze it, and then use those findings to gain control over the company’s operations and to make decisions about its future. There’s nothing wrong with any of that. As Byrne points out, “The management systems that would suffocate so many American companies decades later were largely non-existent and sorely in need.”12

  Where you get yourself into trouble is when you confuse the system for the thing itself. Because when you do that, you end up working in the service of those other constituencies who only care about such things themselves—bankers and shareholders—and not for those who care about nonquantitative factors as well—your customers, employees, and community. MBAs like to think of themselves as a smart bunch, but a decision-making process that relies almost exclusively on quantitative inputs and deemphasizes those things that cannot be measured so easily is more simplistic than it is smart, no matter how many pyrotechnic statistical analyses one employs.

  That said, a handful of decisions McNamara made at Ford did have a whiff of having more inputs than data alone. He pushed for seat belts in the face of resistance from both inside Ford and the rest of the industry. He lamented Ford’s utter lack of a sense of social responsibility, particularly when it came to labor relations. He advocated for compact cars before most of his colleagues. He also speculated (correctly) about a future in which the parts of a single car would be made in several countries.

  But the Whiz Kids’ primary method to obtain control of the enterprise was to control its costs. And they achieved that by hiring more MBAs, building what Byrne describes as a “massive [staff] of detached professionals whose only job was to police the work of others.”13 By the end of the 1960s, there were more than 1,200 MBAs working at Ford, most of them in finance, which had been elevated from bean counting to being in total control of the company. Disciplined financial management has always been crucial to a company’s survival, but to that point it hadn’t been the fastest route to the corner office. The Whiz Kids changed that, not just at Ford, but everywhere. (Henry Ford II clearly had reservations about the thing he was facilitating, hiring General Motors veteran Ernest Breech as head of the company in mid-1946. Thornton ended up leaving the company as a result, but McNamara decided to play the long game.)

  In the end, the Whiz Kids did exactly as Henry Ford II had hoped they would, which was to regain control of an operation that had spun out of it. But when Ford’s successful turnaround led the rest of corporate America to mistakenly apply someone else’s solution to their own problems, it started the entire economy on a march toward financialization. From one company to the next, the finance function moved from being a facilitator of growth and innovation to an impediment to both. “Control” something too much and you end up choking the life out of it. Nevertheless, the managerial class became so enamored with its techniques that it saw managing as a skill unto itself, disconnected from that which was being managed. “If the Whiz Kids accomplished little else,” HBS professor Abraham Zaleznik observed later, “they helped bring to life the managerial mystique.”14

  But that mystique proved short-lived. Financial discipline pulled Ford back from one ledge and then pushed it toward another. McNamara’s Ford, along with the rest of American manufacturing, overemphasized cost-cutting at the expense of quality. Japanese car companies had begun to focus on the “total cost of ownership”—in which quality had to keep up with quantity—but Ford (and the rest of the American auto companies) let quality slide in favor of profitability. That worked for a while, during which time the managerial caste, which John Kenneth Galbraith referred to as the “technostructure,” gained so much power that their philosophy drowned out all the alternatives. “These men . . . are the new and universal priesthood,” wrote Galbraith. “Their religion is business success; their test of virtue is growth and profit. Their bible is the computer printout; their communion bench is the committee room. . . . The Jesuits of this austere faith are graduates of the Harvard Business School.”15

  In the end, McNamara also forgot that analysis was only the first part of managing, and that dealing with people came next. Said one subordinate: “He was one of the brightest men I’ve ever known. But he also was one of the poorest managers of people I ever knew in my life. Bob never reached out to people. He felt that once he analyzed a problem and reached a logical conclusion, that was it.”16

  McNamara didn’t stay at Ford long enough to have to deal with the disastrous second half of the shift he had helped put in motion. In 1980, the company lost $1.5 billion, the largest loss in American corporate history. Not two months after being handed the presidency of the company, he received a call asking if he’d be interested in joining President-elect John F. Kennedy’s cabinet. He turned down the job of Treasury secretary, claiming that he wasn’t qualified. When offered the chance to expand on his work in Stat Control by rationalizing the entire Department of Defense, however, he couldn’t say no. (He did claim insufficient experience here, too, but Kennedy replied that like the job of president, this was one for which there was no formal training available.)

  Most people don’t leave the top job as soon as they’ve gotten it. But McNamara wasn’t a car guy. He was an information guy. And he’d brought Ford into the information age. His victory at Ford was complete. It was time to move on. MBAs tend to do that.

  Robert McNamara’s influence at Ford is best considered in two phases. Along with the rest of the Whiz Kids, he gave the company something it was sorely lacking when they arrived—data-driven control of its far-flung operations. But his finance people took that control too far, with the result that they strangled individual initiative and sacrificed quality at the altar of cost. Perhaps most important, their utter devotion to hard analysis led them to overvalue the knowledge that it produced.

  In that, however, they were exactly the kinds of people HBS had been claiming to produce since the Wallac
e Donham era—an enlightened managerial elite. But their sense of enlightenment had been honed (and ratified) in the bubble of midcentury America, a time and a place in which rational, quantitative decisions had enjoyed an almost Darwinian suitability. That approach was rudely challenged when the playing field expanded beyond American shores and American ways of thinking, whether it was foreign automakers eating Detroit’s lunch or foreign combatants humbling McNamara’s Pentagon.

  McNamara’s tenure as secretary of defense can be considered in two phases as well. When he was acting as secretary of defense, he brought that rational approach to decision making to yet another organization badly in need of it. Budgets that had historically relied on patronage and parochialism were centralized. He hired Charles Hitch, chief economist at RAND Corporation, as comptroller, and tasked him with helping to build what came to be known as the Planning Programming Budgeting System, or PPBS, which was hailed by none other than Igor Ansoff as “an advanced version of the strategic planning system.”17 HBS’s Robert N. Anthony followed Hitch as comptroller, and between 1965 and 1968 worked on real, complex problems such as the question of how to reduce currency outflow in military procurement. Ned Davis, one of the ’49ers, worked for McNamara’s Pentagon, where he helped the air force convince the secretary to build the F-15 fighter as America’s response to Russia’s MiG 21 fighter jet.18

  McNamara’s Office of Systems Analysis was the analytical equivalent of the finance function at Ford, with the same benefits (tighter control via budgets and much-needed analysis) and drawbacks (too-tight control via budgets and too much analysis). Just as he’d done at Ford, he created an entirely new planning function staffed with MBAs, and lots of them. In 1960, there were seven deputy assistant secretaries of defense. By 1965, there were twenty-seven of them. Time magazine called them the “brains behind the muscle.”19 He even found a like mind in General William Westmoreland, who oversaw the Vietnam War between 1964 and 1968. Westmoreland had attended an AMP course at HBS in 1954, and understood the language of MBAs. “[Westmoreland] was a corporation executive in uniform,” writes Stanley Karnow in Vietnam: A History, “a diligent, disciplined organization man who would obey orders . . . he saw the war as essentially an exercise in management.”20