Unlike the early industrial giants like Ford, Alfred Sloan understood that in modern business, competition had shifted from production capacity to managing growth and diversity. He leveraged public financing to raise capital for sustained growth and used a new organizational structure to manage growth more effectively. This structure became the blueprint for managing complex businesses and remains influential in today’s management education, including top programs like Harvard, Wharton, Stanford, and MIT.
Sloan’s approach revolves around two key concepts: divisional structure and the “predict-and-prepare” planning method. While larger corporations follow these principles, small businesses can also benefit by adopting a similar framework to manage growth and adaptability.
Divisional Structure for Small Businesses
Even small businesses, as they grow, need to structure their operations to avoid inefficiency and confusion. In its simplest form, a divisional structure separates the business into two key components: the core office (the brain) and operating units (the body). The core office oversees strategy and decision-making, while the operating units focus on executing day-to-day tasks. Though semi-autonomous, the operating units take direction from the core office and adjust to market demands based on predefined goals.
For small businesses, product or service divisions can be created to target specific customer segments or markets. Each division, while operating independently, adheres to overall business goals. This setup ensures that while each division is responsive to its market, they are aligned with the company’s broader vision. However, unlike in large corporations, small business divisions must be nimble, able to adapt quickly to changes and customer feedback.
Predict and Prepare: A Strategy for Growth
For many small businesses, predicting demand and preparing for changes can make the difference between growth and stagnation. The “predict-and-prepare” model emphasizes forecasting market trends, anticipating demand, and adjusting resources to meet those needs. While this model has worked well for larger firms, small businesses need a more flexible approach, incorporating real-time data and agile planning to stay ahead in their markets. The key here is to remain proactive, not reactive.
Challenges in a Changing Marketplace
Small businesses, much like large corporations, face challenges as the marketplace evolves. The post–World War II era, with its relative stability, favored product-based divisions, but today’s environment demands more flexibility. Two challenges are particularly important for small businesses:
- Keeping Up with Rapid Knowledge Growth: With shorter product and service life cycles, businesses need to constantly innovate. For small businesses, this means periodically revising offerings and exploring new markets. Unlike the traditional model that focuses on stability, small businesses need to stay agile and open to change.
- Navigating Diverse Team Perspectives: Small business teams may have differing views on goals and strategies. Embracing participative management, where team members are encouraged to contribute to decision-making, can help resolve conflicts and make the business more resilient.
Evolving Strategies for Small Businesses
The traditional divisional structure is evolving, and small businesses must be ready to embrace change. Adopting strategies like participative management, which empowers employees, and lean production systems, which emphasize efficiency, can provide a competitive edge.
Small businesses that can manage their growth, stay adaptable, and encourage collaboration will be well-positioned to thrive in today’s dynamic market. While the classic divisional structure may serve as a foundation, flexibility and innovation are key to long-term success.
