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The Dynamics of Standing Still: Firestone Tire & Rubber and the Radial Revolution

  • Donald N. Sull (a1)
Abstract

Business historians have illuminated how first movers in many emerging industries secure an enduring leadership position, but have devoted less attention to the processes by which industry leaders relinquish their dominance. This paper examines why rubber industry leader Firestone Tire & Rubber failed to respond effectively to new technology and foreign competition. The author argues that Firestone did not respond by doing nothing, but rather accelerated activities that had contributed to its past success. Firestone's response was constrained by managers' existing strategic frames and values, and the company's processes and long-standing relationships with customers and employees.

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1 Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977); Chandler, , “The Emergence of Managerial Capitalism,” Business History Review 58 (Winter 1984): 473503; Chandler, , Scale and Scope: The Dynamics of Industrial Capitalism, (Cambridge, Mass., 1990).

2 Chandler, , “The Competitive Performance of U.S. Industrial Enterprises since the Second World War,” Business History Review 68 (Spring 1994): 172.

3 French, Michael, “Structural Change and Competition in the United States Tire Industry, 1920–1937,” Business History Review 60 (Spring 1986): 2854.French, , The U. S. Tire Industry: A History (Boston, Mass., 1990); French, , “Structure, Personality, and Business Strategy in the U.S. Tire Industry: The Seiberling Rubber Company, 1922–1964,” Business History Review 67 (Summer 1993): 246275.

4 Sull, Donald N., Tedlow, Richard S., and Rosenbloom, Richard S., “Managerial Commitments and Technological Change in the U.S. Tire Industry,” Industrial and Corporate Change 6 (Mar. 1997): 461500.

5 Nevin, John J., “The Bridgestone/Firestone Story,” California Management Review (Summer 1990): 114132.

6 Blackford, Mansel G., and Kerr, K.Austin, BF Goodrich: Tradition and Transformation 1870–1995 (Columbus, Ohio, 1996), chap. 8.

7 David Harkleroad, “Pneumatiques Michelin II” INSEAD Case Study (1978).

8 Denoual, Daniel-Guy, “The Diffusion of Innovations: An Institutional Approach” (Ph.D. diss., Harvard Business School, 1990).

9 Line, Value, Firestone Analysis (11 July 1975): 161.

10 Love, Steve and Giffels, David, Wheels of Fortune: The Story of Rubber in Akron (Akron, Ohio, 1998): 153; Dekkers L. Davidson, “Managing Product Safety: The Case of the Firestone 500,” Harvard Business School, Case 9–383–130 (1983).

11 For a fuller discussion of why successful companies fail to adapt to changes in their competitive environment, see Sull, Donald N., “Why Good Companies Go Bad,” Harvard Business Review (July-Aug. 1999).

12 Firestone Tire Rubber Company Annual Reports (1960–1969); Tire Business, U.S. Tire Industry Profile (19 Nov. 1990): 8–9.

13 United Rubber Workers, Report on the Structure of the Tire Industry (1980), United Bubber Workers Archives, Akron, Ohio.

14 Firestone Tire & Rubber Company Annual Reports (1960–1969).

15 Center for Research in Security Prices, CRSP Stock Files, (Chicago, 1996).

16 Firestone Tire & Rubber Company Annual Report (1969): 3.

17 Peters, Thomas J. and Waterman, Robert H., In Search of Excellence (New York, 1982).

18 Firestone Tire & Rubber Company Annual Report, (various years).

19 Ravenscraft, D. J. and Scherer, F. M., Mergers, Selloffs and Economic Efficiency (Washington, D.C., 1987); Firestone Tire & Rubber Company, Internal Financial Reports (various years). All Firestone internal documents cited in this article are located in the Firestone Archives, Akron, Ohio.

20 Minutes of the Executive Committee Meeting (various years).

21 Firestone Tire & Rubber Company Economic Department, Rubber Industry Handbook (various years).

22 On entrepreneurs in the tire industry, see John Dick, “The Effect of Technological Innovations on the Structure of the Tire Industry” (master's thesis, University of Akron, 1979); Dick estimates the peak number of competitors at 178 in 1920, while Klepper and Simons use Thomas' Register of American Manufacturers and estimate the peak number producers at 274 in 1922 in Klepper, Steven and Simons, Kenneth L., “Technological Extinctions of Industrial Firms: An Inquiry into their Nature and Causes,” Industrial and Corporate Change 6:2 (Mar. 1997). The “murderous” price wars are described in the American Economic Review, a journal not normally noted for its hyperbole. See Reynolds, Lloyd, “Competition in the Rubber Tire Industry,” American Economic Review (Oct. 1938): 459. On the ranking of American industrial companies, see Chandler, Scale and Scope, appendix A.

23 Jeszeck, Charles A., “Plant Dispersion and Collective Bargaining in the Rubber Tire Industry” (Ph.D. diss., University of California, Berkeley, 1982), 32.

24 Love and Giffels, Wheels of Fortune, 300–303; United Rubber Workers, A Brief History of the United Rubber Workers. Akron, Ohio: United Rubber Workers internal document.

25 Love and Giffels, Wheels of Fortune, 314.

26 Peters and Waterman, In Search of Excellence, front page.

27 Sull, Donald N., “Organizational Adaptation and Inertia in a Declining Market: A Study of the U.S. Tire Industry” (Ph.D. diss., Harvard Business School, 1996), 105. Firestone was not alone in developing this stream of new products and its competitors also barraged customers with a series of new products, see French, The U.S. Tire Industry, 94.

28 Sarah C. Benioff, “The Tire Industry, 1973,” Harvard Business School, Case 9–391–008 (1990): 16.

29 Love and Giffels, Wheels of Fortune, 146; Firestone Tire & Rubber Company Annual Report (1969): 17.

30 The seminal theoretical and empirical research on intra-firm resource allocation processes was conducted by Bower, Joseph L., Managing the Resource Allocation Process (Boston, 1970). The resource allocation process in Firestone is documented in Sull, “Organizational Adaptation and Inertia,” 96–106.

31 The Board of Directors generally accepted most recommendations of the Executive Committee without discussion for three reasons. First, the members of the Executive Committee constituted a majority of the Board. Second, Raymond C. Firestone chaired both the Executive Committee and the board of Directors through 1973. Finally, the Board was dominated by insiders, with the first outside board member without close ties to the Firestone family elected in 1972.

32 Report of Appropriations (various years). These documents were kept for every capital investment proposal brought before the Executive Committee, and detailed the department originating the proposal, a description of the proposal, the date of first proposal, the amount requested and the committee's ultimate disposition. Taken together, these reports constitute a paper trail for analyzing capital budgeting by proposal over time within Firestone.

33 There is no evidence that the Committee scrutinized big-ticket projects while rubber-stamping smaller requests. In the late 1960s, the median value of approved projects was approximately $500,000 while the median value of cancelled projects was less than one-half of that amount.

34 Descriptions of Firestone's internal capital budgeting process are drawn from interviews with former Firestone presidents: Lee Brodeur, interview with author, tape recording, Akron, Ohio, 11–13 Aug. 1994 and Mario DiFederico, interview with author, tape recording, Akron, Ohio, 10 May 1995. Both men had served as Firestone's president.

35 Dick, J. S., “How Technological Changes Have Affected the Tire Industry's Structure,” Elastomerics (Nov. 1980): 43.

36 Reiff, R., “Firestone's Lost Harvey's Touch,” Akron Beacon Journal, 3 Dec. 1978.

37 Remarks of the CEO to Annual Stockholders' Meeting (various years).

38 Proxy Statement (1976): 2–7.

39 Sull et al., “Managerial Commitments,” table 1.

40 Harry Millis, interview with author, 21 July 1994. Millis was a leading tire industry analyst.

41 Gaffey, J. D., The Productivity of Labor in the Rubber Tire Industry, (New York, 1938): 161–2.

42 Love and Giffels, Wheels of Fortune, 47.

43 Ibid., chap. 5.

44 John Nevin, interview with author, tape recording, Akron, Ohio, 21 Sept. 1994; Lee Bro-deur interview; Love & Giffels, Wheels of Fortune.

45 Tom Reese (former Firestone Vice President of Sales), interview with author, tape recording, Cleveland, Ohio, 19 July 1994; and Paul Vatter (member of Firestone's Board of Directors during the late 1970s and early 1980s), interview with author, tape recording, Boston, Mass., 22 July 1994.

46 Brodeur interview.

47 Brodeur interview; Nevin interview; DiFederico interview. Reiff, R., “Surviving the Shakedown: Three Firestone Plants Provide Contrasts in Survival,” Akron Beacon Journal, 21 Jan. 1980.

48 Minutes of the Board of Directors' Meetings (21 Sept. 1976 and 13 Oct. 1976).

49 Minutes of the Board of Directors' Meetings (13 Dec. 1977). The company would go to great lengths to protect its employees, and paid $3 million to ransom a middle manager kidnapped by Argentinean terrorists in 1973.

50 Michael van der Poel, “Michelin III: The United States,” unnumbered INSEAD case (1982).

51 Blackford and Kerr, B.F. Goodrich, 276.

52 Consumer Reports, “Tires,” Consumer Reports, (August 1968): 404–409.

53 Sull et al., “Managerial Commitments.”

54 O'Reilly, Maurice, The Goodyear Story (Elmsford, NY, 1981): 156159. French, The U.S. Tire Industry, 94.

55 Millis interview; Brodeur interview.

56 Firestone Tire & Rubber Company Annual Report, (1969): 3–5.

57 Love and Giffels, Wheels of Fortune, 146; Firestone Tire & Rubber Company Annual Report, (1969): 17.

58 D. Daryl Wyckoff, “Firestone Tire and Rubber Company,” Harvard Business School, Case 9–684–044 (1984); French, The U.S. Tire Industry, 101; Jeszeck, “Plant Dispersion” 64–65.

59 Value Line, Tire & Rubber Industry, (17 Oct. 1969).

60 Brodeur interview.

61 Minutes of the Executive Committee Meeting (3 Nov. 1972).

62 Minutes of the Executive Committee Meeting (6 Dec. 1972).

63 DiFederico interview.

64 Sull, “Organizational Adaptation and Inertia,” 111, table 4.

65 Wyckoff, “Firestone,” 3; Davidson, “Managing Product Safety,” 4.

66 Love and Giffels, Wheels of Fortune, 150.

67 Ibid., 150–151.

68 Ibid., 152.

69 Sull, “Organizational Adaptation and Inertia,” 111.

70 Internal Financial Reports (1968–1972).

71 Remarks of CEO to Annual Stockholders' Meeting (1972).

72 Minutes of the Executive Committee Meeting (6 Dec. 1972).

73 Minutes of the Board of Directors' Meetings (21 Mar. 1978 and 13 Mar. 1980).

74 On deteriorating profits, see Minutes of the Board of Directors' Meeting (23 Mar. 1976); on stock price and credit rating, see Minutes of the Board of Directors' Meetings (25 May 1976 and 16 Nov. 1976); and on need for financial plan, see Minutes of the Board of Directors' Meeting (21 Aug. 1979).

75 Minutes of the Board of Directors' Meetings (20 June 1978 and 14 Nov. 1978); Minutes of the Board of Directors' Meeting (16 Oct. 1979).

76 Minutes of the Board of Directors' Meetings (21 June 1977, 23 Aug. 1977, 21 Mar. 1978, 13 Nov. 1979).

77 Minutes of the Board of Directors' Meeting (21 Mar. 1978).

78 Transcript of Chairman's Remarks to the Annual Stockholders Meeting (1973–1979).

79 Minutes of the Board of Directors' Meeting (21 Feb. 1978).

80 Ibid. Other top managers agreed. North American Tire Operations President Frank LePage told the other members of the Executive Committee “that he was not spending enough money to keep the Domestic Tire business healthy, and yet he had difficulty in promising a satisfactory rate of return on the money actually being spent because of the nature of the market.” Minutes of the Executive Committee Meeting (16 Mar. 1979).

81 Nevin interview.

82 Roy Gilbert (former Vice President who worked closely with Nevin), interview with author, tape recording, Fairlawn, Ohio, 10 Aug. 1994.

83 Proxy statements (various years). Riley owned over three times as many shares as his successor John Nevin when the latter led Firestone's restructuring. Employment Agreement between John Nevin and Firestone (1 Dec. 1979).

84 Transcript of Chairman's Remarks to the Annual Stockholders Meeting (9 Feb. 1980); Ibid. (21 Jan. 1978).

85 Minutes of the Executive Committee Meeting (7 Mar. 1971); Nevin interview.

86 Love and Giffels, Wheels of Fortune, 194–6.

87 Reece interview.

88 Sull, “Organizational Adaptation and Inertia,” 110–111.

89 Ibid., 111. Entity value is defined as the sum of a corporation's total market capitalization and long term obligations.

90 The Wall Street Journal, 22 Sept. 1977, 8 Dec. 1977, 11 Sept. 1978, 27 Sept. 1978; on Credit Card subsidy, Nevin interview.

91 Minutes of the Board of Directors' Meeting (13 Nov. 1979).

92 “Less Means More at Firestone,” Fortune, 20 Oct. 1980, 116.

93 Oplinger, Doug, “Firestone Stockholders Get Say,” Akron Beacon Journal, 28 Jan. 1979; Toms, James, “Firestone Stockholders Want More,” Akron Beacon Journal, 30 Jan. 1979.

94 Minutes of the Board of Directors' Meeting (13 Nov. 1979).

95 Nevin, “The Bridgestone/Firestone Story,” 114–132.

96 Schiller, Zachary and Frons, Marc, “John Nevin Rescued Firestone,” Business Week, 11 May 1987, 96.

98 Managing Director of Management Consulting Firm, interview with author, tape recording, Boston, Mass., 19 Sept. 1994. This consultant, who consented to an interview under the condition of anonymity, had worked closely with John Nevin.

100 Nevin interview; Brodeur interview.

101 Robert W. Ackerman, “Firestone, Inc.,” Harvard Business School, Case 9–388–127 (1988): 13.

102 Brodeur interview.

103 Nevin interview.

104 Proxy statements (1979–1982).

105 Transcript of John Nevin's Remarks to the Annual Stockholder's Meeting (9 Feb. 1980).

106 Nevin interview.

107 Ibid.

108 Brodeur interview.

109 Minutes of the Board of Directors' Meetings (16 Sept. 1980, 21 Oct. 1980, 17 Mar. 1981, 16 June 1981).

110 Minutes of the Board of Directors' Meeting (19 Aug. 1980).

111 Minutes of the Board of Directors' Meeting (28 Feb. 1981).

112 Reese interview.

113 Nevin interview.

114 Ibid. See also “Surviving the Shakedown: Three Firestone Plants Provide Contrasts in Survival,” Akron Beacon Journal, 21 Jan. 1980.

115 Nevin interview.

116 For general discussion of traditional and revised management incentives see Nevin, Brodeur, and Gilbert interviews.

117 Nevin interview; Love and Giffels, The Wheels of Fortune, 261.

118 Nevin interview.

119 Love and Giffels, The Wheek of Fortune, 261.

120 “Retread Time: Firestone Chief Tries to Raise Its Earnings, Gird for Diversification,” The Wall Street Journal, 11 Aug. 1981.

121 Ackerman, “Firestone, Inc.,” 10.

122 Minutes of the Board of Directors' Meeting (16 June 1981); Ackerman, “Firestone, Inc.,” 8.

123 Ackerman, “Firestone, Inc.,” 9; Brodeur interview; Reese interview; Managing Director of Consulting Firm interview. Brodeur estimated that the combined revenues of these three former Firestone divisions exceeded $2 billion, which would have increased Firestone's corporate sales in 1987 by over 50 percent.

124 Ackerman, “Firestone Inc.,” 9.

125 Minutes of the Board of Directors' Meeting (28 Feb. 1981); Nevin interview.

126 Gilbert interview. See also Brodeur interview.

127 Reese interview. See also Brodeur and DiFederico interviews.

128 Transcript of John Nevin's Remarks to the Annual Stockholder's Meeting (9 Feb. 1980): 2.

129 Gilbert interview. Other interviewees made the same point, see Consultant and DiFederico interviews.

130 Sull, “Organizational Adaptation and Inertia.”

131 Nevin, “The Bridgestone/Firestone Story.” The Firestone board adopted a poison pill provision in 1986, which suggests that management feared the possibility of another takeover threat. Investor Responsibility Research Center, Directory of Antitakeover Defenses, (Washington, D.C., 1987).

132 Ackerman, “Firestone, Inc.,” 19.

133 For the clearest expositions of punctuated equilibrium theory see Tushman, Michael and Romanelli, Elaine, “Organizational Evolution: A Metamorphasis Model of Convergence and Reorientation,” in Research in Organizational Behavior, edited by Cummings, L. L. and Staw, B. M. 7 (1985): 171222 and Gersick, C. J., “Revolutionary Change Theories: A Multilevel Exploration of the Punctuated Equilibrium Paradigm,” Academy of Management Review 16 (1991): 1036.

134 Blackford & Kerr, BE Goodrich, 317.

135 Sull et al., “Managerial Commitments,” 491–494.

136 Blackford & Kerr, B.F. Goodrich, 276.

137 Ibid., 277–278. Love & Giffels, Wheels of Fortune, 146.

138 Blackford & Kerr, B.F. Goodrich, 290–292.

139 Ibid., 278–9.

140 Ibid.

141 Ibid., 296–7.

142 Sull et al., “Managerial Commitments,” 492.

143 Ibid., table 7.

144 Blackford & Kerr, B.F. Goodrich, 309–10.

145 Blackford & Kerr, B.F. Goodrich, 363.

146 Sull et al., “Managerial Commitments,” table 5.

147 “Pumping up Morale in the Tire Business,” Industry Week (24 Aug. 1981).

148 Sull, “Why Good Companies go Bad.”

149 Baldwin, Carliss Y. and Clark, Kim B., “Capital-Budgeting Systems and Capabilities Investments in U.S. Companies after the Second World War,” Business History Review 68 (Spring 1994): 73109.

150 Christensen, Clayton M., The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Boston, 1997) and Christensen, Clayton M., “The Rigid Disk Drive Industry, 1956–1990: A History of Commercial and Technological Turbulence,” Business History Review 67 (Winter 1993): 531–88.

151 Sull, “Organizational Adaptation and Inertia,” 98.

152 Christensen, The Innovator's Dilemma, 42–48.

153 Porter, Michael E., “Clusters and the New Economics of Competition,” Harvard Business Review (Nov.-Dec. 1998): 78. For the seminal work industrial clusters see Marshall, Alfred, Principles of Economics (London, 1922).Marshall, Alfred, Industry and Trade (New York, 1923). More recent work includes Brian Arthur, “Industry location and the importance of history,” CEPR paper no. 43, Stanford University (1986) and Krugman, David, Geography and Trade (Cambridge, Mass., 1991).

154 For information on research intensive industries, see Chandler, Scale and Scope, 108.

155 Jeszeck, “Plant Dispersion,” 396.

156 Klepper, Steven and Simons, Kenneth L., “Technological Extinctions of Industrial Firms: An Inquiry into their Nature and Causes,” Industrial and Corporate Change 6:2 (Mar. 1997): 411. Chandler, Scale and Scope, 108.

157 Donald N. Sull, “Industrial Clusters and Organizational Inertia: An Institutional Perspective,” London Business School Working Paper (1999).

158 Zucker, L. G., “The Role of Institutionalization in Cultural Persistence,” American Sociological Review 42 (1977): 726743.

159 Chandler, Alfred D. Jr, “The Competitive Performance of U.S. Industrial Enterprises since the Second World War,” Business History Review 68 (Spring 1994): 172.

160 Ibid., 24–5.

161 See Klepper, Steven and Graddy, Elizabeth, “The Evolution of New Industries and the Determinants of Market Structure,” RAND Journal of Economics 21:1 (Spring 1990): 2744. Klepper and Simons, “Technological Extinctions,” 379–460.

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