Alco versus EMD
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by Albert Churella
Business History Review, Volume 69, Number 22 (June 22, 1995) page 191.
COPYRIGHT 1995 President and Fellows of Harvard College
Full title: Corporate Culture And Marketing In The American Railway Locomotive Industry: American Locomotive And Electro-Motive Respond To Dieselization.
In the late autumn of 1945, Joseph Ennis, a senior vice-president at the American Locomotive Company (ALCo), spoke to an interviewer from Railway Age, the leading trade journal of the railroad industry. Ennis's company was among the 200 largest industrial corporations in the United States. It had done much to supply the United States government with the ordinance needed to fight the war that had just been won. More than that, ALCo enjoyed an outstanding reputation as a supplier of top-quality equipment to the railroad industry. Ennis, when asked about the future motive power needs of American railroads, asserted that "the future holds an expanding role for ... the steam locomotive." (1) Yet ALCo produced its last steam locomotive only three years later in 1948; and by 1969 the company had been driven from the diesel locomotive industry as well.
What caused this monumental miscalculation? Why did company managers so badly misjudge the locomotive market when they believed they were responding effectively to customer needs? Since ALCo executives demonstrated an outstanding ability to manage incremental change, why were these same executives so poorly equipped to manage revolutionary technological change? Why, ultimately, did ALCo allow itself to be excluded from the locomotive industry by two companies that had never produced a single steam locomotive: General Motors and General Electric? (2)
During the 1920s and 1930s, as ALCo reigned supreme in the steam locomotive industry, another firm, the Electro-Motive Company (EMC) grew from a barely noticed producer of self-contained railcars to the dominant firm in the diesel locomotive industry. Eventually it became the Electro-Motive Division (EMD) of General Motors. What factors allowed this tiny company, which had only a total of five employees in 1925, to undermine ALCo, despite the latter firm's size and profitability? Did the handful of executives who ran Electro-Motive during its formative years establish the foundation for future dominance in the diesel locomotive industry, or did the company succeed only when it came into contact with GM's managerial structure?
This article examines the corporate culture of both ALCo and Electro-Motive as those companies penetrated the diesel locomotive market. (3) The cultures of the two locomotive producers evolved along quite different lines. While neither was inherently "better" than the other, Electro-Motive's culture, based on its founder's experience in the infant automobile industry, proved better suited to the demands of the diesel locomotive industry. In particular, this culture acknowledged the fundamental importance of marketing as an ingredient indeed, the key ingredient - of success. ALCo's much older corporate culture was based on the traditional small-batch, custom-production techniques of the steam locomotive industry. The organizational routines embedded in this culture stressed close personal links between producer and customer, and indeed even between competitors within the steam locomotive industry. Paradoxically, these close ties made the development of a marketing network largely unnecessary, and this prevented ALCo from responding effectively to Electro-Motive's strategy of bypassing those railroad officials who were staunch supporters of the steam locomotive. (4)
Differences in the corporate cultures of the two firms, especially in the realm of marketing, far outweighed other factors in determining competitive patterns in the locomotive industry. Both companies had access to comparable diesel locomotive technology. GM's financial strength had little effect. Even though GM purchased Electro-Motive in 1930, it did not begin to pour money into its subsidiary until the World War II years. By then, however, EMC had already established formidable barriers to entry. During a narrow window of opportunity in the mid-1930s, when EMC established first-mover advantages that were to give it market dominance for the next fifty years, ALCo had the financial resources necessary to do likewise. (5) While ALCo executives were slow to admit that diesels were universally superior to steam locomotives - this too was a product of their corporate culture - some ALCo executives realized the imminence of dieselization in time to have assured ALCo's survival as a secondary producer in the diesel locomotive industry, if not the dominant producer.
The fate of the Baldwin Locomotive Works and the Lima Locomotive Works was similar to that of ALCo, but quicker in coming. Both companies competed against ALCo in the steam locomotive market, both produced diesel locomotives, yet both failed to survive. Executives at Baldwin and Lima had developed corporate cultures similar to that of ALCo. At all three companies, executives first ignored the impact of the diesel locomotive, and then, more seriously, neglected to create a marketing structure to complement their transition from steam to diesel production. (6)
The inability of ALCo executives to adapt their corporate culture to fit the emerging diesel locomotive market had a dramatic effect. In 1917 ALCo was the 52nd largest industrial corporation in the United States. By 1948, its ranking had fallen to 145th, and it continued to decline in the years that followed. With only two exceptions, Great Western Sugar and Willys-Overland, no industrial corporation in the history of American business fell so far so fast. (7)
For Electro-Motive, the situation was just the reverse. The company's market share of all locomotives increased from 17 percent in 1935 to 66 percent in 1940, dipped slightly during World War II, then soared to 75 percent in 1954 and reached an all-time high of 89 percent in 1957. Between 1946 and 1959, GM earned an estimated average annual return of 55 percent on its investment in EMD. During the same period, EMD always enjoyed at least an eleven percent return on sales, with an average of 20 percent. Meanwhile, ALCo lost money in four of these years, and averaged only a two percent annual return on sales. EMD earned a 144 percent return on investment during the 1950s, while ALCo earned only nine percent. In 1951, one of the best years in the entire history of the locomotive industry, EMD earned a 269 percent return on its investment in plant and equipment. In that same year, ALCo managed only a 28 percent rate of return, and Baldwin actually lost money. (8)
Overall, an examination of the changing competitive relationship between ALCo and Electro-Motive in the evolving diesel locomotive industry offers a window through which both scholars and business managers can attain a deeper understanding Of the ways in which technological change, constrained by social and cultural values, can affect individual corporate success and national economic achievement. If corporate managers fail to modify their companies' cultures in response to technological change, then success may turn into disaster. (9)
ALCo Views the Diesel Locomotive as Adjunct Technology
During the 1920s, ALCo emerged as a leader in diesel locomotive technology. The company failed to maintain its early lead because corporate management chose to regard the diesel as adjunct technology, designed to ensure the loyalty of steam locomotive customers, rather than as replacement technology. ALCo seriously overestimated the strength of customer loyalty, and by the late 1930s was outperformed by Electro-Motive. That company based its strategy, indeed its very survival, on the replacement potential of the diesel locomotive.
ALCo's initial participation in the diesel industry was a direct response to the Kaufman Act, passed by the State of New York in 1923 and amended in 1924 and 1926. This Act forbade steam locomotives to operate on Manhattan Island. Since it encouraged the development of experimental locomotive models, the Kaufman Act offers an example of the effect of government policy on technological development. Given the political and economic power of the railroad industry during the 1920s, this degree of legislative control is remarkable. (10)
Because the Kaufman Act encouraged a small initial market for diesel locomotives, ALCo, General Electric and the Ingersoll-Rand Company jointly developed an experimental diesel switching locomotive in 1924. The following year, the Central of New Jersey took delivery of what was, according to the trade press, the world's first commercially viable diesel locomotive. ALCo contributed the locomotive's underframe and body, which were its least technically sophisticated parts. ALCo's involvement in the production consortium was short-lived, since General Electric began to manufacture its own locomotive bodies in 1927. (11)
ALCo executives thereupon decided to enter the diesel locomotive market on their own. They wished to exploit the small niche market for diesels and, more importantly, to preserve the loyalty of long-time railroad customers who wished to order a few diesels and, presumably, a great many steam locomotives. ALCo did not want to risk alienating traditional customers, who might turn to Baldwin if they could not fill their entire motive power needs with ALCo products.
Unlike the tiny Lima Locomotive Works or the large but financially troubled Baldwin Locomotive Works, ALCo had sufficient funds to acquire and develop adequate diesel locomotive technology. ALCo's dividends during the 1920s had been exceedingly generous, and the company's managers had no cause to foresee the financial crisis of the 1930s. Nor did they perceive a need to spend lavishly on the development of what they regarded as adjunct technology. ALCo's diesel program suffered not because ALCo paid large dividends during the 1920s, but because ALCo executives saw no need to spend extensively on diesel locomotive technology. (12)
Rather than invest directly in a diesel engine R&D program, in 1929 ALCo purchased the Mcintosh and Seymour Company, an established producer of diesel engines. In 1931 ALCo delivered the first diesel locomotive equipped with its own engine. In 1913, McIntosh and Seymour had begun building diesel engines that were designed for marine and stationary use, applications vastly different from those required by railroad locomotives. ALCo continued to operate Mcintosh and Seymour as a largely independent subsidiary that occasionally sold some of its engines to ALCo's locomotive division. Even after purchasing Mcintosh and Seymour, ALCo produced only two of the three most vital components of these locomotives, the engines and the bodies, while it purchased high-value electrical equipment from General Electric and Westinghouse. (13)
ALCo's diesel locomotives, like those of its competitors, used a diesel engine to operate a large electric generator which provided the power necessary to turn the locomotive's wheels. This electric transmission has proved far more reliable than the mechanical transmission used on some early diesels. Diesel-electric locomotive technology thus required not only a comprehensive knowledge of the internal combustion engine, but also a thorough understanding of electricity. ALCo's decision to purchase electrical equipment from GE lowered the former company's R&D expenditures. But it also prevented ALCo from either advancing along the electrical equipment learning curve, or using knowledge of electric technology to create barriers to entry.
Despite its reliance on outside suppliers for electrical equipment, ALCo was not at a technological disadvantage against its competitors until the 1960s. While its technology differed from that employed at Electro-Motive, this technology was still of comparable quality. GE did not restrict ALCo's access to improved electrical equipment designs, and ALCo's technological expertise far exceeded that of its former steam-locomotive competitors, Baldwin and Lima. In no case did patents, proprietary rights, or lack of technological diffusion prevent ALCo from competing effectively against Electro-Motive. ALCo was not defeated by the lack of access to adequate technology but instead by the inability of corporate executives to market that technology effectively. (14)
While ALCo was entering the diesel locomotive market, some railroad executives, such as Julius Kruttschnitt of the Southern Pacific and Ralph Budd of the Chicago, Burlington & Quincy, began to show an increased interest in diesel locomotives as replacements for a significant portion of their powerful but inefficient steam locomotives. Although diesels' initial cost per horsepower was much higher than that of steam locomotives, they required less fuel to do the same work. Their thermal efficiency was more than three times that of steam locomotives. Nor did diesels require large quantities of clean water, an especially important consideration in arid regions of the West. (15) While steam locomotives spent approximately half their careers undergoing servicing or repair, diesels were available for use more than 90 percent of the time. Diesels thus utilized railroad capital more intensively and, under certain conditions, the greater efficiency of the diesel locomotive was sufficient to repay its first cost in as few as three years. Since they were lighter than steam locomotives, diesels were less likely to damage track and bridges. For these and other reasons, by the early 1930s many railroad executives saw the widespread potential of diesel locomotives - sooner, in fact, than their executive counterparts at ALCo. (16)
One thing diesels could not do was out pull steam locomotives, and this caused ALCo executives to misjudge customer requirements. During the 1930s and 1940s, a diesel locomotive typically developed no more than 2,000 horsepower, far less than the 4,000-plus hp attained by the largest and most powerful steam locomotives. As ALCo executives were quick to point out, diesels were indeed inferior to steam on a horsepower-per-unit basis. However, these managers often did not realize that diesels offered a package of performance options that proved far more valuable to cost-conscious railroad executives than brute horsepower alone. (17)
Because ALCo had little competition during the early 1930s, the company was able to capture a large portion of the small diesel locomotive market. In 1934, ALCo sold 73 percent of the diesels produced in the United States, and a year later its share had risen to 83 percent. The year 1935 also marked Electro-Motive's official entry into the diesel locomotive market, with the construction of its integrated La Grange, Illinois, manufacturing facility. The following year, ALCo's market share fell to 23 percent, and the company never fully recovered from this quick decline. With one exception (1946) ALCo never again attained more than 26 percent of the market. It remained a poor second to EMD throughout the remainder of its career as a locomotive producer. (18)
It was during the 1930s, therefore, that ALCo lost forever its ability to compete with EMD. The window of opportunity for successful penetration of the diesel locomotive market was very narrow, perhaps no more than five years. Before the mid-1930s, diesel locomotive technology was too primitive for widespread application in railroad locomotives. After the late 1930s, EMD had attained an unstoppable first-mover advantage. During these few crucial years ALCo executives failed to prepare their company for the dieselization revolution.
ALCo's corporate culture, superbly equipped for steam locomotive production, dealt the company two crippling blows as it slowly began to exploit diesel technology. The first of these was denial. ALCo executives initially refused to admit to their customers, to industry analysts, to their investors, or to themselves that the cherished steam locomotive of the past would no longer be the power source of the future. This managerial myopia was not the primary cause of ALCo's downfall, however. Instead, even when the reality of dieselization had permeated the psyches of ALCo executives, they maintained the operational routines embedded in their old corporate culture, particularly those that involved marketing. The perpetuation of these operational routines obviated any modification of ALCo's organizational structure to correspond to a new and different product. In other words, ALCo executives first radically underestimated the speed with which dieselization would occur and then, more seriously, persisted in a mistaken belief that the organizational structure that had served the company well in the steam locomotive industry could be reassigned, largely unmodified, to diesel locomotive production. (19)
ALCo executives, even as late as the early 1940s, were convinced that diesels would never replace steam locomotives in the mainline freight and passenger assignments that formed the bulk of railroad motive power needs. In 1938, ALCo president William C. Dickerman thought that "the technical potentialities of the Diesel-electric locomotive are about the same as they were at the beginnings," and that "The possibilities of the Diesel-electric locomotive are already fixed and known . . . not so with the steam locomotive." (20) After dismissing diesels as a technological dead end, Dickerman went on to list the improvements that would increase the "possibilities" of the steam locomotive. These included roller bearings, integral steel castings, streamlining, superheaters, and coil springs. ALCo executives thus believed that they were committed to technological innovation. But in fact this technological innovation was limited to marginal improvements in the familiar, traditional steam locomotive technology. It did not extend to the development of radically new forms of motive power, such as diesels.
In management's opinion, diesels would always be relegated to specialized applications, such as yard switching. In an April 1938 address to the Western Railway Club, Dickerman explained that "For a century . . . steam has been the principal railroad motive power. It still is and, in my view, will continue to be." (21) During the next six years Electro-Motive introduced a successful high-horsepower freight diesel, and wartime demand outstripped the production capabilities of all diesel locomotive producers. These six years of rapidly increasing demand caused ALCo executives to modify their views, but only slightly. In 1944, Duncan W. Fraser, Dickerman's replacement as president, predicted that postwar foreign demand would be almost entirely for steam locomotives. Domestically, he believed that "Progress in steam locomotives has gone hand in hand with Diesel developments . . . it is unlikely that there will be any one dominant type of locomotive, at least in the foreseeable future. Steam, Diesel, and electric, each have their advantages." (22) But ALCo produced its last steam locomotive just four years later.
ALCo executives thus consistently expressed an undying faith in the long-term survival of the steam locomotive on American railroads. In the mid-1930s, when diesels were beset with genuine technological difficulties, such faith might have been caused by a lack of entrepreneurial vision, or a lack of confidence in the company's research and development staff. Ten years later, however, when diesels had proven themselves as equal to or better than steam locomotives, ALCo managers retained similar views. Their faith in the steam locomotive was not caused by any inefficiencies in diesel locomotive technology, but, most likely, by their lifelong education and training in the design and production of steam locomotives.
William C. Dickerman, who served as president of ALCo from 1929 to 1940, had received a degree in mechanical engineering in 1896. He began his career at the Milton Car Works (later American Car and Foundry), where his father was the general manager. During World War I, he was put in charge of all ACF production, and became vice president in charge of operations in 1919. Throughout his career Dickerman "demonstrated a life-long interest in the technical aspects of the [steam] locomotive, backed by his education as an engineer, in his work in behalf of technical societies, and in many appearances as a lecturer on the subject of railroad motive power." (23)
Duncan W. Fraser, ALCo's president from 1940 to late 1945, and again from 1950 to 1952, joined the company in 1901. His first position was as an apprentice at the Rhode Island Locomotive Works, and he transferred to the Montreal Locomotive Works three years later. He rose through the ranks at MLW, eventually becoming works manager, then MLW managing director. He gave up this post in 1920 to become ALCo's vice president in charge of manufacturing. (24)
Postwar ALCo executives were scarcely better equipped than their predecessors to manage the company's transformation from steam to diesel. Robert B. McColl, elected president in December, 1945, was trained in the now-outdated skills of steam locomotive production. He had begun his career as an apprentice draftsman at the famous English locomotive builder, Robert Stephenson & Sons. He later worked at the Montreal Locomotive Works, then as manager of ALCo's Schenectady, New York, facility. McColl's successor, Duncan Fraser, was also his predecessor, thus continuing the succession of executives who lacked experience in internal-combustion technology and diesel-locomotive marketing. Compounding the problem was confusion and discontinuity created when nineteen officers and directors of the company retired, resigned, or died between 1947 and 1954, the years of peak diesel locomotive demand. (25)
Between 1929 and 1945, when ALCo should have been laying the foundations for a massive investment in diesel locomotive production, it was guided by chief executives who were well versed in the techniques of steam, but had little understanding of internal-combustion technology or the differences between standardized large-batch production and custom craft production. Compounding the shortage of managerial talent was the absence of a chairman of the board of directors during the difficult years of the Great Depression. In 1933, William H. Woodin had resigned that post to become Treasury Secretary in the new Roosevelt Administration. Befitting ALCo's extraordinarily informal management style, no successor was chosen until 1940, and this lack of leadership did not improve ALCo's ability to compete in the emerging diesel locomotive market. (26)
Not until 1952 did ALCo have a chief executive with significant experience in diesel locomotives. In December of that year Perry T. Egbert became president of the company. Unlike other ALCo executives, Egbert possessed considerable expertise in internal combustion technology. His training had exposed him to the spirit of innovation and experimentation that was present at Electro-Motive, but still lacking at ALCo. He received a mechanical engineering degree from Cornell University in 1915 and later served in the United States Air Corps. He taught experimental engineering at Cornell in 1919 and 1920. In 1921 he became ALCo's technical representative in East Asia. In 1929, following the acquisition of McIntosh and Seymour, he took control of ALCo's diesel engine development program. He became manager of railroad diesel sales in 1934, and vice president in charge of diesel locomotive sales ten years later. In addition, he directed ALCo's postwar conversion from steam to diesel locomotive production. Egbert rose slowly through the ALCo corporate hierarchy during much of his career. His ten years as a sales manager amounted to little better than a horizontal promotion, and it was not until after World War II that he began to acquire significant power and influence over ALCo corporate strategy. It seems almost as if senior ALCo executives punished Egbert for his training in diesel locomotion and his lack of commitment to steam power. (27)
The consistent tendency of ALCo managers to underestimate the pace of dieselization did not, in and of itself, prevent their company from attaining success in diesel. In fact, even executives at Electro-Motive, the industry leader with the most to gain from the rapid replacement of steam locomotives by diesels, underestimated the speed with which this replacement would occur. But the corporate culture of ALCo executives blinded them to the necessity of matching revolutionary technological change with revolutionary shifts in manufacturing and marketing strategies. ALCo failed not because its executives underestimated the pace of dieselization, but because they entered the diesel market with a technologically adequate product that they proceeded to manufacture inefficiently and, above all, market ineffectively.
Even after the rapidity of dieselization had become apparent in the late 1940s, ALCo executives maintained the traditional operational routines of their familiar, if now outdated, corporate culture. They did not understand that an organizational structure appropriate for steam locomotive production would not be suitable for the manufacture of diesels. They failed to appreciate that manufacturing and marketing methods were much different for diesels from what they had been for steam. Steam locomotives were custom built by skilled craftsmen familiar with traditional metalworking techniques, such as foundry work and machining. Railroad operating officials often made the key decisions in the purchase of steam locomotives, since they would be designed to meet the specific requirements of a particular section of railroad. Because individual customers were largely responsible for locomotive designs, and because only a small number were built to each design, standardization produced few or no economies of scale. (28) Since railroads approached locomotive builders with their orders, executives at ALCo had little incentive to develop marketing campaigns or post-sales support services. (29) ALCo had no need to train railroad workers in the time-honored crafts of steam locomotive operation and maintenance. Specific customers often purchased most of their steam locomotives from a single builder, and their loyalty further reduced the need for extensive marketing capabilities.
Because design and marketing responsibilities were so frequently assumed by customers, managerial capabilities in the steam locomotive industry were under-developed. ALCo, although a large company, employed a unitary line-and-staff organizational structure until well after World War II. It had few middle managers. Top corporate executives understood that locomotive sales, like those in the rest of the capital goods industry, fluctuated erratically. A period of prosperity would inevitably be followed by a slump in orders that, at some unknown point in the future, would turn upward again. As a result, management, which had seen prosperity come and go at regular intervals, adopted a stay-the-course mentality that gave little analytical thought to what they always assumed would be temporary declines in business.
Furthermore, competition was muted in the steam locomotive industry. The three locomotive producers bid competitively for orders, but they also cooperated with each other, giving blueprints, working drawings, and other proprietary materials to their competitors. ALCo and Baldwin typically maintained a 40 percent share of the steam locomotive market each, and Lima the remaining 20 percent.
Organizational requirements in the diesel locomotive industry were considerably different. The design and manufacture of diesel locomotive components required greater accuracy and closer tolerances. While diesel locomotives were too large to be manufactured on an assembly-line basis, standardized designs allowed for a high degree of interchangeability among parts and subassemblies.
The standardization of diesel locomotive designs among different railroad customers created much greater economies of scale than were possible in steam locomotive production. As a result, dieselization became far more economical if railroads could be persuaded to accept standard designs. While railroad operating officials helped to chose the diesel locomotive models that best suited their requirements, they could no longer contribute to the design process itself. Rather than solicit competitive bids, railroads often paid an established purchase price. (30) The diesel locomotive builders, EMD foremost among them, guaranteed the performance of their products in order to compensate for the novelty of their technology and the declining role of the customer in the design process. In addition, since railroad shop forces were unfamiliar with the new technology, diesel manufacturers provided spare parts depots and rebuilding facilities. They also trained railroad employees in proper operation and maintenance techniques. These expanded marketing capabilities, unnecessary in the steam locomotive industry, were vital to success in the diesel market.
The most serious symptom of the myopic vision of ALCo's managers was their inability to understand the importance of marketing. During the 1930s and 1940s, the Electro-Motive Division of General Motors developed innovative financing and guarantee policies, offered classes in diesel locomotive operation and maintenance, and established a nationwide network of spare parts and locomotive rebuilding facilities. ALCo belatedly offered similar services, but these were never as comprehensive or as popular as EMD's. Since ALCo diesels used GE electrical equipment, ALCo frequently relied on GE's marketing and post-sales support facilities. This was especially true between 1940 and 1953, when a joint-production agreement between the two companies was in effect. ALCo's failure to develop adequate marketing capabilities left them defenseless when GE later used its superior marketing capabilities to enter the diesel locomotive industry on its own. (31)
During the late 1920s and early 1930s, ALCo had the opportunity to exploit its early lead in diesel locomotive technology, but chose not to do so. During the 1920s, ALCo executives correctly argued that the diesel was not commercially viable except in specialized niche applications. Yet they did not invest the funds needed to develop the special-alloy steels, closer manufacturing tolerances, and improved fuels and lubricants that would make the diesel locomotive more broadly successful. ALCo managers chose to produce and market diesels only as an adjunct to their steam locomotive products. Their objective was to maintain customer loyalty through diesel locomotive sales - any railroad that purchased all of its locomotives from one supplier might forgo ALCo for Baldwin if ALCo did not offer the diesels needed for a few specialized applications. (32) Yet customer loyalty counted for little against Electro-Motive's marketing machine, a juggernaut that effectively bypassed the railroad officials who might have kept that loyalty alive. (33) ALCo's ossified corporate culture simply prevented it from assuming a leadership role in the diesel locomotive industry. (34)
As for other competitors, Lima lacked the financial resources necessary to enter the diesel locomotive market, and Baldwin mimicked ALCo's strategy. Neither company could afford not to offer diesels, lest they alienate valued customers. Somehow, the fact that most customers no longer wanted steam locomotives largely eluded the perceptions of managers at both companies until after 1945. ALCo executives, like their counterparts at Baldwin, understood that diesels constituted a necessary adjunct to steam locomotive production. Until the end of World War II, managers at ALCo believed that complete railroad dieselization would not occur under any circumstances. And even if ALCo had attempted to slow the adoption of diesel locomotive technology (it did not) it probably could never have succeeded against the marketing campaigns of Electro-Motive. (35)
Corporate Culture at Electro-Motive
During the 1930s, the Electro-Motive Corporation exploited a narrow window of opportunity and created a first-mover advantage that assured its market dominance for the next half century. During the 1920s, EMC had become the leading American producer of gasoline-powered railcars. These vehicles outwardly resembled conventional railroad passenger cars, but each one contained a gasoline engine, often developing about 300 horsepower, that allowed the cars to be self-propelled. Railcars, like smaller rail busses (conventional highway busses mounted on railroad wheels), allowed railroads to replace lengthy passenger trains on lightly traveled branch lines.
Electro-Motive executives, particularly President Harold Hamilton, developed a corporate culture derived from the automobile industry, that proved effective in the emerging diesel locomotive market. Hamilton implemented this culture at EMC during the 1920s, before GM purchased EMC in 1930. He understood that success in the railcar market depended on marketing more than on technology or manufacturing facilities. Indeed EMC had no manufacturing facilities. It relied entirely on outside contractors.
After a brief stint with the Florida East Coast Railroad, Harold Hamilton had joined the White Automobile Company in 1914, eventually working in both the engineering and sales departments. His duties included teaching teamsters how to operate and maintain trucks, rather than horses. In the process, he realized that a coordinated marketing campaign - one that included post-sales educational and technical support services - had the potential to increase sales. After resigning from White, Hamilton founded Electro-Motive in 1922 and surrounded himself with a highly dedicated staff that shared his interest in experimentation, informality, and his commitment to customer service. Several of his closest associates, such as design expert Richard Dilworth, were refugees from the larger and more bureaucratic General Electric Company. (36)
During the 1920s, Hamilton developed marketing techniques that were frequently seen in the auto industry but virtually unknown in the railway equipment market. EMC guaranteed the performance of its railcars. The company provided field instructors who traveled with each new railcar for at least 30 days and instructed railroad crews in the new techniques of operation and maintenance. Since few railroads were willing to stock spare parts for their railcars, EMC provided a rapid spare parts service. EMC could do this on a cost-efficient basis only if the parts were interchangeable; thus, the company standardized its railcar designs. The resulting savings were such that railroads willingly accepted set designs, even though the practice ran counter to that in the steam-locomotive industry. (37)
Perhaps Hamilton's most important sales innovation concerned the targets of his marketing efforts. He bypassed operating officials and went directly to the finance departments. Financial officials listened eagerly as EMC salesmen described the cost reductions associated with railcars. Hamilton reasoned that "we were going to sell these cars to the top management and work downward, as far as necessary, rather than up through the organization as was conventional. We were selling a product entirely on 'economy and performance,' which likewise was new and different." (38)
EMC's corporate culture, based largely on Hamilton's experience in the auto industry, introduced radically new sales and marketing techniques. EMC thereupon captured 84 percent of the railcar market between 1924 and 1930. By 1930, however, EMC faced both market saturation and declining demand associated with the onset of the Great Depression. Hamilton realized that the diesel locomotive industry offered a suitable forum for his company's organizational skills, but he also knew that EMC lacked the necessary financial resources. ALCo could have provided those financial resources, but it made no attempt to incorporate EMC's knowledge base into its own operations. Instead, General Motors, by purchasing EMC in 1930, provided both the funds and, just as important, a complementary corporate culture that allowed EMC to transfer its marketing skills to diesel locomotive production. (39)
GM's decision to purchase Electro-Motive had far more to do with chance than with any prior corporate strategy (there was none) to penetrate the diesel locomotive market. In the late 1920s GM embarked on a program to develop an automotive diesel engine. GM executives decided to buy a leading diesel engine manufacturer and combine that company's technology with GM's capital and R&D facilities. After considering and rejecting two established diesel engine producers, GM in 1930 purchased the Winton Engine Company. Since EMC was Winton's largest customer, GM also bought Hamilton's company later that year. GM's auto diesel program yielded few results, and the only immediate benefit was the development of some large marine diesel engines for the U.S. Navy. GM displayed two of these engines at the 1933 Century of Progress exhibition in Chicago, where they were observed by Ralph Budd, president of the Chicago, Burlington, and Quincy Railroad. Budd was so impressed that he convinced reluctant GM officials to provide a similar diesel engine for his lightweight, streamlined, Zephyr passenger train. On its inaugural run on 17 April 1934, the Zephyr exceeded all expectations, and several other railroads ordered lightweight trains equipped with GM diesel engines. Not until late 1934, however, did GM officials acknowledge the sales potential of the diesel railroad locomotive. By 1935, they had authorized the development of a diesel engine (Model 567) designed specifically for railroad service, and had funded the construction of a plant at La Grange, Illinois, dedicated to the manufacture of diesel locomotives. Still, GM's investment remained small. It was not until 1940, as military demand for all types of diesel engines skyrocketed, that GM transformed the wholly-owned subsidiary Electro-Motive Company into the Electro-Motive Division. (40)
In 1935, Electro-Motive completed its first diesel locomotive, a yard switcher. Yard switchers seldom strayed far from their maintenance base, and thus could be easily repaired by crews familiar with a particular engine. In addition, yard switchers worked almost constantly at very low speeds - an application tailor-made for the diesel. Once the success of the diesel yard switchers had been demonstrated, Electro-Motive moved out of this relatively small niche market by offering locomotives designed to power long-distance passenger runs. From there it entered the largest market of all, long-haul freight traffic. (41)
During the 1930s, GM's support of Electro-Motive allowed that company to enter the diesel locomotive industry. GM's financial contribution was small, grudgingly provided, and not part of any grand design to capture the locomotive industry. ALCo could certainly have matched GM's financial support of EMC; however, ALCo's corporate culture was fundamentally incompatible with the new technology and the marketing strategy it implied. GM's diversified and decentralized structure, rare during the 1930s, gave considerable leeway to executives such as Hamilton and his chief supporter, Charles Francis Kettering. In addition, GM's focus on the automobile market mirrored Hamilton's experience at White. Managers at both GM and EMC understood the language of marketing and realized that a well-designed marketing program could multiply sales.
During the 1930s, Electro-Motive executives adapted and expanded their familiar marketing techniques to diesel locomotives. EMC's sales staff was never very large - the total number of salesmen in 1948, at the height of the dieselization rush, was only fourteen - but it had a wealth of marketing experience. In order to demonstrate the advantages of diesel locomotives to railroad executives, EMC developed the "economic study," which provided an extremely accurate estimate of the potential savings of dieselization. By 1947, this type of study had become standard industry practice. (42)
Unlike the other locomotive builders, EMC realized that the travelling public could play a significant role in a railroad's decision to purchase diesel locomotives. Trains such as the Zephyr gave the public a taste of what fast, comfortable, smoke-free travel could be like. In addition to displaying diesels at railroad equipment trade shows, EMC featured them at public venues, such as the 1939 New York World's Fair. The public demand for diesel-powered passenger trains that followed this type of publicity encouraged railroads to purchase diesels for passenger service. These initial sales in turn increased the likelihood that further diesel purchases, including those for freight service, would be made. (43)
For railroads that were still undecided, EMC supplied demonstration units free of charge, a practice that soon became standard throughout the industry. The use of demonstrators was, of course, impossible in the steam locomotive industry. Orders for steam locomotives were usually unique, and, prior to actual delivery, railroads had only a theoretical idea of how their new locomotives would perform.
Once it had sold diesels to a railroad, EMC was able to arrange financing through the General Motors Acceptance Corporation. This procedure allowed railroads to avoid the equipment trust financing, arranged through banks, that predominated in the sale of steam locomotives. Many banks were reluctant to issue new equipment trust certificates during the Great Depression, especially to financially troubled railroads. EMC continued its 1920s practice of renting locomotives to railroads, with the stipulation that rental payments be less than the savings produced by the new diesels. In 1939, a 600-hp diesel switcher cost $62,250 cash, or $750 per month for eight years, while a 1,000-hp model carried a price tag of $84,300 ($1,000 per month for eight years). Since diesel switchers saved the railroads approximately $1,500 per unit per month, this was essentially a fail-safe proposition for the railroads. (44)
Once EMC had built and delivered a locomotive, it did not simply collect its money and leave, as had been the case with companies in the steam locomotive industry. Continuing the practice established by Hamilton in the 1930s, EMC provided training for operating and maintenance personnel. Initially, this took the form of travelling instructors, who rode with the new engine until the regular crews were familiar with its operation.
EMC's instructional services became more formal in 1934, when H. B. Ellis, EMC's service manager, established a locomotive school at the General Motors Institute in Flint, Michigan. Since these early classes were designed primarily for the U.S. Navy, the initial response from the railroads was poor; but, as La Grange shipped locomotives to more and more railroads, the popularity of these two-week classes increased. In April, 1936, a railroad executive wrote to EMC, suggesting that the locomotive school be moved to La Grange, and this was done in 1937. By 1944, the school had trained more than 35,000 railroad employees. In 1937, EMC also built a travelling instruction car, housed in a converted passenger car, to eliminate the need for railroad employees to travel to Chicago. Classes at La Grange were thereafter generally reserved for high-ranking operations and maintenance supervisory personnel. (45)
EMC added to its training capabilities as diesel locomotive demand increased during the 1940s and 1950s. In 1940, EMC established a Service Training Center, which eventually admitted more than 2,000 students per year. Between 1941 and 1944, the locomotive school was closed, and the instructors lent to the U.S. Navy. This contribution to the war effort enhanced EMD's postwar competitive position, since many ex-soldiers accustomed to EMD engines put their wartime diesel training to use in the railroad industry after the war. In 1945, EMD began a "teach the teacher" program, which trained railroad employees to create their own instructional courses. By 1951, EMD had trained more than 10,000 railroad employees at La Grange, plus an additional 65,000 in its instruction cars. Other locomotive builders, particularly ALCo, offered training programs of their own, but the services pioneered by EMC were far superior. (46)
By 1940, Electro-Motive had achieved market dominance. The company erected barriers to entry that laid a foundation for its leadership for the next fifty years. With Baldwin still recovering from a depression-induced bankruptcy, and Lima still ignoring the diesel market, only ALCo had the potential to compete effectively against Electro-Motive after 1940.
After World War II, ALCo Falls Further Behind
Restrictions on the use of strategic materials curtailed wartime diesel locomotive production. As freight and passenger traffic soared, railroads had little choice but to accept new, though technologically obsolete, steam locomotives. The surge in steam locomotive production convinced many executives at ALCo - and at Baldwin and Lima as well - that railroads indeed preferred steam locomotives over diesels. Postwar re-conversion revealed the painful inaccuracy of that perception. Steam locomotive orders for all three companies dropped from 83 in 1945 to zero in 1946. In 1945, diesels handled only 8 percent of all passenger train miles, but that figure increased to 22 percent by 1947 and 34 percent a year later. In September, 1950, only 17 percent of all freight locomotives were diesels, but these diesels were responsible for 44 percent of freight ton-miles. In 1953, railroads in the United States owned 14,657 diesels and 15,903 steam locomotives. But the steam locomotive performed less than one-fourth of the work done by diesels. By 1959, dieselization was virtually complete with 96.8 percent of all freight ton-miles hauled by diesels. The number of diesel locomotives in service on American railroads increased from 3,882 at the end of 1945 to 20,604 at the end of 1952, and to more than 28,000 by the end of 1961. (47)
ALCo's maladaptive corporate culture continued to plague the company in the postwar period. Given the obvious extinction of the steam locomotive, ALCo executives could no longer ignore the inevitability of dieselization. However, the company continued to suffer in the postwar period, and ultimately it failed to maintain its secondary position in the diesel locomotive industry. Its managers perpetuated their earlier operational routines and continued to market diesel locomotives as they had done in the days of steam.
As both wartime ordinance production and steam locomotive orders declined after 1945, ALCo executives adopted a dual strategy of expansion. First, ALCo diversified into related product lines. Second, although the company did not abandon steam locomotive production until 1948, the company placed new emphasis on diesel development. ALCo introduced a 2,000-hp passenger locomotive, a 1,500-hp freight unit, a 1,500-hp road switcher, and 1,000-hp and 600-hp yard switchers - all of which were in production by late 1946. (48)
As with earlier units, ALCo's locomotives used GE electrical equipment, and were thus marketed under an "ALCo-GE" nameplate. ALCo's reliance on GE had little positive technological impact, since GE electrical equipment was comparable with that manufactured by EMD. More serious, however, was ALCo's decision to transfer authority for diesel locomotive sales and service to GE in 1950. This arrangement added more than 300 GE sales outlets to ALCo's seven facilities. Although the 1950 agreement gave ALCo access to GE's superior marketing network, it reduced ALCo's need to develop its own marketing capabilities. Even after they had abandoned the steam locomotive market, ALCo executives still failed to understand the importance of dedicated marketing capabilities. (49)
By the mid-1950s, most railroads had replaced the last of their steam locomotives, leaving a much smaller market for upgraded or replacement units. This market shrinkage drove marginal producers, such as Baldwin, out of the locomotive market entirely. After 1957, ALCo was EMD's only competition in the domestic market for large diesel locomotives. Although American railroads generally did not complete their dieselization programs until the mid-1950s, ALCo's peak years of diesel locomotive production lasted only from 1946 to 1952. By 1953, ALCo had reduced its diesel locomotive output from four units per day to three. While locomotive sales were $131 million in 1951, those in 1954 were only $26 million. (50)
ALCo survived for a time in the diesel locomotive industry only because EMD chose not to capture the entire market. As the lowest cost producer in the industry, EMD could certainly have secured a 100 percent market share, but its managers wisely refrained from acquiring enough capacity to accommodate all of the locomotive orders from the entire railroad industry. Had it done so, EMD could have driven ALCo and its smaller competitors from the industry, but this would have created two problems. First, the federal government was likely to take a dim view of any company possessing a 100 percent market share. It did in fact prosecute EMD for alleged antitrust violations during the 1960s. Second, when the dieselization boom began its inevitable downturn, EMD could retrench easily and allow its smaller, higher-cost competitors to suffer the brunt of declining demand. EMD's voluntary restraint in the diesel locomotive industry was similar to GM's earlier decision to refrain from monopolizing the automobile market. (51)
In 1956, in an attempt to reverse its declining market share, ALCo introduced locomotives containing the new Model 251 diesel engine. (52) In order to produce this new diesel more efficiently, ALCo in 1957 embarked on a major plant modification program. It reduced the size of its Schenectady plant by a third, mostly by selling or demolishing the vacant buildings formerly used for combat tank and steam locomotive production. ALCo's latest "plan to consolidate and modernize the company's locomotive-building facilities," enacted some 22 years after comparable developments at Electro-Motive, created a "progressive station" assembly line, in which production bays on either side of the main erecting shop funneled components onto one of three assembly tracks. (53)
In addition, ALCo finally began to improve its marketing and post-sales support programs by placing additional emphasis on spare parts and locomotive renewal services. In 1952, the year in which Perry Egbert assumed the presidency, ALCo established a locomotive rebuilding and repair service at its Schenectady plant. Two years later, the company opened its first parts warehouse, in St. Louis. ALCo eventually had a total of seven such warehouses. But its marketing programs and post-sales support services merely followed the lead of EMD, nearly a decade behind. Furthermore, compared to locomotives, spare parts tended to be a low-profit item. Only railroads that had initially purchased ALCo locomotives were likely to use either the parts warehouses or the rebuilding services. Thus, as ALCo's locomotive sales declined, these ancillary businesses eventually did the same. In addition, the concentration of ALCo's locomotive rebuilding at Schenectady gave a comparative advantage to EMD's more centrally located La Grange facility. For all of these reasons, ALCo's share of rebuild orders was by the early 1960s much smaller than management had anticipated. (54)
ALCo also began to diversify out of railroad-related product lines and into small-batch custom products that followed the operational routines of the now vanished steam locomotive industry. Symbolic of this transformation was the 1955 renaming of the American Locomotive Company as Alco Products, Incorporated. (55) By the end of the 1950s, Alco offered a wide range of products in the railroad, chemical, atomic power, and petroleum markets. These products included diesel engines, diesel-powered drilling rigs, heat exchangers, pressure vessels, water heaters, steel pipe, cement kilns, evaporators, guided-missile components, steam generators, and forty-four other products. Aside from its partially standardized diesel engines and locomotives, almost all of Alco's products - ranging from lock gates for the New York State Barge Canal to shields for the Lincoln Tunnel - were custom-engineered and custom-built. Profit margins on such products remained low, and the cyclical nature of the markets for which they were designed (oil, defense, public works) actually exacerbated the feast-or-famine tendencies inherent in the locomotive industry. (56)
ALCo's reluctance to rationalize its diesel locomotive production facilities, together with its continued reliance on custom-manufactured products, indicates that the company continued to think of itself as a small-batch producer long after it had completed its last steam locomotive. Recent scholarship has suggested that small-batch production offers a potentially viable alternative to large-scale capital-intensive mass production, particularly in industries that produce small quantities of technologically complex products. Batch production, although less predictable than mass production, allows companies to alter rapidly their production and marketing capabilities in order to respond to changing customer demands. (57) Clearly, ALCo enjoyed considerable success as a flexible small-batch producer of steam locomotives during the early twentieth century. Diesel locomotive manufacture more closely resembled standardized mass production, however, and ALCo executives were unwilling and ultimately unable to adjust to these new manufacturing and marketing techniques.
By the early 1960s, Alco Products was in serious trouble. Total sales, which had been a respectable $440 million in 1953, had fallen to $89 million by 1961. Total earnings fell by 92 percent between 1955 and 1961. The wide variety of custom-engineered, custom-built products, which were intended to equal or surpass locomotive sales, instead comprised only 20 percent of total revenue and an even smaller percentage of profit. Alco's locomotive division, battered at home by EMD and abroad by GE and EMD, was performing little better. Employment at the Schenectady plant declined from 10,000 in 1951, the peak year of diesel locomotive production, to 2,000 in 1960. Although not in imminent danger of bankruptcy, Alco nevertheless required a substantial change in corporate strategy. (58)
The year 1961 was a particularly poor one for all railroad suppliers. EMD was expanding both domestically and abroad, even though at least one financial analyst viewed the locomotive industry as "one of the least profitable ends of the capital goods business." It would seem unlikely, therefore, that Alco executives would choose to concentrate still further on the diesel locomotive industry. Nevertheless, that is exactly what they did.
Alco executives correctly predicted an increase in the demand for diesel locomotives in the early 1960s, and accordingly introduced the Century Series in 1963. They assigned the development of these models to the newly-created Advanced Locomotive Design Group, which they kept separated from the regular Production Engineering Department. The company claimed that these new locomotives lowered operating costs by up to 40 percent, and maintenance costs by up to 50 percent, compared to locomotives that had been in service ten years or more. (59)
Alco was not the only firm to seize the market opportunities created by the sudden increase in locomotive demand, however, and General Electric turned the 1960s into a bitter decade for Alco. Given the surge in locomotive orders, Alco might well have captured a large share of the locomotive orders that EMD could not accommodate. By carefully timing its entrance into the domestic large diesel locomotive market, however, GE diverted much of EMD's overflow away from Alco. When GE entered the market, which could be served adequately by two large producers, it sealed the doom of Alco. The superior manufacturing and marketing efficiency of both GE and EMD forced Alco out of diesel locomotive production by the end of the 1960s.
Since the 1920s, GE had been building small (less than 750-hp) diesel switching locomotives. GE supplied its own electrical equipment and purchased diesel engines from a variety of manufacturers, including Ingersoll-Rand, Cooper-Bessemer, and Caterpillar. The 1940 joint-production agreement with ALCo, under which all domestic high-horsepower diesel locomotives were marketed as "ALCo-GE" units, allowed GE free rein in exploiting foreign orders and the market for low-horsepower units. By 1953, when the two companies ended their joint-production agreement, GE had substantial market shares in both of these areas. (60) GE's involvement in the small diesel and export diesel market also encouraged that company to establish a sophisticated network of locomotive repair and rebuilding facilities. (61)
In 1960, after years of research and planning, GE introduced its first high-horsepower road freight locomotive, the 2,500-hp U25B. This new locomotive incorporated many improvements (most of them in electrical equipment) over its rivals from Alco and EMD. The U25B quickly proved itself in freight service, and was soon followed by other, more powerful models. By 1963, GE's 10 percent market share equaled that of Alco, with EMD holding the remaining 80 percent. Thereafter, GE's market share exceeded that of Alco. (62)
This situation, in which Alco was a direct competitor with its only supplier of electric equipment, was unusual in American business. From Alco's perspective, GE's decision to enter the domestic large diesel locomotive industry was little short of disastrous. Faced with increased competition from GE, Alco's market share began to decline: from 11.5 percent in 1966 to 6.5 percent the following year, to 2.6 percent in 1968, by which time GE had captured 33.2 percent of the market. (63)
In July, 1964, the Worthington Corporation, which had purchased Alco's feedwater heater business less than two years earlier, offered to buy the rest of the company as well. (64) The managers of both companies hoped that a merger would smooth out the "boom and bust" cycles associated with their product lines. As an analyst from Forbes explained, "there's a real possibility that the two convalescing cripples can help each other." (65) Effective 31 December 1964, the former Alco Products, Inc. became the Alco Products Division of the Worthington Corporation.
What finally settled Alco's fate as a locomotive producer, however, was the November, 1967, merger of Worthington with the Studebaker Corporation. In January, 1969, the newly elected president of the Studebaker-Worthington Corporation, Chicago lawyer Derald H. Ruttenberg, pledged to eliminate all of the financially unsound components of the corporation. First to go was the Alco Products Division. Accordingly, in 1969, Alco ended 121 years of continuous locomotive production at Schenectady. In February, 1970, Studebaker-Worthington sold its diesel engine business to the White Motor Corporation. The design rights to the diesel locomotives themselves were transferred to the Montreal Locomotive Works, which remained a component of Studebaker-Worthington. Thereafter EMD and GE alone vied for control of the American diesel locomotive market. (66)
Continued Postwar Success at EMD
As World War II came to an end, EMD de-emphasized military production in order to exploit effectively the surge in locomotive demand that occurred when railroads replaced steam locomotives worn out by fifteen years of wartime service and depression-era deferred maintenance. Between 1945 and 1955, EMD enjoyed the full benefits of the first-mover advantages established during the 1930s. EMD's success during the postwar decade was largely the result of an adaptive corporate culture that was transformed by EMD and GM executives to satisfy a larger and more predictable locomotive market. While the organizational routines embedded in this modified corporate culture stressed improvements in manufacturing techniques and facilities, they placed even more emphasis on improvements to EMD's already impressive marketing structure.
As EMD expanded its marketing capabilities during the postwar period, it continued to recognize the importance of public opinion in the locomotive industry. The division's 1946 "Better Trains Follow Better Locomotives" and "Bright New Era" ad campaigns were targeted at railroad passengers. In May, 1947, EMD dedicated the GM Train of Tomorrow by launching it on a six-month tour of more than thirty cities in the United States. This train, a combination of one diesel locomotive and four luxury passenger cars, was never intended to be a regular production item for EMD. Instead, GM President Charles E. Wilson was interested in "creating a greater interest in rail transportation by the public and a greater acceptance of the products we furnish to railroads." (67) A few years later, EMD issued a 32-page booklet, targeted at the general public, that stressed the virtues of diesel locomotives in general and EMD's in particular. EMD thus knew, as it had since the 1930s, that public pressure could be a significant factor in encouraging railroads to replace their dirty and noisy steam locomotives with modern diesels. (68)
Other EMD marketing efforts were targeted directly at railroad executives. EMD ads initially stressed "super-production and super-transportation." By the late 1940s, the emphasis of the ads had shifted from "selling the concept of the diesel-electric to selling complete and total dieselization." EMD ads in the early 1950s continued to focus on the elimination of steam, but with the addition of statistical information. The booklet "Safeguarding Railroad Earnings" provided a well-written, easy-to-understand description of how EMD could save money for its customers, particularly in the areas of parts service and locomotive rebuilding. Shortly after World War II, EMD developed the Operating Comparison Report to serve as a clearing house for information from more than thirty railroads regarding the most efficient utilization of EMD diesel locomotives. Some railroad operating officials thought that these reports were of little value, since most railroads had vastly different operating characteristics. Nevertheless, services such as these often impressed senior railroad executives, who were often more familiar with finance than with operations, and who made the final locomotive purchasing decisions. (69)
EMD also played on the vanity of senior railroad executives. It supplied them with handsomely framed pictures of EMD diesels for their office walls. More importantly, its highly successful 1957-1959 ad campaign, "Men Who Build the Future of American Railroads," placed color portraits of important railroad executives on the front cover of Railway Age, the leading industry trade journal. EMD locomotives appeared on these covers as well, but they were in the background and were smaller than the heads of the railroad executives. In comparison, ALCo's efforts to cultivate the goodwill of important railroad officials in the postwar period were less well developed. At the 1946 New York premiere of ALCo's new locomotive line, for example, the senior railroad executives in attendance watched an Arizona Indian tribal dance and were given a free carnation. EMD's marketing efforts were both more professional and more effective than those employed by its competitors. (70)
After the war, EMD's Service Department was given responsibility for an expanded set of training programs. The importance of these instructional courses is indicated by the fact that EMD had fewer than twenty salesmen in the United States, yet employed 120 locomotive instructors. In addition to its two instruction cars and its classes at La Grange, EMD sent a complete diesel locomotive on an instructional tour of American railroads. In 1953, recognizing the increasing importance of foreign orders, EMD instituted a 90-day export training class. Gradually, as larger numbers of railroad operating and maintenance employees became familiar with diesel locomotives, the importance of these instructional services declined. For many years, however, EMD's locomotive school increased goodwill and accustomed a generation of railroad employees to EMD locomotives. (71)
EMD expanded its parts and service network to accommodate the growing number of diesel locomotives on American railroads. In February, 1949, the company opened a new parts distribution center at La Grange, containing some $3 million in inventory. EMD also operated parts distribution centers in other cities, including Jacksonville, Halethorpe (near Baltimore in Maryland), Minneapolis, Los Angeles, Emeryville (California), and St. Louis. By the end of 1949, EMD had invested $39 million in its parts distribution network. EMD also conducted extensive research into methods of spare-parts packaging.
EMD established locomotive rebuilding locations throughout the United States. Division managers believed that locomotive rebuilding would increase goodwill, provide a captive market for EMD parts, allow faster amortization of research and development and tool and die costs, and serve as a test bed for experimental techniques that, if successful, could be implemented at La Grange. A former dog-biscuit factory in Oakland, California, was the location of the first rebuild facility, established in 1944. Facilities at Jacksonville, Baltimore, and Emeryville soon followed. (72)
Much of EMD's postwar success resulted from its ability to adapt its culture to meet changing operating conditions. During the 1920s and 1930s, President Harold Hamilton and his associates at Electro-Motive developed a corporate culture that stressed informality, experimentation, and innovation - exactly what the company needed as it expanded its small market niche. By 1945, however, the Electro-Motive Division of General Motors had evolved into a large and profitable producer of diesel locomotives and large marine and stationary diesel engines. GM strove to create a new culture based on stability, predictability, and formalized operating routines by replacing older technician-managers with lifelong GM "organization men." In early 1950, Richard Dilworth retired from EMD, although he continued to serve as a consultant until 1952. Dilworth was among the last of the informally trained technician-managers left at EMD. The year 1953 saw the departure of O. F. Brookmeyer, another manager of this type. (73) As these technician-managers retired from EMD, the division became increasingly dominated by managers, often supplied by General Motors, who were trained in sales rather than production techniques. The promotion of these managers thus indicates that EMD, and GM, recognized the continued importance of marketing and salesmanship. (74)
EMD continued as the industry leader until the mid-1980s, when GE, after increasing the quality and fuel efficiency of its diesel locomotives, began to chip away at EMD's market share. GM considered, and ultimately rejected, a plan to sell EMD to ASEA Brown Boveri or some other suitable company. By the middle 1990s, however, EMD's sales had recovered and it appeared that EMD and GE were about evenly matched in the diesel locomotive industry. The relative dilution of EMD's successful corporate culture, which ended an uninterrupted half-century of dominance in the diesel locomotive industry, is beyond the scope of this article but it offers the possibility for further research and analysis.
Adaptive and Maladaptive Corporate Cultures: An Assessment
ALCo's transformation from a steam locomotive builder to a producer of diesel locomotives failed because its management, constrained by an outmoded corporate culture, did not perceive that their company would require a radical and comprehensive transformation if it were to survive in the diesel locomotive industry. In particular, these managers failed to understand the importance of marketing, an organizational capability that had little relevance in the steam locomotive industry, but one that was crucial in diesel locomotives.
While ALCo was the victim of a maladaptive corporate culture, Electro-Motive succeeded because of a culture better suited to the organizational requirements of the diesel locomotive industry. Whereas ALCo's corporate culture had been the product of generations of managers schooled in the traditional craft techniques of steam locomotive production, Electro-Motive's culture was largely the creation of one entrepreneur, Harold Hamilton, and a few of his close associates. This culture, derived from the heady early days of the auto industry, stressed innovation and experimentation. Above all, it acknowledged that marketing was as important as production, if not more so.
Electro-Motive's marketing-based corporate culture fit well with the culture and organizational routines established by GM, itself a pioneer in marketing. GM's nurturing attitude toward marketing initially proved at least as valuable to Electro-Motive as its financial resources. Military demands associated with World War II finally encouraged GM to provide large amounts of capital to the newly constituted Electro-Motive Division. As EMD's size and profitability increased, its culture changed. While EMD continued its commitment to marketing, its culture placed more emphasis on stability and organizational routine - attributes that would have been inappropriate in the formative years of Electro-Motive, but were well suited to the postwar locomotive market.
If nothing else, the historical example of ALCo - and of the locomotive industry as a whole - indicates that a well-developed, successful, and respected corporate culture can lead a company to great economic success, but that the same culture, left unmodified, can lead the same company to disaster. The recent financial difficulties of many large and traditionally prosperous American firms, including General Motors, calls into question any notion of permanent organizational adaptability and managerial infallibility. (75) The ALCo story provides a disturbing picture of managers adrift in a sea of incompetence, self-importance, and organizational ossification. The lesson of the locomotive industry is that technology often changes more rapidly than do the people whose careers depend on it, and that technological change, in order to be exploited effectively, must be accompanied by more than plant modernization, by more than research and development, by more than government action. It must be accompanied by fundamental changes in the hearts and minds of those who claim to control it.
1. Railway Age 119 (15 Dec. 1945), pp. 970-2.
2. See also Albert Churella, "Corporate Response to Technological Change: Dieselization and the American Railway Locomotive Industry during the Twentieth Century," (unpublished Ph.D. dissertation, The Ohio State University, 1994), which examines the six major firms in the locomotive industry - ALCo, Baldwin, Lima, Fairbanks-Morse, the Electro-Motive Division of General Motors, and General Electric.
3. See Appendix I for information of the examination of changes in corporate culture.
4. See Appendix II for information of the examination of the corporate culture from the historical perspective.
5. This window of opportunity opened in about 1932, by which time diesel engine technology had advanced sufficiently to make widespread dieselization economically feasible. The window closed in 1940, when Electro-Motive introduced its Model FT, which gained widespread acceptance in the railroad industry and virtually assured Electro-Motive's future success. According to business historian Alfred D. Chandler, Jr., first-mover advantages accrue to the first firm in an industry to make the combined investments in the manufacturing facilities, marketing networks, and managerial capabilities that are necessary to exploit new market opportunities. Even though ALCo pioneered diesel locomotive technology, the firm did not make these investments, and so failed to garner first-mover advantages or to create substantial barriers to entry. Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990), pp. 34-35, 62-63.
6. In his study of the Baldwin Locomotive Works, ALCo's chief competitor in steam locomotives, John Brown shows that Baldwin sowed the seeds of its own destruction in the first decade of the twentieth century, well before diesel locomotive technology had matured. He contends that, by 1907, railroads had usurped Baldwin's control over steam locomotive technology, a problem made more serious by the increasing regulation and declining financial health of the railroad industry. ALCo entered the 1920s in a much more sound condition than Baldwin, however. John K. Brown, "The Baldwin Locomotive Works, 1831-1915: A Case Study in the Capital Equipment Sector," (unpublished. Ph.D. dissertation, University of Virginia, 1992), pp. 353-364, (forthcoming, Baltimore, Md., 1995).
7. Chandler, Scale and Scope, 658-65.
8. EMD's earnings were but a fraction of those of its parent company. While EMD locomotive sales were $85 million in 1960, total GM sales were $12.7 billion. United States of America vs. General Motors Corporation, case # 61CR356, United States District Court, Southern District of New York, filed 12 April 1961, National Archives, Northeast Region, New York, pp. 2, 7-10; Thomas G. Marx "Technological Change and the Theory of the Firm: The American Locomotive Industry, 1920-1955," Business History Review 50 (Spring 1976), p. 9.
9. See Appendix III for additional information about the history of the American locomotive.
10. California legislation mandating zero-emission automobiles offers a recent parallel to the Kaufman Act. For another view of the effect of public concern for safety on the interaction between government and the railroad industry, see Mark Aldrich, "Combating the Collision Horror: The Interstate Commerce Commission and Automatic Train Control, 1900-1939," Technology and Culture 34 (January 1993), pp. 49-77.
11. Railway Age, 108 (25 May 1940): 933; John F. Kirkland, The Diesel Builders, Vol. 2: American Locomotive Company and Montreal Locomotive Works (Glendale, Calif., 1989), pp. 37-39.
12. In the "feast-or-famine" steam locomotive industry, stockholders expected and received high dividends when sales were brisk. Such was the case during the 1920s. Dividends on a share of common stock, with a market price of approximately $100, were $6.00 in 1924, $18.00 in 1925, and $8.00 per year between 1926 and 1929 - despite the fact that the post-World War I locomotive boom ended in 1925. At the same time, ALCo's net earnings were $7.45 per share in 1926, $4.80 per share in 1927, $1.92 per share in 1928, and $5.40 per share in 1929. Even though ALCo's earnings per share were only $1.41 per share in 1930, the company still managed to pay a $4.50 dividend. Baldwin's dividend policy was equally generous during the 1920's, which doubtless contributed to that company's 1935 bankruptcy. See Barron's, 7 June 1937, p. 9.
13. Dana T. Hughes, "A History of Schenectady Operations of Alco Products, Inc.," reprinted from the Schenectady Union-Star, 22 April 1955, The American Locomotive Company Collection at the George Arents Research Library, Syracuse University, Syracuse, New York (hereafter referred to as the ALCo Collection), box 11; "New Muscle in Diesels," reprinted from Alco Review, Spring-Summer 1959, ALCo Collection, box 1; Alco Products Review, Number 5 (Spring/Summer 1956), p. 15.
14. ALCo, Baldwin, and Lima all purchased electrical equipment from outside suppliers - a strategy that greatly reduced the investment in capital, personnel, and research that would have been necessary to develop proprietary electrical equipment technology. Electro-Motive also relied on outside suppliers, since it subcontracted all rail-car production during the 1920's, and purchased GE electrical equipment for diesel locomotives manufactured prior to 1938. It does not appear, therefore, that ALCo's reliance on GE electrical equipment put the company at a competitive disadvantage with Electro-Motive.
15. In 1937, American railroads spent $50 million per year on the provision and treatment of water for steam locomotives. One western railroad, the Santa Fe, used tank cars to haul more than one million gallons of water per day to the arid station at Ash Fork, Arizona. Not surprisingly, the Santa Fe was a major early customer for EMC diesels. Railway Age, Volume 118 (24 March 1945), pp. 541-542; Remarks of Ralph Budd at a luncheon given by Alfred P. Sloan, Jr., New York, 28 Oct. 1937, Association of American Railroads Library, Washington D.C. (hereafter referred to as AAR).
16. John Bonds Garmany, Southern Pacific Dieselization (Edmonds, Washington, 1985), p. 5: Railway Age, Volume 74 (20 Jan. 1923), pp. 241-3; Volume 78 (11 April 1925), pp. 939-941; Volume 121 (27 July 1946), p. 125; Volume 123 (20 Sept. 1947), pp. 476-477; Volume 123 (15 Nov. 1947), pp. 829-831; Remarks of Ralph Budd at a luncheon given by Alfred P. Sloan, Jr., New York, 28 Oct. 1937, AAR.
17. ALCo's experience is thus similar to the pattern discussed by Joseph L. Bower and Clayton M. Christensen in "Disruptive Technologies: Catching the Wave," Harvard Business Review 73 (Jan.-Feb. 1995), pp. 43-53. ALCo managers focused their attention on sustaining technology (steam locomotives) since these clearly offered greater power than diesels and appealed to long-time customers (railroad operating officials). As a result, they ignored the potential of disruptive technology (diesels) and allowed a small upstart company (Electro-Motive) to sell a different set of performance characteristics to a different set of customers (railroad finance officials). The horsepower disadvantage of diesels was ultimately insignificant, however, since by 1940 technicians at both Electro-Motive and ALCo realized that multiple-unit operation allowed one engineer to control several separate diesel units that together could out- pull any steam locomotive.
18. The small size of the locomotive market, especially during the 1930s, combined with the tendency of railroads to order many copies of the same locomotive design, caused rapid fluctuations in market share, as was the case with ALCo between 1935 and 1936. Even in the larger postwar locomotive market, a single large order (fifty or more units) could cause a sharp rise in market share. Marx, "Technological Change and the Theory Of the Firm," p. 9; Alco Products Review, 5 (Spring/Summer 1956), p. 15. For information on EMD's La Grange facility, see Railway Age, Volume 98 (23 Feb. 1935), p. 312; Volume 98 (23 March 1935), p. 472.
19. For more on the relationship of operational routines to corporate cultures, see Richard R. Nelson and Sidney G. Winter, An Evolutionary Theory of Economic Change (Cambridge, Mass., 1982), pp. 14-15.
20. Railway Age, Volume 104 (7 May 1938), pp. 796-801.
21. "General Motors Diesel Locomotives," Statement by C. R. Osborn, Vice-President, General Motors, before the Subcommittee on Antitrust and Monopoly of the U.S. Senate Committee on the Judiciary, Washington, 9 Dec. 1955, p. 17.
22. Railway Age, Volume 116 (12 Feb. 1944), p. 369.
23. ALCo, 1940 Annual Report, p. 5; Railway Age, Volume 108 (9 March 1940), pp. 445, 452 (quote); Volume 120 (12 Jan. 1946), p. 146; Volume 120 (4 May 1946), p. 906.
24. ALCo, 1954 Annual Report, p. 14; New York Times, 26 Feb. 1954, p. 32; Railway Age, Volume 120 (12 Jan. 1946), p. 146.
25. New York Times, 29 Oct. 1943, p. 29; 14 Jan. 1950, p. 19; Railway Age, Volume 119 (6 Oct. 1945), p. 579; Volume 120 (12 Jan. 1946), p. 146; Volume 125 (9 Oct. 1948), pp. 693-694; Volume 128 (21 Jan. 1950), p. 181; Barron's, 30 May 1955, pp. 19-20.
26. Railway Age, Volume 108 (9 March 1940), pp. 445, 452.
27. ALCo, report of the annual meeting, 19 May 1953, ALCo Collection, box 6; ALCo, press release, 27 Dec. 1962, ALCo Collection, box 13; New York Times, 13 March 1942, p. 27; 14 July 1944, p. 21; Railway Age, Volume 133 (8 Dec. 1952), p. 85.
28. Brown has shown that a considerable degree of standardization and interchangeability existed at Baldwin even in the late 19th century. The same was true of ALCo by the early twentieth century. This standardization existed only within individual locomotive orders (usually no more than a few dozen units) and not throughout the entire railroad industry. In other words, several steam locomotives delivered to the Southern Pacific might be identical, but all would be different from equally-powered locomotives delivered to the New York Central. By 1915, Baldwin offered nearly 500 steam locomotive designs, and would custom-build steam locomotives to individual customer specifications. The one attempt at industry-wide standardization in the steam locomotive industry occurred during World War I, when the United States Railroad Administration developed standardized steam locomotive designs in the interest of wartime production efficiency. Although locomotives produced to these designs were generally satisfactory, the craft nature of steam locomotive manufacture ensured that only minor production efficiencies resulted. After the war, railroads renewed their demands for customized locomotive designs. Not until the advent of the diesel did manufacturers begin to produce identical locomotives for different railroad customers. Brown, "The Baldwin Locomotive Works," pp. 263-286, 362.
29. Because steam locomotives were largely custom-built to the specifications of individual railroads, locomotive builders rarely kept a large stock of spare parts in inventory. Instead, railroads too small to possess extensive foundry and machine shop facilities described or sent in the defective part, and a spare was either cast or machined from blueprints and patterns kept in a pattern vault. Steam locomotives were thus frequently idled for days or weeks while awaiting a single spare part. Electro-Motive's commitment to standardization among all of its customers increased greatly its ability to supply spare parts on a timely basis.
30. In the late 1930s, Electro-Motive sold diesel switching locomotives direct from stock at a fixed price, much like an automobile dealer. Wartime production restrictions, combined with the high overhead cost of stock production, ended this practice by the early 1940s.
31. Kirkland, The Diesel Builders, Vol. 2, p. 57.
32. During the 1930s, the use of diesels to maintain customer loyalty reached is zenith at Baldwin. That company was the highest-cost producer, yet was forced to conform to the pricing structure established by Electro-Motive. As a result, Baldwin lost money on every diesel locomotive it manufactured, and the company prohibited its salesmen from actively soliciting diesel locomotive sales. Diesels would only be made available on the specific request of a valued railroad customer, one who was a long-standing purchaser of steam locomotives.
33. Kotter and Heskett, Corporate Culture and Performance, pp. 143-5, suggest that weak or maladaptive corporate cultures are often characterized by lack of responsiveness, or even arrogance, toward traditionally valued customers. Ironically, ALCo suffered because it continued to be loyal to a set of customers - railroad operating officials who were increasingly isolated from the railroads' motive power purchasing decisions.
34. Richard N. Foster, Innovation: The Attacker's Advantage (New York, 1986) discusses the relationship between advocates of new technology ("attackers") and supporters of the status quo ("defenders"). In terms of Foster's analysis, diesel locomotive technology was at a point of very low performance during the 1920s, and thus ALCo saw little need to invest R&D funds in a product with seemingly little potential. At the same time, the steam locomotive was at the absolute outer limit of its technological capabilities, and funds invested in marginal improvements to steam locomotive technology appeared to be cost effective, yet in reality did little to improve steam locomotive performance relative to diesels. Foster also discusses the tendency of defenders to use new technology as an adjunct to familiar, if increasingly outdated, older technology; this was certainly the case at ALCo and Baldwin.
35. Jean Tirole, The Theory of Industrial Organization (Cambridge, Mass., 1988), pp. 404, 405, discusses the incentive for a company to delay conversion to a new technology if by so doing it can prevent or slow its adoption. ALCo could not have slowed or prevented the adoption of diesel technology at any time, and it saw no need to do so in the 1930s, since ALCo executives believed (incorrectly) that the diesel's technological limitations would prevent it from replacing steam locomotives, at least in the immediate future. Tirole also discusses "positive network externalities" - the concept that a product becomes more valuable as its usage becomes more widespread. This was certainly true of diesels, since their greater diffusion made it easier for railroads to amortize investments in new diesel locomotive servicing facilities.
36. Railway Age 115, no. 6 (7 August 1943), pp. 239-40; Franklin M. Reck, On Time: The History of the Electro-Motive Division of General Motors (Detroit, Mich., 1948), pp. 11-14.
37. Harold L. Hamilton, "Historical Background and Notes on the Development of Electro-Motive," pp. 11-12; Reck, On Time, pp. 44-46.
38. Hamilton, "Historical Background and Notes on the Development of Electro-Motive," pp. 14-15.
39. Hamilton, "Historical Background and Notes on the Development of Electro-Motive," p. 19; Reck, On Time, p. 56.
40. Albert Churella, "Corporate Response to Technological Change: The Electro-Motive Division of General Motors during the 1930's," Essays in Economic and Business History 12 (July 1994), pp. 347-54.
41. Electro-Motive's strategy of capturing a niche market and then expanding into more lucrative segments parallels the methods employed by many "attackers" in a wide variety of industries. Foster, Innovation, pp. 158-61; Bower and Christensen, "Disruptive Technologies," p. 47.
42. Fortune, Volume 19 (March 1939), p. 138; Volume 38 (July 1948), pp. 76-81, 144-149; "General Motors Diesel Locomotives," statement by Cyrus R. Osborn before the Subcommittee on Antitrust and Monopoly of the U.S. Senate Committee on the Judiciary, Washington, 9 Dec. 1955, p. 7.
43. Railway Age, Volume 105 (30 July 1938), pp. 203-204.
44. Since Electro-Motive was the largest and lowest-cost diesel locomotive producer, the company was also the price leader in the industry. Locomotive prices, on a cost-per-horsepower basis, were virtually identical throughout the industry. This price structure forced certain companies, such as Baldwin, to consistently sell diesels at a loss.
45. Railway Age, Volume 102 (15 May 1937), pp. 832-833; Volume 117 (14 Oct. 1944), p. 600; Volume 118 (24 March 1945), pp. 541-542; Volume 130 (9 April 1951), pp. 41-44; Untitled history of the Cleveland Diesel Division, pp. 11-12; Reck, On Time, pp. 169-170.
46. Railway Age, Volume 130 (9 April 1951), pp. 41-44; GM-EMD, "The Electro-Motive Commitment to Service," ca. 1970, The General Motors Institute Alumni Foundation's Collection of Industrial History, Flint, Michigan (hereafter referred to as GMI), folder 76-16.4.
47. Barron's, 18 Oct. 1948, pp. 29-30; 11 May 1953, pp. 15-16; Coal Age, Volume 52 (Dec. 1947), pp. 74-78; Railway Age, Volume 123 (15 Nov. 1947), pp. 829-831; Volume 146 (6 April 1959), p. 10; Volume 152 (15 Jan. 1962), pp. 16, 103; GM-EMD, "Why America Needs More Diesels Now," 1950, AAR.
48. The Commercial and Financial Chronicle, 29 Oct. 1945, p. 2010; 10 June 1946, p. 3126, Railway Age, Volume 122 (1 Feb. 1947), p. 290; Diesel Power and Diesel Transportation, Dec. 1947, pp. 66-69.
49. Robert B. McColl, Address to the Railroad Executives' Conference, Schenectady, New York, March, 1948, ALCo Collection, box 6; ALCo, 1946 Annual Report, pp. 3, 11; Railway Age, Volume 120 (20 April, 1946), p. 839; Volume 121 (19 Oct. 1946), pp. 636-641; Volume 123 (13 Sept. 1947), pp. 450-452; Volume 124 (12 June 1948), pp. 1156-1158; Volume 128 (6 May 1950), p. 894; New York Times, 5 May 1950, p. 30.
50. ALCo, 1954 Annual Report, p. 5; Barron's, 30 May 1955, pp. 19-20; New York Times, 11 August 1953, p. 30.
51. Address by John F. Gordon at EMD banquet, Detroit, Oct. 18, 1961, AAR.
52. Alco Products Review, 5 (Spring/Summer 1956), p. 15; Railway Age, Volume 140 (23 Jan. 1956), pp. 43-44; Volume 140 (27 Feb. 1956), pp. 24-26.
53. ALCo, 1957 Annual Report, pp. 3-4; ALCo News Release, 6 Aug. 1957, ALCo Collection, box 12; Railway Age, Volume 142 (15 April 1957), p. 12 (quote); Volume 143 (19 Aug. 1957), p. 10. In 1957, as ALCo was divesting itself of a third of its Schenectady plant, EMD was planning a 42 percent expansion of its La Grange facility. Railway Age, Volume 142 (14 Jan. 1957), p. 134.
54. ALCo, 1952 Annual Report, p. 8; 1957 Annual Report, p. 25; ALCo, 1957 advertisement, reprinted from Diesel Progress, ALCo Collection, box 1; Jack Lillis to Art Batts, 19 Feb. 1963, ALCo Collection, box 12; Railway Age, Volume 136 (1 Feb. 1954), p. 13; Volume 136 (24 May 1954), pp. 40, 44; Volume 137 (13 Dec. 1954), p. 70.
55. ALCo, 1954 Annual Report, pp. 5, 12-13; Perry T. Egbert, "Letter to all Shareholders," 20 April 1955, ALCo Collection, box 6; Schenectady Union-Star, 6 May 1954; Alco Products Review, Volume 4 (Fall 1955), pp. 18-21; Volume 5 (Winter 1956), p. 1; Volume 6 (Spring 1957), pp. 24-25; Barron's, 30 May 1955, pp. 19-20; Railway Age, Volume 136 (3 May 1954), p. 10; Volume 136 (14 June 1954), p. 16; New York Times, 8 May 1954, p. 27; 4 June 1954, p. 37; 20 April 1955, p. 53.
56. Alco Products Review, Volume 4 (Winter 1955), pp. 11-16; Volume 4 (Spring 1955); Volume 7 (Winter 1958), p. 23; Railway Age, Volume 138 (2 May 1955), pp. 14-15.
57. For example, see: Philip Scranton, "Diversity in Diversity: Flexible Production and American Industrialization," Business History Review 65 (Spring 1991), pp. 27-90, and Figured Tapestry: Production, Markets, and Power in Philadelphia Textiles, 1885-1941 (Cambridge, Mass., 1989); John N. Ingham, Making Iron and Steel: Independent Mills in Pittsburgh, 1820-1920 (Columbus, Ohio, 1991); and Michael J. Piore and Charles F. Sabel, The Second Industrial Divide: Possibilities for Prosperity (New York, 1984).
58. New York Times, 9 Jan. 1960, p. 25; Forbes, 15 April 1962, p. 50.
59. Alco Products, Inc., Press Release, 11 March 1963, ALCo Collection, box 28; Worthington Corporation, Press Release, 20 July 1967, ALCo Collection, box 29; Barron's, 20 May 1963, p. 19; Railway Age, Volume 154 (4 Feb. 1963), pp. 16-17; Volume 154 (10 June 1963), p. 29; Volume 155 (21 Aug. 1963), pp. 50-51; Volume 159 (19 July 1965), pp. 10-12; Volume 163 (31 July 1967), p. 50.
60. GE's decision to terminate the joint-production agreement was based on that company's concern over an increasing level of defects in ALCo's products. Since these locomotives bore an "ALCo-GE" nameplate, many GE executives felt that their company's reputation was being tarnished by association with ALCo. These managers also saw an opportunity to displace ALCo as EMD's only competitor in the domestic locomotive market. Even two years after the agreement ended, a 1955 GE marketing report noted that "the stigma of lack of reliability . . . is still following Alco and damaging their reputation, and ours." General Electric, "Market Analysis, Domestic Road Locomotives," February, 1955, John W. Barriger III Collection of Railroad History at the Library of the St. Louis Mercantile Association, box H-34.
61. E. W. Manterfield to Michael Whelan, 9 Sept. 1955, ALCo Collection, box 6; Railway Age, Volume 127 (12 Nov. 1949), pp. 855-856; Volume 135 (7 Sept. 1953), p. 13; Volume 138 (21 March 1955), p. 7; Volume 144 (14 April 1958), p. 46; Volume 150 (12 June 1961), p. 35.
62. Alco Products, Inc., "Transcript of Annual Stockholder's Meeting," 21 April 1964, ALCo Collection, box 6; Business Week, 10 March 1962, pp. 132-136; Railway Age, Volume 152 (15 Jan. 1962), pp. 16, 103; Volume 156 (20 Jan. 1964), pp. 56-58; Volume 157 (12 Oct. 1964), pp. 38-40; Volume 159 (13 Sept. 1965), pp. 68-70.
63. New York Times, 8 March 1967, p. 61; Marx, "Technological Change and the Theory of the Firm," p. 9.
64. Typescript of a speech to commemorate the 125th anniversary of Worthington Corporation, 26 Feb. 1965, ALCo Collection, box 11; New York Times, 23 July 1964, p. 33; Forbes, 1 Aug. 1964, p. 23.
65. Forbes, 1 Aug. 1964, p. 23.
66. New York Times, 28 Nov. 1967, p. 65; 7 Jan. 1969, p. 49; Barron's, 17 Aug. 1970, pp. 26-27; Railway Age, Volume 164 (22 Jan. 1968), pp. 49-50; Volume 164 (3 June 1968), p. 27; O. M. Kerr, Illustrated Treasury of the American Locomotive Company (Alburg, Vermont, 1980) pp. 18, 23.
67. Railway Age, Volume 122 (31 May 1947): pp. 1110-1111 (quote).
68. Railway Age, Volume 119 (28 July 1945), p. 179; Volume 122 (8 Feb. 1947), pp. 324-325; Volume 122 (31 May 1947), pp. 1110-1111; Volume 122 (23 June 1947), pp. 1294D19-1294D26; Volume 173 (28 Aug. 1972), pp. 40-41; GM-EMD, The Diesel Locomotive: Revolution on Rails, ca. 1950, AAR.
69. Railway Age, Volume 173 (28 Aug. 1972), pp. 40-41 (quotes); GM-EMD, "Safeguarding Railroad Earnings," 1952, AAR; Nelson C. Dezendorf, speech before the New York Society of Security Analysts, New York, 1 June 1951, AAR; R. C. Parsons to Ivan E. Rice, 13 Oct. 1953, Louisville and Nashville Railroad Collection, University of Louisville (Record Group 123, hereafter referred to as the L&N Records), box 2, folder B-77203.
70. Industrial Marketing, Volume 31 (Nov. 1946), pp. 30-31; Railway Age, Volume 173 (28 Aug. 1972), pp. 40-41 (quote); John E. Tilford to M. H. Gardner, 15 July 1948, L&N Records, box 2, folder 81930.
71. Railway Age, Volume 125 (25 Dec. 1948), p. 1188; Volume 134 (2 March 1953), p. 12; United States of America vs. General Motors Corporation, case # 61CR356, p. 4.
72. Business Week, 2 Sept. 1950, pp. 40-42; Railway Age Volume 121 (5 Oct. 1946), p. 573; Volume 132 (4 Feb. 1952), pp. 20-21; Volume 133 (4 Aug. 1952), p. 96; Volume 138 (2 May 1955), p. 13; "Welcome to the Electro-Motive Division of General Motors," ca. 1955, GMI, folder B 3/17.
73. Railway Age, Volume 132 (14 April 1952), pp. 57-58; Volume 135 (21 Dec. 1953), p. 14; Franklin M. Reck, The Dilworth Story (New York, 1954), p. 99.
74. Railway Age, Volume 129 (12 Aug. 1950), p. 76; Volume 129 (19 Aug. 1950), pp. 43-44; Volume 132 (18 Feb. 1952), p. 13; Volume 132 (17 March 1952); Volume 132 (14 April 1952), pp. 57-58; Volume 147 (14 Sept. 1959), p. 67.
75. For a comprehensive analysis of the effects of a maladaptive corporate culture on the American automobile industry, see: Brock Yates, The Decline and Fall of the American Automobile Industry (New York, 1983). John Z. DeLorean and Ted Schwarz, DeLorean (Grand Rapids, Mich., 1985) and Lee Iacocca and William Novak, Iacocca: An Autobiography (New York, 1984) offer more personal accounts of this process.
The definition of corporate culture used here refers to the beliefs, attitudes, and values of company management, the way in which these beliefs were shaped by education and work experience, and the impact of the resulting values on corporate decision-making processes. The ways in which executives were rewarded (or punished) for their conformity (or lack thereof) to these unwritten corporate values are also important components of corporate culture. The concept of corporate culture has attracted increasing interest during the last decade, particularly among business writers. An early, although still useful, broad analysis of the interrelationship between culture and society is Clifford Geertz, The Interpretation of Cultures (New York, 1973). Hundreds, if not thousands, of books and articles relating to corporate culture have appeared in the business press over the past decade. Perhaps the best known is Thomas Peters and Robert H. Waterman, In Search of Excellence (New York, 1982). John P. Kotter and James L. Heskett, in Corporate Culture and Performance (New York, 1992) offer a multi-industry overview of maladaptive corporate cultures, cultures that "can also lead intelligent people to walk, in concert, off a cliff" (8). Such was the case at Alco.
Recent articles dealing with corporate culture in the modern business context include Jacques Bourgault, Stephane Dion, and Marc Lemay, "Creating a Corporate Culture: Lessons from the Canadian Federal Government," Public Administration Review 53 (Jan. 1993): 73-80); Tom Gaughan, "The Corporate Culture of OCLC," American Libraries 22 (Oct. 1991): 894-6; Monique Jerome-Forget, "Changing the Corporate Culture," Business Quarterly 56 (Winter 1992): 107-111; Malcolm J. Morgan, "How Corporate Culture Drives Strategy," Long Range Planning 26 (April 1993): 110-118; and Thomas Rollins, "Two Studies Define Link Between Corporate Culture and Business Performance," Employment Relations Today 20 (Summer 1993): 141-57.
Scholars are showing an increased interest in an examination of corporate culture from an historical perspective. Charles Dellheim, in: "Business and Time: The Historian and Corporate Culture," The Public Historian 8 (Spring 1986): 9-22, and "The Creation of a Company Culture: Cadburys, 1861-1931," The American Historical Review 92 (Feb. 1987): 13-44, shows how strong religions beliefs can shape a company culture and how that culture, in turn, can affect the performance of a company and the attitudes of its workers, even after the founders have departed the scene. Michael Rowlinson and John Hassard, "The Invention of Corporate Culture: A History of the Histories of Cadbury," Human Relations 46 (March 1993): 299-326, offers a different view of corporate culture at Cadburys, suggesting that religious values formed the centerpiece of a mythical corporate culture fabricated to ensure worker loyalty. William R. Childs, "The Transformation of the Railroad Commission of Texas, 1917-1940: Business-Government Relations and the Importance of Personality, Agency Culture, and Regional Differences," Business History Review 65 (Summer 1991): 285-344 and David M. Vrooman, Daniel Willard and Progressive Management on the Baltimore and Ohio Railroad (Columbus, Ohio, 1991) illustrate the ability of powerful individuals to shape an organizational culture, especially if they are able to use symbolism that is potent and familiar to a variety of individuals both inside and outside an organization. Paul A. Tiffany, in The Decline of American Steel: How Management, Labor, and Government Went Wrong (New York, 1988), shows that a "deeply embedded culture of distrust" (190), shared by managers, workers, and government officials alike, had a disastrous effect on the postwar American steel industry. Mansel Blackford, in A Portrait Cast in Steel: Buckeye International and Columbus, Ohio, 1881-1980 (Westport, Conn., 1982) and Howard E. McCurdy, in Inside NASA: High Technology and Organizational Change in the U.S. Space Program (Baltimore, Md., 1993), make observations analogous to those in this study: namely, that seemingly capable and successful executives can become so enmeshed in a corporate culture that they are unable to adapt to new realities.
In spite of widespread popular interest in railroads in general and steam locomotives in particular, little detailed historical research has been conducted on the American locomotive industry during the twentieth century. Some of the best recent scholarship concerning the diesel locomotive industry has come from Thomas Marx: "Technological Change and the Theory of the Firm," 1-24 and "The Diesel-Electric Locomotive Industry: A Study in Market Failures," (unpublished Ph.D. dissertation, University of Pennsylvania, 1973). Marx, an economic historian, uses the diesel locomotive industry as a case study to determine the advisability of proactive federal antitrust policy. He is not particularly interested in corporate culture or managerial responses to technological change per se; and, furthermore, Marx did not have access to the wealth of ALCo records at Syracuse University. Other useful works include Robert Charles Bingham, "The Diesel Locomotive: A Study in Innovation," (unpublished Ph.D. dissertation, Northwestern University, 1962); Donald Kentfield Park II, "An Economic Analysis of Innovation and Activity: American Steam Locomotive Building, 1900-1952," (unpublished Ph.D. dissertation, Columbia University, 1973); and Richard P. Hydell, "A Study of Technological Diffusion: The Replacement of Steam by Diesel Locomotives in the United States," (unpublished Ph.D. dissertation, The Massachusetts Institute of Technology, 1977).
Buy Albert Churella's book -- Princeton University Press's "From Steam to Diesel: Managerial Customs and Organizational Capabilities in the Twentieth-Century American Locomotive Industry" by Albert Churella (1998, 224 pp., 6 x 9; ISBN: 0-691-02776-5).
Every locomotive historian should read this book; it will change the way you think about railroad locomotives.
See also Trains magazine, Volume 61, Number 9, September 2001, for an excellent article, "Death by Diesel," on a very similar subject.
Albert Churella received his Ph.D. in business history from The Ohio State University in 1994.
His dissertation, "Corporate Response to Technological Change: Dieselization and the American Railway Locomotive Industry During the Twentieth Century," examines the efforts of six companies to exploit the market potential of large railway diesel locomotives.
Presented as a paper at the 42nd Annual Conference on Business History in 1994.