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

Published online by Cambridge University Press:  13 December 2011

Donald N. Sull
Donald N. Sull
Affiliation:
DONALD N. SULL is an assistant professor of strategy and international management at theLondon Business School.
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Abstract

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

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Articles
Information
Business History Review , Volume 73 , Issue 3 , Autumn 1999 , pp. 430 - 464
Copyright
Copyright © The President and Fellows of Harvard College 1999

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References

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

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

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

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

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

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

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67 Ibid., 150–151.

68 Ibid., 152.

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

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

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

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

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87 Reece interview.

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

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

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

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97 Ibid.

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

99 Ibid.

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

102 Brodeur interview.

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107 Ibid.

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

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

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

115 Nevin interview.

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126 Gilbert interview. See also Brodeur interview.

127 Reese interview. See also Brodeur and DiFederico interviews.

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

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

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

139 Ibid., 278–9.

140 Ibid.

141 Ibid., 296–7.

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

143 Ibid., table 7.

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

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

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

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

148 Sull, “Why Good Companies go Bad.”

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160 Ibid., 24–5.

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