Managing Strategic Illusions

The Volvo Strategy in Retrospett

Nils Kinch

Uppsala University, Department of Business Studies

phone 018-18 13 75

Telefax + 46 18 55 53 86

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Managing Strategic Illusions

The Volvo Strategy in Retrospett

Abstract

This paper discusses the convergence between vision and strategic movement in the

Swedish automobile Company Volvo from 1926 untill956. The intentions formulated in

1926 were by and large realized when the founder and CEO resigned after 30 years in

office. However, in the intervening years the actual development differed substantially

from original plans. Although Volvo repeatedly failed to introduce a tar the CEO

persistently reiterated his original vision. Causal attributions were manipulated and a

future desired state described as if it had already materialized. The Volvo story illustrates

the interplay of vision and opportunism. It brings attention to the extent to which realized

strategy is the result of deliberate management actions or fortuitous events.

CHALLENGING THE HEROIC THEORY ON STRATEGY FORMATION

In his great epos War and Peace Leo Tolstoy sets himself to expose the great illusion

that individuals, using their own resources, can understand and control the course of

events. He criticizes the contemporaty heroic theory of history which postulates that the

world is shaped by ingenious ideas conceived by great men. In tontrast Tolstoy

emphasizes the contribution of ordinary people and random events. He sets out to

tontrast the “real” course of events with the “unreal” image presented by historians. His

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method used is well described by Berlin (1953/1967) in his essay on Tolstoy’s view of

history.

“Again and again in the pages of War and Peace we get a sharp juxtaposition of‘realny - what ‘really’ occurred - with the distorting medium through which it Willlater be presented in the official accounts offered to the publit, and indeed berecollected by the actors themselves - the original memories having now beentouched up by their own treacherous (inevitably treacherous becauseautomatically rationalizing and formalizing) minds”. (fiid., p.p. 15-16).

The issues raised by Tolstoy with regard to how history evolves and how it is interpreted

and his observations on the impact of sense-making and the symbolic aspects of

leadership may as well apply to the way story-telling functions in the modern torporation.

Official stories of strategic issues and the evolution of firms are to a large extent

initiated and controlled by top management of the very large and successful companies.

The picture commonly presented is one in which they with foresighted decisions and

vigorous actions guide the Company toward success. This heroic image is reinforced by a

continuous flow of superficial stories in the commercial press. The same tendency to

stress deliberate strategies and create a feeling of managerial potency can also be found

in cases and textbooks used in business policy courses and the tales told by tonsultants.

The unsupported assumptions are that strategies and consequences are tightly linked as

if managerial intentions can be smoothly translated into organizational outcomes

(Aldrich, 1986, p. 63). However, the rational approach to strategy formation has been

challenged and the pattern which eventually develops in an evolving Company regarded

as consisting of both deliberate and emergent elements (Mintzberg, 1978; Mintzberg and

McHugh, 1985). This approach observes factors outside the control of management and

accounts for necessity and chance as well as purpose (Aidrich, 1986; Pfeffer and Salancik,

1978). This means there is reason to assume a bias in the available data on strategy and

that Company stories must be read with caution.

Awell known case related to this topic is the study of Pascale (1984) of the two versions

of Honda? introduction of motorcycles in the U.S. market. In a report prepared by the

Boston Consulting Group its success was presented as a result of a carefully formulated,

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brilliant plan where the Company redefined the market. Based on this report a trumber of

cases were written and used in business policy courses throughout the United States.

When Pascale interviewed the executives who had been credited with the design of the

elever strategy and had started up the venture a different picture unfolded. The story told

by the Japanese highlighted a continuous learning from experience rather than the

existence of an ex ante well-conceived strategy and the alleged intentional redefinition of

the market was described as an innovation into which they had reluctantly reversed.

According to Pascale various narratives of the development of companies tend to omit

the process whereby organizations experiment, adapt and leam from experience. They

impute coherence and purposive rationality to events even when the opposite may be

closer to what actually happened. He concludes that a better understanding is needed of

how an organization “deals with miscalculation, mistakes and serendipitous events

outside its field of vision” (fiid., p. 57). Further research is necessary in this area as this

ability may be crucial to the success of companies over time.

As an illustration of this, and how official stories tend to favour the heroic theory of

history and distort the actual process through which companies develop over time the

evolution of the Swedish automobile manufacturer Volvo from 1924 to 1956 has been

studied. In the Honda case the success tame as a surprise to the Company and the

materialized strategy differed considerably from the original intentions. Furthermore the

reformulation of history was executed by a consultancy firm to demonstrate their

formulae of successful strategic management.

The Volvo story presented in this paper illustrates a different situation. By and large

the original vision formulated in 1926 had been realized by the time the founder and

CEO of the Company resigned in 1956. Meanwhile however, the Company had failed

repeatedly to realise what it had intended and had to take up other activities. Thus the

actual performance deviated greatly from what had been projected. Despite the

problems encountered the CEO retained his original visions and reinterpreted the actual

course of events. This convergence between visions and events in the Volvo Company in

the course of 30 years raises some interesting questions. Does this case illustrate how

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behavior may change over time in ways consistent with a vision which is persistently and

frequently articulated? This case is unique in the unusually long tenure of the CEO. From

the textbooks we learn that rigid adherence to a strategic plan can lead to serious

problems if the plan is poorly conceived, or if environmental conditions change abruptly.

However, to what extent is this convergence fortuitous and to what extent the result of

deliberate management action? Should the accounts made by the CEO of Volvo be

interpreted as strategic plans with substantive implications or “strategic illusions” with

symbolic and expressive meanings to keep the idea alive. The plan formulated in 1926

and the strategy as described by management in official accounts in 1936 and 1956 have

been compared with the Volvo history as it can be reconstructed from other available

sources, e.g. annual reports and magazines of the Volvo Company. In this way it has been

possible to analyze the “actual” development with regard to products, volumes, markets

etc. and the descriptions given by management. The deviations in relation to what had

originally been conceived as well as the explanations provided are examined. Further

more the pictures of the production system given on two occasions have been compared

between themselves and with data collected from other accounts, e.g. sources describing

the subcontractors. An analysis is also presented of how the founder of Volvo managed

to keep the vision alive and turn the venture into a success despite the problems faced

initially.

GENERAL BACKGROUND

The venture, which would develop into the present Volvo Corporation, started in

August 1924 when Assar Gabrielsson, the sales manager of the Swedish producer of ball-

bearings, SKF, on his own initiative and with his own money had a tar designed. The

blueprints were completed in June 1925. However, no one was prepared to invest in the

project on the evidente of the blueprints alone and Gabrielsson had 10 test cars

produced using his own capita]. In June 1926 the first tar was assembled and he was then

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able to interest SKF in the venture. The whole project was taken over by that Company in

September 1926 and organized as a subsidiary until 1935 when the shares in Volvo were

distributed to the shareholders of SKF. Gabrielsson was appointed managing director

and remained in this position until 1956, when he became chairman of the board until his

death in 1962.

At the end of 1926 the number of cars in Sweden approached 80,000 and that year

more than 17,300 had been imported. Two Swedish companies were already operating in

the automobile industry, each producing approximately 300 trucks and buses annually in

more or less wholly integrated factories. One of them, Scania Vabis, had ceased its

production of cars in 1924, as they were not competitive.

No overall history of Volvo nor a biography on its founder have been written. Orrly

popular accounts of its truck and tar businesses respectively exist. Of these Lind’s (1984)

account of the Volvo cars is the most extensive. An analysis focused on the organization

of the network of subcontractors is given in Kinch (1987) and an account of the

introduction in the U.S. market in Kinch (1991).

THE STRATEGY AS PRESENTED IN 1926

In a confidential memorandum written in June 1926 the outline for the tar venture was

presented in detail (Ellegård, 1983). According to this plan 1,000 cars were to be

produced in the first year, 4,000 in the setond and 8,000 in the third. Of the first year’s

production 400 were to be exported and when the production had reached 8,000 it was

planned that around 60 % should be sold abroad. Cars were mainly sold during spring

and summer and sales to countries with a tontrasting climate to Sweden were suggested

as a means to even out the production over the year. This would also limit the

dependence on the Swedish market.

The model chosen had to be a utility tar sold at a price that could contribute to increase

the use of automobiles in the country. It was so designed that it could be easily modified

into a light truck which could be produced as a complement to the cars. However, the

retords of the presentations Gabrielsson made of the industry -to-be, e.g. in newspaper

articles, or when he was quoted in committee reports, or the minutes from the debate on

automobile duties in the Swedish Parliament, only mention the intended production of

passenger cars.

It was remarked that the Swedish engineering industry had the capacity to produce all

the parts of an automobile at competitive prices with the possible exception of tyres and

speedometers. A volume of 6,000 - 8,000 cars a year would yield the advantages of mass

production and make the venture profitable. The manufacture should be based on an

extensive use of Swedish subcontractors and besides the design the Company planned

ortly to carry out the assembly work. It was on this concept that Gabrielsson managed to

obtain the support of SKF.

In an interview Gabrielsson assumed “that the most meticulous work had been laid

down to prepare the production of cars. The problem had been examined down to the

last detail and the programme set up considered to be feasible” (Stockholm Dagblad,

March 31st, 1927, p. 4).

TJ3E VOLVO STORY AS TOLD BY TFXE FOUNDER IN 1956

When Gabrielsson resigned as managing director in 1956 an article talled “Volvo

During Thirty Years” was published. This contains a summary of the evolution of the

Volvo Company up to 1956. An account is given of the point of departure for the venture,

how the production was organized over the years, the development of the sales, the

export activities and the special problems the Company faced during the Setond World

War. The major part of the account is concentrated on the events which occurred before

the war, and the development in the 1950s is not covered in any detail. This article may

be regarded as something of the “official story” of the early years of the Company.

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According to Gabrielsson it was not only a “love of adventure” which led to the

establishment of Volvo. The general conditions in favour of a profitable Swedish

production of automobiles were reasonably good. Reference was made to the superior

Swedish steel, the high standing of the engineering industry and the need for a tar

adapted to the bad roads and severe climate in Sweden. The scale advantages of the

American industry would be balanced by the lower wages in Sweden. It had been

calculated that an annual production of 8,000 cars would result in a profitable venture

and this would be reached in the third year.

Production started in 1927 but the realized volumes fel1 far short of these targets and

“the realny tumed out to be less wonderful than fiction”. In the first year only 300 were

sold, in the setond 1,000 and in the third 1,400. None were exported in the first year

which was “quite natural” as Volvo, according to Gabrielsson, could not produce as many

cars as planned and accordingly had no problem to sel1 them in Sweden. Cars were

mainly sold during spring and summer and export to countries south of the equator,

principally Argentine, had been suggested as a means to even out the production over the

year. This was instead accomplished with the introduction of trucks during the setond

year of operation. It appeared that the sale of trucks was distributed more evenly over

the year with a slight increase at the end. Later in the account it was mentioned that

Volvo had problems in arousing the dealers’ interest in “the excellent and durable, but in

some respect slightly provincial tar we sold in the first years”.

Volvo had started to produce cars and in the setond year “taken up the production of

trucks principally as a complement”. An explanation was given of why trucks and later

buses developed into the more important and profitable venture. Due to “the

tremendous cost for dies to the bodies for cars and the yet limited production capacity” of

the supplier of bodies Volvo “in the main was only capable of producing one tar model at

a time and in order to amortize the tools this had to be produced for many years”. This

was in tontrast to the American competitors who introduced new models every year. It

was mentioned that Volvo carefully studied the trends but “enly within narrow limits

could follow the variations in the models”. However, in the marketing of trucks and buses

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other properties than the styling, such as durability and fuel economy, were put in the

forefront.

Volvo started as an assembler and had different Swedish firms produce parts and

components to its specifications. This system was adopted due to a lack of capita1 but also

meant that Volvo could benefit from the production experience possesed by different

renowned Swedish companies. This way to organize the production was labeled

“producing the Volvo way”. The hardship Volvo had to overcome was to start up

production of special components for automobiles at prices which made the vehicles

competitive. The required machinery and expertise was not always at hand in Sweden

and in order to enable the subcontractors to meet the requirements an “educational

effort” was necessary and foreign know-how was brought in. Special components for cars

e.g. carburettors and electrical equipment, were bought abroad. In the late 1930s

approximately 15 % of the components used were imported.

In order to “increase the vommes year by year and keep the most up-to-date producing

methods” Volvo gradually had to extend the operations and take up the production of

some of the vital parts. The supplier of engines was acquired in 1930 and the Company

producing gearboxes for trucks in 1941.

After some years Volvo managed to develop a substantial export which was first

directed to the Nordic countries and later also to Holland, Belgium and some countries

around the Mediterranean along with the larger markets in South America. By the end of

the 1930’s about 35 % of the trucks and buses were exported but only very few cars. The

production planned for 1939 amounted to 5,000 trucks and buses and 4,000 cars. Due to

the outbreak of the war only 7,500 units were produced but it was still a retord.

Gabrielsson claimed that before the war the turnover was constrained by the limited

production capacity of the Swedish subcontractors and that Volvo “enly temporarily, and

with reference to a few models” had faced more serious marketing problems.

During the war special circumstances prevailed and the production turned into

deliveries for the Swedish arrny. A major@ interest in a Company producing engines for

aircraft was acquired in 1942. Volvo also designed a new small tar, the PV 444, a trattor,

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and a diesel engine to be fitted into trucks and buses. The situation after the war was

characterized by a general starcity of resources and trade restrictions. Up to 1950 these

problems were less pronounced in Argentine and Brazil and during this period most of

Volvo’s exports went to these countries.

Due to difficulties in obtaining sheets of the required quality and size, the production of

the new tar was delayed until 1947. The small tar was an immediate success and Volvo

had difficulties in meeting the demand. Gabrielsson frankly admitted that Volvo had

been “lucky” with the conception of this tar. In the late 1930s smaller cars, mainly Opel

and DKW from Germany, had been successful on the market. With the continually

improving roads it become evident to him that smaller cars could run on the Swedish

roads better than he “earlier had considered to be possible”. He also mentioned the

“hunger for cars” after the war as an important external factor. It was also stated that

Volvo certsinly had not imagined that the small tar put on the market in 1947 would still

be produced in 1956 and by then reached a total volume of 125,000, and that at least as

many more were expected to be produced. Further, Volvo had not dreamt that this

model would be introduced in the United States “and if all the signs did not miss the

mark, it would make a success there”

As a postscript to the story told by Gabrielsson it can be mentioned that a new tar, the

Volvo Amazon, was successfully introduced in 1956 and in the 1960s firmly established

Volvo as a manufacturer of cars. The tar introduced in 1947 was kept until 1965 and

produced in more than 400,000 units.

When Gabrielsson resigned in 1956 a large part of the vision presented in 1926 had

materialized. For most of the first 30 years of the Company? history the business, more or

less, had been totally dependent on the production of trucks and buses. In 1957 the

turnover for cars exceeded that of trucks and buses and contributed to a substantial share

of the export. The Volvo group by now had a turnover of almost 1,000 M SEK and

altogether more than 13,000 employees. In that year more than 41,500 cars, 14,300 trucks

and 1,000 buses were produced. Of a total production of 57,000 units 24,000 were

exported. The major@ of the cars exported were sold in the United States. Three years

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after the first appearance in that market every fourth tar produced by Volvo was

delivered there. Sinte then the export to North America has determined most of the

development of the Volvo Company.

TEIE PICTURE PRESENTED IN 1936

A sales handbook was issued in connection with the introduction of a new tar in 1936. It

was distributed to the dealers but not made public.It describes the special features of the

automobiles and gives a comprehensive report of the conditions in favour of an

automobile production in Sweden and the distinguishing characteristics of the Company

at large, as well as a short account of the events leading up to 1936.

The Causes Given for the Problems Faced

In 1936 the cars accounted for less than 20 % of a total production of almost 4,000

automobiles. A large proportion were sold as cabs, or fitted for special usage. About 30

% of the trucks and buses were exported but only very few of the cars. It was argued “that

the prevailing direction of the sales was quite natural, as for trucks and buses and cars for

commercial usage, properties such as the reliability and durability of the vehicles

primarily were of value”. The export was directed to countries without an automobile

industry of their own and the Nordic area accounted for a large share.

A distinction was made between the problems Volvo faced in relation to the design of

bodies for cars and those connected to the design of chassis for commercial vehicles.

With regard to the bodies it was a question of deciding what “appealed to the publit at

large which sometimes could be rather difficult”. The design of a chassis was easier as it

was a question of developing what was “most beneficial to the publit at large”. In order to

be successful with cars the developed model had to be in line with the prevailing opinion

of what was currently in fashion. The American manufacturers dominated the market,

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and established what would “be regarded as stylish”. Volvo had to adapt to the fashion

prescribed by the competitors and could not deviate or prematurely introduce new

concepts.

Gabrielsson admitted that the Company had faced some problems with regard to the

first line of cars. A misjudgement concerning the proportion of open and closed body cars

had been made and 200 of the 500 open cars in the first series had to be scrapped. The

production programme had been based on the prevailing proportion between open and

closed cars in 1926. It is also mentioned that the styling of the body did not prove to be a

success. Gabrielsson later claimed they were a failure “primarily because they differed

from the cars of others” (Gabrielsson, 1937, p. 24). The bodies in the first closed four-

cylinder tar had a wooden frame covered with artificial leather. This so-talled “soft

system” had been chosen because no firm in the country could press a sheet of the

required size. The cars, styled by an artist, to be equipped with a metal body, did not

appeal to the publit. It was also mentioned that the Company was unprofitable in the first

three years.

Why the Company was Competitive at this Time

In the sales handbook it is evident that Gabrielsson tried to convey the message that

Volvo had mastered fairly well the problem of designing a tar. It was argued that this

would be further developed when “our turnover had become so large that we determined

what was considered as beautiful”. The majority of the cars were sold in Sweden and

Volvo “had achieved results that made our vehicles more suited for the Swedish roads

than others”. The American cars were designed to fit the concrete roads prevailing in the

United States and not adapted to the curving grave1 roads which dominated in Sweden.

Gabrielsson explained at length the advantages of the decentralized production system

used by Volvo. The layout with an extensive use of independent subcontractors that

produced parts designed by Volvo was considered to be peculiar to the Company and

became known as “producing the Volvo way”. He strongly stressed that Volvo should not

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be compared with other companies which assembled vehicles from parts bought from

specialists producing components for automobiles. An American auto-assembler had to

accept the specifications made by the outside specialist. On the contrary, Volvo had

designed all the essential parts and commissioned different Swedish companies to make

them to its specifications. Accordingly it should be regarded as a Company with its own,

although decentralized, production. The number of parts in the cars technically

controlled by Volvo was said to equal that of the three largest Arnerican manufacturers.

This way to organize the production allowed Volvo to place orders at the workshops

which had the best qualifications for their manufacture. Regarding most items it was at

any time possible to find a factory which could do “a better job than we could, if we had to

produce all the parts at one place”. By always using the most skilful supplier Volvo

obtained parts which were as well made as possible.

However, not all parts were designed by Volvo. Standard parts and special components

for automobiles, e.g. carburettors and the electrical equipment, were bought. Due to the

small size of the automobile industry the supply of these goods was very limited in

Sweden. In the absente of domestic producers Volvo had to go abroad. The main

competitors were said to be in a different situation; by tradition and because of the

availability of resources they limited their sourcing to the domestic market. Volvo

claimed that its market for purchasing, thus, became larger “because we operate in a

small country and can buy wherever we want without the need to take any nationalistic

feelings into account”.

It had been doubted whether Volvo, because of its limited size, could survive the

tompetition from mass produced cars. In this tontext it was stated that although Volvo

did not manufacture cars “running into millions” it had managed to solve the problem of

keeping down the cost of production. By collaborating with other Swedish industries

Volvo could utilize idle capacity in machinerv, plants and skilled labour. The orders only

represented a fraction of the production of the subcontractors and were consequently not

subjett to any large fixed costs and could thus be produced at competitive prices. The

cost to produce tools and above all dies for the pressed parts of the bodies was lower in

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Sweden than in the United States. The cost of producing a die in Sweden was the same in

SEK as it was in USD in the United States. With the prevailing exchange rates this meant

that the cost in Sweden amounted to a quarter of that in the United States. Generally, a

tool or die could ortly be used for a rather limited number of details. In order to obtain

the same tooling cost fora part as the American competitors, Volvo only had to reach

one quarter of the number which could be produced before the tool was worn out. It was

claimed that this leve1 had already been reached for most of the parts.

To sum up, Gabrielsson fortefully argued that Volvo should be regarded as a large

industry.

“Our vehicles have been exported all over the world and shown to be competitiveboth with regard to price and quality. We do not fear the giant Americanmanufacturers and their series of millions of low priced cars.

Volvo’s production system, by means of which a fruitful and capita1 savingcollaboration with a large proportion of the Swedish quality industry has come intoexistence, makes Volvo into a larger industry with resources of such an industry.That our own plants cannot meet all the demands which are in realny made onVolvo is, with reference to our special system of production, only desirable”.(Gabrielsson, 1936, par. 46)

When the size of the Company was mentioned, Gabrielsson made a distinction between

“the smaller Volvo”, which constituted the Company as such, and “the larger Volvo”,

which also included the dealers and subcontractors. In the middle of 1936 the smaller

Volvo had about 1,100 employees and the corresponding figures at the dealers and

subcontractors were estimated to 550 and 2,100 respectively. This meant that “the larger

Volvo” in 1936 employed more than 3,700 people in Sweden.

The Company was not as small as was contended by its critics. With regard to the trucks

Volvo was among the 11 to 15 largest producers world-wide (Gabrielsson, 1937, p. 25).

As a producer of cars it had a more modest position. In the Swedish market Volvo in

1936 accounted for 4-5 % of the cars sold. It was stressed that the Volvo tar should be

compared with the larger, more expensive American cars, not with the low priced cars.

This gave a more favourable picture. However, the reason why the Company until now

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had refrained from the larger market for “low priced’cars was deliberately not

elaborated.

STRATEGY FORMATION AND SYMBOLIC LEADERSHIP

As a point of departure for the analysis to follow a short review of the writings on

strategy formation and symbolic aspects of management and attribution theory Will be

given.

Strategy Formation - Myths and Empirital Observations

The story-telling related to strategy formation may reflect, as well as contribute to, what

is institutionalized as rational with respect to how a Company should be run (Meyer &

Rowan, 1977). Organizations live in a climate of accountability (Weick, 1979, p. 249) and

managers, employees, business journals and the publit at large like the notion that events

develop according to well-conceived plans. This idea is maintained by consuitants and

text-books on management and strategy formulation (e.g. Andrews, 1971/1980; Ansoff,

1965; Porter, 1980). They contend that explicit policies and eiaborated strateg& are the

distinctive mark of a well managed Company (Mintzberg, 1990). An opposing view is well

summarized by Wrap (1967) who argues that a good manager is an improviser rather

than a planner and reluctant to be precise and commit himself publiely to a specific policy

or set of objectives. Well managed companies do not lack policies but they “evolve over

time from an indescribable mix of operating decisions” (Ibid., p. 96).

This way of reasoning is more in line with empirital observations which have

documented that managers have fragmented working days and are preoccupied with

current problems in response to immediate external demands rather than planning ahead

(Carlson, 1951; Kurke and Aldrich, 1983; Mintzberg, 1973; Stewart, 1967/1988).

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If strategy is conceived as what actually has been accomplished, e.g. a stable pattern of

decisions or activities, the pre-existence of a purpose or plan does not have to be

assumed (Mintzberg and McHugh, 1985). What is realized may not always have been

intended and the distinction between the formulation and implementation of strategy

becomes blurred. In an unstable and complex world firms cannot rely on uncertain

projections of an unknown future and they develop through “short-run reaction to short-

run feedback” (Cyert and March, 1963, p. 119). The formation of strategy “then becomes

a learning process, whereby so-talled implementation feeds back on formulation and

intentions get modified en route, resulting in an emergent strategy” (Mintzberg, 1978, p.

946). This brings attention to the way in which organizations experiment, adapt and learn

from their experience (Normann, 1975). It may be descriptively more correct to envisage

strategy formation as a process extended over time where input from below is a crucial

ingredient and the interchange ofinformation and ideas up and down in the Company of

great significance. Pascale (1984) challenges the conventional Western wisdom on

strategy and claims that the Japanese think in terms of “strategic accommodation” or

“adaptive persistence” which reflects “their belief that corporate direction evolves from

an incremental adjustment to unfolding events” @id., p. 64).

This does not necessarily mean that companies evolve haphazardly. Quinn (1980)

studied a number of successful organizations and reports that what on the surface may

seem incremental in fatt had a powerful underlying logit. He introduces the concept of

“logital incrementalism” and emphasizes the role of a central strategist. Strategy

formation is conceived “as a managed interactive leaming process in which the chief

strategist gradually works out strategy in his own mind and orchestrates his organisation’s

acceptante of it” (Quinn et al., 1988, p. 81). Mintzberg views the strategist “...as a pattern

recognizer, a learner if you Will - who manages a process in which strategies (and visions)

can emerge as well as be deliberately conceived” (1987, p. 73). Besides analytical aspects

Quinn (Ibid.) also talls attention to the politital and motivational dimension of strategy.

Successful managers give directions to the organization by providing an image or a way of

thinking that makes sense for those involved.

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Symbolic Leadership and Strategic Illusion

One important managerial activity is to provide explanations and rationalizations which

make sense of the activities undertaken in the organization (Pfeffer, 1981; Smircich and

Morgan, 1982). Plans may be important in a Company but not for the reasons normally

ascribed to them. Cohen and March (1974) argue that they serve inter alia as symbols and

advertisements. A plan can be regarded as a symbol when it is used to signal a message

that a Company grasps a situation although the reverse may be the actual case. They are

advertisements in the sense that they are often used to convince potential investors of the

feasibility of a project and in so doing tend to present the Company at its best (Weick,

1979, p. 10). To be effective and legitimate to the organization’s constituents these

explanations should be consistent with social norms, values and expectations. This sense-

making involves labeling, the development of social consensus around these labels, and

the definition of activity. In this way support from the organization’s environment is

ensured as well as a continued commitment and motivation on the part of its members.

Pfeffer (1981, p. 5) argues that the actions themselves are result principally from

resource interdependence and environmental constraints and that the task of

management is primarily connected with expressive or symbolic actions and to a lesser

degree has a discretionary impact on instrumental action.

The observed tendency to rearrange history may be analyzed with reference to the

perspective presented in the research on causal attributions (e.g. Bettman and Weitz,

1983; Meindl et al., 1985; Salancik and Meindl, 1984). The argument put forward is that

management, in order to create an illusion of control and communicate to constituents

that they can produce results, strategically manipulates casual reasoning around the

company’s performance issues. This behaviour appears to be most prominent in unstable

firms with erratic performance histories which would imply that management had little

control. According to Salancik and Meindl(l984) unstable firms tended to take more

responsibility for outcomes, negative as well as positive. This pattern would be consistent

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with an intended strategy to convince constituents of their ability to direct the venture

more effectively and create an illusion of control of the welfare of the torporation. They

thus stress the strategic aspects of attributional accounts and indicate the symbolic

perspective on management (Pfeffer, 1981; Pfeffer and Salancik, 1978).

A conclusion of this reasoning is that two distinct levels of analysis may be

distinguished. One is concerned with the actions and substantive outcomes in the

organization, the other with how these organizational activities are perceived, interpreted

and legitimated. According to Pfeffer “the analysis should proceed on two levels

simultaneously, but the two levels have different dependent variables, different

processes, and are themselves only imperfectly linked” (1981, p. 6). Thus one important

issue is to examine the relationship between symbolic action and substantive outcomes.

TED3 CORRESPONDENCE BETWEEN THE OFFICL4L STORY AND “REALITY’

The Story Told in 1956

In what way does the story told by Gabrielsson in 1956 deviate from history as

reconstructed. The general impression given is that the development of the Company, by

and large, was rather unproblematic without any major conflicts or disturbing elements.

Gabrielsson denied that Volvo had met any serious marketing resistance and the

problems in attaining the intended sales of cars were attributed chicfly to difficulties in

obtaining adequate supplies. The strong dependence on SKF in the first years is not

mentioned and there is no indication that the venture was almost a failure.

It commonly happens that a person writing his autobiography leaves out certain parts,

and even if he wants to give an accurate account of what happened distorts the

description out of sheer forgetfulness. However, when the available accounts are

juxtaposed in this case there is good reason to believe that the story published in 1956

19

deliberately omits crucial fatts which could change the image of a smoothly developing

venture.

The first Volvo tar was designed to the standards prevailing in 1924 and by the time it

was introduced in April 1927 had already become obsolete. A large proportion of the

open cars had to be scrapped and in order to sel1 the closed cars the price was reduced.

SKF had to cover the deficits caused by these drawbacks. The new trend was for closed

body cars with a six cylinder engine and annual changes in the styling. Volvo rapidly had

to design a new tar in line with the new standard. This was introduced in mid 1929. Early

in 1928 it was preceded by the forced introduction of trucks based on the components for

the first unsuccessful tar.

Twenty years later, long after he had died, some parts of a memorandum made by

Gabrielsson in 1956 were published. By then it was admitted that the Company was in

debt for the first 29 months and that SKF in 1928 had serious plans to sel1 the

problematic tar business to the American automobile manufacturer Nash. Gabrielsson

intervened and volunteered to spend the 220,000 SEK he had received when SKF took

responsibility for the venture, above the loans SKF had granted. The managing director

of SKF did not accept this offer but the gesture convinced him that Volvo had a future

and the Company was not put up for sale. (AB Volvo - Annual Report to the Shareholders,

1976, p. 45)

The domination of the trucks and buses in the turnover of the Company was attributed

to the “tremendous costs” for dies and the limited capacity of the subcontractor supplying

bodies which restricted the introduction of new models at a pace required by the change

of fashion. This may be questioned as Volvo, in the period up to 1939, introduced at least

five separate tar models with a different design, and in 1935 as many as three were

produced in parallel in 13 different variants (Ellegård, 1983, p. 243, note 15). It was not

until 1936 that Volvo managed to design a tar which found favour with the customers and

in 1937 met a demand that outran the available production capacity. However, less than

1,700 cars were

20

produced this year. Further it should be noted that the assembly of the bodies for cars in

1930 was transferred from Volvo to the supplier of pressed parts. Volvo thus deliberately

imposed additional tasks on this supplier.

There is reason to believe that the real problem was to design a competitive tar, not the

lack of supplies. Once the Company managed to introduce a successful model it was kept

for almost 20 years. But this tar had a design wholly different from the American cars

which Volvo had earlier tried to copy, and contrary to the published policy, was

eventually successfully sold in the U.S. As late as 1955, the same year as the export to the

US. started on a small scale, Volvo stated that the sales efforts on the export market

were concentrated on the non-automobile producing countries (AB Volvo,Annual

Report to the Shareholders, 1954, p. 6). However, this policy supposedly was a

rationalization of the pattern that actually had emerged.

It is evident from this account that Gabrielsson had different explanations of the

evolution of Volvo depending on the period in question. For the events leading up to

1940 the impression is given that he had a theory of the history and could explain what

actually happened. The strategy realized was described as intended and by and large in

accordance with formalized plans. There is no indication that the original plan may have

been poorly conceived or that the environmental conditions changed abruptly. He could

have pointed out some of the difficulties faced by Volvo and attributed them to the

dramatic and unforeseen changes in the market in the late 1920’s. According to Sloan

(1964, p. 149) the rules of the game during these years changed in a way that can only be

compared with the revolution caused by the introduction of the Model T Ford in 1908. In

1928 General Motors started to assemble cars in Stockholm from imported parts on a

scale of 10,000 units; later in the 1930’s other American companies followed suit. This

would be consistent with the picture given of the success with the small tar introduced

after the war. Astonishingly, this was explained, to a large extent, by good fortune with its

conception and the “hunger for cars” which characterized this period. Likewise, it was

admitted that the favourable development of the sales in the United States was

21

unexpected. Why were these crucial events for the development of the Company not

attributed to fore-sighted planning instead of good fortune?

One reason for this differente in outlook may be the time perspective. It is human to

regard the remote past in a “romantic” light and easier to adjust the distant history to fit a

desired image. At the same time it is more difficult for outsiders to check the authenticity

of that part of the story. Further, it must be observed that Gabrielsson was more directly

involved in the planning and execution of the operations in the Company in the early

years. The plans were more or less tied to him personally and thus he may have been

reluctant to confess any internal problems. With these explanations the feasibility of the

original plans was not questioned and a close scrutiny of the realism of the original

conception of the business avoided. In the evolution after the war many managers were

engaged.

The Sales Handbook

The sales handbook is more balanced with respect to history but gives an idealized

picture of the present situation. It was written with the explicit purpose of convincing the

dealers of the competitiveness of the Company and to provide arguments in favour of the

Volvo automobiles. At the same time there is every reason to believe that this source well

summarizes Gabrielsson’s arguments for the viability of the project to other constituents.

A tar introduced in 1935 had not been accepted by the market, and when a new model

was to be launched in 1936 it was urgent to convince the dealers, the suppliers and the

organization at large that Volvo now mastered the tar business and that the initial

difficulties had been overcome. Thus it may be expected that Gabrielsson tried to

describe the development of the Company and the present strategy as favourably as

possible.

He admitted that the production of open cars was a misjudgement and that Volvo had

problems with the design of the closed body model in the first series of cars. This was

partly attributed to the “inadequate resources” at the supplier of pressed sheet metal

22

which promted Volvo to use the “soft method” in the production of bodies. Interestingly

enough, it may be observed that the metal tontent of the cars to follow rapidly increased,

although the subcontractor did not acquire any additional stamping machine until 1933

(Kinch, 1984). The reason this method was used in the beginning may instead have been

that it did not require any large investments in dies for the stamping of sheets and this

mattered, as Volvo was very short of capita1 during the first years. Gabrielsson also

justified the domination of commercial vehicles as wholly “natural” with reference to the

whims of fashion which affected the cars for private usage. In 1936 the dealers still

remembered the difficulties which they had faced in selling the first cars and it was not

possible to conceal that part of the history. If Gabrielsson wanted to convey the

impression that Volvo now had control of the situation he, according to Salancik and

Meindel (1984), had to admit some of the earlier difficulties.

Volvo was in 1936 presented as a successful producer of cars. However, with a

production of less than 800 units there is good reason to assume that this venture was for

a long time unprofitable and wholly dependent on the cash generated from trucks and

buses. The excellente of the production system and the competitiveness of Volvo was

elaborated at length. The picture conveyed was that “producing the Volvo way”

represented a carefully, uniquely planned production system. It was argued that Volvo

was free to choose among a number of specialists; every possible advantage of a

decentralized production system was stressed and tomparisons made with the largest

American manufacturers.

Gabrielsson tried to give the impression that Volvo was a large industry with the

resources of such an industry. The concept of the ‘Ilarger Volvo” was put forward and

included the employees of the dealers and subcontractors in order to augment the size of

the venture. Furthermore, the sales of Volvo were compared to those achieved by

American manufacturers of expensive cars on the Swedish market and the sales of low

priced cars in much larger numbers were not mentioned at all. This was not consistent

with the original idea to increase the use of automobiles in Sweden. This can be seen as

23

examples of how language was manipulated to influence the interpretation of the present

situation of the Company and to rationalize and make sense of the actual cause of events.

It is obvious that the sales handbook contains a highly idealized description of the

adapted production system. This became undeniable when, in the following year,

Gabrielsson openly acknowledged that the production system had been chosen not

because Volvo expected it to be efficient, but because it offered the only way for the

finantially weak Company to mobilize the necessary resources (Gabrielsson, 1937, p. 5).

From this account and the description given in 1956 it is also evident that great efforts

had to be made in order to develop the skill of the subcontractors and this educational

work was still in progress. Swedes with experience from the American automobile

industry were engaged to run the tar operation at Volvo and American specialists

worked as tonsultants to introduce new production methods at the Swedish suppliers.

However, these measures to develop the Ml of the subcontractors were not mentioned

in the sales handbook.

KEEPING THE VISION ALIVE - SUBSTANTIVE PLANS OR STRATEGIC

ILLUSIONS

Although the venture presented in this case did not develop according to the carefully

laid plans it eventually turned out to be a success. However, most of what at first was

realized appeared to be just the opposite to that which had originally been intended.

Trucks and buses, which were only meant as a complement, for more than 30 years

became the dominant side of the business and the export was directed mainly to the

markets close by and not to countries south of the equator. When the cars finally reached

an equal standing in 1957 it was with a business concept which was far from that originally

planned. Volvo never succeeded with the intended strategy to market a tar of American

standards in Sweden or on the export market. A different strategy emerged. It was not

until Volvo finally began to imitate the concept of a small European tar which later on,

24

accidentally and contrary to the stated policy, was introduced in the United States, that

the reaiized strategy began to resemble that which was laid down in 1926; i.e. a major

production of cars of which a substantial share was to be exported to distant markets.

In what way were the plans and other accounts made by Gabrielsson related to this

process and what impact had other aspects of this leadership on the actual course of

events? Even if the actual development fundamentally deviated from that outlined the

plan formulated in 1926 was successful in the sense that Gabrielsson managed to

mobilize the finantial support from SKF and interest potential subcontractors in the

venture. His vision both fired the imagination and was in line with the predominant ideas

of how a major domestic production of cars could be established. However, the fatt that

in this setond attempt to mobilize resources he could show a prototype seemed to be of

great significance. It demonstrated both the technical feasibility of the project and his

confidence in the venture and willingness to take the risk. Together with the first test cars

the plan visualized the notion of a Swedish tar industry and thus fulfilled the functions of

symbol and advertisement (Cohen and March, 1974).

In hindsight it may be established that he over estimated the capacity of the potential

subcontractors and belittled the problems of designing a competitive tar. Did he really

believe in the grand plan or was it an example of wishful thinking (Jönsson and Lundin,

1977) or vain hopes (Mintzberg, 1987) due to the difficulties he faced in mobilizing the

necessary support? There is no answer to this question.

Gabrielsson rationalized the pattern which emerged with one very important exception.

He did not take the short-term benefits that a toncentration on the more successful truck

operations would have meant, and the actual events were not allowed to influence the

notion of Volvo as a producer of cars. Gabrielsson persistently presented the illusion that

Volvo alreadey was a competitive tar manufacturer; e.g. he did not hesitate to campare

the Company with the giant US automobile firms. Regardless of the difficulties of

designing a tar that found favour with the customers the experiments continued. Thus

the way strategy formulation evolved was not all accidental but followed some logit.

However, it was a logit that was subjett to change and the result of an interplay of vision

2 5

and opportunism. The vision was modified as the Company learned from experience and

incrementally adjusted to unforeseen events. It should be noted that the real

breakthrough for the Volvo cars was related to the unplanned and unexpected

introduction in the United States. In a very short time this dramatically changed the

realized strategy of the Volvo Company. However, once this fortuitous possibility arose

the Volvo management was “swift afoot” and organized the launch in a elever way.

Unfortunately the official accounts of how this process actually evolved in Volvo are

incomplete. However, the sales handbook gives an example of how Gabrielsson argued

to keep his vision alive. The language used in 1936 and the tomparison made may

sometimes seem far-fetched and overdone. Following Meindl et al. (1985) the crucial

point is that his descriptions of the Company can be regarded as a “manipulation of

language and other organizationally relevant symbols “that allowed him” to manage the

politital and social processes that maintain organized activity in the face of potentially

disruptive fortes” (Ibid. p. 99). Setting the premises is a powerful and subtle form of

unobstrusive control (Perrow, 1986, p. 130). According to another, less manipulative

interpretation people tend to fil1 in what they expect to perceive. Pfeffer & Salancik claim

that “Illusions and reality are constructed in this way” (1978, p. 72). This necessity to

summarize, discard and simplify becomes urgent when the processes observed, as in this

case, are complicated and span a long period.

The “romante of leadership literature “(after Meindl et al. 1985) accentuates the

symbolic functions of management and argues that substantial outcomes result largely

from resource interdependence and external constraints. This does not apply fully in this

case. Volvo not only adapted to, but also very actively changed, its environment, e.g. the

substantial efforts to bring the efficiency of its subcontractors into line with the standard

attributed to them in accounts made by Gabrielsson long before. The “reality” thus had to

be changed to fit his illusions.

Unlike many other Swedish companies Volvo was not based on any invention or natural

productive capacity to produce cars in Sweden. On the contrary great efforts had to be

made in order to develop the productivity and bring in new equioment and expertise

26

from abroad. The early development of Volvo was very much derived from Gabrielsson’s

entrepeneurial spirit and ability to convince others of the feasibility of the project. He

mobilized the support from SKF and the potential subcontractors, lobbied in the press

and the Swedish Parliament for a temporary increase of the duties on imported cars -

although in vain - and inspired the organization at large. Thus his leadership was very

much that of a “proselytizer” (Westley and Mintzberg, 1989).

His accounts of the past and the descriptions of the present affected the cause maps of

the people in Volvo. Gabrielsson had a vision of Volvo as a competitive tar manufacturer

and the descriptions he gave were idealized and mythological. The Company so vividly

described can be regarded as a social construction of realny enacted to rationalize the

behaviour and focus attention of the people working for Volvo on a future desired state

(Weick, 1979). The Company as it was described in 1936 can be interpreted as a vision of

an unknown future, something he wished to realize but which to a large extent only

existed in his mind. Weick argues that much of organizational sense-making is related to

historicizing (Ibid., p. 195). Not orrly do companies reconstruct plausible histories after

the fatt they also engage in “future perfect thinking”, i.e. describe an imagined future as if

it had already occurred. One reason for this tendency to build up such illusions is that an

event is more easily analyzed if it is conceived as already accomplished. @id., p. 199)

The images presented by Gabrielsson may also be considered as communication to self.

A strategic plan, although it is not implemented, still does not have to be a failure. Broms

and Gahmberg claim that “such mythital, autocommunicational planning also has its

purpose: focusing of mind, goal seeking, and generating enthusiasm” (1983, p. 482).

Faced with the persistent difficulties to achieve a break-through with the tar venture he

not only had to convince others of the long term prospect but also needed something to

keep his vision alive and enhance his ego. The carefully elaborated plans may have

served as his “mantras” (Ibid.) in this process.

27

CONCLUSIONS

Although management spend most of their time on small and unglamorous duties

descriptions of these down-to-earth activities are rare. Available accounts are instead

often related to the few publit manifestations companies make to mobilize support. To

convince management then must present a theory of the company’s history and

elaborated ideas of how the future Will be faced. In this tontext it is not feasible to admit

that the present situation largely results from continuous experiments and accidental

occurrences even if this may be nearest to the truth. Thus it is unavoidable that history is

rationalized and the organization shown at its best in official accounts. Social scientists,

according to Perrow (1986), have a tendency to find reason, cause and function in all

behavior. “The notion that goals are posited to make sense out of unplanned adaptations

and accidental developments, and thus are less plans of action that are rational than

rationalizations of unpredictable encounters with diverse and shifting interests, is

essential for the case study” (fiid. p. 136).This tendency to arrange history to fit the image

desired by management and what is institutionalized as rational behaviour has been

demonstrated in a number of quantitative studies reviewed above and is supported by

this qualitative study as well. However, the Volvo case demonstrates that not only may

the past be distorted but a desired future state may be treated as if it had already

materialized. Thus in some instances the accounts of the present may only make sense if

they are interpreted as illusions, a vision not yet realized.

The differente observed between the official stories and substantive events is not

unique to Volvo but can be generalized to other companies as well. Thus, official stories

have to be carefully interpreted and the alleged intended and rational behaviour have to

be questioned. This does not mean that the presentations of strategy and strategic

thinking are of no value. But instead of strategy mainly conceived as guiding the Company

into the future with an impact largely on substantive matters the opposite may be true. It

helps management to give a consistent, coherent explanation ot present events and

occurrences and has more of a “symbolic role”. Thus strategy may be considered as an

28

important device to give meaning to the functioning of the Company, which is important

in order to mobilize support and motivate people.

When the Volvo history is reconstructed the interplay of vision and opportunism is

illustrated. The evolution of the Company is in line with that observed in other successful

companies (e.g. Mintzberg, 1987; Quinn, 1980). According to Mintzberg some of the

most effective strategies uncovered by his research urrit “combined deliberation and

control with flexibility and organizational learning” (Mintzberg, 1987, p. 70). The case

highlights the importante of holding onto an idea and giving it several chances. The

Volvo case is unique as the founder and CEO remained so long in office. Despite the

initial problems he continued with his experiments and did not give up the original idea.

It is an illustration of how a vision, personal involvement and a long-term perspective can

help position a firm well in the face of short-term setbacks. An aspect rarely treated in

the literature is that of near failures where management, despite disappointments,

persistently sticks to its basic idea, keeps on experimenting and eventually turns it into

success. However, a note of caution may be needed. For every Gabrielsson, there is

probably a visionary who fails, clinging steadfastly to his vision. By and large, Volvo finally

tame about as it was planned. However, the performance en route was rather erratic and

it was necessary to re-interpret “realny” in order to keep the basic idea alive. Not only was

the Company flexible but this also characterized the accounts made by its founder of the

past and present. Accordingly, the evolution of the Company was not only directed by

necessity and chance but the leadership and vivid illusions presented by Gabrielsson were

significant as well. He also intervened in a very real sense in the little actions of ordinary

people of which history in Tolstoy’s opinion is shaped. However, in the official accounts

the focus largely is on the plans not on unexpected events, serendipity, miscalculations

and other aspects of organizational learning.

29

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