With the rapid increase in armor during WWII, tanks were becoming increasingly able to survive rounds fired from even the largest of WWII-era anti-tank guns. A new generation of guns, notably the British L7 105mm, were able to cope with the newer tanks, but it appeared that in another generation the guns needed would be too large to be practical.
Instead the Army started concentrating on HEAT rounds in the 1950s. HEAT penetration is not dependent on the speed of the round, allowing it to be fired at much lower velocities, and thus from a much lighter gun. They also work better at larger diameters, and a large-diameter low-velocity gun makes for an excellent assault gun vehicle. On the downside, the slow speed also means that they become increasing hard to aim over longer distances. The Army looked to address this problem with the use of guided missiles for anything beyond a few hundred yards.
In 1958 they felt the state of the art had progressed enough to start work on such designs, and in June 1959 Sperry and Ford Aeronutronics were asked for designs to fill the shorter range role. Ford won the contract and started work on the XM13. The first test shots occurred in 1960, and limited production started in 1964, now known as the MGM-51A.
The basic system was quite advanced for its day. The missile body consisted of a long tube with fold-out fins at the extreme rear, which was propelled from the M81 gun with a small charge strapped on the rear. Once clear of the gun the fins popped open, and the engine ignited. In order to keep it from spinning while in the gun, a small "key" fit into a groove on the otherwise smoothbore gun. Aiming the missile was simple, the gunner simple kept his gunsight on the target, while electronics in the sighting system tracked the missile optically and sent corrections through an IR link (similar to a TV remote control). In general the gunners were able to achieve excellent hit ratios with the system.
The M81/MGM-51 was first deployed on the M551 Sheridan, which appeared at first to prove the value of the system. The Sheridan was a light aluminum-armored AFV designed to be air transportable and provide fire support for airborne troops. The M81 armed with conventional warheads proved excellent in this role, but would normally be next to useless in the anti-tank role the airborne forces drastically needed. Here the Shillelagh took over, providing the small vehicle with the same hitting power as a main battle tank.
In use the system proved to be less practical. The Shillelagh was considerably larger than a conventional round, so only a small number could be carried. Typical loads consisted of only 8 missiles and 20 M409 HEAT rounds. In addition the missile proved to have a very long minimum range due to the layout of the vehicle, the missile didn't come into the sight of the gun/tracker system until it was 2400ft from the vehicle, at which point it could start to be guided. Since the M409 had a maximum range of about 2000ft, the system was left with a fairly large "dead zone".
While the maximum range, 6600ft, was usable, the Army felt it could use improvement. Ford received a contract to study a longer range version in 1963, and returned a slightly larger design the next year. Test shots of the new MGM-51B started the next May, and production in October 1966. Only one other change was made to the system. In testing it was found that the key slot in the gun led to cracking, so after further study a version with a shallower slot was selected, creating the M81E1/MGM-51C.
Even with these problems the system clearly proved that it was the only practical way to produce an airborne tank. The question of whether or not it could fill its original role as the main armament of all tanks was still open. The Army had originally started development of a turret for their existing M60 tanks in the 1960s, but didn't contract for actual delivery until 1971 once the bugs had been worked out. They entered service in 1974, but were hampered by reliability problems, and soon phased out in 1980.
The most ambitious project based on the system was the MBT-70, a very advanced US-German tank design that started in 1963. It mounted a huge auto-loader turret on top of a very short chassis, so short that there was no room for a driver. Instead he was located into the turret with everyone else, in a rotating cupola that kept him facing forward. The gun was a new longer-barreled design, the XM-150, which extended range and performance of normal rounds to the point where they were useful for sabot type rounds as well. However the project dragged on, and in 1969 the estimated unit cost had risen 5 times, and Germany pulled out of the effort. The Army proposed a "cut-down" version of the system, but Congress cancelled it in November 1971, starting the M1 Abrams project with its funds the next month.
The missile was about 45 inches long, about six inches in diameter, weighed 60 pounds. It remained in production until 1971, by which time 88,000 had been produced.