[Editor’s Note: This is the third part of a four-part series by Dr. Rob Kleinbaum. Parts one and two are still available.]
What is fascinating about GM, and offers some hope, is that it really has two cultures. The one described above is an accurate depiction of the culture in North America and Western Europe but there is another in the rest of the world that is very different. The culture of GM’s operations in Asia, Latin America, Africa and Middle East, Russia and Eastern Europe, is much more progressive and it is in these areas that GM is doing very well. On almost all of the measures listed above, they would come out on the progressive side. Working for GM in Asia Pacific, Latin America or the Middle East, you would think you were in a completely different company. People are very forward looking, they are capable of making the tough decisions, they are business focused, debate is tolerated but discipline is enforced, relations with their labor force and dealers are usually positive, and authority is genuinely dispersed to the smaller business units within each of the regions.
Numerous people have commented on the difference in economic health and attributed it to the absence of the UAW, retiree’s health care burden and government regulations such as CAFE. While these are important, it is misleading to attribute the differences to these factors. Since many of these issues are the result of the deliberate policy choices of GM, they are more symptoms of the underlying malaise than the cause; plus the healthy regions all have tremendous challenges of their own that are not present in North America or Western Europe, where the static culture is really confined.
Many of the people running GM have had extensive international experience. There is a common practice of rotating executives on the CEO track to international postings; the classic path is for a high potential finance executive from a traditional background is to be made head of GM Brazil; a business unit whose culture is quite progressive and has been consistently profitable over many years. Rather peculiarly, there is very little rotation of executives who have “grown up” in overseas operations into the key spots in North America. With a couple of exceptions, none of the top team has spent the majority of their careers in these regions that have been the most successful.
Furthermore, Asia Pacific and Latin America/Africa/Middle East are headed up by people with quite different backgrounds; one is British, the other is a female Canadian lawyer; neither have spent the majority of their careers in Detroit. The people operating the lower level business units in these healthy regions tend to be either foreign born or Americans who are considered “different” and who have quite deliberately chosen to stay as far from Detroit as possible, often explicitly to avoid a culture they find stultifying and dismaying.
Despite the progressive nature of the culture overseas and its consistent success, there seems little propensity to bring these people back into North America or Western Europe; somehow they are simply never seen as “developed” enough. When one or two promising individuals are brought back, they are often overwhelmed by the dominant culture in Detroit and either head back overseas quickly, leave the company, or fade into obscurity.
Twenty years ago, Elmer Johnson, a successful outside lawyer recruited into GM’s top ranks and a candidate for CEO, wrote a memo to the senior leadership, recently posted in Barron’s4, which was heartbreakingly prophetic. Its central theme was that GM’s culture was preventing it from executing its strategy and unless there was a concerted effort to change its culture, there would be little chance of meaningful change. He was ignored and shortly afterwards left the company.
His prophecy that GM would fail in its bid to become a company that built the world’s best cars and trucks in a way that provided superior shareholder value has, regrettably, proven disastrously true. The recommendations he made; major changes in people at the top, the committee structures, the organizational structure, and decision making process, are still sound but now would not go nearly far enough.
This raises the question of what can be done. The first and most obvious is to change a significant number of people at the very top, replacing them either with outsiders or with GM executives from overseas operations who have not grown up in the traditional culture. This should go several levels down but also include substantial changes in the Board of Directors, as they are key enablers and drivers of the corporate culture. The Board has not put any pressure on management to change its culture or drive accountability; on the contrary they have consistently re-stated their support of the management team. There are few if any real change agents on GM’s Board. Changing large numbers of people at the top is a necessary but not sufficient condition, as the static culture is reinforced by so many other attributes.
[End of Part Three. To be continued . . . .]
best of the three so far.
spot on analysis. have seen the detrimental culture first hand and without question an “at the top” house cleaning is desperately needed.
Red Ink Rick is only a second hand pencil pusher with absolutely no clue how to grow the business. he longer he stays the worse things get.
at the 2000 Annual Meeting I warned Jack Smith that unless the marketing changed, GM was doomed. each year since I have repeated the message, going so far as to hold powerpoint luncheons for shareholders and developing http://www.GeneralWatch.com.
upped management couldn’t have cared less, and other than initially offering $5,000 for an intellectual property release, they have attempted to silence me. what a bunch of losers.
I just don’t understand how the major shareholders have allowed their equity to dissappear without kicking some rearend? If I held a large amount of stock in a company, I sure as hell would be vocal to the board and upper management about why my investment is smaller every year. It’s obvious that the BOD and management isn’t doing the right thing. Why would the shareholders keep those losers in power?
@ moedaman
Your question is the most important question that needs to be asked as the world rebuilds. I think this is the singular problem that has caused the current set of crisis.
The only thing that seems to have mattered lately is OWNERSHIP rather than INVESTMENT. No-one is paying attention to fundamentals because the various business fundamentals don’t mean anything to pooled owners.
Share/stock holders are either abstracted from direct involvement via various managed (fraudulent) entities or 401k/superannuation/hedge funds are investing and trading in each other.
Share/stock holder activism seems to have disappeared around the world. We’ve handed over huge pools of money to these money changers and all that’s important to them is TRADING to skim, rather than development of an investment.
People wonder why those Wall Street Banksters got their bonuses even when the firm was loosing money? It’s because they were being rewarded for trading ACTIVITY which is what generates the fees, rising or falling.
No-one is ensuring their money is used to INVEST for a risk/return in a direct innovative business. There will be no growth until we learn to do it again.
As the last sentence of this section notes, the problem extends far from the specific individuals at the top. Talk is cheap. Reality is that the great majority of intelligent people, if placed in the same positions within the same structure and culture, would do pretty much the same thing.
What the fourth and final section will likely recommend is fundamental changes to the structure and culture of GM. This would be extremely difficult to pull off. Otherwise successful cases would not be as so rare.
The odds of success are actually higher in a time of extreme crisis. As long as GM was making some money, and making some improvements (some of them quite substantial), then staying the course seemed less risky than fundamental change.
In a nutshell, what a stabilized GM needs is to remove the “cult” from its culture…
Wagoner seems to keep his job like an unpopular Roman emperor. He fiddles as GM burns.
Both Wagoner and Lutz aren’t bad at producing a “few” interesting cars, but they are terrible at marketing them. In this area they are almost completely tone death. It is hard to believe GM cannot sell more than 15,000 G8s a year. They can’t even hit the limited production run numbers. Let’s not even talk about the Astra disaster.
According to the Newark Star Ledger a local NJ Saturn dealer is actually suing GM for not letting him sell a popular Korean brand along with his saturns. First GM cripples Saturn with absurd product decision, and punishes them for not wanting to improve their sales. Besides, State franchise laws allow dealers to sell any number of competing brands in the same store.
If you didn’t know anything about GM and saw Wagoner today you would believe he was sent by a rival car company to commit industrial sabotage.
At least when Roger Smith retired, he left GM’s divisions intact, and even created a new one, which Wagoner seem to be determined to ruin.
In the history of the US auto industry we have never seen this level of deliberate brand destruction.
Dealer lawsuit link is listed below.
http://www.nj.com/news/index.ssf/2009/02/denville_car_deal_sues_gm_satu.html
The worrisome thing to me is that without change at the very top, cultural change is impossible. You can bring in a new person or two, but unless that person has serious authority to make change, nothing happens. Wagner has shown no sign that he understands the gravity of the GM cultural situation. Therefore, so long as he remains in charge, there will be no significant change. And without significant change, there is no hope for GM Time for a new sheriff.
akear:
At least when Roger Smith retired, he left GM’s divisions intact
I disagree completely. Roger Smith is the one who gutted GM’s divisions and turned them into brands. The divisions used to have engineering staffs and manufacuring facilities. They designed and built their own engines. They were run as more-or-less stand alone businesses. GM’s role was to centralize functions like personnel, legal, accounting, etc, and to keep the divisions from competing directly with one another. Although Smith did not start the centralization ball rolling, he took it to the next level, and is (imho) the archetect of GM’s current disaster.
The gutting of GM’s divisions started long before Roger Smith assumed leadership of GM in 1980. GM had been chipping away at the divisions’ autonomy for decades through increased component sharing and common assembly plants operated by the General Motors Assembly Division (GMAD) instead of the individual divisions.
geeber:
The gutting of GM’s divisions started long before Roger Smith assumed leadership of GM in 1980
You are completely correct. However, I believe that Roger Smith’s massive early 80s reorg into Chev/Pontiac/Canada and Olds/Buick/Cadillac groups drove the stake through the heart of Alfred Sloan’s original template for the company. Smith took a deteriorating situation and irrevokably screwed it up.
Just looking back the last couple of years and the market slide that has happened and the total failure to execute – How current management is still in place and board of directors still holding power is beyond me. Most other companies would have throw out these bozos after their first year.
The first thing GM needs is a new board of directors that is actually in charge of management and not the other way around.
They need to be proactive and not the kiss ass see no evil hear no evil no nothings that GM currently has.
There can be no change in management until the BOD changes so that they hold management accountable. Thats where it has to start.
For anyone that might be interested, several months ago a Management professor at Stanford’s Engineering school wrote a couple of blog posts about GM & Detroit culture.
A choice quote: “The culture and work practices at GM almost seem designed to create executives who are clueless about what kinds of cars people want to buy…”
Thoughts About Why GM Executives Are Clueless And Their Destructive “No We Can’t” Mindset
The Broken Culture in the Auto Industry: A Comment from a Stanford Student Who Tried to Work at Ford
jpcavanaugh: “Roger Smith is the one who gutted GM’s divisions and turned them into brands. The divisions used to have engineering staffs and manufacuring facilities. They designed and built their own engines. They were run as more-or-less stand alone businesses.”
But that’s not necessarily a bad thing. There was certainly a lot of duplication of effort involved in divisional engineering.
In the Smith model, the divisions (brands) specify what they need, make a business case for it, sketch it out and take it to Central Engineering and manufacturing to work it into a car. CE then uses smart parts-bin engineering and consistent, excellent processes to keep costs down but Corporate Management is there to pick the prioritization of most profitable projects and to make sure that brand identities don’t overlap and that each brand gets appropriate investment – or killed.
It’s letting the thing devolve into shameless badge-engineering that wrecks it for everyone. You can’t stick fender vents into an Aveo to build a Pontiac.
jaje :
other companies would have throw out these bozos after their first year.
Toyota did not even wait for a full-year loss to replace most top management. GM is going on how many years of losses now?
I spent two years at GM and you’ve hit the hail on the head with this series of writeups.
I worked at an engineering centre and found that the “car guys” who were not GM fanboys were looked at as heretics. Any comments that went against the GM way earned you scorn or dirty looks.
One thing that amused me was the reaction by people if you didn’t buy or own a GM car. The aggrivating thing about management was no one cared to listen to why you didn’t buy GM.
One thing that hasn’t been touched on much and I think is a very corrosive part of GM’s culture (and Ford and Chrysler) is the use of “temporary” contract workers. These workers can be strung along for years until they become frustrated and leave. GM created a two-tier engineering structure. The contract workers would work like mad in hopes of securing a full-time gig. At the same time, much of the full-time engineers were grossly incompetent. I found it created a great deal of resentment in the ranks.
One of my more memorable moments there was when I got dressed down by a product planner because I called the HHR a PT Cruiser knockoff and thought it was an unoriginal and uninspiring product.
I got into engineering because I love cars and wanted to be involved with designing great cars. My experience at GM taught me that there are only a select few car companies in the world where that is part of their core values.
I left without looking back
To fix GM, they have to get rid of the layers of managment who are unwilling to challenge things. Heck, someone at the top should float the idea of a production version the the “Homer”. Anyone who doesn’t question the idea gets fired.
It is very hard for an organization such as GM to change because things went so well for so many for so long. If you were a clueless executive in a “no blame” environment, or a cosseted UAW worker who has no chance of finding comparable wages and benefits anywhere else, would you want to give that up?
Only external pressures will force adaptation.
I just read “The Reckoning” by David Halberstam. Great book!
The hubris of the auto industry is amazing. It should be a required read by any one in business.
When you look at; Detroit auto industry had two major warnings (gas crisis in 70s and early 80’s ) but squandered them. One would assume that they would plan ahead in the 90’s when fuel would get more expensive. Half of me say’s let em sink, I still wonder if the people in charge and the UAW still get it. Chap 11 might be the only tool left before chap 7 for them all
Excellent article series…
We talk about tough decsions that need to be made and decisions that need to be made differently.
I have another question for all of you – how many Americans are afraid to make those tough decisions or rock their boats because they carry so much consumer debt that they are terrified of losing their job and being unable to pay their bills (really terrified that they will be unable to buy more stuff or keep up with their Joneses…)
Just an idea…
I think there are many more layers to our society’s problems than gets mentioned…