Thursday, June 18, 2009

How should business leaders learn from GM's latest turning point?

In this weeks Harvard Business School Working Knowledge Newsletter several faculty members write about GM: What Went Wrong and What's Next. Nancy F. Koehn, Professor of Business Administration, highlights same fundamental leadership and management issues I have been blogging about earlier.

General Motors was formed in 1908, the same year Henry Ford brought out the first Model T. Ford Motor Company became the undisputed leader of this young market and by the early 1920s, it was producing 60 percent of all the motor vehicles manufactured in the United States and half of those made worldwide. All of these automobiles were Model Ts, offered in one color: black.

Beginning in the mid 1920s, GM staged an astounding victory against Ford Motor Company. Alfred Sloan, Pierre Du Pont, and other GM executives placed a series of important bets on what American consumers wanted (different makes, models and prices; cars that were status symbols and identity holders as well as transportation sources) and they did so with careful, consistent attention to what the competition was—and was not—doing. As company leaders rolled out this daring strategy, they also created an organizational structure and culture developed to support a multi-product, vertically integrated enterprise. By the mid 1930s, GM's market share had risen to 42 percent while Ford's had fallen to 21 percent.

In this context, it is interesting to consider the root causes of General Motor's decline, which has been under way for 30 years. Although there are many factors that contributed to the company's long, slow bleed, the three fundamental issues are management's consistent failure to do the very things that made the business so successful initially.

  1. First, pay close attention to what is happening to consumers' lives in the context of the larger environment—not only their stated preferences, but their hopes, dreams, wallets, lifestyles, and values.

  2. Second, keep an equally close eye on the competition. (Look close at the picture above and you will see a hybrid Prius among the pick up's and SUV's.)

  3. And third, understand how a company's structure and culture relate to its strategy. Use all this understanding to place innovative bets. This is what the early leaders of GM did. And this is what several generations of executives—beginning in the 1970s with the first oil shocks and the entrance of Japanese imports—have consistently failed to do.
It has been a failure of leadership as astounding and momentous (and ironic) as the company's early achievement,
Professor Koehn concludes.

In my earlier post Link Between Strategy, Culture, Change and Leadership I quoted Edgar Schein from The Corporate Culture Survival Guide:

The organization clings to whatever made it a success. The very culture that created the success makes it difficult for members of the organization to perceive changes in the environment that require new responses. Culture becomes a constraint on strategy.

This is what happened to GM. At the moment GM is changing their strategy and structure dramatically. Their survival will depend on wether they are able to change also their culture - and that requires a lot of leadership and quite some time. But there is hope – the same thing happened to Ford (in the 1920s) yet today they are the only US car manufacturer not needing government bailout.


Jack Sallay said...

Here's a great spot where Nancy Koehn discusses the value of reconstructing Lincoln's stumbles.

Samuli said...

Thank you Jack,

it was an interesting short video and there seems to be plenty of videos by Nancy Koehn.

I had seen the site earlier this week but did not know there are so many videos and writings about leadership and about a whole variety of topics.

In fact I found your ideas also, Jack.

Thanks for the tip, I will be surely using some of this big thinkers on my blog.