Lessons in Corporate Culture From General Motors

As companies grow larger, they become more bureaucratic and insular. As a result, management teams of these firms assume a sense of entitlement that typically distances them from their customers. Eventually, complacency sets in and the risk-averse bureaucracy stifles any bad news.

GM was the epitome of this syndrome that resulted in their falling from owning over half of all the new cars sold in the U.S. in the 1980’s to filing for bankruptcy in 2009. Throughout this era of year-after-year decline in market share, the company developed a reputation for being more cost conscious than customer sensitive. Obviously, unaware of customer desires and requirements, GM continued to manufacture similar cars under five different brand names co-mingling engines and parts from one to another, confusing customers to no end in the process.

As these brands became less-and-less relevant with aging names like Pontiac, Oldsmobile and Buick, GM’s competitors were designing better cars for customers changing requirements. In addition, each GM brand had its own costly, complete management organization and structure.

Other car models were developed during this era that were equally confusing to loyal GM customers like the Cimarron, a small Cadillac, the Saturn and Hummer brands, and even a smattering of acquired foreign brands like SAAB. All of these car models and others not only had short lives under the GM umbrella, but further diluted the company image, perceived value proposition, and financial strength. Not to mention the misguided joint venture with Fiat that cost the company $2 billion.

Also during this 30-year decline in market share, one CEO after another took over, pledging a return to glory for GM totally unaware of what was really happening in the marketplace. Story after story was published in the business press critical of the management of the company, and even a movie was made of Roger Smith’s administration. Obviously, none of this criticism penetrated GM’s bureaucratic shield and apparently even the board of directors turned a blind eye to the news.

The beginning of the end came with the installation of Rick Wagoner, a GM lifer, as CEO in 1990. Rick was even more clueless than his predecessors and his administration led the company down the path to a further shrinking of market share by perpetuating the manufacture of boring similar-looking cars with outmoded engines and transmissions, unstylish interiors, and poor fit and finishes. Under Wagoner, GM missed trend after trend and was late to hybrids, small SUVs, and crossovers. Instead of creating exciting cars, GM was more intent on cutting costs.

Wagoner was terminated as CEO as a condition of the bankruptcy terms in 2009.

Ross Perot, who was on the GM Board briefly during this time, said that “at GM, the focus is not on getting results and winning, but on fostering the bureaucracy.”

This era has been described as the “old GM” and replaced with the “new GM” motto by the series of new CEOs who have taken over in the last five years. Fritz Henderson, another GM lifer, took over as CEO after Wagoner and only lasted six months before he resigned. He was replaced with Ed Whitacre, retired from AT&T, who knew nothing about the automobile business. Whitacre lasted a year and was replaced by Dan Ackerman, an ex-Naval Officer and private equity investor who likewise knew nothing about the car business either. During his three years as CEO, Ackerman openly criticized GM’s intransigent culture. Mary Barra, another GM lifer, is the current CEO. Barra has worked at GM for 33 years.

So the first question is, How can there be a new GM when all the players from the old GM that created the dysfunctional culture that is ingrained in the company are still there? The real culprit here is the risk-averse culture that has historically squelched even a hint of bad news.

The second question is, where was the board during all of this? Barra, at the senate hearings into the now famous “ignition switch” catastrophe, sounded a lot like Tony Hayward, the CEO of BP during the oil spill disaster in the Gulf of Mexico by claiming, “I knew nothing about it.” He went on to state uncaringly: “I’d like to get back to my life.”

KEY TAKEAWAYS

Culture is a powerful force for both good and bad. In this worst case scenario, there are obvious points to avoid and clear lessons for CEOs:

• Forge a customer-centric culture where the total focus of the company is on the customer, not the product. In reality, every company is in the customer business.
• Establish a competitive analysis strategy that provides ongoing input on the strengths and weaknesses of each of your major competitors, as well as trends in product development.
• Monitor your share-of-market religiously and analyze changes carefully, as there is a natural tendency to pooh pooh variances as “temporary aberrations” or “due to short-term economic conditions.”
• Establish and closely monitor (don’t delegate) critical key performance indicators of the financial health of the company.
• Follow technological developments in your industry. Participate in industry forums.
• Get out from behind your desk. Visit customers to get input on their changing requirements.
• Resist chasing opportunities that have little to do with your core business. Typically, they consume precious time and distract you from pursuing your unique value proposition.
• Have an active and engaged board of directors.
• Update and review your strategic plan every quarter with your management team.

Peter Drucker, the guru of management, said “the purpose of a business is to create a customer, and the role of the leader is to grow the value of the customer.” His words have never rung more true than they do today.