Chrysler Suicide Watch 21: Slash and Burn for Strip and Flip
As top executive for a large manufacturing enterprise, Bob Nardelli was a tremendous success. As the man in charge of a gigantic retail business, not so much. Like any automaker, Chrysler’s survival depends on both its ability to manufacture class-leading products AND get its dealers to provide class-leading customer service. So, as Nardelli takes Chrysler’s helm, the question must be asked: is he half the man he needs to be? The answer is Six Sigma.
Navy vet and Motorola employee Bill Smith created the Six Sigma management system (a.k.a. the “Way of the Sword”) for Motorola in the 80s. Six Sigma’s goal: design and create products with no more than 3.4 defects per million. Like many such theories, its principles are enshrined in acronyms: DMADV (Design, Measure, Analyze, Define, Verify) for product creation, DMAIC (Define, Measure, Analyze, Improve, Control) for production. Its success depends on continuous, company-wide commitment.
GE CEO Jack Welch was an early accolade of Six Sigma. When Welch appointed Bob Nardelli CEO GE Power Systems, “little Jack” deployed Six Sigma with ruthless effectiveness. Applied to a division building and selling locomotives and power generators for other business (i.e. BTB), Six Sigma worked a treat. Excellent products were designed and built, and management limitations minimized (retarded innovation, inflexibility, group-think, insulation).
In December of 2000, Nardelli lost a bid to replace his mentor at GE. Despite a complete lack of retail experience, Nardelli landed the top job at Home Depot. Appropriately enough, Nardelli cleaned house, replacing Home Depot's top management and rationalizing every aspect of the business.
Seven years later, at the end of his tenure, Home Depot’s market valuation had declined by 40 percent. Much to the chagrin of stockholders, Nardelli floated away on a $200m golden parachute.
Nardelli’s over-reliance on Six Sigma lay at the heart of his troubles at Home Depot. As a system of measuring improvement, Six Sigma could work on a retail level— in the same sense that Darwinian principles of “survival of the fittest” could work as a political system. But just as social Darwinism isn’t flexible enough to subsume competitive belief systems, Six Sigma is not exactly what you’d call a people pleaser. For example…
Nardelli used Six Sigma to streamline Home Depot’s in-store staffing. By adding self-checkout technology and generally thinning the ranks of floor staff, Nardelli was able to correct a “defect” in the chain’s “production process.” The moves cut costs and, thus, increased the amount of money available for employee training.
The strategy reduced the number of employees on the floor, and turned many of the remaining employees into data measurers and desk jockeys, sapping time once lavished on Home Depot’s customers. Appropriate data was collected, but customers were not well pleased with the tumbleweeds blowing through the aisles of the big box home improvement store. You can do it, we can help, but you gotta find us first.
“Bump’em Bob” Nardelli also directed his [new] management team to apply Six Sigma principles to strategically re-position Home Depot’s displays and products. As you can imagine, the statistical emphasis robbed some of the “surprise and delight” from the Home Depot retail experience, in a genre where emotion is a precious commodity.
But more than that, Six Sigmatitis proved to be a demoralizing influence on Home Depot’s human infrastructure. Nardelli’s less than warm personality and his willingness to eliminate all those who opposed his methodologies cast a icy pall over Home Depot’s corporate culture.
"Facts are friendly" is one of Nardelli’s favorite sayings. So here’s a handful. In July of 2007, Chrysler’s sales were down eight percent compared to July 2006, even while they spent an average of $4,082 per vehicle on incentives. Inventory is down 17 percent over last year, but it’s still an 81 day average supply (45 days being the goal, 60 the current American norm).
Obviously, Chrysler’s manufacturing operations could use stricter guidance. Strict defect measuring is always welcome in the world of car production. And despite the trail of broken careers at Home Depot, it’s also true that Chrysler’s middle management torpor could benefit from some pruning.
But injecting Six Sigma into the Chrysler culture is no long term solution. In the ultra-competitive automotive marketplace, where Toyota’s lean production system sets the standard for manufacturing efficiency, an automaker needs more. It needs strong branding and a spark of genius. Even Jack Welch knew that Six Sigma had to be balanced against the need for risk in order to foster genuine creativity.
But Cerberus didn’t hire Nardelli to return Chrysler to greatness. They hired him to prepare the company for sale. To slash and burn the automaker's production process, corporate bureaucracy and dealer network, so they can strip and flip the result. Nardelli is all the executive Cerberus– if not Chrysler– needs.
[For more info. on Six Sigma, go here .]
More by Michael Martineck
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I think the real question is whether it is possible to screw up Chrysler. IIRC, there was an item last week that said they were losing ~$1,900/vehicle sold. That is CTD* in medical terminology. * circling the drain.
Wednesday, August 08, 2007 Chrysler Cerberus – Can the Outsider turn the corner fast enough? 8/8/07 Robert Nardelli ex-boss at Home Depot and at one time in line for Jack Welch’s job at GE was just hired as Chrysler Cerberus (CC) new CEO. Being from Michigan I always chuckle when I see the same quotes and sayings when a new CEO takes charge, especially if they don’t know the industry they are now running. In fact I have heard it and lived through these type of changes in my career. The first one was when The Central Region of phone companies became known as Ameritech. A flood of top executives from outside the phone industry were hired to turn the Bell shaped heads into salespeople and marketers with “Rat Like Agility (SN) since we are now in a competitive business. After slicing and dicing the company for about two years and removing former phone executives and hiring Presidents and VPs from companies like Proctor & Gamble, General Mills and a bunch of other companies Ameritech now was all about awards and quotas and not production and cost effectiveness. Oh yeah the employees were never in the mix regardless of what anyone says. They were expendable and they were fired and let go by the thousands (you see that is the only way a CEO can keep his promise to turn the company around. The people from the outside were hired to get rid of the current people plain and simple. Many of the Execs that were from the phone side resigned because of the way people were being treated and what was happening to the company were they spent most of their lives. The new execs did not care, they were hired to get rid of people and make a name for themselves as great managers because of the short-term and easy(cowardly) way to look like your making money and that is to get rid of employees (even though they were experienced). After a few years or less they left with a star around their name and the next company gobbled them up and then those company's were in trouble. Quote from Mr. Nardelli about Chrysler “It’s not about creating a new strategy. They’ve got it. We’re going to have LASER focus on the EXECUTION of that strategy." Two words standout – Laser – this refers to the speed at which things will change (Can anyone say “Slix Stigma (G.E. & Home Depot – used the process improvement strategy as their means to move quickly on solving problems and making solutions quickly – NOT). The next word is Execution – now that is a great word for scaling and trimming a company down to be lean and mean (Spare ME). Leading all this was Bill Weiss with the advice from Consultant Noel Tichy from the University of Michigan and former Consultant at G.E. Jack Welch. The next time I was at AT&T when Mike Armstrong became CEO. Motorcyle Mike was also from the outside (Hughes Aircraft). I can’t go into that again (trying to forget). Let me just say it was brutal and bloody as thousands of employees hit the streets and were replaced by Consultants and Contractors. PREDICTION # 1: Watch for Chrysler Cerberus (Don't end up like AT&T) to begin buying up small companies and merge with others to grow rapidly ( This makes the fools on Wall Street happy for the short-term and they will say you are the best CEO of all times). Jack Armstrong did this too and then he sold them to soon because he had bad advice from the people he brought in from the outside. They had no allegiance to AT&T, they only had allegiance to themselves. Guess What? Both companies were eventually bought up by SBC (Still traditional phone company) at very low prices. PREDICTION # 2: Why did Chrysler Cerberus make these changes now? I believe it has to do with the upcoming Labor Talks. It is going to be bloody and nasty with the Union losing big time. Mr. LaSorda will leave a short-time after the negotiations end a very rich man. Below is a post I wrote a few years back that pertains to the type of Leadership Mr. Nardelli was taught and managed in for many years at G.E. "Manage their own destinies." When I read this I thought of the Noel Tichy and Jack Welch book - "Control Your Own Destiny or Someone Else Will." Anyone who "truly" knows the history of GE's early days. (In the early 1980s he was dubbed "Neutron Jack" (in reference to the neutron bomb). The chapter "the neutron years" in his book says that GE had 411,000 employees at the end of 1980, and 299,000 at the end of 1985. Of the 112,000 that left the payroll, 37,000 were in sold businesses, and 81,000 were reduced in continuing businesses). When other companies were implementing TQM, GE was removing employees (how come GE didn't use Six Sigma). What Quality folks (especially fly by night consultants) won't admit is in the early 80s to mid 90s many of the leading Quality companies had already removed "low hanging fruit" (please read @ http://qualityg.blogspot.com/2006/05/quality-tooltechnique-term-low-hanging.html). and identified which processes needed to be fixed. Once you do that you are left with very complex fixes to correct and stabilize processes that were neglected for years. When GE started the Six Sigma rush in the mid 90s they were removing "low hanging fruit," which gave the perception that the other companies quality efforts were all wrong. Now in the mid 2000s go to any of the major Six Sigma related chat rooms and tell me if you are hearing anything different as to why it won't work (i.e., leadership won't support, not producing fast enough results, costs to much to train everyone, mid management feels threatened, and of course teams don't have time to meet because of their "regular" jobs, Blah, Blah Blah! Very wise words "control your own destiny." You have to go out and find your destiny, search for what it is in life you wish to accomplish and go after it. No one is going to knock on your door and tell you it's waiting for you on the front lawn. Example, when you lose your job, no one is going to call you and say "please come work for me." You have to get off your butt and make it happen, that is destiny. If you don't then you can go on welfare and let the Government control your destiny. The saddest part about an Outsider bringing in all his or her people it takes years after their gone to filter through all the bad managerial decisions that were made that affected the employees and the bottom line. Good Luck Chrysler Cerberus & Mr. Nardelli, I really want you to do well. Trust your employees and not your cerberus moneychangers. Since writing this post I have received Emails providing a number of examples where outsiders have made a postive impact on their Company and Stock. The most Emails were about Ford Motor Company and Mr. Allen Mullaly. All I can say is it's too early to tell. I also wish Mr. Mulally (formerly of Boeing) good wishes.