By on March 10, 2010

Edmunds AutoObserver Michelle Krebs, commenting on the termination and replacement of Cadillac’s leadership, concluded, “If GM is going to change and is going to succeed, it must change people.” Paraphrasing Eistein, she added that “Doing the same thing over and over again with the same people in the same positions and expecting a different result is…insane.”

Michelle Krebs is far from the first to suggest that, to survive, a struggling company must replace the executives that oversaw its decline. And she won’t be the last. But this is a superficial solution that, without additional measures, will surely fail.

A key reason for the popularity of this solution is that it’s easy to observe and easy to comprehend. But it’s based on a very shaky assumption: if an executive didn’t achieve the desired result, then that executive either lacked ability or lacked the proper intent. The latter is addressed through demands for “accountability,” which Krebs also suggests.

But what if these are good, talented people placed in an unwinnable situation? What if the structure and culture of the organization prevent them from doing what they know should be done, and would otherwise do?

This has very much been the case within General Motors. I essentially lived within the GM organization for over a year back in the late 1990s, observing it as an anthropologist would. I encountered, over and over, people who knew the right thing to do, and who wanted to do the right thing, but who were unable to do it because GM’s structure and modes of operation placed endless barriers in their way. As a result, the predominating mood within the organization was one of frustration.

Putting different people in the same organization and expecting a different result is insane.

Actually, the outcome could well be different–but worse. Developing and building cars in an intensely collaborative exercise. For people to do well within it they must both be experts at what they do and know those they work with very well. Place an expert among strangers, and they will likely discredit and ignore his or her suggestions. You cannot really know who knows what they’re talking about by listening to them for the first time. Knowledge of the extent of others’ knowledge, especially if they’re in a different field than you are, can often only be gained through repeatedly working together.

Bring in new people, and they will know neither their new jobs nor the expertise of those they must work with. This is proven recipe for either indecision or, when the pressure for results is intense, bad decisions. GM and many other companies have gone through this cycle over and over. While GM hasn’t often fired executives outright, as they did in this case, they’ve switched people around many times before, but rarely with the intended results.

Now, perhaps GM’s new leaders aren’t merely changing people. Perhaps they’re also making fundamental changes to the way the organization is structured and the way it operates. Maybe these changes simply aren’t being reported in the press because they are much more difficult to comprehend and communicate than personnel changes. Maybe they’re even the right structural and cultural changes. If so, then changing people might be necessary to keep the new organization from reverting to the old one. As one piece within a much larger solution, personnel changes might make sense.

But, if they’re the entire solution, personnel changes are bound to fail. To repeat: putting different people in the same organization and expecting a different result is insane.

The suggestions I offered to GM nearly a decade ago:

Executive summary of report to GM

Michael Karesh owns and operates TrueDelta, an online source of auto pricing and reliability data

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34 Comments on “Auto Industry Insanity, Defined...”


  • avatar
    mtymsi

    One can only hope that Whitacre is actually going to change GM’s culture. What you are describing is in my view why people that have had success with other automotive companies have to be brought in. They have the experience and knowledge to make the changes that must be made to make a difference.

    GM’s biggest enemy is not making the personal and organizational changes that are crucial to its longterm viability. I think Whitacre is in full realization of these facts and is capable and intending to implement the changes. The sooner the better.

  • avatar
    andyinsdca

    There’s a fundamental problem with changing GM. They have no real reason to change. They’re on the government teat now and will NEVER wean from it, especially with the UAW in partial control of GM and being a big player in Congress (and in many states).

    • 0 avatar
      mtymsi

      To the best of my knowledge the UAW has absolutely nothing to do with the design, development, marketing or sales functions at GM.

      I disagree with your assertion that GM has no real reason to change. Quite to the contrary I believe Whitacre is in full realization of GM’s need to change its culture. I also don’t believe anyone at GM thinks more money is likely to come from the government. In fact I think they believe the exact opposite.

      While I don’t dispute the UAW’s influence both at GM and in Congress I don’t think it has anything to do with the subject at hand.

    • 0 avatar
      angler

      They had forty years to change BEFORE the government was a shareholder. And please union bash where it’s actually appropriate. The failure to adapt to a changing marketplace lies directly at the feet of management.

  • avatar
    Disaster

    Having experienced working at the big three I agree with Michael, that more needs to be changed than a few execs…but it is a start. Companies tend to follow their leaders…at least leaders that do what they say and rule with absolute conviction. This requires a leader who is willing to reward handsomely those that play ball and quickly expel those that don’t.

    I’ve seen leaders, and engineers, at all levels stonewall progress…and not be punished for it. I’ve seen leaders afraid to challenge or remove engineers because they had “too much knowledge” of the product, and they were afraid they were indispensable.

    I watched engineers get promoted who totally botched a project…while other’s cleaned up their mess. Why? Because they did the right things…never disagreed with their bosses, and avoided any type of real responsibility, and therefore blame.

    These big companies love heros…guys that come in with last minute fixes. They have open disdain for the ones who design with quality so that they never need last minute heroics. They disdain the entire quality effort and the myriad of programs they spawn (the ever changing programs doesn’t help this effort.) They realize if they just stall, or do the minimum, the program will go away before they do.

    I am sometimes amazed that these disfunctional organizations even put out a working product at all. I’m equally impressed with the few soldiers that carry the company so they do.

    I’ve often thought that I could take 30-40% of the people out of any organization and make a better product. The rest are openly hostile or have grown indifferent from years of being trained not to stand out…not to object…not to do anything that might upset the “apple cart.”

    • 0 avatar

      Some good points here, but don’t you contradict yourself? Aren’t leaders who handsomely reward those who “play ball” part of the problem, because they create the sort of people you rightly criticize?

      Within the GM I observed, if anything good got done it was because of the “soldiers” you mention. These were generally people deemed to not be “executive quality,” and so not promotable any higher. Once they realize their career is dead, most people check out. But some of these people decided that, since they weren’t going anywhere, they might as well focus on really doing what was best for the car.

      This alone was not enough. They also had to locate and forge working relationships with others in a similar position throughout the organization.

      My ideal organization would be based on cultivating such people and the productive relationships among them, rather than have them happen outside the official organization by chance.

    • 0 avatar
      Jack Denver

      I think as we are seeing now with Toyota, large corporations are not infinitely scalable. They have an optimum size and when they exceed it, the organization becomes uncontrollable. The contradictions become inevitable – loyal men and yes men become indistinguishable, self promotion replaces organizational goals, etc. GM is now a much smaller organization and hopefully closer to an optimal size.

    • 0 avatar

      These organizations are all far past the point of easy control.

      The solution is to make them operate as a collection of smaller organizations.

      Attempts to control a large organization from the top are doomed when the product is complex.

      All of this said, I’m not buying that Toyota’s problem is growth or size. They do know this is what people want to hear, so it’s what they’re saying, but this doesn’t make it true.

    • 0 avatar
      Robert.Walter

      @Jack Denver:

      “I think as we are seeing now with Toyota, large corporations are not infinitely scalable. They have an optimum size and when they exceed it, the organization becomes uncontrollable.”

      Sometimes it is the goal that is not infinitely scalable … BHAG initiatives (Study Richard Snell’s Big Hairy Audacious Goal initiative and how it nearly destroyed Federal Mogul before they bounced that clown), could it be that in Toyota’s case, they significantly scaled-up their growth efforts (leaving behind what seemsed like slow organic growth) without (apparently) doing the same to their organization (or culture)?

      @MichaelK:

      “The solution is to make them operate as a collection of smaller organizations.”

      You mean like BOC & CPC supergroups, or like Chevrolet, Buick, Cadillac & GMC Divisions (with real General Managers and aligned organizations)?

    • 0 avatar
      Disaster

      “Some good points here, but don’t you contradict yourself? Aren’t leaders who handsomely reward those who “play ball” part of the problem, because they create the sort of people you rightly criticize?”

      When I mean “play ball” I mean “do the right thing” as opposed to playing politics.

      In my tenure, I watched real performers, people who improved the product and lowered costs, get passed over for promotions. They were often looked at as troublemakers and outsiders,…too feisty for management positions, where they were looking for “steady as she goes” types, who wouldn’t openly disagree with management in meetings.

      If these people had been rewarded…ie, promoted, they’d tend to promote and reward the same. Instead, the “Don’t rock the boaters” promote guys similar to themselves and the cycle keeps repeating itself.

  • avatar
    relton

    This is one of the most insightful analysis of GM that I’ve seen in a long time. I was there during the late 90s, and things in product development were just as described.

    Michael Karesh’s executive summary of his study is also dead on.

    As for changes tomorrow, I don’t hold much hope. I occasionally ask people I know who work in product development and design what changes they have experienced since the bankruptcy and reorganization, and the usual answer is, “none”. In other works, most of the people on the product development and design level are not doing anything different than they ever have.

    Requiring “objective” data in place of tacit knowledge is another way of admitting that you don’t have any confidence in what you, or other people, really know. GM, and to a lesser extent now, Ford, is full of people like this.

    Changing a few executives isn’t going to make much of a difference at the levels that count.

    On the other hand, keeping the same people who got the company into this mess guarantees that things won’t change.

    I’m glad I’m not running that show, or even responsible for any aspect of their product.

    Bob

    • 0 avatar

      At the time I observed GM, they had totally lost confidence in what their people knew. Too many times they’d gone with someone’s gut, and failed miserably as a result. So they decided to simply trust no one, and rely on data.

      The thing I realized through my research is that an organization can never know what its people know. Only people can properly judge what other people know, and this can only happen through direct contact over an extended period of time. Every time people are replaced, this process must start over.

      A further implication: executives can rarely properly judge the knowledge of people even two levels below them. Virtually anyone who works in an organization with more than two levels (i.e. almost any organization) has personally experienced this. The result: the wrong people often get rewarded and promoted.

    • 0 avatar

      By the way, did we meet back then?

  • avatar
    Jack Denver

    While replacing just a few individuals cannot by itself change the corporate culture of a large organization, ultimately culture CONSISTS of the behavior of individuals so if you change enough people you change the culture. Chopping off a few heads also serves as a wakeup call to the others – change your ways or you’re next. And the right key leadership can make a big difference – look at Apple before and after they brought Jobs back. A great leader can change the corporate culture from the top down. The fish stinks from the head. The “structure and modes of operation” which kept many good people at lower levels in GM from accomplishing anything useful were not decreed by God or the laws of physics . This same structure once upon a time lead GM to the pinnacle of the auto industry and then (when it did not keep up with changed conditions) dragged it down to the abyss. It was top management that was 100% at fault for not recognizing that the world had changed and GM’s structure had to change too.

    • 0 avatar

      The new leaders must recognize the need to change the culture, and actively work to change it. Otherwise replacing them is unlikely to produce real, productive change.

      Fear is an easy solution, and a bad one. Make people fear for their jobs, but don’t remove the barriers keeping them from doing what they know they should do, and they’ll find ways to cheat the system. Removing these barriers is a much better solution.

      Stalin sought to improve Soviet industry by threatening people with Siberia or even death. Did Soviet industry improve as a result?

    • 0 avatar
      Jack Denver

      Actually, the answer was yes – the Soviet Union went from being a rural country to an industrial and military power (consumer goods – not so much). Soviet industry only declined when the fear was taken away and nothing replaced it.

      As you yourself have said, there are (in addition to the good soldiers you speak of) undeniably bad apples at GM – time servers, yes men, blame avoiders, people with just plain lousy judgment. These people MUST be weeded out or change their ways. To do so is not management by fear, it is management by reality.

  • avatar
    Mr Carpenter

    Michael, the scenario you point out here “The thing I realized through my research is that an organization can never know what its people know. Only people can properly judge what other people know, and this can only happen through direct contact over an extended period of time. Every time people are replaced, this process must start over.” is a good definition of how the human race louses things up when it loses it’s ability to have RELATIONSHIP with one another.

    Example: 107 years ago, Packard Motors built their East Grand Boulevard plant in an open field near Detroit, and hired men. It did not believe in paternalism (i.e. treating the workforce like know nothing children, or like the US government powers that be and elitists obviously see 99% of the population), they saw them as individual men earning a living for themselves and their families.

    The men in charge knew what needed to be done to have a fair workplace, and did it. They paid a sufficient wage to live on (without coersion from unions or government). It was done out of what the Jewish folks call “being a Mensch” (sp?) – a human being. In RELATIONSHIP with others. The managers provided for doctors and nurses on the site, in case a man was injured. They hired the best and brightest architect and encouraged him to think outside the box (Albert Kahn), and from this first plant, came the first ever concrete pillar construction so common early last century. The idea was to allow more light into the plant for the benefit of the workforce!

    This is what modern mankind is forgetting. I suspect it started with the advent of television, and perhaps computer games, among other things, but has anyone else notice that children don’t seem to play outside with each other any more, and haven’t since the 1980’s? This does not bode well for our collective human future…

  • avatar
    Dynamic88

    MK

    Nice piece. It goes beyond the typical “heads must roll” analysis.

  • avatar
    andyinsdca

    60% of GM stock is owned by the US Government. Another 17.5% is in the hands of the UAW health care trust fund, the Canadians have another 12%. This leaves just 10% to “real” shareholders who have a vested interest in the success of the company.

    If they continue to lose money (and they will), does anyone honestly think that the government won’t put more $$ into GM (and that a fair amount of pressure won’t come from the UAW to continue to shovel coal into this train going off the cliff?)

    Lacking shareholders who give a damn about the end result (ie: dividends/profits/share value), GM’s board of directors doesn’t have to care about such piddling matters. They only have to respond to Washington and Solidarity House.

    • 0 avatar

      Companies have been beyond the influence of non-institutional shareholders for some time. If anything, the government will force the board to be more active, not less. I don’t think the government’s interests vary much from those of other institutional shareholders. Everyone involved wants to be able to report profits and, eventually, a high share price.

    • 0 avatar
      Daanii2

      “Everyone involved wants to be able to report profits and, eventually, a high share price.”

      For the government and the United Auto Workers, profits and a high share price will often not be as high on their priority list as other things. That’s the problem.

  • avatar

    My view from inside GM:
    I witnessed the things MK described in late-90s GM. That environment inside GM continued all the way through 2008. There were always the soldiers who did the right thing despite the paralyzing bureaucracy. That’s how GM made both the OMG! Corvette and the WTF? Pontiac G3. Down here at the soldier level, I never knew what was really going on, what with all the accounting tricks, spinning sales numbers, and press releases at 4PM Friday afternoon.

    Mark Reuss is really trying to be the champion of a new corporate culture. Previous executives rolled out slogans and programs, going through the motions of reinventing GM, while preserving the status quo. Mark seems more genuine. Mark participates in GM-internal and public online discussions like a real person, not like a recording of corporate-speak and legal-ese. I believe that he really wants our customers to love their cars. Good enough isn’t good enough anymore.

    • 0 avatar
      mtymsi

      Since Reuss himself is a product of the culture that needs to be replaced my hope is he is a stop gap measure. IMO the biggest mistake GM could make is promoting from within to achieve different results. An individual from an outside automotive company needs to be in Reuss’ position. My biggest disappointment with Whitacare to date is the lack of outside talent he’s brought to GM. If he fails to get some in there soon GM will not succeed.

    • 0 avatar

      Sometimes an insider is the best choice for making changes that will work. There are plenty of people inside GM who would make major changes if they had the ability to make them. And their experience gives them knowledge of the needed changes.

      Simple solutions like “replace insiders with outsiders” are rarely sufficient or even correct. Their main appeal to those who really don’t have a clue about what’s going on is that they’re simple.

    • 0 avatar
      mtymsi

      Sorry but I completely disagree with you.

      If what you contend was true why is Whitacre at GM? Or Mulally at Ford?

      Expecting a wholesale change initiated by the same people who are ingrained in the poisoned culture that needs to be changed will not work.

    • 0 avatar

      Mulally brought very few outsiders in with him. He has generally relied on insiders for his team at Ford. Whitacre is now doing the same at GM.

      Chrysler brought in plenty of outside leadership over the past few years. Didn’t do them much good, did it?

      People love to point to Jobs at Apple as a success story. He was hardly an outsider–he founded the company. Yet he certainly changed it.

  • avatar
    wsn

    M.K: But what if these are good, talented people placed in an unwinnable situation?

    By definition, if it’s “unwinnable”, then it’s over. The only “solution” would be chapter 7.

    If GM goes into chapter 7, then part of the remaining hardware and work force will be picked up by other companies who know what they are doing.

    Problem solved.

  • avatar
    porschespeed

    There were talented people at GM in the 70’s, and they knew the corporate culture was dysfunctional and GM was headed off the cliff.

    DeLorean wrote a book about it. Even C&D wrote about it.

    Nothing.
    Substantive.
    Has.
    Changed.

    The corp-speak evolves.
    Consultants and students re-report the obvious as news.
    Self-preservation mythology continues among leadership.

    Firing a few lifers and shuffling a few more does not change corporate culture. Never has. Never will.

    The fact remains that GM would have been liquidated by now, were it not for the (unwilling) largesse of the US taxpayer.

    There are glimmers of hope in tiny chunks of certain fiefdoms.
    Same as there have been for the last 30 years.

  • avatar
    porschespeed

    “Mulally brought very few outsiders in with him. He has generally relied on insiders for his team at Ford. Whitacre is now doing the same at GM.

    Chrysler brought in plenty of outside leadership over the past few years. Didn’t do them much good, did it?

    People love to point to Jobs at Apple as a success story. He was hardly an outsider–he founded the company. Yet he certainly changed it.”

    Even in it’s darkest days, Ford’s corporate culture was never as broken as GM’s. Ergo, not as many people need to go, and the system is more open to change.

    Mulally has a backround in manufacturing. We can argue his overall greatness at Boeing, but he actually does have a clue about manufacturing. Whitacre? He has a talent for rebuilding a disbanded monopoly.

    Chrysler’s outside leadership? Was there anybody that thought Nardelli competent as he screwed Home Depot into the ground? Bueller?

    Nobody thought for a second that the angry puppy was going to keep Chrysler going did they? We talked about it here, didn’t we?
    Bueller?

    As to Apple, Jobs did help build the company. Corporate culture got off the rails a bit when he stormed out. He didn’t have to fire staff to fix things when he returned. They knew what *should* be happening, they just needed the leader to re-enable that culture.

    No one now at GM was even alive when GM had a functional corporate culture. GM has no core to return to. Were there any competence within the upper ranks of GM insiders, GM would not be bankrupt.

    Of course, cleaning out the engineering staff, or accounting, etc. would be short-sighted, and non-productive – what those people know is actually important for the continuation of the org.

    • 0 avatar

      I have less insight into Ford’s culture than I do GM’s. But the bits I do know suggest that it was even more broken in some ways. Before Mulally, politics seemed much worse inside Ford. As various factions rose to then fell from power, the company changed direction every 18 months or so. Their showrooms were a mess, since they couldn’t seem to maintain a design theme from one program to the next. GM’s brands were as focused as BMW when compared to Ford’s.

      Mulally’s greatest contribution to Ford could well be killing this political infighting and maintaining a coherent direction. We might yet see a day when all Fords share a common face–when is the Fusion next being redesigned?

    • 0 avatar
      Disaster

      One “uniqueness” to the Ford culture is the Ford family and their controlling ownership. Anytime a star (like Iacocca) develops, that isn’t a Ford family member, frictions ensue and he is kicked out. I am curious to see how long Mulally will have the family support.

  • avatar

    My goodness, where did you get a pic of the GM mural on the bus depot in downtown Oshawa? I was involved in its installation, and drive by every day. Stupid when it went in, and terribly outdated now.

  • avatar
    Martin Schwoerer

    He’s a man out of time who ruined his own reputation, but I after I read this piece, I remembered Jack Welch’s management theory.

    Correct me if I’m wrong, but I think he said top management has only three jobs. First, to promote, facilitate and enforce diffusion of knowledge. Secondly, to implement an effective system of evaluating personnel. Thirdly, to fire the weakest-performing ten percentile.

    When your job is so transparent, it doesn’t matter if you’re an insider or an outsider. And if you do it right, it turns your organisation into a meritocracy.

    GM’s bosses probably didn’t really care about promoting the best people; in any case, they couldn’t tell the difference. Mulally can.

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