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Some of you may remember the hamburger
commercial featuring a little old lady who, after seeing her
meager patty on the bun in her hands, yells, "Where's the
beef?" The same complaint comes to mind following the
first steps of Rick Wagoner, chairman and CEO of General
Motors Corporation.
In a recent interview reported in the Wall
Street Journal (GM's Wagoner Targets Costs, New Products,
April 14th), Wagoner said GM has one crisis: the health care
cost issue. He went on to deny that GM's over capacity and
build up of cars on dealer lots was a crisis, choosing to
describe them as "adjustments" that are affecting
near-term financial results. Even his response regarding over
capacity implied, at least to me, that the capacity they have
will be just right when they improve the ability to sell more
cars. In addition, Wagoner so far is refusing to follow the
lead of Carlos Ghosn at Nissan who went public with Nissan's
Revival Plan that clearly laid out a turnaround plan for
people to see, understand, and possibly support.
Overall, the responses in the interview
sounded to me like someone trying to downplay the situation at
GM. It is hard to imagine Mr. Wagoner is in denial but it sure
sounds like it. Surely Mr. Wagoner isn't one of the few people
in the U.S. who doesn't think the GM situation is serious, or
that the automotive industry is starting to resemble the
airline industry.
It may speak to the real problem at GM:
leadership so mired in tradition that they're trying to apply
old tactics to fix new problems. In fact, isn't that the
definition of insanity: doing the same thing and expecting
different results?
The UAW's response to Mr. Wagoner's health
care crisis comments were also traditional, if not somewhat
more understandable, seeing as how the work force continues to
represent the "well" GM management goes to first in
times like these. The other "well" Mr. Wagoner
visited was the suppliers, challenging them to get their costs
down, adding what sounded like a thinly veiled threat to buy
more from cheaper off shore competition. Funny, his
pronouncement of being more global didn't seem to have the
expansive ring to it one would think. Maybe it was the third
"well" Mr. Wagoner went to: a more centralized
management and control process. It seems this happens a lot.
When management leads a business into trouble, they centralize
the decision making process to, I suppose, do more of what got
them there in the first place, except this time expecting
different results.
To be fair, this isn't limited to GM's
management. A lot of companies, large and small, take these
three traditional steps when there's trouble. It may be
helpful to examine each more closely. If so many choose these
as their first lines of defense against a business downturn,
there must be something to it, right?
First, let's look in the labor well. While
GM certainly has a health care and pension cost crisis they've
brought it on themselves by being cavalier about absorbing the
costs into the cars they sell to us, John Q. Public. However,
others go to the labor "well" by reducing headcount
in a number of ways, either through layoffs, incentives to
promote attrition, or reducing benefits. For most operations,
labor represents less than 10% of the product costs. Yet when
there's an initiative to reduce costs by 20%, people get cut
first.
Second, since materials often make up
50-60% of product costs its understandable to look to the
suppliers to reduce their costs to save a significant amount.
However, since materials have become globalized, the ability
to reduce the material costs becomes problematic for many
suppliers so they revert to well number one: their labor
(which is a minority portion of their costs as well).
Third, management's decision making acumen
has gotten them where they are, meaning in trouble with poor
cash generation, poor sales, and bloated inventories. This
stuff doesn't just happen you know, somebody screws up and
causes it. Centralizing the decision making is one more
example of wrong thinking. Bernie Ebbers, who says he didn't
have a clue about financial matters, made the decision to swap
out the drinking water because he was in charge. Mr. Wagoner
claims it won't slow down GM's already notorious slow decision
making process. So, instead of tapping the creative resources
of many in tackling a problem that affects them all, Mr.
Wagoner, and others in other similarly troubled businesses,
has chosen to disregard that resource and disrespect his
people in the process.
The world is changing for all of us. The
problems seem bigger and develop faster, sort of like a
postulate to my dog-year theory: seven years of the past is
equal to one year in the future. Said another way, what took
seven years to develop only takes one year to unravel. Because
of this, traditional management theories and traditional
business models don't work as well anymore. Whether you are GM
or Gus's Sheet Metal, becoming more competitive requires new,
holistic solutions. The traditional "wells" may be
running dry but there are other, deeper, and better "wells"
like integrated supply chains and demand based business models
that many can tap to realize better, sustainable results.
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