IN A SENSE, THE DECLINE, FAILURE, AND REBIRTH OF GENERAL MOTORS is simply a metaphor for what is happening to the whole United States. The days of absolute industrial and economic dominance that we took for granted and assumed would go on forever are over. They have been over for some time; we just didn’t notice it. They were over the day the Asian producers cleaned out our home electronics industry, camera industry, small-appliance industry, and many others. They were truly over when Japan, Korea, and others demonstrated they could produce and ship vehicles as good as ours or better. ‘Superior technology,’ that old fallback, was no longer a reliable U.S.-only weapon, as technology transfer is quasiinstantaneous in today’s world, where everyone can know everything. The minute we concluded that industrial products made elsewhere could be imported and sold at prices well below what it took to make them here, we began to lose our industrial preeminence. Following the dictates of classical economics, we followed the money, and in the profitability (after all, quest for greater the purpose of business), the nation soon imported everything and paid for it with IOUs called ’Treasury bills.’
Once again I read a book that, in retrospect, says volumes to the state our country and American business finds itself in. For at least a decade now, we’ve been going through a “revolution” of sorts as we realize collectively that we are heading towards a proverbial iceberg if we don’t change course, change the way we approach problems, change the way we plan for our future towards sustainable business models and practices. Bob Lutz is an anomaly in terms of the “C-Class” or “CEO“, among the ranks of a Steve Jobs or early Bill Gates so often cited for their brilliance and courage in the face of entrenched and obsolete ideals. What makes him unique is the fact that he was head of a company (GM) while it fell off the cliff into chapter 11, into the scrutiny of congress and the spin of a ruthless and uninformed media with obvious agendas. Continuing from my previous blog post, Bob opens his argument and biography with citing how structure inherently drives decision and behavior:
It really boils down to a matter of focus, priorities, and business philosophy. Leaders who a predominantly motivated by financial reward, who bake that reward into the business plan and then manipulate all other variables to ‘hit that number,’ will usually not hit the number, or, if they do, then only once. But the enterprise that is focused on excellence and on providing superior value will see revenue materialize and grow, and will be rewarded with good profit. Is profit an integral part of the business equation and a God-given right, no matter how compromised the product or service? Or is the financial result an unpredictable reward, bestowed upon the business by satisfied customers?
boards of directors usually don’t appoint creative right-brainers to the CEO post: there is just not enough predictability, not enough respect for carefully crafted ‘future scenarios’ (which, due to their numerical precision, provide the faint of heart with a false sense of stability and order), too many changes of course, too much emotion and communication.
We had already lost the entire home electronics industry, as well as cameras, optical instruments, and much, much more. But politicians didn’t want to listen, and administration officials professed it all to be for the common good, because Japanese cars were excellent and represented exceptional value.
Neither the board nor the management, in our system of governance, is empowered to spend the shareholders’ substance on what they know in advance to be a loss-making project.
So, how did Toyota, then, get it done and successfully launch the now-famous Prius? It’s simple: Toyota still bears all the earmarks of a privately owned company. The Toyoda family still runs it, selects the top leaders, and anoints one of its own as the CEO of the corporation.
He continues to cite the reasons why American industry, specifically the auto industry, found itself in a coma staring in 2001:
The drive to reduce cost, skimp a bit on service, ruthlessly pursue quarterly earnings targets no matter what the negative consequences has hurt American business from automobiles to appliances, as well as the service industries.
With speed of the essence, quality and accuracy are relegated to the back of the bus.
The company cared about ‘the other two ends’—minimizing cost and maximizing revenue—but assumed that customer desire for the product was a given.
I maintain that without a passionate focus on great products from the top of the company on down, the ‘low cost’ part will be assured but the ‘high revenue’ part won’t happen…
Now why, you may well ask, would a vehicle line executive knowingly accept a design he or she knew could not win in the market? The answer is simple: declaring the design unacceptable meant immediate admission of program timing failure, with swift criticism, probable loss of bonus, and other acts of retribution an inevitable result.
And then he points the finger squarely at something referenced in the last blog post:
What I call the ‘process religion’ stems from the 1980s and 1990s ’Total Quality Excellence‘ consultants, who descended upon corporate America like a swarm of rapacious locusts. It was generally argued that Japanese manufacturing superiority was due to a rigid adherence to ’standardized work’ in the assembly and machining plants. Every worker, no matter which shift or plant, was to perform a given operation in a rigid, unvarying way. No experiments by the worker were permitted, no using both hands to feed the line faster if that wasn’t what the ‘process’ called for. In this way, variability was taken out of the factory environment and reliability, predictability, and quality was put in. So far, so good, and a valuable lesson for the West. But then the concepts of ‘process’ and ‘standardized work’ were expanded beyond manufacturing. If it’s good for the factories, some reasoned, why wouldn’t it be good for every other part of the company, even the creative ones?
For the better part of my career, I have seen what these bright, analytical, dispassionate, data-driven geniuses have done to our country’s industry and commerce. Through a relentless pursuit of ‘winning strategies’ and elaborate ‘Missions, Values, and Goals’ statements—which, incidentally, consume vast amounts of non-value added time—these modern MBA graduates reject the obvious as being ‘simplistic,’ and believe that elaborate alternative scenario planning and ‘test wells’ will provide a better (if not logical) answer… It’s useful, and they’re good exercises. But here is the fatal flaw: the customer is never discussed.
Mathematical modeling, quadratic programming, dynamic programming, game theory, and more were used to improve logistics, schedule bombing raids, and generally bring order to a fairly chaotic environment. (Of course, there was no ‘end customer.’)
It’s time to stop the dominance of the number crunchers, living in their perfect, predictable, financially projected world (who fail, time and again), and give the reins to the ‘product guys’ (of either gender), those with vision and passion for the customers and their product or service.
In the case of healthcare, the most economically damaging concession of all, it turns out that, as so often in the past, GM‘s vast, IQ-packed corporate soothsaying departments, whose ‘scientific forecasting‘ techniques are about on par with astrology, had radically and fatally miscalculated.
In a large company, the real talent often lies among those with specialized skills but no MBA, doomed to toil in relative obscurity while their more managerially trained colleagues get the promotions.
So often we see people who are qualified at making decisions, who know the industry from the bottom up being controlled, railroaded or downgraded by the top-down who rarely know or have experience in the processes and products being managed:
It applies in any business. Shoemakers should be run by shoe guys, and software firms by software guys, and supermarkets by supermarket guys. With the advice and support of their bean counters, absolutely, but with the final word goi ng to those who live and breathe the customer experience. Passion and drive for excellence will win over computer-like, dispassionate, analysis-driven philosophy every time.
This encounter was also a manifestation of another culture problem at GM: an exaggerated respect for higher authority, with the acceptance of everything uttered by the CEO and other senior leaders as infallible gospel… One curious cultural characteristic I encountered at GM was an exaggerated respect for authority. It is bred into the system. Senior people are seen as being in possession of some superior wisdom, to be revered if not downright feared. The reality is that the company’s most senior executives are just people who happened to get promoted and who daily face the insecurity of wondering if they are doing the right thing.
The good leader deals with that insecurity by putting forth his or her ideas, then letting subordinates dissect and critique them
It was all tactical—work that had to be done, of course—but in the company’s most senior product meeting, where was the strategy?
A salient feature of these top-level meetings was the notable absence of any focus on the thing that matters most: the company’s products.
There is nothing mysterious or arcane about design, customer delight, quality, or an efficiently run personnel department.
He continues with a recommendation:
GM‘S BUSINESS PHILOSOPHY OVER THE PAST THIRTY YEARS HAS BEEN mired in the belief that the power of analytical intellect can solve all business problems as well as create viable strategies for success. This dogma is by no means confined to General Motors or the automotive industry: witness the decline and ultimate failure of many iconic U.S. business enterprises, household names that have gone out of business, been taken over, or shrunk to a shadow of their former selves.
The problem lies, as it so often does, in the deliberate intellectualizing of a very simple task: creating and selling a meaningfully superior product or service to the public. It’s not rocket science. You design, you manufacture, you sell, you collect money, and you reinvest.With any luck, some of the proceeds will reward the shareholders.
As I cite, business and markets and consumers have changed. We are now in an economy of choice with access to information and capabilities unimaginable when the industrial revolution happened. Businesses who are able to thrive in this new world are those that can adopt rapidly to continually changing arenas of competition and operation. Bob used to be an air force pilot and cites some stuff from his basic training:
Because Soviet-trained fighter pilots were taught an elaborate sequence of carefully choreographed and endlessly practiced maneuvers to use when entering a combat situation, the Arab MiG and Sukhoi pilots were easy pickings for the Israeli Air Force, which, like its U.S. counterpart, relied on situational assessment, intuition, and flexibility in a fast-evolving air combat situation. The U.S. Marine Corps adage is ‘No battle plan survives the first two minutes after initial engagement with the enemy.’
Observe, orient, decide and act. — Rad Rakic, Director of the Digital Innovation Group, Sears Holdings
Here is where the profound intellectual error was made; the rest of the company isn’t a factory. Almost nothing is done repeatedly, exactly the same way, a thousand times per day.
Thus, as is so oft en the case, we see quantified ‘rules’ overwhelming common sense. The result, ultimately, is a failure to achieve excellence. Thanks to a pervasive bias toward an ever more analytical, intellectual approach to business as taught by America’s esteemed graduate schools of business, we are churning out armies of bright young executives, all skilled in numbers and business speak, all eager to reduce cost and game the system for ever greater short-term benefit. (After all, we do get measured every quarter, and we do have stock options that we want to see ‘in the money.’)
But where, I ask, is the business school that preaches, above all, acceptance of the obvious, simplicity, and that uncommon virtue, common sense? Where is the business school program tailored to the highly intelligent, creative, right-brained individual who senses rather than analyzes, whose mind skips countless spreadsheet analyses and sees right to the solution? Where is the business school course entitled ‘Customer Delight as a Key Factor in Business Success?’
If you’re running a dog food company, your ’food chemistry’ can be brilliant, the ingredients healthy and procured at an optimized low cost. Manufacturing and canning can be done on the latest, low-labor equipment. The young, motivated workforce can be nonunion. Marketing and advertising can be researched, focus grouped, and tested to perfection.The balance sheet and accounting practices can be the envy of the category. Logistics and distribution can have been computer-modeled for just-in-time replenishment of excellently placed store shelves, access to which was skillfully gained by a world-c1ass sales force. And the management ranks can be filled with 3.5-GPA MBAs from the nation’s finest business schools. However, as the old joke goes, it’s all for naught if the dogs don’t eat… If dogs don’t like the end product, the dog food company is sunk…. It’s a very simple maxim that is blissfully ignored by higher business education, which teaches all of the ‘techniques’ but fails to train people in the importance of ‘the dogs.’
Perhaps the hardest-hitting of his book came in a series of:
Strongly Held Beliefs
1. The best corporate culture is the one that produces, over time, the best results for share holders. Happy, contented employees, and an environment where nobody argues or disagrees, and everyone compromises because the other person has goals, is usually not the culture that produces great shareholder value. A performance-driven culture is often a difficult place to work, and it certainly isn’t ‘democratic.’ Democracy and excessive consensus-building slow the process and result in lowest-common denominator decisions. As Larry Bossidy, former CEO of Allied Signal, so aptly said, ‘Tension and conflict are necessary ingredients of a successful organization.’
2. Product portfolio creation is partly disciplined planning, but partly spontaneous, inspired, all-new thinking. A good planning process can be an excellent baseline tool, a means of generating solid data. But it cannot robotically create a good future portfolio. It will generate bunts, singles, walks, and the occasional double. But triples and home runs come from people who say, ‘Hey, I’ve got an idea!! Listen to this!’ Needs-segment analysis can find a ’small monovan‘ niche. It can’t find a PT Cruiser, or a new Mini, or an H2!
3. There are no significant, unfilled ’Consumer Needs’ in the U.S. car and truck market (except in the commercial arena). What there are are ‘consumer turn-ons’ that research alone won’t find.
5. Much of today’s content is useless in terms of triggering purchase decisions… What focus groups say they would ‘really like in their next car’ is not reliable because they are, when questioned, not actually paying for it.
6. Design’s role needs to be greater. Design is being ‘corporate-criteriaed’ to death. By the time the myriad research driven ’best-in-class; package, the carryover architecture, the manufacturing wants, the non-stone chip rocker placement, the carryover sunroof module and on and on are loaded in, and the whole thing is given to Design with the words, ‘Here, wrap this for us,’ the ship sailing toward that dreaded destination, ’Lackluster,’ has already left the dock.
7. Complexity-reduction is a noble goal, but it is not an overriding corporate goal.
8. We all need to question things that inhibit our drive for exceptional ‘turn-on’ products… But many of our criteria are interally focused and prevent us from doing high-appeal, exciting, dramatically new products. A salesman cannot say to the customer, ‘It takes a bit of getting used to, I admit, but did you know that it satisfies one hundred percent of GM‘s internal criteria?’ We don’t want anarchy, but we do need more of a ’Who says?’ attitude. The focus has to be on the customer.
10. Remember the Bob Lutz motto:’ Often wrong, but seldom in doubt.’ None of us is infallible, and we all make errors. Remember baseball, where a batting average of .400 is unheard of! But pus hi ng and arguing for what you believe to be the right course (while recognizing you’ll just might be wrong, therefore, still willing to listen) is the key to moving forward. Errors of commission are less damaging to us than errors of omission. In our business, taking no risk is to accept the certainty of long-term failure. (Even Aztek, in this sense, is noble!)
I highly recommend this book to anyone currently involved with User Experience and/or business strategy as a supplement to often cited “The Design of Business“. Too often we get over focused on our paperwork and computer screens, stuck in a maze of cubicles and quickly lose touch of who we truly serve: the customer. We often forget that corporations, like GM, like Sears, are comprised of customers, of people. That, like Ogilvy said “The consumer isn’t a moron; she is your wife.” We need to start focusing more on the customer, on human beings, a less on predicting markets or satisfying short term growth trajectories for share holder value maximization. We’re all witnessing where that gets us as a society and where that short-term thinking gets businesses.
SOURCE: Car Guys Vs Bean Counters: The Battle for the Soul of American Business by Bob Lutz