The Painful Lessons GM Learned the Hard Way, Part II
(And how small and middle-market companies can avoid this painful experience)
Back in June 2009, we wrote about General Motors on the day Fritz Henderson announced the company’s bankruptcy filing. At that time, we highlighted the simple business principles that would have been brought to bear, should this company survive its unfathomable decline.
At that time, we asked rhetorically, “So, how do you get there?
- Close inefficient, duplicitous locations and operations;
- Aggressively reduce excessive expense, converting as much to variable cost as possible. This is an ongoing process versus a one-time exercise;
- Generate cash to invest in and grow your business.
Since then, we watched the company shed a substantial portion of its dealership structure, obtain a taxpayer loan, fire Henderson, and hire former ATT head Ed Whitacre as the new chairman. Brands have been reduced, employee levels shrunk, and its future remains in doubt. It turns out most of our comments and observations made at the time of the bankruptcy announcement have turned out to be true.
Peter Kauffman of The Wall Street Journal wrote an interesting article (GM’s Plodding Culture Vexes Its Impatient CEO, April 7, 2010, page B1) on the trials and tribulations of GM under its new leadership. While the company has lost significant market share to its rival, Ford, it has cleaned up its balance sheet, but continues to bleed cash on its high debt load.
Under Whitacre’s leadership, what are the new lessons we can take away to improve our smaller businesses?
First, Whitacre is a CEO who is willing to delegate high-level decisions to his senior executives, yet hold them accountable for the results. This philosophy streamlines the implementation of new product ideas, brings them to market faster, and can save money.
Second, cash is still king, and the high debt margin is killing their cash position.
Third, the company’s plodding culture is a key target of Whitacre, as the infamous bureaucracy of the old GM is legendary. As Peter Kaufman pointed out in the article, “To succeed, their whole business has to change. They have to be leaner, meaner, and faster.”
Whitacre is also allowing key executives to pick their own people for their teams. Undoubtedly, he will hold them accountable for their selections, as there is a high sense of urgency and accountability in the senior ranks. Empower your people, but hold them accountable for their results.
Finally, he appears to be an executive who is willing to listen to his people, and caring about what they think. If you don’t know what is going on in the lower ranks, you can’t solve the problems.
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