Size Matters? No, Says Forbes’ Adam Hartung (At least not for GM to implode)

August 12, 2009 at 12:43 pm

(Source:  Forbes)

GM. Those two letters call up a lot of emotion these days. People ask, “What went wrong?” “How could a company that large, that successful, go bankrupt?” The less polite say: “General Motors’ leadership is corrupt.” “They ignored customers.” “The union killed them.” “Government interference.” “Idiots.”

We used to expect size to benefit a company. Being large and established meant you were supposed to have market clout, and you could protect your profits. According to Michael Porter, Harvard Business School professor and author, being biggest meant you had created entry barriers that kept your turf safe. With economies of scale in manufacturing, procurement, distribution, marketing, sales, financing and research and development, you could get so giant no competitor could effectively attack your products or prices. And for many, many years, nobody was bigger than General MotorsGMGMQ.PK– news – people ).

The myth of the invulnerability of the large company is dead. We all know that by now. But other than depressing us, what does it mean? What have we learned from these failures that can help us be more successful in the future?

Many theories of business–from the work of Fredrick Winslow Taylor, who introduced modern management practices a century ago, to that of writers like Jim Collins today–have posited that success comes largely from figuring out what business you want to be in and then focusing on it intently. Pay attention to the resources on which you rely, invest to gain advantages of scale, operate with a tight focus on your goals and you should succeed.

This approach is based on an industrial-age understanding of oligopoly, where over time a pool of competitors shrinks to just the most efficient handful that can all be profitable in the long term. In other words, as Jim Collins has argued, if you set yourself a big, audacious goal and focus on tight management, you should expect to grow large and profitable in the end.

It’s good that GM’s situation raises people’s blood pressure. The company’s trip through bankruptcy is a highly visible sign of how markets have changed. To pull out of this recession, we need to make sure other companies don’t follow GM’s route. Leaders need to stop focusing on traditional market leadership, size and scale. They must abandon that approach to success. Now, more than ever, they have to identify market shifts and reposition their organizations to play in growing markets.

Profit comes from leading customers into new markets, not from optimizing your position in historical ones. To pick a winner, look for companies that shift with markets rather than trying to wield clout. To create a winner, build such a company.

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Busted Transmission: Can the U.S. government transform GM into a true global car company?

June 8, 2009 at 11:10 am

(Source:  Foreign Policy Magazine)

Cartoon Courtesy: Slate Magazine

Outside a small group of nihilists and committed free marketeers who’d have let General Motors go under, no matter the price, few question the necessity of the Obama administration’s plan for the once great American company’s reorganization in bankruptcy. But as a U.S. taxpayer, and therefore one of GM’s brand-new owners, I have my doubts about our ability to manage this new property. Yes, GM’s previous owners proved unable to run a competitive car company in a global marketplace, but is the U.S. government really the best one to transform it? Already, the particulars of the Chapter 11 arrangement lead me to fear that the same sort of internal politics, unthinking nationalism, and generalized aversion to engineering risk that have hobbled GM for decades will continue to haunt its new incarnation.

One place where you won’t hear for-attribution criticism of the “new” General Motors these days is GM headquarters. Perforce they are obligated to display their gratitude with the unfailing enthusiasm that a $50 billion-plus investment in a failing business minimally entitles its benefactors to expect in return. Although the collegial tone of the new rapprochement comes 50 years late, it is heartening nonetheless to see American industry finally welcome Washington’s involvement in matters like safety, fuel economy, and emissions regulation.

Even Robert “Maximum Bob” Lutz, GM’s outgoing product czar and vice chairman, and a fierce critic of government meddling from the “give me back my bullets” wing of Detroit’s old school, has experienced an astonishing change of heart, at the ripe age of 77. Speaking to a gathering of journalists in Motor City the other week, Lutz unhinged every jaw in the house when he shared his thoughts on how the White House automotive task force ought to become a permanent fixture. Of the unprecedented government-industry collaboration the Chrysler and GM bankruptcies begat, Lutz, an ex-Marine attack pilot and near-libertarian known for making his daily commute in a decommissioned Czech jet fighter, quipped: “Jeez, it only took 30 years for somebody to finally figure [government-industry partnership] out.”

Er, right. Thirty years and a couple of epochal bankruptcies.

Questions about the government’s intentions for the new GM Lite already abound. Notably, what will and what should the company’s policies be, now that it is controlled (in theory) by and for the benefit of U.S. taxpayers, who own 60 percent of its shares?

Will GM be underwritten so as to lead the market in the direction of fuel saving and new technologies? Or will it trim its sails and attempt to get by on its sometimes-profitable religion of pickup trucks and SUVs, perhaps ones that get slightly better mileage? GM is still tooled up to build them.

Ever since the 1920s, when GM’s Alfred P. Sloan introduced the precepts of what came to be known as Sloanism — a car for every purse and purpose — a good day at a car dealership was one when you sold someone “more car than they need.” Automobile marketing often appeals to man’s baser emotions. Greed, lust, and envy come to mind, as do excessive horsepower and other costly and unnecessary options that have been larded on to new cars to boost profits for longer than any of us have been alive. So, you can’t help wondering, has the U.S. government entered the business of encouraging people to live out their most insane automotive dreams? Will it labor to create demand for automobiles when and where there is no need, as generations of car companies have done before it?

And where do GM’s new taxpayer/shareholders stand on the matter of outsourcing work to Mexico or South Korea or China or anywhere else, as the old GM did whenever it got the chance? Will Chevy production lines in places like Toluca and Silao, Mexico, come home to the USA? The old GM went in for cheap overseas labor. Has the government now entered the business of using taxpayer money to export jobs? Is this the change we need?

Myriad practical and philosophical quandaries aside, one vital series of questions about the “new” GM — which brands will be kept, sold, or terminated — has already been answered. Chevrolet, Buick, Cadillac, GMC, Australia’s Holden, and South Korea’s Daewoo are to be spared. To be sold: Saturn, Hummer, and Sweden’s Saab are available outright, and operating control of GM’s German division, Opel, is to be sacrificed in a deal brokered by the German government outside U.S. bankruptcy proceedings. For the scrap heap: Pontiac, the venerable division that once claimed to “build excitement.” In limbo: Opel’s English sister brand, Vauxhall.

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