Why GM May Be Sliding Down the Slippery Slope toward Oblivion

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SPECIAL NOTICE: I have opened up a new blog . This blog supports the book, Firms of Endearment, to be released September 9 under the Wharton School and Prentice-Hall imprint. I will continue posting to this blog, but occasionally – as is the case with today's main posting  – will have a post appearing in both blogs. I invite you to join me and co-author Raj Sisodia as we continue on our mission of promoting a new business model for the 21st century – the stakeholder business model.

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GM’s announcement that it’s cutting its dividend’s in half and executive salaries 30% to 50%, I suspect this wave of economic retreat is only the first of a string of retreats that will ultimately lead to the end of what was once the world’s largest company. Obviously, size isn’t everything when it comes to prospects for survival in the rough and tumble world of business.

Meanwhile, Toyota just reported a 34% jump in fiscal third-quarter net earnings. Predictions now abound that the Japanese automaker will pass GM in size over the next 18 months, and perhaps by the end of this year say some.

To date, I’ve not seen any report of GM officials, starting with chairman/ceo Rick Wagoner, in which anyone at the top admits to GM being the maker of its present, perhaps life-threatening problems. Such is the resistance of most companies in to look inward for the source of their problems threatening their very existence.

Toyota once operated in many ways like GM still does. It was hierarchical, command-and-control driven, and bent on exploiting workers to the maximum legally permissible extent. There was a time, for example, when Toyota penalized workers for taking rest room breaks.

But Toyota experienced an epiphany. Today it has a much more collaborative relationship with its workers than GM has. It has the same relationship with its unions, in both the U.S. and Japan.

In our research for Firms of Endearment, the executives of FoEs were united in believing that their greatest competitive advantage was neither product design, nor innovation. Nor was it marketing or service delivery, nor their employees. It was corporate culture.

FoE leadership seems to believe in what James Surowiecki calls “the wisdom of crowds.” In a book so named, Surowiecki argues, "Under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them." That view is antithetical to core management beliefs in corporate cultures that support a hierarchical, command-and-control driven enterprise.

However, we found that FoEs have a remarkable agility for either quickly solving problems or getting out of the way of problems over which they have no control in part because of a corporate culture that respects the wisdom of crowds – in other words, the wisdom of their employees from top to bottom.

I’ve seen apologists for GM’s fumbling ways place the blame for the auto giant’s present travails on unions and particularly on health benefits that add $1,600 to every vehicle’s cost, pointing out that in Japan, the Japanese government picks up all health costs. They neglect to point out that those health costs are covered in part by higher taxes corporations pay in Japan.

We have concluded from our research that the shareholder-driven business model that GM exemplifies is outdated. The mindset that supports that model is ill suited for success in the 21^st century marketplace. The stakeholder business model followed by FoEs, by which a company seeks to align and serve the interests of all stakeholders – not just shareholders – seems to generally work better for reasons that we will detail in future posts. But one reason the stakeholder model is proving to be highly effective in this era of light-speed change is that it leads to quicker responses to challenging changes in conditions that arise, often with little warning.

DBW

______________________

SPECIAL NOTICE: I have opened up a new blog . This blog supports the book, Firms of Endearment, to be released September 9 under the Wharton School and Prentice-Hall imprint. I will continue posting to this blog, but occasionally – as is the case with today's main posting  – will have a post appearing in both blogs. I invite you to join me and co-author Raj Sisodia as we continue on our mission of promoting a new business model for the 21st century – the stakeholder business model.

______________________

GM’s announcement that it’s cutting its dividend’s in half and executive salaries 30% to 50%, I suspect this wave of economic retreat is only the first of a string of retreats that will ultimately lead to the end of what was once the world’s largest company. Obviously, size isn’t everything when it comes to prospects for survival in the rough and tumble world of business.

Meanwhile, Toyota just reported a 34% jump in fiscal third-quarter net earnings. Predictions now abound that the Japanese automaker will pass GM in size over the next 18 months, and perhaps by the end of this year say some.

To date, I’ve not seen any report of GM officials, starting with chairman/ceo Rick Wagoner, in which anyone at the top admits to GM being the maker of its present, perhaps life-threatening problems. Such is the resistance of most companies in to look inward for the source of their problems threatening their very existence.

Toyota once operated in many ways like GM still does. It was hierarchical, command-and-control driven, and bent on exploiting workers to the maximum legally permissible extent. There was a time, for example, when Toyota penalized workers for taking rest room breaks.

But Toyota experienced an epiphany. Today it has a much more collaborative relationship with its workers than GM has. It has the same relationship with its unions, in both the U.S. and Japan.

In our research for Firms of Endearment, the executives of FoEs were united in believing that their greatest competitive advantage was neither product design, nor innovation. Nor was it marketing or service delivery, nor their employees. It was corporate culture.

FoE leadership seems to believe in what James Surowiecki calls “the wisdom of crowds.” In a book so named, Surowiecki argues, "Under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them." That view is antithetical to core management beliefs in corporate cultures that support a hierarchical, command-and-control driven enterprise.

However, we found that FoEs have a remarkable agility for either quickly solving problems or getting out of the way of problems over which they have no control in part because of a corporate culture that respects the wisdom of crowds – in other words, the wisdom of their employees from top to bottom.

I’ve seen apologists for GM’s fumbling ways place the blame for the auto giant’s present travails on unions and particularly on health benefits that add $1,600 to every vehicle’s cost, pointing out that in Japan, the Japanese government picks up all health costs. They neglect to point out that those health costs are covered in part by higher taxes corporations pay in Japan.

We have concluded from our research that the shareholder-driven business model that GM exemplifies is outdated. The mindset that supports that model is ill suited for success in the 21^st century marketplace. The stakeholder business model followed by FoEs, by which a company seeks to align and serve the interests of all stakeholders – not just shareholders – seems to generally work better for reasons that we will detail in future posts. But one reason the stakeholder model is proving to be highly effective in this era of light-speed change is that it leads to quicker responses to challenging changes in conditions that arise, often with little warning.

DBW