Category: Organizational structure


What Took You So Long, Mr. Whitacre?

December 9th, 2009 — 2:40pm

Edward Whitacre, the Chairman of the Board of GM, has been very active during the last few days. On December 1, he – formally GM’s Board – fired CEO Fritz Henderson. An Associated Press article in The New York Times reported on opinions expressed by two – unnamed – people who were close to Mr. Henderson. It noted that “…the board upset that the automaker’s turnaround wasn’t moving more swiftly and Henderson frustrated with second-guessing …” The same people also suggested that “[Henderson has] was frustrated from the beginning by the board and government push for faster change and other questions about his decisions.” Mr. Whitacre has taken on the task of interim CEO while the Board searches for a replacement. In all likelihood, he/she will be from outside the industry.

Three days after making this decision, Mr. Whitacre appointed a new management team. He reached down into the senior middle management cadre and appointed Mark Reuss, a recent GM for Australia and a newly appointed VP for Engineering, GM for North America. He expanded the responsibilities of three women executives and sidelined Robert Lutz, the Vice Chairman who ran product development and who had hinted publicly that he would be replacing Mr. Henderson. In a public statement about these decisions, Mr. Whitacre noted that GM’s top heavy management was stifling good mid-tier managers, and he wanted to “… give people more responsibility and authority deeper in the organization, and hold them accountable.”

Of course I cheered! In this blog, last December (“What’s Good for General Motors is Good for America”) I wrote, “… this company cannot be trusted to reform itself …” and listed five conditions that the US government should ask for in return for bailing out GM. These included: “Mr. Wagoner and his top lieutenants must resign in an orderly fashion …;” “ … over the next five years GM … must be reduced in size, so they are no longer ‘too big to fail.’ This will require mandatory spin-offs of relatively independent businesses …;” and “…no one in the top spots in any of the restructured companies should come from the senior-most ranks of these companies …”

Then, in January (“Marie Antoinette’s Soulmate”), I tore into Mr. Lutz: “If anyone has any doubts about why GM is really flirting with bankruptcy, Mr. Lutz comments (during an NPR interview) should have clarified the issue. The Vice Chairman of a company which went with a begging bowl to Congress acted as if he was Marie ‘Let them eat cake’ Antoinette’s soul mate. CEO Rick Wagoner and GM’s Board should have repudiated his statements by publicly firing him …” I also opined that a pre-arranged bankruptcy would not solve GM’s core problem. During the negotiations, I said, “No one will be focusing on changing the culture that allow people like Mr. Lutz to be top dogs. And without changing culture – encouraging collaboration, being open to others’ ideas, being willing to take considered risk, managing learning every day, etc. – these companies will stumble from one disaster to another. Changing culture takes great effort, committed leadership and time. All three will be in short supply during the negotiations …” I added, “I would like to see … an orderly departure of people like Rick Wagoner and Bob Lutz, and a shifting of power to less jaded executives running smaller companies created by splitting up the behemoths.”

Then in April (“The King is Dead! Long Live the King”), I challenged the criticism made of the firing of Rick Wagoner: “Imagine, for a moment, that a President of the US (… ‘POTUS’) was at the end of an eight year tenure and he … had not been able to turn around the economy. Would you call him a failure? Sure you would! Mr. Wagoner has been CEO for 8 years; prior to that he was GM’s CFO, President of North American Operations, and COO. A comparable track record in US national politics would have been Secretary of Treasury, (a hands on) Vice President and then POTUS. In effect, Mr. Wagoner had many more then 8 years to fix GM. Under the circumstances, the fact that he might have ‘made progress,’ is simply not good enough!” I ended that post with, “The King is dead. I hope the new King – or kings, as I have argued earlier – come from middle ranks or better yet, from outside the industry.”

So, Mr. Whitacre has made many of the executive changes I wanted. Hopefully, the new blood will transform GM’s ossified culture and structure and take the strategic steps I suggested. As long as Mr. Henderson was the CEO, there was no hope of this happening. His concern that the Board was pushing too hard indicates that he, like Mr. Wagoner, would have found eight years too short for reforming GM.

Now there is hope that at least some of the money the US government used to bail out GM will be returned.

Comment » | Company Performance, Corporate Culture, Leadership, Organizational structure, Politics

The King is Dead! Long Live the King!

April 1st, 2009 — 9:51am

Night before last, I was watching AC 360, the Anderson Cooper news show on CNN. Anderson asked David Gergen, the former advisor to four presidents and current member of CNN’s team of political analysts, and two others, about the summary dismissal of Rick Wagoner. Mr. Gergen was generally supportive of the government’s position, but was critical of the fact that the government had forced Mr. Wagoner out, given that he had made progress in transforming GM.

Well, readers of this blog probably anticipate my reaction well: Firing Mr. Wagoner was not only necessary, but essential. So, let me take on the David Gergen’s argument. Imagine, for a moment, that a President of the US (whom I’ll henceforth refer to by the customary acronym POTUS) was at the end of an eight year tenure and he (think of Mr. Obama for now) had not been able to turn around the economy. Would you call him a failure? Sure you would!

Mr. Wagoner has been CEO for 8 years; prior to that he was GM’s CFO, President of North American Operations, and COO. A comparable track record in US national politics would have been Secretary of Treasury, (a hands on) Vice President and then POTUS. In effect, Mr. Wagoner had many more then 8 years to fix GM. Under the circumstances, the fact that he might have “made progress,” is simply not good enough! He has not delivered on the most important issues – GM’s culture, organization and strategy – and indeed, according to published reports chose to bypass these fearing that they would keep him from improving GM’s cost structure.

One of the other guests on the CNN program, an economist who supported the firing, pointed out that GM and Chrysler are so large that they account for almost 2% of America’s GDP. Consider this data point from a different perspective. We want our POTUS to turn around 100% of the GDP (while battling non-economic problems like wars, natural disasters,) and — by recent public criticism — do it in his first 100 days. Yet, we are OK with a very highly paid executive not being able to turn around a company in eight years that is only about 1% of the GDP?

Focusing an 8+ year role at the top on labor costs is leadership? Not in my books. Labor accounts for only about 8% of the cost of a car and on a global basis, as economist and journalist Ben Stein has pointed, even this cost is not wildly uncompetitive. But wait, he hired Bob “Mary Antoinette’s Soulmate” Lutz as Vice Chairman for Product Development and they turned out a few good cars, did they not? A few cars among how many? And what did GM do on core new technology? Oh yes, it caterwauled about unreachable mileage standards. Surely they were producing cars for Europe, where generally the laws are tougher and an End of Vehicle Life law already exists demanding near total recyclability?

No, the issues Mr. Wagoner chose to bypass – GM’s culture, organization and strategy – are the ones which could have saved the company. Had he broken down the Not Invented Here silos that existed within geographic and brand specific fiefdoms, he would have transferred innovations faster. Heck Saturn’s “no haggling” policy could have transformed the industry, instead of remaining a niche strategy. But that would have meant engaging with GM’s vast network of dealers in a new way. Think this does not matter? Then consider this: a couple of months back Hyundai came up with a brilliant idea to stimulate sales by addressing the fear consumers have about the economy. About the same time, I articulated a similar strategy in a radio interview I did that aired in the Boston market. How long did it take GM to do something similar? Until earlier this week!

The King is dead. I hope the new King – or kings, as I have argued earlier – come from middle ranks or better yet, from outside the industry. Ford’s Alan Mulally, after all, has been making faster progress and has so far, not had to reach for the begging bowl.

Comment » | Business Environment, Company Performance, Corporate Culture, Financial crisis, Leadership, Organizational structure, Politics

Marie Antoinette’s Soul Mate

January 20th, 2009 — 6:41pm

I’m back! I hadn’t meant to be away for five weeks, but life intervened. In my defense, I didn’t notice anyone actually breaking my door down asking about my whereabouts …

I am wondering if you heard the recent Robert Siegel interview of GM Vice Chairman Bob Lutz on NPR’s All Things Considered a few days ago. If not, it is definitely worth listening to (http://www.npr.org/templates/story/story.php?storyId=99253055), for it gives a unique insight into the travails of the US auto industry.

Mr. Lutz showed great restraint; he waxed eloquent about the stupidity of the average consumer, without actually using the word. GM produces great cars, he said, but only a handful of experts really know this. It will take time for the experts’ opinion to filter down to the great unwashed masses and GM had no choice but to wait this out. Asked about the effect of the government bailout on the workings of his company, he said, “I’ve never quite been in this situation before of getting a massive pay cut, no bonus, no longer allowed to stay in decent hotels, no corporate airplane. I have to stand in line at the Northwest counter. I’ve never quite experienced this before. I’ll let you know a year from now what it’s like.”

If anyone has any doubts about why GM is really flirting with bankruptcy, Mr. Lutz comments should have clarified the issue. The Vice Chairman of a company which went with a begging bowl to Congress acted as if he was Marie “Let them eat cake” Antoinette’s soul mate. CEO Rick Wagoner and GM’s Board should have repudiated his statements by publicly firing him, but in my heart of hearts, I knew that my life would long be over before any good sense emanated from those quarters. But hope is what keeps the world spinning, does it not?

So, did Mr. Lutz change my mind about the auto industry bailout? No! If anything, his words are proof that the bailout is needed to preserve the company until more drastic steps can be taken.

An argument – also made by a handful of others – is that without the bailout, the industry’s second and third tier companies will be irreparably weakened. This will harm the broader industry’s stronger companies, for they rely on many of these companies too. Ideologues don’t understand this is the unfortunate logic of networks: As I’ve written elsewhere, it is hard to succeed if your network is failing.

The more important, and thus far unmade, argument is: bankruptcies will not reform these companies. In the best case scenario, they would file for pre-packaged bankruptcies (in which creditors back the financial restructuring plan) without scaring customers (even though buying a consumer durable is a riskier bet than buying a ticket from a bankrupt airline). Who will manage GM through this process? People like Mr. Lutz will represent the companies. Across the table from them will be their creditors. What will the negotiations focus on? The executives will argue they can fix the problems – if everyone else makes large concessions. The creditors – rightfully – will be trying to get back their money as quickly as they can. No one will be focusing on changing the culture that allow people like Mr. Lutz to be top dogs. And without changing culture – encouraging collaboration, being open to others’ ideas, being willing to take considered risk, managing learning every day, etc. – these companies will stumble from one disaster to another. Changing culture takes great effort, committed leadership and time. All three will be in short supply during the negotiations and during the tightly choreographed marches towards tough milestones that will follow.

I hope the Obama administration’s Auto Czar, backed by the bills that Congress must pass (to provide additional funding) by March, will be able to force change. As I wrote in an earlier post, I would like to see appointees to the Boards, an orderly departure of people like Rick Wagoner and Bob Lutz, and a shifting of power to less jaded executives running smaller companies created by splitting up the behemoths. The ideologues will probably not let this happen, but extraordinary times call for extraordinary steps. Nevertheless, I’ll even take smaller steps along the lines I have proposed while hoping for more. Hope, as I said, is what keeps the world spinning, does it not?

Comment » | Business Environment, Company Performance, Corporate Culture, Financial crisis, Leadership, Organizational structure, Politics

Pyromaniacal managment

September 14th, 2008 — 7:09am

My wife considers me a workaholic; naturally, I disagree. On our European vacation, I did not work at all. I read The European Wall Street Journal only twice — and that too because when the blazing Milanese afternoons forced us to retreat repeatedly into our hotel room, I had run out of books and the hotel’s management treated all weekday guests as business people.

An August 12 article (“Sounds like a combined position? It is”) caught my eye. It reported: “Call it a sneaky way to get more work for less money. U.S. companies in some sectors that are cutting back on manpower aren’t eliminating positions entirely, bur rather have taken to melding a midlevel position with a more junior one – then advertising it as a junior slot, offering a low salary.”

I have to confess that the article left me dumfounded. Does anyone actually think that this is a smart way of doing business? Consider the logic inherent in the idea: “We have a managerial/executive position that is important enough to preclude its elimination, even in these tough times. However, it really does not matter if we offer it to an unqualified person.”

Let’s take this logic into another field – how about surgery? “Doctor X assisted in 15 (pick an appropriate number) heart surgeries while completing his internship. Let’s make him the Chief of Cardiovascular Surgery of this hospital, since we can’t afford to hire an experienced surgeon with management experience.” Or, consider a parallel to the specific example (of a contract manufacturer) in the article, “Doctor X has assisted in 15 heart surgeries. Since we cannot hire both a cardiovascular surgeon and a gastro-intestinal surgeon, we will combine the two jobs and have him do both. We should be OK, since a senior surgeon will check in on him occasionally.”

Would you go to such a hospital for a surgery? If the logic sounds asinine in medicine – or engineering or professional team sports or a dozen other fields – why is it not asinine in the running of a complex business? All these years, I had believed that the only field of human activity in which you could (routinely) find such sheer stupidity was politics. I guess the good news is that I am still living and learning.

Near the end of the article, the Journal quoted experts saying that such measures “… tend to backfire in the long run …” and “… when jobs are poorly combined, the strategy can also be bad for the firm …” because the company may be “… cut(ting) into the bone, into the things that are really adding value to your customers …”

The house can burn down and the experts are worried about the possibility of a long term decline in real estate values? Here’s what I would have said, had I been asked, “If you are a customer of such a company, immediately conduct an quality audit of everything you got from them. Also, find a replacement provider immediately. Then you won’t be singed when your provider crashes and burns.” To the Board of the provider company, I’d say, “Would you give a match and lighter fluid to a pyromaniac? No? Then fire the person who made the hiring decision. That’s an executive you can do without, particularly during tough economic times.”

Comment » | Leadership, Organizational structure

The Virtues of Horse Trading

July 26th, 2008 — 8:38am

A few weeks ago, I was teaching executives – ranging in titles from Directors to VPs – at a blue chip company that is routinely considered one of the best run in the US. While discussing interactions among structure, processes, culture and skill, I introduced the idea of networks.

Like many other huge companies, this one has many fairly independent business units (that is, an internal network) unified by little more than a brand name, a culture and a financial superstructure. As in other such companies, the executives believed that the financial superstructure impeded collaboration among business units. As such, they felt powerless to exploit the full extent of their corporate capabilities.

A senior leader came to talk about leadership and the attendees brought up the collaboration challenge. The leader began telling of a recent product creation/launch effort that she had led. Missing a key technology, she had found the capability necessary to create it in another business unit. Her peer there said that the pressures of his own goals and resource constraints would not allow him to help her. So, for the duration of her needs, she transferred an equivalent number (and quality!) of people over to the other BU and paid for both sets of employees out of her budget. Her subsequent successful product launch gave the company clear market presence.

Quite possibly, some of my program’s participants would have felt better if the head of the BU that had the needed skills had acted out of belief in “the greater good.” Yet, there is no escaping the fact that a great win-win – there, I’ve used that overused and little believed term! – emerged here not out of altruism or any great principle, but out of enlightened self-interest. The speaker won because she got her resources and created a market leading product; waiting for altruistic behavior would have killed the launch. The other BU’s head won because he reduced his costs and possibly gained an IOU chit for the future while still retaining the capacity to meet his goals. Finally the individual employees won too, for they ended up being exposed to new challenges in their fields of expertise and just as important, were able to create new contacts that they could draw upon in the months and years ahead.

To me, her behavior is a quintessential example of what I call Operational Leadership: faced with a challenge you are passionate about, instead of simply talking, can you get something done? She did not simply extol the importance of collaboration and bemoan its lack in the company’s internal network. Instead, she figured out a way of assuring collaboration and showed her peers, bosses and direct reports how to make it happen.

What do you think about the story and my takeaway? Do you agree or disagree? How what are the upsides and the limits to such behavior? Do you have stories to tell either supporting or challenging this notion?

Comment » | Leadership, Organizational structure

The Evolution of Companies

June 27th, 2008 — 9:24am

This blog’s title, Guilds, Teams and Networks, pays homage to one of the best pieces of business research ever done: HBS Professor Ramchandran Jaikumar’s From Filing and Fitting to Flexible Manufacturing. Jai discussed how companies changed over the centuries because of six “epochal” transformations instigated by technology. The Spider’s Strategy builds on Jai’s work by adding my research and experiences as well as the research of others. In this post, I will explain the blog’s title and so provide a context for the book and for a broader discussion. (After Jai’s untimely death in 1998, Professor Roger Bohn masterfully edited and published the work, which is definitely worth reading as a stand-alone piece. It is available at www.nowpublishers.com)

In 1789, Henry Maudslay initiated the first epochal change, the “English System,” when he gave his workers direct access to two simple tools – a precise micrometer and a flat surface. These enabled them to accurately measure dimensions. Quality improved sharply and productivity rose 400%; companies that gave workers access to these tools outperformed those that did not. Work areas used to be organized by craftsmen’s guilds; Maudslay’s changes also had a critically important and unexpected effect: no longer did the guild master have to approve each work-product. So companies learned that they could directly hire and train young people with skills and knowledge they needed. Conversely, young men realized that no longer did they have to apprentice with guild masters for many years. Over time, the guild system collapsed.

In the mid-20th century, Statistical Process Control charts enabled a very sharp leap forward in quality and productivity – and changed the nature of work. In the 50 prior years, the third epoch, “Scientific Management,” had vested problem solving authority in foremen or managers. Now, SPC returned the responsibility for solving problems to workers, not as individuals, but as teams. “Good” workers did not just do accurate work, but as members of teams, could also diagnose and solve problems. This fact raised the level of education and training demanded even by basic jobs. Companies that made the appropriate changes, thrived; Japan, devastated by war and known hitherto for creating shoddy products, became the beacon for quality and the world’s second most powerful economy.

Starting in the late 1990’s, distributed computer networks, engendered by the Internet, began driving the sixth epochal change. (This description of the present epoch diverges somewhat from Jai’s.) Unlike prior ones, this epoch quickly moved beyond manufacturers into retail businesses. So, I call it the epoch of “Adaptive Businesses.” Companies used to be hierarchical entities linked together into linear supplier-customer chains. Now, increasingly diverse groups of people – spanning product development, manufacturing, engineering, marketing, sales, finance and logistics – began working together. Often they existed within a company, but increasingly frequently, they belonged to different organizations and were separated by time and space.

Their ubiquity and importance make networks of companies/people the defining organizational characteristic of our times. In every prior epoch, changes in organizational structure created new winners and losers among companies. So it is reasonable to believe that the effectiveness with which a company manages its network will affect its likelihood of success.

The network effect is being paralleled in the political world. Recently, I read Fareed Zakaria’s brilliant article in Newsweek The Rise of the Rest For now let me simply note that Mr. Zakaria makes a cogent case that the political world is becoming “multi-polar” and linked by economic flows. Just as the transition from a linear world to a networked world is challenging many companies, so is the transition from a world of two superpowers to a world of one superpower to a world of several rising power bases (EU, Brazil, India and China) challenging the US. The article provides an introduction to the thesis for Nr, Zakaria;s new book, which I hope to read in the near future. At that time, I will draw parallels and distinctions between the formation of corporate networks and the formation of political – country-level – networks.

This blog, I hope, will draw you into a multiway discussion on the future of “the company” and its relationship to the world at large. Bring to it your thoughts, criticisms, questions, opinions, profound disappointments, comments, and ecstatic elation at having seen the light! We will collaborate to create implementable insights. I’ll start by making one major post a week, but I will respond more often to your inputs. Before you depart today, leave some comments … What are good issues – that inspire or rile you – to discuss in the weeks ahead?

Welcome to this spider’s web.

 

Comment » | Business Environment, Organizational structure

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