Detroitosaurus: Iconic Death vs. World Industry Futures (Updates)
Three weeks ago today GM filed for bankruptcy, taking an iconic company into a new chapter of its
history along with its industry. GM wasn't just A company, or the world's largest manufacturer at one time. It was THE corporation. Following the filing everybody, and we mean everybody, published long and extended commentaries including the Economist, Business Week, the NYT and the WSJ. And they all said, despite being well-written, well-research and worth reading, the same thing: we saw it coming. The questions then become what lessons are to be learned ? The gist of all these commentaries was that we saw the natural, evolutionary consequences of decline and denial stretch out over decades. In some ways one of the best was the Charlie Rose interview, , where Paul Ingrassia (ex-WSJ Detroit Bureau Chief) along with Ed Altman (dean of bankruptcy) and John Stoll (of the WSJ) basically said, paraphrased, "it's a darn shame that the government had to do for Detroit what it couldn't do for itself". And further commented that the Auto Task Force did an exemplary job that was thorough, complete and rigorous and further highlighting the great irony that a Democratic Administration did what a good Private Equity firm is supposed to do.
More Great Ironies: Where Were the Naysayers When It Mattered?
We found most of the analysis to be spot on but were greatly amused at the "we saw it coming" argument that was part of all of them. Now there's been a great deal of critiscism of the of the industry for some time in the business press, to be fair. But nowhere do we recall the rather damming indictments about executive failure and the triumph of ostrich-thinking that we read. In some contrast we're on the public record for almost two years here and almost six years in writing that the Industry was on death watch. In fact we'd argue that the hand-writing has been glowing on the wall for over three decades even though Ingrassia himself wrote a book on Detroit's recovery and revival in the mid-'90s (Comeback: The Fall & Rise of the American Automobile Industry). The graphic will take you to a downloadable PDF file of all our prior blog posts plus selected readings and provide a great deal of background that we think is worth your time. In it we address market analysis and business strategy, the marketspace, product design and development, manufacturing and the industry management system as well as providing some integrated assessments of the overall status of the industry and individual players. Partly as back up but mostly to put all the machinery all in one place.
A Blueprint for Failure
Ten years ago was the height of the Tech/Telecom Bubble yet earlier this month Nortel also filed for BK. There are some real lessons beyond one company in GM's demise and the Telecom industry reinforces them. What we're seeing and saw was a failure across the board, partly thru a failure of executive leadership. If you were to take the major components of the accompanying graphic and rank the Detroiters from 1-10 for each one we think a 3 would be generous, at best. You could make a good case for much lower rankings. That's what makes GM's failure sad, poignant and a lesson. We've several friends who worked for GM and they thought this day would never come. They further objected to the idea that government had to do this - it was the companies and industry's responsibility. But they couldn't...and not because they weren't a lot of smart folks who didn't see this all coming for years. To quote Peter Drucker, who made his bones by channeling Alfred P. Sloan, in his magnum opus (Management: Tasks, Responsiblities and Practices) in his section on Managerial Organization, specifically in the chapter on "New Needs and New Approaches":
" Finally, GM has been a "managerial" rather than an "entrepreneurial" business. The strength of Sloan's approach lay in its ability to manage, and manage superbly, what was already there and known. GM has not been innovative - altogether the automotive industry has not been innovative since the days before WW1".
That was written in 1973, when the Japanese were first putting the glowing handwriting on the wall, next to the sales and marketshare reports showing the accelerating decline of the industry. The industry failed because of organizational sclerosis, or organosclerosis. It put satisfying internal political agenda ahead of the need to keep creating value and made its decisions in detachment from the marketplace. The Telecom Industry has been facing one perfect storm after another since 1999 and as a result Nortel, Lucent, Alcatel, et.al. are all in trouble and have been for decades; and for the same reasons. A failure to adapt because of the dominance of internally focused decision-making. THAT is the real lesson that should be drawn.
The Next Tsunami
And it's not over yet. In fact in some ways it may be just beginning. In the readings section you'll find some selected excerpts on GM's bankruptcy that's worth digging into in our opinion. And in the PDF file you'll find even more extensive readings excerpts that speak to each of the major components as well. The questions post-BK now become what's next ? Where are they going, how are they going to get there and who's going to lead the charges ? But a three-decade plus decline and denial thru a failure to adapt was against an old world. Also in the readings section you'll find other excerpts pointing to the next Tsunami that's beginning to build up, and has been building for years as well. That Tsuanami is a massive worldwide re-structuring of an industry that is vastly over-capacity and one facing rapidly accelerating capabilities in new, foreign competitors. Some years back we were walking thru the parking spaces after a concert and saw a Mercedes lined up, strangely in serial order, a Lexus, Honda and Hyundai. There was little or no difference in fit or finish, none discernible in functions and little in features. What happens when a foreign auto maker can deliver a quality car with all the bells and whistles for 1/2 the price ?
Lessons in Resilience and Adaptation
The lessons of GM, Detroit and the Telecoms are that you can't just focus on today's challenges or keep on doing what you've been doing. You've got to balance that with an eye toward the future. That is, each players in each line of business has to have an answer for the "Theory of the Case". In other words what are you going to do about strategy, business model, marketing and sales, manufacturing, infrastructure, logistics and product design and development now, in five months, in five years or in ten. Sadly, it's not clear that any of the domestic manufacturers has answers for any of those challenges.
More sadly it's not clear that many other industries or companies do either ! Therewith ended the sad and dangerous lesson for this post.
UPDATES:
The world is full of surprises, synchronicities and serendipities. On the same day we put up this post Bloomberg covered a deep-seated re-thinking Toyota, Booz had a very thoughtful piece about long-term structural changes and we discovered another wonderful BCG piece on business response asking what happens after you apply the meat-axe to emergency cost costs; in other words it ain't working, now what do you do. Taken all together these three pieces, each deserving it's own discussion and dissection in separate posts, form a whole that reinforce the fundamental messages about enterprise resilience and leadership we're trying to communicate.
- Toyoda Asks How Many Times Toyota Errs Emulating GM Failures
- The Best Years of the Auto Industry Are Still to Come
- Collateral Damage: Function Focus—Leaders Have Made the Quick Cuts—Now What?
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