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Roger Martin
Dean/Scholar

Roger Martin

Roger Martin is Dean of the Rotman School of Management at the University of Toronto and author, most recently, of The Design of Business. His website is www.rogerlmartin.com

Cheap and Easy Way Out

No. I don't think that is universally the best way to signal change. It is one way and arguably the cheapest and easiest way. But it most certainly is not always the best way. Leadership change is always fraught with danger and uncertainty. Whether the decision-making body is a board of directors or a government -- as in this case -- the tendency is to romanticize the new leader - whether it is Carly Fiorina or Mark Hurd. But there are enough cases of spectacular failures of new corporate saviors that we can be certain in saying that the romantic view of the new leader doesn't nearly always pan out so well. But at the time of the change, everyone feels pretty cheery and proud of themselves - as do leaders of the US government currently.

Before diving in, I will be clear on my own conflict in addressing the GM issue specifically. As of January 1, 2006, I began working with Rick Wagoner and the senior management group on turnaround strategy. So the plus is, I know more about the inner workings of GM strategy than most and the negative is that I might be biased toward the people with whom I worked.

In the case of GM, I consider the ouster of Rick Wagoner and instillation of Fritz Henderson as odd and primarily signal-based rather than instrumental. I say that for two reasons. First, from my perspective of working with large global companies on strategy for the past 28 years, I am truly impressed with the magnitude of positive change Wagoner accomplished in his time at the helm of GM. So, the government sacked an impressive change agent.

And second, they replaced Wagoner with the man that he has nurtured and developed to be his successor, with whom he is simpatico on the major tasks that need to be carried out at GM. Make no mistake about it: I think that Henderson is terrific, but I hardly think of him as representing a major change for Wagoner. Of course each CEO is his or her own person and Henderson will be distinct from Wagoner, but appointing the heir apparent a couple years before plan is not some kind of bold change.

Why do I think that Wagoner drove an impressive amount of change during his time as CEO? I guess I look back at what he inherited and look at what he changed. He inherited a company in severe market share decline in its home market. It was a company that had a sprawling global empire that was not managed at all as a global organization so that it had all the costs of being global and none of the benefits. He had an oppressive and growing liability for retiree health care. He had ridiculous labor agreements with impossible wages and rights (e.g. the 'jobs bank'). He had terrible product quality and mediocre product designs. He had a dysfunctional and costly relationship with the previously spun-off Delphi Automotive.

Faced with that array of problems that could arguably be seen as worse than those of any global company CEO of his generation, he decided to make a sharp break with the past. Instead of deciding to try to muddle through and leave even bigger problems on the desk of his successor, he went at the list of huge problems hammer and tong. He engineered a massive reorganization into one global organization that has transformed GM's global liability into a global strength with global product platforms that extend scale benefits across the globe. He engineered an agreement on retiree health costs that moves that impossibly large liability off the balance sheet and out of the cost of every vehicle. He engineered a two-tier wage structure that along with the voluntary retirement programs has dramatically improved the cost structure of its US workforce. He got quality turned around to such an extent that GM could offer a 5-year warranty on its vehicles, something that would have been prohibitively costly prior to his time as CEO. He got design turned around, partly through the bold hiring of outsider Bob Lutz. For the first time in decades, GM cars (not just trucks) were winning awards for their overall design (e.g. Aura, Malibu, Cadillac CTS). And he almost completed a restructuring of the relationship with Delphi.

To me, that is an incredibly impressive list. And is does not represent slow change and unwillingness to address tough issues. It represents massive and fast change on the toughest issues.

Was it enough? No. The facts are clear. GM wasn't prepared for the 2008 cratering of vehicle sales and ran out of resources. And Wagoner would freely admit that there are things he wishes he would have done differently. Does that mean that Wagoner deserved to be sacked and that it was the right thing to do to signal change is in the air? I don't think so.

I think that the government has made the job of turning GM around tougher by sacking Rick Wagoner than retaining him and allowing the natural succession to Fritz Henderson to take place. That having been said, we are where we are and I have no doubt that Henderson will continue in this new tougher economic context the restructuring job that his mentor started.

But within months, any signaling value of the ouster of Wagoner will be relegated to the mists of time and it will all be about the real work of continuing to improve the strategy and operations of GM.

By Roger Martin

 |  April 6, 2009; 11:49 AM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: Risky -- and Necessary | Next: Small, Refreshing Changes

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