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John Baldoni
Leadership author

John Baldoni

John Baldoni is a leadership consultant, coach, and regular contributor to the Harvard Business Review online. His most recent book is Lead Your Boss: The Subtle Art of Managing Up.

Combat insularity, confront reality

Question: After a well-chronicled, 30-year decline into bankruptcy, General Motors is now profitable again and going public. What does it say about its former executives, directors and union leaders that such a large, complex organization could be revived in less than two years? What factor best explains why leaders don't take the hard but obvious decisions necessary to prevent an impending disaster?

The reasons for the fall of General Motors are legion. Poor management. Undisciplined unions. Uninspired products. But there is one reason that is often overlooked, though it bedevils many companies: insularity.

As the one-time largest company in the world, and long a dominant economic force in its home state of Michigan, General Motors grew accustomed to seeing the world as it wanted to see it rather than how it really was. When imports from Asia arrived in great numbers in the early '70s, automotive executives at all of what were then called the Big Three dismissed them as little more than fads. But when it became clear that consumers actually preferred makes from Honda, Toyota and Nissan, General Motors executives just shook their heads in dismay.

As noted auto analyst and author Maryann Keller has pointed out, GM executives simply could not comprehend why consumers would prefer vehicles not made in the United States. They overlooked the fact that then-young baby boomers would prefer cars and small trucks that were more reliable, durable and smaller--not to mention more affordable--than products made by domestic manufacturers.

Failure to confront reality doomed General Motors, as it has many other companies. When you are really big, you tend to lose the hunger for excellence that many smaller companies have. In its early days, General Motors was a formidable competitor. It understood its customers and, under legendary leader Alfred Sloan, developed a tiered product line--or as Sloan said, "a product for every purse." That led to the development of brands that ran nearly autonomously.

With size grew contentment, as well as resentment. Unions wanted their piece of the pie and received it. But General Motors never developed the more healthy relationship with unions that Ford and Chrysler did. There was always an undercurrent of discontent that permeated both sides, which never truly respected one another. Such a resentful posture delayed the company's response to embracing quality and developing new products that consumers actually wanted, rather than what executives thought they would like.

Over time, General Motors did become leaner and more efficient; but the legacy of insularity and defensiveness crippled the company for decades and, in the process, contributed to its loss of a generation of car and truck buyers.

General Motors's bankruptcy in 2009 was the direct result of failing to tackle the hard questions related to labor, product and fixed operational costs. Its last independent CEO, Rick Wagoner, tried valiantly to shake things up, but his efforts were too little too late. Wagoner never succeeded because he could not see beyond the reality that had shaped General Motors. We're big, we're rich, and we will survive.

A new, leaner General Motors, which has had a significant amount of its debt erased, is poised for success. Current leadership, having experienced failure, understands that success depends upon embracing the future and shaping it rather than seeking to deny it.

By John Baldoni

 |  November 16, 2010; 10:18 AM ET
Category:  Accomplishing Goals , Corporate leadership , Crisis leadership , Failures , Leadership weaknesses , Making mistakes , Organizational Culture Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: Mapping GM's decline | Next: The danger of complacency

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Nice post John. Now I will be happy if the stock price gets high enough to pay back the taxpayers. Listen to the consumer-- that's good advice for any company.

Posted by: ger7397 | November 17, 2010 5:10 PM
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