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Nancy Koehn
Scholar

Nancy Koehn

Nancy F. Koehn is a historian at the Harvard Business School and author, most recently, of The Story of American Business: From the Pages of the New York Times.

Mapping GM's decline

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?

To understand General Motors's long journey into bankruptcy and government intervention, it helps to look back at the company's beginnings. GM was formed in 1908, the same year Henry Ford brought out the first Model T, a car that launched the U.S. auto industry and revolutionized millions of American's lives. Riding the wave of the Model T's success, Ford Motor Company became the undisputed leader of this young market; and by the early 1920s, it was producing 60 percent of all the motor vehicles manufactured in the United States and half of those made worldwide. All of these automobiles were Model Ts, offered in one color: black.

What happened next was both pivotal in shaping the auto industry for much of the 20th century and, in the face of GM's bankruptcy in mid 2009, terribly ironic. Beginning in the mid 1920s, General Motors staged an astounding victory against Ford Motor Company. Alfred Sloan, Pierre Du Pont and other GM executives placed a series of important bets on what American consumers wanted (different makes, models and prices; cars that were status symbols and identity holders as well as transportation sources) and they did so with careful, consistent attention to what the competition was (and was not) doing. As company leaders rolled out this daring strategy, they also created an organizational structure and culture that could support a multi-product, vertically integrated enterprise. All of this innovation proved a smashing success: by the mid 1930s, GM's market share had risen to 42 percent while Ford's had fallen to 21 percent. And General Motors had laid the groundwork for decades of industry dominance, offering "a car for every purse and purpose" and pioneering the multidivisional structure that became one of the signal achievements of the 20th-century corporation.

In this context, it is interesting to consider the root causes of General Motor's decline, a decline that was underway for 30 years and that took a dramatic turn last year when the company reached the end of its financial rope. Although there are many factors that contributed to the company's long, slow bleed, the three fundamental issues were management's consistent failure to do the very things that made the business so successful initially. These are: first, pay very close attention to what is happening to consumers' lives in the context of the larger environment--not only their stated preferences, but their hopes, dreams, wallets, lifestyles and values. Second, keep an equally close eye on the competition. And third, understand how a company's structure and culture relate to its strategy. Use all this understanding to place brave, innovative bets. This is what the early leaders of GM did. And this is what several generations of executives--beginning in the 1970s with the first oil shocks and the entrance of Japanese imports--consistently neglected to do.

It was a failure of leadership as astounding and momentous as the company's early achievement. Time will tell if the newly profitable automaker has truly overcome the last three decades of its own history and created an organization as committed to brave, effective and conscientious stewardship as the one that grabbed the industry gauntlet from Ford all those years ago.

By Nancy Koehn

 |  November 16, 2010; 10:08 AM ET
Category:  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  
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"It was a failure of leadership as astounding and momentous as the company's early achievement" ms. koehn hit the nail on the head with one simple sentence. unfortunately in my opinion this was compounded by the greed of the UAW which increased overhead dis-proportionately while filling the pockets of their workers and those of the union leaders by leaps and bounds. while many would like to believe this distressed economic condition occurred "overnight" it was a festering situation over a very long time as also pointed out by ms. koehn. a very telling book written in the late 1990's titled "all corvettes are red" examines a virtually dis-functional organization management of the late 1980's fighting internally and scraping dollars together to fund R&D of one of their most successful and profitable product lines while allowing egos of their upper management to dictate ever changing managerial directions and structure. it was a miracle that the bankruptcy took so long to finally materialize.

Posted by: srs021944 | November 23, 2010 4:55 PM
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With Toyota bearing down on GM's number 1 position, the battle of the Titans left one in a state of disrepair and the other admiting to it's failed oversite, or perhaps both. For the win at all cost mentality seemed to actually cost, big, right ?

Posted by: jralger | November 18, 2010 5:56 AM
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