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Yash Gupta
Business School Dean

Yash Gupta

Yash Gupta is Professor and Dean of The Johns Hopkins Carey Business School.

Too big to U-turn

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?

In 1955, Fortune magazine introduced its ranking of the top 500 companies in America. No. 1 on the list was General Motors. GM had revenues of $9.8 billion that year--about a third more than the second-ranked company, the forerunner of today's ExxonMobil. A number of factors (changes in taste, economic swings, the whims of OPEC, the rise of the Japanese auto industry) might be cited to account for GM's decline over the years from America's top corporation to its current status as bailout recipient. But clearly the main reason is a failure of leadership.

A company is asking for trouble when it becomes so big, when its profits are so great, that it believes it can do no wrong. GM's woes are the woes of a company that stopped scanning the landscape to see how the industry could be changing, a company that stuck to the same old formula for success and neglected true innovation, a company that forgot that what worked yesterday won't necessarily work today.

Another factor is something we see all too often in American business, and that's a focus on short-term goals. Unfortunately, CEOs today are rewarded for producing big profits quickly, not for devising innovative plans that would require commitment and patience over a period of years. The instant-gratification philosophy might make some people wealthy in a hurry, but it hurts a company in the long term--and if it's a large company that's important to the public, then it could be argued that society is likewise hurt.

It's the job of a leader to keep his antennae out and constantly evaluate where the industry is heading. He or she has to be flexible enough to make changes when necessary. To sit back and rely on the same old approach and expect the same old results is extremely risky.

As for the assertion that General Motors has been revived, I'm not so sure. It's too soon to say. Some observers have questioned whether GM is structurally sound enough for an IPO at this stage. Such a huge corporation just can't make a U-turn after experiencing so many difficulties. It would be naïve to think otherwise.

By Yash Gupta

 |  November 15, 2010; 3:57 PM ET
Category:  CEOs , Corporate leadership , Failures , Leadership weaknesses , Making mistakes , Managing Crises , Organizational Culture Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: Laud the White House, not Woodward Ave | Next: GM's 'arrogance' virus

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