Life Lessons From the Car Guy

Bob Lutz, pictured here (in a Bloomberg photo), talks to reporters last year at the North American International Auto Show in Detroit.

What does it take to inspire people and defeat a bean-counting corporate bureaucracy? An autocrat in the boardroom with an allergy to consensus, says former Chrysler and GM executive Bob Lutz. Here is an excerpt from an article of his published by the Wall Street Journal. To read the complete article, please click here.

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One of my favorite anecdotes about the long postwar decline of General Motors came from a senior executive in the advertising agency that served Cadillac back in the 1950s and ’60s. At the time, Jim Roche was head of the division. It was time to design the annual Cadillac Christmas card, and Mr. Roche instructed the agency to find something “heartland”—down-home American, an original work from a good artist. One painting found Mr. Roche’s favor: a snowy scene with a small boy pulling a sled upon which was tied a Christmas tree. The lad’s destination was a modest cabin on a hill, with a winding road leading up to it.

Mr. Roche loved it—but wait! Where was the relevance to Cadillac? He ordered away the small boy with the sled, to be replaced by a Cadillac sedan, with the trussed tree tied to the roof. The artist was able to render the Cadillac accurately and duly pasted it over the boy with the sled. The modified card was again presented to Jim Roche, but he discovered a new flaw: The humble cabin on top of the hill was no longer a suitable destination. Why would an achiever live in a dump like that?

The agency was told to make the dwelling more appropriate for a Cadillac family, so the artist went to work again and rendered a substantial residence, which required a major expansion of the hill it sat on. A second garage was also added, since Mr. Roche felt that a single-car garage looked out of place next to a home of that size.

At the final Cadillac Annual Christmas Card Review, all were silent until Mr. Roche, staring at the now-crusty watercolor, asked in his usual soft monotone, “Are those tires approved by engineering?”

“How’s that, Mr. Roche?” came the response.

“The tire tracks in the snow. They’re very pronounced. Is that an approved snow tire?”

Mr. Roche was righteously indignant over this blatant lack of due diligence and ordered one each of the “approved” snow tires shipped to the artist, who would have the freedom to decide which snow-tire pattern would be immortalized in the Official Cadillac Christmas Card. After that modification, it was finally approved, sent to the printer and mailed out.

Can anyone begin to fathom what that card cost—the material and intellectual resources that were squandered in its tortured path to perfection? Did any recipient of the card bother to look at the tire tread imprints in the snow? Was the card with the large house, the multicar garage, the expanded hill and the Cadillac sedan more appropriate and artistically meritorious than the original boy-with-sled?

In a normal corporate culture, a senior executive would have looked the card over, checked the text (easy in those days, since “Merry Christmas” was still a politically correct wish), and said, “Sure, looks good, get ‘em printed.” But not in GM’s supposed “culture of excellence,” where management had to improve on every detail, no matter how trivial.

The unfortunate thing is that Jim Roche so embodied the charisma-challenged, nitpicking, detail-focused perfectionist that in 1967 he became the chairman and CEO of GM.

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Bob Lutz held senior leadership positions at GM, BMW, Ford and Chrysler over the course of a 47-year career. From his book, Car Guys vs. Bean Counters: The Battle for the Soul of American Business, published Thursday by Portfolio, a member of the Penguin Group (USA) Inc. Copyright © 2011 by Bob Lutz.

What happened to change we can believe in?

Frank Rich

Here is an excerpt from an article written by Frank Rich for The New York Times (October 23, 2010). To read the complete article and check out other resources, please click here.

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PRESIDENT Obama, the Rodney Dangerfield of 2010, gets no respect for averting another Great Depression, for saving 3.3 million jobs with stimulus spending, or for salvaging GM and Chrysler from the junkyard. And none of these good deeds, no matter how substantial, will go unpunished if the projected Democratic bloodbath materializes on Election Day. Some are even going unremembered. For Obama, the ultimate indignity is the Times/CBS News poll in September showing that only 8 percent of Americans know that he gave 95 percent of American taxpayers a tax cut.

The reasons for his failure to reap credit for any economic accomplishments are a catechism by now: the dark cloud cast by undiminished unemployment, the relentless disinformation campaign of his political opponents, and the White House’s surprising ineptitude at selling its own achievements. But the most relentless drag on a chief executive who promised change we can believe in is even more ominous. It’s the country’s fatalistic sense that the stacked economic order that gave us the Great Recession remains not just in place but more entrenched and powerful than ever.

No matter how much Obama talks about his “tough” new financial regulatory reforms or offers rote condemnations of Wall Street greed, few believe there’s been real change. That’s not just because so many have lost their jobs, their savings and their homes. It’s also because so many know that the loftiest perpetrators of this national devastation got get-out-of-jail-free cards, that too-big-to-fail banks have grown bigger and that the rich are still the only Americans getting richer.

This intractable status quo is being rubbed in our faces daily during the pre-election sprint by revelations of the latest banking industry outrage, its disregard for the rule of law as it cut every corner to process an avalanche of foreclosures.

Clearly, these financial institutions have learned nothing in the few years since their contempt for fiscal and legal niceties led them to peddle these predatory mortgages (and the reckless financial “products” concocted from them) in the first place. And why should they have learned anything? They’ve often been rewarded, not punished, for bad behavior.

The latest example is Angelo Mozilo, the former chief executive of Countrywide and the godfather of subprime mortgages. On the eve of his trial 10 days ago, he settled Securities and Exchange Commission charges for $67.5 million, $20 million of which will be footed by what remains of Countrywide in its present iteration at Bank of America. Even if he paid the whole sum himself, it would still be a small fraction of the $521 million he collected in compensation as he pursued his gambling spree from 2000 until 2008.

A particularly egregious chunk of that take was the $140 million he pocketed by dumping Countrywide shares in 2006-7. It was a chapter right out of Kenneth Lay’s Enron playbook: Mozilo reassured shareholders that all was peachy even as his private e-mail was awash in panic over the “toxic” mortgages bringing Countrywide (and the country) to ruin. Lay, at least, was convicted by a jury and destined to decades in the slammer before his death.

Adam Hartung suggests, “Stop focusing on your core business”

Adam Hartung

Here is an excerpt from an article written by Adam Hartung that appeared in Forbes magazine (July 27, 2010). To read the complete article, please click here.

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It has become the fast track to oblivion.

“Where Have All the Flowers Gone” was a 1960s antiwar hit for Peter, Paul and Mary. The “flowers” meant soldiers dying in Vietnam. These days we might be tempted to sing, “Where Have All the Mighty Corporations Gone?”

Circuit City, Fannie Mae, Washington Mutual, AIG, General Motors, Chrysler, Sun Microsystems, Silicon Graphics, General Growth Properties, Linens ‘n Things, Sharper Image, FAO Schwarz, United Air Lines, Northwest, Delta, US Airways. These were all leading companies, often dominating their industries, that either failed, declared bankruptcy or were saved from failure by the government.

Were they all run by dopes? Circuit City and Fannie Mae were named two of the best companies in corporate America in Jim Collins’s bestselling book Good to Great. By Mr. Collins’ measure, Circuit City had the best performance of any company on his entire vaunted “great” list. Collins, who is known to have received more than $100,000 for a single speech, said all American management should emulate Circuit City and Fannie Mae. Surely leaders aren’t emulating those examples now.

What happened to bring down all these great names, and for that matter to bring on the Great Recession? It would seem a great deflection to blame it all on government. Most of the last decade saw Republican pro-business policies dominate the landscape, and contraction in government oversight across almost all industries. The pro-business policies promoted by an M.B.A. president were supposed to help businesses grow. No, the collapse of growth has to be related in some way to management, to decisions that business leaders systematically make that–well–haven’t worked out too well.

A central tenet of business wisdom is that you must “focus on your core.” That can range from core customers and markets to core capabilities, functionality, assets and technology. The message is to know what is at the heart of your business success historically, then make sure you do more of it better, faster and cheaper than anyone else. If you focus, focus, focus on being excellent at what you do, as Tom Peters told us in the 1980s, everything will work out fine in the end.

Only we’ve increasingly seen, year after painful year, that it’s not true. The leaders of the above listed great companies weren’t stupid, or lazy or so arrogant as to ignore important business concerns. They knew their core strengths, and they doubled down on improving them time and again. In the end, the strategy simply didn’t work.

Perhaps it’s time we realized that competing in 2010 is nothing like competing in 1975. Capacity shortages of just about everything, including capital, are nonexistent. In fact there’s overcapacity–just look at manufacturing utilization numbers and interest rates. America today is fatter (more overfed), better housed (more and bigger homes) and better transported (there are more cars registered in America than licensed drivers) than ever. More, better, faster, cheaper was a mantra for industrial era management. Today if you focus on efficiency and optimizing your business model, you’ll get declining marginal returns, really, really fast.

That’s because today the basis of competition can change within months. The value of customer databases and product purchase histories are worth more ($53 billion at Amazon) than brick and mortar retail stores ($47.5 billion at Home Depot and $7.8 billion at real estate rich Sears). Moving fast is worth a lot more than hard assets or an optimized business model.

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To read the complete article, please click here.

Adam Hartung lives in Chicago and is a partner in Vector Growth Partners, a growth strategy consulting firm in suburban Washington, D.C. He is the author of Create Marketplace Disruption: How to Stay Ahead of the Competition. Learn more at AdamHartung.com.

Ron Ashkenas on “A Dangerous Pattern: Rewarding Failure”

Ron Ashkenas

Here is an excerpt from an article written by Ron Ashkenas for the Harvard Business blog. To check out other articles and resources, and/or sign up for a free subscription to Harvard Business Daily Alerts, please visit dailyalert@email.harvardbusiness.org.

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Over the past few months there has been growing anger and frustration about outsized Wall Street bonuses awarded by institutions that were rescued by taxpayer funds. At the core of this anger is the feeling that the pursuit of big payoffs caused bankers to develop complex products and take big risks which ultimately caused the financial system to crash — and if this dynamic is not curbed, it will happen again. At the same time, there is also a feeling, reinforced by President Obama, that Wall Street bankers have not really been held accountable for their risky actions and, in fact, are being unduly rewarded while everyone else continues to suffer.

Unfortunately, the focus on Wall Street masks a more dangerous pattern of rewarding failure that is deeply embedded in the highest levels of corporate and governmental culture. For example, President Obama’s point person for reforming Wall Street is Treasury Secretary Timothy Geithner. But somehow Geithner himself has not been held accountable for the financial crisis. This is despite the fact that as president of the Federal Reserve Bank of New York Geithner was responsible for the supervision of Wall Street banks. His reward for allowing these banks to create unsustainable balance sheets: He was made Treasury Secretary.

Similarly Geithner’s boss in the Federal Reserve, Ben Bernanke, was not held accountable for the interest rate and regulatory policies that some say caused the crisis. Instead, he was confirmed for a second term by a wide margin in the Senate. And to complete the failure trifecta, Lawrence Summers, who supported many of the policies that caused the financial crisis and resigned from his position as President of Harvard after making unfortunate statements about the capabilities of women, was given a senior role as a White House economic policy advisor.

But this culture of rewarding failure is not limited to the highest levels of government. Virtually every senior corporate leader of a failed institution walks away with millions of dollars. Many move on to other senior corporate jobs or board positions. Take Robert Nardelli as an example. After not getting the top job at GE in 2001, Nardelli became the CEO of Home Depot where he made a series of strategic missteps and displayed an arrogance that alienated employees and customers. After being ousted from that job (with millions of dollars) he was hired by Cerberus to turn around Chrysler — another failure which ultimately resulted in its acquisition by Fiat. And while thousands of Chrysler employees and dealers lost their jobs and their incomes, again Nardelli walked away with his fortune intact and enhanced.

None of this is to blame Geithner, Bernanke, Summers or Nardelli. The point of this argument is that at the highest levels of government and corporations, we have accepted a culture of rewarding failure. That is why perhaps the best job in America is to be a failed CEO. You receive millions in severance and are once more given opportunities to either try it again, or serve on a board of directors where you can again escape accountability for failure. In fact, while President Obama calls for “clawbacks” of banker’s bonuses, nobody seems to be calling for directors to return the compensation that they received for poorly “supervising” financial institutions and other corporations that struggle or fail.

Steve Kerr, former chief learning officer of GE and Goldman Sachs, notes that the biggest problem with compensation is what he calls “asking for A while rewarding B.” If we are serious about asking for excellent performance, then we have to stop rewarding failure. It’s a simple equation — and until we get it right, the President’s calls for greater accountability will have a hollow ring.

What do you think?

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Ron Ashkenas is a managing partner of Robert H. Schaffer & Associates and a co-author of The GE Work-Out and The Boundaryless Organization. His latest book is Simply Effective.

Book Review: Strategy for Sustainability

Strategy for Sustainability: A Business Manifesto
Adam Werbach
Harvard Business Press (2009)

As Werbach explains in the Introduction, all companies have the opportunity to formulate and then execute a strategy that will enable them to avoid severely damaging if not fatal problems such as those encountered within the last 12-18 months by major corporations such as AIG, Bear Stearns, Chrysler, and General Motors. This book, he adds, “is about developing and executing a company’s strategy that takes into account all aspects of sustainability but that is useful enough to be implemented today. It’s about involving employees and the community in every part of the process. And it’s about survival.” He asserts that true sustainability has four coequal components, all of which must be accommodated by the strategy that is require: social (i.e. acting as if other people matter), economic (i.e. operating profitably), environment (i.e. protecting and restoring the ecosystem), and cultural (i.e. protecting and valuing cultural diversity). “In building a strategy for sustainability, companies must accept that a constant state of change is becoming the status quo. Sustainable organizations celebrate positive action in the face of bureaucracy and indifference.” More often than not, positive action encounters culture resistance, what James O’Toole so aptly describes as “the ideology of comfort and the tyranny of custom.”

Through his narrative, Werbach makes brilliant use of reader-friendly devices, including checklists such as these as well as mini-commentaries such as “Does `Built to Last Mean’ Sustainable?” (Pages 38, 41-42) and Tables such as “Comparison of a built-to-last strategy with a strategy for sustainability (Pages 39-40). He explains how to formulate a different way to formulate a business strategy, how to map available opportunities, how to “set a North Star” and initiate the “TEN” cycle, how to use transparency to execute strategy, engage individuals throughout (and beyond) the given enterprise, how to establish and strengthen a “network of sustainability partners,” and how to develop leadership at all levels and in all areas. My frequent use of the phrase “how to” is intentional, correctly emphasizing Werbach’s pragmatic approach throughout the book.

He concludes with an especially appropriate excerpt from Douglas Adams’ The Hitchhiker’s Guide to the Galaxy series: “If you try and take a cat apart to see how it works, the first thing you have on your hands is a non-working cat. Life is a level of complexity that almost lies outside our vision; it is so far beyond anything we have any means of understanding that we just think of it as a different class of object, a different class of matter; `life,’ something that had a mysterious essence about it…” Given that, what does Adam Werbach suggest? “When a situation seems too complicated grasp, grasping it isn’t always necessary or even possible – so do what you can, when you can. Act now.”