We’ve been down this road before, and seldom has the ending been pretty. General Motors and the other American carmakers are textbook cases of what one of my colleagues famously called “permanently failing” organizations. The syndrome of permanent failure afflicts supposedly for-profit organizations that create no economic value or that even destroy economic value. This syndrome often persists because a coalition of stakeholders comes to value the organization as an organization — as an institution — and its survival becomes an end in itself. The webs connecting the entities that benefit from the company’s ongoing existence are so strong that they dominate all decision making. GM, depending on whose analysis you read, is widely recognized as having destroyed billions of dollars in economic value, and it has been unsuccessful in its half-hearted efforts at transformation since at least the 1970s.
What seems to be killing the company is a giant-sized version of the same self-inflicted wounds that get in the way of innovation and change at many large organizations: coalitions of value-chain partners; legacy agreements that lock in decisions that made sense in another era but no longer do; and leaders who are so embedded in a given thought world that they find it hard to move to a new model. These issues are frequent topics in our executive course Leading Strategic Growth and Change, in which a key theme is determining how to get your organization to not end up like GM by making necessary innovations and continuously changing as your world evolves.
This is not to say that GM hasn’t had its better moments. Its OnStar system is a textbook example of how to get innovation right, and the popularity of GM’s products internationally speaks well to its ability to produce cars and trucks that significant numbers of people want to buy. The problem is that the bulk of the organization remains unchanged, largely because those who would suffer from any such change conspire to keep things as they are.
So what is to be done? Clearly, a bailout is only going to prolong the death agonies. A bailout will do nothing to unwind the web of dependency relationships that are a huge part of GM’s trouble. Indeed, read any proponent of the bailout’s justification and you’ll hear all about the harm a GM bankruptcy would do to workers, suppliers, counterparties and other interested parties. I’ve yet to read one, however, that refers to the irredeemable loss to GM’s loyal customers, save those that argue that customers will have difficulty finding replacement parts in the future.
Somehow, the road to redemption is for the company to start unwinding the coalitions that trap it in its current situation. A bankruptcy could be a start. So could a slash-and-burn acquisition, though that hasn’t seemed to help Chrysler much. I’m not wild about the idea — who could be, considering the economic carnage it would likely create? The problem is that unless GM feels a compelling need to change, things are highly likely to stay pretty much the same, as they have done for decades, in spite of clear evidence that things are not working well from an economic perspective. As Peter Drucker once said, “The purpose of a business is to create a customer.” GM has not fulfilled that purpose very well.
Where public money could usefully go is toward lessening the pain for stakeholders, ameliorating the damage to innocent bystanders and helping with social adjustment costs. Without a fundamental transformation, the endgame can only be delayed, not avoided entirely.Photo credit: MacQ