Why GM failed: 5. Managing in the bubble
Filed under: Company News
Why did General Motors (GM) fail? The fifth reason is that GM was managing in the bubble. The current disaster in which GM finds itself makes one wonder, how could it have been so incredibly stupid? If you know about how people get to the top of a company like GM, it becomes clear that what looked stupid from the perspective of customers and competitors was in fact quite smart from the perspective of executives striving for the brass ring.
GM rewarded people who followed the old way of doing things and those who challenged that thinking found themselves on the outs -- causing them to lose opportunities for promotion. So the smart thing for those seeking promotion within GM was to praise the CEO's wisdom and carry out his orders.
At the core of this managing in the bubble is a syndrome called Confirmation Bias -- the tendency of managers to filter out information that does not match up with their pre-conceived notions. I wrote about this in When the Blind Lead.
After Roger Smith, Confirmation Bias kept GM from viewing the threat from Toyota as significant, contributed to its decision to pull its electric car off the market, and more recently led it to ignore the impact of higher gas prices and a collapse in credit markets on consumers' willingness to buy profitable gas guzzlers like the Hummer or tricked-out Escalades and SUVs.
For all five reasons why I think GM failed, click here.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in GM securities.
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Reader Comments (Page 1 of 1)
6-01-2009 @ 3:33PM
Michael said...
I grew up in the Detroit area, worked at GM truck and
coach, my brother retired from a GM sub, my father-in-law
retired after 42 years at GM, and a lot of people that I
went to school with and played ball with were GM, Chrysler,
or Ford.
The item that is missing from this discussion is how the dealers would over charge for the cars, salesmen would treat the customers badly, and generally the dealer atmosphere was not customer friendly. The dealers did not
care about repeat business, just get as much as possible out of the 'mark' in every transaction. The amount of
small mechanic shops and how quickly the asian cars took
over is a testament to how the American buying public did
not like going to GM dealers, whether Olds, Pontiac, Chevy,
Caddy, etc.
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6-01-2009 @ 1:40PM
true american said...
I worked for GM 40.5 yrs. I bought the products we made i love the product we made. My dealership treated me just great.
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6-02-2009 @ 10:18AM
George Stepanenko said...
Peter Cohan did not just discover Confirmation Bias affecting GM in 2009. In 1979 (i.e., thirty years earlier and without the flashy label [De Lorean called it "business loyalty") J. Patrick Wright in "On A Clear Day You Can See General Motors; John Z. De Lorean's Look Inside the Automotive Giant," wrote (speaking for De Lorean) "loyal employees attended the boss's . . . corporate decisions with unwavering support, even if they thought the decisions were wrong . . . this was business loyalty . . . it not only capitalized on a natural indication to support the man at the top . . . it made it mandatory." Anyone who has spent any amount of time in corporate America knows that this sad condition is not endemic only to GM.
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6-01-2009 @ 4:22PM
Former Commiter to GM said...
The stongest thing about the GM failure is the Management
starting in the 1980's with Roger Smith's poor decision. 1. Buying out Ross Perot to get him off the board and questioning Smith's decision. 2. Starting the Satun franchise, which never made the GM Company any money vs building a new small car for chevrolet and pontiac to compete with the imports. These poor decisions drained a large amount of cash from the company. Very disappointing.
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6-01-2009 @ 4:47PM
Dennis said...
Well, you're right; but so is the article. When GM bought EDS from Perot, they paid too much and didn't know what it was let alone how to run it. The Saturn thing was probably necessary because Chevy was also known for some pretty crummy small cars: Corvair and Vega. (Geo Metro?) I think they needed to escape from the Chevy black cloud to produce a successful smal car.
I had a few Chevys,, 69 Camaro, 77 Concours, neither was all that good. The bottom line is that the US government delayed the inevitable at the taxpayer's expense to pay lip service to the UAW who supported Obama in the election.
6-01-2009 @ 4:48PM
Dennis said...
I have a 2001 Acura MDX that has 196,500 miles. It still runs great.
I put the same maintenance into the GM cars I have owned and they never made it past 100,000 miles.
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6-03-2009 @ 10:52AM
Roberto Vaz said...
It is simply not possible to sum up GM's fate in this way without grossly simplifying the role played by a number of very relevant (and uncontroversial) issues, chief among them (i) the terrible effects of the overvaluation of the US$ following Mr. Volckers sharp increase of interest rates in 1979 with consequences that lasted for may years and acted as a powerful subsidy to imports and (ii) the destructive role played by he UAW in securing benefits to GM's employes with complete disregard for their long term consequences.
It is worthwhile to ponder on the fact that another union drove the US steel industry to the ground in spite of the fact that the US had enormous reserves of iron ore and coal.
C.O.L.A. and similar arragements may seem to be a completely fair and an unrefusable concession for the employees but someone in the UAW ought to have done the math in time.
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6-02-2009 @ 4:30PM
Rob8020 said...
Man, this is spot on!!!! I still work for them and I still don't see how this GM is going to change this unless it gets rid of about 70% of it's salary employees and starts fresh.
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