Lessons Learning from the Failure of General Motors

In the Harvard Business School Working Knowledge Series, I found the article → GM: What Went Wrong and What’s Next. It deals with the reasons for the remarkable decline of this industry giant, and includes lessons learned, which support the product management idea.

Lessons Learned

GM’s history goes back over 100 years. In its early times, GM was a very innovative company, which helped craft the entire industry. GM overtook Ford with the very modern promise „a car for every purse and purpose“, and with the introduction of yearly model cycles.

In the climax of its success the company was very large, influential and market dominating. The decline took some 30 years, and recently finalized in a bankruptcy.

Reasons

Following the Harvard faculty-members, here the reasons for the decline, and thus recommendations for points to consider in your strategy:

The location strategy concentrated different specializations in different regions. For instance within GM, the European subsidiaries are responsible for the production of small cars, while the large cars are concentrated in the US. The entire market shifted to small, economic cars. Now, GM being separated into different companies may face a situation, where it lacks appropriate products for the US.
During many years, GM did not pay sufficient attention to the complete lives of their customers, and thus neglected changes, which were happening in the larger context. Examples are changes which took place due to the climate discussion, or, changes in the „hopes, dreams, wallets, lifestyles, and values“ of their customers (Nancy F.Koehn).
For a long time they did not pay too close attention to the moves of the competitors, i.e. from Japan, and failed to react with an appropriate strategy geared towards the competitive threads, they faced.
Since the 1970ies GM did not quite well understood, how company structure and values related to their strategy. They were unable to place innovative bets on the direction, which the markets will take, and did not sense the market forces.
For a long time, they maintained unfavorable/uncompetitive labor agreements.
They were reluctant to take the protection of the environment serious.

Disruption

In his linked article → The Past and Future of General Motors, Clayton Christensen expresses his opinion, that disruption is a root cause. More specifically, in the 60ies Japanese, and later Korean carmakers attacked GM from the lower tail of the market.

In such situations successful companies, such as GM at that time, rather abandon the lower end, than to defend it. In the 1960ies, the disruptive competition started with lower end vehicles, such as the Corolla. It has now developed into the upper end of the market, and is now able to offer cars, as the Lexus.

Following Christensen, GM only recently started to react by offering economic vehicles, which address the needs of the lower end. They also only recently concentrated on producing the same quality as the Japanese competitors did.

The linked article → GM and the World We Have Lost forwards the view that Top Management separated from customers, shareholders, workforce and public opinions.

Opinion

I am sure that lessons learned by GM will soon be part of the curriculum for students of economics and business administration. We will certainly also read more about specific reasons, once they have been analyzed and studied. Sure is that there not only one reason, which caused this decline.

Taking my working-experiences in companies with a strong market position, and adding information from other influential companies, which failed, I think that GM fell into a quite common trap.

The trap often starts with success, which can rapidly lead into an organization, which thinks that it is so brilliant, that they know better than the customer. Once you have lost the real contact to customers, and once you start to develop products which you/your techies love, but not your customers, the chances are high that you fail. This is a good moment, to think about the advantages of a professional Product Management.

Big problems occur, if you start to systematically misunderstand the information from your customers. Many managers think that, if a customer does not complain, he is satisfied.

In reality a customer, who does not provide feedback might already be looking for alternatives. To avoid such situations, it makes perfect sense to regularly meet with customers, and to frequently ask for their opinions. In this context it is particularly important to not just ask customers, and produce what they want, but to learn about their real/hidden needs.

Disruption can take different faces. Without doubt is it very dangerously to neglect that successful organizations have a tendency to disregard disruptive innovation. Disruptive innovation can either emerge from products, which address the lower end of your market. They can also emerge from a trend, which you follow, without thinking about the consequences.

Examples for such trends are the hypes, which took place with the Kaizen-method, the „Computer Aided Manufacturing“ Hype, the horizontalization versus verticalization-strategy, or the recent outsourcing- and off shoring wave. On the long run, all these trends affected abilities to support customers.

Especially in large organizations it is easy for senior managers to loose the grounding, including all connections to customers, and the basis. In such cases the next step often is that management takes wrong decisions, or follows wrong objectives. From my perspective it is very helpful to rotate managers to different jobs, and to additionally take precautions that managers stay involved in the day-to-day business.

Weiterführende Informationen

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