(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

(Want a PDF version for Entries #1-10, #11-20, #21-30 formatted as an e-book?  Entries #31-40 available soon.  Click links for download.  America’s 5th Revolution Volume I (Entries 1-10)America’s 5th Revolution Volume II (Entries 11-20)America’s 5th Revolution Volume III (Entries 21-30)

Scene: Jordan’s office with Matt, reporter for major publication.  Matt has been asked by POTUS’ office to help write the story of GM.  POTUS wants to use the information as part of a plan to help rebuild US manufacturing.  Entries about GM begin #41.

Matt:  “Jordan, my coffee is refilled.  Situation: early 1980’s.  GM struggling a bit but still the big kahuna.  What was GM’s market share?”

Jordan:  “About 45%, almost 5 of every 10 cars were still GM brands.”

reporter on typewriter clipartMatt:  “That’s a huge number.  What about management?  Was Mr. Murphy still chairman?”

Jordan:  “No, the Board had named Roger Smith chairman in the early 1980’s.”

Matt:  “Was he a clone of Murphy?”

Jordan:  (spitting out his coffee) “My apologies for my reaction.  Roger Smith was the complete opposite of Tom Murphy – 180 degrees apart.”

Matt:  “Different in what way?  Appearance?  Approach to business?  The way he worked with people?”

Jordan:  “Yes, yes and yes.  Let’s start with appearance.  Murphy could have been from Hollywood casting, looking very much the part of CEO.  Smith looked more like Mickey Rooney – short, a bit pudgy and reddish hair.  Plus his voice was high pitched.  In some management circles, he was known as ‘Squeaky.’”

17-mickey_rooney_theredlistMatt:  “You think his appearance made a difference?”

Jordan:  “Speculation on my part but Smith seemed to be conscious of his appearance.  To compensate for physical shortcomings, he tried to intimidate people – and I’d say effectively.”

Matt:  “Does Squeaky…I mean Roger Smith…create a team spirit?  Some leaders can be intimidating and still build a good team and gain respect.”

Jordan:  “Smith has a small cadre of henchmen.  If you were not part of the group, you had no say.”

Matt:  “What else happened?”

Jordan:  “Squeaky changed the focus of GM from selling cars and trucks to maximizing profits.”

Matt:  “Isn’t that what the CEO is supposed to do?”

Jordan:  “Earnings come from sales.  As simple as that is, Squeaky never seemed to understand that concept.”

Matt:  “No sales.  No earnings.”

Jordan:  “Think of it this way.  Take your house.  You can increase your spendable income by deferring maintenance on the house.”

Matt:  “But soon the house starts to deteriorate and eventually falls apart.   And then is worth nothing.”

Jordan:  “That’s exactly what Smith did to GM.  He spent the income on other items and did not address maintenance on the house.”

Matt:  “Give me some examples.”

2007-saturn-outlook-grille-badge-photo-54586-s-1280x782Jordan:  “The one take makes me nauseous to this day is Saturn.”

Matt:  “You don’t think starting Saturn was a good idea?”

Jordan:  “Possibly one of the dumbest ideas in GM history.  To fund Saturn, Smith withheld funds for product development from the other divisions.”

Matt:  “And you said that those divisions, while a bit tarnished, could have recovered with some new product.”

Every brand…and I mean every brand…has a period when the product and sales are a bit out of synch with market demand.”

Matt:  “But don’t kill the brand just because of a solvable problem…right?”

Jordan:  “Squeaky starting Saturn is like putting a very expensive addition on the house.  Then neglecting to maintain the main house.”

Matt:  “Jordan – is the story becoming too complicated?  POTUS wants to use lessons from GM to help formulate a manufacturing policy.  I’m concerned we are getting off track.”

Jordan:  “I understand the question and the concern.  The lesson for us is to stay focused on what GM did best, how did it fix problems rather than ignore problems and how it did not make solutions too complicated.  Then talk about what happened when GM ignored the basics.”

Matt:  “You think GM did not follow the lesson?”

Jordan:  “They missed all three.  And then paid the price…bankruptcy.”

Matt:  “OK they missed but the story needs more specifics.  So far you’ve mentioned Saturn and the negative effect of the other brands.  That needs more explanation.  And what else?

Jordan:  “Second major issue is reorganizing the company in a way that destroyed the internal brand identity and created chaos.  Third is buying non-core businesses depleted capital further.”

Matt:  “Such as…?”

Jordan:  “Such as buying Hughes Aircraft and EDS…Electronic Data Systems.  When your core business needs fixing what is the logic of buying businesses that do not generate revenue?”

Matt:  “Was there surplus cash?”

Jordan:  “No.  The company was short of cash.  The GM money machine – the car divisions – needed some cash to freshen the product.”

Matt:  “And the cash gets spent on Saturn, Hughes and EDS.”

Jordan:  “You got the picture.”

Matt:  “I have a question for you I have never heard addressed.”

Jordan:  “Fire away.”

Matt:  “Do you think Squeaky…pardon me, Roger Smith…envisioned himself as the second coming of Alfred P. Sloan?”

Jordan:  “Funny you ask that.  I’ve had the same thought for a long time.  Smith started at GM when Sloan was still involved, albeit later in his career.”

Matt:  “So you think the question is not whacko.”

Jordan:  “Given Smith’s actions, I sincerely believe he thought he could become Alfred P. Sloan II, as it were.  Look at the decisions.”

Matt:  “Keep going.”

Jordan:  “He starts Saturn.  And yes, we need to spend more time talking about why it was such a debacle.  Then buys EDS and Hughes.  Reorganizes the company away from the Sloan model.  Stresses earnings per share over market share.  Then he targets the UAW, especially in Flint.”

Matt:  “But all those actions seem contrary to Sloan’s model.  What Sloan did was to build GM.”

Jordan:  “I agree.  Smith’s decisions we have talked about…and there are many more…seem to be the exact opposite of the model used to build the GM economic engine.”

Matt:  “Ironically, his decisions seem to be aimed at destroying GM, not rebuilding it.”

Jordan:  “I know.  Head scratching, isn’t it.  Matt, I need a short break.  Talking about this is painful.”

 

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