On March 30th, 2008, the Obama Administration relieved General Motors Chief Executive Officer Rick Wagoner from his role at General Motors. Due to the massive role this company has in North America, the United States and Canada have decided to inject capital into the company with taxpayers money in order for the business to stay viable. Currently, General Motors is burning through cash and is near potential bankruptcy as all its sections fail.
When General Motors was in its infancy, the corporation was doing well and Peter Drucker had the opportunity to analyze and publish his book The Concept of the Corporation in 1946 based on the company’s best practices. Over time starting from the 1980’s, the company has been slow to adapt and lost focus requiring an emergency bailout from the government. Effective decisions are the heart of a company’s success; General Motors however did the opposite.
Peter Drucker’s Six Steps of Effective Decision Making
- Classify the Problem
- Define the Problem
- Specifying the answer to the Problem
- Deciding what is’ “right”, rather than what is acceptable, in order to meet boundary conditions.
- Building into the decision the actions required to implement
- Testing the validity and effectiveness of the decision against actual events.
Classify the Problem
Rick Wagoner was CEO of General Motors from 2000 – 2009. In his tenure, his company has lost massive amounts of money and market share from rivals hoping the business would continue to stay afloat. Unfortunately; hope does not manage a business, decisions do. What were the problems plaguing General Motors?
· $11 billion loss in 2005 from not adapting fast enough to Japanese competitors
· Not following the customers’ needs with over-capacity of SUV’s, trucks and other large vehicles. Japanese counterparts took over small passenger car market. Gasoline prices spiked which detracted customers away from large vehicles, a key focus for General Motors.
· When gasoline prices went sky high, General Motors was slow to act; developing an electric vehicle which has been assessed today as “too expensive to be commercially successful in the short term”
· Perception from consumers of the “General Motors” brand: quality trucks and SUV’s, but inferior passenger vehicles due to over-investment of large vehicle divisions.
· Over eight brands under the General Motors umbrella; no analysis of what to continue and what to stop before rough times. Decision in 2008 made for Saab, Hummer and Saturn brands to close or sell off after financial ruin within General Motors.
· Long term retiree health care and benefits reaching levels of $6 billion per year, mis-management with union agreements, resulting in workers overpaid in comparison to optimized Japanese automakers.
· Executive team and board working in their own “silo”, rosy pictures of success that did not match reality. Consistent rally of a positive future with no action to create that future.
Were all these factors unique disasters that occurred randomly without notice? Of course not. The executives did not know the problems plaguing General Motors because they chose not to see the problems. The unions did not see the problems either because they were not looking for problems aligned with the company. Only when the U.S. government decided enough was enough and intervened by bringing in the U.S. Treasury and assembling an outside “auto task force” to go in an deeply analyze the business did General Motors truly understand the problem as an emergency. The “auto task force” also felt General Motors “re-structure” proposal was too conservative and hopeful, resulting in the removal of CEO Rick Wagoner.
The government bailout of General Motors and other auto companies is the classic case of an executive treating the problem of a new event (worldwide recession) and applying old rules and tactics to a situation that needs new rules and fresh tactics. Rick Wagoner “defying calls for resignation” and “rallying the employees that General Motors is strong and will not collapse” as the corporation burns through money is not what a corporation needs to survive, let alone perform.
An executive team needs to always classify what the problem is, only when that is done can you move to the next step which is to define the problem.