What Every Business Can Learn From General Motors
It is certain that General Motors new board will replace the now-fired CEO Fritz Henderson with someone from outside the company. Fundamental change almost never comes from company insiders.
It’s interesting that Detroit’s auto makers have been known as the big three for five decades or so. I’ve personally never heard them referred to as the best three. GM still has a 5.6% percent lead over Toyota in market share, but is losing billions, while Toyota was profitable in 2008. Chasing market share has led the Detroit carmakers down a road to ruin. Hopefully, Ford’s recent insight will cause it to recover.
Measuring success by counting the percent of the market owned has caused a focus on production. European carmakers produce what they can profitably sell, while General Motors cranks out vehicles based on what it can produce. Any retailer knows that too much inventory means you must mark down your goods to clear them, yet Detroit overproduces every year. They support dealer networks over four times as large as Toyota because more dealers means more places to park inventory.
The well publicized labor cost disadvantage which American car companies have brought upon themselves comes form the fear of labor stoppages. If you are not willing to sacrifice production to negotiate reasonable labor agreements over the years, you might end up with the types of cradle to grave benefit agreements and ridiculous pay rates American carmakers have. What other business owners would agree to pay furloughed workers while the workers sit around the union hall?
Even Detroit’s lack of quality focus probably comes from its singular pursuit of market share. If you stop to innovate and re-tool, you lose production. Who doubts that Detroit’s employee layoffs damage the quality movement? Toyota avoids layoffs.
So what is there in the troubles of the Detroit big three that can help us in our smaller businesses?
1. Focus on being the very best in your industry rather being the biggest is a proper strategy. While this may seem obvious, many businesses attempt to acquire new customers as a singular strategy ignoring the care of the ones they already have.
2. Design pay and benefits you can afford. Not everyone can afford to be General Motors. Even General Motors can’t afford it these days.
3. Don’t build your production capability with 100% fixed cost, full time employees. If you do, you have no way to reduce your workforce without layoffs. Layoffs damage your organization in ways you can’t even measure. Avoid them by utilizing a flexible organization.
A former GM President said “What’s good for General Motors is good for the country.” Maybe knowing what’s been bad for General Motors can be good for the country’s small businesses.
