Group 3: Balaji, Mandur, Vino, Lisa, and Robert

FAILURE OF LEADERSHIP

The Early Years…

• GM was struggling in the late 80's, market share reached an all time low

of 36.8%

• Roger Smith - CEO - Dreamt of lowering cost of production using

technology

• Armies of factory robots unneeded assembly plants and whole new car

division

• Was uncomfortable around media and public

• It was Stempel vs. Reuss for the post of president

• GM needed a charismatic public figure, a "great communicator," who

could reshape the company's image in the media

• Stempel made President in 1987

• Would he take a "consumer first" or a "stockholder pleasing" leadership

approach?

• "GM's market share dropped steadily from 1982 to 1992. From 1990 to 1992, the corporation suffered successive and devastating annual losses totaling almost $30 billion. Problems were myriad. Manufacturing costs exceeded competitors' due to high labor costs, overcapacity, and complicated production procedures. GM faced competition from 25 companies, and its market share fell from almost 50 percent to about 35 percent."

Robert Stemple, CEO 90-92

• Accomplished Engineer - Part of team that invented "Catalytic

converter"

• 1987 - Youngest GM president in 30 yrs

• GM CEO in 1990

• Car guy's car guy"

• Moved up through the Engineering ranks

• Popular leader, well liked - "The company has such broad and

deep support for him. They want to succeed because they want to

do something for Bob Stempel. Stempel is the kind of guy that this

organization will jump in front of a train for."

• 1992 - Resigned/Forced out from his position

• Incompetent ? Miscast in his role ? Wrong person in the wrong

place at the wrong time ? Execution ?

Business challenges or People management issues?

• Mismanagement by Predecessor Roger Smith

• Union contract negotiation

• Launch of the Saturn division

• Biggest task - Cultural Change o To re-ignite a sense of loyalty, pride and excitement in 759,000+

employees

• Streamline Bloated companyo Infighting among Divisionso Lack of Integrationo Poorly organizedo Consolidation was badly needed

• Macroeconomic challenges - On his second day as chairman, Iraq invaded Kuwait - Auto sales went sliding

Then..Things went Downhill...

• GM could not cut costs as it promised to

• GM entered into an agreement with UAWo Workers would get paid upto 95% of their salaries for up to 3 years

if they are let goo In return GM could do what it takes to run plants at 100%o With the onset of Iraq war, GM could not sell cars and hence there

was no point producing themo It made more economic sense for GM to produce cars than leave

the plants idle !o This caused a glut of GM cars, sold to rentals at a cheap price, and

that competed with their new car sales, damage to their brand etc.

• But Stempel has conveyed to the union the message that many of GM's problem can be solved by a turnaround in the national economy

Leadership style

• Transactional instead of Transformational

• Was well liked by followers

• Brought Lloyd Reuss along when he was promoted

• But style failed him when it came to his lack of Control

• Union negotiations - Resulted in "win-lose" for GMo Contract agreed to pay laid off workers 95% of their

salary for 3 years

• "Intellectual Seduction" - Stubbornly Supported and Promoted Lloyd Reuss

Stemple’s Failure of Leadership

• Control– Stempel said, “Lloyd’s my man” < 3 months

before Lloyd Reuss was replaced by the Board

• Competence– Achieve promotions by being a competent

engineer– But was he competent in leadership roles?– Failed to drive decisions – relied too much on

group decision making

Stemple’s Failure of Leadership

• Consistent– Had to be consistent to move through ranks of GM’s culture,

Followers supported him– Failed to identify the culture / decision making process weren’t

working, or at least not as good as competition, did not speed the pace of change with the times

– “appeared to cave to union demands” – Moved too slowly to halt the deterioration of business– Despite his popularity Stempel had amassed a long record of sub-

par performance

• Certain– Productivity would improve profit, – Finally announced reduction in capacity– Failed, in the eyes of the Board, in negotiating with labor– Moved to slow. (10 year capacity reduction plan)

Did Stempel fail or did the Board fail to lead Stempel?

– Board was around during Stempel’s predessor– Stempel was elected Chairman of the Board– Now the Board was watching Stempel as losses

cont.– With greater visibility to the CEO’s actions, the

Board was less ‘certain’ about Stemple – fired after 27 months

– Wall Street viewed the Board as a success for ousting Stempel, but the Board was also seen as a failure for not acting to turn around the company earlier

Jack Smith, CEO 92-00

• Initiated most sweeping reorganizations in the company

• Terminated Oldsmobile brand

• Eliminated over 90% of core management positions

• Made corporate decision-making faster and easier

• Smith instituted a “bottom-up” management approach that was intended to re-orient the gargantuan corporation on a human scale.

• He gutted GM’s central bureaucracy from 13,000 employees to 1,100 and reorganized operations into geographic sectors.

• The process of making decisions was streamlined, as “strategy boards” were convened to provide direction for each sector and the company as a whole.

• Smith streamlined decision-making and improved coordination by creating a buck-stops-here strategy board.

• After he relinquished the CEO position in 2000 to his personally selected successor, Rick Wagoner, he continued on as Chairman to see his plan fully executed.

Impacts

• For 1993, Smith’s first full year on the job, GM registered profits of $2.5 billion, the first time in four years that it had been able to show a profit. The upward trend continued in the ensuing years, as an economic boom spurred consumers to purchase GM cars and trucks at record rates.

• During Smith’s tenure, GM introduced over 35 new vehicles.• The company embarked on the most ambitious manufacturing expansion in

its history. • Publicly reported separate financial results for GM's all- important North

American operations for the first time. • Car and truck business in North America rose from a $10.7 billion loss

(before interest and taxes) in 1991 to a $362 million in 1992. That's an $11 billion swing.

TURNAROUND TIPS FROM JACK SMITH

• Establish a vision for the whole company. • Set clear expectations for performance at

each level of the organization. • Construct realistic strategies that don't

require rocket science. • Develop the capability to execute by

reorganizing people and reallocating assets. • Focus everything -- all assets, all decisions --

on your customers.

Conclusion

• “He must close plants, lay off workers, cut $2 billion in costs this year and return the automaker to profitability at a time when the economy is weak worldwide.”

• ``He showed little sign of understanding how ineffective GM was in comparison to the competition,`` said Ronald Glantz, an analyst at Dean Witter in San Francisco.

• ``He can`t blame his predecessors for GM`s ineffectiveness, because he was the chief operating officer during his predecessor`s regime. There`s little evidence that someone who was so long at the top understood that GM`s costs were out of line.

• `Stempel always voted with Roger on everything,'' says a GM insider, ``even though he used to tell me he knew things were wrong and disagreed.’’

Conclusion

• Fired not because what he did but for not doing what he should have done.

• A trained engineer, experienced manager but not a leader ( difference between a Manager and a leader )

• Lack of influence• Lack of negotiation• Failed to hold board of directors

in confidence to buy time to execute one’s vision

Recommendation

• Act as a Directive Leader to handle crisis.

• Identify solution to bring GM out of water and act upon it.

• Abandon the strategies and tactics that have failed earlier.

• Take steps to resolve intimidating obstacles first. New design needed to sell car

• Change Organizational structure to control the large company like GM and avoid bureaucratic overhead

Questions

References

• http://localism.com/neighbor/woltal?page=131• http://bitsandpieces-sonja.blogspot.com/2012/01/l

etter-from-special-mom-about-her.html• http://guides.wsj.com/management/developing-a-l

eadership-style/what-is-the-difference-between-management-and-leadership/

• http://changingminds.org/disciplines/leadership/articles/manager_leader.htm

• http://articles.chicagotribune.com/1992-10-27/news/9204070415_1_gm-directors-gm-chairman-robert-stempel-john-smale (good)

• http://www.christonium.com/automotive/GM_Bankruptcy_Part_III_Why_GM_Failed

• http://www.moneycrashers.com/general-motors-gm-bankruptcy-timeline-future/

• http://en.wikipedia.org/wiki/Boiling_frog

“These are the directors who, brought in during the regime of Stempel`s predecessor, Roger Smith, acceded to many of the moves that have brought GM to where it is today. Monday, many Detroit observers questioned why the directors sat on their hands for 10 years under Smith before they reached for a noose after Stempel was in charge for only 27 months.”

Stempel's ouster is a landmark in the growing shift of power from U.S. managers to corporate directors, who had traditionally been viewed more as rubber-stampers than real decision makers.

`It's going to be brutal,'' warns a GM director. ``If the unions won't cooperate, GM will have to play real hardball. We don't even have the luxury of thinking about a product strategy. We aren't going to be thinking great thoughts. GM has a three-year mission to restore its financial soundness.'’