Job 1 at GM after its Chapter 11
With the declaration of Chapter 11, GM is poised to enter a new era. Deciding to place a big bet that a massive, tax-payer funded restructuring will truly turn the company around, the Obama Administration is forcing changes that should have occurred a decade or more ago.
The core of the transformation strategy is a separation of “New GM” from “Old GM.” Essentially the company will be split in two with the assets of the old being sold or otherwise liquidated. So far, we know that several smaller units such as Hummer and Saturn will be disposed of, as well as one long-time GM brand — Pontiac. Up to 20 factories also will be sold or closed. More than a 1000 dealerships are likely to shut their doors.
In the auto industry the term “Job 1” is used to denote the first car of a new model that comes off the assembly line. It’s a time when all the work to create the right product and the right process either comes together or doesn’t.
So it seems fitting to use the idea of Job 1 as a metaphor for what the new leadership team at GM needs to get right during the transition period. What is Job 1 at GM? They need the right brand and platform architecture to drive the company forward. Because what has hobbled GM for a decade or more was an outdated architecture that was the legacy of the founding and growth of the company.
When GM was founded in 1908, it was a startup seeking to compete with a behemoth, the Ford Motor Company. Ford had changed the game in automobile manufacturing by introducing mass production techniques, notably the assembly line, supported by a fully integrated supply chain (Ford owned forests and coal mines). But Ford lacked the desire to customize its products to meet the needs of its customers, offering the Model T in, as Henry Ford famously put it, “any color as long as it’s black.”
Following a near collapse during the 1921 recession, GM was reorganized under CEO Alfred Sloan in 1923. Rather than meet Ford head on, Alfred Sloan and his team created a brand architecture, a five-model product line that ranged from the inexpensive Chevrolet to the premium Cadillac. Customers that bought a Chevy as their first car traded up as they became more affluent. To support this strategy, GM focused on styling and increased apparent customization through trim options that kept the core platform the same, but made the varieties built on it seem very different. (They also out-sourced much more component production to suppliers than did Ford and built dealer networks).
By the late 1920’s, GM had become the dominant automaker in the US, forcing Ford to completely change the way it did business. GM became so successful that it virtually had to start competing with itself, ultimately leading to a proliferation of brands and a separation of the production networks and dealer networks for the company’s various offerings.
And therein lies the heart of the problem that has laid GM low today — lack of a rational brand and platform architecture that would allow the company to compete with the likes of Toyota and Honda. The success of Toyota is founded on many factors, notably, its excellence in product design and manufacturing. But the heart of its success really rests on its simple brand architecture. You have Toyota cars for the masses, Scion for the young-and-hip, and Lexus for luxury buyers. And that’s it. Toyota vehicles are built on a relatively small number of “platforms” — the chassis, suspension and drive train on which the shell is placed — that permit the company to offer a wide array of seemingly “different” vehicles. And the company pays a lot of attention to sharing parts between platforms to keep production volumes up and costs down.
The upshot? Brand and platform architecture are Job 1 for the new leadership team. Unless the New GM emerges with a simple, rational brand architecture, supported by the right approach to platform design and parts sharing, the company simply will not be able to compete with world class competitors, and we will continue to witness the decline and fall of a Giant.
Readers interested in learning more about how GM got to this point can email me at email@example.com and I will send you a monograph that Nathan Simon and I wrote on Innovation and the Evolution of the U.S. Automobile Industry, 1900-1975.
Read the original here, by Michael Watkins @ Harvard Business Publishing