Corporate DNA

In a post on letting GM fail, I discussed what I called "corporate DNA"

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case - Just ask Ross Perot. You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it.

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA.  And DNA is very hard to change. ...

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation....Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you. When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

This seems to match the take of many insiders.

To John Shook, a former Toyota manager who worked at a joint-venture plant run by the Japanese company and GM in Fremont, California, that explains why the two automakers are in such different shape today. When it comes to engineering and manufacturing, Shook says, Toyota and GM are about equal. Where they differ is in their corporate cultures.

"Toyota is built on trial and error, on admitting you don't know the future and that you have to experiment," Shook said. "At GM, they say, "˜I'm senior management. There's a right answer, and I'm supposed to know it.' This makes it harder to try things."

The whole Bloomberg article this comes from is quite good.  Its pretty clear that GM had every reason to anticipate the current mess 3-4 years ago, and basically fiddled while the cash burned.  My strongest reaction from the article was, please let me have an epitaph better than this one:

Wagoner, a 31-year GM veteran, was the embodiment of its culture, an apostle of incremental change. Exciting as a Saturn, quotable as an owner's manual....

  • http://www.linesinthesand.net Doug Murray

    At GM, they say, ‘I’m senior management. There’s a right answer, and I’m supposed to know it.’ This makes it harder to try things.

    Just imagine how many times that attitude gets multiplied once you add a new level of 'Congressional DNA'!

  • http://profile.typekey.com/JimCollins/ JIMC5499

    Doug,
    That would create a mutation, God only knows what would come out of it, but it wouldn't be pretty.

  • morganovich

    never fear doug, i'm sure they would never appoint an "auto czar" who didn't know all the right answers.

  • Craig

    The addition of Congress wouldn't be a mutation, it would be a malignant tumor.

  • http://www.hodakvalue.com/blog mhodak

    I'll never forget an incident when I was going through Toyota Production System training at Fremont over 15 years ago. I saw a line of men in white, collared shirts and ties across the factory, and asked my hosts who they were. My hosts replied that Toyota was forced to provide their TPS training to GM managers as a condition for operating their Fremont plant, and those were GM managers in their two week TPS program.

    "Two weeks?" I said. The program I was in lasted three months. "Who can learn TPS in two weeks?" I asked.

    My host shrugged and said, "Nobody, really. But GM says that's all they can spare of their busy managers' time."

    That was when I began to trade long Toyota and short GM--an investment strategy that has paid for my kids' private schooling, and now college.

  • Kevin Jackson

    OT: I love the new layout! Very sharp and professional.

  • http://humanadvancement.net/blog Kyle Bennett

    I like the new look, Warren.

  • http://www.cfowise.com Ken Kaufman

    Interesting article on the corporate culture. I never though of it in respect of killing a company's value, but it sure makes sense. It is clear that GM's culture is so far from reality that any type of bailout would be a waste of resources, becasue they would kill the value of that, too.

    Is their culture so far lost that they cannot correct it? If so, it seems like letting them fail is the only inevitable solution, whether it is now or in the future.

  • James Howe

    The new look is very sharp. Nice job!

  • HS

    Cancer is a mutation of our own DNA (supposedly). So basically GM has stage 4 cancer. Chapter 11 is the chemo.

    The chemo has killed every automotive patient in the past and can kill the patient today. Wouldn't you want to try surgery or a different type of chemo instead? I actually like Corker's alternative chemo.

    I agree... between the government genetic engineering, cancer, and a host of chemo's. What kind of mutation will we get? But then again, evolution is an orderly-chaotic series of mutations.