It's Hard To Change Corporate DNA

Especially when the government is doing all it can to damp the forces of evolution and extinction.  Via Mickey Kaus

Dysfunctional–or at any rate, not-functional-enough–corporate cultures are hard to change. That would include both the culture of the Old GM and that of many of its suppliers. Obama should have been more skeptical about “New GM’s” ability to turn itself around with its same old workforce and same old union

I warned of something similar long before GM was rescued by Bush and Obama:

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  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.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.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM’s DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM’s of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM’s DNA has a less than one multiplier, then releasing GM’s assets from GM’s control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe’s productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe’s most productive human and physical assets into organizations with DNA multipliers less than one.

  • tomw

    There was this fellow named Schumpeter ... who talked of creative destruction, I believe. There were multiple things that lead to the senescence of GM after WWII. Prosperity of the US vs the penury of the war-torn Europe and the Far East. Union demands, and management acquiescence. Lack of competition from native or foreign corporations. Cheap fuel. Lax emission standards.
    They all combined to build GM, Chrysler Corporation and Ford Motor Company into what they became. Studebaker-Packard, Nash, and others such as Kaiser-Frazier were not nimble enough to stay alive. They succumbed early to the diseases that were eating away at the "Big Three".
    The Volkswagen was first imported in 1949(I think), and was of limited success. Ten years later I remember buying a magazine that listed and pictured all of the vehicles currently imported to the USA. If memory serves, as I was young and it was long ago, there were over 100 vehicles, from Facel-Vega to Tatra being imported. Some successfully, and some not so. Either way, the imports were ignored until the late 1950's, when the Valiant, Corvair and Falcon were introduced. They were assembled with about the same labor content as their larger siblings, and thus were not as profitable. Who in their right mind would build a mix of low-profit vehicles when there was a good market for high-profit vehicles? I thought so. So the low-end was conceded over time to the imports, who slowly build more expensive models to capture the up-market trend of new-vehicle purchasers. The only one I remember being left behind in that tiered market was the VW beetle, with nothing to offer... until later. So the customer became accustomed to fit, finish, and quality[as defined by lack of defects and other measures] that Detroit and its work force could not or would not provide. They didn't know how to design a product that could not be assembled incorrectly. {The right way, the wrong way, and the Navy way. If it CAN be messed up, it will. All applied to the UAW workforce, but not all workers.} The Japanese and Eurpoeans had learned from Deming that processes can be continuously improved, that products can be improved and refined. Who in Detroit tried to build an improved Falcon? Corvoom? Valiant? I don't think so. They were engineered to a price-point, and everything that could be de-contented was. The same thing happened ten years on when the Vega and Pinto were brought to market. As time went on, little things like the ashtray knob were removed, and the bottom edge was considered the 'handle'. Fewer covers over seat tracks and emergency brake levers, cheaper seat cover and door panel material, all the things to reduce content price without blatantly shouting "CHEAP!" were done to improve the bottom line. Compare a Pinto to a Toyota of the same vintage. Not a good comparison, even when the Nixon era 'surcharges' were tacked onto the suggested list. BTW, list was what you paid back in the early 70's for Datsun, VW and Toyota products. No discounts...
    So today, those workers have retired and want to keep their retirement pay and health benefits. The problem is the promise cannot be kept as written.
    GM has succumbed to the Government Teat, and produces an electric car that would be labeled FAILURE without the price subsidy {which WE pay}. Chrysler is owned by FIAT. FoMoCo is the only 'independent' maker, and they are mortgaged to their eyeballs while their competition is partially owned by the union, and has shed their debt load. Who has the better financial position? I think GM, but they still think they are "GM", the one that was around in 1953... Will they learn? I dunno.
    tom

  • tomw

    Bad Nuze for GM

    After my eructation, I meant to add the above 'story'... Apparently, GM can't do it. Not only did the Cruze get spattered with verbal dung, but:

    ...Overall, General Motors’ “reliability slipped this year.” Chevrolet is the 17th ranked manufacturer, out of 28, and Buick is 24th. One version of the Buick Enclave–the car that so impressed Megan McArdle–is now “no longer recommended.” …

  • Smock Puppet, Piloting The Economic Seas Betwixt Scilla and Charybdis

    One of the best films about capitalism EVER:

    Other People's Money

    Right down to the closing dramatic scene.

  • Reds

    I remember my parent's buying a Toyota in the early 70's for fuel efficiently, and then agonizing that they weren't buying American. They sold the car w/ 150k miles on it-when 100k for American cars was considered nearly dead, for $1k. The purchaser, a neighbor, sold it for $1k when it had 260k for the same money. Why should we support US companies that cannot/do not compete w/ our foreign competitors? We all benefit from superior products, as well as our competitors building factories in the US. I'm biased as I live in the SE US and virtually all of the new US car plants have been built in this region.

  • Fred Z

    Uh-oh.

    It suddenly occurs to me the same is true of national DNA. American DNA to be specific.

  • beautox

    Let's hope for Apple's sake that it is indeed hard to change..