GM's Failure – What Happened to Lean?

As the pundits pile on the eulogies and praise from the glory days and offer endless criticisms of GM’s catastrophic decline, people will be writing books and analyzing the decline and failure of GM for years to come.

But let’s look at GM from a lean enterprise point of view. GM tried to adopt lean principles and practices for years. They began a very innovate program with Toyota called NUMMI (New United Motor Manufacturing, Inc), established in 1984, whose mission was to implement the Toyota Production System in the U.S. NUMMI did  have a positive  impact on GM and elements of lean were successfully implemented in parts of the company. However, lean was not adopted soon enough to stop the decline.

There is an insightful analysis by Peter Cohan, author of You Can’t Order Change, outlining 5 reasons why GM failed.  Here’s a summary of the reasons: 

1. Bad financial policies. GM made money primarily by loaning money through its finance arm, not by manufacturing and selling vehicles.

2. Uncompetitive vehicles that had little going for them – took too long to build and were poorly designed and built.

3. Ignoring the competition for over 50 years (with the exception of the Saturn venture). While GM was ignoring the competition, Toyota was capturing market share.

4. Failure to innovate. Cohan claims that GM focused on financing and ignored its core business of building and designing better cars. 

5. Managing in the bubble. GM’s culture was insular, and promotions were based on that inward focus, not on paying attention to customers and the marketplace. Almost no one was ever fired for poor performance.

The first and central principle of lean is: specify what creates value from the standpoint of the customer. If a company loses touch with what the customer wants, it will surely lose to competitors who do focus on creating value for customers. GM’s financing business, lack of innovation, uncompetitive vehicles, and being inwardly focused are all pitfalls of a company without customer focus. This creates a downward spiral of waste (lean definition of waste: any activity that absorbs resources of cost or time but adds no value) that in the end, worked against GM becoming lean, despite its attempts and actual lean successes in more recent years. GM, in fact, was adopting lean, but it was too little, too late. And GM never changed its culture rapidly enough to adopt the lean cultural mindset. It became such a big company that it was difficult to see from the outside how long it had been rotting from within. Even Toyota, the icon of lean, is suffering its first losses since the founding of the company, having expanded its capacity too quickly, exceeding market demand.

Interestingly, some of GMs key suppliers were more successful in their own lean implementations. Delphi, formerly part of GM, is a good example. The decline of GM and the auto industry as well as legacy costs put Delphi into bankruptcy, despite 10 of its plants winning the Shingo Prize in 2006. Obviously, winning these prizes is no guarantee that you’ll stay in business. 

Lean is easy to understand and easy to support, but much harder to implement. Lean practice is always behind lean theory. Some may argue that had GM fully embraced lean practices and culture earlier, more rapidly, and more fully, it may have avoided disaster. In order for the current restructuring to work at GM, there has to be a fundamental change in its culture.  Otherwise, bankruptcy reorganization will just put them on a ruinous track of same old, same old.

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One Response to GM's Failure – What Happened to Lean?

  1. Pingback: Change Comes in Two Flavors « Managers Into Leaders

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