Tragic Tale No.005

This is the fifth in a series of tragic transformation tales, shared by a diverse group of business leaders, in conjunction with the launch of Angie’s book, TransformAble: How to Perform Death-Defying Feats of Business Transformation.

Today I’m talking to John Boris, former senior executive at General Motors Acceptance Corporation and Ally Financial (and now theoretically retired) as he revisits a tragic transformation from his past.

Angie: John, this happened many years ago, yet is surprisingly relevant still today, as many organizations continue to make the same mistakes.

John: Yes. This is the story of General Motors in the 1980s. At the time GM was the most successful auto company in the world, number three on the Fortune 500. Its Chairman had a vision that technological innovation was the future of the auto industry. He also saw a need to diversify the company in order to smooth out the cyclical nature of the auto earnings. Finally, he was frustrated by what appeared to be costly duplication of functions across the automotive businesses.

Angie: I’m sensing a very ambitious undertaking...

John: Obviously, it would require an extraordinarily complex transformation. If successful, huge efficiencies and cost-savings in the automotive business were expected; GM would gain a technological advantage in the automotive sector; and diversification would mitigate the cyclicality of the auto business earnings.

Angie: Technological transformation. Product transformation (diversification). Cost reductions, efficiencies, centralizing to save money—or in other words, operational transformation. All we’re missing is culture, but you and I know that is inherent to all of these. All these are familiar challenges, especially in an older, established company. But focusing on all at once elevates complexity, especially when we consider the scale of this large corporation. How did they approach this?

John: The company set out on a massive effort to simultaneously achieve the “vision” of a technological future and address the inefficiencies and profitability in the core automotive business, by acquiring the technological expertise. This move would also diversify the company. They acquired the technology organization EDS in 1984, and the following year acquired Hughes Aircraft. Concurrently, they also moved to commonize the “inefficient” aspects of the automotive business.

But in the end, while the acquisitions proved to be good financial investments—EDS and Hughes defense business were divested/sold a decade later for a nice gain—they diverted management attention from the core business. While chasing diversification and inefficiencies, GM lost sight of the retail auto customer, diluted the valuable uniqueness of its vehicle Brands, and pitted those Brands into fierce competition against one other for the same customer, at a time when their overall market share was declining.

Angie: This is definitely a tragic tale. Tell me about state of the company when this all started.

John: At the time, GM had six brands/divisions—Chevrolet, Pontiac, Oldsmobile, Buick, Cadillac and GMC, all operating very independently. With the exception of GMC, which was the commercial truck division, the brands provided for the aspirational progression of customers from the entry level Chevrolet to the ultimate luxury of Cadillac. As customers moved up the economic ladder, they moved up the brand staircase. There was little overlap or competition between the brands.

Angie: That’s a great product setup—where all the products in the lineup connect to the different stages of a customer’s life. Something every product company aspires to.

John: Each brand/division had their own everything: administration, engineering groups, design teams, production facilities, IT systems, components and parts. In the view of GM’s leadership, which now had a strong Finance background, this was all WASTEFUL. Now clearly some of that duplication was unnecessary, but not all of it. However, the automotive transformation was fixated on the “WASTE” and became all about “efficiencies.” Very narrow thinking.

Angie: Ominous. This is where dramatic music would play if we were recording this. The villain is unveiled…except, sadly, this isn’t an external uncontrollable entity. This is corporate transformation gone very, very wrong.

John: *laugh* VERY wrong. It appeared they wanted to commonize everything right down to the sheet metal—they were even using some of the same sheet metal on a Chevy and a Cadillac! Shared components meant the vehicles across all the Brands’ started to look the same. It used to be that you could look at a GM vehicle and immediately recognize it was a Chevy, or a Cadillac. No more! You might recognize that it was GM of some variety, but not which brand. You’d have to look for the name plate.

Angie: So, the focus became common parts first—efficiency first—driving product decisions instead of customer first?

John: Yeah, the customer got knocked out of it.

Angie: Pow! KO.

John: And the aspirational product staircase was being leveled.

Angie: Crash!

John: It was all about cost. And then quality got bad.

Angie: Wait. What? Quality? Why? They were using the same parts.

John: Interestingly that was part of the problem. On several fronts. Since they were using the same components—transmissions for example—if there was a flaw in the design, parts or production of that component, it failed, not just in one brand, but in ALL the brands! In the area of design, constrained by having to use all these common elements, there were issues with making things “fit”. The result was rattles, squeaks, leaks, and unsightly gaps between sheet metal parts. All in all, quality declined as did GM’s market share.

Angie: That’s fascinating. Assembly, fit and finish issues. So now you have a cascading tragedy: an effort to save money destroys differentiation in the products, has material impacts on the product quality, and creates serious issues for customer satisfaction.

John: It was awful, and in the ancillary business units, like GMAC, the decline in market share meant a shrinking customer base, which spawned additional transformations, some successful and some not—but that’s another tale. For GM, in my view, the critical strategic failure was they under-valued the importance of GM’s success in the stair-step car product offerings.

Angie: So previously, this successful product staircase meant the brands fit in nicely with each other, because they each had their niche, and they all connected for a nice overall life of the customer, which was amazing.

John: Exactly. Clearly, there were parts of that staircase that needed repair, but instead they dismantled it for the sake of efficiency. All the product lines began to look the same. By the end, everybody offered vehicles in every category—compact, mid-size, full-size, SUVs—and many even now had a truck. Really, how many contractors needed a Cadillac pickup truck?! The brands were now heavily overlapping and directly competing with each other, in addition to the growing list of external competitors—Ford, Toyota, Honda, BMW etc. Before there was just a little overlap between GM’s brands. Now it was a major overlap.

Angie: OK, this is insane. What were they thinking? What was the vision here, again?

John: They apparently weren’t. There was no clear vision. Some of it made sense—there was no reason every division had to always reinvent everything. Create common platforms and internal components? Sure, if done right and with good quality control. Common sheet metal? Bad idea. It doesn’t appear to have been well thought out strategically. A vision all comes down to “what do I want to be in the end and how does this all work together to achieve that,” and, based on the outcome, they didn’t have one.

Angie: I like how you define vision. So in this case…no vision.

John: Correct. There wasn’t a clear final vision of what they wanted to transform the company into. To me, the interesting part about this situation is that this wasn’t a planned transformation.

Angie: Even though it dramatically changed the organizational structure of a Fortune 3 company, with significant operational, product, and market implications.

John: Right. It started with a “vision” of a technological revolution in the auto industry—which has proven to be correct—and became just about “efficiency.” Crazy.

Angie: So they didn’t actually plan it out like the transformation it was. Didn’t treat it with the respect and rigor a business transformation requires. Even given the scale, complexity, and systemic implications of the changes?

John: In my opinion, no. In the end they were just cost cutting. And all these changes were made, ignoring that some of the perceived “redundancy” was actually where the value of the products laid.

Angie: This is a serious tragedy, on a global scale. They rushed off into cost cutting, without taking the care to create a vision and a plan that looked at the business holistically. Without mapping and understanding the systemic nature of their business. And ultimately, they harmed the successful core product strategy that had been the very key to their success.

John: Right. They lost focus on what the company was about and why they were the dominant auto company at that time. On what created that extremely successful customer loyalty. And once you’ve lost that loyalty and those customers, you can’t get them back very easily. Which is exactly what happened and still remains a challenge for GM today.

Angie: Well said. In summary, from the very beginning they failed to treat this like the transformation it was. The “vision,” such as it was, was materially flawed—myopically focused on cost—and totally lost sight of the customer. A scenario that unfortunately still plays out in companies across the world today. Thanks for sharing John.

John: It’s too bad they didn’t have TransformAble to guide them back in the ‘80’s—it could have been a very different tale!

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Order Angie’s book TransformAble: How to Perform Death-Defying Feats of Business Transformation from your favorite bookseller. 

Angie Tuglus is a transformation expert and executive advisor. She has led numerous business transformations as a former Fortune 500 executive, and has worked in companies ranging from startup to Fortune 10. 

John Boris spent 43 years at GMAC and Ally Financial (which grew out of GMAC), held many executive positions, and is now reputedly retired. In one of his first “I’m retired, really I am” jobs, he worked closely with Angie on a major global transformation. 
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© 2021 Angie Tuglus