In a lengthy article in The Atlantic, senior editor Megan McArdle makes very good points under the title “Why Companies Fail.”
Zeroing in on GM a year after its return via IPO as a public company, she notes it tried to revamp its culture on a number of occasions previously, but quickly fell back into its old way. She wonders whether this time will be different.
She concludes only time will tell if the culture change sticks, but this time the inputs are bit different: the unions are more cooperative, poor dealerships and factories have been closed and wasteful model duplication eliminated. In other words, there is almost literally only culture left on the table as a failure point. She doesn’t limit her critique to GM, citing a number of times when the US auto industry and others have been declared on the way out and then hailed as fully recovered only to go through the cycle again as soon as the companies began to believe once again in their own infallibility and success and old habits return.
The bottom line – it’s at least as hard to change culture, that amassed body of habit that organizations develop, as it is to change our own personal habits – poor diet, lack of exercise, procrastination or any of the hundreds of other challenges we face individually – and make them stick.
This has to be the biggest corporate culture change experiment of all time – a $50 billion bailout – will it have a payback? $50 billion for just one company! The US has recently pushed the banks into allocating just half this amount to help a massive number of underwater homeowners. Europe is hesitating at turning over not so much more, $179 billion, to bail out an entire country that could bring down the entire European Common Market. One could conclude that such a bailout for just one company ought to have a guaranteed likelihood of working. But that may be wrong. That’s why this is such a terrific experiment, if perhaps not the wisest use of money we could dream up. If it can’t work for whatever reason, we may have to conclude this sort of culture change is a foolish gamble.
Don’t hold your breath. This isn’t likely to be the over-night fix so many would like to see. That’s probably why the last year’s IPO shares have fallen by a third in price. It’s maybe easier than expecting a new US President in one term to eradicate the effects of the worst spending debacle (Iraq and Afghanistan), the worst domestic financial meltdown and subsequently one of the worst developed world meltdowns in history, but it probably depends at least in part on those being fixed.
GM has had a good start in one way – with pent up demand after the meltdowns leading to an massive 10%+ increase in auto purchasing. They were aided further by Toyota losing sight of its own cultural strengths and producing problem vehicles for the first time in memory plus massive setbacks from the Japan tsunami. With these three boosts on its side, GM has, in one year, retaken its status as seller of the most vehicles world wide for the moment and it has a chance to re-build its culture in a new image while Toyota struggles to restore its to what it used to be.
Whatever happens, this is a contest to watch that is as important to future strategies in HR as any in history. We can’t know for sure when, if ever, we can expect a definitive victory. In fact, it’s arguably foolish to expect that at all. What we really need to see is whether any of these giants can not only re-orient and recover temporarily, but whether they can keep adapting, changing and innovating to last another 30, 50 or 100 years. In theory that ought to be possible. In practice it will be a massive comment on the evolution of human behavior whatever the outcomes.