The GM Debacle and what to learn from Toyota

If you open any newspaper today, you most likely will find an article about General Motors GM, explaining – or at least trying to explain – in detail why GM is currently in such desolate situation. To make it even more interesting, some of these articles compare GM & Ford with Japanese car manufacturers - mainly with Toyota - and they try to explain the differences: Why is it that GM and Ford are losing market share in breathtaking speed and Toyota gains double digit market shares at the same time?

Depending on what paper or magazine you open, commonly used explanations for GM’s current situation include:

• Huge pension liabilities dated back to the times when lots of money was made on cards and significant commitments toward the unions were made so everyone could have a happy life
• Enormous health cost liabilities to their current and retired workers, totaling up together with the pension liabilities to $2,500 - $3,500 per car
• Higher overall costs in North America that cannot compete with Asian costs
• Extremely good marketing of Toyota that makes cars increasingly attractive
• GM’s “gas guzzlers”, especially the SUV’s in combination with increasing gas prices make consumers more sensible
• Toyota is subsidized by the Japanese government with consequential lower total costs per car
• Toyotas hybrid cars – that are also subsidized by the Japanese government – take GM’s market away
• etc. etc.

Only to make it clear, this is not my opinion!

The current GM situation is surely not easy to handle, since certain actions should have been taken years or decades ago and – to make it even worse – GM’s recovering strategy is still not clear. GM is experiencing – and Ford as well - a situation or better “the effects of causes" that lie much deeper than obvious.

How is this possible? Well, Toyota - they say the world’s #1 car manufacturer in 2010, but Daniel T. Jones just announced that that already “this year Toyota will almost certainly overtake GM to become the number one in the global car industry” - has developed a unique and extremely successful enterprise philosophy over the last almost 50 years! This so called “Toyota Production System TPS” is primarily based on Lean & Six Sigma principals but most importantly TPS managed to address the “Human Factor” and consequently the company culture in a remarkable way.

But let’s stay with the GM news a little bit longer. What is GM going to do about their current situation?
Well, the main point seems to be closing down plants to adjust the capacity to the “market needs”. First GM announced to close down three (3) assembly plants in North America (Nov. 21, 2005) and only one day later they corrected to closing down nine (9) assembly plants, laying off 30,000 people and saving $7billion – yes, billion with a “B”! - by the end of 2006 (Nov. 22. 2005: CEO Rick Wagoner). Actually this number has already increased to ten (10) plants and we will see what the real numbers might be. You tell me how the "economy of scale" will impact plant closures.

Additionally, some insight has been generated that it makes sense to look at the supplier side and to work on aggressive procurement cost reduction through “Outsourcing $15billion to keep an Industry Icon Alive” (AMR research, Dec. 19, 2005). It might be important to notice, that this initiative is “purely IT driven”! Here are two GM statements:

• “With a five-year contract, technology partners are expected to aid innovation…”
• “Based on 10 years of experience in working with outsourcing arrangements, GM’s IT management team had the level of understanding needed to construct a two-tier vendor sourcing strategy, knowing how to make these arrangements work…”

It is hard to believe, but seems to be true: Even innovation will be outsourced. I cannot help it, but what happened the last 10 years with all the experience; where are the results? Sorry guys, but maybe somebody at GM should start talking with your suppliers in order to “ask for their help” instead of “telling them what to do”.

Coming back to my original question or should I say questions:

• Why is it that GM is loosing massive market shares in North America and at the same time Toyota is gaining more than this?
• Why is it that 85% of suppliers rate their relationship to GM as “poor” and only 3% as “good/very good” in contrast to only 17% of Toyota’s suppliers who say the relationship it poor but 63% say it is “good/very good”?
• Why is it that Toyota front ranks reliability and quality ratings way ahead of GM?
• Why is it the GM/Toyota joint venture NUMMI plant in Fremont, CA became the most productive plant in North America and GM seems not be able to transfer the philosophy to other plants?
• Why is it that Toyota – and Honda, Nissan – are assembling cars and engines with 20-25% less labor hours?
• Why is it that you “feel” a significant higher “energy and dynamic” when touring a Toyota plant versus touring a Ford or GM plant?
• Why is it that GM is using highly educated and skilled people just to drive finished cars to the outside parking lot, and this for 15 years?
• Why is it that Toyota has "highly motivated and engaged people who continuously improve and solve problems in a remarkable natural way" and GM fights the union?
• Why is it that GM hybrid development is at least one year behind the Toyota models?
• Why is it that Toyota has a "Long-Term Strategy" and GM’s strategy seems to change from one shareholder meeting to the next?
• Why is it that Toyota “never laid off” a worker and GM is just in the process of laying of over 30,000+! people?
• Why, why, why and there are many more “Why questions” that could fill the pages!
  

I might have some strong opinions about the answers but let me tell you what are “NOT THE REASONS:

• It is not because GM has these huge pension liabilities!
• It is not because GM has these enormous health cost liabilities to their workers!
• It is not because the unions drive GM into the ground!
• It is not because GM cars must be more expensive!
• It is not because Toyotas marketing is better!
• It is not because the overall costs in N.A. are to high (see example NUMMI plant in CA with ~40% costs disadvantage to other US states)!

Most of the above factors are just consequences of basic“ignorance, mismanagement, incompetence and arrogance”.
WAKE UP GM, if it is not already to late! Toyota is producing over 3/4 of its cars sold in North American in North America! So were are the cost disadvantages?

Let's just compare the mission statements of Toyota and GM (actually I had a hard time finding a GM mission statement). Toyota is using words like “contribution to growth of community, well being of team members and adding value to customers” in contrast to GM’s mission statement with words like “world leader in transportation, becoming the best, return to stockholders”. This alone shows a huge difference in behavior and culture. While every Toyota worker is not only allowed but has the duty to stop the assembly line when a quality problem is likely to leave the workers section, GM takes such a car off the line and “worries about it later”. Can you imagine what most likely happens if a GM worker stops the line? I don’t know but I could guess what happens if he or she does it the second time...!

So why is it that Toyota is so successful and GM is loosing its shirt?
Both are experts in implementing Lean and Six Sigma process improvement methods, one in theory & practice and one only in theory. No, the real difference is the “Human Aspect”. Over more than 50! years Toyota developed the Toyota Production System TPS which flawless combines process improvement (mainly Lean Manufacturing) with “The Human Side”, e.g. by engaging and truly respecting people.

Now, cold it be possible that this works in the western world as well?
Absolutely yes! Toyota is just showing it to everybody again with the new plant in Woodstock, Canada which will open in 2008. And believe it or not, when Toyota turns the key the plant will operate 100% under TPS with North American employees.

To be fair, I should mention hat the requirements for employment with Toyota are tougher than getting accepted at Havard Business School with a selection process that might take up to two (2) years. But again, GM could do it, too. Or couldn’t they?

So, if the difference is the human factor and people engagement, how can it be addressed or even improved? First of all it has to change with top management since they produce the company image internally and externally, e.g. to the shareholders. GM has to find a way to re-brand itself in order for their employees to even being willing to mentally join in. GM has to change its company environment. Yes, environment since a culture cannot be changed! The culture will follow if you change the environment in which people are working. You need to “pull” the culture along. The environment needs to change, away from workers coming in the morning and “Turing their brains off” only to turn it back on at 5pm when they leave the plant.

By the way, the same workers – after work - plan, organize and execute the most complex vacation packages you ever saw. Every flight, bus trip, car rental, hotel arrangement, scuba diving booking and donkey tour fits perfectly the planed time schedule and nothing is left to change. Isn’t it amazing?

To make it clear, I am not blaming the workers at all, since it is 100% not their fault or responsibility! It is the fault of management and the fault of “the system” of how management is brought in and how management’s incentive system is set up (to name only a few). In the 50’s Dr. Edward Deming (the guy who taught Japan quality in the 50’s since nobody in North America was listening to him at that time) brought up “The System of Profound Knowledge” that consist of four (4) knowledge requirements for management:

• Appreciation for a system
• Theory of Variation
• Theory of Knowledge
• Understanding of Psychology

That’s the only thing GM management needs to understand and respect and than to slowly implement. Look at Dr. Deming’s point #4 and please keep in mind that he brought it up in the 50’s: “Psychology”. Already at that time it was clear that you MUST address the human factor in order to be successful.

I think it is not too late for GM, even if it will take quite an effort and a “few years” to gain trust and communicate a required new company philosophy. If GM does not know how to start this process of recovery, may be GM should start with just “asking their employees” how to do it. Just ask your most potential resource and engage your employees actively.

Because the people will tell management what to do, if someone would only ask and listen…

Sorry, but I cannot understand how GM management can believe that closing 10 plants and firing 30,000+ employees will change anything about GM’s root cause problems. Good night GM if you don’t start now addressing these so obvious issues!

Juergen Boenisch, Ph.D.
Executive Management Consulting
Toronto, Canada