GM’s Quality Cat

Sometimes in my work I come across low-trust organisations where it’s obvious that trust issues affect all aspects of working life. One example is provided by General Motors (GM) where low trust resulted in poor labour relations and problems with product quality for a long time. It’s only relatively recently that leaders started paying attention to the roots of the problem.

(This case study of GM and Toyota was in an early draft of my book Employee Experience (EX) Leadership, but didn’t make the final cut.)

GM is an iconic company whose fortunes mirror those of the automotive industry and American manufacturing at large. It was established in 1908 in Flint, Michigan by one of the ultimate deal makers, William Durant, who acquired a number of existing carmakers, including Buick, Cadillac, Oldsmobile and Pontiac. The company went on to acquire major international brands like Vauxhall, Opel, Holden and Saab.

GM has always done things in a big way, emphasising quantity and volume, international growth and scale, thereby making itself vulnerable to shifts in global markets. Throughout its history, it has sailed close to the wind.

By size, it reached a global peak at the end of the 1970s with a workforce of 620,000 in the US — making it the largest private employer in the country at the time — and a total global workforce of 850,000. In 1979, it was responsible for 45 per cent of all US car sales.

In the 1950s through to the 1970s, the company also established a clear employment deal with workers, which included job security and a future promise of retirement and health care benefits, to compensate for things like shift work and difficult conditions.

Since then, however, company profits have swung wildly but been in steady decline. In the recession of the 1980s, the company, already overstretched, hit a very difficult patch. Impacted by the recession, the oil crisis, changing market trends and the gains made by Japanese automakers, the wheels truly came off. Under CEO Roger Smith in 1986 the company closed 11 plants across the US Mid-West. This effectively brought the post-war employment deal at GM to a crashing end. Plant closures continued as the company struggled to deal with overcapacity and increased competition. CEO Robert Stempel closed another 21 plants in 1991.

These difficult conditions created a huge management problem, which became very clear in terms of product quality. Poor quality had, in fact, been a very public issue at GM going back to safety problems on the Chevrolet Corvair in the 1960s. Quality was not only a problem for GM, but for all of the big three US auto manufacturers (GM, Ford and Chrysler). But quality was a major problem at GM. Its X-Body cars in the 1980s, for example, suffered more recalls and endemic problems than any other GM vehicle program.

Management’s attempts to improve product quality were, for many years, ineffective and even farcical. These were typified by the attempt to motivate workers to improve quality by deploying a mascot, a large cat named “Howie Makem”. Poor Howie would walk around production sites, a large “Q” emblazoned on a red cape, the unfortunate subject of much abuse.

Not surprisingly, Howie did not spur the improvement needed in product quality. Rather belatedly management came to accept that quality was a much broader cultural issue and at its heart was low trust.

In part, this realisation came about because of what was happening in Japanese manufacturing. In 1990, the Japanese share of the car market surged to a then-record 28 percent. Toyota, Nissan and Honda dominated the J.D. Power list of the most problem-free cars in the 1990s. GM learned through joint ventures with Toyota and Suzuki that this success was not due to automation or technology by itself, which GM had been investing in heavily, but rather in their approach to management, which depended on a higher degree of empowerment to employees working on the line.

Much has been written about the Toyota Production System (TPS), the main elements of which are also broadly incorporated within lean manufacturing more generally. It was established by the founder of Toyota, Sakichi Toyoda and his son Kiichiro Toyoda and the engineer Taiichi Ohno who was chief of production in the post-World War Two period. The core elements of the TPS are also embedded in the company’s principles and behaviours, The Toyota Way, so they are at the very heart of the way the company works and how it treats its employees.

The main goal of the TPS is to eradicate inefficiency in the production process. This means tackling the three interrelated “enemies” of working in a lean way: reducing waste (muda), minimising inconsistency (mura) and avoiding “overburden” (muri). Two key pillars of the TPS are “just in time” (making only what is needed when it is needed) and “jidoka” which means “automation with a human touch.”

The human element is a critical part of The Toyota Way, which emphasises the importance of teamwork. In fact, trust and speaking up are at the heart of lean manufacturing. Continuous improvement in this manner depends on key concepts such as challenge and “kaizen” (taking responsibility for driving innovation).

When Rick Wagoner became president and chief executive officer of GM in June 2000, he knew he was taking on a very difficult situation. After all, he had already been at the company for 23 years by then. He began his tenure as CEO by focusing on cost-savings, selling assets and reducing bureaucracy. This included cutting about 10 percent of white collar jobs. Restructuring would continue to be a focus of his time in charge as he sought to keep costs in check.

In 2006, GM offered buyouts to hourly workers to reset the employment deal and reduce the company’s future liability. With this focus on costs and restructuring, during Wagoner’s eight years as CEO, GM’s market share fell to just 21 percent in the US. The years of large losses overwhelmed the years when the company made an occasional profit.

However, Wagoner’s leadership style was different from previous CEOs. He tended to ask lots of questions and his approach was often described as open and collaborative. The New York Times called him a “steady optimist”. He tried to balance different competing interests and his approach to change was to try and find consensus.

To outsiders, it may have seemed that little was changing. But inside GM, especially outside of North America, major changes were starting to take place. For example, in Wagoner’s first year as CEO, GM ran a global employee survey. This was a huge exercise which involved all 300,000 employees worldwide. In the US, the survey had the support for the UAW (Union of Autoworkers), which was a sign of improving labour relations. The survey established a base line measure of trust and respect across the company and it highlighted the scale of the culture change that was required. GM’s culture was often described as insular and arrogant. The survey held a mirror up to the organisation and led to significant efforts to improve the way people worked together.

In terms of the production process, in order to improve quality and efficiency, GM introduced its own GM Global Manufacturing System (GMS). The priorities of GMS were to implement lean processes and to increase speed and agility, and above all to focus on the product. The GMS was first developed through the NUMMI joint venture the company had with Toyota in the 1990s. (This had introduced the TPS to GM.)

As at Toyota, at the heart of the GMS is the operator. This means that the work space and work processes are designed to give support to operators and teams on the plant floor. For the first time, people involvement was a central focus for GM management. The GMS organises workers into small teams that are trained up and empowered to run their areas, focusing on problem solving and continuous improvement. The result of introducing the GMS is that a GM plant now looks and operates a lot like a Japanese company plant. The work and engagement issues that GM faces are now similar to those faced by any large automotive company.

GM’s crises will always be in the public realm. And, of course, Wagoner is viewed far less favourably now than he was earlier in his tenure. In fact, this is being polite, as he is now largely discredited. When GM required a bail out following the financial crisis in 2009, he was effectively asked to resign by the Obama administration as part of the deal. Certainly, the culture change that Wagoner embarked upon was still in its early stages by the time he left. So much so, that when Mary Barra became CEO in 2014, she put culture at the top of her list of priorities. The need was self-evident, as she quickly had to deal with a massive recall programme for ignition switches and other problems, which she put down a “pattern of incompetence and neglect.”

GM (and Toyota) are among the most fascinating clients, because they have some of the biggest challenges faced by any company anywhere.

It’s one thing to create an engaged workforce in a start-up that’s growing quickly. It’s a completely different matter to do the same thing when you have so many legacy commitments and years of mistrust in a traditional manufacturing sector like automotive.

It’s a key argument in this book that we are currently in an age of disruption and change — a new machine age. So just how you successfully navigate a global twentieth century behemoth like GM through this period is a gripping question. It’s a question that applies to a diverse range of industries, from accounting to telecoms to engineering to professional services and so on.

Notes:

1. On the origins of GM see Madsen, Axel. The Deal Maker: How William C. Durant Made General Motors. Wiley, 2001.

2. For a unique and personal view on life on the production line in Flint, Michigan, including the role of Howie Makem the GM Quality Cat, see Hamper, Ben. Rivethead: Tales from the assembly line. Grand Central Publishing, 2008.

3. For a great review of GM’s problems, see: Taylor, Alex. Sixty to zero: an inside look at the collapse of General Motors-and the Detroit auto industry. Yale University Press, 2010.

4. On Rick Wagoner, see http://www.autonews.com/article/20080914/ZZZ_SPECIAL/309149990/rick-wagoners-management-style%3A-questions-questions-questions, and Garvin, David A. “An interview with Rick Wagoner, Chairman and CEO, General Motors Corporation.” Harvard Business School Video Supplement 306–707, February 2006.