Memo to Wagoner from Alfred Sloan

To:       Rick Wagoner

 

From:   Alfred Sloan

 

Allow me to express my admiration for your congressional appearance, as only the latest example of three years of strenuous effort on your part to put the company on a more competitive footing, with considerable success. You are executing the CEO’s role as I conceived it, and if I could affect the matter today, you would have my support. I believe you have the vision and confidence to complete GM’s turnaround.

 

GM has been on the brink before

I know something about playing the hand you’ve been dealt. At the edge of bankruptcy in 1921, we were fortunate that the DuPont company recognized GM’s enormous potential. I can only hope that the American people come to recognize the same thing today, and instruct their representatives to make an appropriate investment. I also had to contend with a 71% sales collapse in the Depression, which required painful changes to save the situation.

 

These are new times, and I won’t impose my era’s ideas upon your actual circumstances or try and influence your generalship of the current battle. But I must urge you to focus beyond the plan you recently presented, and conceive a vision of how General Motors will, upon regaining financial viability, distinguish itself in the automobile market and resume a leading role in the industry.

 

Every successful enterprise needs a Concept of its Industry

Cutting brands, headcount, and your own salary are painful gestures that will indeed reign in spending. A lean structure with good products is a worthwhile emergency objective in the, but it doesn’t suffice as competitive strategy. Beyond your plan, General Motors needs a concept of its industry, an essential principle of enterprise that I define in my book, My Years with General Motors.

 

A concept of industry is simply a universal market principle that imbues your product with essential qualities that are valuable to buyers. Toyota’s concept of its industry is to produce vehicles which are thoroughly reliable, and thus minimize the costs of ownership; Honda’s is to produce vehicles engineered for efficiency, which accomplishes the same end. Every one of the vehicles they produce expresses their particular concept, which serves as a foundation upon which competitive features attract buyers based on individual desires.

 

GM’s Concept of its Industry 1921 – 1970s

In My Years, I describe how in the 1920s we conceived General Motors’ concept of its industry, and then activated it to overcome Ford’s commanding 60% share of the market. We began by reviewing our existing strategic assets, the most significant being: Fairly large volume spread across a variety of established brands; capability for technical innovation among some of the brands; and our new organizational idea of coordinated decentralization. We perceived the customer’s expectations to be for improved products and for choice among products. Our collection of assets was not unique, nor was our notion of customer expectations. It was our arrangement and activation of them that yielded a distinct GM concept of its industry, and which was quickly vindicated.

 

The GM concept of its industry we arrived at was to combine the advantages of volume, variety and innovation to offer a continually improving range of products. It superseded Ford’s concept of leveraging volume to continuously lower purchase price on a single, unchanging product. Whereas the Model T concept had since 1908 aligned with the nation’s technical priority of motorization, the GM concept responded to an evolution of that priority – by the 1920s, the nation wanted modernization. GM soon displaced Ford as the top producer, and became the world’s largest industrial enterprise. The principle of constant improvement remains vital, but GM’s failure to consistently adhere to and develop it stands as the essential cause of the current emergency

 

GM needs to seek out a new Concept

General Motors’ needs a new concept of its industry to be more than just viable beyond 2012. To thrive for a second century during which the idea of personal transportation will be transformed but no less in demand, GM must present itself as a vehicle for achieving not just America’s, but the entire world’s 21^st Century cultural priorities as they relate to transportation.

 

What are the assets that GM can apply today? Let’s not allow nostalgia to cloud the issue; for example, multiple brands are no longer an asset in themselves (read why I wouldn’t hesitate to dispose of Pontiac). To my mind, GM’s current assets are an excellent technical infrastructure on the verge of a major breakthrough, several still-iconic brands, and a flexible manufacturing system. These, I believe, are adequate to underpin a concept of industry that might be expressed as “freedom from carbon,” and which will be manifested first in The Chevrolet Volt when it launches in 2010.

 

As you can see, conceiving a concept of industry isn’t all that complicated, but activating it requires a coherent policy of management, which I believe your GM does not have. This is a primary failure of governance, and achieving such will have to be the first order of business by the new Board of Directors; I strongly urge the entire current Board resign as soon as Congress authorizes the emergency funding.

 

A resource you should utilize

To guide the vital task of developing a new organizational policy that can effectuate GM’s new concept of its industry, management must isolate some of the DNA that in the past made the company great. I’m not suggesting that you revive any specific historical policy such as the coordinated decentralization principles I worked under, but to reinvigorate the general principles of long-range focus, fact-seeking, and flexibility that were once the hallmarks of General Motors management. I suggest you revisit my book.

 

The point is that, viability is still only a short-term objective. GM needs to define itself to thrive in its second century. If you have the opportunity to continue as CEO of General Motors, I hope that you will consider these suggestions.

 

Warm regards,

Alfred P. Sloan, Jr.