I've Been Afraid of Changing (Part II)

It is easy to slam covenant breakers who enriched themselves while destroying a national treasure and a national trust. However, there is another side to the collapse of General Motors that is more disturbing because it can and does happen to good men or women trying very hard to do the right thing.

Peter Druker is generally considered the father of the scientific study of management behavior. About 14 years ago, Druker wrote an article based on his studies of once great corporations that fell into ruin. He discovered some similarities in these stories that correspond to psychological principles discovered by the behaviorists during the 1940s. If a company has a business model that has been very successful, they will keep working that business model into bankruptcy even if it is perfectly obvious to the outside observer that the business model is hopelessly irrelevant given the changes in the marketplace and the customer base. Back in the mid 1990s Druker used these findings as a basis to predict the bankruptcy General Motors is facing today.

There are several predictable stages in the decline and fall of a once mighty corporation. First, the controlling ownership of the corporation will notice a decline in revenues and profits. By the time these problems are finally confronted, the corporation is already in serious trouble. Firing the Chief Executive Officer (CEO) is always the first step taken by the board. They will then bring in a new man or woman to execute the business model with greater energy. The new CEO will in fact exercise the business model with greater energy and effort than his predecessor. It won’t make any difference; the company will continue its decline. Next the business model will be streamlined for greater efficiency and in fact operations will become more efficient, but it doesn’t make any difference, the company will continue to decline. Druker discovered many cases where the corporation continued working their business model with outstanding energy and efficiency right into bankruptcy court. At no time during the process, does the corporation ever question the basic assumptions of their business model.

General Motors based their business model on selling a wide range of new cars to their customers. They expected their customers to buy a new car every two or three years using the value of their late model used car as a down payment on the new car. The GM dealers would then add to their profitability by selling these late model used cars at a premium to second tier customers. GM also expected their customers to move up their line from Chevrolet, to Pontiac, to Oldsmobile, to Buick, and finally if they were very successful to Cadillac.

They ignored the changing marketplace. First GM ignored the Volkswagen. When the bug was introduced in America it was already over 20 years out of date. However, the VW was a well-made practical and reliable small car with a very low overall cost of ownership. Americans bought them by the millions until changes in safety and environmental law finally rendered them obsolete. Then GM ignored the Japanese invasion. Then they ignored the increasing reliability and technological advances offered by Toyota, Datsun, and Honda. Today, Toyota is larger than General Motors. GM ignored models by Lexus that were much better than comparable models produced by Cadillac and considerably cheaper than models produced by Mercedes Benz.

General Motors ignored changes in their customer base. My uncle was a poster child for the General Motors business model. Every two or three years he bought a new Pontiac. It was his thing. I live in a fairly comfortable middle class neighborhood. I don’t think any of my neighbors have ever kept a car for less than seven or eight years unless they wrecked it. Some of us keep a car for much longer than seven years. To the baby boomers, a car is more of an appliance and less of a fashion statement than it was to our parents. We want a car that is practical for its intended use, reliable, and affordable. We still have our foibles, just look at sales of giant SUVs over the last ten years, but even in this example, the SUV is a practical family car and people keep them for a very long time. We tend to waste our disposable incomes on other things such as luxury vacations, second homes at the beach or in the mountains, and inexplicably on gourmet kitchens. I found this somewhat comical as women of my generation cook much less than their mothers.

I am a child of the industrial age. I was trained to go to school get a degree and find the lifetime “good job” with a large company. My first degree was a B. A. in U.S. History and English Literature. This degree did provide me with a job in a factory, but night superintendent at a saw chain factory is no way to live. I decided to go back to school and get another degree, this time a B. S. in Mechanical Engineering. Again I found a “good job” this time at a government research laboratory. I perceived my opportunities for advancement were somewhat limited so I went back to school a third time and earned a M. S. in Technical Management. I found a job in our Office of Technology Transfer and worked there for ten years. However, times changed, staff was reduced and I was returned to my old job. I am very thankful to have a fairly secure Government job at a time of great economic distress. If I didn’t have this job I would not know how to start over in a postindustrial world. Time has past me by. I am too old to go to school and get another degree and start over using the only method I know.

I am left asking why did this happen to me? This is not a wise question. I should be asking, “These things being so, what should I do now?” I wouldn’t know how to answer that question. I only have my business model. It worked pretty well for me, although not as well as it worked for my father.

A young person would be wise to have more than one business model in this changing world. The “good jobs” are mostly gone. The wealth producing union jobs at great institutions like GM are gone. Most of our factory jobs went to China. Now many of our white collar jobs, including engineering jobs, are moving to India. We are stuck in a very interconnected world and are in a wage arbitrage war with the developing countries. We are in a race to poverty where the low bidder gets the work.

May God bless and protect us.
Isaiah 43
[1] But now thus saith the LORD that created thee, O Jacob, and he that formed thee, O Israel, Fear not: for I have redeemed thee, I have called thee by thy name; thou art mine.
[2] When thou passest through the waters, I will be with thee; and through the rivers, they shall not overflow thee: when thou walkest through the fire, thou shalt not be burned; neither shall the flame kindle upon thee.
[3] For I am the LORD thy God, the Holy One of Israel, thy Saviour: I gave Egypt for thy ransom, Ethiopia and Seba for thee.
[4] Since thou wast precious in my sight, thou hast been honourable, and I have loved thee: therefore will I give men for thee, and people for thy life.
[5] Fear not: for I am with thee: I will bring thy seed from the east, and gather thee from the west;
[6] I will say to the north, Give up; and to the south, Keep not back: bring my sons from far, and my daughters from the ends of the earth;
[7] Even every one that is called by my name: for I have created him for my glory, I have formed him; yea, I have made him.
[8] Bring forth the blind people that have eyes, and the deaf that have ears.
[9] Let all the nations be gathered together, and let the people be assembled: who among them can declare this, and shew us former things? let them bring forth their witnesses, that they may be justified: or let them hear, and say, It is truth.
[10] Ye are my witnesses, saith the LORD, and my servant whom I have chosen: that ye may know and believe me, and understand that I am he: before me there was no God formed, neither shall there be after me.
[11] I, even I, am the LORD; and beside me there is no saviour.