It’s a balance, a delicate balance since the business is getting so globally competitive. The key is to combine the profound knowledge and capability that comes from effective common global systems and processes, with the targeted focus and market knowledge of local expertise. You win by knowing when to push a little more global, and when to push a little less global. That’s the “race to the middle,” and it’s a tough assignment.
— G. Richard (Rick) Wagoner, Jr., Chairman and CEO, General Motors
Rick Wagoner’s calendar for October 19, 2004 left him with 30 minutes before his next meeting. He
needed that time to reflect on the decision that GM’s Automotive Strategy Board (ASB) had just made. As Wagoner’s senior management team, the ASB was made up of the presidents of GM’s four regions and the leaders of the 12 critical functional areas.1
The ASB was one result of the matrix organization that Wagoner and former CEO Jack Smith had installed in 1998. It replaced the historic multidivisional structure and its proliferation of vehicles, architectures, and processes that had almost caused GM’s demise. Wagoner firmly believed that the challenges of managing in today’s global automotive industry and winning the race to the middle involved finding the right balance between centralized and decentralized management approaches. The matrix structure seemed to be achieving that balance.
Now, however, the ASB had decided to alter the budgeting and planning processes for GM’s product portfolio. Although all ASB members had agreed that the change would strengthen the move to one common, truly global GM, Wagoner feared it could upset the delicate balance between global and local needs. He observed: “Acting as one company sounds simple enough. But the whole idea runs counter to GM’s history.”
Alfred Sloan’s GM: Revving up (1920–1956)
The GM that Wagoner was leading in 2004 had evolved over a history of almost 100 years. In 1908, entrepreneur and visionary Billy Durant had created the first automotive conglomerate and the
1 Since some of the Region Presidents also served as leaders of a functional area, the total number of ASB members was 14.
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industry’s first vertically integrated company through a series of mergers and acquisitions. Each of the 25 automobile manufacturers, component suppliers, and various other businesses operated independently and reported directly to Durant, establishing a GM culture where internal competition and duplication were tolerated and often encouraged. By 1920, through a series of poor management decisions combined with an economic recession in the United States, Durant lost control of the company to the DuPont family. The DuPonts appointed Alfred P. Sloan, Jr., a manager whose ball bearing company GM had acquired in 1918, to reorganize GM’s structure and management processes to be in line with its strategies.
Strategy
Three major strategies drove GM through the next several decades: an ingenious marketing policy, a commitment to innovation, and international diversification. These strategies were aligned with a decentralized structure and a set of processes to sustain them.
First, Sloan developed a “pricing pyramid” to structure the pricing of the various different car brands, from the most economical Chevrolet up to the deluxe Cadillac. Customers would shift their purchases up the ladder as their economic situation improved. Sloan expected that within the company there would be no duplication in the price fields or steps. This policy distinguished General Motors from its competitors and allowed GM to produce “a car for every purse and purpose.” 2
The second strategy was a focus on research and innovation. These innovations included annual vehicle changes, high compression, overhead valve V-8 engines, premium gasoline, chrome tail fins, and the fully automatic transmission. They also involved new financial products, such as credit financing through the General Motors Acceptance Corporation subsidiary. Thirdly, GM pursued a strategy of diversification, both inside and outside the U.S. GM began exporting cars in 1925 and then purchased the British vehicle firm Vauxhall in 1925, the German operation Opel in 1929, and Australia’s Holden in 1931.
Over the years GM’s market share and performance grew. In 1955, the first Fortune 500 ranking listed GM at the top in both sales and net profits. By the next year, just before Sloan retired at the age of 80, GM became the first company to net more than $1 billion, on revenues of $10.8 billion. With nearly 600,000 employees, GM accounted for more than one-half of the vehicles sold in the United States (see Exhibit 1 for financial performance).
Structure
To support these strategies and to manage the powerful divisions, many of which were still run by their original founders, Sloan devised a multidivisional structure to replace Durant’s loose management system. Unlike the more common, centralized functional company such as Standard Oil, Sloan intended this new structure to maintain a delicate balance, which he called “decentralization with coordinated control.” “From coordination,” Sloan wrote, “we get efficiencies and economies. From decentralization we get initiative, responsibility, development of personnel, decisions close to the facts—all the qualities necessary for an organization to adapt to new conditions.”3 According to Sloan, handling the contradiction between the two was at the very crux of the manager’s job.
2Alfred P. Sloan, Jr., My Years with General Motors (New York: Doubleday, 1990), pp. 62–65.
3 Alfred P. Sloan, Jr., My Years with General Motors, p. 129.
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A general manager ran each car division, such as Chevrolet, Buick, Cadillac, as an autonomous company, with a self-contained set of functions that included engineering, assembly, production, and sales. GM’s subsidiaries and many assembly plants in 15 countries around the world also operated independently. They focused on their home markets and developed their own ways of organizing and doing business (see Exhibit 2 for organization charts).
Divisions were aggregated into groups, headed by a group executive. This role, a new one in American business, reduced the number of direct reports to the CEO and thus allowed the CEO to focus on guiding the broad policies4 of the enterprise. Assisting the CEO in his role was a Management Committee5 where ultimate responsibility for decisions around resource allocation, spending authorities, and planning for GM’s future resided until 1992. Members of this committee included the top officers of the company—the president, chairman of the board, chief executive officer, the chief financial officer, any vice-chairs and executive vice presidents, many of whom also served on GM’s board of directors. Group executives did not serve on the Management Committee.
A board of directors and staff functions completed the organization. The heads of each staff area, such as finance, purchasing, personnel, and engineering, chaired a committee, or “policy group,” which had responsibility for supporting the Management Committee in its policy-setting and decision-making role. The staff worked closely with their functional counterparts in the divisions to coordinate policy development and implementation and to share best practices across the company.
Policy and Decision-Making Processes
Coordinated control in the decentralized organization came from the Management Committee and the Policy Groups. Policy Groups met monthly to set standards and policies, such as plant design specifications, new technologies, grades for materials, labor contracts, and HR pay policies, to review proposed changes to policies and spending requests, and to make recommendations to the Management Committee for action. While the Policy Groups could make most decisions about standards and policies in their areas of expertise, they had no funding authority. They thus would pass on to the Management Committee those proposals that involved capital or other expenditures or that had public implications for GM—for example, car dealer arrangements. Although these Policy Groups had no formal authority over the divisions, the divisions were expected to carry out the policies set by the groups, once they were approved.
Senior managers, including group executives and members of GM’s Management Committee—and often Sloan himself—attended the monthly Policy Group meetings. Sloan encouraged debate at these meetings to get input and expected everyone to participate in the discussions in order to elicit contrary points of view.
Sloan designed this organizational structure to keep senior management detached from the interests of specific divisions and to concentrate on broader issues. General managers made all operating decisions for their divisions and designed and managed local processes and programs, so long as they were consistent with the corporation’s general policies and financial standards. A Group
4 The use of the term “policies” at GM appeared to follow the definition of “policy” used by Kenneth R. Andrews in his book, The Concept of Corporate Strategy (Richard D. Irwin, Inc., 1980, p. iv): “The functions and responsibilities of senior management, the crucial problems that affect the success of the total enterprise, and the decisions that determine its direction, shape its future, and produce the results desired.”
5 The senior decision-making group at the top of GM went by various names over the years, such as the Operations Committee, the Policy Committee, the Operations Policy Committee, the Executive Committee, and finally, the Management Committee. It generally had from four to eight members.
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Executive would review proposals with the general manager and would then take the proposal to the monthly meeting of the appropriate policy group. That policy group would then decide on the matter or make a recommendation to the Management Committee.
As profit centers, the divisions developed their own plans and forecasts, although all major capital expenditures required the approval of the Management Committee through GM’s Appropriations Review process. Planning beyond the current year was the responsibility of a small group made up of Sloan and his senior executives.
Factual, analytical decision making at all management levels was considered a hallmark of Sloan’s GM. Sloan kept a little black book with historical, forecast, and appropriate competitive information for each division of the corporation. He recognized that the figures did not give automatic answers to problems. Nevertheless, they, along with GM’s accounting innovations such as ROI for measuring divisional performance, standard volume and standard pricing to assure a set level of return, and transfer pricing among the divisions, exposed the facts and allowed Sloan to judge and manage the performance of the divisions.
For many years, GM’s sales volumes were large enough to cover the costs of plants dedicated to single models, to absorb the duplication of functions and processes, and to handle the internal competition that the organization promoted. Sloan had recognized that the balance of control between the divisions and the central office might need to shift as circumstances changed. However, despite growth in sales, market share, geographic reach, and number of employees, this innovative structure, which came to be called the multidivisional or “M-Form,” stayed essentially the same until the 1990s. Along the way, senior management continually had to wrestle with the “horns of a dilemma,” as described by Sloan: “We had to have more coordination to meet new conditions, and at the same time we had to keep top management from falling into the hopeless position of trying to administer the affairs of the decentralized divisions.”6
Coasting Toward Collision (1960s–1990s)
The challenges facing the corporation began to shift in the 1960s and 1970s, testing the organization’s prevailing strategy, structure, and senior management processes. Increased competition, from inside and outside the U.S., tighter governmental regulation and standards, and a proliferation of car models and platforms all heightened the complexity of running the organization. When the oil crisis of the 1970s led to a demand for more fuel-efficient cars, GM—unlike its foreign competitors—was unable to respond quickly. Wagoner summed up these challenges: “GM’s internal focus and its ‘not invented here’ attitude didn’t help. We enjoyed the independence and the entrepreneurship that Sloan’s structure allowed, but we couldn’t move the resources around as quickly as we would have liked.”
Strategy
GM’s strategic response to these changing circumstances was continued duplication, confusion, and resistance. With a focus on market share, the divisions competed with each other to expand sales by moving their cars into different price classes, leading to a proliferation of car platforms, models, and components, the homogenization of cars across the divisions, and brand confusion.
6 Alfred P. Sloan, Jr., My Years with General Motors, pp. 175–176.
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Sloan’s successors at the top became more focused on costs than on revenue and fought safety and environmental standards. Arrogance and insularity replaced innovation and experimentation. During nomination hearings in 1952 before Congress, the then CEO of GM was asked if he could make a decision as Secretary of Defense that would benefit the nation even if it were adverse to GM. His response: “For years I thought what was good for our country was good for General Motors, and vice versa.”
Structure
The effectiveness of this decentralized organization began to break down over the years as operational complexity and internal competition increased. Each division and each global region continued to have its own management, engineering, and marketing processes, advertising campaigns, and dealer networks. In the 1960s and 1970s, cost and product proliferation considerations led to a limited consolidation of some of the assembly/manufacturing operations into a more centralized assembly division. However, this step was not enough to make GM competitive, especially in light of safety, environmental, and energy regulations. These regulations drove a fundamental change in the vehicle structure from body-on-frame, rear-wheel-drive vehicles to body-frame-integral, front-wheel-drive vehicles. This change, as well as a lack of cost competitiveness, led, a decade later, to a restructuring of the North American operations into a new organization with two car groups. The Buick, Oldsmobile, and Cadillac (BOC) group concentrated on making large cars; and the Chevrolet, Pontiac, and Canada (CPC) group focused on making small cars.
Policy and Decision-Making Processes
Despite the changes in organizational structure and in the world around GM, the Management Committee and Policy Groups stayed roughly the same. However, the reorganization of the 1980s slowed down decision making by adding a new layer of required reviews on top of the already existing divisional management review. Senior management became more internally focused. Unlike Sloan who stayed connected with the marketplace and employees through unscheduled visits to dealers and around the company, executives instead focused on lining up needed votes before meetings, arguing over transfer prices and overhead allocations, and attending pre-meetings to eliminate surprises at the regular meeting.
Policy Group staff shifted their focus from recommending companywide policies, standards, and practices to gathering data, bound up in thick gray notebooks, to support particular positions. Policy Group meetings, instead of debating issues, would simply confirm that executives had done their homework by obtaining needed reviews and approvals.
At the same time, divisions devised ways to circumvent many decisions that actually got made. Larry Burns, vice president of R&D and planning, described GM at the time: “It was dysfunctional and impossible to run. Parochial interests dominated. There were too many interfaces to manage and too many coordinating bodies. It was like Congress.” Wagoner added: “The staff kept executives out of the dirt and from knowing what was going on with customers and employees. The number of committee reports and committee meeting time led to an excessive internal focus. It was hard to pin down responsibility, and there was a certain slowness to the business.” Jack Smith, CEO from 1992–2000, agreed: “Basically, GM was paralyzed. Consensus at that time meant everyone getting what they wanted. It was so bad that even the union complained!”
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By the early 1990s, GM was branded a “dinosaur.” The papers referred to GM’s “death spiral” and “inexorable decline.”7 There was fear for its survival, amid rumors of bankruptcy.
Getting Back on a Common Track (1992 and Beyond)
In 1992, the board of directors acted. They replaced the then chairman and CEO with GM veteran Jack Smith as CEO and president. Smith, who had led the turnaround of GM Europe, believed he had no choice but to act, despite concerns about another reorganization. He eliminated the Policy Groups, abolished the two vehicle groups, and replaced the Management Committee with a five-member President’s Council, made up of the CEO and president, the CFO, the EVP of Corporate Affairs and Staff Support Group, the EVP and general counsel, and the EVP of GM International Operations. He reduced the corporate staff, and he closed the executive dining room.
Strategy
Smith and the President’s Council set out to turn the organization around with a new strategic direction. With GM’s market share continuing to fall, they took steps to overhaul processes and reduce overlapping product lines, eliminating similar, often competing, models, and developing common systems for product development, design, and manufacturing. They also focused on speeding up and bringing more discipline to the decision-making process, streamlining the bureaucracy, and eliminating the interdivisional competition that had dominated the old GM.
Structure
Smith’s restructuring of GM came in two steps. First, since Europe was in a strong growth period at the time, Smith decided to spend his first two years as CEO and president personally managing North American Operations to “stop the bleeding.” In North America, Smith not only eliminated the two-vehicle group structure, but also consolidated automotive engineering, manufacturing, and purchasing from across the vehicle divisions into one North America organization. Managers of the vehicle divisions were stripped of most direct responsibility other than sales, marketing, and their own dealer networks.
To manage North America, Smith established the North American Operations Strategy Board, which initially met almost daily. Globally, Smith combined the remaining regions into a General Motors International Operations organization based in Zurich, Switzerland, with its own strategy board. Unlike North America, where the vehicle divisions were now responsible only for marketing and sales, countries and vehicle subsidiaries outside of North America, such as Opel and Holden, continued to operate as fully integrated and independent organizations.
Smith brought Rick Wagoner back from his post as general manager of Brazil to be first CFO and then head of Purchasing. Wagoner, who had begun his career at GM in 1977 as an analyst in the Treasurer’s Office in New York, had also been finance director in Brazil, Canada, and Europe. Wagoner joined the President’s Council. In 1994, once North America was stabilized, Smith named Wagoner to be its head.
7 “A Drive on the Wild Side—The Troubles at GM,” The Economist, October 24, 1992; Doron P. Levin, “Experts Doubt Cutbacks Alone Will Save GM,” The New York Times, December 23, 1991.
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The second step toward restructuring GM occurred on October 6, 1998, when the company announced the establishment of a single Automotive Strategy Board (ASB), chaired by newly appointed president and COO Wagoner. Smith eliminated the GM International Operations organization and strategy board. The heads of the North America, Asia Pacific, Europe, and Latin America, Africa, and the Middle East regions, each of which was to have its own strategy board, joined leaders of critical global processes in now reporting directly to Wagoner.8
A critical component of the reorganization was the matrixed organization, or, as GM called it, the “basketweave” (see Exhibit 2 for organization chart). The four Region Presidents formed the vertical columns and had responsibility for operating and financial results. The horizontal rows were made up of Global Process Leaders, representing the critical functions, such as Product Development, Manufacturing, Sales, Service and Marketing, Human Resources, Planning, Research and Development, Purchasing, Information Systems, and Finance. Unlike the former heads of the policy groups who had responsibility for North America only, the Global Process Leaders—while still based in Detroit—had worldwide responsibility for decisions around policy and direction, as well as for the quality and consistency of processes. Staff in each of the regions reported to both the Global Process Leader of their function and to the Region President. According to Wagoner, they did not consider any other organizational model. “A matrix is a horrible way to run a business; it’s just better than anything else.”
Policy and Decision-Making Processes
Changes in processes reinforced the new structure and led to more streamlined decision making. With the new organization, GM was finally able to break its legacy of separating policy making from operational decision making.
Regional decisions The four Region Presidents and their strategy boards were responsible for developing, reviewing, and approving regional operating budgets and business plans. As opposed to the tight financial controls that the Management Committee used to have, each of the boards had its own authorization levels. The boards therefore scrutinized detailed appropriation requests, product recalls, and product programs pertaining to their particular region, and then sent on to the ASB those items that needed higher-level review, deliberation, or approval. Virtually every item that reached the ASB had already been through a thorough discussion at a regional strategy board. Some were simply “Notices of Decision,” sent to the ASB to keep it informed, while others required ASB approval. Wagoner reportedly read the minutes of all regional strategy board meetings.
Functional decisions Global Process Leaders were responsible for their functions across the entire company. They had their own councils, which met monthly or quarterly and which served as forums for developing programs and plans, streamlining processes, and accomplishing functional business objectives across the regions. Some processes, such as Purchasing, Finance, Quality, and Information Systems, were easier to streamline and take global since they were already well-established across the company. Other processes, such as Manufacturing, Labor Relations, Human Resources, Public Policy and Communications, Design and Engineering, had a rougher time, either because they did not lend themselves to a global view (such as Labor Relations), because they had not yet really developed a national structure (such as Public Policy and Communications), or because of the difficulty of changing processes while continuing to conduct business. For Manufacturing, for example, it was like “changing a tire while speeding down the highway,” as Gary Cowger, the Global Process Leader for Manufacturing, described it.
8 Wagoner became CEO in June 2000, and chairman in May 2003.
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Balancing the matrix Since many Global Process Leaders had previously been responsible for their respective functions in North America, some Region Presidents were concerned that the change would lead to North America “swamping the rest of the organization.” In response, in the new organization the regions were initially given the dominant role in the matrix, with budgeting and financial reporting accountabilities. Functional staffs, with the exception of corporate staff, had dual reporting lines; salaries and other expenses for the functions were included in, or allocated to, the region’s budgets. The CEO and CFO set profit targets and allocated capital and engineering budgets to the four regions. Regions were then responsible for deciding how to use that budget for their own product priorities. Functions, with only a few exceptions, did not have capital budgets.
The Automotive Strategy Board: The Matrix in Action
In the new organization, the regional strategy boards and the global process councils came together at ASB, which, along with GM’s board of directors, made the major decisions for the company.
Roles of the ASB
As the chief governing body of General Motors, the ASB was responsible for the company’s overall strategic direction. Governance and policy making were clearly within its scope, but it also served a variety of other purposes and roles. As the vice president of global human resources Katy Barclay put it, “Sometimes, it’s a decision-making body; sometimes it’s a sounding board; and sometimes it’s a vehicle for information sharing.” Certain responsibilities, however, were, in at least some members’ view, outside of its scope.
Governance and oversight In its governance role, the ASB made decisions about financial commitments and resource allocation, such as approving new plants, product programs or other capital projects, within its spending authorities. As the management committee of GM, the ASB provided high-level oversight for new ventures and addressed concerns around staffing, budgets, and change-management processes. It approved capital decisions that had gone through a Regional Strategy Board and reviewed all matters that were headed for the board of directors.
This governance role also included responsibility for the financial results of the corporation, since it was at this level that all the regions came together and where gaps in expectations had to be managed. The ASB reviewed and approved the corporate budget, starting with high-level targets, reviewing regional budgets and the programs proposed by the functional areas, and then iterating through several meetings in which two to three hours might be devoted to the topic.
Policy setting Another key role of the ASB was policy formulation. The Global Process Leaders proposed new policies to the ASB, usually after significant discussion within the regions, for further debate, input, and final approval. Barclay described different policy issues she had brought to the ASB. One decision involved changing the executive compensation approach. She had used her Global Personnel Strategy Group, comprised of senior HR staff from the functions and regions, extensively in this screening process and then took it to the ASB for final discussion and approval. On another decision, regarding policies and compensation for international service personnel, she asked for direct input from the ASB members. “If I had heard 75% of them say it was not a good idea, I wouldn’t have done it. It’s a matrix, after all. Why would I want to do something they wouldn’t implement well?”
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The issue around broadening salary bands was handled quite differently. GM, like other large organizations, had for many years established salary bands around job grades, often defined by the size of the manager’s unit or the number of direct reports. These bands and job grades led to problems in lateral transfers because they tied compensation increases to promotions or assumption of broader responsibilities. As Barclay described the problem, “This grade structure turned out to be wrong for the new GM we were trying to create. We needed to eliminate the hierarchy it had fostered and instead encourage more lateral transfers for skills development.” Through several one-on-one discussions, Wagoner and Barclay decided they needed to widen GM’s salary bands so that executives would not worry about compensation impacts when offered a developmental assignment.
The proposal led to a number of debates at the ASB. According to Barclay:
The first time we brought it to the ASB to get their input, they thought we were crazy. They had grown up in the old system and weren’t sure how they would recognize and reward performance under the new system. They were also concerned that this change, which involved the very sensitive area of compensation, would cause far too much anxiety with so many other changes occurring at the same time. We needed to let them have time to vent and to know they had been heard.
After several hours of discussion in three ASB meetings, Wagoner and Barclay worked through these objections, selling the benefits of the proposal and addressing questions of communication and implementation. Outside the ASB meetings, regional HR vice presidents had conversations with their strategy board members to share the reasons for the change and to address their concerns. Eventually everyone accepted the idea.
The decision around the Global Vehicle Line Executive position was another example of policy setting. Despite a focus on “one common” GM, the company had continued to struggle with reducing duplication of parts and processes across the vehicle brands. In 1995, GM had established vehicle line executives within particular regions to take responsibility for speeding up the move to fewer vehicle platforms, or the framework from which several models could be built.
As GM continued down the path of globalization, the regional approach did not satisfactorily solve the problem of redundancies across regional lines. Bob Lutz, vice chairman of product development and chairman of North America, and his team therefore proposed establishing a global vehicle line executive to manage a single vehicle program throughout all regions. In the first half of 2004, the ASB spent several sessions discussing the proposal and alternative approaches to the responsibilities of the new position vis-à-vis the accountabilities of the Region President. Some of the Region Presidents were concerned about macro designs not meeting local market needs and standards and about how these global programs would be controlled. Systems and process controls that would limit variations on standard engineering designs were proposed. According to Lutz, however, they would have to be used “very delicately, since this would be the first time that we made a function dominant over the regions.”
Initially, Wagoner had not supported the proposal. He was not comfortable with the definition of accountability for results between the Region Presidents and the Global Vehicle Line Executive. He also was concerned about keeping GM flexible and not adding another layer of bureaucracy with a new organization. In response to this concern, Lutz proposed a continuation of a matrixed, dual-reporting structure for the first Global Vehicle Line Executive and his small team, who would negotiate with the regions for budgets and staff resource allocations. A structure would also be put in place for escalating decisions up the GM organization. Lutz and a supportive Region President had finally persuaded Wagoner and the rest of the ASB to establish the position. Commented Lutz, “My
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view initially was not 100% aligned with my chairman, but that’s the wonder of Rick Wagoner. He loves it when you disagree with him, as long as you disagree intelligently.”
Alignment The ASB played additional roles that promoted organizational alignment, coordination, and communication. According to Cowger, “The meetings end up getting everyone leveled up and jointly understanding critical decisions.” Wagoner agreed: “I want people to understand why we do what we do. Then I don’t have to make the decision.” Lutz in fact believed that the ASB was more concerned with modifying GM’s culture and was more focused on “the how, than the what.”
The ASB served to develop personal relationships and facilitate communication at the very top of GM. After all, said Wagoner, “It’s here that differences of opinion among the regions or with the Global Process Leaders are resolved. So I use the ASB to build camaraderie, without wasting too much time in offsite meetings. I want Region Presidents sitting down with the Global Process Leader of Powertrain, not with their regional Powertrain person to speed up decision making.”
Wagoner also saw the ASB interactions as developing a common process for decision making. In his view:
The way you think about things needs to be very predictable. If a manager comes in with 10 dilemmas and answers only five the same way I would, he or she would lack confidence in making decisions. If managers all have the same facts and the same thought processes, then those of us at the top of the organization should, for the most part, reach the same conclusions.
We try to develop consensus, not just on specific issues but also on a consistent and predictable process about how we think about issues. One of the crazy things about GM is that our products all looked alike, but our processes were all different. We want the opposite.
Strategic decision making While the ASB was chartered with responsibility for GM’s strategic direction, strategic planning was not a set agenda item. Rather, strategic issues, such as acquisitions, growth strategies, and resource allocations, were debated and decided upon as they arose, often after considerable debate.
The decision to acquire portions of Daewoo was an example. GM had been considering acquiring Daewoo, the Korean automotive firm, since it had terminated its 15-year alliance with the company in 1992. Beginning in November 2000, GM intensified its discussion of purchasing different parts of the company. At one point, 13 of the 15 ASB members were against the proposal. However, Wagoner kept the issue alive. Wagoner described the evolution of the discussion over time:
In the early stages of this decision, as Daewoo went into bankruptcy and then as Ford outbid us for the right to negotiate, all we did was stay informed. When Ford decided not to submit a final bid, the discussion became, “If we get this, what are we going to do with it? Where are we going to sell the product?” The ASB spent a lot of time developing a strategy, figuring out how to make the strategy work, and deciding how to deal with the legal and staffing issues. Then, some members of the ASB started to speculate on the opportunities and the discussion evolved to include such questions as: “How could we use their products? Should we use GM platforms or develop a small SUV?”
The unfolding decision process allowed ASB members to voice their concerns about the acquisition, challenge the numbers, and develop new perspectives. Former CEO Smith believed that the Daewoo decision “was an example of the ASB at its finest. Everyone asked tough questions. The process forced the doubters to speak out and drove the numbers that made it a good deal.”
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Despite discussions like these, at least one ASB member remarked, “Don’t be confused by the word ‘strategy.’ Sometimes strategic issues come up serendipitously, but the ASB is largely tactical.” In fact, there was no consolidated GM strategic plan. Strategic planning, according to some ASB members, was for the most part carried out informally, in small groups of senior executives. One member observed: “As big strategic thinkers, Wagoner, vice chairman and CFO John Devine, and Lutz bounce ideas off each other. We also have product groups that develop long-term product strategies.” Wagoner agreed with this view. “If there is concern about our approach, it’s because of the view that a strategic plan is all about a two-hour or more meeting where we only talk about strategy. That doesn’t happen at GM.”
Supporting the Matrix
To make the matrix work and to improve decision making, Wagoner took several steps. They included “double-hatting” responsibilities, aligning performance management goals, and establishing meeting groundrules.
Double hatting First, Wagoner asked some of the Region Presidents to wear two hats—a geographic one as well as a Global Process Leader one. As Wagoner put it, “If you have to work both sides of the matrix, you have a better sense of the balance and you are more sensitive to what really adds value.” Gary Cowger, for example, was not only Global Process Leader for Manufacturing, but also Region President of GM North America. Lutz was Chairman of North America and Global Process Leader for Product Development. Wagoner himself played two roles: Global Process Leader for Sales, Service, and Marketing as well as CEO. Newly created management development programs and career planning processes also reinforced the interpersonal capabilities necessary for working in a matrix.
Performance management plans Major changes in GM’s processes for performance management became another tool for improving alignment. The process began with Wagoner writing out individual objectives (called Performance Management Plans, or “PMPs”) by hand for each individual ASB member, who then had a week to respond. They also had to be sure their objectives were aligned across the functions and regions and that process metrics lined up with the regions’ operational metrics. Barclay described the process that followed initial agreement between the executive and Wagoner:
We start before the year closes, so we can reach closure by December, although the numbers aren’t final until the end of the fiscal year. The first meeting focuses on integrating and aligning objectives between the Global Process Leaders and the Region Presidents. They then take their PMPs and disseminate them out to their staffs who cross-check them to make sure expectations and schedules are clearly defined and that they all fit together. For example, does the same material cost-savings target appear on the Purchasing and the Engineering leaders’ PMPs? Then we iterate and have “connecting meetings” to resolve any conflicts and ensure we are all aligned. If you’re going to bet the company on going global, you have to have one integrated set of objectives across both reporting relationships in the matrix.
As Wagoner described the process, installed in 2002, “I carry a lot of the burden. It’s very painful and time consuming. For two months, everybody in the company hates me and calls me a bureaucrat. But it is hugely powerful in crystallizing alignment.”
Meeting groundrules Finally, to make the ASB meeting run smoothly and ensure good interaction, the members had established guidelines and groundrules for the meeting. Telephone calls and interruptions were not allowed, except for emergencies. However, members could multitask with e-mail. The ASB Director, a position used as a rotational management assignment for high-
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potential executives, took notes, managed the agenda, and maintained an action-items and approvals list. At the end of each meeting, one member provided an evaluation of the meeting in terms of succinctness and timeliness of reports, patterns of behavior, levels of contribution, and the quality of the discussions.
ASB Operating Mechanics
To fulfill its many roles and responsibilities, the ASB met monthly for two days of the month. In between the monthly meetings, there were weekly telephone conferences on Wednesday mornings that lasted roughly an hour to ensure that all ASB members were informed about current issues and to keep decisions flowing. All regional strategy boards met before the ASB meeting in preparation for the ASB meeting. Support for the monthly ASB meeting from staff and systems followed a very disciplined process and ensured an efficient meeting.
Pre-meeting preparation The ASB Director worked with Wagoner to develop the agenda, which was fleshed out over the month and finalized the Thursday before the meeting (see Exhibit 3 for ASB monthly calendar). Once the agenda was set, ASB staff opened a highly secure ASB website where all planned presentations were posted. ASB members were expected to review and comment on the material and vote on whether they wanted: 1) “Executive summary, discussion, or further review required” (roughly 65% of the votes); 2) “Questions only” (roughly 30% of the votes); or 3) “Approve, no review necessary” (5% or less of the votes). The voting helped to eliminate topics where there might already be agreement and to focus the discussion on the remaining topics. The ASB staff reviewed the votes and any questions. They then funneled questions to the appropriate presenters who were expected to focus their time in the meeting on those questions, not on the original presentation.
Meeting format The agenda was usually organized into seven categories: Corporate Governance, Growth, Implementation Update, External Issues, People, Product, or Stretch Target Discussion. Safety and a comprehensive financial review were standing items on each month’s agenda. Over the year, in addition to these topics, Global Process Leaders gave updates on progress against their objectives, using a color-based assessment system: green (meeting or exceeding target), yellow (below target but better than prior year), and red (below target and prior year). While the meeting’s agenda was well structured, one member observed, “It is not formulaic.” (See Exhibit 4 for a typical agenda.)
During the first morning, there was also a one-hour “roundtable,” in which members provided high-level business updates. Since this portion of the meeting was for information sharing only, Barclay observed, “If you want to get a decision, forget it, you’re in the wrong spot.” According to another member: “The single most important agenda item is the roundtable. People will throw out things that are important to them, real-time, something that is bugging them. It helps move the company from scripted presentations to more open discussions.”
The rest of the first day followed the agenda, with 30–60 minutes devoted to most topics. The morning of the second day focused on global human resource plans and policies, leadership diversity targets, and other people issues. This morning session, which Barclay chaired, reflected a change from previous years. In the 1998 reorganization, the functions had assumed more responsibility for career development of their respective staffs, a role that formerly belonged exclusively to the regions. As Cowger described the change, “It used to be that local agendas and needs prevailed in this type of decision. Now, however, with promotions into senior positions, every ASB member agrees or at least has a say in the decision on the best person for the job.”
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A Global Product Decision Meeting (GPDM), which included ASB members representing related areas, such as Product Development, Manufacturing, Planning and R&D, Powertrain, Sales, Service & Marketing, as well as the Region Presidents, took place in the afternoon of the second day. This meeting focused on GM-wide product decisions and key strategies—for example, global architectures for a particular type of vehicle. While the GPDM meeting was underway, the other ASB members—Communications, HR, Information Systems, and Legal—met informally over lunch to stay in touch around issues that affected them, such as privacy policies and intellectual property.
Of course, a lot of work was still accomplished outside the ASB. One ASB member commented, “You try to resolve issues of resistance and slow implementation before you get to the ASB. If you have to resort to taking an unresolved problem to the ASB or to the CEO, you are going to set back your partnership. You do that less than 10% of the time.”
Evolution over time The ASB did not always work smoothly. In its infancy, the group was somewhat unwieldy, with time wasted because of lack of preparation, limited focus, political posturing, and occasional dragged-out disagreements. Over time and with the help of an offsite in 2001, the meeting became more efficient. Wagoner commented on the most important changes:
The level of trust went up considerably as we got to know each other. The change in team composition, when about 40% of the executives retired, drove very different decision dynamics. The technology and process changes, when we shifted from paper to a web-based format, took out a lot of the fluff and made the debate much healthier and more focused on execution.
ASB Decision-Making Dynamics
In spite of the fairly formal system and rules, the process for decision making at the ASB was anything but mechanical. Even so, members differed in their assessment of its effectiveness. Some worried that the ASB lacked healthy debate and moved too quickly through issues. Others saw its speed as an appropriate use of busy executives’ time and regarded the ASB as a forum for lively and productive discussion.
Senior management interactions In the view of some members, the ASB was largely a rubber stamp. One member commented, “Ninety-five percent of what the regions want to do goes through since there has usually been good communication via pre-meetings with the CEO and the CFO.” Another member was unable to think of any decision from the regions that the ASB had voted down. A third observed: “The issues have often been pre-cooked, and a lot of the potential contention has been boiled out. This is not necessarily a good thing. We might be settling for the lowest common denominator as a compromise.”
Other members saw the ASB as an efficient mechanism for speedy decision making, in keeping with Wagoner’s view that while “size is very important, it’s also the enemy of speed.” In the ASB’s monthly meeting, members often were able to deal with 20–25 topics. Frequently, major decisions were made or reviewed in 30–40 minutes. There was some concern about whether such a schedule allowed for sufficient debate. Barclay disagreed: “The ASB is a gate. It is there for governance, decision making, awareness setting, blessing, and providing input around the table. It needs to be fast, transparent, and very efficient.”
According to this line of thinking, monthly ASB meetings were a valuable mechanism for surfacing issues and making decisions about them. As Burns described the ASB’s functioning: “If there are differences of opinion, the ASB sorts them out.” At one point, for example, the advanced
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technology budget needed to be expanded and the Region Presidents who would have to share the costs were resisting the change. The issue was resolved during an ASB meeting by the CEO’s request to the CFO for his recommendation. Since the CFO as well as Lutz believed GM should spend the additional money, the decision was made then and there.
The CEO’s role Views on the CEO’s role in the ASB also differed. In some members’ view, Wagoner was an active participant and ensured that there was healthy debate. Others saw Wagoner using the ASB primarily as a sounding board for his own decision making. Wagoner himself admitted that his role often changed.
As the company CEO, Wagoner chaired all ASB meetings. According to some members, he played an active role, often referred to as “orchestra leader,” genuinely seeking detailed input and data. He was viewed as highly collaborative and did not try to dominate every interchange. One member observed, “He is never the first to speak. He lets the discussion proceed so long as there is progress. He is a participant in the room, but if he knows someone has a strong opinion and is not voicing it, he uses cold calling to get people to speak up.” Wagoner solicited differing points of view to ensure healthy discussion and to break the unwritten rule that “Thou shalt not have controversy when you go before the ASB.”
Sometimes, but rarely, when no clear sense was emerging from the group, Wagoner would ask for a show of hands. Generally, however, if there was disagreement, Wagoner’s approach was to work to resolve the issue, not to let the majority rule. One ASB member observed: “In only 5% of the time is Wagoner using the ASB as a sounding board, where he has already made the decision.”
Others had a slightly different perception, seeing the ASB as the CEO’s meeting. For some, Wagoner was a very demanding, fact-driven, and results-oriented leader. According to one member:
There is no question that Wagoner is the decision maker and is enormously hands-on. He can blow people away with the force of his arguments and his knowledge. The group serves to surface diverse points of view and to make sure all relevant points of view have been heard. Then Wagoner can make the decision, knowing that the senior managers understand the issues well enough to communicate and implement whatever decision is made.
This member went on: “If an obviously superior option doesn’t emerge from the discussions, then Wagoner needs to make the call since he has a clear and largely unarticulated sense of priorities for GM.” Wagoner himself said, “You act as if it’s a democracy, as if everybody is equal, but we are not.”
In reflecting on the decision-making process in the ASB, Wagoner commented:
I prefer to be very direct; but I also recognize that I can stifle debate initially by playing my hand too forcefully. So my role varies from item to item. At the offsite, the members indicated they wanted more transparency. In the broadbanding discussion, for example, they felt I had already made up my mind and therefore wondered whether discussion had even been warranted. At Lutz’s suggestion, I agreed to state up front, “Here’s the issue, here’s where I’m leaning so you know what you’re up against.” When I know enough to make the decision, there’s no sense in keeping the discussion going. I believe that you need to be polite; you need to be candid; but if you can only be one of the two, you need to be candid.
Wagoner was not especially concerned about the diverse roles he played in the process. He observed, “I like having flexibility, which makes the organization better by putting pressure on it. The cost of making the process tidy and orderly is enormous inefficiency and waste. I don’t believe in process for process’ sake. In the end, we have to think.”
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The Future of GM’s Basketweave Structure
In spite of substantial progress, GM had continued to wrestle with the challenge of maintaining the right balance between local interests and the need for centralized coordination to ensure economies of scope and scale. In particular, Wagoner and others questioned whether there were places where GM needed to harden the horizontal line of the matrix to gain more efficiencies and speed up the development of new vehicle programs.
In early 2004, the ASB had started to discuss whether regional decision making around GM’s product portfolio allowed the company to sufficiently leverage its size. Unlike Toyota and VW, GM still lacked a single global product plan. Regionally based product development groups and programs had continued to lead to duplication, with limited cross-regional sharing. The new Global Vehicle Line Executive had really not had time to prove the results of that arrangement.
Now, in the fall of 2004, after considerable debate in the last three ASB meetings, members had decided to change the responsibility for the product development and engineering budgets. Instead of continuing to plan these budgets on a regional basis, GM would centralize the responsibility in the Product Development and Planning/R&D functions. Wagoner, along with other ASB members, had voiced concerns about accountability for operating results in the regions. He wondered whether he would get into discussion with a Region President where he would say, “I don’t like your results,” only to get as a response, “I don’t like them either, but it wasn’t my call.” Under the new plan, for example, if a Region President had short-term profitability concerns and needed to cut costs through engineering headcount reductions, he or she would not be able to do that without additional conversations with ASB members, including Lutz, Burns, Wagoner, and the other Region Presidents.
Wagoner recognized that the new arrangement would further diminish the development of general management skills at GM. In the end, however, everyone agreed on the need for the change. Burns described the decision:
It was another major evolutionary step forward for GM. The regions will still play a key role in setting portfolio priorities for their country markets. However, instead of four plans stapled together, there will now be one integrated, global product plan. This plan will be aligned with global capital and engineering budgets and optimized to deliver the best worldwide product portfolio in the industry.
Yet Wagoner still had questions about execution:
We have come a long way as a team. But are we ready to manage the complexities of holding Region Presidents accountable for business results when they are no longer autonomous business units, with their own product portfolio or product development/ engineering staffs? How are we going to ensure that GM acts like one company, leverages its capabilities in local markets, and wins the race to the middle?
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Personnel Admin. & Dev. Public Relations Research Sales & Service
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Exhibit 2 (continued)
ORGANIZATION—1998
Vice Chairman
GMAP GME GMLAAM Global ProcessLeadersGMNA
Chairman, CEO
Board of Directors
President, COO
CorporateStaffs
PRODUCT DEVELOPMENTMANUFACTURING AND LABOR RELATIONSSALES/SERVICE/MARKETINGQUALITYPOWERTRAINHUMAN RESOURCESPLANNING AND R&DPURCHASINGCOMMUNICATIONSFINANCELEGAL/PUBLIC POLICYINFORMATION SYSTEMS AND SERVICES
Vice Chairman
GMAP GME GMLAAM Global ProcessLeadersGMNA
Chairman, CEO
Board of Directors
President, COO
CorporateStaffs
PRODUCT DEVELOPMENTMANUFACTURING AND LABOR RELATIONSSALES/SERVICE/MARKETINGQUALITYPOWERTRAINHUMAN RESOURCESPLANNING AND R&DPURCHASINGCOMMUNICATIONSFINANCELEGAL/PUBLIC POLICYINFORMATION SYSTEMS AND SERVICES
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