March 11, 2010
The Levels in Action
Memo Suggests GM’s Decline Was Caused by a Level 2 Culture
In the wake of GM’s bankruptcy, various reasons were advanced as to why America’s largest automaker failed. We heard a lot about labor and legacy costs, healthcare costs, the credit crunch, and other hardships. But the single largest contributing factor may have been overlooked in most news reports.
An insider memo, written in 1988 by one of GM’s top executives, suggests the company’s slow decline was due to its Level 2 culture. The executive, Elmer Johnson (1932-2008), was a rarity at GM, an outsider recruited in 1983 for a senior position. His memo to other members of the Executive Committee called for nothing less than a top-to-bottom transformation of GM’s corporate culture. One can surmise how well his peers received this prophetic advice by the fact that Johnson left the company soon after giving it.
Many of the problems Johnson cited were technical or strategic. GM was well behind the competition in implementing computer-driven technologies. The company wasn’t leveraging the systems engineering capability it acquired with its purchase of Hughes Aircraft. Instead of embracing globalization, it viewed itself primarily as a “North American motor vehicle company with loose appendages in various parts of the world.”
The company was aware of its problems but struggled to address them. Johnson lamented that GM was great in devising “strategies and rhetoric that were revolutionary in substance and in tone,” but suffered from a “seeming inability to execute.” But why couldn’t it execute? The core problem, Johnson asserted, “pertains to organization and culture.”
“My fear is that we have relied almost exclusively on ‘clean slate’ strategies that ignore the internal obstacles and end up trying to circumvent rather than transform GM’s organization and culture. We have vastly underestimated how deeply ingrained are the organizational and cultural rigidities that hamper our ability to execute.”
The Five Debilitators
While you won’t find the term “Level 2” in Johnson’s memo, his indictment is filled with the types of problems commonly found in Level 2 organizations. While Level 3 cultures excel at creating teamwork and a sense of common purpose, Level 2 cultures are split by competing agendas and office politics.
Fr. Robert Spitzer points to “five debilitators” that tend to arise in Level 2 organizations: fear, anger, suspicion, passive-defensive behavior, and aggressive-defensive behavior. The memo speaks explicitly of behaviors that match these debilitators.
GM’s decline reflects the adage that “Culture eats strategy for breakfast.” This isn’t to say that strategy doesn’t matter; it matters greatly. But strategy only works when the culture is healthy and cohesive enough to support it. |
Fear, Anger, and Suspicion
“The various operating units, unable to envision the good of the whole, have resorted to compartmentalization, each with redundant, competing pet projects. Teamwork has been replaced by Balkanization.”
“Our culture discourages open, frank debate among GM executives in the pursuit of problem resolution. There exists a clear perception among the rank and file of GM personnel that management does not receive bad news well. GM executives sometimes react to the presentation of problems with visible anger and exasperation.”
Aggressive-Defensive Behavior
“The vehicle groups have had to create additional staffs to advocate their own positions and overcome the obstacles posed by the Central Office staffs. Thus, the real coordinating and check-and-balance system today consists not of the committee structure but of the adversarial interplay of multiple staffs. It is a system that results in lengthy delays and faulty decisions by paralyzing the operating people and rendering them risk averse.”
“The vehicle groups have tended to find a convenient scapegoat: ‘If only the components group met our requirements as to cost and quality … then GM would be competitive.’”
Passive-Defensive Behavior
“The meetings of our many committees and policy groups have become little more than time-consuming formalities. … The important decisions have almost always been reached behind the scenes before the time of the meetings. Accordingly, there is a dearth of discussion, and almost never anything amounting to lively consideration.”
“Rapid rotation [of managers] means that no individual is ever responsible or accountable for the success of a project. We employ the fiction of 'institutionalizing' responsibility.”
“Many top executives have tended to develop, like the rest of the work force, notions of entitlement, cradle-to-grave security, regular raises – in short the club mentality. ‘I know I belong to the club; if I don’t rock the boat and if I keep my nose clean, my remaining years will be quite comfortable.’”
Johnson didn’t only point out flaws, he also offered solutions. You can read the full text of his memo here if you’re interested.
GM’s decline reflects the adage that “Culture eats strategy for breakfast.” This isn’t to say that strategy doesn’t matter; it matters greatly. But strategy only works when the culture is healthy and cohesive enough to support it.
Johnson’s memo is a cautionary tale for any leader, in any type of organization, who believes that culture is a secondary success factor. It is primary. That’s why the Spitzer Center measures an organization’s culture before discussing our curriculum or program options with clients.
I’ll let Mr. Johnson have the final word:
“I wrote [this memo] out of a sense of urgency and because my hopes for GM are high. We do have a great vision; we have invested heavily on the basis of that vision; and we can keep our promise that the vision is paying off … We owe this to our employees, our stockholders, and our dealers. Their well-being depends upon our organizational capability. … We are at a critical juncture. The consequences of deferring action on these measures are too grave to contemplate.”
By John Keenan, Editor
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Last changed: Jul 29 2009 at 9:49 AM