Taking the long view: building an enduring and trusting culture

Bob Lintz, one of the leaders featured in both our first book Trust is Everything and our forthcoming book Becoming a Trustworthy Leader, had the ability to take the long view.  Unlike many managers at GM, he didn’t skip around from plant to plant, promotion after promotion, but decided to stay in Parma, Ohio to build something that would endure, even after he retired.  Parma is still thriving today as one of the automotive industry’s highest quality stamping plants.

This new McKinsey study identifies three ways that leaders can help employees take the long view

1) root out unhealthy habits: Bob worked with the union to eliminate costly overtime and duplicative jobs.

2) prioritize values: Bob did this by eliminating the executive dining room, abolishing separate parking lots for hourly and salaried employees, and having managers no longer wear coats and ties.  He wanted the union and management to work together to bring in new business to the plant, and knew that they could not do it with old, traditional barriers in place.

3) keep it simple, but meaningful: Bob instituted an Open Door policy that he stood by.  Anyone could come to Bob at any time.

These are important principles to remember: easy to say, but challenging to implement.


GM and UAW Have a New Labor Contract Providing Greater Flexibility

GM and the UAW reached a new labor contract that provides greater profit sharing for employees and greater flexibility for the company should sales decline:

DETROIT—General Motors Co. Chief Executive Dan Akerson said a new labor contract with the United Auto Workers union will allow the company to be profitable in North America even if auto sales sink to lows seen during the height of the economic meltdown.

The contract keeps GM’s labor costs almost level—they are expected to increase by around 1%, GM says—and leaves out cost-of-living increases for workers. The contract provides for up to 6,400 new jobs, the vast majority of which are expected to be lower-wage positions.

However, GM’s chief labor negotiator, Cathy Clegg, said the company isn’t required to fill the new jobs if demand drops and the company needs to cut production.

“In these uncertain economic times, we were able to win an agreement with GM that guarantees good American jobs at a good American company,” said Joe Ashton, the UAW’s top GM official. “Now that GM is posting strong profits, our members, as a result of this agreement, are going to share in the company’s success.


GM’s Parma Plant Received $60 million in new investment

As many of you read in our first book about Bob Lintz and the transformational change he led at GM’s Parma Stamping Plant in the ’80s and ’90s near Cleveland, Ohio, I thought you’d be interested in some recent news about Parma, in which GM will be invested $60 million dollars as part of the plant’s most recent modernization.

This is truly a lasting legacy that Bob left, as the plant continues to improve and be one of the world’s very best stamping plants years AFTER Bob retired.  For you Good To Great and Built to Last fans, Parma is a compelling example of a Level 5 Leader who built a Flywheel that continues to demonstrate significant bottom-line results for both GM and its employees who work at Parma.

Karen and I be continuing our profile of Bob and discussing what he has learned as a result of his inspiring leadership efforts in our forthcoming sequel, Becoming a Trustworthy Leader:  Psychology and Practice, due out later this by Routledge Press.

Why is trust important?

We take trust for granted, thinking it is some nice soft thing that makes our lives happy.  As managers, we want to know why trust makes such a difference that we should actually spend time building it and actually care about it.

Well, here are some examples from the leaders we profile in our book…

  • Trust between a General Motors plant manager and his local union turned around a $250 million plant that had horrible costs, quality, and productivity 20 years ago.  It is now a thriving $1 billion/year operation, and thousands of jobs have been preserved.
  • Trust between a cardiothoracic medical doctor and his critical care team reduced mortality by nearly 50%, sepsis by 50%, and acute renal failure by 37.5%, while improving operational efficiency by reducing ICU and hospital length of stays.
  • Trust in her employees helped Mary Ellen Sheets take a $350 investment and turn it into the $200 million company, Two Men and a Truck

So, while trust is a nice thing that makes people happy and makes a work environment much easier to manage, it also saves jobs, saves lives, and makes money.


GM Repays its Loans Early, Oops, No it Didn’t!

The title of the article from Brand Channel says its all:  GM Loses  Trust After Payback Claim.

GM executives are being rightly scored – from Capitol Hill to Madison Avenue – for public statements and a new advertising campaign, both featuring CEO Ed Whitacre, that imply the company has repaid its obligation to the U.S. government and to the American people. Or at least that could be inferred as doing so.

The ads on all major TV networks have been noting that the company repaid its original $6.7-billion U.S.-government loan “in full” and “with interest five years ahead of the original schedule,” as Whitacre walks through a GM plant.

One problem with such a hopeful narrative, of course, is that GM simply repaid the loan with another part of its proceeds from the government bailout, robbing Peter to pay Paul, as it were – or maybe robbing Nancy to pay Barack. Whitacre didn’t mention that in the ads.

From a company that has the lost the trust of the American buying public, and now the American taxpayer, in so many ways, this is not how to start rebuilding trust.


Two Cheers for GM’s Chevrolet Volt

Update 11-19-09:

Here’s a review of the driving experience of the Chevy Volt from the New York Times:

Unlike many electrics, including the Tesla Roadster, the Volt’s electric drive has no whine. The car feels solid and planted on the road. Clicking the Sport button on the dashboard releases a bit more oomph than when in Normal mode; in terms of efficiency, there isn’t much difference between the two except at peak power.

The Low mode— Chevrolet plans a flashier name for it by next fall — is unique in the electric-car world, and a useful feature. While coasting, it applies electric motor braking, then smoothly blends in the regular brakes.

Update 8-11-09:

DETROIT (CNNMoney.com) — The Chevrolet Volt, GM’s electric car that’s expected to go on sale in late 2010, is projected to get an estimated 230 miles per gallon, the automaker announced Tuesday.

The fuel efficiency rating is based on the EPA’s proposed methodology which GM used in its Volt tests and applies to city driving only. Henderson said GM is confident that when Volt’s combined city/highway mileage average is calculated, it will be over 100 mpg.

Henderson conceded the cost of building a Volt will be expensive, about $40,000 per vehicle. But he said the vehicle will qualify for a $7,500 tax credit, which will reduce the vehicle cost by that amount for consumers.

He also stressed that GM has not set the pricing for the Volt, and conceded the company may have to subsidize the vehicle. The goal: Make enough sales to move the Volt from “first generation” to lower-cost future designs.

“The cost of the vehicle in the first generation is high,” he said.

I’m doubtful with GM’s financial woes as to whether they’ll be able to offer much of a subsidy for the Volt.


Update 3-10-09:

Now comes another reason that GM’s Chevrolet Volt will have a tough time being successful in the marketplace.  It looks like GM’s planners and decision makers didn’t take into account important economic concepts such as marginal utility and marginal cost when designing the Volt’s electric-only mileage range, as reported by Fortune magazine’s auto industry reporter, Alex Taylor:

…one of the main justifications GM offers for its long-term survival, “leadership in advanced propulsion technology,” has been shaken by a report from Carnegie Mellon University.

The study concludes that plug-in hybrids like the Chevy Volt – GM’s most publicized technology project – “are not cost effective in any scenario.” GM says the Volt can go 40 miles on a single charge. But a better choice, according to the report, is a car that goes less than 20 miles on a charge.

But GM made some unusual decisions in designing the Volt. It decided that it wanted the car to go 40 miles on a single electrical charge because that was the maximum distance that it said most Americans travel on their daily commutes. Trouble is, configuring the car for all that electric driving means installing lots of big, heavy batteries.

The Carnegie Mellon study…found that small-capacity plug-ins that get less than 20 miles per charge are more efficient than conventional hybrids. And it said that large capacity hybrids like the Volt that go 40 miles or further on a charge are never cost-effective, because the batteries cost and weigh too much.

A car with the Volt’s range, according to the study, would also be extremely uneconomical traveling fewer miles as it hauls around battery capacity it doesn’t need.

Nearly 50% of U.S. vehicle miles are traveled by automobiles covering less than 20 miles per day, according to the report, and it concludes that 20 miles is a more sensible range. It also notes that as the charging infrastructure in public places becomes widespread, cars will be able to travel shorter distances between charges.

Let’s hope it’s not too late for GM to make some changes in the Volt’s design to reflect the economics and preferences of America’s drivers.  After all, as I learned in college when majoring in economics, they, like all consumers, always make decisions at the margin.

Original Post 9-17-08:

I am rooting for GM to succeed in its quest to give us a radically new vehicle that will help us reduce our dependence on foreign oil and improve our environment.  So, I am glad that it has continued to move forward in its plan to produce the Chevrolet Volt:

However, I’m not glad that GM will likely have to raise the price for the Volt beyond its initial proposed amount.  According to the New York Times this week:

Finally, there are questions about the cost. G.M. executives concede that they are revising the price upward. While the company initially hinted at a $30,000 starting price, executives have recently suggested that the Volt might end up in the mid- to high-$40,000 range.

The higher the entry-level price, the less likely this car will be able to make an impact in the marketplace and on Americans’ driving habits.  Honda has already announced plans for one of its new hybrid vehicles, the new Insight, to underprice the current Toyota Prius:

The new Honda Insight, which goes on sale in the US in April, is expected to sell in relatively high quantities. Honda is targeting annual global sales of 200,000 units per year, with approximately 100,000 in North America. Honda is aiming for affordability with the new Insight, which is expected to sell for approximately $19,000—several thousand dollars below the Honda Civic Hybrid and Toyota Prius. At the same time, the new hybrid should match or exceed the fuel economy of those vehicles. The new Honda Insight will be unveiled at the 2008 Paris International Auto Show in early October.

Currently, we own a Toyota Camry Hybrid and a Honda Civic Hybrid.  I’d love to drive an American hybrid that truly delivers outstanding fuel economy.  The question is whether GM will deliver such a vehicle at a price I can afford.


GM’s Money-back guarantee a good thing…a trustworthy thing

When I read in USA Today about GM’s money-back guarantee, I was surprised that so many experts were against it.  Looking at it from the ROCC of Trust, it means that GM believes their cars to be reliable enough that they are willing to stand behind it with such a generous guarantee–if we don’t like it, they’ll take it back.  Where else can consumers do this?  The first place that comes to mind is Nordstrom’s.

I don’t think anyone will dispute Nordstrom’s reputation or believe that they are “stooping” to such levels to gain our trust as consumers.  It is one of the reasons I love Nordstrom’s–I know that if there is a problem with my purchase that they will stand behind it and make things right.  Isn’t it about time that GM does the same?

As a former GM employee, I’m pleased that they are finally proud enough of their vehicles to offer such a guarantee.  I think this will make prospective customers take another look at them at a time when they need us to.


GM to Furlough Salaried Employees

This from today’s Wall Street Journal:

General Motors Corp. confirmed Wednesday it will force salaried workers to take up to three months off each year with partial pay as part of an effort to reduce costs during its expected summer shutdown of its car-making plants.

The program, called Salaried Downtime Paid Absence Policy, states that salaried and executive employees could be required to take time off in one-week periods. During the time off, an employee’s salary would be reduced to 75% of full salary. The program is in effect starting Friday.

GM told its employees that any required time-off at a 25% pay cut will not exceed more than 12 weeks in a calendar year. It could be mandated during periods when there is lack of work, according to an employee briefed on the program. For an employee asked to take time off for the entire 12 weeks under the program, the salary cut would amount to about 5.8% of total salary.

In our research on downsizing, we’ve found that across-the-board cost cutting like this rarely achieves its intended goal of actually reducing costs.  That’s because such measures have a significant negative impact on employee morale, among other negative outcomes.  I suspect that this new downsizing initiative will only speed up the departure of some of GM’s most talented employees.


How to Lay Off People Properly Amidst the Unrelenting Downsizings

Even though we believe that layoffs should be used as a last resort, and have the published research to support it, there do come times when it’s necessary to lay off employees.  That’s why it was good to see Simon Constable in the Wall Street Journal recently recommend several ways in which to do it properly that fit with our findings and recommendations we made a decade ago in the MIT Sloan Management Review.  This includes our counterintuitive but important recommendation not to fire people on a Friday:

Don’t fire people on a Friday.

Don’t fire people late in the day.

Don’t make any layoff announcement until everyone affected has been informed.

Do offer to provide a good reference.

Fire people before Thanksgiving or after New Years, but not between.

Don’t piece-meal your chopping.

Don’t fire anyone by email.

We have an article in this spring’s issue of MIT Sloan Management Review that reflects upon and updates our article we published a decade ago:  “How do Downsize Your Company without Downsizing Morale.”  For  additional ideas and case studies on how to downsize or lay off people properly, be sure to read our book, Trust is Everything.

If you’d like a copy of our previous MIT Sloan Management Review article, Preserving Employee Morale During Downsizing, please contact us.


Below is a listing of downsizings that I have been keeping track of over the past several months, using data published by the Wall Street Journal and New York Times.  The list does not include the 2,000 job cuts that GM announced today as well.  It is by no means an exhaustive list, but it gives an idea of the horrific toll that downsizing is having in the U.S. and abroad:

Company Downsizing Percent Date
Citigroup 50,000 14% 11/17/08
Bank of America(Merrill Lynch) 35,000 11% 12/11/08
Caterpillar 20,000 18 1/27/09
AT&T 12,000 4% 12/4/08
DHL (U.S. staff) 9,500 73% 11/10/08
Dell 8,900 10% 10/22/08
Circuit City 8,000 20% 11/10/08
Sony (electronics division) 8,000 5% 12/9/08
Sprint Nextel 8,000 N/A 1/27/09
Merck 7,200 12% 10/22/08
Home Depot 7,000 N/A 1/27/09
NG Groep NV 7,000 N/A 1/27/09
DuPont 6,500 4% 12/4/08
UBS 6,100 26% 10/3/08
Sun Microsystems 6,000 18% 11/14/08
Credit Suisse 5,300 10% 12/4/08
Chrysler 5,000 25% 10/24/08
Dow Chemical 5,000 11% 12/8/08
J.P. Morgan Chase (Washington Mutual) 4,000 21% 12/1/08
National City 4,000 14% 10/21/08
U.S. Steel 3,500 13% 12/2/08
Texas Instruments 3,400 12 1/27/09
Goldman Sachs 3,260 10% 10/23/08
Fidelity Investments 3,000 7% 11/14/08
Motorola 3,000 4.50% 10/30/08
Xerox 3,000 5% 10/23/08
Micron Technology 2,850 15% 10/9/08
Textron 2,200 5.20% 12/23/08
Applied Materials 1,800 12% 11/12/08
State Street 1,800 6% 12/3/08
Yahoo 1,500 10% 10/21/08
Nortel Networks 1,300 5% 11/10/08
Unisys 1,300 4.30% 12/22/08
eBay 1,000 10% 10/6/08
Mattel 1,000 3% 11/6/08
Viacom 850 7% 12/4/08
Adobe Systems 600 8% 12/3/08
Carlyle Group 100 10% 12/3/08