Paper 3: Change Management Attached is a short case study called “Can a new corporate culture save General Motors?” Please read this case study and answer the following questions: In the case study

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From Workforce Management

Can a new corporate culture save General Motors?

By Jeremy Smerd

By the time Fritz Henderson was named CEO of General Motors on March 30, he was already looking beyond the company’s restructuring.

A finance guy with a knack for numbers, Henderson was talking intangibles — the kinds of things that are hard to articulate, harder yet to teach, but, in a successful company, as easy to spot as profit and loss. He was thinking about a company’s culture.

Shortly after he replaced Rick Wagoner as CEO, he turned to then- head of HR Katy Barclay. “Well, he came to my boss, Katy Barclay, and said, ‘You know, I want to start having a dialogue about culture,’ ” says Chris Oster, director of global change management and organizational

development. “ ‘I think I know what I want the cultural priorities to be. I think I know what the organizational design needs to be, but I don’t want to do that alone.’ ”

The company entered Chapter 11 bankruptcy protection in June and emerged five weeks later, a couple months short of its 101st birthday. With the intervention of the U.S. government, the automaker has slashed headcount, eliminated vehicle brands, shuttered dealerships and reduced its debt and benefit obligations.

GM is running much leaner. It now operates with 101,000 employees in North America, of whom 27,000 are salaried workers. In 1998, GM employed 226,000 workers in North

America.

Equally important, bankruptcy inspired radical change in the operations of the new GM. Out of about 15 bullet points scribbled on a piece of scrap paper, Henderson distilled his vision of the new GM’s culture to four precepts: risk-taking, accountability, speed and, at the heart of it all, customer and product focus.

Henderson immediately employed at least one of those values —

speed.

By the end of July, the top of the organization had been restructured and HR’s role in organizational change was defined: It would support culture change, but not drive it. Company leaders

developed a process to put Henderson’s precepts into practice,including a new performance management system, an education series to explain the new culture, a communications drive to

articulate the values, and a project called Building the Movement. Building the Movement would infuse GM with its new culture without making it a top-down process.

At this point, the new cultural initiatives have been limited to the salaried workforce.

Whether the company can put these new principles into widespread practice — and even whether these new values will lead GM back to profitability — are questions yet to be answered.

The future of the company, and the $55 billion of taxpayer money that it has received, hangs in the balance. While GM is fixated on the company’s future, any student of automotive history can tell you the company has tried before — with mixed success — to reinvent itself.

Buzzwords of the past

The company’s past is littered with the buzzwords of culture change: GoFast, a program to reduce bureaucratic waste; Synchronous, a top-down process engineering program; and GMS, the company’s version of the lean production system that has made Toyota and other Japanese manufacturers ascendant.

Current and former employees say that in all those cases, GM struggled to impose cultural change across the highly bureaucratic company in which brands, departments and regions operated like self-governing and competing states within a federation.

“I’m not sure that we didn’t have too much of segmentation,” Oster says. “That sometimes when we would have a corporate or enterprise-wide initiative, you know, you had to sell it to each space, get them on board. It’s very challenging. And people would say, ‘You know we already got something going on here.’ ”

The difference this time, GM executives say, is the bankruptcy and the simultaneous culling of leadership, an experience that has been both traumatic and salutary. “GM is an organization that if you went to a psychiatrist he would have prescribed electroshock treatments,” says Gerald Meyers, a

former CEO of American Motors Corp. and now a professor at the Ross School of Business at the University of Michigan. “Bankruptcy is electroshock.”

An opportunity in bankruptcy

Sitting in a conference room overlooking the Detroit River at GM’s Renaissance Center headquarters one morning in August, Oster variously described bankruptcy as a “tonic,” an “enabler” for change and a “gift.” Like other executives who have survived the upheaval, Oster has embraced GM’s new cultural priorities with the fervor of a convert after a near-death experience. Oster says that as early as November 2007, GM executives began to say, “We need to work on culture.”

But executives clearly did not have the stomach or wherewithal to make the necessary changes despite workforce reductions and bureaucratic streamlining that had been under way for at least five years. The Obama administration’s rejection of GM’s restructuring plan in March made clear that anything short of a complete overhaul would be insufficient. Katie McBride, executive director for global internal and executive communications, says that bankruptcy forced executives and the entire salaried workforce to change or leave the company.

“In the 26 years I’ve been here there have been times when senior managers have pushed cultural change and there was resistance from the workforce. Then there have been times when the workforce wants to change and resistance comes from senior management,” she says.

“Now there’s been a significant emotional event. And senior managers are changing. At every level people realize we cannot do things like we formerly did. There’s tremendous opportunity to do it this time because there’s not the resistance that there was… because we went through the bankruptcy.” Henderson has told employees not to let this crisis pass without taking advantage of

it.

Without the usual resistance to change, the company has been able to make organizational changes at speeds previously unknown at GM.

Shortly after Henderson became CEO, he asked Oster, GM’s soft- spoken culture guru, to figure out how to embed those four core values —customer/product focus, speed, risk-taking and accountability — into the company’s fabric and the mind-set of its workforce.

Oster helped to assemble two teams: an operating model team and a culture transformation team.

The company removed other layers of bureaucracy, most notably eliminating the company’s automotive product board and automotive strategy board. On July 23, GM announced that both

boards had been replaced with a single eight-person executive committee to “speed day-to-day decision-making.”

The board reports to Henderson and meets twice a week to discuss business

and product issues, McBride says. Intentionally, no HR executives were appointed to either team —

though the culture transformation team did include Mary Barra, a manufacturing executive who would later be named global head of HR.

“We’re stewards of the system,” Oster says. “The system of culture is the responsibility of the leaders. It’s our job to cajole and provide supportive ideas and mechanisms and help to hold

them accountable and keep it in front of their face — but no, no HR people on these teams.”

Nor was the head of HR appointed to the new executive committee. Previously, the head of HR was part of the company’s automotive strategy board; now the head of HR reports directly to

the CEO. “People can focus on it to mean HR doesn’t have a seat at thetable. That can be a pretty obvious observation,” Oster says.

But, she explains, Henderson believes that employees in the past spent too much time in meetings and preparing for meetings that were unproductive. In his quest for transparency, Henderson has established something of an open-door policy and, Oster says, encourages HR executives to simply bring issues directly to him.

“I think Fritz’s concept as I’ve heard him discuss it is we don’t need everybody sitting around this table all the time, taking up a lot of productive work time. Whenever you need to, just bring it on in. And so that’s what we’re doing.”

The operating model team, comprising 10 executives from various divisions worldwide, overhauled the company’s bureaucracy and the decision-making process at the top levels. Notably, Oster says, it dismantled GM’s bureaucratic “matrix” structure.

Criticized by some as byzantine, the matrix was intended to foster collaboration by having workers report to various managers in different departments simultaneously. Rob Kleinbaum, a GM executive-turned-consultant, said the matrix made it difficult to hold managers accountable because responsibility for decisions was diffused among multiple supervisors.

“At the end of the day, everybody had an excuse for why results were not as promised,” Kleinbaum says.

“Everything became a compromise to all parties,” says Kleinbaum, who wrote a paper in January, “Retooling GM’s Culture,” that was well-received by both the U.S. Treasury’s Automotive Task

Force and GM.

The paper said changing “structural” costs would not save GM. It needed to change its culture. Executives needed to be held accountable for results and performance; employee education needed to include exposure to how other industries and companies operate; promotions needed to be based on merit, not patronage; and meetings could not remain “exercises in procrastination,

rubber stamping or idea killing, without anything that would pass for genuine debate and dialogue,” Kleinbaum wrote.

Henderson, who is known to be plain-spoken, accessible and unpretentious — as CFO he would travel in economy class while commuting to Detroit from his home in Miami — read Kleinbaum’s report and sent him an e-mail on May 9 praising the report and saying it had “touched on a number of important points as we look forward regarding culture.”

Paraphrasing Albert Einstein, Henderson wrote that “the definition of insanity is doing the same thing over and over again and expecting a different result. This is especially and directly relevant

with regard to culture.”

On July 30, GM announced its “simplified leadership team” and the retirement of Barclay, who had worked in human resources at GM since 1978. That Mary Barra, her replacement, is an engineer was a fact that pleased many current and former engineers at the company. They felt that HR did not reflect the manufacturing ethos of efficiency and continuous improvement.

GM declined to make Barra or Barclay available for this article.

Having an engineer as the head of HR will be “a major adjustment for those (in HR),” says Matthew Beatty, a process-improvement coach who was laid off after 28 years at the company, including

eight years in HR. “And I’m not sure that’s a bad thing.”

Launching the culture team

At the end of July, with the structural changes in place, GM disbanded the operating model team and focused squarely on changing its culture. That task fell to the 12-member culture transformation team, led by Oster and supported by HR. Meeting Tuesday nights, the culture team came up with four ways it felt it could embed the new culture in the company’s day-to-day operations: The company would replace its performance management system; it would create an education series to explain what the new culture is and what is expected of leaders; it would use internal and external communications to communicate the company’s new values; and finally, it would launch Building the Movement.

Perhaps more than anything else, Building the Movement reflects GM’s new approach toward helping the salaried workforce live the company’s new values of customer/product focus, speed, risk-

taking and accountability.

The company has set out to identify employees who already exhibit the new values and turn them into models for others to emulate. The change reflects the company’s move away from

hierarchical decision-making, Oster says. “I think in the past…our culture-change efforts were way too top- down. They were rollout-oriented,” Oster says. “So now we’ve got efforts at the base, at the middle, at the top and all throughout.”

To help, GM has hired workforce leadership consultants Jon Katzenbach and Niko Canner, of Booz & Co. Katzenbach’s book Why Pride Matters More Than Money sits on Oster’s desk. Published in 2003, the book has a chapter about General Motors in which Katzenbach acknowledges how large, globally diffuse organizations like GM have trouble exporting cultural change from one niche across the company.

The antidote, Oster says, is the Building the Movement concept. Oster credits Katzenbach, whose company declined requests for an interview, for taking complex ideas and making them “actionable.”

The goal is to democratize decision-making, not for its own sake, but so that employees who are closer to a product, a customer or a problem can act quickly and decisively to ever-changing market

conditions. At its heart, the movement appears to be an attempt toimplement the new cultural values by teaching workers at any level that they can make decisions in their areas of expertise, rather than go up the chain of command as they did in the past.

Doing so would clearly allow the company to move quickly to respond to the needs of customers and products. With individuals making decisions, the company would also have an easier time

identifying who is accountable.

But all of this requires a certain amount of risk-taking, and as Oster says, “Risk-taking is probably going to be one of the toughest of the cultural priorities.”

The Aztek lesson

In the past, current and former GM employees say, no decision was made without meeting on it first.

Given that GM was a company full of engineers and finance managers, every decision required reams of data. With entrenched hierarchies and bloated executive ranks, no one wanted to criticize a project that wasn’t working for fear of a boss’s reprisal, current and former midlevel managers say. Decisions were made slowly and often to the detriment of a product.

A classic example is the Pontiac Aztek, a midsize sport utility vehicle. Brenda Peinado, a global supply chain manager who was laid off in April after 25 years with the company, said she worked with

engineers on the Aztek, which had gotten bad reviews from internal focus groups before it was launched in 2001.

“Nobody had the guts to say ‘Stop,’ ” Peinado says. “We know for a fact that they were getting bad feedback.”

The homely Aztek was widely criticized as being designed by committee. Rated the ugliest vehicle ever by readers of the Daily Telegraph in London and one of the worst cars of all time by Time magazine, the Aztek was discontinued in 2005.

By contrast, the new GM has moved swiftly to kill products deemed unpalatable by focus groups. Characteristic of the zeal radiating from the new GM, an executive announced on a GM blog that the new executive committee had decided to kill a Buick model days after it was unveiled to customers and the media.

“And what we decided to do in response is a good example of the essence of the new General Motors … acting quickly, and boldly, and listening to feedback from customers, employees, dealers, media and just about anyone else with an opinion,” wrote vice chairman Tom Stephens.

On whiteboards in one of GM’s conference rooms is the culture team’s suggestions for how to institute — through processes and policies — their new cultural priorities: “zero tolerance” for leaders who do not demonstrate the new cultural priorities; design leadership forums; create an induction to the new GM principles; build trust; help people make better decisions on their own.

“That’s a lot of what Fritz is after,” Oster says. “Take out layers, take out junk. Trust me to do my job.”

Real change this time?

Will the appetite for change and for risk remain once the effects of bankruptcy wear off? GM has a history of trying to change its culture. No effort ever went far enough. The company’s internal Web site contains the remnants of past efforts. Headings of old mission statements sound eerily familiar. “Cultural Priorities,” one reads. “Enhance our product and customer focus; embrace stretch targets; move with a sense of urgency.”

As if to repudiate the similarities between past culture efforts and the current one, Henderson wrote during a June Web chat with employees and the public that speed is not “a sense of urgency, it

is speed.”

But if bankruptcy spurs change, success after bankruptcy can lead back to complacency, says Sreedhar Bharath, assistant professor of finance at the Ross School of Business at UM. The closest example is Chrysler in the 1980s. After emerging from near-bankruptcy in 1978, Chrysler had a hit with the invention of the minivan. The company then hoarded cash and, fearful of taking missteps that might lead to ruin, returned to risk aversion, Bharath says.

“It is easier to take risks when you have no choice. Like a quarterback with one second left in the game, it’s easy to throw a Hail Mary pass,” Bharath says. “But then once you get a lead, many teams play conservatively to cling to their lead. Then they end up losing. That is exactly when they don’t take the positions they should take. I think that analogy applies to business.”

So far, in the immediate aftermath of bankruptcy, the company is living the new culture. And employees are noting a difference. Risk-taking is encouraged. Communication is better, they say. The company is more transparent.

“This is going to be a great company to work for,” says Michelle Valentine, an engineer who retired this month. “I can see it already.”

During the June Web chat, Henderson got a pointed question from one participant, who asked bluntly why he thought GM would succeed. Henderson replied that until now he had spent 95

percent of his time on the company’s “massive problems.”

He also wrote in his reply: “We have a once in a lifetime opportunity to get these problems solved permanently so we can get back to how to truly win, which is being obsessed as a company with fantastic products and delighting customers.”

From Workforce Management