Businessweek, takes a look at some disturbing patterns of behavior by Chrysler’s CEO. Nardelli, came up through the ranks of GE under Jack Welch, and is regarded as a management genius. But his record at the Home Depot – and now Chrysler – are beginning to display a dismal pattern.
When Cerebrus Capital chose to make Chrysler private again, their choice of Nardelli for CEO raised eyebrows. But people were excited to by the promise of an outsider CEO in Detroit. They sensed in him the chance to demonstrate a true corporate transformation, which by now was decades overdue. Nardelli, unlike a Detroit-man, was ‘someone who was ready to make difficult decisions’. And someone not limited by various myopia that were common in the auto sector.
The simplest lesson is: to stop recruiting for the cult of personality, but to recruit a whole team; that is capable of generating a sound transformation plan.
In the context of shrinking economies around the globe, let’s say that every company in business today faces the same pressure: spend less than you make. Witness the daily reports of job reductions.
Managers are faced with balancing irreconcilable forces: 1) the harsh reality of shrinking economies, 2) the surge toward expansive planning. What has made the second option seem so natural over the past several decades, were a sequence of economic bubbles that lead managers to overconfidence. And, when improbable bets paid off, (or at least didn’t fail punitively) there was always more cash on hand for the next acquisition – with little question from corporate boards-of-directors. But, now that few businesses can expect that their industry will grow in the next 4 quarters, managers feel disoriented and unstable.
A common watchword these days is pragmatism. Where pragmatic is code for: ‘lowering our levels of competitiveness. And doing more of what we know how to do’. Which sounds like myopia being made fashionable. However, pragmatic means: being matter-of-fact. So, I would presume this should include dealing with unpleasant matters-of-fact. Detroit and Wall Street aren’t the only ones watching their industries ‘get a haircut’. Take a look at newspapers, magazines, and the advertising industry. They too, are dealing with difficult matters indeed. Yet for all of their anxiety, it appears that any instinct for entrepreneurship has dropped out of the zeitgiest in business.
It is the fundamental changes that hide – so readily – in plain sight.
…Nardelli’s cuts haven’t always served strategic ends. At Home Depot, he replaced many veteran hardware guys and retired tradesmen with twentysomethings making less money. The cuts gave profits a short-term pop, but lackluster service drove away loyal customers.
At Chrysler, Nardelli cut costs partly by robbing from tomorrow. Car companies are nowhere if they don’t have new products in the pipeline. But he cut capital spending for new models from more than $3 billion in 2007 to $2.3 billion for the next two years. When the feds showed up to assess Chrysler’s viability, they noted that Nardelli’s team planned only four new models for the next five years…
…One of the great ironies of Nardelli’s tenure is that though he billed himself as the plucky outsider waging war on Detroit myopia, his strategy differed only in degree from what the car guys have been doing for years: restructuring. Like his predecessors, he wasn’t able to wring concessions from the unions fast enough. Instead, he saved money by paring white-collar ranks. His legacy is a Chrysler so hollowed out it may no longer be viable as a standalone company.
The Nardelli effect can be felt everywhere right now. And if other executives and managers like him are ‘robbing from tomorrow’, then a true recovery will take longer than analysts are projecting. The only problem with essays like this one, is their tendancy to leave readers with the impression that this was simply one person’s folly. Companies and their analysts are quick to find a scapegoat. We simply clean the desks of the offender and escort them to the lobby.
For all that, we have a difficult time holding a management team to account. Mostly because we still accept the idea that a single leader is responsible for success. The lone genius rides again … he is robbing from the future.
for more Bob Nardelli’s Bumpy Road – BusinessWeek.