Dumb and Dumber (Part 2, the Dumber Part)

In last week’s blog (July 20), I observed that executives’ quest for the "magic bullet quick fix" often leads them to consider courses of action that are just plain dumb. As an example, last week I discussed the dumb-ness of the prevailing idea that GM’s horrific woes can be fixed by a GM-Nissan-Renault joint venture headed by Carlos Ghosn.

Now I’ve got something even dumber for you. Some people are—I kid you not-- actually talking about a GM-Ford merger. What are these people smoking? Apart from the fact that 60-80% of mega-mergers destroy shareholder value, and apart from the fact that the precedent of the 1998 Daimler-Chrysler deal has halved the value of the combined firms, consider one stark reality. The mega-problems of GM that I outlined last week (legacy and operational costs, quality, design, labor, bureaucracy and such) are also endemic in Ford (though perhaps to a slightly smaller extent). How will a merger fix these problems-- rather than exacerbate them?

The proponents of the deal talk about potential (no guarantee) cost savings with a capitalized value that would exceed the two companies’ combined (and very low) market cap. But so what? Even if you could squeeze out those costs, what do you do about all the problems that made the companies sick in the first place? And where will the cool, high-margin cars come from? Where will the corporate agility and innovation come from? How exactly will you grow the company profitably?

Next month my new book Break From the Pack is launched, and one of the topics you might be interested in what I call “The Dinosaurs Mating Syndrome” which is one reason that so many big mergers fail. Let me quote from one paragraph in the book:

Perhaps the greatest delusion executives have about mergers is the belief that that somehow two bureaucratic, backward-looking corporations will join forces and spawn an impregnable giant. The underlying assumption is that two companies that have individually managed to generate flat earnings and declining share will be able to magically continue their debilitating but comfort-zone strategies by jumping into bed together and getting bigger. But as we’ve seen, companies that merge primarily to protect faltering product lines, obsolete business models and grossly inefficient infrastructures are doomed to failure in a Copycat Economy…… Ultimately, a merger might temporarily prop up any two beasts by providing them better scale and better marketing, but the end result is still extreme vulnerability, if not extinction.

A GM-Ford marriage? Only if you believe that two dinosaurs mating will somehow produce a cheetah. I predict that a GM-Ford hybrid will be a slower, more complex, more bureaucratic, more politicized offspring that would need to be put on life support within 5 years. We need bold initiatives and bolder leaders to fix GM, but asking the company to mate with Ford is surely a “dumber” idea.

Dumb and Dumber (Part 1, the Dumb Part)

I never cease to be amazed at executives’ perpetual search for quick fixes to complex problems. These searches are not merely fruitless and counterproductive, they’re often just plain dumb. Case in point: What to do about a hemorrhaging General Motors.

The dumb quick fix idea that seems to have so many people salivating is a GM-Renault-Nissan “joint venture” headed by Carlos Ghosn. I thought the days of the celebrity superhero CEO were over. Yes, Ghosn has done a fabulous job with Nissan, and amazingly, he’s now also doing a good job with Renault, even though he’s running both companies while jetting back and forth between 12 time zones.

But while Ghosn may be bionic, he’s not superman. No one person can run three enormous global firms scattered around the world. Yeah, yeah, I know the arguments: cost savings for GM, broader access to China and U.S. for Renault and Nissan, a new personal challenge for Ghosn, etc. etc.

On paper, it looks great. But apart from the massive difficulties in integrating three huge companies with vastly different corporate personas, there’s an even bigger problem. GM’s challenges are colossal: runaway legacy costs (health care, pensions, and such), antiquated labor-management relations, hideously inefficient operations, sclerotic bureaucracy, irregular product quality, and yawner design. Small wonder the company lost $10.6 billion last year and had to sell 51% controlling stake in its profitable GMAC finance arm in order to raise some cash.

To get fixed, GM needs a courageous, disciplined, and visionary CEO (that’s Ghosn) who’s undistracted, totally focused, and fully committed solely to GM’s problems and GM's future (that’s not Ghosn).

Current CEO Rick Wagoner has done a lousy job. The board ought to dump him. If Ghosn quit his positions at Renault and Nissan and took over the helm at GM and GM alone, I’d buy it. So would the investment community. Otherwise, the trifecta idea is another fruitless search for a quickie fix, and it’s just plain dumb. Next week, I’ll discuss an even dumber plan to fix GM.

Help Your BEST Players Get On Board

Occasionally, an executive who is trying a bold, new tack on the business will tell me how difficult it is “to get people on board”. I agree. Many people love to talk about innovation and change, but they are often remarkably resistant to those leaders who try to actually breathe life into those concepts.

Having said that, let me flip the equation around. There may always be career skeptics, but I think the bigger problem that leaders and organizations face is that they do not make it worthwhile and attractive for those employees and managers who really do want to get “on board”.

Remember that in any company, the best players at any level or function—the smartest, the most talented, the most proactive, the most impatient, the most imaginative-- are perpetually hungry for innovative action. They’re eager to challenge “the way we’ve always done things”. They want to plunge through the walls of conventional wisdom to make a positive impact, and they want to reap the financial and advancement rewards for doing so.

If they don’t have the power, the opportunities, and incentives to do that, they’re no dumber than the rest of us. As rational people, they’ll pour cold water on their own initiative. They’ll learn to conform to the same old game, and the organization will suffer accordingly. Or, even worse, they’ll start polishing their resume and be gone, seeking a new climate for challenge and responsibility elsewhere. They’ll do it sooner or later, for the simple reason that they’re marketable. And then the company really gets mired in decline, because when the best and brightest leave, the mediocre players and the drones will always stay on. They’ll stick to a company like barnacles, because they know they’re not particularly marketable, or because they retired years ago and never told anybody.

As I’ve said in the past, one of the best predictors of organizational success or decline is who’s happy and who’s upset. If leaders set up an environment where the best players are the most dissatisfied and the drones the most comfortable, you can predict a bad moon rising regardless of the company’s current size and prestige.

The moral for the leader? Stack the deck by seeking and nurturing those people in your organization who are right now straining at the leash for the opportunity to make a true difference and be accountable for it. They exist. They’ll be your critical mass for exciting change. They’ll also inspire some of the skeptics, and help drive many of the remainder to seek less challenging environments in other companies. That’s what you want, isn’t it? And, by the way, it’s a lot easier, and more fun, to follow my advice than to try to verbally convince everybody to “get on board.”

Innovation Anywhere, Even in a Public Restroom

Do not tell me that you have to be in the high-tech or fashion world to be a world-class innovator. In my upcoming book, I describe how Minneapolis-based Anchor Wall Systems has reinvented retaining walls with innovations in design (over 700 different shapes and colors), customization (easy Lego-like assembly), and technology (new, clean pin-less and mortar-less processes). The upshot? Over 50% market share with premium pricing and very loyal institutional and individual customers. They’re loyal because they’re delighted with what AWS provides them.

A couple weeks ago I was at an Amtrak station in Connecticut waiting to take a train to Providence, Rhode Island. During my wait, I got delighted with a reinvention of another mundane product. Picture this familiar scene. You go to a public toilet. You wash your hands. You use a dinky little hand dryer which emits a dinky little blast of air and takes forever to dry your hands. Usually I wind up sticking my hands underneath for a while, then wiping them on my pants, or else just saying the hell with it and pulling down the paper towels.

But there, in the little Amtrak station outside Greenwich, I found salvation: The XLerator from Massachusetts-based Excel Dryer. It’s big, at least triple the size of a standard hand dryer. The heat it blasts is not only huge and effective (dries your hands fast) but actually feels darn pleasurable. I loved it. And, as I learned when I researched the company, it not only fully dries your hands within 15 seconds (three times faster than ordinary dryers), it also uses 80% less energy than the little dryers and 95% less energy than paper towels. Now that’s innovation! And Excel is doing it with hair dryers as well.

One innovation won’t cut it, either for Anchor Wall Systems or for Excel Dryer. Sustainable competitive advantage is about creating a culture of constant innovation that yields a steady pipeline of fresh, compelling products that excite customers. That’s precisely what these companies seem to be committed to. Good for them. But I like them for another reason: they demonstrate once again—just like Progressive has successfully done with insurance and UPS has successfully done with supply chain management—that innovation can, and should, take place in any industry, however mundane, anywhere.