GERMANY: WHY DID GM AND VW THINK ONE MAN VITAL TO THEIR BUSINESSES?

GERMANY: WHY DID GM AND VW THINK ONE MAN VITAL TO THEIR BUSINESSES? - Any system that hinges on one irreplaceable person is deeply defective.

by Robert Heller.
Last Updated: 31 Aug 2010

Any system that hinges on one irreplaceable person is deeply defective.

The great mystery about the Volkswagen espionage scandal isn't whether its red-hot production director stole secrets wholesale from his previous employer. Much odder is the conviction of both mighty companies, General Motors and VW, that their futures revolved around the vital services of one man.

Even if Jose Ignacio Lopez de Arriorta is as marvellous as his publicity and record suggest, that doesn't solve the mystery (see also Europe p21). This is allegedly the age of teamwork and collaboration. Both apply especially in the realm where Lopez made his reputation: purchasing, where the Japanese have taught the West such far-reaching lessons. True, Lopez has a team of dedicated acolytes, but their 'warrior' name and style hardly suggest the co-operative, mutually supportive way in which vendor and customer are now supposed to work. In this new world, price is relegated, at most, to equal ranking with quality and reliability. In contrast, the wonder-man's contribution to GM Europe has been admired almost entirely for cutting prices (other people's, that is).

In America and at VW, Lopez has gone for samurai-style confrontation rather than the Zenist approach to suppliers. Nor were these onslaughts staged on fresh battlegrounds. Like any car companies interested in survival, GM in the US and VW were making good progress with several of their suppliers when the brave Basque was forging ahead at Opel.

How far can GM's undoubted success in Europe be attributed to his work? One answer must be that purchasing, while critical, is only part of the pattern. The overall picture is that GM in Europe has reaped the fruits of a costly, far-sighted comprehensive strategy that attacked a higgledy-piggledy collection of cars, whose variable standards of design, engineering, competitive appeal and build were a licence to lose money.

'Comprehensive' is the key word. The rage for 'process re-engineering' has thrown up masses of spectacular results - as striking as those which Lopez has claimed for his so far short-lived assaults on VW's productive processes. But many of these cases (as at VW) come from companies whose overall results are deeply depressing.

Place a radically improved engine in a beaten-up old banger, and you still have a rotten car. A parallel principle is graphically illustrated by a story from Procter and Gamble, which couldn't understand why 40% of its deliveries were late when every department was achieving 95% performance. The answer was simple. If you have 10 departments each performing at 95%, the collective outcome of their efforts is 60% at the end of the line.

Detroit provides endless opportunites to demonstrate this arithmetic. Big German business, whose supposedly heroic stature once matched the later Japanese eminence, can be even worse. VW hasn't even embraced the concept of the 'product champion': the single, responsible leader who is given sole charge of developing a new model from start to finish.

Anything that smacks of the Fuhrer principle isn't easily acceptable in a country whose two-tier board system treats the chief executive as a first among equals.That only adds to the Lopez mystery. Not only did VW attach enormous importance to recruiting his genius, but it gave the Spaniard power to march through the system in jackboots.

The crude answer is that sometimes only the fire and fury of a charismatic leader can cut through. In turnrounds, this line is usually decisive. Nobody appoints a committee man to rescue a company in crisis. But turnrounds - and their leaders - are notoriously prone to lapse or relapse, because the saviours have improved the performance without fundamentally improving the system.

Turnrounds have similarities to projects since both leaders start with a relatively free hand and a clear, deadlined remit. One key difference is that, once the target has been achieved, the project leader usually moves on to other ( probably greater) things. Leave him in place, like Don Estridge, brilliant father of the IBM PC, and the result may well be a gigantic flop like PC Jr. Project leadership and building an organisation are not the same thing. The great organisers know how to turn functional and cross-functional teamwork - including the crucial areas like purchasing - into a way of life, avoiding waste and achieving synergies.

Relying on one man, however brilliant, must eventually run into trouble - unless the talents of everybody else are mobilised and released in new ways that will outlive the peerless leader. Often, the latter seems as indispensable as did Lopez to his two besotted corporate suitors. But any system that hinges on one irreplaceable person is plainly and deeply defective - which makes it far more important to reform the system than to hire The Man.

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