The Fall of GM

There is nothing new about large industry leaders, such as General Motors, going bankrupt; in The Innovator’s Dilemma, Clayton Christensen gives many examples and an explanation: complacency, also called smugness. We’re doing well, why shouldn’t we continue to do things our way? They fail to innovate enough and less-complacent companies overtake them, often driving them out of business. Complacency is human nature, true, but it’s the oldest mistake in the economic world. (I’ve studied a similar effect in rats and pigeons.) In the 1950s, complacency was surely why the big American car companies rejected the advice of quality expert Edward Deming. In less-complacent Japan, however, his ideas were embraced. This doomed the US car industry. Much later, Ford was the first American car company to take Deming seriously, which may be why Ford is now doing better than GM or Chrysler.

The further away you are I suspect the more clearly you see complacency for what it is — a failure to grasp basic economics (innovate or die):

“Chinese financial assets [in America[ are very safe,” [Treasury Secretary Tim] Geithner said. His response drew laughter from the [Peking University] audience.

2 Replies to “The Fall of GM”

  1. I think if you look closely into the history you find that American auto makers found Deming, and embraced his methods, and subsequently quality of US cars went up.

    However, Deming’s book Out of the Crisis is riddled with frustration that US management is missing the point of his methods. They’re seeing innovations like just-in-time and kanban and consistently seeing only short term improvements.

    Deming reiterates that the real innovation is in management. That management must change it’s goals, change it’s relationship with workers, and change the methods used even by the very top officers and boards of directors. That’s where he found things falling short the most.

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