New Look at GM: Unconventional

Big, resourceful GM has even surrendered its long-held attitude of superiority over much-smaller companies, pairing up with financially anemic but technologically bulging businesses for their expertise.

To Roger B. Smith, chairman of General Motors, running a business used to be simple. “It’s like the story of the two guys being chased by a bear,” he begins, “one of them stops to put on his tennis shoes and the other guy says, ‘what are you putting on your tennis shoes for? You can’t outrun a bear.’ ‘I don’t have to outrun a bear,’ the other guys says, ‘I’ve just gotta outrun you.’ ”

But then the whole world joined the race. Suddenly GM no longer had the luxury of just outrunning the hometown competition. Smith’s simple business philosophy had to change.

“At one point,” he recalls, “we said, hell, we’re not going to make it unless we do something drastic here.”

Since he took over GM four years ago, Smith has broken one cardinal GM rule after another.

One of the first to go was the unwritten rule that no one should tamper with the management system that held in place, corset-like, the sprawling, bulging GM organization.

That was just a start. When he got his hands on GM’s plan to build a new small car, he fashioned it into the Saturn project, one of the country’s boldest experiments in management-labor relations.

For Saturn, Smith authorized a whole new corporation, a separate dealer network and labor contract, a paperless operation from the time a customer puts in his order until he drives away, and an environment so unconventional that workers normally paid by the hour will be salaried and have an equal voice with management.

Purchased Technology

Next to go was the go-it-alone rule. GM, which once did everything on its own, has chosen to move more deeply into high technology by buying Electronic Data Systems, one of the nation’s largest computer companies, and agreeing to acquire Hughes Aircraft, one of the world’s foremost defense electronics companies.

Then he teamed up in a joint car-production venture with the unlikeliest of characters--GM’s bitter competitor, the Japanese. From Toyota, GM’s counterpart in Japan, Smith wants to learn first-hand how Japan manages a car factory.

Smith chose to locate that grand experiment in what had been one of the most contentious union factories in America, a GM car plant in Fremont, Calif., which practically overnight has turned into what United Auto Workers Vice President Donald Ephlin calls “a model of honor, trust and involvement.”

Smith reached out to Japan again for know-how in robot technology, turning this time to Fujitsu Fanuc Ltd., with whom GM now owns the only profitable robotics company in America.

Big, resourceful GM even surrendered its long-held attitude of superiority over much-smaller companies, pairing up with financially anemic but technologically bulging businesses for their expertise in robotics, artificial intelligence and machines trained to “see” flaws.

Inside the 66-year-old GM headquarters building, a monument to its art deco origins, bureaucrats are being stripped of the huge empires that they had shrewdly built in the pre-Smith years. Work that the headquarters staff has been doing for the divisions since the 1920s--when legendary GM Chairman Alfred S. Sloan Jr. installed his widely studied and copied management system--is being returned to the divisions.

Given More Authority

Managers at all levels are being asked to think for themselves, make decisions, show initiative, stretch their imaginations, behave like entrepreneurs instead of paid help.

Rattle off any of the approaches to innovative and entrepreneurial behavior in vogue in corporate America today and Smith is trying it.

In combination, the internal changes occurring at GM “best represent the fundamental shift going on in parts of corporate America toward participatory management and a new way for labor and management to relate,” says William Ouchi, a UCLA management professor who applauds the change.

That Smith is leading a revolution in the way people view and do their jobs is as improbable to many as is the transformation of GM into a people-oriented organization.

Predating Smith’s 1981 ascent to the seat of power, GM was what Yale professor Rosabeth Moss Kanter calls “a symbol of power grown fat, lazy and complacent,” emblematic of “the smug conviction of American business of its own superiority and its unwillingness to admit to the need for change.”

And Smith, far from being known as a good handler of people, was the consummate numbers man--having climbed up the long GM ladder principally through accounting and planning jobs.

Nor did Smith’s first months in office offer much hope for change. Desperate to return the ailing giant to profitability, Smith found the ledgers bulging with expendable items.

Billions of dollars and tens of thousands of people went by the boards in his urgent cost-cutting drive.

Then, in what triggered the ire of thousands of Americans, he committed an extraordinary faux pas : On the eve of signing a big labor contract in which union workers had granted major wage concessions, Smith announced that GM would distribute millions of dollars in bonuses to GM managers.

Study in Contradictions

But just as management consultants have known for some time that there were two GMs--the smug, impersonal epitome of all that was wrong with big business and the adaptive pioneer of new work environments that represented business at its best--so, too, Smith is a study in contradictions.

With his slight build and high-pitched voice, Smith’s public aura is of the stiff, ill-at-ease, colorless executive.

But on the job, Smith’s lieutenants say, he is a brilliant, demanding taskmaster. And one on one, he is effervescent, folksy, earthy and downright endearing--tripping over his words as he races on, whether praising GM workers or quoting Shakespeare (“Some have greatness thrust upon them”).

While some workers and union leaders insist that Smith is still somewhat insensitive to the effects of his actions on people, it seems clear that his legacy at GM will be neither new machines nor new systems, but a new approach to people.

The success of GM’s organizational overhaul, says Smith, will come from the freedom of employees to think for themselves and express differing opinions.

Such was the philosophy when GM’s executive committee agreed to the corporate reorganization and tapped two managers to head the separate car-making companies. They were instructed to go their separate ways with their lieutenants in tow and work out the implementation details themselves.

Different Approaches

Each hammered out a different approach. And, symptomatic of the new GM attitude, each was allowed to stick with his own idea.

So, Robert C. Stempel runs the Oldsmobile-Buick-Cadillac group in a way befitting the more traditional, older crowd those cars sell to.

And the aggressive and dynamic style of manager Lloyd E. Reuss has been fostered among the freewheeling entrepreneurs at the Chevrolet-Pontiac-GM of Canada group, which designs and makes cars for a more venturesome part of the population.

Similarly, the entrepreneurial environment at the Troy, Mich., headquarters of GMF Robotics, the 50-50 joint venture between GM and Japanese robot maker Fanuc seems a world apart from the GM home office just a few miles away.

The striking differences between GM and GMF Robotics are especially apparent on Fridays, when GMF employees wear jeans or other casual attire. Once a year, the whole company--all 550 of them--adjourn to the vast spread of lawn outside their building, for a birthday celebration. Hot dogs, beer and sake all around.

Since the venture began in mid-1982, President Eric Mittelstadt has given every employee a briefing on the company’s culture. And he plans to have someone act as a “representative of the people” to make sure, Mittelstadt explains, that “we don’t lose sight of things important to workers as the company grows.” He is currently calling the job “vice president for employee effectiveness and satisfaction.”

Paid for Output

Because it competes with start-up companies for employees, GMF people aren’t paid according to the same salary scale as those at GM. As risk takers and high achievers, GMF employees are compensated, Mittelstadt says, “for output.”

“Putting in a lot of time isn’t enough,” he says. Hence, his credo: “There is no room in this company for people who say that ain’t my job.”

Everyone is paid like an owner of a company, through a broad-based profit-sharing plan much different from GM’s. In addition, 45% of the work force has an opportunity to make 5% to 40% more than their base salary by helping the venture meet or exceed its financial goals. Last year, that meant GMF workers collectively received incentives of more than $1 million.

Smith considered such departures from GM’s traditional approach critical when GM acquired EDS. So, he devised a creative stock plan especially for the market-driven EDS work force--to improve the chances that they would remain their flamboyant selves.

Much to the surprise of critics who felt sure that the GM whale would swallow up EDS and stifle the hard-driving, entrepreneurial behavior of its troops and their flamboyant leader, Texas billionaire businessman H. Ross Perot, it seems to have worked.

At EDS, everyone is still eligible for bonuses, rewards are still based on EDS stock (now called GM Class E stock) and there are as few titles as ever. It kept its own benefits plan, has no policy manuals, no personnel department and has retained its old style.

Keeps Its Distance

GM, in turn, treats EDS like an outside vendor. All transactions are at arm’s length. And, under terms spelled out in the purchase agreement, GM isn’t even allowed to speak for EDS.

“From the very beginning,” says Kennard Hill, the EDS vice president handling the conversion of GM to a so-called paperless company, “Roger understood that our success is largely due to our being an entrepreneurial company.”

So, the prospectus for the deal spelled out that EDS would remain a separate company and retain control over its own stock incentive program, which remains unchanged. The value of the stock has more than doubled since the deal was completed last year.

“The only change here is in how we view new business,” Hill says. Before, any $2-million automation project would have been great. Now I ask myself, how will that benefit GM? Is it right for GM?”

As envisioned, Saturn, too, will be different from its siblings in style. But it is much more than just another entrepreneurial experiment.

Saturn isn’t just GM’s best hope for building a small car that competes with Japanese subcompacts. It is GM’s experiment in new ways for dealing with employees.

“I still say 90% of Saturn’s benefit will (extend) to the rest of the corporation and only 10% to Saturn,” Smith says. “That’s our test vehicle and I don’t mean test car. That’s our test system, that’s our test management, that’s our test labor, that’s our test dealer distribution network.”

Unique Pay System

Fulfilling the dreams of Walter Reuther, the late UAW president, Saturn will have an all-salaried work force, the first such pay system in the U.S. auto industry and a way to treat workers as professionals. And it will take a lot of other risks the whole company couldn’t afford to take.

For example, a full 80% of the workers will have lifetime jobs except in the case of “catastrophic events.” Even then, workers can decide to cut their own hours or shut down the plant briefly rather than see some of their colleagues laid off.

Borrowing a concept used by one of GM’s own Cadillac engine plants, workers will be paid for their knowledge and the extent of their skills. Their productivity and that of their small team also will be figured in. Plus, everyone will be eligible for bonuses.

It will be as egalitarian a work environment as any in America. No time clocks, no foremen, no seniority rules, no special privileges for anyone. Titles will be kept to a minimum. And everyone will be entitled to use of the Saturn gyms, dining rooms, parking and day-care centers.

Entire sections of cars will be built by teams of six to 15 UAW members--using the so-called “modular manufacturing” approach now in evidence at a few other GM plants. The teams will be led by a “counselor” of their own choosing and will set their own schedules, maintain their own equipment, order their supplies and choose who they want on their teams.

The union will have a say not only in the pay of union workers, but in managers’ salaries as well.

A Risky Course

Participative management is a risky course. As UAW leader Ephlin notes, it requires better people at all levels. And the risk is more substantial still in Smith’s overall scheme to steer GM down a more entrepreneurial course.

“That’s why we were doing it the other way before,” Smith says.

“But,” he concludes, jabbing a finger in the air to emphasize his point, “that’s part of the thing that got us into trouble.”