Roger Smith's grand plan: Unravel division system, create a unified GM
On paper, 1984 program streamlined procedures and cut costs; in practice, it was a disaster
Three corporate entities on the same sign -- but not on the same page
In reality, it was the equivalent of a sledgehammer. And with it, CEO Roger Smith began dismantling the organizational structure of the world's largest automaker.
GM was in trouble, and to save the company, Smith wanted to disassemble it. The new GM he envisioned would eliminate duplication of personnel, improve quality, streamline processes and reduce costs.
The problem was that rather than running as a single, unified company, GM had been running like six separate ones.
A company divided
Each vehicle division — Buick, Cadillac, Chevrolet, Oldsmobile, Pontiac and GMC — had functioned as a self-contained business, with departments for purchasing, engineering, advertising and sales. Fisher Body and GM Assembly Division provided bodies and assembly functions for all divisions.
The structure was as old as the company itself, the result of founder Billy Durant creating GM to function as a holding company for the independent automakers and suppliers he acquired from 1908 to 1920. Alfred Sloan refined that structure with his concept of "centralized policy and decentralized administration," which worked well for more than half a century.
But eventually, the heat of competition burned away the veneer of success, revealing a centralized management that was slow to react to a changing market and an inefficient manufacturing organization held hostage by cost-plus contracts that hindered competitiveness and quality.
Jack Smith, who retired as chairman in 2003, recalls, "General Motors was essentially a collection of divisions. We had redundancies all over the place. It was easy to see that we couldn't run that way, so we started at square one."
So it was that in January 1984, Roger Smith announced a new structure for North American car operations. The Chevrolet-Pontiac-Canada Group would design, manufacture and market small cars, and the Buick-Oldsmobile-Cadillac Group would take responsibility for large cars. Lloyd Reuss would run CPC; Bob Stempel would lead BOC.
Smith had two goals: Decentralize authority under the manufacturing divisions and eliminate duplication of work and personnel.
Unfortunately, the reorganization accomplished neither. And it had repercussions that reverberated throughout the corporation.
The first casualty was communication. "The reorganization instantly destroyed GM's informal network of communication, the way things actually got done," Maryann Keller wrote in Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors. "It depended on personal relationships, but with the old structure gone and nothing to replace it, no one knew who was responsible for what."
Suppliers no longer could locate the right representative. In the chaos, new layers of management were created in a futile attempt to clean up the mess; CPC alone eventually added 8,000 people.
The integration of Fisher Body and GM Assembly Division could be described more accurately as disintegration because they were absorbed into CPC and BOC. "I don't think we realized the depth of body knowledge that Fisher had," says Stempel, who was head of BOC and Smith's successor in 1990. "That's one thing that always bothered me, and still does. Gradually, though, we overcame that."
Morale suffered. At GM, divisional loyalties transcended all; workers considered themselves employees of Fisher Body or Buick, regardless of what was on their paycheck. Loyalty to GM the corporation wasn't even considered.
Quality was abysmal, because most of the body engineers from Fisher Body were gone. Meanwhile, anticipated efficiencies were virtually nonexistent; instead, there was an explosion of additional personnel, complexity and cost.
"Getting common" also proved elusive. At one point, GM was producing 17 ignition systems, 40 catalytic converters and 45 transmission torque converters.
"Our targets were four converters, three ignition systems," says Reuss.
The reorganization seemed to have precisely the opposite effect Smith intended. Rather than creating a company that was lean, efficient and responsive, GM's organization became more confused, costly and cumbersome. In addition, it alienated the work force, the very people responsible for implementing Smith's vision.
Almost 25 years later, those who lived through the reorganization have vivid memories. Jim McDonald, president of GM in 1981-87, remembers the reaction of one general manager in particular. "He told me that I'd ruined the corporation. It wasn't an easy thing for them, but it had to be done."
Today McDonald, 86, divides his time between Harbor Springs, Mich., and Vero Beach, Fla.
Jim Perkins worked at GM for 24 years before leaving for Toyota in 1984. When he returned to GM in 1989 as assistant general manager for Chevrolet, the post-reorganization GM was much different from the one he had left.
"By the time I came back, I didn't even recognize the place," recalls Perkins, now 73 and COO of Hendrick Cos., an umbrella company that oversees Rick Hendrick's automotive, motorsports and other operations.
"The organization was divided in camps that, to me, had taken the focus off the real issue of developing good product and getting it to market. We were strapped with product that wasn't as good as the competition, especially our foreign competitors, and that sapped our spirit to compete."
In an article published by Fortune magazine in April 2004, GM CEO Rick Wagoner said, "The financial results and market share results weren't that bad. But it seems like we lost some of our relative competitive positioning during the decade.
"We hired a lot of people, and we've been carrying those people since. We've been 12 to 14 years digging out from that."
Some contend today that as painful as the reorganization might have been, it was necessary. McDonald believes that if GM had not taken the steps it took in 1984, "they would have had to start from scratch because they couldn't exist today" without the foundation that the reorganization established.
John Middlebrook, 67, who retired from GM in July after 49 years, agrees. "Much of the Roger Smith era involved attempts to change the company because we needed to change," he said.
And Keller noted, "The theory behind the reorganization, that change was imperative, was correct. However, nothing went right in its implementation. Much of Roger Smith's tenure was like that: good idea, poor execution."