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GM and the High Price of Cultural Neglect

Jul 11

Written by:
7/11/2014 12:49 PM  RssIcon

Dan Sweeney, Director
Institute for Enterprise Ethics

Enterprise Ethics | University of Denver | GM HeadquartersWhy did the problem of a faulty ignition switch languish in some small local backwater of the GM bureaucracy for over a decade? Well, there appear to be several reasons:

  • Some GM executives didn’t think it was a “safety problem” only an inconvenience (which apparently is OK).
  • Some thought it would cost too much to fix it (90 cents) and not produce a sufficient “ROI”
  • Some worried that the fix might delay other product introductions
  • Others thought there were not yet enough customer complaints
  • Some thought the issue was merely a “customer satisfaction” issue and presumably, therefore, not worth dealing with
  • At least one engineer said he did not want to raise such issues because his predecessor lost his job for doing so.
  • The problem existed in a low end model that carried very little margin and very little GM brand equity.

So, for all of these reasons and probably many more, the decision was made to produce and sell a product to the public that the decision makers knew was defective, did not meet the company’s own specifications and would not consistently operate the way it was supposed to.

Such reasoning clearly reflects a culture that values internal costs, processes, definitions, calculations, formulas, happy bosses, and legal department guidelines much more than product quality and integrity, customer engagement and satisfaction and corporate brand equity. Their principle objective appears to have been to minimize recalls – whether appropriate or not. This is clearly a local culture that has been badly neglected over a lot of years.   

It apparently did not matter that such decisions and the decisions that followed to not deal with the problem when customers started to complain could only result in reinforcing customers’ perception of GM as a maker of shoddy products and as a company that cares very little for real customer satisfaction.

Further, it probably never entered the decision-makers’ minds that eventually these decisions were going to expose the company to huge costs down the road. Now not only is GM dealing with the fines and penalties that will continue to pile up on their accounts payable, but they are now saddled with the costs of recalling and repairing some 29 million vehicles, a cost reflected in a projected charge to earnings of some $2.3B – so far. In addition, the Justice Department is looking into possibilities of a raft of SEC-related charges involving reporting, disclosures and adequacy of internal controls that could drag on for many years into the future. On top of all that is the not yet realized hit to the company’s brand reputation which at the end of the day could result in a huge impact on market value.

So, maybe paying attention to local cultures inside the bowls of a large organization is not just something to be left to the local bureaucrats. Neglecting even a local culture is dangerous anywhere in an organization.  GM is in the process of demonstrating just how expensive it can be.

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