Can Six Sigma Save Chrysler?

Posted by: Bruce Nussbaum on September 4, 2007

Please take a look at this comment by Dan Steele that defends Bob Nardelli’s management of Home Depot. It’s a good defense of his Six Sigma management. Since being appointed by the private equity group that bought Chrysler to run it, many Six Sigma folks (especially ex-GE people) have come to Nardelli’s defense I don’t know Dan’s background but his defense is Six Sigma conventional wisdom about Nardelli.

Here it is:

“Retailer stock prices are based on same-store year to year comparisons and NOT overall profits. Once a retailer has matured, that Street measurement of it’s value is just plain flawed. In Nardelli’s case, he was handcuffed by that flawed measure of success. Nardelli’s style may not be sexy, but the Home Depot recorded record profits under him. His performance was actually extraordinary. Let’s not confuse stock price with profitability. Six Sigma is simply about efficiency. It’s not something to be feared or demonized. He will not be handcuffed at Chrysler and I’m guessing they will appreciate the record profits coming their way. (And Bruce, you need to do your homework.)”

Dan is absolutely right about profits rising under Nardelli. But the reason the stock market didn’t reward Home Depot and Nardelli for those profits, I believe, is that they came out of new low-margin, cyclical, wholesale business Nardelli built that is now probably in deep trouble thanks to the subprime mess and the sharp drop in housing. If Nardelli were still in charge at Home Depot, profits would be shrinking sharply under him—the stock market predicted that and kept Home Depot’s stock price low. And, of course, Home Depot is now getting a much lower price for the sale of its wholesale unit than it expected before the housing bust.

There are a few companies that can use Six Sigma to promote innovation and the online issue of Inside Innovation shows how Starwood does it. Taking new ideas that come up from the brands, testing them and then spreading them throughout the corporation can be made more efficient by Six Sigma.

But that is not what Nardelli did at Home Depot, which troubles people looking at Chrysler. At Home Depot, Nardelli, as an outsider, came in and rejected Home Depot’s pro-consumer DNA and its expertise at creating great consumer experiences. Home Depot needed help in its business process, but Nardelli, instead built a whole new wholesale business and bled the retail consumer operation to pay for it. He brought in ex-military folks with a very different culture. All this to build a wholesale building supplies business with low margins and huge sensitivity to the housing cycle.
And why? Because it could all be better measured. That doesn’t work for me. Sorry. It’s fine to build a new business. Just start a new company. But rejecting corporate DNA, eroding the consumer experience, making your company more vulnerable to what turned out to be a calamity in housing—that’s not wise. And not the kind of experience you want at Chrysler.

Reader Comments

Pete Mortensen

September 4, 2007 10:35 PM

Well said, Bruce. No matter how you slice it, Nardelli's reign at Home Depot was deeply problematic and did not offer a sustainable vision for the company's future. Instead, he pursued quick hits that increased profitability but harmed the brand. And the wholesale unit is in dire straits.

There's a great quote from Einstein that says it best: "Not everything that can be counted counts, and not everything that counts can be counted." Just because something can easily be measured doesn't mean that it's a relevant data point. Similarly, many important insights are unprovable.

It seems odd to me that this debate continues to rage in business, when this fundamental dispute was resolved in math, science and many other fields years ago. Heisenberg, Einstein and Goedel all showed that precision of measurement doesn't necessarily yield accurate information. And, as we now know, light acts like both a wave and a particle, and its position cannot be accurately measured.

What does all of this mean? That we need to enter an era of doing business that embraces the explicit and the implicit, that acts for logical reasons and for impetuous ones. Neither the implicit, holistic side (the right brain of design) nor the explicit, analytical side (the left brain of business) yield significant results on their own. But organizations that can embrace both sides of themselves -- and the divergent interests of their employees -- will be set up to grow continually over time.

This shouldn't merely be a navel-gazing exercise, of course. Implicit knowledge, like how to ride a bike or how to understand what other people feel, is only formed through experience. In this case, companies most need an implicit understanding of what people's lives are like. And you only achieve that by regularly going to visit with people while they go about their lives, something a marketing report can never provide.

In other words, people ought to do business the way Home Depot used to. Let's only hope that Chrysler can get there with Nardelli in charge.

William Abbott

September 6, 2007 9:20 AM

Six Sigma and Nardelli will not be the saviour of Chrysler. I am a CPA in public practice; yet, I have also had the opportunity to go through the Honeywell International Six Sigma process. While Six Sigma is an excellent tool to improve business operations; it is not the Holy Grail. The purpose of business is to make a profit by providing a product or service to a customer. Nothing else matters if the product won't sell. Matching a customer's wants and needs to your product is an art - NOT A SCIENCE - this is the Holy Grail of business.

What Chrysler needs is a businessperson with the intuition of a retailer that understands manufacturing a product with a 20-30 year life cycle. Since Chrysler does not have the vast resources of its competitors; it must win by thinking like a guerrilla soldier. It must hit it's competitors at their weakest points with superior products and services with the goal of winning the hearts and minds of it's competitor's customers. Again, Six Sigma is an excellent tool for creating the superior products. Will this be enough to make the customer choose Chrysler?

In my opinion, it takes a retailer like Lee Iacocca or Sam Walton to lead the charge. Nardelli is neither.

P.S. If you want to see what happens when a quantitative analysis executive takes over a successful company, just look at Wal-Mart today. The customer solutions provider (the individual store) is losing its authority (by the home office) to service its clients as a result - brand Wal-Mart is being destroyed.

Nardelli's main job is to restore Brand Chrysler!!!

Steve Bohlman

September 6, 2007 1:06 PM

Bruce,

I agree with your comments regarding Nardelli and Home Depot. As the leader of Lean Six Sigma at a manufacturer with a strong history of customer-focused culture, I wonder why Bob felt the need to abandon the Home Depot culture? Was it his assessment that the culture got in the way of some critical goal, like profitability, earnings or stock price? Did he see some flaws in the culture (which had been highly praised in many studies)that he thought would keep the company from growing? If so, he might be the wrong guy for Home Depot but the right guy for Chrysler; actually he might be the right guy for GM!

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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