Chrysler and the Innovation Basement

What Robert Nardelli needs to do in order to change the Big Three automaker into an innovator

by Jessie Scanlon

Few would deny that Chrysler—and indeed, the whole Detroit auto industry—needs a shake-up. Business as usual isn't working and hasn't been for some time. And real innovation, as opposed to lip service, hasn't been seen within the city limits for years.

So the takeover of Chrysler by the private equity firm Cerberus Capital Management represented a rare opportunity for real change, unhampered by the expectations of Wall Street analysts and shareholders. And indeed, in hiring Robert Nardelli, the General Electric-trained (GE) former Home Depot (HD) chief executive officer, to the top spot, the new owners have sent a message to the company and the industry that change is coming.

Nardelli is an outsider who promises to bring fresh thinking as well as management discipline to the ailing automaker (see BusinessWeek.com, 8/7/07, "Chrysler's New 'Tough-as-Nails' CEO"). But as a command-and-control executive, weaned on Six Sigma, Nardelli isn't the obvious leader for a company whose future depends on innovation. And his appointment raised the eyebrows of innovation experts such as Larry Keeley, co-founder and president of Doblin, the innovation strategy firm that is now part of the Monitor Group. Senior writer Jessie Scanlon spoke with Keeley about what Chrysler—and Detroit—really need, and whether tough-cop Nardelli is the man to deliver. An edited transcript of their conversation follows:

Before we get to the choice of Nardelli as CEO, let's talk broadly about the automotive industry and its innovation problems.

I don't want to come off as overly critical. These are huge companies with large installed bases. Invariably this makes management focus on that installed base, rather than searching the periphery to expand the core. That said, the degree to which Detroit wants the future to be like the past, and its failure to grasp both the scale of the industry's transformation and the inevitability of that transformation is stunning. If you want to be mean you call it delusional. If you want to recognize the human dimension, you call it wishful thinking. But it is a crisis.

What do you see as Detroit's biggest problem?

At the heart of it is a failure to meet the real-world needs of people who want to buy cars. And that is amazing.

Addressing the problems has been made more difficult by the fact that the Big Three are all focused on next quarter's numbers. Long-term innovation can hardly survive in that context. You could see the Cerberus purchase as a takeover by money-men impatient to see a return on their investment. Or you could see it as a chance to escape the short-term expectations of the Street and invest in longer-term innovation initiatives. Where do you fall?

You have to see your behavior in a long-term performance context. That's what makes the difference. And it completely wipes out what we call orthodoxies. Going through the private equity hurdle could make powerfully different thinking thinkable. That's what makes having one of the Big Three automakers privately owned an exciting thing. Chrysler will be forced to do some things in new and unprecedented ways and that, in and of itself, has the potential to be a change agent.

So the Cerberus purchase creates new possibilities for innovation in Detroit. But what of the Nardelli appointment? Can a former GE (GE) executive, weaned on Six Sigma, bring innovation to Chrysler? His Home Depot (HD) record certainly doesn't inspire confidence.