Chrysler and the Innovation Basement

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You know what you get when you get ex-GE people—they believe that if they put the right management team in place with the right metrics and the right performance incentives, that you can change the world. In general, GE transplants don't have a good track record. Part of the reason that [their approach] doesn't succeed elsewhere is that there isn't the same culture of performance, and there isn't the same talent.

That's the downside. But there are positive things. First, he's too smart not to have learned from his management failures at Home Depot. Second, the world of retail is a very different environment from the auto industry. The cliché is that retail is detail. You manage a thousand different details that you have to improve in little ways. GE is not that kind of company, so that's not what Nardelli was trained to do. And neither is Chrysler.

On the face of it, GE and Chrysler seem like quite different companies. How does Nardelli's training prepare him for the auto job?

When people think about automotive companies, they think of them as a consumer-focused. They would be healthier if they were B to C companies, but they aren't. They are B to B—like GE. The whole deal is to focus on a few big initiatives. For a GE-trained, GE-style leader, this is a much better fit.

What big initiatives do you think Nardelli should focus on?

There needs to be a revolution centered around the dealership model. And the way that cars are assembled, ordered, sold, and maintained. There also needs to be a revolution in the business model. As it is, everybody buys a car. They either drive it until it turns to dust, or they lease it for a few years. That has to change. You see that happening with the i-Gos and other car-sharing companies. The sooner that the Detroit leadership moves in that direction, the better off they'll be.

Many of these initiatives require collaboration between Chrysler and its suppliers and dealers, as well as between management and employees. Yet Detroit is an industry rotten with acrimony. For decades, the carmakers have squeezed their suppliers, and relations between management and unions have been fraught. There isn't a lot of the goodwill needed to support such collaborations.

You have put your finger on something. To a large extent, every time the automakers didn't get the performance they wanted they put the squeeze on the suppliers. And [in so doing] they've stripped those companies of their value, and their talent. Now the entire industry and all of its players live in the bottom third of the Innovation Intensity Index [a tool developed at Doblin to measure innovation within industries]. There is no other industry we've studied in which the entire industry has been shoved into the basement of innovation. Can Chrysler change that dynamic? No way. It's too small and too weak.

Can any one of the Big Three really change that dynamic on its own?

It may get solved only if we see massive-scale dislocations such as bankruptcies. That said, in terms of innovation more broadly, I think you see something more exciting at Ford (F), where the new CEO was the guy behind Boeing's (BA) revolutionary Dreamliner. That's the kind of revolution that the industry needs. An airplane that offers great new amenities to consumers—that is easier to manufacture and less expensive to operate—has stunningly superior economics. It is such a superior offering. It's the most successful plane in history, and the first one hasn't even flown yet. The automakers need those kind of great innovations. They won't be saved by some new piece of styling. To think that Bob Lutz is the answer is just goofy. It is about coming up with new ways to think about your product offering.

And starting to think more about what really matters to your customers?

Yes.