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Harvard Business Online

Why Wagoner Had to Go

Posted on The Change Master: March 30, 2009 9:04 AM

The message to the auto industry from the Obama administration is loud and clear: Transform or die.

It was only a matter of time before GM's Rick Wagoner would have to go, and the board with him. I am surprised he lasted this long, a fact that also shows weakness on the board side. If the government invests or lends, then, like any bank or investment group, it can demand accountable leadership that can deliver performance.

In November, I challenged and criticized the first GM and Chrysler plans submitted to Congress, saying in many venues and media that the plans lacked credibility and contained no new ideas. Perhaps Chrysler found a new partner, Fiat, just in the nick of time to save a company not viable by itself, but that's not a certainty yet. GM merely offered to do what it was already doing, but said it would do it more cost-effectively. Unlike Ford, which had recognized the need for major change well over two years ago, GM waited too long to make necessary strategic and organizational changes, which are just as important as expense control and financial restructuring.

In this tough economic environment, if you wait too long to envision and implement transformational changes, you are out of the game. That holds for every industry under attack because of obsolete business models, including newspapers and big pharma.

When organizations are in trouble, transformational change almost inevitably requires new leadership at the top. It is hard for leaders who let people down to succeed in pulling them up. That is one of many reasons why turnarounds often start by replacing the people in charge. New leaders at the top can bring a novel perspective, unburdened by the need to justify strategies of the past and not stuck in a narrow way of thinking, e.g., that the current plan is the only option. As the saying goes, it takes a new broom to sweep clean.

Even when executives who presided over a period of decline admit mistakes, it is nearly impossible for them to stir up the organizational energy needed for a turnaround. Those failed leaders symbolize the weight of past losses. People tend to interpret their actions as self-justifying, chosen to rewrite past history. After all, if the old CEO had wrong ideas in the past, why should people believe he or she has the right idea now? For GM's Wagoner, as the problems got worse, the loss figures got bigger, and little else appeared to change, his credibility slipped into the negative zone too.

Companies finding themselves in a downward spiral need fresh views, not just redoubled efforts to do the same thing while waiting for the recession to end. That is particularly true in this period of economic meltdown, because the downturn will accelerate industry transformations already in progress and require radical reinvention of major institutions and business propositions. When we emerge, some things will never be the same. Turning points will become no-turning-back points.

Now is the moment for every company to do what GM failed to do fast enough and imaginatively enough: rethink everything. What is the core of your offering that takes you into the future, and what is just legacy, continued out of sentiment? What new ways can you combine products or services to produce new value? What new partners would extend reach and capabilities?

The only way to stay alive is to envision big change and take early steps to be ready for it. That certainly is the only way to avoid a revolution or a palace coup. But this isn't just about how Rick Wagoner could have kept his job. It is a way to save and revitalize a company by transforming it into something better able to provide value in the future.

Return to the Auto Bailout Special Report Table of Contents

Provided by Harvard Business—Where Leaders Get Their Edge

Rosabeth Moss Kanter holds the Ernest L. Arbuckle Professorship at Harvard Business School, where she specializes in strategy, innovation, and leadership for change. Her strategic and practical insights have guided leaders of large and small organizations worldwide for over 25 years. The former Editor of Harvard Business Review (1989-1992), Professor Kanter has been named to The Times of Londonlist of the "50 most powerful women in the world".

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