The GM Solution: Life Boats, Not Life Support

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On the strength of his insights, GM developed its vision of a full line of cars graded upward in quality and price: Americans' dreams of social mobility would be expressed in a lifetime of automobile trade-ins.

Sloan and his colleagues went on to invent the organizational and managerial processes vital to this complex undertaking: the multidivisional decentralized corporation overseen by a centralized corporate office, and consisting of general executives, financial, and advisory staff. The new executives used quantitative methods of forecasting, planning, scheduling, evaluating, and administering every aspect of operations. Then the old GM resources were culled. Companies were sold or dissolved. Product lines were eliminated. Only the people, products, and processes that fit the new business model migrated into the new organization.

These creative responses were classic examples of what Schumpeter called "employing existing resources in a different way" that entails new methods, concepts, purposes, and, above all, leaders. Together those responses paved the way for the democratization of goods that we call mass consumption. They laid the foundation for twentieth century capitalism and unprecedented wealth creation.

Lest you think this process belongs to the past not the future, look no further than your iPod. One of the most lucrative innovations in history, Apple's (AAPL) iPod was incarnated in exactly this way. Existing assets (songs) were reconfigured in a new way (on a digital platform instead of on a physical CD, cassette, or vinyl disk in a record store), under new leadership, with a new business model, in order to meet the demands of listeners whose needs were not being met by the old music industry.

Market Shift

By now the mass-production business model in autos has run its course in the developed world. The stereotypical mass consumer no longer defines the American, or European, marketplace. Everyone seems to know that, except Detroit's top management. They continue to manufacture cars for inventory, relying on enormous economies of scale and dealers who push to anonymous customers. Detroit's early success and vast size buffered it from these changing markets as innovation gave way to arrogance, narcissism, and indifference.

Whether in Chicago or Munich, today's automobile buyer is a person with distinctive demands. The vehicle is becoming merely a punctuation mark in an ongoing "personal transportation experience" that begins with an interest in purchase and extends through every aspect of pricing, service, support, transport, reselling, and recycling. Consumers want quality and affordability, but they also want to choose their own configurations of enhanced safety measures, information and entertainment, reliable personal support features, and personalized design.

The car is becoming an expression of identity, values, and personal control in ways that move far beyond traditional segmentation and branding. For example, fuel efficiency will be only one consideration for a socially responsible vehicle (SRV). What percent of the parts are recyclable? What is the vehicle's total carbon footprint? Are there child labor inputs? Toxic paints, glues, or plastics? How transparent is the supply chain? Is the seller accountable for recycling? What methods are used? Are fair labor practices employed?

The new demands for an individualized driving experience at an affordable price require a fundamentally new business model—a discontinuous shift from economies of scale and push marketing to distributed networks of enterprises that cluster around individuals. The single most important factor for competitive advantage will be a brand's ability to forge durable intimate relationships with customers based on trust, dialogue, and transparency. Similar skills will be needed at the enterprise level, as carmakers collaborate with other entities to support diverse customer needs.