What GM Can Learn from IBM

The automaker's future may depend as much on selling a service as a product, a lesson that helped save IBM from extinction two decades ago

By Victor J. Cook Jr.

Disappointingly for anyone with hopes for the future of General Motors (GM), the restructuring plan submitted by the automaker to the U.S. Treasury on Feb. 17 offers little in the way of a long-term comeback strategy. It's all about cost-cutting, federal financing, and making gas engines more efficient.

Management's vision of the future is revealed in a table deep in the report that lists short-, medium-, and long-term investments in product development. A total of 18 major projects appear in this table. All but three deal with gasoline power, including "strong" hybrids. Or, simply put, GM offers us more of the same strategies that resulted in the $9.6 billion fourth-quarter loss reported Feb. 26.

What more should we expect? The typical fate of corporate behemoths that flounder is either death or permanent eclipse, and perhaps GM's fate will be no different. Still, the recent past offers one rare exception that GM would do well to emulate.

Gerstner's IBM Reinvention

Like GM, this company was in its heyday an icon of American manufacturing leadership. Like GM, it faced dire threats to its very existence. Its reinvention, without the benefit of a federal bailout, was so impressive that it continues to perform strongly in the current weak economy, even as many of its tech rivals struggle.

The company, of course, is IBM (IBM).

When Lou Gerstner became CEO in early 1993, prevailing opinion was that the company could only survive by breaking itself up. As is well known, Gerstner rejected this strategy, recognizing that IBM was uniquely equipped to provide the comprehensive array of services in information technology that would be desperately needed by major companies around the world.

Thanks to a group of visionary IBM scientists and engineers, Gerstner grasped the power of the Internet before most other tech companies did. And ever the consummate salesman, he undertook a series of half-day sessions with CEOs of major companies, seeding them with ideas to transform their businesses via this exciting if untested new technology. Naturally, the CEOs all wanted IBM and its world-class research teams to help them realize those ideas.

The IBM that Gerstner inherited had a market share so high that it was required it to spend 11¢ more than its competitors to produce a dollar of revenue. By the end of the decade, Gerstner had transformed IBM from a product-driven to a service-driven company with a much lower but more realistic market share. Investors loved it: From about $29 billion when Gerstner became CEO, the company's market cap swelled to more than $148 billion.

Hope in the Volt

GM's restructuring plan makes clear that it understands well enough the value in reducing its market share. Still, it took a lot more than cutbacks for IBM to make a sustainable recovery: It took reinvention—a recognition that the company was far better off in defining its mission broadly, in terms of information management, than narrowly, in terms of computer manufacture. What would a comparable broadening entail at GM?

According to a number of press accounts, GM's great hope for the future is the Chevrolet Volt, a plug-in vehicle that can get up to 40 miles on a single battery charge. From the evidence of this month's report to Treasury, GM may not view the Volt in quite the way those accounts suggest: The car is mentioned exactly nine times in the 117-page document, and, although the report indicates the Volt will be launched in late 2010, the company does not provide any estimate of production volume.