Thursday, December 11, 2008

Why the Auto Bailout Won't Work

A quote from Steven Spear (Senior Lecturer at MIT, Senior Fellow at the Institute for Healthcare Improvement, Former assistant professor at Harvard Business School) in the December 15'th issue of Time Magazine caught my eye:
"...what's inherent about anything complex is that it becomes impossible. You can't design it perfectly," he says. What matters, he argues, is swarming problems from every direction to create high-speed, low-cost discovery and learning.
("Is This Detroit's Last Winter?")
Japan beat Detroit because the Japanese companies realized this, and abandoned (or never adopted) the top-down, central-control approach.

So now Congress wants to appoint a "Car Czar" to fix Detroit. And they want the automakers to present their five-year plans for restructuring.

Or, in other words, the companies are failing because they relied too much on top-down command and control. So Congress is planning on fixing them by adding even more top-down command and control.

Do politicians really believe that they have the power to Fix Things, or is it all just hot air to try to fool us into re-electing them?

5 comments:

Joseph said...

Gavin, I agree with you, though there have been multiple posts I've seen to the effect of WWSJ do (Steve Jobs) with respect to the auto industry. And Apple is certainly top down!

Gavin Andresen said...

I doubt Apple's org chart looks even vaguely like GM's.

Apple does have a Benevolent Dictator at the top, but my impression is that Apple is "top-down" only in that Jobs sets direction and holds absolute approval or veto power over the products.

I'm having lunch next week with a friend who works at Apple; I'll be sure to ask about how entrepreneurial the corporate culture is these days.

Abbie said...

I heard, and would be interested to know if true, that only 15% of the cost of a car from Detroit is labor and that 60% is advertising. If true, it makes one wonder...I got this from a friend whose cousin told him the info and he works for one of the big three.

Gavin Andresen said...

60% ? That doesn't sound right...

(gavin does a little googling to get a back-of-the-envelope estimate...)

"GM's stated worldwide ad expense rocketed from $2.6 billion in 1993, the first year it revealed global ad spending, to $5.8 billion in 2005, according to Ad Age's analysis of GM financial disclosures."
(source)

And GM's revenue minus gross profit (which should give overall expenses) was about 140 billion in 2007.
(source)

So that's only something like 5% of expenses being advertising.

Gavin Andresen said...

A late followup to Joseph's comment:

My friend at Apple describes the corporate culture there as "fiefdoms" -- pretty typical for a large Silicon Valley company. And he confirmed that Jobs isn't micromanaging, but does use his veto power.