Why GM failed: 4. Failure to innovate

Why did General Motors (GM) fail? The fourth reason is its failure to innovate. Since GM was focused on profiting from finance, it did not really care that much about building better vehicles. In January 2006, I doubted that GM could transform itself into a maker of the world's highest quality vehicles. I suggested that a more likely survival strategy would be for GM to outsource vehicle manufacturing to China and India and focus exclusively on financing.

As I wrote in Riding the Value Cycle, companies can only survive if they continually push themselves forward in three management processes:

  • Value Creation is offering products or services that satisfy specific customer needs -- like quality and value -- in a way that beats the competition.
  • Value Capture means setting prices and costs so that a company can earn a profit on such competition-beating products.
  • Value Renewal refers to how a firm that's achieved success forces itself to change so it can adapt to evolving customer needs, upstart competitors, and new technologies.

In the context of the Value Cycle, I think of GM's failure as a slow motion process of refusing to participate in Value Renewal which led to the utter irrelevance of its Value Creation and Value Capture processes.

For all five reasons why I think GM failed, click here.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in GM securities.

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