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.

Originally published