Why GM failed: 5. Managing in the bubble

Why did General Motors (GM) fail? The fifth reason is that GM was managing in the bubble. The current disaster in which GM finds itself makes one wonder, how could it have been so incredibly stupid? If you know about how people get to the top of a company like GM, it becomes clear that what looked stupid from the perspective of customers and competitors was in fact quite smart from the perspective of executives striving for the brass ring.

GM rewarded people who followed the old way of doing things and those who challenged that thinking found themselves on the outs -- causing them to lose opportunities for promotion. So the smart thing for those seeking promotion within GM was to praise the CEO's wisdom and carry out his orders.

At the core of this managing in the bubble is a syndrome called Confirmation Bias -- the tendency of managers to filter out information that does not match up with their pre-conceived notions. I wrote about this in When the Blind Lead.

After Roger Smith, Confirmation Bias kept GM from viewing the threat from Toyota as significant, contributed to its decision to pull its electric car off the market, and more recently led it to ignore the impact of higher gas prices and a collapse in credit markets on consumers' willingness to buy profitable gas guzzlers like the Hummer or tricked-out Escalades and SUVs.

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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