Wall Street Journal
A Turnaround Specialist's Advice to GM
By LYNN TILTON
Edward Whitacre and the executives attempting to lead General Motors through its bankruptcy filing and business recovery would do well to heed lessons learned by executives who have successfully managed corporate turnarounds.
About the Author
Lynn Tilton is CEO of Patriarch Partners, a $6 billion private-equity fund based in New York that specializes in rebuilding American industrial companies and distressed bank debt. Ms. Tilton has helped lead turnarounds at companies such as Totes Isotoner, Snelling Staffing and Denali. Patriarch owns Global Automotive, a supplier to GM, and owns loans to Noble Automotive, a GM parts supplier.
The rebuilding of a troubled company is a long and painful journey, and I've learned that the ultimate obstacle to success is reluctance to assess the mistakes of the past.
In distressed companies, the natural tendency of management is to rationalize mistakes, justify missteps and blame outside forces. The path to the future, however, is rooted in candid evaluation.
Triumph lies in creating a culture of change, one that appreciates a second chance. There are four steps essential to transforming company culture and refocusing organizational energy.
* First, often, a company must hire new leaders. Management that led the way to failure rarely can inspire strategic success.
* Second, a company must analyze, with dispassion and specificity, its lapses of judgment.
* Third, it must gain understanding from its failures and institute necessary changes to avoid repeating its earlier mistakes.
* And ultimately, leadership must demand a culture of change where appreciation is relevant and loyalty is valued.
Let me provide an example. During 2005, we acquired one of America's great aviation companies, MD Helicopters. Founded by Howard Hughes, MD is a manufacturer of commercial and military helicopters. Prior to our acquisition, the company had been owned by McDonnell Douglas, Boeing and a Dutch entrepreneur. At the time of our purchase, MD's problems were far more severe than leverage and stalled innovation, issues that also plague GM. Production had been shuttered, the supply chain frozen and 265 fleet aircraft grounded. As a result, the company was days from liquidation or a bankruptcy filing. Anger and disappointment were shared equally by customers, suppliers and employees, all of whom felt betrayed by the company's dire financial circumstances.
MD, like others in the aerospace industry, had embraced the trend of outsourcing its supply base. The flow of thousands of parts was trusted to hundreds of suppliers. Late payments for parts delayed production, angered customers, grounded aircraft and created a cycle of destruction. Management, averting responsibility, blamed failure on insufficient access to capital rather than operating losses and its own bad decisions.
After replacing management three times -- each leadership claiming the rebuild impossible -- I ultimately seized the reins and embraced the role of CEO. Over the next two years, I assembled a leadership team whose passion and courage drove efficiencies, pushed sales and launched MD to its rightful place in the industry. With simplification of the supply chain a priority, we adopted a vertical integration initiative, manufacturing many hundreds of parts in-house that were previously produced by outside suppliers. Reducing business complexity, addressing customer concerns and revitalizing the cult love of product has fostered the revival of one of America's great legacies. Revenues rose from $13 million in 2005 to more than $200 million in 2008. However, continued success is not guaranteed and constant assessment and improvements are essential.
The tendency towards rationalizing mistakes and blaming the economy is already apparent in comments from GM leadership. GM management has spoken frequently to unfavorable economic conditions, but rarely critiques its history of flawed decisions as a reason for its current condition. While GM's new CEO, Fritz Henderson, has recently suggested that there may be changes coming to upper management, for now GM's management team remains substantially the same. Can we believe that this team will take responsibility for behaviors so that necessary sweeping changes can be implemented? Truth is cold and hard but it is also the first step on the path to hope and recovery.
General Motors paved its path to bankruptcy filing with the arrogance inherent to great empires. The long history of triumph enabled static behavior in a dynamic world, leading to a dynasty left behind. Change is essential and inevitable, regardless of how painful to accept.
