THE 2004 FORTUNE 500
GM Gets Its Act Together. Finally.
How America's No. 1 car company changed its ways and started looking like ... Toyota.
By Alex Taylor III
The incident is forever seared in Jack Smith's memory. When the former General Motors CEO was still a fast-rising executive in the early 1980s, he visited Japan to study Toyota's stamping and assembly operations—something nobody at GM, amazingly, had done before. After collecting the data, Smith was astonished to discover that GM needed more than twice as many people as Toyota to build the same number of cars. But when he made his report to GM's executive committee, the council of elders that ran the company, he was met with utter disbelief. They dismissed his findings. Recalls Smith: "Never in my life have I been so quickly and unceremoniously blown out of the water."
GM was in denial. In fact, GM was so far in denial that nobody had bothered to look for a simple explanation: GM was organized in a completely different way from Toyota—as well as from Ford, Volkswagen, and every other automaker. That was a big reason GM performed so poorly. In the early 20th century GM had been assembled from independent automakers—Chevrolet, Oakland (later Pontiac), Oldsmobile, Buick, and Cadillac—all of which did things differently and, 60 years later, were still competing ferociously with one another. Only a gigantic bureaucracy kept this unruly confederation from destroying itself. Toyota started out in 1947 building cars with a single brand in one factory. As it got bigger, it just grew out from the center. Headquarters kept making all the decisions, and everybody did things the same way.
So while Toyota was unified and centralized, GM was diffuse and decentralized. GM might market eight midsized sedans—all with different names and different parts—in half a dozen markets around the world; Toyota usually marketed only one or two. Even if nobody else did, Smith realized that GM's decentralized structure was fundamentally flawed. So when the board of directors installed him as CEO in 1992, he set out to change the organization. "I had the opportunity to really structure the business in the way I thought it should run," Smith recalls in a telephone interview with FORTUNE from his winter home in Naples, Fla. "Frankly, at the time we weren't like any other auto company in the world."
Smith and his successor, Rick Wagoner, spent the next decade making over GM in the image of its formidable Japanese competitor. If it were a TV show, you'd call it Toyota Eye for the GM Guys. Smith and Wagoner pushed, pulled, pleaded, and sometimes shoved until they reshaped their unwieldy organization into a single company that was able, in Smith's words, to "run common and lean." Today the engineer who specifies the design of a wheel cover at GM's operation in Shanghai uses the same computer language as his colleagues in Germany or Michigan, sources the piece through the same global purchasing organization, and sees it installed at a factory that follows the same GM system in use on five continents.
