"Saturn Done in Four Months" is the Autoweek.com headline. The next time somebody brings up the short life cycle of tech products, remember Saturn. GM started the company, grew it, and now is shutting it down on a timeline that roughly corresponds with the life of Sun Microsystems. Clearly manufacturing companies can do just as poorly as techs.
When Penske lost itsmanufacturing deal, the purchase of Saturn fell through. And GM leadership can't wait to clear out inventory. Production has already stopped. Soon, the products and dealers will disappear. Along with the brand name. Another experiment that failed. So it is very important our post-mortem teaches us the right lessons from Saturn.
I was appalled when Harvard Business School Publishing posted "Why Saturn Was Destined to Fail." According to the author, Saturn was an anchor that drug down a hurt GM!!!! Reporting that the successful Saturn launch came at the loss of $3,000 per car sold (a new factoid I've never before heard), he claims that GM should have been more focused on fixing its old business. The implication is that GM wasn't trying to fix its old business, instead being diverted by the very successful operations at Saturn! Pretty illogical. GM was doing everything it could to compete, but improving its old Success Formula simply wasn't enough given the market shifts already in place. To meet changing market requirements GM needed to develop a new Success Formula, and that was the purpose of Saturn!
Saturn was the best chance GM had to succeed! The Success Formula at Chevrolet and the other GM divisions had been created in the 1950s when GM dominated the industry. But by 1980 the market had shifted dramatically. Design cycles had dropped, customer tastes had changed, production methods had moved from long assembly lines to just-in-time, quality requirements were redefined and rising, and impressions of auto dealers had tanked. Saturn was established to teach GM how to compete differently.
The reason Saturn lost money had everything to do with accounting. GM forced all kinds of costs onto GM – which were not representative of a normal start-up. Without those costs, Saturn would have been much leaner and profitable. Further, after Saturn proved it could move faster and outsell expectations, GM quickly moved to force Saturn to act like other GM divisions. Forced sharing of components severely hampered the design cycle and flexibility. Union contract consistency pushed Saturn into old employee agreements which the union had previously agreed to wave. And forcing Saturn to allow traditional GM dealers to sell the Saturn brand tarnished the changed customer relationship Saturn worked hard to create.
When Roger Smith created GM he set it up seperately. His scenario of the future demanded GM figure out a new way to compete. Saturn, was a White Space project with permission and resources to figure out that new way. But Chairman Smith did not Disrupt the old GM auto management. He did not replace the Division presidents with leaders from EDS or Hughes (businesses he had acquired) who were willing to move in a new direction. He did not change the resource allocation system to give Saturn more clout over its own decisions and those at other divisions. Thus, when he left the larger divisions moved fast to change Saturn into their mold – rather than vice-versa. Instead of Chevrolet learning from Saturn, Saturn managers were forced to adopt Chevrolet practices.
Saturn proved that even a stodgy, Locked-in company can use White Space to develop new solutions. And it also proved that if you aren't willing to Disrupt the old Success Formula – if you aren't willing to attack old Lock-ins – White Space (regardless of its success) is unlikely to convert the company into a better competitor. The lesson of Saturn is NOT that it diverted GM's attention, but rather that GM was unwilling to Disrupt its Success Formula to learn from Saturn.
As investors, the question is pretty easy. Would you rather own Saturn, Pontiac and Hummer – the divisions of GM that had loyal customers and some reputation for innovation, quality and customer satisfaction – or Cadillac, Buick and Chevrolet? Would you rather have businesses that are looking forward with early plans for hybrids, and exciting cars like the G8, or a high volume business in cars that most people find ho-hum, at best? Do you want designers that take chances and bring out cars quickly, or that move slowly seeking the "lowest common denominator" in design? If you were an entrepreneur, would you rather be given pemission to lead Saturn, or Chevrolet?
Learning the right lessons from Saturn is important, or else our business leaders are doomed to repeat the GM mistakes. If you don't challenge your Success Formula, White Space project will be met with great resistance by the organization. They will be saddled with unnecessary costs and requirements that strip them of permission to do what the market demands. And they will not achieve the goals which they established to accomplish, including acting as a beacon for migrating a business forward.
For a deeper treatment of this topic please download the free ebook "The Fall of GM: What Went Wrong and How To Avoid Its Mistakes."
