KANNING: Is our nation following in GM's footsteps?

August 24, 2009

This spring, as a student handed in her final, she inquired, “Is the USA following in General Motors’ footsteps?” Caught in the rush of a busy moment, I uttered, “We’d better be careful.”

During that evening’s business news, an analyst responded to a question regarding the risk of increased governmental spending by saying, “The USA is too big to fail.” I recalled previously hearing another analyst respond to a probing GM question by saying, “GM is too big to fail.” That started the mental wheels turning to express a more thoughtful response to the student’s question.

Size has nothing to do with survival or failure. Being “big” often creates a false security blanket. Organizational death does not happen suddenly; it is a long-term grueling decline, with increasing warning signs along the way. Even the seemingly quick demise of Lehman Brothers was riddled with a time-lapsed accumulation of overlooked or ignored incorrect decisions under the cover of short-term results.

The phrase “too big to fail” carries no basis of merit. Flawed decisions destroy organizations, not company size or lack thereof. The greatest risk mounts from ignoring reality and believing there is safety in being “big.” If leaders find shelter in those “too big to” words, they often ignore obvious warning signs and believe their past successes will correct the future. Eventually, ignoring warning signs will deepen decline to the point of no return.

Jim Collins’ new book, “How the Mighty Fall,” bravely asks what many have been contemplating but fearing the answer. “Is America dangerously on the cusp of falling from great to good? When you are on top … the most powerful nation … power and success might cover up the fact that you’re already on the path to decline.”

GM was once the most prosperous company in the world. In the 1970s, GM sold 60 percent of all the cars in America. Following the ’70s peak, GM repeatedly faced the warning signs of declining market share. Yet, it never really changed because GM remained on top of the Fortune 500 list until 2000. Leaders found success and power in being on top. This feeling of success and power produced comfort, which in turn fostered an employee entitlement philosophy. Remaining on top of the Fortune 500 disguised the necessity to recover from GM’s path to decline.

Likewise, for decades the USA has been the most prosperous economy in the world. Our companies hold the honor of collectively being the most productive, but there are warning signs that indicate a potential weakening to our economic dominance.

The best indicator for economic health is annualized productivity growth. The USA became the most productive economy by being No. 1 in annual productivity increases. In 2003, the USA slipped to eighth in annual growth, and we have varied between eighth and 11th through 2007. Other countries are improving their productivity more rapidly and are closing our dominance gap. If we ignore the reality of this warning sign and think our power, success and size offer protection and entitle us to more, we are, in fact, following in the same footsteps as GM.

Identifying similarities does not automatically correlate to an identical outcome, unless we roll over and accept it as fate. We need to act now, not later. Each of us can do more. Based on my research and analysis, I believe that 80 percent of Indiana companies could double their results. What would our economy look like if, in fact, companies had already doubled results?

My driving passion is for Indiana to be the most competitive state in the global arena. The more who accept a similar goal, the stronger we will become together.•


Kanning is a faculty member in the Department of Management at the Indiana University Kelley School of Business. He can be reached at mgkannin@indiana.edu.

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