While a top executive for BMW, Ford, Chrysler, and GM, Bob Lutz has always been outspoken. That's probably why he was never the chief executive because he refused to play "the game". Now in his new book, Car Guys vs. Bean Counters: The Battle for the Soul of American Business he says it was the MBAs that knew nothing about the car business but only making money from money that totally destroyed most of American manufacturing.

He may be right.

Read more at: http://www.time.com/time/magazine/ar...#ixzz1RoJhzjOv

 

What Bob fails to mention is that many, if not most, of the MBAs at the auto companies are engineers who were, in many cases, required to get an MBA as a punch in their ticket to a specific management level in their company. I was in the evening MBA program at UofM with a bunch of these folks.

<step onto soapbox> My contention is that the largest impediment to talented engineers and technicians at auto, electronics, software, etc. companies designing and building exciting products is not the lack of talent or creativity, but the bureaucratic processes put in place to standardize and "improve" the quality of the process. Many organizations have such time intensive and constipating processes in place that the actual generation of new cars, or electronics, or software is a mere afterthought of following the process. Granted, an all skunk-works organization would be chaos, but there should be a middle ground where excitement and creativity can co-exist with corporate oversight. <step off soapbox>

 

^^^blame things like program managers, project managers and other MBAish programs.

I think Lutz has a very good point about executives coming from a solid engineering background. Also, the auto industry is not the only one hamstrung by Lutz's observation regarding MBAs

 

Having just read the book, and being an MBA student that's spending my internship in working for GM, and having met Bob who signed my book... I thought Bob's book was entertaining, which it's supposed to be. He acknowledged that he's not strictly against all MBA's and finance people (he himself has an MBA from Berkeley). It's just that they need more people that are actually passionate about the products they're working on, and removing some of the processes that currently exist that hinder that. The processes may have been helpful and had merit in the past, but many likely need to be changed as the industry continues to be dynamic and evolve.

 

Lutz is right on when it comes to the overwhelming influence of the bean counter types on the American auto industry especially from the '80s to early 2000's.

Only through the true passion and love for cars, can great cars be produced.

When an executive only cares about how much money can be earned this quarter, then the company is destined for failure.

 

like this...

 

yeah... and in any other business too. Although I dont agree with most decisions Lutz has made, like Volt which is disaster of epic proportions, just to be different than Toyota.

 

I watched a couple of fresh-grad BSMEs fast-tracked by my employer after only five months on the job. They were sent to Harvard Business School to get their MBAs, but found better jobs upon graduation. (Dunno how they ducked the employment clause in their contract )

Although they were bright guys, with a lot of "book" smarts in engineering, they were way out of their depth in product development because they had no industry experience. I got one of them to train, and he was a great guy and I hope all worked out well for him. I always thought though that MBA candidates out of engineering school should have 3-4 years experience on the job so that they could apply what they'd learned from their work to their business studies. Sending someone off to business school before he'd had any practical background looked dangerous. Apparently Bob Lutz thinks so too.

These guys had spent roughly 6-1/2 years in college interrupted by a few months' internship in industry. Had they been brought back into a management position (as was the plan), we'd have had a bunch of 25 year-old bean counters running a Fortune 500 company with no real grasp of the industry or the technology of our business. I suspect that's what happened to our American automakers. A flood of fresh-faced grads with good intentions and a lot of motivational seminars behind them, chock full of management theory and important-sounding jargon, but no industry experience being set loose to be front-line managers in a fairly large corporation. There's no end to the havoc they can cause.

For some reason, since the mid-eighties major corporations have been enamored of the number of MBAs they put on their critical path projects. That would be a good idea IF they selected well-seasoned people with five or ten years' background in industry, but sending rookies off to business school only compounds the problems they were trying to solve by putting the future of the company in the hands of people who know the least about it.

I know just how weak most of these schools can be in practical knowledge and real-world application because I've been invited to teach at both the Univ of Houston and Rice in their MBA programs. Oh, good - send a guy with industry experience but minimal accounting and formal business training out to make new MBAs? For the greater good of generations of both MBAs and corporate America in general, I turned them down. After all, I still have to look at myself in the mirror when I shave.

 

Executives should be focused on the balance sheet. The problem is that they're focused on the income statement, not the balance sheet or the cash flow statement. The balance sheet's health is the health of the company, the health of the product line, the health of management's capability.

An excellent product line and a well running company will create a fortress balance sheet over time, where a crappy company can cook the books for outstanding earnings reports/income statements to pump up management salaries. Just look at Sunbeam...

 

The formula is simple: Build things people want to buy.

Seems to be working really well for Apple.

 

It would be interesting to learn what you all think of how Ford and GM are currently managed.

Ford's Alan Mulally is not an automotive person but he is a product engineer from Boeing. He seems to know that an auto company needs good product to sell.

GM's Daniel Akerson is a telecom services person. There have been reports that he still knows little about running a product company, and seems to be running GM as a telecom services company -- offer deep discounts on your offerings to attract as many customers as possible.

 

Process is necessary. The problem is when you have people who think they know process but know so little about how processes work in the real world. No one should become a manager straight out of school -- regardless of what degree(s) they have or how long they have been in school. The longer they have been in university and the greater the number of higher degrees they have, the more theory they know, but they still have only as much real-world experience as someone who started working at the same time they did, even if the other people came straight out of high school.

Managing people and managing processes requires practical experience. No one gains practical experience in school. Some people cannot even gain the necessary experience by staying with the same company for 30 years.

 

I used to work in pharmaceuticals. And we had those who had MBAs and those who did not. That really was not a true way to measure anything. What I found out was that if you were an MD and came into pharma, chances were you were going to know your way around really quick. In addition, my boss started out in the company as a sales representative and worked himself up the ladder for over 30 years. He had seen every aspect of the company and myself having come in up the ladder would not have seen the perspectives that he saw. He does not have an MBA nor did he ever need one.

I think a similar analogy is the way we work on our cars. I am not a Lexus-Toyota certified mechanic, but I have had a Toyota or Lexus mechanic along the way tell me there are things they did not know about my RX300 or little tricks here or there they learned from something I did because of the fact I got experience tinkering, racing, fixing, you name it with my RX300. It does not mean I or they are any smarter than the other at working on the vehicle, but we all have different experiences.

Ultimately, I have found that working with those with MBAs did bring something to the table in terms of new ideas, different types of organizational skills and definitely a sense at looking deeper into numbers. Those with experience seemed to be focused on the customer and keeping that repeat business going. Just an observation, but I have seen it in the U.S., Mexico and many other places around the world.

This issue with finances is a pandemic in our society right now. I have seen some corporations (many of friends and family members), literally push diminishing economic returns to the breaking point by increasing worker hours, freezing or decreasing pay, while nothing changes at the top of these companies. They end up getting record corporate profits because they managed to 'squeeze the orange' for all its worth. That's nice, but when your customers bolt because you decided to look at the bottom line without looking at the wants or needs of your customers (or wrongly assumed your market research told you otherwise), don't look so surprised.

In a way what Lutz said is true (he could leave out the MBA part though), but there has to be a fine balance between finances and what you can offer the customer.

 

There's a lot of truth to be found among your customers. Rather than ramming your brilliant ideas into the marketplace because the engineering is elegant or because it bestows an image upon your brand that you really want to promote, go talk to your customers.

It's a lesson I learned a long time ago working in product development. We could sit in engineering review meetings at the plant discussing all the wonderfulness of our products, how superior they were to the competition, and pat ourselves on the back for the collection of patents, awards, and show-stopping demos we could produce, but the bottom line was to be found out there in the world.

Our customers wanted a piece of equipment that wouldn't break down, was reliable, was safe and easy to use, maintain, and service. After those criteria were met, they wanted performance, flexibility, and capability. We were selling brilliant ideas, they were buying something entirely different. The light came on . . . finally.

Unwittingly we had turned our marketing on its head. Engineers ran the company - they came up with the great ideas, and salesmen were expected to go out and sell them. Sounds pretty simple. The problem was that without feedback from the field, they were pushing sales uphill. We would later find that without a solid understanding of the real cost of engineering, manufacturing and sales, we would have an impressive amount of cash flow, but not much in the bank. It takes a balance of engineering, cost accounting and sales to be successful. Putting management solely in the hands of any one of these groups can be a disaster.

I can understand the situation the automakers face.

ONE: Pay attention to your customers' expressed wants. It doesn't matter what YOU think they need, they will tell you what they will BUY. Power ashtrays are a great engineering exercise, and a gee-whiz sales floor demo, but do they actually sell product in proportion to cost?

TWO: Is anyone out there demanding power ashtrays? Have competitors found a niche market? Is there a great advantage to be had from equipping your cars with them? Do they support your overall brand image sufficiently to be worth their development and manufacturing cost?

THREE: Any product can be sold if it offers advantages over the competition, however there needs to be more than one advantage, the magic number seems to be three.

If you market a Lotus Elise as an all-out performance car, you have only one advantage: light weight that produces performance. But it doesn't have the appeal of a 7-liter V8 and all of the attendant gut-level emotion of a thundering engine. The exhaust note sounds pretty much like a Civic with an open exhaust. Buyers aren't going to attract a whole lot of attention along the sidewalk when they putter by - and THAT'S a major reason (right or wrong) for buying a "performance" car over a golf cart. Now you and I may recognize and respect the capabilities of the Elise, but we aren't the general car-buying public. We are enthusiasts.

You can now buy (assuming you have deep pockets) an Ariel Atom with a V8 - nevermind the little Toyota 4 was PLENTY of motor for this flyweight . . . you have the curb appeal, the bragging rights, but not too many sales. In order to be successful in any business you either have to serve a tiny niche market with a grossly expensive product, or do a high volume business targeting the masses with a small profit on each unit. To do the latter, you have to offer what they want to buy, not what you think is cool.