Sunday, June 11, 2017

Automotive Industry's Failures and Future Opportunities for Michigan Economy (Blog #3)


My key takeaway from this week’s readings on internal organizational analysis is that the “go with what you know” strategy is almost always a winning one. It’s organizations that foray into areas that do not align with their core business competencies where things tend to go wrong. Organizations thrive in the long term when core competencies can be determined and aligned with growth opportunities. As I reflect on the lessons from past business failures as well as successes, I can’t help but think of the near collapse of the automotive industry in Michigan in 2008, whether it can be attributed to any of the “Seven Ways to Fail Big”, and what it means for the future of the Michigan economy going forward.

Michigan’s core competency is making things. Thomas Edison, one of America’s greatest inventors and the founder of General Electric, grew up in Port Huron, Michigan. It’s home to Detroit, the Motor City, which retooled its automotive factories during World War II to help build the nation’s Arsenal of Democracy. But in 2008, the economic crisis led to bankruptcy and ultimately unprecedented bailouts of the automotive industry by the Federal Government. What happened?

As I read through the “Seven Ways to Fail Big” article, one in particular stood out to me - staying the course.  This so-called “siren” manifests when executives underestimate the significance of changing market conditions, and stick to a current strategy. I believe this is one of the most significant (among many) reasons for the near complete collapse of the industry in the 2008/2009 timeframe. Executives at the Big 3 automotive companies (Ford, GM, and Chrysler) were all heavily invested in fuel guzzling large SUVs and Trucks – which were highly profitable for many years. Demand for these vehicles dropped drastically in favor of smaller more fuel efficient vehicles, however, when fuel prices increased during this time. The automotive companies were unable to respond quickly to such changes in demand, due to legacy contractual structures with the United Auto Workers union that didn’t allow the companies to lay off workers. Combined with the large amount of fixed costs involved in plants/equipment, the companies were caught off guard to say the least. (Ref. http://money.cnn.com/2008/11/17/news/companies/gm_fixes/index.htm and

Going forward, Michigan needs to avoid these past mistakes while maintaining a keen understanding of its core competency of making things as it pursues new opportunities. Post-auto bailout, the Michigan economy has recovered significantly – adding 407,800 jobs between 2009-2015, a 10.6% gain. (Ref: https://www.mackinac.org/21310) One exciting area that is fueling much of the growth and recovery is in the research and development being poured into autonomous vehicles in Michigan. This nexus of traditional manufacturing know-how and tech are leading some analysts to label Detroit the Silicon Valley of the Midwest (http://www.businessinsider.com/the-next-big-unicorn-wont-come-from-silicon-valley-2017-1) as tech companies, startups, and venture capital pour into the region. For Michigan, being the nation’s autonomous vehicle R&D and manufacturing hub exemplifies the strategy of aligning what it does well with emerging marketplace opportunities.  

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