Three 800-pound Guerillas
Two Failing Business Models: GM and the Iraq War
August 2006 By Denny Hatch
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In the News
Generals Raise Fears of Iraq Civil WarWASHINGTON --The top U.S. military commander in the Middle East told Congress on Thursday that “Iraq could move toward civil war” if the raging sectarian violence in Baghdad is not stopped. “I believe that the sectarian violence is probably as bad as I have seen it,” Gen. John Abizaid, the commander of U.S. Central Command, told the Senate Armed Services Committee. He said the top priority in the Iraq war is to secure the capital, where factional violence has surged in recent weeks despite efforts by the new Iraqi government to stop the fighting.
—Anne Plummer Flaherty, Associated Press, August 3, 2006
A number of knowledgeable experts have declared our Iraq incursion not to be winnable. It does not take a language scholar to read between the lines of General Abizaid’s and General Pace’s testimony to see that the Pentagon is beginning to agree.
That’s because no one has a clue about how to deal with three 800-pound guerrillas.
The three 800-pound guerillas are al Qaeda plus Sunni and Shi’a murderers that are turning Baghdad into a scene reminiscent of Michelangelo’s “Last Judgment” on the altar wall of the Sistine Chapel.
The Failing GM Business Model
“For years I thought what was good for the country was good for General Motors, and vice-versa,” said Charles (“Engine Charlie”) Wilson, president of General Motors, during his 1953 confirmation hearings as Eisenhower’s Secretary of Defense.
“Is there a company more dangerous to America’s future than General Motors?” wrote Tom Friedman of The New York Times on May 31, 2006. “Surely, the sooner this company gets taken over by Toyota, the better off our country will be.”
What happened in the intervening 54 years between Wilson’s statement and Friedman’s slashing attack on GM?
Quite simply, GM made America dependent on foreign oil. It had a beautiful business model so long as a barrel of oil cost only a few bucks.
For years General Motors kept on trucking in spite of a huge problem—the fact that $1,500 of the purchase price of every car it sold went toward health care benefits for its employees and retirees. In 2005, that totaled $5.6 billion.
The corporation continued to make money because it satisfied America’s hunger for outlandish transportation—SUVs, pick-up trucks, Hummers and the like.
When the Middle East exploded and the price of oil went north, General Motors’ business model went south. At $3.50 a gallon, we are forced to pay $50 and $100 to fill our gas tanks, deeply diminishing our discretionary income. Dealers’ lots are glutted with shiny, new gas-guzzlers, and the market for used SUVs is non-existent.
With liquid cash reserves of $45 billion, GM isn’t going anywhere soon. But it has acknowledged serious problems and announced tectonic changes to its business model—massive cuts in employee benefits, layoffs, plant closings and the marketing of car models that cost less to run.
Takeaway Points to Consider:
* It might pay to undertake an annual review of your business model—sources of revenue, expenses, efficiency—for possible tweaks or improvements to test.* If you find your business model going steadily south, is it smart to “stay the course” and ride it into oblivion? Or should hard choices be made?
* Michael Scheuer in his marvelous “Imperial Hubris” described how his first supervisor in the CIA told him to tackle a problem. Scheuer is referring to intelligence, but this system can work for analyzing any business challenge:
First do the “checkables.” The checkables were those parts of a problem that were knowable, the things on which there were classified archival records, pertinent and available human experience, current human assets to consult, or even the results of media and academic research—the latter then, as now, generally underused because of the false assumption that information is not useful unless classified. This supervisor’s recipe was to exploit to exhaustion the “checkables” to lean the problem’s history and context, determine precisely what we already knew, establish the range of things we knew little or nothing about, and, thereby, identify the information we needed to acquire before acting to resolve the problem.
* AOL represents a failing business model where radical surgery is being applied in an attempt to save it. The July 13, 2006 edition of this e-zine was devoted to “The Decline and Fall of AOL: The Trashing of a Money Machine and a Great Brand.” Ten days following publication, TV interviewer Charlie Rose asked AOL founder Steve Case about the merger he engineered with Time Warner. “I’m sorry I did it,” Case admitted. On August 1, 2006, AOL announced it would no longer charge for high-speed Internet access, relying instead on increased advertising to fuel its growth. Forty-eight hours later, AdAge.com reported that AOL was losing 325,000 paying customers a day. The following day, AOL announced 5,000 employees—more than one-quarter of its work force—would be axed over the next six months.
* AOL is not riding its failing business model into oblivion but making sweeping changes in an attempt to save it.
* There is no such thing as being a little bit pregnant.
* “You become responsible, forever, for what you have tamed.”
_The Fox to the Little Prince, Antoine de Saint-Exupéry
Web Sites Related to Today's Edition:
Charles E. Wilsonhttp://tinyurl.com/lpqc9
Michael Scheuer
http://tinyurl.com/4vms5
Iraq Coalition Casualties
http://icasualties.org/oif/
Companies Mentioned:
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