This chapter is from the book
This chapter is from the book
This chapter is from the book
The Clash of Opposite Approaches
One of the best contrasts in styles and tactics in relationship management and their results occurred in Detroit in the last decade of the twentieth century. In 1992, Jack Smith, then chairman of General Motors, brought over to the United States a Spanish cost expert he found within the company when he was in charge of GM Europe. Smith thought the unusual but apparently effective techniques that J. Ignacio Lopez wielded in Europe would be just the thing to turn around the rising costs of the larger enterprise of GM in the United States. Lopez arrived in Detroit in May of that year as a relatively unknown entity who immediately made a name for himself as the executive vice president of purchasing.
Lopez exhibited a confident and somewhat colorful personality as he entered a town that had learned long ago how the "game" of manufacturer/supplier relations was played. Lopez took pride in several unusual personal habits, such as wearing his watch on the opposite arm and following a strict "warrior" diet that required eating a rigid regimen of health foods seven times a day. He immediately set out to challenge the existing commercial system by banning GM employees from going to business lunches with suppliers, and he attacked the company's cost structures with a vengeance. His early success was considerable, in both his impact on the industry and his initial results to lower GM's prices.
The techniques that Lopez used were demanding and arbitrary. If suppliers would not agree to immediate price reductions, their contract was terminated and given to another lower-priced source. Existing multiyear contracts that had just been negotiated before his arrival were ripped up and substituted by aggressive market testing. One of Lopez's more flagrant actions was shipping proprietary drawings on patented items to offshore manufacturers with limited technology, to get a cheaper price. These lower-overhead quotes were then used to force the inventing firm into lowering its prices, or risk losing the business. Suppliers were forced to decide whether to continue with GM on the automaker's terms or to sever the relationship.
The supplier community reacted with both panic and anger. With his aggressive tactics, the new guy from Spain had changed the rules of the game that had been in play for decades. While they complained and griped, Lopez forced and coerced his suppliers into submission. Resistance to the strong-arm tactics often meant that parts were resourced to new companies offering lower costs to get into the GM "family." The opportunity to move into favored status with the largest automaker on the planet was too strong for many to resist. Long-established relationships were suddenly replaced with newly formed alliances with sources that sometimes were making a particular part for the first time.
The mission was too much for one man to accomplish single-handedly, so Lopez brought over a crew of disciples who had worked with him in Europe and who were familiar with his aggressive tactics. They were put in charge of the various departments and spread the warrior approach throughout the company. In just nine months, during 1992 and early 1993, Lopez transformed GM purchasing into an aggressive machine whose actions and tactics were often both brutal and arbitrary. But he produced results, and GM management never bothered to ask how he achieved them. Much later, when asked if he ever reflected on how Lopez was achieving such apparent success while working for him in Europe, Bob Eaton, who, as Smith's successor as chairman of GM Europe, had promoted Lopez to a vice president position, replied, "I never bothered to ask how he got the results he did; I just counted them up." Apparently, the end justified the means to him and his company.
Lopez did achieve results—or, at least, the financial community thought so. Merrill Lynch reported that he produced $300 million in savings in the fourth quarter of 1992. The story has a much more interesting ending, as discussed later, but as 1993 rolled around, Lopez and his adversarial role were the talk of Detroit, if not the automotive world. Coming on the heels of Chrysler's brush with financial troubles, the stage was set for a live experiment pitting two completely different approaches against each other.