Book Summary: American Turnaround – Reinventing AT&T and GM and the Way to Do Business by Ed Whitacre and Leslie Cauley

Ed Whitacre, the former CEO of AT&T and GM, teams up with writer Leslie Cauley on this entertaining, informative autobiography. Under Whitacre’s management, Southwestern Bell became AT&T, and GM traveled from bankruptcy to profitability within 16 months. Filled with anecdotes and asides, this is no ordinary business book. Pithy phrases defining his basic management principles pepper Whitacre’s self-effacing voice and his easy-to-read style as he outlines relevant lessons for managers. Whitacre insists that companies succeed more often due to employees’ energy and collaboration than to managers’ decisions. We recommend his stories and insights to all managers and those who want to manage. Everyone can learn from the man who saved GM.

American Turnaround - Reinventing AT&T and GM and the Way to Do Business
American Turnaround – Reinventing AT&T and GM and the Way to Do Business

Content Summary

Take-Aways
Summary
The GM Mess
Ennis, Texas
Management
Southwestern Bell
Change
Steve Jobs
Remaking GM
Texas Roots
About the Authors

Take-Aways

  • “People are the most important asset of any business.”
  • Managers should try to encourage employees’ progress and improve their self-esteem.
  • “Ignore the doubters.”
  • No one can build trust or a sound business on short-term gain.
  • “Being the boss makes you a team member, but you get paid to be a team leader.”
  • Do not use a defensive management style.
  • Change is the heart of progress.
  • “The CEO’s job isn’t about facts and figures.”
  • Consultants are a high-priced crutch.
  • Management is not the show of other people’s hands.

Summary

The GM Mess

Ed Whitacre, the former CEO of AT&T, became the general manager of General Motors (GM) in 2009 at the request of the White House. GM insiders believed that he shouldn’t worry about the company’s long descent to bankruptcy, halted only by a $50 billion government bailout. When Whitacre inquired about executives’ responsibilities, chains of command, and organizational structure, he found that GM had horrible management.

“If you give people the authority to go out and do something, let them be accountable and responsible, and provide an environment that allows people to feel confident and be the best they can be, amazing things can happen.”

Once top dog in the US market – with 50% market share in 1960 – GM began a steady decline fed by poorly designed automobiles, recessions, rising gas prices, and growing foreign competition. Its market share dropped to 22%. GM spent its cash reserves and was bankrupt; its stock was worthless. Amid the turmoil of the financial crisis that started in 2008 Washington bailed GM out to avoid losing it, which would have obliterated a million jobs directly and eight million through the fallout.

“My experiences… reminded me every single day, in big and small ways, just how good American workers are, and why they’re so important to the long-term success of this country.”

Whitacre was not a car man; he took the job at age 67 as a public service. His one condition was that he would make all the important decisions. Only $6.7 billion of the $50 billion in government TARP funding arrived as a loan. The United States bought a 61% stake in the company with the remainder [GM has paid back the loans and the government sold the last of its shares in 2013.]

“Never underestimate the personal impact that business decisions have on people’s lives, their families and their sense of self-worth.”

By 2009, the US had already lost steel, electronics, and other major industries. Whitacre felt that losing GM might spell the end of a country that “makes things.” He had faith in GM workers because they had accomplished so much in the past, even as management let them down. When Whitacre took over, GM had not shown a profit in five years and had lost $82 billion and its cash reserve. The company had layers of bureaucracy and tangled lines of responsibility. Whitacre discovered undefined relationships among organizational units and excessively complex management structures. He walked the halls and talked to employees at all levels. Everyone was embarrassed by the bankruptcy and loathed the moniker “Government Motors.”

Ennis, Texas

Whitacre springs from a long line of taciturn railroad men from Ennis, Texas. His father and one of his grandfathers worked for the Southern Pacific Railroad. His family taught him the importance of concentration and hard work. The life lessons he learned in the small town included mutual respect and the importance of honest affection. His grandmother and mother taught him the value of self-esteem and the significance of generosity. Whitacre went to Arlington State to study engineering and transferred to Texas Tech. He applied for an internship as a student engineer with Southwestern Bell. That summer’s work taught him how much the employees cared about doing a good job for their company and the pride they took at being team members. After graduation, he signed on as a lineman.

Management

Some managers are obsessed with numbers – earnings, share price, dividend history. For them, the numbers must be right before they’ll make any deal. Because numbers most often never align at 100%, deals die from fear of risk. Other managers turn to “Six Sigma,” an evaluation tool based on the share price. Some search for short-term profit. Some executives are churners who acquire and divest with an eye on the numbers.

“A bunch of consultants is never the answer; that’s just a high-priced crutch, a way to stall, delay and avoid taking responsibility.”

Whitacre has a distinctive take on all these mindsets. Statistics and numbers provide a snapshot of a business at only one moment, and cannot predict the future. Only two questions matter when evaluating an acquisition: “What can you make out of this asset we’re about to buy?” And, “Does it have the possibility to become more than what the current numbers are suggesting?”

“We never let the short-term numbers cloud our long-term view of where we thought the business was heading.”

Whitacre believes that Six Sigma absolves the management of responsibility while pushing it down to lower-level employees. The acquisition can be a good way to build a business, but astute management remains paramount since nobody can build trust or a sound business based on short-term gain.

Southwestern Bell

Whitacre began his career at Southwestern Bell as an “installation foreman” in Mesquite, Texas. His failure to oversee his work team personally led him to understand that he was part of it, not just its supervisor. His boss’s insistence on meeting face-to-face with an after-school program director taught Whitacre to “go see for yourself.” He learned the value of in-person conversations and the danger of making assumptions. He came to appreciate reasoned compassion and to understand that employees’ technical skills were less important than their “character, attitude, willingness, and ability to learn.” Managers must step aside to give workers a chance to succeed.

“People who are crazy enough to think they can change the world are the ones who do.”

After 24 years with Southwestern Bell – save for some time at AT&T – Whitacre unexpectedly became Southwestern’s CEO and chairman in 1990. The breakup of “Ma Bell” gave Southwestern independence and let Whitacre drop previously imposed management-centered benefits. He proposed moving the corporate headquarters from St. Louis to San Antonio. Ann Richards, then governor of Texas, was all for it. John Ashcroft, then governor of Missouri, was livid. The company moved with 80% of its workers. The St. Louis bureaucracy was gone, and Southwestern started traveling “lean and mean.”

Change

Whitacre believes that clinging to the status quo is death for a business. Change is the only constant and a source of growth. Consider companies that failed to change, such as Kodak, AOL, Blockbuster, and Motorola. “In each of these cases companies got outrun by technology, outgunned by competitors, and in some cases just beat up by the clock.” None of these organizations prepared for the future. Good management commits to the long-term prosperity of the organization and pays its shareholders back.

“If you don’t have the right operation and the right people, you aren’t going to make it.”

When Whitacre took over Southwestern Bell, inertia had set in. At that time, Mexico was privatizing its telephone service, Teléfons de México (Telmex), and was looking for bidders. The acquisition came with substantial risks – regulators, crossing borders, Mexican laws – but also substantial gains, like diversification of Southwestern’s asset base and a foundation for further expansion. This was the first of eight mergers or acquisitions that Whitacre engineered, all in line with a long-term plan, at a total cost of $283.1 billion.

Steve Jobs

In 2005, Steve Jobs approached AT&T with a mobile phone proposal. Apple had no prototype and had never designed such a phone. The deal hinged around Jobs’s fearlessness and willingness to think out of the box.

“We’re all in the world together, so treat people like you’d want to be treated if you were in their shoes.”

Stan Sigman, CEO of Cingular, an arm of AT&T, met often with Jobs. They pursued a mobile phone with a far-superior interface. Jobs wanted unheard-of terms: 50% revenue and 10 years of exclusivity. His financial model trashed the tradition of carriers retaining total control and shifted that control to manufacturers. Still, they made the deal. Over five years, Apple would get 88% of the revenues generated by a device that did not yet exist.

“Making cars is a long process; it takes a long time. But that doesn’t mean you can take forever.”

The upper-level managers hated the revenue-sharing component. Whitacre was thinking of market share, so he approved the deal despite his doubts. The iPhone’s success put AT&T in a favorable position for the coming explosive rise of the applications market.

Remaking GM

GM utilized “matrix management” that, Whitacre felt, guaranteed that executives could avoid responsibility. The White House analyzed GM as “unfixable.” Whitacre presented his organizational chart to GM executives, some of whom he reassigned or dismissed. He tried to communicate urgency and a clear sense of purpose. Monday morning management meetings became de rigueur; everyone had to know what was happening. No one could hide in the matrix.

“Part of every manager’s job…is to help people succeed and feel good about themselves.”

Whitacre interviewed Mark Reuss, vice president of the Vehicle Engineering Center, liked his passion for GM, and made him head of North American operations. In the matrix days, that had been a two-person job. Reuss was now responsible for all businesses in the US, Canada, and Mexico. Whitacre turned design, engineering, and marketing over to a single person as well. He added global purchasing to Reuss’s basket.

“Management has a duty to look out for the long-term health of the business.”

To his surprise, Whitacre heard that GM’s corporate headquarters were set to move from the Renaissance Center – the “RenCen” – in downtown Detroit to Warren, Michigan – except for the executives, who would remain 30 miles away. Nobody had told him. Whitacre knew the move would kill corporate momentum, deliver a deathblow to downtown Detroit and cost $100 million. Five minutes after he found out, Whitacre was on the phone to the company’s real estate office. “The RenCen move is canceled.”

“People are the most important asset of any business.”

Whitacre championed the Volt, an “extended range” electric vehicle, and got it to market on schedule. He found the right slogan: “We design, build, and sell the world’s best vehicles.” Mingling regularly with employees, mostly listening, he found they cared about the future and wanted to take pride in GM. The bankruptcy cost GM 40% of its dealerships. Whitacre set aside half a day per week to talk with remaining GM dealers, often in person. Sharing views proved productive. Whitacre battled the matrix, scoring victories over limited backseat legroom in a truck model and beating production delays with the Cadillac CTS.

“You might be the boss, but you’re still part of the team.”

Whitacre assigned clear responsibilities to managers. He wanted them to focus on results and to work fast. He hated PowerPoint presentations and two-hour board meetings. The board of directors was tangled up in operations; he separated the two. He saw sales incentives as anathema and moved against them. He addressed the long-time United Auto Workers’ (UAW) union-management hostility by meeting one-on-one with union head Ron Gettelfinger. They discussed their shared interests in bringing GM back. Whitacre broke precedent by inviting the union leader to a board meeting. Sales gradually improved. The company began to make money. In 2010, it paid its loans to Canada and the US – $18.7 billion, five years before the due date. Employee morale worldwide rose, and a sense of purpose returned.

The government wanted to sell the GM shares it held as collateral. All parties got behind issuing an IPO, but disagreements remained. Whitacre wanted all shares sold by the end of 2010. The US Treasury had problems with the number of shares he wanted to sell and needed to rein in foreign investors for political purposes. While negotiations continued, GM acquired AmeriCredit to boost GM’s stock sales to subprime borrowers.

Whitacre met with President Barack Obama, who asked him to stay on. That presented a dilemma. The success of an IPO hinges on the stock-issuing company’s management. Whitacre’s retirement after the IPO could lead to accusations that GM had misled investors. Ahead of the IPO, Whitacre announced that he would leave in August. Second-quarter 2010 earnings were $1.3 billion, the best in six years. GM was in a strong position for its IPO. On November 18, 2010, 478 million shares changed hands at an unexpectedly high price of nearly $28, raising more than $20.1 billion only 16 months after GM’s bankruptcy.

Texas Roots

Whitacre is sure his Texas roots played a big part in his character development. Texans are fearless and self-assured; they’re used to thinking big, which aligns with Whitacre’s attitude about giving every project his all. Texans are courageous people who won’t let others tell them what they can or cannot do. Whitacre believes American workers feel the same way. GM’s employees brought the company back. As Americans, they saw themselves as the most capable, competent, and innovative workers on Earth.

Whitacre despises pessimism, which he sees as the easy road to laziness. Americans need moral strength and brave hearts to make their luck and succeed. He knows that the expansion of Southwestern Bell to AT&T and the revival of GM resulted not from brilliant management, but the support and skills of company workers.

About the Authors

Ed Whitacre, former chairman and CEO of AT&T and General Motors, served on the boards of Exxon, Burlington Northern, and Anheuser-Busch. Former Wall Street Journal staff member Leslie Cauley writes on telecommunications for USA Today.

Published by Silvia Emma

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