The bankruptcy…or any form of failure…of the City of Detroit brings wide speculation as to the cause of the downfall of that great city. While it is both sad and momentous, Detroit’s descent in just about every measurable characteristic was right out in plain view for decades. Some critics claim the demise of Detroit began 60 or 80 years go; even the more conservative cite 30 years.
Like any failure, it’s a function of multiple factors which converged to create, in the end, the perfect storm. Detroit leadership simply did more wrong than right things for years. But, their biggest gaff was perpetuating a head-in-the-sand mentality as each administration left its term with the city slightly deeper in the morass.
Was this a result of the Big Three auto makers? Yes, they greatly underestimated the impact of those pesky little Japanese cars on the West Coast, an invasion which swept the Continent. They streamlined with just-in-time inventory systems which dramatically improved production and lowered costs, but they were largely building the wrong vehicles and, with a few exceptions, they trailed the Asian and European competition in winning American drivers’ hearts.
The big losers turned out to be all of the small vendors and suppliers who lacked the financial stuff to weather prolonged bad times. If a company called General Motors and one called Chrysler needed a Federal bail-out, how could companies called Joe’s or Allen Brothers’ hope to survive downsizing? Most of the small companies were one-dimensional and had no plans to diversify when most automotive technologies can be applied in other industries such as aviation, appliances, and manufacturing. The little guys failed for lack of a Plan B.
Beyond the businesses lies the infrastructure that made Detroit a great and unique city. It had all of the requisite public services, development and expansion plans, and even a downtown monorail. But, as the city’s taxation revenues fell, the elected officials and the appointed department heads did not address the inevitable downsizing promptly. Bankruptcy became virtually inevitable because each ad-ministration passed on to the next most of the problems and deficiencies they had inherited. The city that was home to some of the greatest technical innovations of the 20th Century failed to innovate itself: the City Fathers lacked the imagination and planning of the Automotive Engineers. Much of Detroit is now blighted like the aftermath of a hurricane, and those who remain struggle to keep on keepin’ on with no hope of seeing a significant turnaround in their lifetimes. Unfortunately, in Detroit’s case, it appears that retirees and union workers will suffer greatly while it still may be a while before everyone can expect prompt police and fire responses. It’s always the people who get hurt in the end.
So, what really sank Detroit?
1) The Big Three let their competition sneak up on them and eat substantial portions of their lunches. Look around your industry or your marketing area. See that happening to someone you know? How about your own company? Have you settled for a flat market share (which is really losing market share) or even a decline? Have you not figured out where the new demand is finding a source for their money? The CEO must always be the CMO (Chief Marketing Officer). Are you wearing your “second hat” properly?
2) When Plan A didn’t work, there was no Plan B. Is your view of your business horizon about as narrow as your grandfather’s when he founded the company or simply an extension of the last batch of elected officers? What survival planning have you done ahead of the arrival of necessity? If your largest or best customer went under, have you thought about how you would replace that revenue? What about the impact of a new technology or change in the law? Are you leading the charge to stay ahead of the curve or following the crowd…or not even following the crowd? Have you and your direct-reports forged an alliance that strives to find new and better answers to the questions you think up yourselves?
3) Economic downturns are cyclical, and will be with us always. They may be predictable or they may not. Either way, are you ahead of the power curve in your business? Have you built a business model based on decreased demand or revenue? Have you defined steps to take, or at least alternatives to explore, when a negative trend begins? Are you committed to long-term debt which you can’t service during a prolonged downturn? Do you have a survival model along side your success model?
Just like Detroit, if you have not planned to avoid failure, you’ll likely experience it, and it will be people…the backbone of your company…who suffer the most. Detroit’s citizenry left everything up to the civic and business leaders who botched it. Don’t overlook your biggest asset…your personnel…as a great resource to involve in open dialogue about the management and future of your company. Helen in HR or Al in Accounting may have valuable input for your consideration.
It’s noteworthy that even an alternation of Republican and Democratic administrations as well as conservative and more liberal financial policies did not prevent the intertwined government agencies and corporations from making the same mistakes. The proper role of the CEO and the Mayor is to be the ship’s Captain, standing on the bridge and scanning the horizon for the target port while plotting other courses in case of unexpected weather. If a storm can’t be avoided, at least the ship will be prepared for the gale before the waves flood over the deck. What are your storm plans?