Tuesday, December 11, 2012

Selling Cars, Selling Software

Book review of Guts - The seven laws of business that made Chrysler the world's hottest car company by Robert A. Lutz (published 1998 by John Wiley & Sons).

We've all heard the story of Chrysler's financial problems, the work that Lee Iacocca did to save the corporation, and the $1.2 billion US federal loan guarantee that helped bring Chrysler back to health.

We know a lot less about Robert A. Lutz, the former President and Vice Chairman of Chrysler Corporation. Lutz saved Chrysler from its second financial crisis in the early 1990s. "Guts" is Bob Lutz's story of how he handled with Chrysler's second crisis.

It's a fascinating story, with a lot of implications for the software development industry.

One of the big differences between Chrysler and Honda, Lutz discovered, was the attitude that each company had when dealing with stakeholders.
  • Honda fostered trust throughout their corporation. Chrysler's relationships, on the other hand, were built on a lack of trust.
  • Honda trusted suppliers and dealers. Chrysler treated these stakeholders as the enemy.
  • Honda empowered its workers to make decisions at every level in the organization. Chrysler micromanaged its employees.
As part of the recovery of Chrysler, Lutz turned around these destructive attitudes. For example, before Lutz took over, Chrysler didn't have many positive relationships with its suppliers. During every annual planning cycle, Chrysler demanded cost reductions from suppliers, without working together to figure out how these cost savings could be possible.
Lutz invited suppliers into meetings at Chrysler, and made them part of the decision-making team. Lutz worked with them to find a way to minimize waste that was raising costs for both groups. As an incentive, Chrysler let the suppliers keep half of the cost savings that they were able to squeeze out of the these negotiations. Attitudes got better, too, as Chrysler continued to treat suppliers as valued partners.

There's a lot to be learned from the stories in "Guts." The software industry does not have a great track record of developers and vendors playing well together. Everybody would benefit if stakeholders mutually supported each other.

Lutz is certain that all of these ideas helped Chrysler heal. But the main reason that Chrysler was able to regain its strength was their focus on the four P's of marketing - price, place, promotion, and product. In the software development industry, we can all benefit from paying more attention to basics, too.

It was solid products and solid business fundamentals that brought Chrysler back to life. Again. The principles that Lutz discusses can also strengthen players in the software development industry.

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