Face to Face
Former Chrysler vice-chairman--and celebrated maverick--Bob Lutz has decidedly strong opinions about what it takes to run a company. And bureaucracy is not on his list
Lee Iacocca's turnaround of a near-bankrupt Chrysler in the early 1980s has become the stuff of business legend, but auto-industry insiders tend to speak more glowingly of Chrysler's second turnaround, which took place in the 1990s. Between 1989, when the company was again in danger of going under, and 1996, when it was about to become the most profitable carmaker in the United States, the company's products morphed from blandness to buzz-making flair. With cars like the funky Neon; the sleek LH sedans; the classy, second-generation versions of the Caravan and Jeep Cherokee; and most emblematically, the ultra-high-performance Viper; Chrysler got the American public talking with unabashed excitement about its vehicles for the first time in decades.
Though Robert Eaton succeeded Iacocca as Chrysler's chairman and CEO in 1992, it is Robert Lutz who, as vice-chairman and president, is largely credited with the company's revitalization. A former marine fighter pilot who graduated from college at the age of 30, the Swiss-born Lutz did stints with General Motors, BMW, and Ford before joining Chrysler, in 1986. It was at Chrysler that his offbeat, outspoken (he was opinionated enough to earn Iacocca's ire and lose his expected successorship), and seemingly contradictory management style crystallized into the deceptively simple and straightforward philosophy that Lutz outlines in his recent book, Guts: The Seven Laws of Business That Made Chrysler the World's Hottest Car Company (John Wiley & Sons, 1998).
Though Lutz, 67, has been a big-company guy for most of his career--he retired from Chrysler last summer, only to take over the top slot at $3-billion car-battery manufacturer Exide in December--much of his success has come from cultivating entrepreneurial attitudes within a large-company environment. More recently, he's had a chance to play a direct entrepreneurial role as a "company adviser" to Eller Industries, a start-up motorcycle manufacturer trying to revive the famed (but legally disputed) Indian brand name.
Inc. contributor David H. Freedman spoke with Lutz at his massive estate in Ann Arbor, Mich., which Lutz shares with his wife, Denise (a helicopter pilot), five dogs, and a museum-quality vintage-car and -motorcycle collection. Lutz seems to have structured his life around motion: the interview began with a blurred-landscape, neck-snapping ride in Lutz's growling Dodge Ram pickup ("It's had a few modifications made to it," he explained, unnecessarily) and ended with Lutz pulling down the runway of a nearby airfield in his Mach 0.8 Czech Aero L-39 "Albatros" jet-fighter trainer.
Inc.: What's the greatest mistake companies make when developing new products?
Lutz: They focus on perfect quality over exciting design. Excellent quality in products and services has become almost universal. In the old days you could buy a bad car or truck. Now it's almost impossible to find one that's truly of poor quality. There are so many excellent brands and models out there that unless you do something with design to make your product stand out, it will simply go unnoticed. Even relatively minor differences in the way it looks and how it's appointed can assume a large magnitude.
Take the last generation of the Cadillac Seville [from General Motors]. It wasn't a perfect design, but the car had a lot of character. It had a powerful, hulking, athletic presence on the road. Even in Europe, people were buying that car. Then GM decided to take out everything that was controversial about it--the puffiness, the narrow "greenhouse" [the windowed area, sharply sloping inward toward the roof], the heavy "C" pillar in the back [between the back side window and the rear window]. The new Seville is technologically a vastly superior automobile; it's one of the world's great luxury cars. But it's sanitized. Nobody notices it anymore. It looks like an Acura TL or a Lexus 400 or a medium-sized Mercedes or the last generation of the BMW 5 series. It's been given the universal luxury-car look, and that simply won't work anymore.
Inc.: But can't a design stand out in a way that turns people off?
Lutz: Yes, and that's OK. When I was at Ford in the mid 1980s, I was responsible for the development of the Merkur XR4Ti, which was really the first good European high-performance car available in the U.S. at a reasonable price. It had a double-bladed rear spoiler, and the British press at the time called the car "over the top." Yeah, sure, absolutely, it was. Later on Ford replaced the spoiler with a single-bladed one, and the car lost all its uniqueness and character. The purpose of a product like that is to make you love it or hate it. Same with the Plymouth Prowler. If you don't like it, then please don't buy it, because we didn't make it for you.
Creativity entails risks, because it can result in products that really succeed or really fail. The alternative is to go that safe, secure road where you produce something that doesn't stick out and doesn't engender any great enthusiasm, but also is probably guaranteed not to be a huge flop.
Inc.: You've always enjoyed owning and driving exciting cars, so it's not surprising you'd be pushing for their development. But does overseeing the creation of exciting products have to come from a personal passion for the product? Or can't the process be more one of carefully reasoned business decisions in some cases?
Lutz: I think it was Tom Peters who said the greatest breakthrough products are the ones that the inventors invented out of the sheer joy of creating for themselves. I believe that whatever type of product or service you're offering, you have to start with that joy. If you're in the restaurant business and you're not passionate about creating great food and ambience, you'll never do better than OK--you won't be a winner.
Sometimes I talk to people who have the urge to become entrepreneurs, and they're casting around for the right idea. That isn't going to work. You have to start with this great idea, along with a burning desire to make it happen. You have to have a sense of mission. The most successful business leaders are those who retain their exuberance and enthusiasm for that mission, even if that enthusiasm sometimes borders on immaturity.
Inc.: OK, so passion is a prerequisite to growing a company. Is it enough?
Lutz: You don't want to be the only one who's passionate. If you're smart, you'll surround yourself with people who are caught up in the magic of this idea as much as you are. But if you're really smart, you'll pick one person who's the one who says, "Wait a minute, not so fast." That's probably going to be your chief financial officer. He or she can keep you from letting all that passion and excitement carry you off into trouble.
I've seen a lot of great start-ups in the auto industry stumble because they lacked that one person. Panther Cars in Great Britain was one of those heartbreakers. It came out with the first retro two-seat sports car, and the prototype looked as if it could be a hit. But the next thing you know, Panther is unveiling a prototype for a four-door luxury sedan, and it seemed that at every auto show, it had another car out. The company seemed so enamored of the act of creation that it couldn't organize itself to actually produce any of them.
Inc.: So while passion is critical, you actually advocate a sort of tension between that burning desire and a more disciplined, controlled approach.
Lutz: F. Scott Fitzgerald once wrote that the test of a first-rate intelligence is the ability to hold two opposing ideas in the mind at the same time and still retain the ability to function. Creativity and order are in a sense opposites, but you need them both. If you have nothing but order, it's all going to feel very good to management because everything will seem predictable. But you're going to end up with complete stasis. On the other hand, if you're all creativity, there will be nothing but constant renewal and churning, and the result will be chaos. Stasis and chaos are ditches on either side of the road, and a good leader will try to steer the company down the middle, occasionally veering one way or the other as course corrections are needed.
Inc.: If you had to err one way or the other...
Lutz: It's much more difficult to make an orderly company behave more creatively than it is to take a creative company and make it more orderly.
Inc.: Does the equation for creativity versus discipline change with company size?
Lutz: Founders of start-ups frequently take their company up to a certain level of growth through their own enthusiasm and creativity, without ever installing any systems. Everybody in the company is kind of working for the founder personally, and it's typical that the founder has to leave before the company can get the required discipline.
Every large company I've worked for, on the other hand, has tended to be run by too many M.B.A.'s who believed that the truth could be found in numbers. One of the functions I hate in automobile companies is called product planning, which is a ton of left-brain guys sifting through reams and reams of market data and then coming up with an elaborate numerical model of the market that to them takes on the semblance of reality. The products they come up with are bland, run absolutely counter to common sense, and almost always turn out to be disasters. Numbers are a poor surrogate for imagination, intuition, judgment, critical thinking, creativity, and leaps of faith.
A minicase in point is the minivan fourth door. Ford considered a second sliding door on minivans about the same time that Chrysler did. Ford claims that it did a lot of market research and that the research showed that most people just didn't want that second sliding door. We didn't even bother to do market research. We just said, "Hey, all passenger cars, all station wagons, all sport utilities have four doors. Why should minivans be any different?" We just went ahead and did it, and it's now standard. When it became obvious that minivan buyers really wanted that fourth door, Ford had to scramble to catch up, and it took three and a half years.
Inc.: You have strong ideas about what makes a good leader.
Lutz: You sometimes see CEOs who have big egos, which comes from insecurity. They have to be the center of attention, they intimidate people and take the upper hand right away in a discussion, and they lead by creating the kind of fear where their employees live in trepidation of their reaction.
That's a terrible kind of fear. It will ruin an organization because people become afraid of taking chances. They start underpinning all their decisions with consensus building, so they won't be tagged with the mistake if anything goes wrong. They can say, "It wasn't me--we all agreed on this," or, "Blame it on market research."
The best leaders are usually humble, and that humility comes from a strong sense of self-confidence. Instead of creating destructive fear, a good leader will break down that kind of fear by talking to the troops. I spent a lot of time on the shop floor and never felt that I was wasting my valuable time. When you banter with your employees and use self-depreciating humor, and take the blame for things that go wrong, you're not giving anything up; you're establishing your credibility as a human being and a leader.
Inc.: But you're not arguing against the boss's being a wielder of power. You just think he or she shouldn't wield it in such a way as to create fear.
Lutz: Well, a certain type of fear has to remain. Leaders can't be nice guys; they've got to shoot for respect, not love. They need to instill a fear of consequences for not attaining your mission--the fear of punishment if you goof off or the fear of punishment if you do something dishonest, the fear of a reprimand if you don't complete an assignment on time.
That's an essential fear, a good fear. That's different from the bad fear of doing your best and taking a risk and then having the boss blame you if it doesn't pan out. So when you're walking around, talking to your employees and being self-depreciating, you're not trying to loosen them up to the point of feeling that they don't have to worry about succeeding. When the bantering is over, you have to leave them with the message that they have to do their jobs well. And if they let you down, you don't waste time or mince words in letting them know it. You give it to them straight, and you let them know you expect better. It's what the British call the short, sharp shock. Works with kids, too.
Inc.: How can you tell if you're hitting the right mix of humility and good fear?
Lutz: I used to have the human resources department give anonymous opinion surveys to all the people I worked closely with, asking them things like do I listen well, do I communicate the task and vision in a highly credible way, and so forth. If you're running somewhere around 80% of a perfect score, you're probably doing as good a job as you can. If you're down around 50% or up near 100%, then something's wrong.
One thing lacking in businesses is a way to allow employees to give feedback openly. There's no equivalent to the Marine Corps Gazette, in which officers are encouraged to criticize current Marine Corps decisions and policies. Not only is that a way to find out where you might be screwing up, but it's a great way to identify future leaders. I think I'll start up something like that at my next position.
Inc.: If you had to point to one thing a CEO must get right, what would it be?
Lutz: You can always smell how good a company is by how enthusiastic and motivated the employees are. And that comes from the top. Any company acquires the traits of its leaders, ultimately. It sort of trickles down. If the top guy has an oppressive, vicious leadership style, it will end up being the accepted style down through the whole organization. A leader who is too permissive and tries too hard to be a nice guy and who never pushes anybody will find that the whole organization loses discipline and a sense of urgency over time. Now, how long does it take for an organization to reflect a new leader's personality traits? That depends on how active and energetic that leader is and how hard he or she personally tries to drive the change. It also depends on company size. It can be a question of months in a small company and years in a very large one.
Inc.: Presumably, the process will go at least a little faster for you at Exide because most of the senior-management team has stepped down. That gives you a chance to bring in your own team and start with a clean slate.
Lutz: I don't do that. I never do that. Good leaders are able to get superior performance out of the guys that are there. I learned that in the Marine Corps. You know, I've heard so many people say, "Oh, Chrysler used to do such ugly cars, but now that you've cleaned house and gotten all these new designers, you're turning out great stuff." Guess what? Same designers. I didn't change a single one.
Insecure leaders need to surround themselves with cronies. I want to work with whatever cards I'm dealt. I usually find that the excellence of people in any corporation has a predictable distribution, because everybody hires from the same business and engineering schools. You've got that 15% of outstanding people, the broad lump in the middle, and that 15% you wish you didn't have. What a good leader does is not replace individuals but shift that whole curve in the direction of excellence. In my 12 years at Chrysler I replaced only two people, and in those two cases I probably should have done it sooner, but it took a long time to admit to myself that they were impossible to work with.
Inc.: What's the ideal culture?
Lutz: One that's never satisfied. It's a dangerous feeling to believe you're the best. Better to feel you're constantly striving to be the best. You don't have to be perfect; you just have to be better than the other guys. If your culture is such that it produces fewer screwups than the other guy's culture, then you win.
David H. Freedman is a contributor to Inc.