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ACT 3: Nardelli follows script from Home Depot, GE

From the Detroit Free Press:

ACT 3: Nardelli follows script from Home Depot, GE

February 3, 2008
By TIM HIGGINS
FREE PRESS BUSINESS WRITER

Think of it as "Nardelli, the Sequel."
And like in many big-budget follow-ups, Bob Nardelli, six months into his role as Chrysler LLC's top executive, is following much of the same storyline from his days of running Home Depot.

Both at Home Depot and Chrysler, General Electric veteran Nardelli set out to rapidly change corporate culture by shaking up the top executive ranks and bolstering the role of the human resources department. He put greater emphasis on inventory management and customer satisfaction and working to expand global operations.

But like any sequel, there are some new twists and characters. And in this adventure, Nardelli hopes for a happier ending.

"What Nardelli is doing is applying lessons from GE first to Home Depot and then to Chrysler," said Peter Cappelli, a management professor at the Wharton School of the University of Pennsylvania.

"Every good executive has their own implicit system as to how things ought to work, and there are limits as to how much they can adjust it to circumstances and still feel like they know what they're doing. Home Depot started to look and feel more like GE; my guess is that Chrysler will as well. Not everyone likes that approach, of course, because despite all the success GE has had, it's a very competitive internal environment."

Interviews with top Chrysler executives paint a picture of a new culture developing at the Auburn Hills automaker that revels in speed. Nardelli publicly and privately talks about his philosophy of quick yes or no answers but "never a slow maybe."

Under Chrysler's previous owner, Germany-based DaimlerChrysler AG, decisions could take months. Now as a private company under Cerberus Capital Management, Nardelli is creating a culture that seems to celebrate the idea that billion-dollar decisions can be made with great speed.

"You get five or six of us together, and we make decisions and move on," said Frank Klegon, executive vice president for product.

Klegon was part of the group that visited Chrysler's Chelsea Proving Grounds last year to review proposed improvements to every vehicle in the company's lineup. Within 60 days, according to the company, the group decided to invest $500 million in vehicle improvements.

The Jeep Grand Cherokee, for instance, will see interior fit and finish refinements as well as tuning of its shocks for an improved ride. Other enhancements include expanding the diesel engine to the Laredo X-package and interior upgrades to the Jeep Compass and Patriot later this year.
Today, Chrysler is launching a new marketing campaign called "New Day" that highlights the 56 new features or packages now available on 12 models in the lineup. For example, the base-model Grand Caravan will come with fold-into-the-floor seats at no extra charge.

Trained for speed
Noel Tichy, a University of Michigan professor and GE expert who has known Nardelli for more than 20 years, is not surprised that he has moved quickly.
"He went to school with Mister Speed, Simplicity and Self-Confidence," Tichy said, referring to legendary GE leader Jack Welch. "He grew up under Welch, who said the worst thing to do in a transformation is to peel the Band-Aid off slowly."

Like at Home Depot, Nardelli has instituted Monday meetings with top executives to review the previous week's results and the turnaround progress, and to plot the future.

"If you are at target, you don't really have to say much. If you're not at target, you probably can't say enough," Steven Landry, executive vice president for North America sales, told the Free Press about those meetings.

Since Chrysler has lost billions of dollars over the last two years, Nardelli has been quick to make changes in an effort to stop the losses.

On top of existing plans to cut 13,000 jobs over three years, Nardelli announced in November the company would cut as many as 12,000 more jobs and eliminate four vehicles.

He presided when a new labor agreement was signed with the UAW that allows the automaker to hire new workers to non-assembly jobs at about half the wage current workers receive, and shifts billions of long-term health care obligations off the company's books.

He cut production and indicated the automaker could scale back on what are seen in the industry as undesirable sales to government and corporate customers, such as rental companies, by as much as 200,000.

Good movies have beloved characters, and Nardelli appears to have turned to a trusted sidekick. One of Nardelli's first actions at Home Depot was hiring Dennis Donovan, an old colleague from GE, and putting him in charge of human resources, which played a key role in reshaping the company. Donovan is now advising Nardelli behind the scenes at Chrysler.

Nardelli, with Donovan's aid, is rethinking the human resource systems, said Tichy, the Michigan professor.

"The HR system of selection, appraisal development and rewards, those are all going to be revamped and they are going to be revamped around driving performance, around a meritocracy, around holding people accountable not only for performance but values," he said.

"Bob's often seen as hard-nosed, hard-charging," Tichy said. "It's much more of a tough love. It's about performance but it is all about people."
At Chrysler, he has implemented new performance management systems for salaried workers that include streamlined goals and simplified evaluations, according to a person familiar with the work. Also reduced are unnecessary management and bureaucratic reports, committees and processes.

Nardelli has given Nancy Rae, Chrysler's senior vice president for human resources, more responsibility and higher visibility by placing the public relations department under her watch after top spokesman Jason Vines resigned in December. He also has brought on Robert Marston and
Associates, a New York City public relations firm that helped him burnish his image in his early days at Home Depot.

At Home Depot, Nardelli surrounded himself with many colleagues from his days at GE. This time around, the marquee hires have been auto industry leaders, such as Toyota's former North American President Jim Press, whom Chrysler hired to lead sales and marketing efforts as president and vice chairman.

"If you look at the people he brought into Home Depot, they were not all experienced retail people. If you look at the people he has brought into Chrysler, they are all experienced auto people," Tichy said. "The people judgment, so far, has been outstanding."

Following up
Part of the process of change at Home Depot came through setting up common metrics to measure performance, such as data quantifying perceptions of the shopping experience.

Doug Betts was recruited from Nissan Motor Co. to be Chrysler's chief customer officer. One of Betts' first big projects is creating a system to measure why potential customers are not buying Chrysler, Dodge or Jeep vehicles after shopping at the brands' dealerships.

"There are people who don't buy a car because somewhere between looking at it and deciding to buy it, the salesman turns them off for some reason," Betts said. "Every company has that. What I am saying is, we're going to reduce the amount of that.

"The first step is to be able to measure to what extent that is happening," he said.A Home Depot ally now at Chrysler is John Campi, who was hired as Chrysler's new executive vice president for procurement. Campi is shaking up how the company purchases parts, working to reduce complexity and move more quickly.

For example, Campi, who was senior vice president of vendor management at Home Depot, questioned why the automaker was spending so much time testing parts that other automakers were already using.

"I have one focus in life," Campi told the Free Press in a recent interview. "How can I help this organization get better at what we do in the procurement field from a total cost perspective? That means I'm going to work extremely close with the engineering team. Everything we do will be in lockstep with engineering.

"But it doesn't mean I'm going to follow engineering. It means I am going to cause engineering to change direction at times. Some of which I've already done. As an example, they have a protocol to test products. It takes X number of months. And I say to them, 'If I have a supplier that's building products for the automotive industry today, with companies that you know, I don't want to hear why it has to take six months to do your testing when in fact it is a quality product.' "

Ruffling feathers
While Nardelli plays the lead role in Home Depot's story, some saw him as the villain. When he left there, Business Week reported, some store workers openly celebrated. His $210-million exit package made him a target for critics of large executive compensation packages.

Nardelli's quick pace has led to some missteps at Chrysler. In his efforts to create a sense of urgency among workers, Nardelli told them in November that the automaker was operationally bankrupt.

It was a comment that caused an uproar in Detroit when reported on the front page of the Wall Street Journal and led to revising the script with Nardelli issuing a statement saying the company was meeting, and, in many cases, exceeding expectations. Privacy-obsessed Cerberus even issued a statement of support for Nardelli. Some white-collar workers are understandably nervous, saying that Chrysler has become a "major stress place to work," while others see hope in what Nardelli is trying to accomplish.
UAW President Ron Gettelfinger said last month that the union has a good relationship with the management.

Seeking a partner
Chrysler sales in the United States were down 3% last year from 2006, and the forecast for this year doesn't look good. A major hurdle for Chrysler is that the standalone automaker has little presence outside North America.

Prior to the sale to Cerberus, Chrysler had entered into relationships with Chery Automobile Co. for the Chinese automaker to make small cars for sale under a Chrysler brand name.

In January, Chrysler and Nissan Motor Co. agreed the Japanese automaker would make small cars for Chrysler to sell in Brazil and possibly elsewhere in Latin America beginning in 2009.

David Cole, chairman for the Center of Automotive Research in Ann Arbor, said he believes Chrysler will one day need to enter into another partnership much like it had with Daimler to get the scale it needs to compete on a global stage. He suspects that talks are already under way to ferret out future partners.

"The big deal for Chrysler is when the partner arrives," Cole said. "The dating has begun."

During a recent speech, Nardelli stressed the importance of Chrysler's comeback. "All told, more than a million families depend on Chrysler for their livelihood," he said, later adding, "The job of bringing back 'The New Chrysler' is an opportunity of a lifetime."

That's the ending he's hoping for.
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