How Marchionne changed the cultures of Fiat and Chrysler

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Marchionne, who sadly recently passed away, transformed Fiat and Chrysler into the world's seventh-largest car manufacturing group

While taking control over costs and dismissing people are standard quick fixes of any grand makeover, this was just the start for Sergio Marchionne. He knew the organisational problems were much deeper – starting with its culture.

Much credit has been given to Marchionne’s leadership style, hard work, and appetite for complexity and risk. But, perhaps more importantly, he had an anthropologist’s eye for culture and hated things being taken for granted – which tends to see organisations fall into the trap of inefficient routines and behaviours. Marchionne wanted 'a culture where everyone is expected to lead'.

Under the radar

Understanding the hidden problems and challenges of an organisation requires a great deal of listening; not only to the loudest – those outside management need to be heard. Fiat was previously a company run by engineers. They’d develop new car models and present ready-made solutions without consulting marketing and sales. Similarly, Chrysler was bureaucratic and overconfident in its somewhat-dated product portfolio.

Marchionne was attentive, and looked for insights under the radar. In his first 50 days as Fiat’s CEO he visited various sites, listening to employees on the ground. Senior executives had developed a habit of communicating with each other via secretaries, pushing important decisions further up the chain and avoiding problems.

Marchionne’s persistent interest to uncover what was going on in the most remote parts of the business was rooted in his respect for employees. He believed sound business builds on transparency. He built relationships across the organisation based on personal engagement with previously unidentified talent, valuing such interactions more than formal reporting and assessment. He once said: “Our engagement is mostly very informal. I’m always texting my people or calling them at odd hours to talk about the business or about their careers.”

Personal engagement with people beyond formal hierarchies and across functions brought him invaluable insights, which eventually led to new models brought to market by both Fiat and Chrysler. Marchionne listened to people with a constant eye on the future; building from people’s specific perspective of the business, analysing their ideas and how these could improve and challenge prevailing norms.

Stretching objectives

Organisations do not need clearly-defined objectives as long as people are motivated and striving towards the same goals. Entrepreneurial firms, especially in high-tech sectors, aspire to operate under such post-bureaucratic leadership. In practice, however, organisations tend to fall into routine target-setting, re-hashing past objectives for the future.

Until Marchionne took the lead, Fiat operated under a well-defined status quo. In 2004 Fiat reported losses of nearly €3 billion at its car division. Later that year Machionne announced Fiat would make €2 billion in 2007. He set stretch objectives and helped managers reach those targets. He nudged people, encouraging them to think differently.

“A lot of what I do is challenge assumptions – which often looks like you’re asking stupid questions," he said. "That’s how we got our time to market for the Cinquecento down from four years to just 18 months.”

Previously engineers developed the cars, priced them and set the targets. Marketing and sales were expected to follow. Marchionne disrupted this by creating management structures and consultation processes to help achieve set targets. He also realised he couldn’t be the only one doing this—a cultural change was needed.

He said: “I encourage our high potentials to learn to wear several hats at once. I have to wear many hats myself, and I shouldn’t be the only one.” However, stretching objectives relies on continually developing (but maintaining clearly-defined) strategic goals. Marchionne knew that stretch objectives required striking a balance between responsibility and accountability.

Breaking down hierarchies

Hierarchies and bureaucracies shouldn’t be mixed up. Bureaucracies rely on standardisation, which comes at a cost – valuable information can be ignored. Add hierarchy to the equation and you encounter problems with speed, noise and accuracy of information as it travels across organisational levels.

Marchionne understood the value of participation across organisational hierarchies and functional units. Chrysler’s success in the mid-'90s relied on price-led competition – but this information wasn’t shared and analysed. In breaking down hierarchies Marchionne added to his workload by having many people reporting directly to him, but could enjoy receiving direct high-quality information.

The lesson

Marchionne managed to strike a balance between the ability to refine existing routines and do things more efficiently, as well as searching, experimenting and expanding beyond the conventional boundaries of the organisation. By the time of Fiat’s takeover of Chrysler, Marchionne had learned valuable lessons from Fiat. He let people who asked the different or odd questions step forward.

Change managers could learn a lot from him. To achieve success they need to step outside of their comfort zones, disregard their own excellence and be prepared to invest time to listen under the radar, set stretch objectives and support their delivery, while creating structures that allow for variety and creativity among all employees – regardless of position.

Robert Demir is a lecturer in strategic management at Lancaster University Management School

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