Lee Iacocca's Legacy

Lee Iacocca made a name for himself by saving Chrysler Corporation from the brink of bankruptcy in the late 1970s and built it into a powerful and profitable firm in short time. Management and manufacturing changes implemented by Iacocca resulted in a dramatic increase in Chrysler's stock price and Iacocca's ego. However, as the cash flowed in during the early to mid 80's, Iacocca lost focus of what made the company successful and he changed Chrysler's growth strategy by investing large amounts of capital in businesses that were unrelated to the auto industry. In the early 1990s, Chrysler again found itself in a precarious situation with its market share and stock price in steady decline. In early 1993, Robert Eaton was set to succeed Iacocca as CEO in a pivotal period for Chrysler. Through an analysis of the strategic alignment framework, we have developed a plan of action for Eaton as he takes the helm at Chrysler Corporation.

Context of the Chrysler Corporation

In the second half of the 1970s and into the early 1980s, the automobile industry struggled to overcome economic weakness brought on by a combination of stagflation, rising fuel costs, regulatory pressure from Capitol Hill and intense competition from Japanese and German automakers. While these events negatively impacted each of the Big Three American automakers, Chrysler suffered the most due to its formal organizational structure, the attitude of senior management, the lack of culture within the organization and an emphasis on tasks centered on financial management rather than car design.

Chrysler's formal organizational structure preceding Iacocca's tenure involved each business line operating in separate silos; the 35 operating units had no communication with each other. There was no formal structure in place to supervise the cross-pollination of information and ideas across business units. The lack of cohesiveness and idea generation impeded management's ability to react swiftly to the outside forces that endangered Chrysler's financial health.

In addition to a poor organizational structure, Chrysler suffered from ineffective leadership. Before Iacocca, senior management was saturated with people who did not understand the auto industry. Management consisted of financial experts focused solely on tasks such as monitoring short-term results and Chrysler's stock price as opposed to a long-term vision and effective growth strategies. This led to a shortage of capital for investment in the design and engineering of new products critical to the future of Chrysler.

The example set by senior management trickled down into the informal organization at Chrysler and seriously impacted the tasks that should have been emphasized at the auto manufacturer. There was no company culture worth noting as the separate business lines were not structured to communicate with each other. As a result, Chrysler fell behind the competition in developing new designs, was unable to effectively fix design flaws in current models and was losing customer loyalty in the Chrysler brand.

Iacocca's Leadership Style

Lee Iacocca's personality and management style was a perfect fit to turn around Chrysler in the early 1980's. The company was in disarray and needed an authoritarian leader who could shake things up and bring the company back to profitability through a return to the fundamentals of car manufacturing. Iacocca was not afraid to make vast changes, as illustrated in his decision to replace 33 of 35 Vice-Presidents in a three-year period. He leveraged his knowledge of the auto industry and its key players to build a new team at Chrysler. Iacocca hired personnel at Ford, GM and Volkswagen to revamp the marketing, engineering and dealer-relationship divisions. He also made some radical executive decisions such as bringing the head of the labor union onto the board of directors. His actions, while unorthodox, produced results quickly. Most notably, Iacocca relied on his influential powers to convince Congress to provide financial support when Chrysler was on the brink of bankruptcy. Iacocca's leadership style was decisive and autocratic. He made decisions with little or no feedback from his superiors, peers or subordinates. However, his keen knowledge of the auto industry combined with his charisma helped influence those around him to follow his lead.

Transition in Strategy

In the mid-1980's, Iacocca was basking in the glow of his successes at Chrysler. The company was performing better than anyone could have imagined back in 1979 and was sitting on large quantities of cash. With virtually nobody to answer to and convinced he could do no wrong, Iacocca pursued a diversification strategy for Chrysler from 1984 to 1988 focused on areas in which he had no expertise and areas unrelated to the company's core business. Iacocca's acquisitions were a reversal of his original turnaround policy, which focused on the production of automobiles. Acquiring businesses in the aerospace, banking, and electronics industries created the need for more knowledgeable personnel than Chrysler employed. The current management team was not equipped or experienced enough to handle large investments in unfamiliar industries. The diversification strategy forced Iacocca to implement a more decentralized management structure that was a reversal of the structure originally used to help Chrysler rebound.

By spending money on non-core acquisitions and stock buybacks as opposed to reinvesting cash into the development of automobiles, Iacocca allowed Chrysler to once again fall behind in the development of new automobiles. He changed the formal organization for the second time in his tenure and did little to foster a healthy informal culture at Chrysler during those years, preferring to concentrate on his new acquisition strategy. Chrysler lost its momentum and international competition strengthened as rumors arose regarding who would succeed Iacocca as CEO. It was clear that Iacocca was not going to leave Chrysler quietly and the new leader of the company was going to have to effectively manage the corporation, and Iacocca. Robert Eaton took over Chrysler in 1992 and was left with many decisions to make.

Chrysler Corporation's Tasks in 1992

As the new CEO of Chrysler, there are several tasks that Robert Eaton needs to perform to ensure Chrysler recaptures the market share it had lost and improves its long-term outlook. Most notably, Chrysler needs to build high quality and fuel-efficient cars, expand their product line, invest in new models, and transform the leadership structure. The following are short and long term action