Marchionne at center of complex, successful FCA
Turin, Italy — Philosopher. Chess master. Capital junkie. All have been used to describe Sergio Marchionne, the blunt and outspoken CEO of Fiat Chrysler Automobiles NV.
The 63-year-old executive has always had the auto industry talking — whether it's off-the-cuff comments about "wop engines" and government-subsidized electric cars, or his recent manifesto on industry consolidation, including an overture to General Motors Co.
Marchionne is bold and unapologetic, an outlier in an industry full of vanilla executives and lifers who led two of Detroit's automakers — including Chrysler — into government-backed bankruptcies in 2009. That allowed Marchionne to leverage the U.S. government to essentially give Fiat the assets of the bankrupt company. Six years later, Chrysler has been transformed into FCA US LLC, an Auburn Hills-based arm of London-based Fiat Chrysler that has legal domicile in the Netherlands.
It's a company as complex and successful as its Canadian-Italian CEO, with 63 months of consecutive year-over-year sales gains in the U.S.; more than 30,000 new jobs and billions of dollars in investments in the Midwest; and a renewed focus on performance and styling at Fiat Chrysler's Alfa Romeo, Maserati and Ferrari. The automaker sold 4.75 million vehicles in 2014, making it the world's seventh-largest.
From Turin to Detroit, how has this turnaround occurred? At the heart of it is a management matrix — a complex, cross-functional, cross-business anomaly that assigns two or more roles to nearly all top-ranking executives. Marchionne is its epicenter.
"The benefit of the matrix is it certainly fosters collaboration and teamwork," Reid Bigland, head of U.S. sales, said in a recent interview at FCA US headquarters in Auburn Hills. "It also improves the speed of decision-making and the accuracy of decision-making."
Bigland — who also is head of Alfa Romeo North America and chairman, CEO and president of FCA Canada — has been in the Fiat Chrysler organization since the Italian automaker took a minority stake in Chrysler in June 2009.
The matrix has a complex set of managerial assignments and positions that have dozens of executives operating as a system. Everyone is directly or indirectly connected to Marchionne, who has 38 executives reporting directly to him as CEO and chief operating officer of North America (not including his role as Ferrari chairman). That's roughly three times more than General Motors Co. CEO Mary Barra (12 executives) and more than double that of Ford Motor Co. CEO Mark Fields (17 executives).
The automaker's dependence on one strong executive at the center has helped it push ahead. It also raises questions as to how Fiat Chrysler will fare when Marchionne retires.
Marchionne expects results
In the Fiat Chrysler matrix, executives are empowered to make decisions. They're given clear goals. With that comes accountability. It would be impossible for Marchionne to micromanage all of his management team, so he expects results.
"You don't get it Day One, but after a few years this starts totally being in your blood, being part of your DNA," Olivier Francois, Fiat Chrysler chief marketing officer and head of the Fiat brand, said earlier this year. "And then you turn, you elaborate this concept of leadership — and you create your own theory of leadership."
Francois and Bigland have thrived and gained new roles to become part of the company's Group Executive Council, the highest decision-making body within Fiat Chrysler outside of its board of directors. Others haven't been so successful.
"In some cases, some guys haven't been able to consistently perform, and that's not personal, that's just business, and in many cases that's life," Bigland said. "Those expectations to perform are very clear. I think it's the essence of our performance-oriented culture that Mr. Marchionne has set up."
In June 2009, 23 executives were named to the Chrysler management team under Marchionne. Of those, roughly half are still with the company. Some retired, but at least seven left or were forced out.
"It's a huge request or demand put on the individuals in question," said Philippe Houchois, a managing director and head of European Autos Research at UBS Investment Bank. "It's a very demanding structure, but it's probably a reasonably cost-efficient structure."
The matrix is set up to have people under each executive ready to step up at any time. Each spring, a talent review is conducted of each manager's directly reporting executives and top talents, according to a recent Harvard Business case study. A manager must specify how many directly reporting executives are ready to succeed him or her immediately, how many will be ready within two to four years, and how many top talents are being nurtured. When a manager has fewer than two successors ready, it raises a yellow flag.
"You need to be a different kind of manager to play this game," said University of Turin business professor Bernardo Bertoldi, an author of the study. Marchionne's approach to management, according to the study, calls for a prodigious effort to identify and develop managers able to work in a flat, multi-tasking matrix organization.
Fiat Chrysler Head of Group Purchasing Scott Garberding, who started with Chrysler in 1993 and now is based in Italy, said serving two roles (he's also head of purchasing for Europe, the Middle East and Africa) has helped him thrive.
"If you're just the global lead, you're somewhat removed from the daily operation and, I think, somewhat less aware of the challenges that the organization faces," he said in Turin. "I think it's important to do both, if you're able."
Garberding and other executives said the management team benefits from the dual roles because everyone understands the others' positions and are forced to lean on each other for support.
"If there is someone with an ego, he gets automatically rejected from the system," Francois said. "There is zero self-consciousness of being important, because we don't think we are."
Marchionne also has been known to move executives like chess pieces to avoid complacency and bring fresh eyes.
A question of succession
Even though top managers must groom potential successors, it is unclear who would succeed Marchionne.
"Sergio is definitely the glue that holds the entire organization together and deserves a disproportionate amount of credit for the success of Chrysler, for sure," Bigland said. "He is a very unique individual."
But take the center away from a system, and it can collapse. While Marchionne has said Fiat Chrysler — which he commonly refers to as "this house" and "the machine" — will carry on after he's gone, there are considerable doubts as to whether it could operate the same without him.
"It has been an issue for a long, long time," said UBS' Houchois. "A lot of things, in terms of governance, are done well at Fiat Chrysler. That part of it though, the individual risk, is a major concern."
In Fiat Chrysler's 2014 annual report, the importance of Marchionne and other top leaders is stressed as being a risk factor: "If we were to lose his services or those of any of our other senior executives or key employees, it could have a material adverse effect on our business prospects, earnings and financial position."
It's not farfetched that a successor would come from within, whether Marchionne retires in 2018 or later. Recent comments by him suggest he will stay past 2018. Possible successors from the Group Executive Council likely include Bigland; Michael Manley, head of Jeep and chief operating officer for Asia-Pacific; Alfredo Altavilla, head of business development and COO for Europe; and Harald Wester, head of Alfa Romeo and Maserati, and the company's technology chief. Marchionne's roles as CEO and North American COO could be split between two executives.
Bertoldi argues that while Marchionne has driven the cultural changes within the company, the matrix will live on because many members don't know any other way.
Numerous executives described working for Fiat Chrysler as a philosophy, almost a passion.
"There are a lot of people that are very personally invested," Garberding said. "And I don't mean due to money, I mean due to the emotion of going through some of the experiences that we've been through to let it come to this, it would be unbearable to somehow let it fall apart."
Francois describes it as "sense of belonging to something" and "this notion of making history." Bigland said it's about being part of an ongoing team process that spawns continuous collaboration. Fiat Chrysler global head of design Ralph Gilles described it as "a subterranean bond."
No matter what it's called, it holds together the organization surrounding its charismatic CEO and fuels Fiat Chrysler's growth.