Published June 16, 2026 in Strategy • 10 min read • 
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Organizations fail when they cannot evolve their operating models to meet a changing environment. Consider the fates of MG Rover, Britain’s last native mass-market carmaker, and General Motors, the former titan of Detroit. The former – too tightly organized around cost control to deliver the broader product range an expanding market demanded – declared bankruptcy in 2005. The latter, pushing for growth and too loosely organized to control costs during the financial crisis, followed suit in 2009.
The history of the auto industry teaches us that at the heart of failure is a lack of appreciation for the need for looser operating models to capture growth when conditions are favorable and tighter operating models to control costs when conditions are more challenging. Why do companies find this apparently simple navigation so challenging? On the one hand, moving between each model requires the internal evolutionary development of new capabilities due to competition; on the other hand, geopolitical risks can change conditions overnight. Understanding when and how to transition between the two operating models with the necessary capabilities offers a pathway to greater resilience in an unpredictable marketplace.
As MG Rover and General Motors discovered, falling out of sync internally with what’s required externally can be fatal.
The need for a shift between growth and cost control is often driven either by classic business cycle expansion or contraction or by geopolitical forces. Take, for example, the auto industry’s business cycle expansions after the Second World War and into this century that required looser organization to capture growth. In terms of geopolitics, a striking example is how big support from the Chinese government nurtured the emergence of a new geographic node of electric vehicle (EV) growth entrepreneurs.
The 1930s depression and the 2008 financial crisis represent dramatic examples of business-cycle contractions that forced a shift to a tighter organizational structure for cost efficiency. Geopolitical events such as the 1970s oil price shock or the more recent withdrawal of US government support for EVs also called for more discipline.
Internally, the capacity for growth or cost control is often driven by an organization’s evolutionary cycle. Growth requires competitive value-creating capabilities and a looser operating model: bottom-up, decentralized, and entrepreneurial. Cost control requires competitive cost efficiency capabilities and a tighter operating model: top-down, lean, and coordinated. Eventually, tighter organizations struggle with a lack of growth and looser organizations with a lack of cost control. As MG Rover and General Motors discovered, falling out of sync internally with what’s required externally can be fatal.
The competitive dynamics driving the evolution of required internal capabilities reflect the interaction between innovation and demand. This interaction encourages either divergence and variety creation, requiring value-differentiating capabilities for growth, or convergence around the best variants, requiring efficiency capabilities to cut costs. We see the reality of this tension today as European and American automakers struggle to renew their internal capabilities and adapt to competitive breakpoints unleashed by BYD that require cost-efficiency capabilities, and Xiaomi that require value-differentiating capabilities.
Let’s take a look at how the evolutionary cycle and its breakpoints have played out through the stories of some of the greatest names in automobile history. What follows is a cautionary tale about what happens to even great companies when you ignore the twists and turns on the road ahead.
Benz & Cie and Daimler-Motoren-Gesellschaft were among the first automotive startups in the late 19th century. Like other young manufacturing companies in Europe and the US, they were experimental and loosely organized. The need for a shift to a tightly controlled model was triggered by Henry Ford’s mass-production lines, which produced the cost-efficient Model T. To compete, the two German companies merged in 1926 to form Daimler-Benz AG with a cost-efficient, unified structure, standardized processes, and a clear brand identity under the Mercedes-Benz name. The extreme external environment of two world wars imposed a continuing emphasis on operational efficiency on both sides of the Atlantic.
The post-war period of reconstruction and growth increased demand for product variety. Ford shifted to a looser, divisional structure with geographic diversification. Adapting to the competitive breakpoint created by General Motors, it developed the capability to market different cars for different segments. Mercedes-Benz broadened its product range and adopted a looser operating model with strategic distribution partnerships for geographic diversification.
The 1970s oil price shock created a breakpoint in demand toward smaller Japanese-style, cost- and fuel-efficient cars. Ford’s mass-market buyers traded in their gas-guzzlers for smaller, cheaper, and more fuel-efficient models. Thanks to its diversification across the Americas, Europe, and Australia and its mass production, Ford weathered the shock. Mercedes tightened its operating model to improve engine fuel economy, design aerodynamics, and mechanical efficiency, alongside production cost control and a more compact range of autos.
In the 1980s and 90s, facing a continuing challenge from Japanese competitors, Ford ignored the competitive signals for greater cost efficiency and further loosened its operating model to improve responsiveness and product diversity, leading to a more decentralized approach. By contrast, Mercedes maintained a tight, centralized operating model until the turn of the century, when it loosened its approach in response to demand for greater variety, granting regional and product-line managers in specialized operating divisions more autonomy.
Learning how to follow the signs and adjust to the cycle builds the capacity for organizational resilience.
In the absence of renewal, organizations often get caught on one side of the cycle. In an effort to control costs, MG Rover got stuck with a product lineup the market didn’t want in the early 2000s. Going for growth, General Motors ran aground with a bloated cost structure it couldn’t support in 2008.
In the early 2000s, after running against the competitive cycle in the preceding decade, Ford received a sharp wake-up call, suffering deep losses under its loose operating model due to a slump in its truck and SUV business. Purely by chance, this shock turned out to be a blessing in disguise, given what lay just around the corner for the global economy. In response to its losses, Ford embarked on a radical renewal. It shed 14 plants and 30,000 jobs, according to some accounts, dropping models, centralizing decision-making, and standardizing global operations. To provide financial flexibility, it secured a large multi-year credit line and mortgaged assets. Thanks to this pivot, when the global credit crunch struck out in 2008, Ford didn’t need federal rescue funds, unlike GM and Chrysler. Already forced into a tighter model, it emerged as a leading competitor.
By contrast, Mercedes – still operating a loose model – entered the credit crunch exposed. However, its internal capacity to pivot as business cycle breakpoints emerged meant it didn’t get stranded. Facing sharp declines in sales worldwide, it was able to shift to a tighter model. It accelerated efficiency programs alongside production cuts, temporary plant shutdowns, hiring freezes, and short-time working. It had a strong balance sheet, but lacked liquidity, so it secured a Middle Eastern investor rather than taking on more debt. Over time, it was able to refocus on growth markets, such as China, and on segments with higher margins. Not quite Ford’s fortuitous outcome, but a lesson, nonetheless, that learning how to follow the signs and adjust to the cycle builds the capacity for organizational resilience.
Organizational renewal requires leaders to develop contextual awareness and organizational flexibility.
As the interweaving story of Ford and Mercedes shows, organizational renewal requires leaders to develop contextual awareness and organizational flexibility to decide when and how to shift between tight and loose operating models.
There are three layers of contextual awareness that leaders should monitor:
In most competitive cycles, after disruptive innovation, there’s a breakpoint toward convergence around the most cost-efficient variants. Leading Chinese competitors in the lower end of the EV market, like BYD, have used access to critical minerals and fast research into stable, low-cost battery chemistry to converge around a breakthrough in cost and charging time.
BYD has also incorporated the cost-efficiency breakthroughs made in previous competitive cycles: mass production, kaizen-style process efficiency, platform and modular design, rapid prototyping, and vertical integration of the supply chain.
After the emphasis on cost efficiency, there’s often a breakpoint toward increasing customization, for example GM’s value differentiation for varied market segments, or offering customers the option of co-creating their own value proposition. Think Xiaomi with its personal ecosystem of automobiles and digital devices.
Monitoring competitive and customer behavior is essential. Are your competitors changing their behavior, like Tesla putting more resources into self-driving vehicles? Are new entrants gaining market share, such as Waymo in the self-driving market? Competitors must decide how to develop a self-driving capability.
Except in counter-cyclical, monopolized, or protected industries, most industries tend to move in phase with the economy. Some lead, like the auto industry, which tends to pick up as soon as the economy shows signs of improving. Others, like the construction industry, typically lag behind because demand only grows after the economy is well on the road to recovery.
While the 2008 banking crisis triggered a rapid contraction that made cost-efficient capabilities essential for survival in the auto industry, the post-recession expansion, which favored value-differentiating capabilities, had a more delayed impact.
In extreme times, geopolitical forces overwhelm both competitive and business cycles. The force majeure of the Second World War trumped everything else, and Ford and Mercedes were pressured to shift to war production of engines, tanks, and military vehicles. When this happens, adaptation to what follows is key to survival. After the war, both companies prioritized value-differentiating capabilities to benefit from growth in the economic and industry cycles created by pent-up civilian demand, freed-up access to resources, and supportive government policy.
Geopolitical intelligence is needed to avoid falling foul of mercantilist policy, when governments intervene in markets to favor their balance of trade. Western companies were caught flat-footed by the 1970s oil shock, for example, despite Middle Eastern governments making continual noise about wanting to control their oil resources.
Today, how will the oil shock from the conflict between the US, Israel, and Iran affect the auto industry? Will it boost EVs? Will it lead to the demise of the internal combustion engine outside the US? Those competitors increasing the flexibility of their operating models will be better off.
Knowing when to pull the lever between a tight and loose organization is one thing. But does your company have the resources and capabilities to do so? There are three pillars of organizational flexibility that leaders should build.
To avoid getting stranded on one side of the organizational cycle, like GM in 2008, financial resilience is critical: the ability to control costs and avoid more debt than can be serviced in bad times. Ford’s radical renewal toward a tighter operating model with debt-financed flexibility allowed it to emerge from the 2008 financial crisis as an industry leader, albeit with a higher debt burden than Mercedes.
Another crucial capability is supply-side resilience: the ability to avoid getting stuck on one side of the cycle by shocks to supply. Think of the race for lithium (for batteries) today. Ford is addressing this constraint by using a less-lithium-intensive manufacturing process. Mercedes is innovating with solid-state batteries that require less lithium.
This is about having the right structure to make the transition from one side of the cycle to the other. MG Rover was too rigidly organized with insufficient financing to shift to a looser organization for product renewal. Making the organizational transition requires what my colleague, Jay Galbraith, called a “reconfigurable organization”, consisting of both more stable and more flexible parts. Stability is provided by aware leadership, capable of employee and resource mobilization, with effective finance and control. Reconfigurability around the dimensions of a new value proposition or value delivery system is made possible with adaptable employees, supported by internal processes and rewards, and a flexible ecosystem of partners.
Reconfiguration involves developing and embedding new capabilities. This happens naturally in new organizations, like Tesla with its tight radical efficiency surges and prototyping by combined design and production teams, or Xiaomi with its loose downstream operating model, favoring rapid experimentation, customer feedback, and frontline managers often operating like startup founders.
In older organizations, existing structure and processes may suffocate the development of new capabilities. It’s often more effective to separate out the development of new capabilities, especially those associated with disruptive innovation. Both Ford and Mercedes are using external partnerships to catalyze cost-effective EV technology development. Ford is working with Renault and Mercedes with Nvidia, among numerous others. Ford has also created a separate experimental EV start-up near Los Angeles to explore the development of superior batteries, software, and vehicle assembly. These are examples of what is known as “ambidexterity”, optimizing the performance of the existing business while separately exploring opportunities for future growth.
As we have learned from Ford and Mercedes, the key to resilience is the ability to renew an organization so it can take advantage of the next phase of the business or competitive cycle. This means developing the antennae and ability to know when and how to switch between tight and loose operating models as circumstances change and to develop the needed new capabilities.
Make sure your company is on the lookout for the next breakpoint in the cycle and has the capabilities to adapt when the cycle shifts.
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