Executive Summary This report looks the decision making process within General Motors and the constraints faced from the external environment and the internal self created bounded rationality. The General Motors reward system created a bias and tuned discussion towards confirmation of one man’s decisions. The bias bounded rationality where the views of others, in particular conflicting views were not heard, discussed or evaluated. This led to decision making that was removed from reality and not driven by market demand. The culture at General Motors was toxic and self created by the reward structure.
Avoidance of uncertainty and reduction in conflicts in decisions were paramount for an employee to advance within the company. The business adopted a conformity approach which reduced vital discussion and further bounded the rationality of future decision making. The first step in bringing General Motors back to profitability is to change the culture through empowerment of its employees. The first steps of empowerment for General Motors is the inclusion of variety of viewpoints in the decision processes, allowing employees to make changes to increase their own efficiencies and reducing some of the structure required to make the necessary changes.
Re-direction of investments to future innovations and market research will revive the company’s image in the marketplace. Aligning the image to meet what customers expect and desire is the best way forward for General Motors. 1. INTRODUCTION The General Motors group in American rose to the highest levels of prosperity, and then crashed to bankruptcy. This report discusses the decisions that were made, and what the surrounding factors were that lead to these decisions. The report assesses Internal and external factors that contributed to the difficulty in outward focused decisions from an internally focused environment.
The culture at General Motors dominated the landscape of decisions within the company and shaped the poor investment strategies. The organization celebrated uniformity and were highly negative on non conforming attitudes. This left the decision making to be made by a single voice, a single perspective, whether correct or incorrect, the decisions were followed beyond reproach. 2. EXTERNAL FACTORS IN DECISION MAKING Historically, the imbalance between the supply and demand sides of the auto business has been a challenge for all members of the value chain. Consumer demand for specific vehicles is uncertain and variable.
(Lee, Whang, Peleg, & Koudal, 2003). Accurately or inaccurately gauging the demand for a vehicle type can provide the basis to formulating an appropriate decision. In the case study of General Motors, the constraint of achieving the correct supply and demand ratio forecasting resulted in poor decision making outcomes. The development of the Saturn vehicle created an oversupply of the product to with a low demand from the market. The management team fell into the critical thinking trap of over estimating and forecasting the extremes of supply and demand (Hammond, Keeney, & Raiffa, 1998).
GM had witnessed the success by Honda in the small car market and had forecast that they would exceed this amount due to the size and success of their large car market, however clearly this did not eventuate. External regulations provided a basis for constraining decisions from General motors. The Anti-trust laws provided limitations on decision choices(Fitzgerald, 2013, p. 201), available for the managers at General Motors. In a time of prosperity, the greatest fear of the management team was to keep its market share down to avoid possible Anti-trust breaches (Monks, R.A. G, & Minow, 2011).
The fear of the anti-trust laws shaped and guided the decisions of the management team to refrain from increasing sales to a strategy of cost reduction. Cost leadership strategies are designed to deliver products at lower cost (Hanson, Dowling, Hitt, Ireland, & Hoskisson, 2002, pp. 132-133), when bundled with a differentiation strategy (Hanson et al. , 2002, pp. 132-133) to deliver products important to customers, can result in successful decisions and growth in the company.
However, General Motors clearly let the cost leadership strategy guide their decisions, without combining the importance of a correct differentiation strategy in innovations on safety or power refinement. 3. BOUNDED RATIONALITY Decisions are always made with a level of bounded rationality (Robbins, Bergman, Stagg, & Coulter, 2000, pp. 209-213). A structural limitation on the flow of information created by the GM management is referred to in the case as the “fourteenth floor”. The executives involved with the decisions and strategies for the development of General Motors were physically isolated away from the problems.
The physical isolation reduced the communication flow and information that could be derived from other workers within the organization. This level bounded rationality left them exposed to make decisions purely on their intuition and natural biases. Overconfidence and confirmation biases shaped the decisions of the General Motors management. The bias of overconfidence potentially shaped the entry for competition into the market. The Japanese automotive manufacturers were seen to be small, insignificant competitors to the dominance of the General Motor portfolio.
General Motors were over confident that they understood the American market better than any overseas competitor could. The over confidence shaped the decision processes that led to the slow development of new products and a strong market share growth for the overseas manufacturer. Roger Smith developed his own intricate network of people to provide him the confirmation bias for his decisions. To this end he turned the board of directors into a ratifying council for the work of various (Monks et al. , 2011). By achieving this he was able to selectively target information to suit and support the decisions he wanted to make.
The landscape of discussions and decisions within General Motors management team were inherently always agreeable to the superior’s decisions. The organizations reward system influences decision makers by suggesting what choices have better personal payoffs (Fitzgerald, 2013, p. 201). A path upward within the hierarchy for General Motors management personnel could only exist for those with an agreeable nature. Senior managers aimed at reducing conflict in the decision processes by only promoting those employees with the same viewpoint and values.
They were in effect rewarded for only following the corporate direction and any deviations in these discussions would result in a stagnated career progression. 4. BUSINESS CULTURE Specialists tend to agree that culture is the learned, shared ways of thinking and doing in a particular society, the way they eat, dress, greet and teach each other(Wood et al. , 2001, pp. 54-60). In business, and in the case of General Motors a culture will develop that will provide an environment to shape a line of thinking or decision process.
Hofstede introduces a five dimensional structure in describing cultures that exist within any social or business group (Wood et al. , 2001, p. 59). The key culture components of this model, in respect to General motors, are the power-distance relationship and uncertainty avoidance dimensions. 4a. The Power–Distance Relationship The Power-distance relationship is the degree that people are willing to accept a hierarchy or unequal power distribution within an organization(Wood et al. , 2001, p. 59). In the case of General Motors we see two facets of this relationship.
In the prime example, the hierarchal structure and reward system is clearly accepted by the employees. On the contrary, the relationship between EDS and General Motors CEO Roger Smith demonstrated a culture clash as a result of differing understanding of the power-distance relationship. At the highest level of management, Smith clashed with the reward system set out by Perot. 4b. Uncertainty Avoidance Uncertainty avoidance is based on the degree to which people in an organization prefer structured over unstructured situations (Wood et al. , 2001, p. 59).
The culture within General Motors was based on a high degree of uncertainty avoidance. Consistently simple decisions were moved up to senior management level, reflecting a cultural drive to avoid responsibility. 5. THE CONFORMITY APPROACH The conformity approach is usually used to describe the way groups or teams can shape an individual’s behavior and enforce group norms (Hackman, 1992). However, we discover a second stage of conformity development when assessing Smith’s behavior at General Motors. Smith developed committees or teams and headed them by board members.
As Smith was the main driver on the board, his views and strategies were conformed to by board members. The board members permitted the conformity to flow through their teams to shape the actions of the company. Similarly, the conformity to Smith’s ideas created an escalation of commitment culture (Fitzgerald, 2013, pp. 196-197), which shaped decision making within the organizational environment. Smith drove the company to invest into automation and robotics to improve efficiency. Costs to produce vehicles increased, with efficiency decreasing; however his strategy for automation remained.
Instead of re-evaluating the decision making process, he had locked himself into a environment with a single direction and focus. The environment of arrogance and strong belief that the decisions made by the company were always in the best interest of the market, echoed throughout the history of General Motors. GM president Charlie Wilson stated “What is good for the country is good for GM and what is good for GM is good for the country” (Monks et al. , 2011). This environment of belief in the power of GM echoed through to today, and shapes the way GM assesses the market.
The analysis has focused on the constraints that General Motors faced in their decision making process. General Motors failed to accurately assess or forecast changes and impacts of the external environment. This was clearly shown in the imbalance of their supply and demand forecasting and their response to the limitations of the Anti-trust laws. All our decisions are constrained by levels bounded rationality, General Motors created their own environment that restricted their decision making. Removal of the decision making to the “Fourteenth Floor”, created self fulfilling biases that shaped
the decision making process and the future of General Motors. Culture of an organization is important to the continued success of the organization. The culture at General Motors is a culture based on a single set of values and beliefs with a high level of conformity. The value and beliefs of the leader becomes the value and beliefs of those individuals wishing to progress. The culture then moves through the entire organization and drives the focus of the future decisions. 7. RECCOMENDATIONS General Motors must move the company back to the strategic direction as described by Alfred Sloan “a car for every purse and purpose”(Monks et al. , 2011).
This statement reflects a change in the overall direction of where the company should position itself and its vehicles. The way to encourage a change is to improve the environment around General Motors employees and shift the culture to provide greater variety of views in the decision making process. The reward system requires a shift to a management system that empowers employees to steer the company in the right direction as a team.
Three strategies that are common empowerment techniques would greatly assist General Motors to successfully implement a culture change (Wood et al. , 2001, pp. 156-159) are sharing the power, encourage diversity of approach, and develop participative management skills. 7a.
Sharing the power This involves allowing the employee the ability to make some decisions and involvement within processes and procedures. This provides an insight for managers on the key areas that employees see problems. By sharing the power, smaller issues and improvements can be resolved quicker without impacting the larger business. 7b. Encourage diversity of Approach Different individuals bring different ideas and have different ways of completing a task.
The concept for General Motors is that by encouraging a diverse workforce, and allowing employees an ability to run their own process. Efficient work practices can be improved on discovery of better ways to run the process. 7c. Developing participative management skills By encouraging employees to make decisions on areas that affect their daily lives, Inefficient practices and lack of understanding of the situations by managers can be reduced and more efficient practices developed. As many of the lower class workers will drive ageing cars this will give them a greater perspective on the issues and causes of consumer complaints.
Redistribution of investments is also critical for General Motors in achieving Sloan’s statement. General Motors should sell off all non-core business investments and utilize these on a contract basis when required. Re distributing these funds spent on non core activities by investing on market and innovation research can provide a greater information flow on consumer demands. General Motors will gain a strategic focus on their quality and respond to changes in the external environment at a faster rate. REFERENCE LIST Fitzgerald, M. (2013). Managing Under Uncertainty: A qualitative approach to decision-making (A. P. M. Fitzgerald Ed. 2nd ed. ).
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