Introduction General Motors is faced with a dilemma. In the face of economic depression, competition from foreign players was driving down profits and the market’s preference was changing to efficient cars due to increase in gasoline prices. The situation is demanding dire steps like increasing capital investments to 4 times the usual amount to modify existing plants and to build a new one that adopts new technology that enables GM to change their product line drastically. GM has to close two existing non-performing plants and build a new one.
The choice is between a plant in Detroit itself in a new area and one in a Mid-Western state. Time is of the essence as GM has to make a choice such that it can stay competitive. Who are the stakeholders involved in the new site selection decision? The main stakeholders in this and their considerations are summarized below: General Motors Chairperson Thomas A Murphy – onus on him to take GM out of its current crisis. Midwest State heads – With the economy not doing well throughout the country, they would want the plant to be setup in Mid-West and provide employment opportunities to its people.
Stakeholder| Goal| Negotiation Power| comments| Mayor| Economic development, Enhancing public-private coalitions, upliftment of the African American community| Medium| GM is headquartered in Detroit, so keeping good relationship with the government is important for GM Mayor is well connected to the President Mayor is willing to acquiring land under eminent domain to retain GM and the jobs in Detroit| PNC| Transparency in plans to relocate relocate citizens Development of non-project areas| Low| Only half of the Poles staying in Poletown are in support of them.
| UAW| Job protection of union members. The sinking economy had already taken away 5000 jobs, they wanted to protect the remaining ones| High| Productivity and Quality are dependent on relations with the UnionMoving away from Detroit may cause backlash from workforce in other Detroit plants as well| Citizens| Half of the citizens do not have attachment to the place and want better jobs and lower taxesAvoid relocation and get fair compensation in case of relocation | Low|
They can file law suits, to negotiate the price with the state based on the ‘quick take law’, but there is no impact to GM Citizens also represent the company’s customers, but this is a very small fraction| GM| Agility in setting up new plant and executing their new strategy This can be achieved with efficient labor, vendor ecosystem, and ease of management of new plant| High| GM is setting up the new plant to be able to execute a new strategy to transform the product line to compete with foreign car makers. Agility is their primary goal, and being close to headquarters will help in faster decision making|
What are the factors that you would consider to choose the new site? As per the site qualification criteria laid down by GM, Central Park within Detroit and a plant in a mid-western state outside of Michigan were the two options. Various factors play a role in selection of the site. They are: 1. Economic analysis — The table in Exhibit 1 brings out the fact that, the difference between the sites is approximately $150 m, is about 4% of GM’s annual income in 1979 and 0. 1% of the planned investment of 8billion per year.
This indicates that it is not a very large expense for GM. The intangible factors play a more significant role in this decision than the tangibles 2. Schedule GM wanted the site to be available for construction by mid of 81, so that the plant is operational by September 1982 PoletownAlthough demolition was involved, quick take law will help avoid delaysQWL program built cooperation with union, and union was in support will help quicker time to hire/relocate workers. Detroit was where the GM headquarters were.
Having new plant closer to headquarters would make management much simplerVendor ecosystem is already established| Mid-Western StateMuch faster with ease and support from state (given in case fact)New relations would have to be established with labor unionsManagement overheads are higher for new plant when away from headquarters| 3. Political environment and support for the business would be a third factor Poletown 1. Mayor Young has high ratings and is connected to the president 2. Head of PNC is administrative aid of state Senator 3. 6150 jobs created | Midwest1.
Mayor Young will be against this option – and it could have an impact on other plants and HQ of GM? 2. Other state supporting the new plant| 4. Social Impact Exhibit 2 describes GM’s linkages with the society across its value chain. There are inside out linkages such as generating employment, developing infrastructure and environmental hazards as well as outside-in linkages such as availability of labor, infrastructure and social and political goodwill The social issues faced by GM are 1. Loss of jobs in Detroit and mass movement to outskirts 2.
Unskilled labor, unemployable in industry with new technology 3. Preserving interests of minority ethnic group in Poletown 4. Environmental factors such as automobile emissions, and plant emissions 5. Fostering fuel economy and conservation Exhibit 3 shows a categorization of these issues and highlights the fact that economic development in Detroit or the interests of the minority Polish committee are both not strategically important to GM, while other factors are What is your recommendation to General Motors regarding the site choice? Why?
Our recommendation is construct the plant in Poletown. This is because; looking at the stakeholders and their negotiating power, this decision satisfies the most critical stakeholders. The benefits of locating the plant in Poletown are: 1. GM will stay on the right side of the political lobby, and leverage any future concessions form the government 2. Can leverage existing vendor ecosystem, and gain significant time advantage 3. Proximity of new plant to headquarters aids agility 4. Not laying off will generate goodwill in the existing workforce and make driving the change much easier
While implementing this recommendation, GM will have to address the following the issues 1. They will disturb the church and the affiliated minority Polish community. 2. Retaining their existing ecosystem is important to reap the benefits of time advantage How would you implement your recommendations? Following implementation considerations are important to gain the intangible benefits of choosing Poletown 1. Ensure that the existing ecosystem is retained and carried along. This implies- a. Leveraging existing supplier base for JIT – retain and develop current vendor ecosystem b.
Train and maintain workforce which is motivated due to retained jobs 1. Alleviate the negative sentiment of the Polish community by taking above average rehabilitation measures and c. Work with government bodies for minimal disruption such as swapping dwellings to align vacant buildings d. Undertake development of non-project areas e. undertaking constructive CSR activities 2. While training workers in the new technology, take sustainable measures to maintain good supply of skilled labor such as: f.
Provide internship programs to train potential employees g. Continue initiatives such as quality of work life 3. Proactively adopt the environmental guidelines with the new technology and plant h. Building new plant to likely future regulatory standards may help reduce the 3. 5 billion investment that was required to modify all existing plants i. It will also reduce the negative sentiments from the community Exhibit 1 Comparison of costs of setting up plants in Detroit and Mid-West Exhibit 2 Linkages with the society across the value chain
Support Activities| Firm Infrastructuretax income to the government| | Human Resource ManagementEmployment created for local and neighboring areas residents, training provided, quality of work life program| | Technology DevelopmentLate in adopting newer technology, thereby skills of employees also outdated| | ProcurementRevenue generation for many local businesses| Primary Activities| Inbound LogisticsInfrastructure development -railways, road linesNatural resources consumption- oil, water| OperationsPlant emissionsRecycling waste and raw materials| Outbound
LogisticsInfrastructure developmentLand requirement for storage of finished goods| Marketing & SalesUnmet needs of the society (customers for cars, trucks) are analysed and met| After-Sales Service| Exhibit 3 – Categorization of Social Issues faced by GM