On June 1st, 2009, General Motors officially declared bankruptcy after having many problems and holding too much debt. The bankruptcy led GM to restructure using the turnaround strategy and build a new company. This report will discuss several dimensions within GM, before and after bankruptcy, including SWOT and Porter’s Five Forces Analysis and other organizational, cultural, and strategic changes. Company overview: General motors (GM) is an American multinational automobiles corporation founded in 1908 in Flint.
It is one of the largest car manufacturers in the world and its headquarters are speeded through out the United States. GM is known as the sale leader from 77 years till now, and it sells and services under the brand names of Buick, Cadillac, Chrysler, GMC, Chevrolet, Vauxhall, Daewoo Holden, Opel, and Former GM automotive brands include Oakland, Oldsmobile, Pontiac, Hummer, Saab, and Saturn. GM operates in 157 countries and employee 202,000 employees. It also produces cars and trucks in over 31 countries worldwide.
As of 2008 GM became the ninth largest publicly traded company in the world, but in recent years the company endured some serious financial troubles, which caused a 38 billion dollar loss in one year. (Thomas) Company Analysis Before Bankruptcy (2009): SWOT Analysis: Porter’s Five Forces Analysis: Organizational Structure and Design: Organizational Structure is the formal arrangement of jobs within an organization. (Management AWE, 2009) We will talk about Specialization, Departmentalization, Chain of Command, Span of control, Centralization/Decentralization, and Formalization under this section.
Specialization- GM was very concerned about the way their production process flows and therefore, they had productivity as one of the main objectives in the company. However, Specialization is one of the main factors that contribute to productivity. Therefore, GM concentrated on implementing and maintaining a high level of specialization. Specialization is definitely an effective strategy to increase productivity, which also leads to opportunity of enjoying economies of scale (Koch), but, however, it left little area for creativity and innovation for employees.
Moreover, Specialization was an important part of Weber's principles of bureaucracy that GM's management was following. Departmentalization- GM did not have a direct departmentalization method but they grouped their jobs by using the product departmentalization within the Geographical region. Therefore, we can say that GM gave a higher priority to geographical departmentalization compared to product departmentalization, but has successfully achieved both of them in their departmentalization strategies.
Chain of Command- It is the continuous line of authority that extends from upper level to lower level management. (Management AWE, 2009) GM emphasized on maintaining a vertical design of the organizational structure and therefore they had longer organization levels, which means that they had a long chain of command. A long chain of command was bad for GM because it lead to more organizational levels and therefore, they paid more for the workers. Moreover, longer chain of command made communication between high-level and low-level management harder.
Span of Control- Emphasizing on a vertical shape design in the organizational structure will increase the organizational levels as explained in the chain of command and will also narrow the span of control which means that there will be less employees under each manager. GM used a narrow span of control to make allow the managers to have a focus on the employees under them. GM managers now have more control over the employees under them and this makes it easy for them to assess the employees’ performances individually.
Centralization/Decentralization- Most of the processes were centralized to the upper management corporate level, and therefore, employees could not involve their ideas and gain freedom in decision making. Most of the decisions are highly important in the automobile industry and therefore GM decided to use the centralization method and let the upper level of the management make the decisions. Formalization- There is a high degree of formalization in GM because it is important in automobile companies to maintain a certain level of quality and standards and then compare the production with the benchmarks.
It is a very sensitive production process and mistakes are not tolerated in this industry because it will directly damage the brand image and brand equity of the company GM Culture: GM the world's largest automaker, by vehicle unit sales, in 2011 filed bankruptcy in June 2009. The culture that prevailed in GM was strong but in a wrong manner which led to downfall of GM. With government intervening GM had to slash jobs in order to cut its cost by approximately 30 %. In order to achieve this GM had to restructure and revamp its prevailing cumbersome organizational culture.
Few major factors that were hindering GM’s success include lack of integration, Muggy bureaucracy, Narrow external focus, little sense of urgency for change(The Nation business, 2009). GM ran its business as a federation of successful centralized profit centers. But this created a fragmented management mindset. With so many autonomous fields, it was difficult to gain agreement and mobilize behind one single idea. As a result, many strategies and car designs were diluted or overly complex - the result of compromises between divisions.
With so many management levels and a top-down, seniority-based management style, it was tough to make timely, effective decisions. There were simply too many cooks who spoiled the broth. While the world changed around them, GM was focused internally. Granted, there were legitimate internal concerns that needed to be addressed, such as union negotiations with UAW, supply chain management, gaining economies of scale, but these eclipsed the need to stay close to the consumer. So when consumer preferences changed, GM was caught behind the eight ball.
The world biggest automobile company, there is a reluctance to deviate from what made you successful. A certain appearance of satisfaction and aversion to risk prevails. But past success means nothing when the situation changes. GM's malfunctions didn't uproot overnight. It was a slow wearing a way of market share, lack of innovation that management never take into consideration, until it happened. GM is an organization that if you went to a psychiatrist he would have prescribed electroshock treatments,” says Gerald Meyers, a former CEO of American Motors Corp. (Crain's Detroit Business, 2009)
However GM has a history of trying to change its culture. No effort ever went far enough. There was always a lack in planning, organizing, leading and controlling, which made fall of GM inevitable. Top managers had almost the same vision, which never brought anything new on table or anything new out of the box. One of the major reasons was that GM had most of its CEO’s from Accounting/Finance backgrounds(Management paradise , 2011). GM Goals and Plans: Different companies have different goals and plans that are based on the culture of the original country. Most of the U. S.
companies have short-term operational plans including General Motors. GM focused on increasing their short0term profit and they did not care that much about increasing or maintaining their market share. Unfortunately for them, Japanese car manufacturing firms had different plans, which are long-term strategic plans that focus on market share growth. Focusing on long-term market growth allowed Japanese car manufacturers to increase their market share over the years in the US at steady rates capturing more customers and proving their reliability and great performance to other foreign markets, while maintaining minimum costs.
However, GM strategies were only focused on competing with other US firms like, Ford, which have the same short-term goals too, and they forgot about the fast and steady growth of foreign competitors like, Toyota and after a while, they were unable to compete with the Japanese relative low prices and high quality. This focus on short-term profits made them loose many customers to their foreign competitors, which decreased their sales revenues while keeping huge liabilities and debts that they could not pay (Regassa & Ahmad, 2007). This actually was one of the reasons behind the 2009 bankruptcy.
GM Motivational Tactics: Production and efficiency are the important things that GM was looking for. So, in order for them to increase their production to the required level and increase their sales, they had to have a motivating strategy to support their workforce. All GM workers were happy with their jobs, because it paid well and covered the two basic needs in Maslow’s Hierarchy of Needs, the physiological and safety needs. GM workers, including retirees, were getting wages and bonuses in addition to health care insurance plans that are relatively high compared to the industry.
Unfortunately for GM, their motivational tactics relied heavily on extrinsic motivation even when trying to develop the technology they were using. GM management were concerned that their workers will not work efficiently on developing new technology, because workers will be worried that they might loose their jobs. So, the management decided, as an incentive, to increase the retirement plans and health insurance and guarantee that workers will keep getting financial support if they were laid off.
This added more liabilities and obligations on Gm that they were unable to meet, especially after they lost some of their market share to their foreign competitors. Retirees’ health plans, for instance, costs GM around $64 billion every year that adds $1,300 of costs to each car they make and contributing to the company’s bankruptcy (Loomis, 2006). Restructuring: After GM serious financial crises in 2008, the company decided to implement a restructuring plan in December 1st 2009 in order to avoid the loss it made in the past few years.
GM maintained four main four turnover strategic plans: first, reducing labor expenses and cutting legacy costs are very essential strategies to implement. GM used to pay a considerable amount of money on employee’s health insurances and retirement pensions in order to satisfy its employees, and this is one of the main causes of GM’s failure. GM also tried to decrease production capacity by focusing on certain types of brands each with a distinct strategy to stabilize and improve its market share, and these brands are: Buick, Cadillac, GMC and Chevrolet.
Finally GM last restructuring plan for a successful strategy was to have new designs and marketing strategies. Innovation of new designs will help GM compete with its rival competitors of Japanese cars such as Toyota, Nissan and Lexus. GM wanted to reach its mission statement by not only being a follower, but instead it targeted being an industry leader in order for the company to reclaim market shares lost in foreign competition. Company Analysis After Bankruptcy (2009): SWOT Analysis: Porter’s Five Forces Analysis: Organizational Structure and Design:
Specialization- As we said, GM had to emphasize on specialization to reach to a high productivity, and therefore, Co-ordination is important for employees to achieve specialization. In order to have an effective Co-Ordination, Co-Operation is important and this lead GM to the agency problem where the goals of the employees did not meet and go with the goals of the owners. The high level of specialization was important for GM and therefore, GM decided to keep it but they also decided to align individual goals with firm goals.
Departmentalization- There was a huge shift in the departmentalization section of the organizational structure. The turnaround restructure that GM did in 2009 lead them to cut down some of the brands and product lines that were not profitable. Moreover, before 2009, there was a very poor link between regional divisions, so now they decided to increase the link and collaboration between divisions by implementing a product and operations departmentalization only and removing the geographic departmentalization within the product. (Luft, 2010)
Chain of command and Span of control- The chain of command and span of control also made a huge shift, because GM became more horizontally designed and integrated and therefore the chain of command became shorter and span of control became wider. GM wanted to reduce the wages by reducing the organization levels, which also helped them in focusing more on team orientation. "I want as few layers as possible between me, the dealer, and the customer, Mr. Reuss (former CEO) said" (Stenquist, 2010). Therefore, two communication became easier and more effective.
Centralization/Decentralization- The company was very centralized before 2009, but now GM decided to start a small switch by reducing centralization and implementing decentralization methods. They decided to decentralize because employees are in the best position to predict the market and make decisions according to their predictions. Moreover, giving them the freedom to take decisions may lead to creativity and innovation. Employee empowerment is important and essential in complex and uncertain environments and for sure GM lies in a complex and dynamic environment and the prove to that was the bankruptcy they faced in 2009.
Formalization- The automobile industry should have high levels of formalization and therefore, GM decided to keep their formalization going on. GM Culture: So far, in the immediate aftermath of bankruptcy, the company is living the new culture. And employees are noting a difference. Risk-taking is encouraged. Communication is better, they say. The company is more transparent. Balkanization is slowly starting to take place in the organization. Previously culture discouraged open, frank debate among G. M executives in the pursuit of problem resolution.
After the bankruptcy one of GM now has a culture team for suggestions aimed at how to introduce, through processes and policies their new cultural priorities. One of them is “zero tolerance” for leaders who do not demonstrate the new cultural priorities; design leadership mediums; create an induction to the new GM values; form trust; help employees to make wise decisions New plans including meetings on Tuesday night, the culture team suggested several ways in which the day-to-day operations will be further organized and controlled properly.
Among those are; GM would change its performance management system; creation of an training series to explain what the new culture is and what is expected of leaders; combinations of internal and external communications will take place in order to communicate the company’s new values. GM had been on the rough sail since a long time but it never addressed those issues that were keeping the sail rough. However a lot of positive changes are now being made at the organizational culture that will definitely help GM regain its lost glory and its high market share which it has lost to its competitors.
GM Goals and Plans: After the year 2000, many U. S. carmakers started struggling to survive against the high quality, efficient and reliable production of Japanese car manufacturers. GM, for example, carried $300 billon in long-term debts in their financial statements in December 31, 2005, and it pays around $12 billion in interest every year. Few years later, on June 1st 2009, GM officially declared bankruptcy. After declaring bankruptcy and getting the government bail out, GM decided to modify its strategies and goals and they started by changing the company’s management.
The new management decided that it would be better for the company if it was focus oriented and if they focus on fewer brands and fewer product lines, while putting more emphasis on marketing each brand and product line by itself, creating higher value for the customers and trying to capture higher market share (Regassa & Ahmad, 2007). This new goal suggests that GM had learned from its mistakes and is trying to focus more on long-term strategic goals, just like its Japanese competitors, and increase their market share and try to get a hold of the market again, instead of focusing on short-term profits.
This change in plans from operational (short-term) to strategic (long-term) allowed them to survive in this highly competitive market (especially after they were bankrupt) and cut down their costs to function more flexibly with fewer liabilities on their hand. GM Motivational Tactics: After 2009 bankruptcy, the new GM management cut the workers wages in half in an effort to reduce its liabilities and cover its debts. In late 2010, for example, the management reduced the Michigan plant workers’ wages to $14 per hour, which is half the regular salary (Eley, 2010).
Because of this reduction, GM management had to find a way to motivate its employees by means other than increasing their payments and wages. Apparently, the new CEO was able to find a way to do that because of the increasing performance of GM after its bankruptcy. Researchers suggested that the management started using some intrinsic factors to motivate employees. For example, the management started treating the workers with more mutual respect trying to fill their esteem needs to give them an incentive to perform better.
They also started designing a team-oriented environment to reduce boredom and allow them to do more different tasks, and make some small decisions within their groups (Krenek, 2011). Still, the company did not abandon its extrinsic motivation tactics, especially after they started doing well in 2010. At the beginning of 2011, for example, the company paid a huge bonus of $4000 for all its union factory employees, which is more than double the previous highest bonus that GM ever paid for union workers ($1,775 in 1999).
Non-union workers also got a bonus of 50%, in some cases, of their original salary. This bonus was made by the company to show the increase of its performance and profitability, to the market and its workforce, after filing its bankruptcy in 2009 (Valdes-Dapena, 2011). Technological advancement: Internet has a huge impact in business these days and has affected about every industry in the world, especially automobiles industry. J. D. Power and Associates conducted a study in 2002, which involved more than 27,000 new vehicle buyers.
The study showed that 60% of the buyers referred to the internet before making their purchases and out of that 60%, 88% went to the auto websites before going and taking a test drive (Thomas). In addition, importance of supply chain management, delivering solutions rather than products, need to present one face to customers globally, global (location) economies, knowledge management and Recent Developments GM provided in cars such as cruise control, very advanced safety technology, hybrid cars and Bluetooth technology. It will help GM maintain a competitive advantage in the automobiles industry among its rivals. Recommendations
GM should focus more on liquidation because they have more assets than revenues, and therefore, they should make use of their assets and utilize and liquidate them in order to generate more cash in the company, which will help out the financial parts of the organization. They have to compensate the customers that had their cars recalled due to the faulty brake fluid sensor system. Therefore, this faulty brake sensor system should teach them a lesson in minimizing the errors during the production process. GM should well manage the remaining brands efficiently and effectively so that they don’t lose their remaining brand equity and loyalty.
We also believe that GM should use polycentric managers in managing oversees dealers in order to become more customer responsive. References: Crain's Detroit Business. (2009, November 2009). Can a new corporate culture save General Motors? Retrieved May 12, 2012, from Crain's Detroit Business: http://www. crainsdetroit. com/article/20091109/EMAIL01/911099979/can-a-new-corporate-culture-save-general-motors# Eley, M. (2010, October 06). Uaw, gm slash workers’ wages by half at michigan plant. Retrieved from http://www. wsws. org/articles/2010/oct2010/auto-o06. shtml Elliot, H. (2009,