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Organizational structures changes with the changing businesses and social environment. The structures of organisations have kept evolving since 100 years ago till now. Network structure can be defined as a formal or informal framework of organization policies, such as hierarchical levels, lines of communication and reporting, and the rights and responsibilities of employees within the same organisation. It can also be explained by using these three criteria's that are structure, process, and purpose. By structure, a network organization combines specialised, possibly different assets under shared control by joining ownership or having shareholders. Procedurally, a network organization constrains the people working in it via their roles and positions within the organization. The purpose of network structure in an organization is nothing else but to achieve its goals and targets.
Network structure was originally designed to provide services and produce goods in a more structured manner. Besides that, network structure in organizations is for the purpose of processing, exchanging, and distributing the information required for each different functions needed especially in virtual organisations. In basic words, network structure is expressed as basic configurations in an organization in order to gain scales and scopes in economics.
A network structure reflects the culture of a company in a designated workplace or in the same environment. There is an important function for an organization to inculcate a network structure in the company which functions to support and complement the business strategies used to accomplish the objectives and goals of an organization. Network structure is designed for an organization to be closer to the customers by the way of rapid communications as means to people around that support them. Furthermore, by introducing this concept, an organization can reduce and minimise disruption if anything major natural disasters happens to the organization as it will only affect a section or some parts of the organization. Network structures in organizations are highly efficient as it is more adaptive, receptive and generative and it can be managed well because of its flexibility.
General Motors have been chosen as the company to be discussed in this very specific topic. General Motors has been in the market globally for more than 100 years. It has played quite a pivotal role in the development of the car manufacturing industry. It is known to be one of the strongest companies that ever existed in the automobile industry. After establishment about a hundred years ago in America, it still remains one of the most feared companies by other car competitors. Moreover, General Motors have been in the Fortune 500 list for decades. General Motors located at Detroit, United States and has uncountable branches throughout the world. It specialises in manufacturing of cars, SUV's and trucks nowadays. As a successful company, they have a very strong slogan that is able to portray the strength of the company. The slogan used is short, memorable and a motto used to identify their product. "People in Motion", is the most associated slogan with General Motors (Norton, 2008).
General Motors have been through tough times in the automobile industry. They still managed to overcome these obstacles through thick and thin. This company was founded in September 16, 1908 by William 'Billy' Durant. This guy has been popular as a leading manufacturer of horse-drawn vehicles in America. At first, General Motors was only the Buick Motor Company but in later years it had about more than 20 other companies including Oldsmobile, Cadillac, and Oakland that is known as Pontiac. Opel Company, from Germany also joint General Motors 30 years after its establishment. General Motors was not affected by world war one and two as the allied forces bought from them trucks, tanks and airplanes worth $ 12 billion. It is known that General Motors supplied the most of goods to the Allied Forces rather than any other companies back then. During war, they transform their plants to manufacture vehicles for war. This at one time angered their workers as they protested against it.
In the early 1950's, general Motors offered air conditioning for its cars. The first car introduced with this system was the Cadillac. Later the V-8 Chevrolet engine was introduced in year 1955. These cars were fun to drive that time as it was seen by every walk of life as it passes by. In the 1960's and 1970's the competition in the car industry was very great as foreign automobile industries from Japan and Germany started getting popular. The automobile industry was more to aerodynamics and fuel efficiency engines. As to counter these new challenges, General Motors started the first engines that run on low lead or unleaded gasoline. They were also the first to introduce air bags in the 1970's. In the year 1974, they introduced the most important step that every automobile industry are using till now that is the catalytic converter that reduce emissions to the surroundings in awake to save mother nature.
Businesses plummeted in the 1970's and 1980's as more automobile manufacturers from across the world especially from Japan and Germany sold their cars cheaper and in vast quantities in America. In the millennium century, General Motors again came big into the market by introducing SUV's and family holiday oriented vehicles into the global market. It was a hit and many people globally started buying these vehicles as their second vehicle. Subsequently, automobiles from Japan and Germany started the SUV's also to compete and have a share in the market with General Motors. Generally, General Motors have been compassionate about designing, building, and selling the world's best vehicles from the yester years until now.
There was one man that was clearly responsible for General Motors modern network structure. This man is known as Alfred Sloan. He introduced the decentralised structure and broad product lines. During his tenure working in the company, General Motors dominated the automobile industry and was one of the largest corporations on earth. General Motors became the role model for industrial organizations in the middle of the 20th century. It was described as powerful, stubborn, monolithic and authoritarian. Its prosperity was based on its never ending marches of its assembly lines. The modern management of General Motors often use this words "We are a leader in our industry and we know the definition of success".
In this assignment, the topic chosen for the company which is General Motors is the organization structure of the company. Organization structure can be define as division of labour as well as the pattern of coordination, communication, work flow, and formal power that direct organizational activities. Organization structure is often used as a tool for changes. It either will support of inhibits communication and relationship across the organization. For an organization, a structure can also help the organization support changes or the opposite. There are four elements in the organization structure which is span of control, centralization, formalization and departmentalization (McShane & Von Glinow, 2008).
2.1 Span of Control
Span of control is defines as the number of people directly reporting to the next level of hierarchy (McShane & Von Glinow, 2008). The attention of a supervisor to their subordinates decreases as the size of span increases. Span of control is different for every level of organization structure. At the lower level in production units, it is not unusual to see spans of control ranging to over 20. In managerial level, the span of control is rather small as the task is not a routine task. Therefore, span of control usual decreases as the level increases (Johns & Saks, 2005). There are two types of span of control, one is wide span of control and the other is narrow span of control. Wide span of control is the number of the people that are reporting to their direct supervisor is large while narrow span of control is the number of people that are reporting to their direct supervisor is small.
General Motors have been operating for more than a century. As the time pass, they have adapts too many kinds of organization structure. The latest structure that they have adapted is shown in the picture below. Based on the organization chart, it is obvious that General Motors are using a combination of wide span of control and narrow span of control but it is more towards the narrow span of control. Wide span of control is applied under the Chief Executive Officer (CEO) who is Mark Reuss. There are a lot of people reporting to the CEO thus creating a wide span of control. Narrow span of control can be seen in the other level lower than the CEO. Based on the organization chart, the organization chart is rather tall and this is one or the characteristic of narrow span of control
2.2 Centralization and Decentralization
Centralization means that the decision-making authority is held by a certain group of people usually the people who are at the top of a company hierarchy while decentralization means that the decision authority and power is disperse throughout the company (McShane & Von Glinow, 2008). In the most centralized organization, the power of decision-making lies on a single individual and usually the person responsible for it is at the highest level in a hierarchy such as the president. In a more decentralize organizations; the decision-making power is disperse down the hierarchy and across departments (Johns & Saks, 2005). In other words, the employees are given empowerment by the company.
Ever since General Motors is created, the element of organization structure that has not been change is the centralization of the decision making in the company. They keep using this strategy even though they have been established for more than a century ago. General Motors is very well-known regarding this fact. They have centralized control over a functionally divisionalised structure and this company even become the benchmark for other organization to do centralization in their own company (Brooks, 2006). By using centralization, General Motors does not give their employee empowerment. They give all the power to the top management.
The degree to which an organization standardizes behaviour through rules, procedures, formal training and related mechanism are known as formalization. Formalization can also be said as representation of the establishment of standardization as a coordinating mechanism. The establishment of standardization can also be represented by the degree of formalization. Companies which have high degree of formalization are usually the older companies. They tend to have high degree of formalization because the work activities become routinized thus making them easier to document into standardized practice. Besides that, larger companies used formalization as a coordinating mechanism in their companies (McShane & Von Glinow, 2008).
As it is mention above, older company tends to have higher degree of formalization. It is true for General Motors. It is one of the oldest companies ever created and this company have high degree of formalization. Formalization can be represent by the simplest standardizes procedure in the company such as the filling up a form for vacation application and many others. This typical of procedure is applicable to most companies including General Motors but the degree of formalization in General Motors is more than that. The formalization in General Motors is considered as high it is in a typical bureaucratic company (Holstein, 2009). This shows that General Motors believes in the importance of formalization in the company.
Departmentalization is also known as organization charts; represent the fourth element in the organization structure. Departmentalization specifies how employees and their activities are group together. There are six major types of departmentalization: simple, functional, divisional, matrix, network and team-based (McShane & Von Glinow, 2008). Departmentalization plays the most important role in the company organization structure. This is because departmentalization show that division of labour occurs within the company and its shows that the company has already adopt the business environment.
The type of departmentalization that General Motors has adopted is network structure. Network organizations are different from previous organizations from many aspects. The older organizations used to preferred to hold in-house or under exclusive contract all the assets required to produce a given product or service. Ironically, many networks use the collective assets of several firms located at various points along the value chain. Besides, network organizations rely more on market mechanisms than administrative processes to manage resource flows. However, these mechanisms are not the kind of simple relationship, usually associated with independent owned economic entities, but rather, the various components of the network recognizes their interdependence and are willing to share information, cooperate with each other and customize their product or service in order to maintain their position within the network.
One of the main forces pushing a company towards a network structure is the recognition that the organization has only a few core competencies. A core competency is a knowledge base that resides throughout the organization and provides a strategic advantage. (Mc Shane, 2010) So when the GM discovered their core competency, it leaves the other non-critical tasks to other organizations that have a core competency to perform those tasks. The core competence of General Motors is innovation. This is the driving force behind its $190 above turnover. General Motors has been utilizing innovation in service ad technology to secure itself a dominant position in the automobile industry, since 1908. In 1911, it conceptualized, engineered and commercialized the self-starter engine for the first time. Then in 1926, its product Cadillac was the pioneer in devising a nationwide service strategy. In 1996 General Motors introduced OnStar satellite technology which allows equipped vehicles to be tracked in case of an emergency or theft and allows the passengers to communicate with OnStar personnel. Other new car concepts include minicars such as Chevy Aveo. (Thomas, 2007)
Since GM decided that its core competency is not customer development, GM forms an alliance with iknowtion, a marketing analytics consulting firm that helps companies optimize the impact of marketing expenditures from demand generation, to customer development, and resource effectiveness. iknowtion's industry knowledge and expertise, combined with a comprehensive and proven analytic approach, provides businesses with the marketing insights and analytical engines required to dramatically improve business results in addition to help increase market share, boost customer loyalty, and optimize marketing spending. (General Motors and Marketing Analytics Partner iKnowtion Win Database Excellence Award) As a result GM knows which customers to contact, the optimal time to reach out to them, and the message(s) that will resonate most. The program is extremely successful and delivers thousands of incremental sales and millions of dollars in incremental revenue, sales large enough to move the needle on GMs already strong market share.
Network subcontractors have been common in the construction industry, now the recently designed network organizations expect a more proactive role among participants and practice a voluntary behavior that improves the final product or service rather than simply to fulfill a contractual obligation. General Motors is an organization collectively based on cooperation and mutual shareholding among a group of manufacturers, supplies, and trading and finance companies. General Motors act as a core firm and branch out the network process to provide other core competencies such as marketing partner, product development and advertising agencies. For example, GM alias with Goodby, Silverstein & PartnersÂ (GSP) as their advertising agency to help advertise their products. The agency is based inÂ San Francisco, CA but in 2010 opened aÂ Detroit, MI office to service its Chevrolet account. (Wikipedia, 2010)
As the core firm becomes globally competitive, it needs network structures to form alliances with the best subcontractors with the best expertise at the best price. As general Motors become globalised, it requires assembly partners to help assembly their product all over the world. Examples are General Motors Europe AG and Shanghai General Motors Company Ltd (Shanghai GM). In Europe, GM Europe operated 14 vehicle production and assembly facilities in 9 countries and employed around 54,500 people. (Wikipedia, 2012) On the other hand, Shanghai GM is a joint venture between General Motors Company and SAIC Motor that manufactures and sells Chevrolet, Buick, Cadillac, and Opel brand automobiles in mainland China. Shanghai GM was founded on June 12, 1997 with 50% investment each from each partner. Shanghai General Motors began assembling the venture's first vehicle, the Buick Regal, in Shanghai, China in 1999.
Network structure applied by General Motors is an organizational structure which offers flexibility and suit globalization. Therefore lots of companies start to apply the structure to adapt the changing of business all over the world. However, there are also some disadvantages will be encountered by the General Motors in the application of network structure.
One of the disadvantages is General Motors expose the core firm to market forces. GM forms an alliance with other companies to create a product or service and it provides an opportunity for them to bid up the price for subcontractor. Therefore, GM might need to expend more cost for the subcontractors and the profit which expected from that cooperation will be reduced. For example, GM's Asian business alliances have often yielded far greater profits to their partners than to GM and helped them become more competitive. (General Motors' Asian Alliances)
Moreover, the network structure may result in loss of control. The structure is an extreme form of horizontal structure where managers have very little control over the operation of each autonomous unit hence they rely on the intermediate reports to track the progress and have little visibility into the actual facts (Gupta, 2009). GM delegates some task to their alliances hence they are unable to supervise all the processes of manufacturing and the outcome of the products by themselves. This may directly affect the reputation of GM if the products that manufactured are resulted in malfunction and unable to operate properly. To avoid this situation and maintain the subcontractors' quality, the core firm (GM) can use arm's length incentives and contract provisions. However, these actions are relatively crude compared to those used to maintain the performance of in-house employees.
Another disadvantage is the tough coordination. Coordination requires very good planning, well designed product architecture, highly detailed design documents, well defined requirements and methods of product qualification (Gupta, 2009). The culture between the core firm (GM) and its satellite organizations might be different; therefore it is a greater challenge for GM in bridging the cultural divides between different units. According to Ashim Gupta, the network structure's success depends on creation of a conflict free protocol and its execution, it is more difficult to achieve than computer networks because of human factors. In order to achieve successes on network structure, GM forces to train or foster plenty of managers to have satisfying communication skills and human skills. The training programs for all the managers will also increase the extra expenditure of organization.
The fourth disadvantage is the network structure will bring high risk of failure to the core firm (GM). In network structure, the success of a product is mainly depends upon the successful delivery of all components by each satellite organizations. If one of the organizations faces problems such as nontechnical reasons, geographic or financial troubles, the process of the manufacturing will be affected and it makes a greater impact on profitability of core firm. While the structure boasts of rapid response to external environment, it is also vulnerable to hostile changes (Gupta, 2009).
Furthermore, the network structure is a threat to intellectual property of core firm (GM). The structure poses a threat to the core propriety information being compromised in order to assist process coordination across different units (Gupta, 2009). If one the alliances or partners gain access to the intellectual property, then they are able to use the technology or knowledge to evolve other new products that might endanger the core business. The risk is even more when all of the alliances of the organization are in different countries that have the different business laws since it makes the legal process even more complicated.
Lastly, from human resource perspective, employee loyalty and corporate culture might be weak because of concerns over job security (Daft, 2009). The employees will feel that they can be easily replaced by contract services and their morals will run low since that they know that they do not gain any core competencies. Besides, this will also reduce their motivation towards the jobs. The low motivated employee will not perform their work efficiently and effectively in the organization and it will directly lead to failure since the company goals and objectives are unable to achieve (McShane, 2006).
The GM Company applied the combination of wide and narrow span of control as stated above. To ensure the administration of corporation more smooth in future, the GM should widen its span of control. This mean the number of the people that report directly to their upper level is increases. So, this organization structure will help their company solve the problems faced more effectively. By applying this policy, GM can reduce the number of hierarchies and ensure the organization moves toward a flatter structure. The decreases of the middle management is the company can cuts down the costs because the company can save the workers cost for middle management level staff. Besides, a wider span of control encourages employee empowerment. The company can give power to their front line workers by giving them certain rights to make decision in some situation. When the company faced crisis or problem, the front-liners will then be able to take action immediately to solve it and prevent it from becoming more serious instead of waiting for the decision made by top management which needs to pass all the way down the hierarchy to them. This greatly increases the efficiency in the flow of information, hence allows the staff to obtain the information as fast as possible and to take action immediately in each situation.
GM applied centralization throughout the company. All the formal decision making authority is held by top management. To improve the organization, GM should apply both centralization and decentralization at the same time but in different parts. In a normal organization, it contains many main department such as human resource, production, financial, market and technology. In some fixed policy department like production and financial it best to apply centralize to ensure that the policy and administration are all follow the rule and procedure and the decision making is on the top management. While in the other part it should be change from centralization into decentralization to empower the employees so that the staffs throughout the organization have the rights to give opinion and make decision. For instance, the human resource can hire the correct person who is potential for the company, while the technology department has more freedom to explore new technology in this career. Besides, the marketing department has its own freedom to explore the new market and conduct business in new environment.
The degree of formalization used in GM Company is high because this firm is old, large and more regulated. This also means that the degree to which organizations standardize behaviour through rules, procedures, formal training, and related mechanisms is high. The organization should try to minimize the formalization in several departments of the company to encourage creativity and flexibility among staff in designing the cars. Examples of department are Assembly Department and Branding Department. In addition to this, lower formalization enables a higher degree of flexibility in handling and adapting to different situation as the employees' action can be based on logic and its suitability in that particular situation rather than to follow the rules that are fixed. At the same time, it will also increase the work efficiency in the organization. The employees can elaborate their skills which can solve the situation more effectively and not need follow the procedure step by step.
To overcome the problem of lack of control of the network structure, GM can start with decentralization, to make the overall work processes highly integrated and well coordinate. This may be monitored by pursue a related constrained strategy to ensure that miscommunication will not happen and increase coordination among divisions. For example, key processes such as R&D, should be better centralized to achieve consistency. Moreover, communication between employees from top to bottom and may be important in gaining control of the network structure. So, GM should hire or to equipped employees with better communication skills.
General Motors should make a full assessment of its current partnerships, alliances, and supplier relationships to overcome the problem expose the core firm to market forces. By evaluating, this can help the company determine the pros and cons of each towards the goal of planning to better manage its relationships. General Motors and its partners should work together to insure the maximum return from each partnership. General Motors should terminate of those relationships not in the best interests of the company.Â General Motors should insist that they have more managerial control over its joint ventures, make stronger efforts to enforce controls over proprietary technologies and manufacturing know-how. This can help to reduce the conflict of ownerships over the automotive technology. The company should develop a stronger, longer-lasting relationship with its business partners. This can help to reduce the intellectual property problem.
Other relevant concepts:
There are many other organization behaviour can be used to improve the GM organization. The most important one is employee empowerment. The organization has to give decision-making rights to the employees working in the front line. This is so that the front-liners may obtain the customers information as well as the market situation very fast in order to compete with other competitors in the market. At the same time, it will also help the organization to adapt to the ever-changing environment such as the preferences of customers and the world's economy. Employee empowerment is very important to let the company keep pace with the market demand as well as to allow flexible and quick problem solving.
Secondly, the organization should change the company culture from high power distance to low power distance. This will encourage every staffs in the organization to share their opinions, and give suggestion and critiques to improve the organization. Thus, the company will be able to obtain many fresh suggestions and promotes creativity as well as a more balanced decision-making because the decisions made by the top management may not always be right. To carry out this method, the organization shall allow and encourage every employee to take part in giving their suggestions and opinions in the company's intranet. There should also be rewards of bonuses or promotions given to those whose ideas and suggestions helped the company to improve. Besides that, the managers should communicate with their employees more often so to create a mutual understanding among them and facilitates performance improvement.
In today's global competition, GM has forced to focus more on innovation and the used of advanced technology. To accomplish this, GM needs a more flexible structure that would allow more research and development in specific field, such as the alternative energy or the hybrid. Hybrid technologies' trend has begun to take place in the automotive industry and GM has been one step behind and lack of alternative energy vehicles. This problem may lead to many problems including loss of market share and a decrease in company profit. Management has to realize that it needed the input of the best researchers over the world, to both inside and outside of GM, no matter where they were located to make the improvement. Moreover, the network structure has to compose of global teams of employees who comfortably interact with team members from a variety of countries, cultures and also settings. GM has to consider also the technology, human resources, strategy, and the level of turbulence in the external environment to seek and to design the best organizational structure for their company.
Besides that, brand management needs additional power. Regional strategic business units of GM have lack control over their region. They should have more control and better coordination towards region and with the others to allow better performance. Brand autonomy on marketing or product development should increase to ensure differentiation.
GM must not become too dependent on its financing program which is General Motors Acceptance Corporation (GMAC) Financing. We cannot deny that it is a great strength for GM, yet they must not rely solely on the financing program in order to turn profit, especially when they wanted to compete with Honda and Toyota who are rapidly growing.
For the reason that for so long GM have continued with a tradition outlook for automobiles, they must re-evaluate the market they are trying to approach, they have to change their original target market because it is not looking for what they once were. General Motors needs to take a step back and take look at how they want to position themselves and towards what market since what they have been doing is no longer in favour for the company. For example, GM could possibly do is producing a futuristic vehicle, such as hybrid vehicles, which has been heard in rumours from Toyota about their next plan of action. GM would be a step ahead of the competition if General Motors could provide a "futuristic" vehicle before Toyota has the chance to hit the market with theirs. Liquidation is important to GM because their assets are a lot higher than revenues, and if GM could turn assets into cash then there would be more readily available funds and then GM would not have to depend on its financing program which is General Motors Acceptance Corporation (GMAC) Financing and their financing tactic wouldn't be as much of a risk. Liquidation would clearly help out the financial parts of the organization.