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General Motors (GM) is the second largest automakers manufacturer in the world. (Elizabeth Strott http://articles.moneycentral.msn.com/Investing/Dispatch/Toyota-takes-sales-crown-from-GM.aspx) The Headquarter of GM situated in Detroit and it employs more than 209,000 people around the world and its business is spread throughout 120 countries. GM and its strategic partners have production plants over 31 countries and its brands comprises of Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden, Isuzu, Jiefang, Opel, Vauxhall and Wuling. The largest market of GM is China, and it is followed by United States, Brazil, United Kingdom, Germany, Canada, and Russia respectively. GM has a subsidiary named OnStar Corporation, it is the industry leader in vehicle safety, security and information services. GM is also one of the largest purchasers of U.S. steel, aluminum, iron, copper, plastics, rubber, and electronic and computer chips.
The history of General Motors dates back to 1908, it was founded by William Durant more commonly known as Billy Durant, he was one of the leading manufacturer of horse-drawn vehicles in Flint, Michigan. At first the company started with Buick Motor Company and within short period of time it had acquired more than 20 companies which include Oldsmobile, Cadillac and Pontiac (then known as Oakland). Meanwhile in Germany Opel, a sewing machines manufacturing company had been recognized worldwide after they started producing bicycles and in 1899 Opel entered the growing automobile market with Opel-patent-Motorwagen System Lutzmann and thirty years later it became a part of General Motors.
In 1920s the demand for automobiles grew to unexpected heights and there were mass production better designs and innovative marketing were introduced. Adding Chevrolet, Vauxhall and Opel diversified the reach of GM. It introduced the strategy of "a car for every purse and purpose." GM started innovating to stay ahead of the game, the vehicles were becoming statements and aspirations rather than mere mode of transportation. It started to build more plants outside the United States, it was going Global. 1927 Cadillac LaSalle became a milestone with sharp corners and a long, low stance which made impact on the people thinking cars as just a mode of transportation. It was designed by Harley Earl, and it was distinctively differentiated from high and boxy Ford Model T. After which R&D became a major part of the automotive industry, GM established its own design studio which was headed by Earl until his retirement in 1959.
In 1930s America was going through hard times due to political change in Europe and the future of automotive industry was heading towards uncertainty, but GM was still going hard due to its innovation. In 1940 the former GM President William Kundsen was President Roosevelt as Chairman of the new Wartime Office of Production Management. By 1042 GM's production was in support of the allied war effort and it delivered more than $12billion worth of materials including airplanes, trucks and tanks. When the situation was becoming stable, the return of the peace after World War II there was a new hope for the industries with consumers eager for goods that had been out of reach for so long. GM took this opportunity and it gave string of milestone designs with its innovations which inspire the industry till now. It created some of the major features like front wheel suspension, unibody construction, and the one-piece steel roof. The models like Buick Roadmaster (1949) and Cadillac El Dorado (1959) raised the bar these machines were as much fun to drove as they were to see drive by.
The 60's and 70's were a time of new challenge and great change. Environmental concerns, increased gas prices and foreign competition led to an unprecedented downsizing of vehicles across all GM vehicle lines. It was the largest program ever undertaken in the industry, ushering in an age of lighter, aerodynamic and more fuel-efficient vehicles. In 1973, GM was the first to offer an air bag in a production car. In 1974, GM introduced the most important step in reducing emissions with the catalytic converter. This technology shared by GM is still used by entire auto industry.
Although GM was always active internationally, the urgency of operating as a single global unit came with the shrinking of the world itself in the 1980's and the 1990's. With fewer barriers to communication and new markets opening, companies that didn't keep up were left behind. Accordingly, GM re-invented itself as an integrated global team and intensified its focus on innovation and growth. In 1982 GM made the largest expansion with the opening of the new complex in Zargoza, Spain. This facility began building the fuel efficient Opel Corsa. It also fostered joint ventures in China and India plus the additions of Saab and HUMMER tot eh GM family. The company strengthened both the reach and variety of vehicles sold worldwide. In 1995, annual vehicle sales outside North America exceeded 3 million units for the first time. 5 million vehicles were sold in US and also entered first joint venture agreement in China.
The transition into Digital age and a concern about the environment became prevalent topics at the turn of the 21st century. GM has created innovative vehicles ranging from more fuel efficient gasoline engines to biofuels and hybrids. In 2003, GM partnered with Shell Hydrogen, a division of Shell Oil, to develop a real life demonstration of hydrogen fuel cells and fuelling infrastructure technology in the Washington DC area. The demonstration featured the nation's first hydrogen pump at a Shell retail gas station to support a GM fleet of fuel cell vehicles.
Long term, GM is focused on the eventual commercialization of the hydrogen fuel cell vehicle.
What is Strategy
Strategy is a pattern of activities that seeks to achieve the objectives of the organization and adapt its scope, resources and operations to environmental changes in the long term. (Kaplan pg.3) It can also be defined as a set of managerial decision and actions that determines the long-run performance of a firm.
The word strategy is used in many ways, people talk about a strategy for a business, a strategy for a football match, a strategy for a military campaign or a strategy or revising gor a set of exams. It has the multiplicity of uses so in 1987 Henry Mintzberg at the McGill University in Montreal proposed his five Ps' of strategy. http://books.google.com/books?id=nqtuQX8_sVEC&printsec=frontcover&dq=business+strategy&hl=en&ei=HPkMTamQIaaAhAfgpZC3Dg&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCkQ6AEwAA#v=onepage&q&f=false
Mintzberg suggested that nobody can claim to own the word 'strategy' and that the term can be used in several ways, a strategy can be:
Strategy is a plan, a set of guidelines to deal with a situation. It has two essential characteristics; it is made in advance of the actions to which they apply and they are developed consciously and purposefully.
Strategy is a ploy, an action calculated to frustrate or to gain advantage over the opponent indirectly or deviously. It is a maneuver intended to outwit the competitors.
Strategy is a pattern of behavior, the strategy as plan only is not sufficient. Strategy is a pattern in a stream of action whether or not intended. The plans are intended strategy whereas, patterns are realized strategy.
Strategy is a position, a way to gain a status in an organizational environment. It is a mediating force or match between organization and environment between the internal and the external context.
Strategy is a perspective, an ingrained way of perceiving the world. It is basically a perspective shared by members of an organization, through their intention or by their actions.
According to Whittington (2002) offered four 'generic' views of strategies i.e. classical (planning approach), evolutionary (efficiency driven), processual (craft like) and systemic (internationally sensitive). http://www.suite101.com/content/theories-of-action-in-business-strategy-a94410
Unitary and Deliberate
Pluralist and Emergent
Unitary and Emergent
Pluralist and Deliberate
Fig. Whittington's Generic Perspective On Strategy
He suggests that strategies can be divided up into those that are unitary, i.e. having single outcome or goal (profit-maximization) and pluralistic, those that have a number of outcomes or goals.
Classical approach to Strategy
For classicists profitability is the highest goal of the business and rational planning is the means to achieve it. The classical approach to strategy requires that managers to be ready and capable of adopting profit-maximizing strategies through rational long-term planning.
Evolutionary approach on Strategy
The evolutionary approach does not rely on management skill and rationality but it suggests that it is the market which determines profit maximization rather than managers. It suggests that the weaker performers are automatically driven out of the market.
Processual approach to Strategy
Processual approach does not stick to rational strategy-making forwarded by classical approach, and they do not agree with the evolutionary perspective either of leaving the profit-maximizing outcomes to the market. The processual approach works with what the reality offers. The members of the organization bargain between themselves to arrive at a set of goals that is acceptable to them all.
Systemic approach on Strategy
Systemic theorists believe that the organization is capable of planning and acting effectively. In systematic approach, the organization is not just made up of individuals but of social groups with interest, it incorporates class and professions, nations and states, families and gender. The strategy basically depends on social environment of the firm.
SWOT analysis of GM
Large Market Share
The market of GM is still not less than 15 percent. The company is still going strong on the Chinese market. It can still rejuvenate as a leader it was once.
GM has been there for a century and it has spread worldwide. It has enough experience to bounce back. With the right planning and proper implementation of those plans can help GM to achieve its goals.
Variety of Brand Names
GM has the wide range of variety which suits for almost every demand that market rises.
General Motors Acceptance Corporation (GMAC) Customer Financing Program
GMAC was established in 1919 and it is the most reliable source of revenue.
OnStar Satellite Technology
It was developed in 1996 and it has more than 3million subscribers and is standard on all GM vehicles. It helps to track the vehicles in the case of emergency or theft.
Behind on Alternative Energy Movement
GM was late to realize the alternative movement this keeps GM one step behind than the competition.
Poor Organizational Structure
The organizational structure is vertically integrated which causes the lack of communication between employees from top to bottom. This communication might be the GMs downfall.
It has not been successful to keep their shareholders happy. The profit margin is low and the return on equity has been dropping to 10% in 2004.
Overly Dependent on GMAC Financing
GM is highly dependent on its financing program, it should search for the alternative to stay in competition.
Poor Credit Status
The credit status of GM has been declining over the years, the current ratio is just above 1 and their acid test is even low.
Alternative Energy Movement
GM is behind its competition on research and development of hybrid vehicles. However, GM still has not the opportunity.
Continuing to Expand Globally
The Chinese automotive market has given a new hope for GM. It suggests that it should emphasize on foreign market.
Low Interest Rates
The right marketing strategies, with low interest rates have the potential to generate an immediate increase in sales.
Develop new Vehicle Styles and Models
The market always needs something more, GM should continue to develop and provide something new to the market as always.
Rising Fuel Prices
The sales for low fuel efficient vehicles has decreased, the rise in fuel prices has pushed the companies to produce hybrid and fuel efficient vehicles.
Growth of Competitors
GM is no longer a leader in the automotive industry and it faces the fierce competition. Toyota being the first one to go into hybrid market has grown significantly since then.
Pension Payouts and Health Benefits
GM has the generous pension benefits and health care benefits to its employees, it is a great motivation to the employees but it is becoming a problem now because more and more people have to be paid.
Rising Supply Costs (i.e. steel)
It affects the automotive industry as a whole and the companies are forced to but manufacturing and production cost without reducing the quality of the product.
GM'S CRITICAL INCIDENTS AND STRATEGIC PARADOXES
GM has had 101 years of glory in the automotive industry having the reputation of the most innovative, largest growing and best performing corporation in the world. It not only became the global leader but was also significant in defining massive bureaucratic multinational corporations. However, GM also faced constant challenges and failures that pushed it to reinvent itself further and harmonize its strategic paradoxes.
During the early 1980's, GM was spending lavishly to modernize aging assembly plants in US as well as abroad. During the same period, US economy went into one of the worst recessions which directly hampered their auto sales and consumer market. The company ran out of funding and had to eliminate 11 plants worldwide with more than 30 thousand job elimination.
Strategy: To overcome the crisis, GM adopted automation solution basically by embracing robotics over people. This strategy was highly criticized by many and exemplified poor corporate governance. According to Mintzberg, leader centric organizations become highly bureaucratic when teamed up with automation. Instead, employees must have been more empowered.
Before GM could recover from the setback of the 80's, it headed for another sharp decline in the 90's due to the great depression. The market share had been gradually falling while the high interest rate and economic downturn led to pensions and benefits crisis. And so, they adopted the same measure of cost cutting taking over 75,000 jobs over the period of 4 years. But this time, even this action could not pull off GM from its drudgery.
Strategy: This time, the company focused on rebuilding its brand image in order to compete against diverse markets with high sales potential. As a result, Saturn was launched in order to compete against small imports and they were rather successful. The reason for success was mainly non traditional customer approach and its fresh image to reach different customer groups.
After two decades of turmoil and setbacks, the year 2000 also did not look welcoming. Although it's global sales was rapidly increasing especially in emerging markets including China and Russia being the first foreign firms to set up factories.
Nevertheless, the decline in world automotive sales due to tightening of credit market, volatile oil prices and declining consumer confidence around the world turned down GM's sale by 35% in December 2008 compared to the year before. In 2008, Toyota surpassed the sales of GM putting an end to its reputation of world's largest carmaker. Later, with costly dealer incentives and operating in still reduced sales, finally, in June 2009 GM prepared itself to file for bankruptcy protection for which the federal government took 61% of ownership of the company.
Strategy: The new GM under the state ownership reduced its size so that it is profitable even in low sales volume. Their hourly labour cost was reduced by more than two-thirds and few brands such as Saturn and Hummer were shut down.
GM Strategy - Analysis
General Motors has a long history of swings. It has been a leading brand name and is still known for its global presence. Mintzberg views strategy from five different perspectives as explained in the literature. The overall strategy over the century does seen to have a pattern as Mintzberg suggested. GM was engaged in a little bit of everything and sought to see where it went. GM in it dawn was highly motivated to grow large and seize opportunities for growth. It went ahead by creating cars for all segments with unique brand names.
Travelling back into time too far could paralyze the analysis of the company. Therefore the study looks at incidents dated back about three decades. In the 1980s the company faced challenges managing its large fleet of product offerings. Most management scholars indicate the importance of environmental screening if strategy is seen as a process or a plan. Though not explicitly stated, the actions indicate GM's attitude towards strategy as a pattern. This is where a crucial mistake was made.
In the 1980s GM was making large investments in assembly plants and also made an assortment of acquisitions. The acquired companies include Huges Aircraft Company, a defence electronics firm, Electronic Data Systems, a data processing and communications company. Keep in mind that this decade brought in with it 'depression' to the American economy. The buyers in the auto market were disappearing while GM was expanding. Critically it would not be wrong to comment that GM just couldn't help pursuing its strategy of growth in the face of environmental uncertainty. It often happens that a successful strategy is carried forward too long regardless of its failure.
In the year 1988 the blanket of depression was not removed but the company survived and regained momentum by harsh cost cutting measures. These measures were highly unpopular and could have brought bad name to the company. It also exhibited a lack of corporate governance as more than 30,000 people lost their jobs. Analysing the scenario from Ansoff's growth share matrix suggests that the company was diversifying in the first half of the decade while it focused on efficiency gains and withdrawal on the second half.
The next decade proved no better for the company as revenues dropped again in 1990s. The company chairman had decided on to further close down more plants cutting 70,000 jobs. This could have become fatal for GM as it would damage the company name in the major national market segment. A strategy of product development was adopted and Saturn Line of cars was introduced. This proved to be successful with employment of greater customer service.
The company saw a lot of internal changes with replacement of leaders very frequently. However the organization remained a highly bureaucratic and politicized one as most of them were recruited from inside the company and had a stake in it. The combined code for corporate governance would suggest that the move was unethical. This is because there should be a distinction between owners and management.
GM never had an opportunity to relax over the two decades. However at the verge of the new millennium the company had a substantial standing in the US auto market owning 30.9 percent. The sales reached a peak of more than $177 billion dollars with a profit of $1.5 billion. The success in my view has been exaggerated. The growth in market share has been acquired through heavy investments in dealership and reduced margins. Tracing back we can see that the company had a $4.9 billion profit on a $110 billion sales.
The question is whether such a thin margin is sustainable or not? The current scenario of GM would suggest that it has not been sustainable. Most scholars suggest that sustainability is achieved by gaining consumer confidence and not just by creating a wave or fad. It is true that Hummer and Cadilac once portrayed the sentiments of people but the strategy could not have lasted long knowing that gasoline is becoming dearer and environmental issue is a concern.
GM was not proactive in its approach and reactively closed down its lines of Hummer and Saturn. This suggests another strategic loophole. The company was not proactive in its approach. Johnson, Whittington and Scholes suggest that strategy is a triangle of strategic planning, choice and implementation. Mintzberg has view about emergent strategy where strategies emerge over actions of management. Mintzberg's strategy has not been appropriate for GM in this scenario.
The most recent incident is a life and death situation for GM. With the fall of Lehman Brothers and the credit crunch, the whole world was encapsulated in recession. Though some of the emerging economies like India and China are still growing most developing economies are still entangled in recession. GM has been facing a lot of challenges in the recession and is about to go bust according to many critics.
GM has gone through many strategic changes in the recent years. Its main efforts seem to be on downsizing the company. The decreasing demand in auto market has left GM with no other option but to reduce the size of its operations. The company has been facing severe competition with Toyota which has overtaken GM in global sales. The company declared bankruptcy in the recent year and has been restructuring since then.
Conclusion & Recommendation
The study of General Motors over its lifetime is a very intriguing one. It has gone through a lot of upswings and downswings. Along the century company has been an expansionist. GM has always been emphasising on growth both through product and market development. It introduced a lot of different brands to target an array of customers. The main strategic aim of GM remained market share for several decades.
The times have changed and so have the circumstances. In its battle for market share GM has went along too far and lost control of its costs. At the verge of 2007, American economy faced the biggest credit crunch ever. The impact was so vast that many companies went bankrupt. GM became one of the companies that went bust.
Under the new Obama administration plans have been made to rebuild the GM Empire. Strategic changes will be required and there will be a lot of challenges faced by the company. Matthew Norton has suggested major reforms in the company for its revival. It includes brand restructuring, cost cutting, and fuel efficiency. The analysis is also backed by past statistics.
The study relies on the following changes to be effective:
The tremendous size of the organization cannot be maintained with the declining sales in the global auto market. The world economic recession will take a couple of years to revive and it is not possible for GM to maintain most of its brand names. It would be better off selling its divisions. If such options are not available it may have to shut down some of its divisions.
Challenges: Downsizing is a risky task and one that receives very high retaliation. Downsizing will involve lay off for much of its personnel. GM has been infamous for closing down its plants in the 1980s and the 1990s as well. Losing brand name at such a crucial stage will further hamper the organization in the future.
GM has positioned its brand as a producer of powerful and gas juggling machines. This brand identity will not be acceptable among the growing environmentally aware and fuel efficient mass. Therefore GM needs to produce as well as market cars that lie on the features of efficiency and clean energy. Producing a range of hybrid cars would not be a bad idea. However going too aggressive with many brands can go fatal.
Challenges: Efficiency is not the core competency of GM. Companies like Honda and Toyota seem far ahead in this line with cars like Toyota Prius, Honda Civic Hybrid etc. Apart from the competitive challenges it will face problem of restructuring assembly plants for the modern technology. Already it faces cash shortages and will face problems of financing more funds for the investment.
Yes it is contrary to the objective of downsizing but the field of diversification is a unique one. Most people in the United States and even United Kingdom face a harsh traffic with cars moving at 2-3 miles an hour. GM can become a company that provides transport information to the commuters. This will not only generate sales but also rejuvenate GM's brand name. This will indicate its inclination towards Corporate Social Responsibility.
Challenges: In order to provide such traffic information GM will have to work hand in hand with government organizations. It might receive co-operation and consent from its domestic government but will still have problems co-ordinating with them as it lacks expertise in the field.
From the strategic literature this point seems alien and incomprehensible on its own. What the study seeks to suggest is working along in a more flat structure and delegation of power downwards into the organization structure. GM has witnessed dismal morale of employees along decades. In fact GM has never valued its employees down the line. The bureaucracy needs to be crushed down and a more democratic approach has to be followed. Not only employees but also dealers' and suppliers' efforts need acknowledgement.
Challenges: The major challenge will be from the existing authorities who have never seen such a culture. Moreover one may argue "What's the point of being good to everyone when our existence itself is hanging by the cliff?"
The American and the European markets are highly volatile and declining. The emerging economies of the east including India and China should be the prime target for GM. Not only from the perspective of market but from a production viewpoint. In order to gain its standing in the future global markets GM needs to create its territory in most emerging economies. Ansoff in his growth share matrix also suggests this path at times when current markets are exhausted.
Challenges: The emerging economies have different taste and lifestyle. GM might have to adapt to a new culture which might not support its global strategy. GM has already created its presence in both the markets but it is relatively new to companies like Toyota and Honda. Facing competition internationally will be challenging with the limitation of resource placed upon by its liquidity crunch.