General Motors in Free Fall - A Case Study with Purposeful Action
A brief comparison on GM and Toyota would be helpful in discussing the four principles of purposeful action.
GM: After World War II there was big demand for each and every product that was introduced in the market. There is reason for this was rationing of product usage came to a halt. Two of the major industries emerged out of this boom one is housing and automotive. GM took advantage of this market. In order to be the competition GM focused on producing cars at the least cost. The concept of manufacturing cars at least cost helped GM to evolve into a mass manufacturing company. In mass manufacturing system of production raw materials are purchased at the lowest price. The raw materials and finished products will have high inventory. Whether a car has demand in the market or not still the inventory of the car will be high. It is the job of the marketing team to come with ideas to sell it. In this business model GM quickly transformed from visionary to a goal oriented company. The only goal of GM was to be the largest producer and seller of cars, which sacrificed its vision and mission. Every action taken inside the company had no purpose to benefit the society. There was no ethical balance in the form of producing cars that consumed lot of gas without any forecast for environmental impact at later stage. Executives and leaders were happy as for as the goals were accomplished. The desire that motivated these goal oriented action were in the form of: financial numbers, bonus package and salaries for the executives. The company gave the least importance on the desire to serve the welfare of the employees, society and environment. Hence company lost to listen the voice of internal and external customers, which resulted in low quality cars, low employment morale, lack of visionary leadership and motivation and poor financial planning. The only thing that was helping GM these days is that customers were enticed by emotional market strategy as “GM is the car built by Americans for Americans” and selling to rental car companies. Even rental car market share fell to other Japanese and Korean car manufacturers in the millennium years. On the whole GM got locked in the ego and arrogant pride as the largest car producers and lost the humbleness in its action.
Toyota on the contrary: After World War II Japan economy was in shambles. The quality of all the industrial products developed in Japan was not up to the international market. Toyota was producing car that was least desired by consumers around the world. Moreover the company was in deep financial shambles. Most of the financial institution did not want to give any kind of financial support to the company. In this crisis, there was one company that provided financial support to Toyota with a stipulated condition. The stipulation was that Toyota can only borrow when it sells a car and the amount must equal to the selling price of the car. This means if Toyota sells one car the company can borrow the money equal to the selling price of that particular car. Toyota accepted this challenge. The management was looking for ideas to produce and sell the car. This created the leaders in Toyota to develop the concept Kaizen meaning continuous improvement (Phase III of Purposeful Action), which later became Toyota production system. Kaizen was applied at every level of the company from the top leadership to the bottom management, from shop floor to dealership place. This became the vision of the company. Every action applied by the employee had to evaluate how it continuously improves the process. This led to employment empowerment. There was open communication at all levels. Toyota saw the company as integrated system not separate entity from the environment, which was not in the case of GM. Every action taken inside company was customer focused. The company sent its executives to see how other companies around the world were manufacturing their products. The executives went to developed nations in the west from Germany to USA. They were open-minded to benchmark companies from other than companies that were producing cars. The benchmarking process did not lose customer focus. Toyota developed the concept called quality circles which gather information to improve the overall quality for each and every process of the company from both its internal and external end user. In this process the company paid every attention to the welfare of the employee. This boosted the morale and motivation of the employees. One important thing was Toyota maintained high ethics of commitment. It never layoffs employees to cut cost instead every aspect was focused on improving the quality of the product without losing its vision on customer focus. Toyota maintained product line was customer wanted for its needs and necessities. Also made sure the cost of maintenance of the car was at the least cost related to were and tear of the vehicle due to operation.
One the whole Toyota’s action had a purpose at every aspect of its business; ethics to stick to its commitment and were not driven by financial goals; desire to serve the customers, employees and society better.
Sources from www.businessweek.com
For example Toyota-General Motors sold 9.37 million vehicles worldwide in 2007 and lost $38.7 billion. Toyota sold 9.37 million vehicles in 2007 and made $17.1 billion. That was the second best sales total in GM’s 100-year history and the biggest loss ever for any automaker in the world. For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold.
2. What kind of a leadership is required for the present scenario of GM.? Please provide your views, with justification.
As mentioned in the first question on the comparative analysis of GM and Toyota. GM should focus applying purposeful actions in their operations. The company should develop and implement Kaizens at all levels. Eliminate bureaucracy in the management and involve everyone to seek better solution for both welfare of the company and society. In the recent years GM has improved its quality of cars both in design and performance. It is time for the executives to listen to both internal and external customers. The company should develop health welfare programs for its employees to boast and improve the well being of its employees. One way is to help its employees to eliminate unhealthy practices like smoking and consuming alcohol. Providing incentives for people improving their health which will indirectly reduce the health care cost. The reason for this is the number of employees working for GM is more than 100,000.
Sources from websites: www.businessweek.com and yahoo.com:
Health care, pensions and other benefits -General Motors isn’t bankrupt, but the once-great firm is on the rocks, having lost nearly $4 billion last year alone through September, recently announcing 30,000 layoffs. And at first glance, its long decline would seem to be GM’s fault. Consider perhaps its foremost headache: Its hulking health insurance costs for which workers pay nothing out of pocket, and retirees very little. They have about 145,000 employees, active employees, and we have health care coverage for 1.1 million retirees, independents and family members. Last year we spent $5.2 billion on health care coverage for all of our employees in the U.S. basically. It equates to about $1,500 a car.
That’s more than the steel in an average car and $1,500 that GM’s foreign rivals, with government health insurance, that don’t pay. GM’s got another cost disadvantage as well: full pensions after only 30 years of service, regardless of age. To pay for this largesse, tack on another $1,000 per car.
The lushest benefit of all, however, may be GM’s jobs bank. Workers whose plant closes can transfer elsewhere in the company or, if they choose not to, take classes, do community service, continue to get full pay and never retire. So in Baltimore, when a GM plant closed recently, the jobless weren’t exactly distraught.
When you add the jobs bank to the pensions and health care tab, GM has a total cost disadvantage, compared to non-U.S. rivals, of $2,500 or more per car — before it even starts making one.
Questions and background information for this case study discussion were prepared by Chandrika, Discussion Leader.
This discussion will continue for the next three weeks, through midnight on April 21. Each student will discuss in depth the two questions posted above, applying the specific principles assigned to each student. Assignments of principles will be posted under Assignments in Blackboard. Posts should be based upon research, with appropriate references and links.
This discussion will carry more weight with respect to course grade than a weekly discussion.
Good luck.
President Barack Obama refused further long-term federal bailouts for GM and Chrysler, saying the companies needed to get more concessions from unions, creditors and others before the money could be approved. He also raised the possibility of controlled bankruptcy for one or both of the companies.
http://www.boston.com/business/markets/articles/2009/03/30/stocks_set_to_fall_as_automaker_plans_rejected/
This here is reality and the end result of not following the first principle (act with purpose).
Also this article shows the importants for relating with others, which is the fourth principle. GM and Chrysler lacked in relating to each other.
Compare with Jimy’s BookMaster I also ran the BookMaster game for GM
Here are the result:
Leader 19 : 12%
Entrepreneur 28 : 18%
Manager 30 : 19%
Trustee 23 : 15%
Intellectual 23 : 15%
Consultant 28 : 18%
Grand Archetype Profile
Giver 9 : 22%
Taker 23 : 78%
Both bookmaster game show GM is managerial type archetype. However both bookmaster games points out that GM is more of a taker. I have in my previous blog that GM has developed incentives for people to buy GM cars, however it was in purpose to make more wealth for themselves.
Being a taker show that fourth principle of purposeful action is violated, means that GM did not relate with others. But now they are taking people’s money (tax money) from gov’t to sustain and executives conitnues to be more wealthier.
The “relating” to others aspect is indicative of what went wrong over time with GM where “Vision” got clouded as it seems like the only other navigator they noticed in the waters around was their age old rival Ford (who is not in that much of a better shape themselves). This has seeped into the people too, as you can see how the comparison runs: http://answers.yahoo.com/question/index?qid=20081025234810AA2P6Fv
It’s not like they’re comparing a GM vehicle & a Toyota vehicle, is it?
Indeed Wagoner is a taker. Even before the current crisis really began there is evidence of this “taker” mindset in his decision to utterly ignore research efforts into hybrids, something that Toyota, Honda, and other car manufacturers were doing. Instead Wagoner chose to continue to focus on the production of gas guzzling SUV’s because there were extremely profitable. Wagoner has reflected that one of his worst decisions as CEO was not putting the necessary funding into hybrid R&D [1], but this is not out of any concerns of social responsibility but out of regret that he missed another opportunity for potential profit.
[1] http://www.newsweek.com/id/36484
Roy M
I have found thru out this class that running a Brookmaster on a company/organization very difficult. I do not do well trying to assign human values to a company.
But, about your results, aren’t most companies “takers”, companies are there to make money for the owners/stockholders
1. Discussion
Second Principle: Balance Your Actions with Ethics - Your Core Values Determine Your Ethical Balance
Third Principle: Manage Your Desires - Your Actions are motivated by Your Levels of Desire
Most major corporations and organizations have a wing that caters towards maintaining of ethical balance and business ideals, and not surprisingly, GM has one too. The effectiveness of this may be in question today where they are suffering badly and facing woes unparalleled ever before. In order to understand their struggles though, one has to take a deep look at the measures taken. An interview with Samina R. Schey, GM’s executive director for Global Ethics and Compliance, reveals some of the efforts and helps us better understand how hard it is to shake an existing mold to advance ahead in the future: http://www.singerpubs.com/ethikos/html/generalmotors.html
The third negative core value of GREED has always been an undisguised facet of the operations of general Motors – the whole point was to make a fast buck by selling as many vehicles in all categories as possible, without giving thought to the future. This short-sightedness kept them from seeing the demands of “green” regulation and customer “wants” that would be so crucial in 21st century to the profitability, and even existence, of a company. The managing of their desires has been very bad over the decades and in the new century it has been too slow and unmotivated as well as not innovative! The only option now left before them is to undo years of self-mutilation through uncontrolled and maniacal expansions and multiplication by selling off or discarding divisions such as Saab, Hummer, Saturn, Buick, GMC, Pontiac, down to having just Chevrolet and Cadillac that have potential. The effects of this process are far-reaching and involve a lot of people sacrificing (not by choice) a lot of different things.
http://www.newsvine.com/_news/2009/03/31/2623075-gm-chrysler-in-fast-lane-to-bankruptcy
Lean manufacturing, Six Sigma, Kaizen (Continuous Improvement), Just in Time (Process), etc. are terms that are associated with an innovative and forward thinking company like Toyota who is now reaping the benefits of it in this decade by being the world’s largest automaker. This is why vision is a key to future success and inevitably leads to quality products and organizations as they always had that in mind in form of a positive giver that wants the customer to get the best. This is in tune with keeping the interests of the people in mind and is a very ethical option to pursue when developing a corporate culture and plan of action. The balance is so good that not only are people benefited, both inside and outside the company, but it also brings profitability and in turn success. General Motors has played in the dirt too long and now have to clean up their act with renewed leadership and a sense of fair ethical giving nature.
A BrookMaster run of General Motors paints it is the light of a manager apparently although with a taker grand archetype. The results show how much it has also begun to act as a trustee of what it has without much innovation and proactive mentality.
Professional Archetype Profile
Leader 22 : 14%
Entrepreneur 15 : 9%
Manager 35 : 22%
Trustee 29 : 19%
Intellectual 20 : 12%
Consultant 25 : 15%
Grand Archetype Profile
Giver 6 : 18%
Taker 26 : 81%
This archetype of the self-obsessed manager is the organizational and plan focused persona of the managerial personality that GM exhibits along with a selfishness in their actions. Sincere choices were passed up and options that got the people working for this person to perform were picked instead while answering the questions. This is to reflect the productivity based tactics of the corporation without any real innovation or foresight.
GM may have in fact had a vision but it was truly not a vision with purpose, as we are in the process of finding out. It would seem that GM’s vision did indeed involve a certain “green” aspect to it, but this “green” was the “green” of dollar bills.
Milton Friedman believed that the role of business was to make money, to act and operate with responsibility to shareholders. Period. It would seem that if current leaders, whether in business or not, desire to act with purpose and create visions with purpose there must be a high degree of social responsibility taken into consideration.
Jimy
I really liked the way you made your point about GM, and would like to share a few things with you.
-Green
I do not believe that that the majority of U S consumers wants “small” green vehicles. GM and Ford made their money by selling the “un-green” SUVS and trucks. And I do not believe that the consumer was “forced” to buy these “large” cars. They wanted them.
To back up my point, Toyota has been selling the “green” Prius at a loss, because Toyota could make up for the loses by selling the Tundra.
General Motors has also launched a program for April that, like Ford’s just-launched Advantage program and Hyundai’s Assurance, is intended to ameliorate the unemployment jitters among people who might buy a vehicle if they were not worried about losing it. The program, “GM Total Confidence,” offers up to $500 a month in protection to those who buy this month, and then lose their income.
http://www.mediapost.com/publications/index.cfm?fa=Articles.showArticle&art_aid=103292
Another not a good purposeful action by GM. Do you think this has helped GM in the position they are in now. Here fourth principle is violated again by GM.
I can’t quite put my finger on it, but something about this just bothers me. GM is trying to encourage consumers to buy a new vehicle in probably one of the worst times in history to even consider making a large purchase. GM is understandably worried about surviving the crisis, but wouldn’t it be better if they said something to the effect: “Hey, it’s not a good time to buy a new car. But, if you really, really want to then we can help.”
Joshua
GM is not leasing cars either, because GM does not want the cars “back” at the end of the lease. AND if GM goes under, who takes the cars back
Fourth Principle: Understand and Relate with Others - Your Progress is Affected by the Actions of Others.
First Principle: Act with Purpose - Pursue Your Journey with Purposeful Action
Every one of the top ten automakers has cut advertising spend in the first nine months of this year, in an effort to reef sails in the current economic storm. The exception–ironically–is General Motors, one of the three Detroit automakers looking to secure a bridge loan from Congress ASAP. The New York-based firm says that General Motors is, in fact, the only automaker among the top-ten list of ad spenders.
Ford’s ad spend dropped 33% in the first nine months; Toyota’s dropped 7%; Chrysler cut its media spend by 33%; and Nissan cut its ad spend by 12%. Only Honda increased spending, by 4%.
General Motors has been running promotions since August to boost sales–including employees pricing and 0% loans–and held an early launch for its year-end “Red Tag Sale” program, introduced in 2005.
http://www.mediapost.com/publications/index.cfm?fa=Articles.showArticle&art_aid=96542
Now lets think about the first principle. During this economic crisis GM spend more money compared to other automakers and while they knew they suffering from the economic drought. This is not purposeful action by GM.
Now lets consider the Fourth Principle, its says understand and relate with others. Contiune to doing ads with out not relating to the enviornment caused GM to be in this place. As you see in this example other automakers have droped budget in doing ads but not GM.
These are some examples for GM not following first and fourth principles of purposeful action.
GM is acting out of pure desperation. Out of all the automakers GM has been the most irresponsible and displayed the least amount of purpose in all their decisions and as such they are struggling the most. GM’s focus on power, wealth, and status has lead them to ineffectively carry out the review and revise steps of the Framework.
That last step needs a bit of clarification. GM may have in fact been reviewing and revising their goals and plans but only as they relate to profit and the first two levels of desire.
In reviewing the write up for this case study, one major question looms: In what shape, size and character will GM emerge from the impending “controlled” bankruptcy supervised by the Federal government?
This should be considered, implicitly or explicitly as appropriate, in all your analyses on this case study.
PC
I don’t think that they government should be supervising the company but then again I don’t believe in bailing them out either. I think free market should work on its own without the government stepping in.
Even with the backing of the governments money, I think it will be hard for GM to bounce back from this. I believe their will be a lack of customer loyality and trust. Without the customers, the company is nothing. Too bad that they let their greed blind them to what was important… .the customers.
If GM survives it will be a good illustration of the 12 Steps in action. When companies or individuals functioning as leaders fail to act with purpose they are inevitably unsuccessful. What we are seeing with GM is a company whose misdeeds and failures to act on and make purposeful decisions is catching up with them.
Moving beyond GM and looking the bigger picture, could the current economic crisis not be considered a case study on Purposeful Action on a massive scale? We are seeing companies, executives, individuals, and even industries on the verge of collapse as a result of greed, negative core values, and a focus on the first two levels of desire.