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.
General Motors, America’s biggest car maker, said that it had sold 49 per cent fewer new vehicles in January, compared with the same period the year before while Ford admitted that new car sales had fallen by 40 per cent last month. Chrysler, which is a private company owned by the private equity firm Cerberus, is believed to have suffered a 49 per cent decline.
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article5654864.ece
David Cole, the chairman of the Centre for Automotive Research in Detroit, said: “The US car industry is not in recession, it’s in depression.
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article5654864.ece
While the US car industry has suffered sales declines for four years, Wall Street was startled after it emerged that European car makers are now also seeing sharp falls in business
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article5654864.ece
President Obama may be forced to dig deeper into taxpayer pockets to bail out the American car industry after General Motors and Ford admitted to the lowest vehicle sales for 26 years.
First principle, action without purpose causes the common people to suffer, like here the more tax money used for bailing out companies.
Fourth principle, GM and other automakers actions are now directly or indirectly affecting people in global level. This is the violation of we are all in it together.
The actions we pursue as individuals and as individuals within corporations must always be purposeful. If they are not they will lead to destructive consequences since the action is leading to no defined purpose, such as the case of where General Motors currently stands within the auto market and business world.
Roy M
Any company, yes even the big ones like GM, need to be allowed to go into bankrupcy (sp) if they mess up.
We (the U S taxpayers) do not need to bail anyone out.
The BrookMaster results for former GM CEO Rick Wagoner:
Leader: 25-17%, Entrepreneur 26-17%, Manager: 25-17%, Trustee: 19-13%, Intellectual: 26-17%, Consultant: 25-17%, Giver: 15-45%, Taker: 18-54%.
Rick Wagoner was a CEO that possessed negative values and is a taker, which limited the growth of GM. Wagoner was able to make operational improvements and cost cutting, but largely as he resisted making the drastic cuts demanded by that of the market and US government.
Margaux,
I got similar Brookmaster results for Rick Wagoner
Brookmaster’s assessment of Rick Wagoner’s dominant archetype
The bars reflect your raw score, within the bars is the raw score : percentage.
Professional Archetype Profile
Leader 17 : 11%
Entrepreneur 27 : 17%
Manager 27 : 17%
Trustee 22 : 14%
Intellectual 29 : 19%
Consultant 29 : 19%
Grand Archetype Profile
Giver 13 : 48%
Taker 14 : 51%
I’m surprised to see Rick Wagoner that close to be as Giver grand archetype. My results showed pretty strong Taker attributes….
same here. I never thought he could get even closer to the taker ratio
Margaux
I, also, ran a Brookmaster on Rick Wagoner and got this:
Leader - 32:18%
Entrepreneur - 33:19%
Manager - 26:15%
Trustee - 20:11%
Intelectual - 35:20%
Consutant - 23:13%
Giver - 24:77%
Taker - 23:13%
Rick Wagoner has worked at GM since his graduation from Harvard Business school.
I see Rick Wagoner as the person that the U S Govt and the media has made as the scapegoat.
But my real problem is the thought that the President of the United States can decided who will be the CEO of a U S corporation.
Question 2:
Poor management decisions have severally crippled the automotive giant GM. The company has lacked a vision to see it through the 21st century. Leadership has failed to put in place a strategy to regain market share, improve its cost structure and most importantly satisfy the needs of its customers. They have failed to implement the necessary changes as the market place changed as Ford has.
For GM to recover during the global economical downturn, its leaders must develop a vision focus the customer. Leadership must learn how to change and adapt. They must learn how to manage innovation and innovators by beginning to invest more in “green technology” to produce hybrid vehicles.
http://www.forbes.com/2009/04/02/gm-wagoner-henderson-leadership-governance-bailout.html?feed=rss_leadership_governance
I agree, as a company they have lacked the drive to develop into new technologies and create their ‘own’ within the auto manufacturer market. Consumers demands are changing. Auto manufactures that will be able to offer efficient, reliable and possibly petroleum free vehicles will develop a strong market presence in the current competitive market.
The company must adapt to their surroundings and work with what they have, the fourth principle of purposeful action.
I agree with you Margaux, because of the poor management the GM has seen a tremendous downfall and the leadership has no vision and this ruined the company.GM did not focus on what the customer need and want and did not apply the technological leadership with customer focus.
http://wardsautoworld.com/ar/auto_new_look_ethics/
Question 1:
GM is an automobile company with a rich and long history. It was the world’s largest car maker from 1931 to 2008, when it was surpassed by Toyota. The company has witness its market share continually dwindled to below 20%. Many critics of GM suggest the company woes are due in part to the product mix in the US being heavily weight toward trucks, pickups and SUVs. Long ago the company lost touch with the needs of its customers and arrogantly created vehicles US consumers no longer wanted as gas prices increased. Others might suggest the company’s greed may be a factor behind all the recent US plant closures as it finances a new plant overseas. GM’s international revenue has soared but they are not required to compensate those workers in the same capacity as the unionized US workers. By shifting operation overseas, the company can maintain and retain its profits without sharing it with its employees.
GM current desires are motivate by survival. The need to survive regardless of cost to Americas, workers, customers and taxpayers. The need is reaching a new level with the rumors of the company considering bankruptcy as viable business option. By no means should the GM be considered too big fail like AIG, although its financing subsidiary GMAC provides home and car loans, but poor management decisions as lead the company down this destructive path. By filing for the bankruptcy, the company will be able to walk away from its commitments to its suppliers. This will have a ripple effect on the economy, news papers already being affected by the lost in advertising revenue.
http://topics.nytimes.com/topics/news/business/companies/general_motors_corporation/
Merrill Lynch analyst John Casesa says in a research report that the �domestic auto industry’s structure is not stable, and simply put, we expect it will get worse before it gets better.”
http://www.consumeraffairs.com/news04/2005/gm_toyota3.html
This article was published in 2005. GM must have got this news. But they did not prepare or act purposefully toward it, neither related with what others were doing to prepare for this economic situation.
“Putting designers in the driver’s seat” (Design, June 18) clearly reveals what’s wrong with American auto companies. They just won’t listen!
Only once does Chevrolet Malibu designer Clay Dean use the word “consumer.” He speaks mostly of other cars, strains between design and engineering, costs, designer stress, and aesthetics. And all the while, consumers with years of driving experience are standing on the sidelines jumping up and down, yelling: “Ask me! Ask me!” But the design entourage hurries past without giving us the time of day. What could we possibly know.
http://www.businessweek.com/magazine/content/07_28/c4042014.htm
Last class (April 7 2009) we discussed together as a class and agreed the GM is not understanding the customers. The purpose is forgotten by GM here. This atricle says here that GM not listening to the customers.
1. All the companies must undestand the consumers need, which make them act with purpose.
2. All companies must understand the market structure of their environment, which is relating and understanding others around you.
Good article Roy. You are right, GM has totally lost its focus on the most important thing… their customers. The company leaders need to practice some introspection and determine what their vision is. Then they need to develop a plan to focus actions on this vision. They have not been acting purposefully and have been taking versus giving. A new purposeful leader could turn this company around but they will have their work cut out for them.
Thank you Nikki.
GM forgetting or ignoring to evaluate the market. Two all companies have to do is
1. Differenciate the product
2. Competitive market structure.
Also, analyze with these five questions:
1. what are we really trying to do?
2. what business are we in?
3. Who are our customers?
4. What is the competitive market structure?
5. What competencies and resources do we have in order to stay successful?
GM need to continue to ask these and evaluate often.
These questions shows the purpose (first principle), and it also show competitive nature of the environment so you can relate to others.
I think we also need to look at the product life cycle. Cars use to be very unreliable and did not last like cars do today. You were good to get 60K on an engine; today 150K + is the norm. People are not buying new cars at the rate they were 20-40 years ago. This is one area that technology has helped the consumer and hurt the manufactures.