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.
Brook master game for general motors
Leader 23 : 16%
Entrepreneur 22 : 16%
Manager 19 : 13%
Trustee 26 : 19%
Intellectual 26 : 19%
Consultant 20 : 14%
Grand Archetype Profile
Giver 14 : 38%
Taker 22 : 61%
The brook master results for Rick Wagoner.
Professional Archetype Profile
Leader 13 : 8%
Entrepreneur 23 : 15%
Manager 36 : 23%
Trustee 23 : 15%
Intellectual 20 : 13%
Consultant 36 : 23%
Grand Archetype Profile
Giver 5 : 16%
Taker 26 : 83%
Your selected archetype: Manager
The fall of General Motors Chairman and Chief Executive Officer Rick Wagoner was unavoidable. There is no way President Obama could hand out more billions to a management with a practically unblemished record of failure.
Yes, it’s certainly good news; the Wagoner management was never going to turn around General Motors. Never. After all, Wagoner has been chief executive since 2000 and head of North American auto operations six more years before that. His predecessor and mentor, Jack Smith, became chief in 1992. GM lost market share in the U.S. in all but a couple of those years. The losses in Wagoner’s last four years topped $80 billion.
GM seemed adrift in this crisis. Its European operations–and they are key to saving GM–seem to be without serious direction. In the U.S. we hear mostly of program cancellations, and the Vice Chairman Robert Lutz, the only real “car guy” in top management, is giving up and retiring at the end of the year.
But it might be a mistake to cheer Wagoner’s leaving, because we don’t know if his replacement will be any better. The second in command, the president and chief operating officer, is Fritz Henderson, and he is expected to succeed Wagoner, at least for now. Frankly, it is difficult to see what he did to become president of the once largest automaker in the world. Like Wagoner, he is a fairly colorless financial officer. But it’s unfair to knock him before he’s had a chance to do something.
What GM needs in this crisis, of course, is a spirited leader, a fighter, who can speak to the American people and convince us that GM is coming back. He’s got to have a feel for the business, for the product, for the car buyer, and not just for the balance sheet. And he’s got to be willing to wave the flag too in these desperate times. We’re talking about the likes of Lee Iacocca, who brought Chrysler back, and George Romney, who saved American Motors. Finance men can be heroes too: Sergio Marchionne, who is leading the recovery of Fiat, is a good example.
Rick Wagoner had some successes. The 0% financing offers after Sept. 11 might have kept the country out of a recession. He always pushed China. And hiring Robert Lutz, the retired president of Chrysler, to lead a GM product renaissance was an excellent move, although it showed how weak GM had become in products, so weak it needed an outsider to fix its cars.
http://www.luxlibertas.com/why-rick-wagoner-had-to-go/
Well said Sreesh! I appreciate your detailing that has given deeper insight into my knowledge about GM. You very well related the past and present happenings of the company.
I found this article to support comments. New Motor Manufacturing Inc is plant that was established as a joint venture between Toyota and GM. In this plant Toyata matrix and Pontiac vibe are produced. This plant union but still under Toyota’s leadership the company is has operated with sucessfully without any issue from UAW since its inception. How come Toyota is able to created a purposeful management philoshopy but not the big three. To support this statement please follow the link given below for more information.
http://curiouscat.net/library/pdf/remembering_nummi_by_gipsie_ranney.pdf
Here are my BM Game results for Rick Wagoner. I’m not surprised that my results indicated him as a Manager – Taker type.
Brookmaster’s assessment of Wagoner Rick’s dominant archetype
The bars reflect your raw score, within the bars is the raw score : percentage.
Professional Archetype Profile
Leader 15 : 9%
Entrepreneur 29 : 18%
Manager 37 : 23%
Trustee 20 : 12%
Intellectual 24 : 15%
Consultant 33 : 20%
Grand Archetype Profile
Giver 7 : 23%
Taker 23 : 76%
Your selected archetype: Manager
GM failed in both principles 1 and 4. Under Wagoner’s nine-year tenure at CEO, GM has lost billions in revenue, added billions in debt, and hemorrhaged sizeable market share. Wagoner did his level best, but his best was not good enough. So let’s examine three things Wagoner failed to do effectively.
1. Resist the culture. Manufacturing is a tough business and few are tougher on mind and body than the automotive business. Millions are spent in minutes so urgency is always paramount. Yet at General Motors a culture of non-confrontation arose, in marked contrast to the rough and tumble world of making cars and trucks. At GM, if you went along, you got along. Wagoner never pushed back hard enough against that culture of the status quo that was so out of step with the harsh reality of the industry itself. Culture nurtures organizations but when the culture hinders the practice of management in a changing world it must be resisted.
2. Demand tough solutions. Wagoner, a career finance executive, never pushed his people to come up with new ideas that would shake the status quo. As a result, for far too long, General Motors allowed itself to be pushed into complacency by sky-high labor costs and an unwieldy dealer network, not to mention keeping seven brands alive in a shrinking industry. Tough solutions begin with asking tough questions and holding people accountable until new solutions are proffered and implemented. In other words, if you want to make an omelet, you better break the eggs.
3. Be nimble. Crisis demands change urgently. But until very recently General Motors acted (at least in public) as if everything would be okay. After all, this was a company that was a century old and had weathered countless recessions, including the Great Depression. When the credit implosion hastened GM’s lurch into insolvency, Wagoner and his team were left with a single option: seek federal loans. Responding to crisis demands agility by putting the right people in place to make good decisions quickly and responsibly well before major crises strike.
In many ways, Rick Wagoner was too easy going to be GM’s chairman. To his credit he is personable and very well-liked. He is also collaborative. Wagoner readily shared the limelight, something few senior executives are willing to do. Knowing that product development was not his strength, Wagoner recruited the legendary “car guy,” Robert Lutz, out of retirement to revitalize GM’s bureaucratized product development processes. As a result Cadillac and Chevrolet brands were reenergized and new products came to the fore. Wagoner also pushed GM hard to embrace green technologies. But it was too little too late.
After all, a company in peril is one that needs innovative and curious leadership that is tough enough to ask hard questions that provoke strong people to re-think their approaches to doing business in world turned upside down.
Reference:
http://blogs.harvardbusiness.org/baldoni/2009/03/how_gms_rick_wagoner_failed_to.html
Well pointed out Mirek. His actions were certainly unsuitable. It’s reflects on the company now as they are facing tired and tested times. It’s a surprise to see that he was fired with a golden spoon, in the sense he was given so much amount of money even though he created a havoc and caused these major problems for GM.
I agree with your comments mirek.Crisis demands change urgently,but GM were quiet an easy-going company.They over looked crisis.It was an very lasy effort by them and when things really went wrong they didnt have a proper crisis management in place to help them
Mirek (and Nsreesh and Chandrika)
While it might seem that GM (and all the car companies) needed to change, do you think that these companies might think that they were “too big” to be affected by the global slowdown.
Also, remember the unions “struck” GM on Sept 24, 2007 not wanting to make concessions with GM to make it finacially viable
http://www.bloomberg.com/apps/news?pid=20601087&sid=aekuAKlqJoBs&refer=home
When thinking about this assignment I recall an article that was assigned in ENGM 550 last semester called “The Tragedy of General Motors” in Fortune Magazine, Feb. 20, 2006. Basically the article summarizes what had been happening up until that time and the author successfully predicted the absolute worst for GM based on the circumstances: previous CEO beavior, poor union negotiation, poor sales tactics (the Keep America Rolling” slogan after 9/11/2001), too many gas guzzling vehicles, etc.
Ultimately, the article points out that no one wants to buy GM vehicles. This is apparently the truth as illustrated by what is happening now and I believe GM (not necessarily just Rick Wagoner)has failed to act based on the 4 principles of purposeful action.
Principle 1 - The company has definitely not acted with purpose. The way the company let the union run all over them is an illustration that there was no purpose to their actions. The executives thought they could sit and collect and the run of high profit would never end.
Principle 4 - The same is true here. The company didn’t want to navigate with others. They deliberately avoided others and failed to address the problem at that time that has escalated into a huge fire that may not be able to be extinguished. Also, I would say that poor sales tactics are another illustration on how the company has failed to navigate with others. It would appear that GM tried to cash in on a tragedy and now is suffering as a result.
The purpose should be from the standpoint of the customer. GM had a purpose back when Alfred Sloan was CEO, which was to have a range of products for “every purse and purpose”. Presently GM does not have a vision. The article, “Re-purpose Before You Re-structure”, asks a simple questions, “What is your organization’s purpose?”
http://www.lean.org/common/display/?o=923
Nice article Scott, I wish GM had taken a look into their present conditions then and avoided their future downfall. This clearly shows how they could not relate with others and are now a total failure as an organization. This also denotes their level of ethical balance which they obviously lost control over.