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 Evaluation for Rick Wagoner
The bars reflect your raw score, within the bars is the raw score : percentage.
Professional Archetype Profile
Leader 30 : 17%
Entrepreneur 35 : 20%
Manager 27 : 15%
Trustee 16 : 9%
Intellectual 36 : 20%
Consultant 29 : 16%
Grand Archetype Profile
Giver 7 : 28%
Taker 18 : 72%
About your results…
Your selected archetype: Manager
This response is directed not only at Hema’s posting of the raw scores from the Brookmaster results but others posted during this discussion also.
I definitely agree that Wagoner has led a strong taker archetype. Wagoner has not provided the insight and direction of the company has needed to succeed in the current automarket. He was used his position within the company and all the perks associated with it arrogantly, with disregard for his employees or the position of the company in the current world auto market. The company is losing money at an exceedingly fast rate, while Wagoner is still sitting on a $20 million dollar pension.
http://www.usatoday.com/money/autos/2009-03-30-wagoner-gm-pension_N.htm
1.a.) Discuss General Motors on the basis of levels of desire(3rd principle desires that motivate action)
a. Focus on products, not customers. For years, Detroit wrongly viewed product types as market segments. Cars were classified as subcompacts, compacts, intermediates etc. But no consumer ever left home passionate to buy an “intermediate car.” Segments are groups of customers, not products. Later, Detroit discovered lifestyle marketing but GM was trumped by Chrysler on minivans, was late to market with SUVs, then missed the mood swing of consumers towards crossovers. There must be pockets of consumer insight at GM but they do not readily translate into market-shaping product initiatives.
b. Too many products, too many brands. The Toyota and BMW product lines are very simple, easy for a salesperson to explain and easy for the consumer to understand. There is a logic to the product lineup. Desperate to retain share in the US, GM continues to add to its already confusing array of 60 models under 8 different brand names. The positioning of each brand has long been unclear, a problem magnified by look-alike models built on common production platforms with frequent model changeovers adding complexity costs to production. Buying a car is an infrequent purchase; the consumer needs a clear roadmap of what is on offer.
c. Too many dealers. GM did not reduce its dealerships as it lost share. As a result, dealers began competing on price against each other rather than external competitors. Slipping sales caused dealers to consolidate two or more GM brands on a single lot, further undermining any pretense at distinctive positioning for each marque. And the need to keep sales up at each dealership limited GM’s enthusiasm for embracing new ways of taking new car orders from consumers over the internet.
d. Losing market control. You know you are the market leader when the other players in the value chain - producers, dealers, consumers - all look to your product line as the bellwether alongside which they organize theirs. To command respect, you have to be selling the most popular models in the middle of the market, the ones that consumers strive to trade up to, the ones that consumers aspire to move beyond. Today, GM is correctly trying to regain control of the middle with the new Chevrolet Malibu. But will it be able to displace the Toyota Camry and Honda Accord?
e. Bigger is better. Higher wage and benefit costs make it harder for GM to make money on small cars. But the real reason for the migration of the product mix to SUVs and trucks is that the “petrolheads” who run Detroit are all big, tall men. They would rather go down in Detroit history as the guys who brought you the Escalade, not the Prius. They are Jack Palance, not Billy Crystal. Over half the cars bought in the USA are purchased by women; would you know that from the lineup of senior executives at GM?
f. No global brand. Here Ford has a clear advantage over GM. Ford is a global brand. The company name is the brand name. Sure, they have Lincoln and Mercury but the vast bulk of Ford’s marketing dollars worldwide back the mother brand. GM, by contrast, is a house of brands, none of which is global. GM even continues to sell Opels in Europe and Holdens in Australia. Marketing resources at GM are inevitably dissipated.
g. Not invented here. Smaller than GM, Ford has been prompted by necessity to better integrate its worldwide operations. In a well-run multinational, this involves US headquarters learning from its subsidiaries, not just telling them what to do or letting them run independently. For decades, Detroit has spurned US launches of high quality vehicles conceived and made in its own European factories.
h. Finance focus. GM has not been run by marketers. It has been run by accountants. The cost focus has crowded out needed emphasis on consumer insight and marketing. Instead of obsessing over the $1,500 per car labor and benefits cost differential separating the big three and the foreign transplant brands, GM should have exploited its market access to develop brilliant new designs that the American consumer would gladly have paid more for. Instead, the Toyota Prius has trumped Detroit and GM’s belated answer is the $40,000 electric Volt.
1.b.) Discuss General motors based on balancing the action with ethics( 2nd principle ethical balance)
Is it just GM that violated public trust? Certainly not! Many factors and definitely the consumers also included in the causeof the problem. Starting with an irresponsible government that endorsed megalomanic growth, abandoning more reasonable and responsible approaches (to virtually any aspect of industrial activity) for the sake of profits and toxic greed, there is a healthy driving-force/innovative “greed” or “desire to progress” too; the irrational faith that any growth is good, paired with a widespread lack of fiscal logic from CEO’s to consumers alike (producing what cannot be sustained and buying what they can’t afford).
Monster suv’s have been a bad idea, even when gas prices were low. However, their environmental output and cost, as well as effects on other traffic participants (in accidents, etc.) has always been a disaster.
The consumer (though also mislead by steered marketing) failed to recognize that (s)he cannot abandon responsible thinking, just because corporations endorse “the easy” way. The consumer base needs to be educated and made aware of their responsiblity (privilege?) of making smart choices.
There had been (at least publicized) only few incentives to do better. European and Japanese corporations, under a much higher pressure from their governments to produce cleaner and more responsible products (not just cars) have adjusted to those given economic environments and when times got tough in the US had already in place what we were just starting to implement.
Though government restrictions and/or incentives are one way of solving the problem, there needs to be an “internal” desire to improve, not to avoid punishment (sanctions, etc.), but improve our overall outlook as humanity. If corporations can really make and prove the point that they have accomplished that, they should be rewarded with tax incentives, and capital infusions to further research and development.
No, it is not just GM, the auto industry, the government, but all of us, who need to raise the bar and stop critisizing ourselves to believe that everything will be ok tomorrow and continue doing everything the same way as before.
And to all graduate CEO’s and doctorates of the financial markets and industry: By running everything into the ground the way it is, you made an excellent point that degrees and “knowledge” are overrated commodities (if not applied correctly - Quote: A mind is like a parachute: useless if not open!), because you have applied none. none! Just like a responsible captain of a ship, a true leader looks and sees ahead, plans, prepares and considers the whole vessel, not just some areas as his or her responsibility. What we as a whole are going through was absolutely preventable and foreseeable!
There needs to be some serious ethical house cleaning in many corporations and the devastation caused by the irresponsibility of our government and industry leaders needs to be reviewed and if necessary prosecuted. Being a CEO, leader, etc. involves many responsibilities and there should be limitations to “exculpatory clauses” for CEO’s and CFO’s if they haven’t handled their duties properly. Maybe when their assets become vulnerable they will become aware of the world surrounding them and not just the end of year bonus. Shareholders need to raise the bars too and view profits with “different eyes” (that’s a tough one though!).
Reference: http://blogs.harvardbusiness.org/quelch/2008/12/how_general_motors_violated_yo.html
2.) What kind of a leadership is required for the present scenario of GM.? Please provide your views, with justification.
GM might be able to come back if they can leap forward on quality, are allowed to not get back into onerous contracts, and do a much better job of responding to demand changes. Better really get rid of the management not just the CEO. Baring those things GM should be liquidated as well.
Reference:
http://forums.wsj.com/viewtopic.php?p=249389
Brook Master Evaluation for Rick Wagoner
Leader: 33:20
Entrepreneur: 35:21
Manager: 27:16
Trustee: 16:9
Intellectual: 32:19
Consultant: 18:11
Giver: 8:28
Taker: 20:71
1. Discuss General Motors on the basis of levels of desire(3rd principle of purposeful action)
I believe that GM’s actions are wellmotivated by the four levels of desire based on its performance and actions.this is one of the key factors for its failure.Wagoner’s poor management of GM is not being dismissed. Never mind the fact that under strict regulations the American car maker has been pushed and pushed and pushed to produce vehicles that the American People have no desire to purchase. I suppose one can say that Rick Wagoner is getting what he deserves. After all, he is the one who went to the government on his hands and knees - well, not quite on his hands and knees, but practically. Actually, it was in a dinky little hybrid, while the corporate jet remained humbly in the hanger.further,GM Pleads for Relief on Taxes,which is borrowing $13.4 billion from the federal government to remain solvent, is pressing Congress to waive a tax liability of as much as $7 billion related to the overhaul plan .
Some of the other factors are federal fuel-economy standards (which began slowly taking hold in the 1970s) forced GM to make cars that fit government mandates, not consumer choices: So-called CAFE standards require GM to produce fuel-efficient product lines that do little for the company’s bottom line, just to balance out the larger, thirstier vehicles that sell profitably. Which explains why GM is not only going forward with the 100-mpg plug-in hybrid Volt — which Obama’s task force on the auto industry has judged as “not economically viable” — the company plans to make three plug-in vehicles, no doubt in order to comply with Washington’s new mandate of a fleet-wide fuel-efficiency average of 35 mpg by 2020.
More subtle, but more sinister, were the antitrust laws. Since the 1920s, GM held a dominant position in the U.S. auto industry because Henry Ford stuck with Model T’s while GM launched annual changes that improved the comfort and quality of its cars. Over the years, GM created innovations ranging from the automatic-ignition starter to leaded gasoline to Freon for air conditioning.
John DeLorean, longtime executive with GM, stated the obvious 30 years ago: “General Motors’s competitors in America exist by reason of GM’s sufferance. GM has the potential to eliminate Ford, Chrysler, and American Motors any time it desires” by cutting prices. “General Motors,” Delorean observed, “sets the prices for the automobile industry.”
DeLorean was frustrated with his fellow GM executives in the 1970s because they refused to venture seriously into the making of small cars — Japan was beginning to capture market share. But why should GM innovate? Ford and Chrysler might wither away.When unions wanted higher wages and less work, the easy answer was yes. Avoid strikes, share the wealth, and keep Ford and Chrysler in the game. As DeLorean observed in 1979, GM had not made a “major automotive innovation” in 30 years. Meanwhile, Japan improved its small cars and slowly eroded GM’s dominance.If the U.S. government had allowed GM to produce the cars it thought best for customers, and to expand freely, would GM now be a profitable, innovative corporation? Maybe not, but maybe so. At the very least, such policies would have increased the chances that some company would have continued the American dominance of the auto industry that started when Henry Ford installed his assembly lines.
2.Discuss General motors based on balancing the action with ethics( 2nd principle of purposeful action)
According to my view GM has played both in terms of positive and negative core values to some extent and they are unable to balance this principle.At one instance former CEO of GM Rick Wagoner says “GM enjoys a long tradition of accountability, integrity, and transparency that has helped establish our reputation as a leader in corporate responsibility.”
General Motors Corp. (NYSE: GM), the world’s largest vehicle manufacturer, employs 341,000 people globally in its core automotive business and subsidiaries. Founded in 1908, GM has been the global automotive sales leader since 1931. GM today has manufacturing operations in 32 countries and its vehicles are sold in more than 190 countries. In 2002, GM sold more than 8.6 million cars and trucks, nearly 15 percent of the global vehicle market. GM’s global headquarters is at the GM Renaissance Center in Detroit.
Q: what kind of leadership is required for the present scenario of GM?
I believe that GM should lead with a purposeful leader who can adapt and able to withstand the company with the current situation and the leadership should have courage to take decision and must have the nobility in management.finally i conclude that a leader should come with a vision and mision for a GM’s survival.
http://www.nytimes.com/2009/02/02/business/02gm.html?_r=1&partner=rss&emc=rss
http://www.lidreamboats.org/files/General_Motors_and_Cadillac_Mag_Format_Rev_8-17-07.pdf
http://showhype.com/story/gm_ceo_resigns_at_obama_s_behest_mike_allen_and_josh/
I agree on a requirement of a leader Venkat. But I do also feel a leader who can be an entrepreneur is also required. Innovative methods with the right ideas to run the downfallen GM is required.
(1.) Discuss GM on the basis of the four principles of purposeful action:
First Principle: Act with purpose
Actions are driven or motivated by the desires of individuals or organizations, which in turn are driven by individuals. Purposeful actions provide value to others and are the ones that serve other than the performer of action. When a person is ethical and sticks to the five core values, the resultant action performed by him/her is purposeful. However, a person cannot be termed as ethically perfect. An action becomes purposeful when the majority of the core values is imbibed in it or is intended to be.
When we apply the first principle of Purposeful Action to the present scenario of General Motors, we derive that the very basic necessity of action is missing. The purpose behind their rise and fall can clearly be attributed to the unethical behavior of the people steering the company. One of the negative core values – ego and desire are also the major drawbacks for their downfall. I determine that Purpose for any action is the factor that influences its results. A good purpose would reap good results and vice versa.
“GM’s vision is to be the world leader in transportation products and related services. We will earn our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people.” This vision statement of the company seemed to have drifted away from its roots thus causing the huge block to fall into shambles.
Fourth Principle: Understand and Relate with Others
The vision of a leader can become a reality only when shared by others. A leader or an organization is not alone in the brook. Each navigator is influenced by the other navigators. It means an organization’s success or failure depends on numerous external factors, let them be individuals, companies or government.
This is very true in the case of General Motors. The very external factors that are discussed above can be related to the other major automotive companies taking over the American market, the employee benefits, union advantages and government regulations. I see that GM’s internal conflicts and issues have made their eyes blind to the external competition and the Japanese companies have taken over this situation. It is the ever learning enthusiasm, continuous improvement, understanding the customer’s requirements and an open eye to innovativeness that helps any organization grow. When these qualities are missing the result would be more devastating.
(2.) What kind of a leadership is required for the present scenario of GM.?
I believe General Motors now requires a visionary leader who can take over the present situation. A leader who can act to improve the company’s drawbacks and inspires the employees to work together is needed. Team work is very important in this situation and it requires a leader who sheds his/her own personal benefit and works towards the systematic piling up of the blocks that were knocked down.
Scoot
What you said, and others have said on the blog about no one wanting to buy GM vehicles needs to be looked at.
GM sold 2,980,688 vehicles in the year ending December 2008
http://www.gm.com/corporate/investor_information/docs/sales_prod/08_12/pressrelease_0812.pdf
There are an estimate 250,851,833 registered passenger vehicles in the United States according to a 2006 DOT study
http://en.wikipedia.org/wiki/Passenger_vehicles_in_the_United_States
This really might raise a question as to why exactly GM is struggling then. It cannot be due to the sales as there are lot of sales as seen in this post. It must be due to some bad decisions by the board or Wagoner.
Even though General Motors may be selling a car to turn a profit, the expenses associated with retirement plans, health insurance costs, union costs, and other costs which competitor automakers do not have to contend with is ultimately hurting the bottom line at General Motors.