Reference no: EM132629522

General Motors: Reorganization

General Motors was founded in 1908 by William C. Durant, who had started out as a manufacturer of horse-drawn vehicles. GM initially only owned the Buick Motor Company but later acquired more than 20 other companies including Oldsmobile, Cadillac, Oakland - today known as Pontiac - Germany's Opel, Chevrolet and Vauxhall.

In the early 1980s, GM's position of market leader in automobile production and sales began to falter along with market leaders in other industries. Competitive forces throughout the world were forcing US firms to rethink their strategies and their organizational designs. As more and more competitors from Asia and Europe challenged GM's market supremacy and as technological developments in manufacturing and information processing challenged GM's production advantages, GM's management responded by implementing changes in its organizational design that continue into the second half of the 90s. The first signs of problems began to appear in 1981 when the company reported its first loss since 1921. After the retirement of Thomas A. Murphy in December 31, 1980, Roger Smith was appointed as CEO in January 1, 1981, the sixth GM CEO since Alfred P Sloan Jr., who served from 1937 to 1956. Sloan created the modern version of GM through the development of an organizational structure, which consisted of five independent divisions- Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac. The competing product strategy encouraged each division to compete for customers by delegating complete authority to each division to design, produce, market, and sell its own particular line of cars.

This design was in place throughout the post-World War II period when General Motors grew into the largest manufacturing organization in the world. But something happened along the way. The previous structure as it evolved over time began to be identified as an impediment to progress and market response. One of the outgrowths of the structure was the development of a massive corporate support staff, which when created was supposed to provide expert advice and consultation to the divisions. But over time these staff members began to take over the decision making of the line units, and the decision making began to grind to a halt in endless discussions in endless committee meetings at corporate headquarters.

When 1993 rolled around, GM had replaced Robert Stempel, who had replaced Roger Smith, with Jack Smith. Stempel had been in office barely two years, yet the board of directors was unhappy with his deliberate management style. He simply was moving too slowly in carrying out the turnaround that Roger Smith had begun. Jack Smith responded to the news that GM's market share had dropped to its lowest point in 23 years, 29 percent, by creating a single operating division, North American Operations (NAO); paring corporate staff from 13,500 to 2,500; reducing the number of car models from 62 to 54; combining 27 different purchasing departments into one; and eliminating nearly 16,500 hourly jobs by offering early retirement. These seemingly harsh measures were necessary according to Jack Smith to assure GM's very survival as an automaker. The organizational design that GM now counts on to enable it to survive and compete identifies the five traditional divisions-Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac-as marketing units. But all production, product design, and purchasing will be done in one separate unit. The story of GM's reorganization efforts remains unfinished. In fact, what progress the company makes will depend upon Jack Smith's success at eliminating the remaining vestiges of bureaucracy that persist even in the midst of massive efforts to make the company more responsive to market conditions and technological developments. Despite all the efforts of its CEOs from Roger Smith to Jack Smith, GM continues its long slide down the profitability curve. The efforts to reverse this slide through organizational redesign and other measures seem to have yielded little gain.

1. Identify the environmental forces that have driven GM to change its organizational design.

2. Suppose, Thomas A. Murphy was fired due to the crisis. Do you think firing the CEO is the right decision based on the circumstances back then? Explain briefly.

3. We saw that Sloan created an organizational structure with different divisions. What type of organizational design is that? Justify your answer by discussing the advantages and disadvantages of that type of organizational design.