Reference no: EM132195190
Case Study
General Motors was once regarded as one of the best managed and most successful firms in the world, but between 1980 and 2009 its share of the US market fell from 62.6 to 19.8 percent, and in 2009 the firm went bankrupt. In this paper we argue that the conventional explanation for this decline – namely high legacy labor and health care costs– is seriously incomplete, and that GM’s share collapsed for many of the same reasons that many of the other highly successful American firms of the 50s, 60s and 70s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did.
General Motors led global vehicle sales for 77 consecutive years from 1931 through 2007, longer than any other automaker, and is currently among the world's largest automakers by vehicle unit sales. General Motors acts in most countries outside the USA via wholly owned subsidiaries, but operates in China through 10 joint ventures. GM's OnStar subsidiary provides vehicle safety, security and information services.
General Motors practice of focusing almost entirely on short-term financial results, along with its multiple levels of control and its large number of employees and suppliers, also made building credibility difficult. Senior management could announce a commitment to long term relationships and to building trust, but until these announcements were coupled with similar commitments and altered incentives at the local level, neither blue collar employees nor suppliers appears to have believed that the local managers with whom they had to deal would adhere to a relational contract.
At the local level, this may have been partly a function of the lack of accountability or follow through that seems to have characterized GM. For example (according to This American Life, 2010) “Weller [a GM manager sent to spread the NUMMI gospel] said some managers were responsive. Others weren't— like the one who asked him to leave his factory after Weller made his presentation about the NUMMI system. When asked why the CEO wouldn't fire a plant manager who resisted a system that was producing better cars at lower costs, Weller said: "It's a big company... and it doesn't work that way." Similarly in 1982, Darrah C. Porter, the executive director for purchasing activities at General Motors, told a reporter for Iron Age: “We need to throw off the old shackles of adversarial confrontation and work together in an enlightened era of mutual trust and confidence.” However, one purchasing agent was quoted in the same article as saying? “I find it hard to stop thinking that efficient purchasing means having a lot of vendors fighting over a job.? ” In another example of changes in desired behavior not being accompanied by changed incentives, the Wall Street Journal in 1984 reported that GM wanted suppliers to locate within GM ’s Buick City complex, to promote better communication.
However, GM provided no assurance of future business to suppliers who incurred the significant costs of moving, making suppliers reluctant to relocate. More broadly, General Motors? ’ history of market dominance appears to have made the firm very risk averse, perhaps because the firm? ’s extraordinary success made risk avoidance a profit maximizing strategy for many years. One long-ago incident that might have helped to set the stage for such a policy was the failure of GM's attempt to introduce the copper-cooled engine in 1922.
The attempt failed largely because the product was forced on the Chevrolet division in violation of GM's policy of divisional autonomy. However, Alfred Sloan drew a broader lesson: he claimed that "it was not necessary to lead in design or run the risk of untried experiment. ” This incident apparently had a searing staying power; it was cited as late as 1987 by GM engineers as a reason to avoid technological risks .We suspect that problems of clarity, or in communicating the terms of the various relational contracts that General Motors was seeking to put in place, were also central to the firm ’s difficulties. Not only did everyone concerned have to learn about the actions that constituted “cooperation ”– and to come to believe that these actions were in their own best interests– but they also had to learn about each other ’s defection temptations in a world in which they might not even know their own.
Toyota (and Honda) were able to establish relational contracts through significant investments in “gift exchange? ” (Akerlof 1984), which in effect meant giving to their suppliers and workers without formal assurance of any returns. For example many workers initially doubted the credibility of NUMMI? ’s no-layoff commitment, but in 1987 and 1988, when NUMMI was running under 65 percent of capacity Toyota did not lay off shop-floor workers, but instead sent the entire workforce to training classes, took back in-house certain previously contracted maintenance tasks such as painting, and placed surplus workers into teams that designed the production process for the next model car (Adler, Goldoftas, and Levine 1997). This step built a cycle of cooperation in which the union officials started suggesting some ways of cutting costs, and in turn Toyota set up accounts so that the union leaders could order supplies for their team members without having to file requests through management
General Motors seems to have struggled to develop this dynamic. For example according to Steven Berain (“This American Life, 2010), a GM executive who was first sent to NUMMI and then sent to a number of other GM plants, said that even after GM plants began to install some of the physical features of Japanese auto plants, “there was no change in the culture. Workers and managers continued their old antagonistic ways. In some of the factories where they installed the andon cord, workers got yelled at when they pulled it.” Some plant managers continued to believe that blue collar workers were fundamentally lazy and would pull the andon cord any time they wanted a break, and that the blue collar workers lacked the capacity to engage in problem solving or continuous improvement. By and large, the blue collar workforce appears to have doubted that the announced reforms would work, albeit for different reasons. For example, Helper made several visits to a GM parts plant (now closed) in Trenton (New Jersey) in 1990. Workers had been told that their suggestions would be welcomed, and received training in Statistical Process Control. The workers responded by providing a flood of suggestions and by filling out charts tracking key quality metrics. However, management had not assigned anyone to respond to the suggestions, or examine the data the workers had carefully collected. The workers soon reverted to past patterns, feeling betrayed and much less interested in participating in future experiments.
Relationships between blue collar workers and local management were actively hostile. For example Joel Smith, a NUMMI worker interviewed by Adler described life “in the old days ”: In the old days, we fought for job security in various ways: “Slow down, don't work so fast “Don't show that guy next door how to do your job – management will get one of you to do both of your jobs. ” “Every now and then, throw a monkey wrench into the whole thing so the equipment breaks down – the repair people will have to come in and we? ’ll be able to sit around and drink coffee. They may even have to hire another guy and that I’ll put me further up on the seniority list.
Jobs on Toyota ’s production line were even more precisely specified: for example, standardized work instructions specified which hand should be used to pick up each bolt. However, Toyota’s employees had a much broader range of responsibilities.3 Each worker was extensively cross trained, and was expected to be able to handle 6-8 different jobs on the line. They were also responsible for both the quality of the vehicle and for the continual improvement of the production process itself. Each worker was expected to identify quality problems as they occurred, to pull the “andon ” cord that was located at each assembly station to summon help to solve them in real time, and if necessary to pull the andon cord again to stop the entire production line. Workers were also expected to play an active role in teams that had responsibility for “continuous improvement ” or for identifying improvements to the process that might increase the speed or efficiency of the line. As part of this process, workers were trained in statistical process control and in experimental design.
Questions:
1. Does GM have a problem of integration or differentiation? Give specific examples to support your observations.
2. What are the sources of resistance?
3. What alignment issues is GM facing? How should they address these issues?
4. What specific redesign choices should GM use to address its problems?