Organizational Change Induced by Vertical Integration - Essay Example

Introduction Change in a company is always essential and unavoidable in most cases. Change can be either positive implying growth or negative implying a decline in production. Regardless of the type, change helps represent the future of the business enterprise. Effective management should understand the prevailing market factors and predict the likely changes arising from the factors in order to implement appropriate changes to soften the company from incurring loses. Every business enterprise seeks to sustain its profitability. This obligate the management to carry out sustained market researches and obtain appropriate information about the market key among the marketing features investigated in such researches includes the patterns of supply and demand. General Motors acquired Fisher Brothers in a strategic move that would not only increase the company’s market share but also reduce its cost of doing business as discussed in the essay below. Organizational change induced by vertical integration Casadesus (1999) state that General motors formed a merger with Fisher Bodies in 1919 in order to increase coordination between two businesses. Through the merger, General Motors would obtain sufficient supply of auto bodies and innovative annual change of car models from Fisher Brothers a company that specialized in the manufacture of coach bodies. This would decrease the cost of manufacture by cutting the cost and time spent in manufacturing the bodies. In business context, a merger refers to a union between two companies that seek to mobile their resources and therefore share their profits depending on the agreement existing between the two parties. In 1919, General Motors bought 60% of Fisher Brothers implying that Fisher Brother controlled the remaining 40%. The vertical integration through the merger resulted in increased profitability owing to the production efficiency that resulted from the union of the two companies a feature that compiled General Motors to purchase the remaining 40% by 1925 thereby acquiring complete control of Fisher Brothers. The change that occurred at General Motors when the company merged with Fisher Brothers was vertical owing to the financial might that General Motors exhibited. Vertical integration implies that General Motors obtain a larger stake of Fisher Brothers at the beginning (Freeland, 2000). This way, the company retained major control of the operations at the company thus influencing production. Within the first four years the partnership, the cars manufactured by General Motors retained the emblem of Fisher Brother on their bodies. However, this changed when General Motors later acquired the entire company after which the need to run the emblem became redundant. The progressive change of activities and operational policies at General Motors owing to the progressive purchase of Fisher Brothers represent the nature of the partnership. The integration resulted in various managerial changes as General Motors sought to incorporate the management and marketing for the products produced by the resultant. Implementation of the change The purchase of Fisher Brothers was an operational strategy through which the company would implement a major operational change. A strategy refers to a series of action undertaken by a company such as General Motors in order to achieve particular results. General Motors needed to improve its profitability furthermore, GM aimed to transform its business via series of innovations, both managerial and engineering. This would result only by reducing the cost of manufacturing the automobiles. Through dedicated market researches as discussed earlier, the company discovered that it would achieve this by owning a coach manufacturing plant. However, setting up a manufacturing plant at the time was costly and would have cost the company more capital. The transaction between the two companies involved the transfer of various resources. The resource-based analysis of the transaction portrays that among the resources transferred in the transfer of ownership of Fisher Brother to General Motors included both tangible and non-tangible assets. Among the tangible assets transferred included the manufacturing plant and the raw materialse. The intangible assets included the “know how”, the reputation of the company, which comprised of its market. Fisher Brother had a reputation for manufacturing quality coach bodies, a feature that substantiates its larger market share and the interest that General Motors harbored (Casadesus, 1999). In 1919 at the beginning of the deal, the two companies shared the resources based on their share of the company. However, General Motors later acquired all the resources in 1926 when the company completed the purchase of Fisher Brothers. Reasons for the acquisition ” As expected, the strategy was a result of numerous effective deliberations on the possible effects of the acquisition. Burnes (2009) ascertains that the purchase was costly, invest the large amount of capital on the purchase of the other company would therefore exhaust General Motors’ capital base. This explains the progressive purchase process that begins with the sixty percent purchase before the completion of the sale five years later. More importantly, the acquisition affected the management of the company as management of General Motors began considering the operations of the new company. General Motors increased in size owing to the purchase of the coachbuilder (Porter, 1987). As GM later completed the acquisition of Fisher Brother, the management had to consider the operations and production of the new company thereby influencing the institution of new departments mandated with the management of coach manufacturing. Coase (2006) explains that the acquisition of Fisher brothers as a strategy occurred at various levels in the company including the production, marketing and product distribution. At corporate level, the strategy involved the partnership of two companies. The two entered an agreement in which General Motors would purchase Fisher Brothers. At such a level, the deal sought to explain the progressive change of management in both companies. The deal did not affect the management of General Motors but it resulted in several changes as the management sought to introduce the new company (Homburg, 2009). After the purchase of the entire company in 1926, the management of General Motors earned complete control over Fisher Brothers and would therefore make operational decisions concerning Fisher that had thus become part of General Motors (Coase, 2006). The implementation of the deal trickled down to both business and functional levels as they affected various features of both production and marketing at General Motors. As explained earlier, for the first four years the cars retained a Fisher Brother’s emblem. However, this changed with time after the completion of the sale, which resulted in the complete transfer of ownership (Pickton & Broderick, 2005). Application of Ansoff matrix in the acquisition In the acquisition of Fisher Brothers GM pursued the strategy of product diversification that increased General Motors penetration of the market. Through the purchase and economizing on coordination costs with otherwise independent external supplier, General Motors increased the efficiency of production processes, thereby facilitating the company’s market reach (Ansoff, 1957). Furthermore, while most of Fisher Brother’s products were supplied to GM, GM inherited the market previously possessed by Fisher Brother a feature that increased the company’s market share. The automobile industry is oligopolistic in nature. This implies that the market consists of various manufacturers who compete for the limited market. Among the leading automobile manufacturers that compete with General Motors, include Toyota, Peugeot and Mercedes among many others. The company therefore needed a competitive advantage in order to acquire a bigger share of the market. The move to purchase Fisher Motors was therefore a strategic one and promised to improve the profitability of the company by minimizing competition (Johnson et. al, 2008). Fisher Brothers was a big company with several manufacturing plants spread all over the country. By purchasing the company, General Motors gained complete control of the coach manufacturer thereby increasing the company’s growth rate in the industry. Initially, General Motors among many other automobile manufacturers would compete for the coach bodies manufactured by Fisher Brothers. With the purchase of the company in its entirety, General motors safeguarded its supply of quality coach bodies. Additionally, the company would now manufacture more bodies to sell to customers of the previous company. This way, General Motors increases its profitability thus sustaining the industry growth rate. Conclusion/ Evaluation The acquisition of Fisher Brothers was one of the greatest successes of General Motors. The move would provide General Motors with a pool of professional body builders, designers and a large market share (Helper, 2014). The acquisition of Fisher Brothers by General motor epitomized the effective consideration of the prevailing market factors at the time thereby resulting in the massive success the company enjoyed. However, the transaction was costly a feature that compelled the GM to purchase Fisher Brother in faces despite its great desire to won the coach builder within the shortest time possible. Among the reasons that led to the success of the merger included effective leadership offered by Fisher Brothers, the company carried out several market researches thereby making informed marketing and production decisions. The acquisition of Fisher Brothers was one of such decisions that resulted in the success of the company as it enjoyed lower costs of manufacture. Cultural integration, strategic goals and effective communication are other operational features that resulted in the success. 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