The Evaluation of Current Strategy for General Motors LTD - Case Study Example

The evaluation of Current Strategy for General Motors LTD. Contents Contents 2 Introduction 3 Evaluating Suitability, Acceptability and Feasibility of the strategy 3 PESTEL 3 PORTER’S 5 Forces 5 Porter’s value chain 6 Conclusion 7 Appendix 8 References 10 Introduction Strategy was first developed as a concept that was used for the military to identify and achieve long term goals and objectives. The concept of strategy was used as a management term and its use by the company came into effect only in the 1960s. Around this time Alfred Chandler defined strategy as the determination of long term goals of an organization and taking appropriate course of action in order to achieve those. As for GM its broad corporate level strategy is to become the most valued company. By the term “most valued company” the company means to say that it does not want to be most valued in terms of maximizing shareholders return but become most valued in customer’s eyes. GM in short wants to ensure that their interaction and association with customers is not just a onetime affair but should result in a lifelong relationship (Harvard Business School, 2006). GM as a company wants to achieve its broader corporate level strategy by introducing newer technologies, how GM invests in their brands, by inspiring people at GM to get engaged in a more proactive way with the customers and communities that GM serves. As part of its efforts in achieving broader corporate level and business level strategies GM wants to invest more in CADILLAC, bring in newer technologies like LTE high speed mobile broadband, a technology called super cruise, continuing its growth in China, improve its financial performance and aiming to return to profitability by 2016, continuing the growth of GM financials etc. Their current strategy is to increase sales outside America to 50% and reduce overdependence on the U.S market by offering the dynamic customers across the globe a greater variety of vehicles through a rigorous innovation program by 2016. Evaluating Suitability, Acceptability and Feasibility of the strategy The broad corporate strategy or objective of the company is to earn customers for life (General Motors, 2014). GM wants to become the most valued company in financial terms as well as in customer’s eyes (Muller, 2014). GM has undergone several strategic changes over the years (Chandler, 2003).The three broad parameters on which the suitability of the strategy is to be identified are Suitability, Acceptability and Feasibility. For doing a suitability analysis let’s start with PESTEL to identify the broad factors affecting the automotive industry. PESTEL Political Political factors refer to those decisions or actions by the government that have serious impact on the company and its operation (Dransfield, 2004). The automotive industry was heavily influenced by the safety and environment protection rules that were set out in 1960s. This set of rules led to the emphasis on sit belts, airbags, abs etc. as safety measures. Economic The automotive industry is seen as the lifeline of most economy. The global economy was running through a period of recession. At the time of recession the customers normally curtail their purchase. They limit their wants to purchasing of items which are essential and discard other purchases. But the heartening factor is that the economy is on a revival path and in 2013 global auto sales has topped 80 million vehicles which mean every second 2.6 new vehicles were sold. GM alone sold 9.7 million vehicles globally (General Motors Co 3, 2014). Social Cars have been long treated as a status symbol and prestige issue. Whereas cars have been adored worldwide, but the driving factors determining the purchase decision of a car differs from one country to other. GM has tried to focus on the Chinese market by bringing in 5 new assembly plants and selling 5 million vehicles a year in the Chinese market. It is aiming to capture the Chinese market with its new SUVs, Chevrolet and Buick brands (PTI, 2014). But before launching its business operations and trying to consolidate its position in the Chinese market it has to understand the social factors determining the purchase decisions in China. Technological Technological factors have a great influence in the automotive market and automotive industry. The industry has been influenced to a great extent by introduction of newer technologies. The newer technology includes hybrid cars, electric vehicles, auto driving technologies etc (KPMG, 2013). GM has developed newer technologies like 4G LTE high speed mobile broadband, GM has developed innovative welding techniques to improve materials used for the body parts of its cars (General Motors Co.2, 2014). It has also introduced electric vehicles namely Chevrolet spark eV. Environmental The automotive industry these days are focussed more on more in developing environment friendly vehicles. The demand for environment friendly vehicles is on the rise. Accordingly GM has also developed a new eV named as Chevrolet spark eV (Chevrolet, 2014). Legal Since companies like GM has to work and base its operations in different countries the company has to be aware of the legal rules and regulations of different countries. The company has to also follow legalities regarding following of safety rules and laws so as to avoid lawsuits in this direction. PORTER’S 5 Forces This set of 5 forces that tries to identify and formulate related strategies regarding competitors was given by Michel porter (Hill and Jones, 2009). The five forces and its effect on the basis of GM are analysed below. Threat of competitors There exists strong rivalry amongst top automobile manufacturers who compete with each other not only on price factors but also on other factors. Among the competitors of GM are VW and Toyota. These three industry giants are fighting amongst themselves to acquire the greatest share of the automotive market. This competition is likely to decrease price and profit levels for the company unless the company takes steps in cost reduction. Threat of Substitutes As the people become more aware and tech savvy and as the people become more and more environment conscious the demand for other types of automobiles like electric and hybrid cars is likely to rise as a result. As the prices of petrol and allied products on which the cars depend continue to rise the demand for substitutes will increase hand in hand. Threat of new entrants The entry of new entrants in the market may put a further pressure on the sales figure and profit level. However it is not easy for a new entrant to enter into this market as market structure itself provides a barrier to entry. To open an automobile industry would involve a large amount of capital investment and to achieve viability the companies must ensure good economies of scale (Niewenhuis and Wells, 2003). To ensure good economies of scale the companies must have good market share. As both these criteria are difficult for new entrant to manage so the threat of new entrant is somewhat nullified. Buyer power In a market which is dominated by so many market players who are competing with each other on the basis of price and other factors that aims at providing maximum value to the customers at a given price level, the power of the customers is going to increase. Customers now days have a lot of choices and readymade information available to them through internet. These factors will obviously count in deciding the price level of a particular car and influencing profit margins. Supplier power Automobile manufacturers depend on other vendors to a large extent in order to supply them input materials such as parts, raw materials etc. So the supplier power in case of automobile industry is huge and proper management of suppliers may bring in high levels of profit. Porter’s value chain GM receives its parts that are used in the manufacturing its cars from various locations across the globe. It has a vast network of suppliers (more than 9000 across the globe) which supplies raw materials to the company that are used in the assembly units to manufacture a particular car. A car marketed in US may for example be designed in Germany, assembled in South Korea, and parts for the same may be procured from Singapore Japan and Taiwan. The advertisement for the same may be designed in Europe (Ensign, 2001). So perfecting the supply chain related functions such as procurement of raw materials, activities involved in processing those materials to form suitable output, delivering to the customer the final goods, persuading them to make a purchase and giving them proper after sales service is and should be the key to the success of GM. Through its new strategy GM wants to ensure better coordination with the suppliers. Gm wants to develop more global volumes from lesser automobile architectures and by 2020 it expects 99% of its global production will be based on its core architecture. To increase its sales volume it aims at increasing the scope of activities of GM finance, the financing arm of the company so that people can afford the cars of the company. Acceptability GM is now posting good financial performance results is ranking on top of different surveys, ranking high on customer satisfaction figures, and sales figure. But there is one problem that the company is still trying very hard to get rid of. That is the burden in terms of humanitarian, financial and legal formalities and probable reputational damage that arose out of the death of 13 individuals in 31 accidents. The company was recently bailed out from bankruptcy and is doing good to fight and win back its coveted position. But this incident is dampening the efforts. The company is going to pay about $35 million in fine (Stout, 2014). Added to this are the cost of recalls of defective units and these things together could wipe out a major chunk of the $5 billion profit projected for 2014 (Muller, 2014). Feasibility The strategy that GM likes to follow is that they want to earn customers for life. In a fiercely competitive automobile world which is dominated by so many key players who compete fiercely on price and non price factors this strategy is very difficult to maintain. However if Gm is able to maintain this strategy then it will be able to reap long term benefits. GM earlier had a portfolio of different automobile models. But what that did was to wipe out cash from the coffers and was a primary reason which led to GMs bankruptcy (More, 2009). Now GM wants to focus and give great attention to a particular brand Cadillac. It wants to establish a separate business unit head quartered at New York for its Cadillac. This strategy may have both good and bad implication. This investment of $14 billion in China is very risky and its effectiveness cannot be known until actual results come up (Reuters, 2014). If one analyses the current strategy that the company wants to follow under the new CEO then it seems as worth giving a try. Especially since the company has been able to produce good financial performance and is slowly staging a turn around. But faced with legal hassles arising out of the accident case the company has to pay a lot of damages. Secondly the company has a low presence in electric vehicles market and should focus on increasing this segment. Conclusion In analysing and finding out a probable alternative strategy for GM the first thing that needs to be identified are the problems currently being faced by GM. The problems are slow growth in the Chinese market, a stagnant European economy, legal, reputational and financial damages incurred due to accidents, slow presence in the electric vehicles market. As per its current strategy to overcome these problems GM proposes to scale up its investment in Chinese unit to boost its sales over there. It has been dealing as much proactively as it is able to with the family members’ of the accident victims. It is trying to boost up its Cadillac sales by opening a separate business unit. It also aims to increase relationship with its suppliers and deliver large volumes based on less architecture. Since the automobile industry is dominated by huge no. of competitors each fighting fiercely on price basis a probable strategy that may work in favour of GM is to create a differentiation strategy. GM must try and differentiate itself from its competitors by including some factors or specialities that its competitors do not offer. In this way it will be able to create a breed of loyal customers who will buy their vehicles solely from GM. GM can go on to acquire certain suppliers of materials so that it can have better control on the safety and quality aspects and avoid future accidental damages. But in this case it should ensure proper weighing of merits and demerits of this particular exercise before going ahead. Appendix Global auto sales over the years (Source: LeBeau, 2014) . New electric vehicles (Source: Colias, 2013) Figure 1 Porters value chain (Source: Bischoff, 2013) References Bischoff, A. L. 2013. Porters value chain and the rea analysis as an accounting information system. Munich: GRIN Verlag. Chandler, A. D., 2003. Strategy and structure: chapters in the history of the american industrial enterprise. Washington: Beard Books. Chevrolet, 2014. Chevrolet spark ev - 2014 [Online]. Available at. http://media.chevrolet.com/media/us/en/chevrolet/vehicles/spark-ev/2014.html. [Accessed 10 December 2014] Colias, M., 2013. New EV will test the range of GMs plug-in strategy. [Online]. 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Available at. http://www.nytimes.com/2014/09/26/business/after-a-gm-recall-a-fiery-crash-and-a-payout.html?_r=0. [Accessed 10 December 2014] Read More