New Strategies of General Motors - Case Study Example

New Strategies of General Motors Table of Contents Executive Summary 3 Introduction 3 Vision 4 Objective 4 Strategy 4 Brand restructuring 5 Cost Cutting 6 Fuel Efficiency 7 Emerging Markets 7 Small Car manufacturing 10 Customers-focused Approach 12 Marketing 13 Recommendations 13 References 15 New Strategies of General Motors Executive Summary General Motors Corporation (GM) remains an iconic automaker and a major player in the automobile industry. This is despite the challenges it faced in the recent past that saw its sales decline by over 30% and all time high in over 50 years. The decline almost brought the company to its knees as it suffered liquidity problems. The failure was mostly attributed to the reality that the organization did not keep up with the trend in the market coupled with the fact that the country was under recession following the financial crisis. Nevertheless, GM was able to move very fast and sharpen its strategic plans, which has enabled it to regain its ground and is currently exploiting growth opportunities both domestically and internationally. Some of the strategies used include restructuring of its brands, cost saving, fuel efficiency, employing customer-focused approach, as well as a strong marketing strategies. Introduction General Motors Corporation is an American automaker and has been operating for more than a century now. It is currently one of the leading automakers in the world having made close to 450 million vehicles worldwide. In addition, the company has a presence in almost every country in the world. Despite the fact that GM has increasingly experienced a significant growth of sales and revenue beyond the U.S., America remains its largest single market. Today, GM is one of the top employers in America as one in ten Americans works for the company. The organization is also the leading buyer of aluminum, steel, copper, iron, plastics, rubber, iron, electronic and computer chips. The company recently witnessed one of its worst drop in sales across all its areas of operations, which registered a decline of over 30%, the highest ever experienced in more than 5 decades. This drop almost brought the company to its needs. As such, GM has designed new strategic plans aimed at turning around the sales and beating the already existing stiff competition in the market. Vision Many companies were adversely affected by the recent global financial crisis, General Motors in particular. The crisis did not just affect it negatively, but also reminded GM that maintaining the status quo is not enough for it to remain to the leading automaker in America. In this regard, the crisis has compelled the company to concentrate more on the future of the auto industry. Therefore, the company has had to streamline its vision to focus more on quality and fuel efficiency through innovative design. In addition, its vision has been streamlined to focus much on corporate social responsibility particularly on environmental management. In this case, GM will endeavor to environmental friendly vehicles so as to be able to regain the confidence and trust it once enjoyed. Objective The objective of the company is to provide quality and customer-focused vehicles using the most innovative technologies. Strategy Auto industry remains one of the most competitive industries of recent times. This is because every company in the industry is trying everything it can to attract a large market share. Currently, four big auto companies namely GM, Ford, Toyota, and Nissan dominate the market. At the same time, other companies are emerging especially in China and South Korea that are posing a big challenge to the already existing companies (General Motors Company, 2010). In addition, the world is evolving very fast as new technologies are being introduced in the market that every company must keep up with in order to remain significant in the industry. Moreover, the world has become sensitive on environmental pollution in which companies are today faced with the challenges of having to abide by the new environmental laws in order to operate. As such, GM developed practice approaches aimed at revamping its performance as was before. Brand restructuring Brand re-structuring remains the core strategy that GM is focusing on currently as a way of winning the confidence and trust of its customers (Norton, 2012). In this regard, the company is planning to restructure its car brands such as Cadillac, Chevrolet, and Buick that the company also intends to remain its core business for the future. At the same time, GM intends to sell or close down other brands such as Saturn, Saab, and Hummer. The company arrived at the decision after analyzing its sales statistics and the market trends, which showed that, have shown that brands such as Saturn and Saab have consistently been lagging behind in its domestic market. Therefore, the company feels that it introducing new models and re-branding already existing brands to conform to the market demand will be a move in the right direction. GM wants to do away with the Hummer brand because it does not conform to the company’s strategy of stability and fuel efficiency (General Motors Company, 2010). At the same time, the hummer brand has been found to highlight an excess lifestyle that does not promote the company’s green program. In addition, despite the fact that Hummer is still very profitable to the company, its future viability is uncertain General Motors Company, 2010). Therefore, the company is strategizing to do away with it in order for the company to be able to concentrate on those brands that are capable of attracting more sales and conform to the future market trend (Norton, 2012). GM recognizes the fact that the youth population is increasing very fast in the world. This is based on a report that indicates that the youth population between the age of 15 and 44 could reach 3 billion by 2020. As a result, GM has had to streamline its business strategies to focus at this market segment. As a result, GM is in the process of manufacturing vehicles with features that are appealing to this important market segment. To fulfill this need, GM plans to manufacture the Pontiac brand that it believes will appeal more to the youths, which will offer entry to mid level automobiles such as Grand Prix, G5, G6, and Grand Am. This strategy will bring financial benefit in the sense that it will reduce SKU’s resulting in reduced overhead and manufacturing costs (General Motors Company, 2010). Cost Cutting Norton (2012) argues that GM plan to sell or close down some of its brands such as the Hummer, Saturn, and Saab is used as a cost saving strategy. He notes that selling the brands will bring with it several dealership closings that will offer a cost cutting opportunity for the company. However, the management of GM acknowledges the fact that selling some of its brands will not enable it get enough funds to offset the liquidity problem it is currently facing. As a result, GM is also planning to scale down the salary expenses in order to get more funds to offset its liquidity problem. GM reports that millions of dollars, stock options, and bonuses it usually pays its top-level executives should be eliminated (General Motors Company, 2010). However, the company intends to introduce a modest compensation plan in which the highest paid executive will earn a maximum of $500,000 plus benefits with the possibility of being increased based on the company’s performance. Fuel Efficiency The effects of global warming have affected the way people do business in the world today. This is because it has affected the choice of products that customers are willing to purchase. The overall trend is that the world is moving green in terms of technology General Motors Company, 2010). As a result, many consumers today prefer vehicles that are fuel-efficient and less pollutant as opposed to what it used to be in the past. Furthermore, the recent financial crisis has made pump prices very expensive even to an average consumer, forcing them to buy cars that they perceive to be fuel-efficient. As a result, GM has lined its technology towards manufacturing green vehicles, which are fuel efficient, as well (General Motors Company, 2010). In this regard, GM plans to ensure that over 50% of its vehicles are Flex-Fueled as shown below. Plan 2000 2004 2008 2013 Car/Crossover Nameplates 61% 52% 65% 75% Truck Fleet Average (MPG) 21.0 21.8 24.6 28 Car Fleet Average (MPG) 27.7 29 31.6 38 Flex-Fuel (% of U.S. Sales) 2% 6% 17% 50% Hybrid Models 0 2 6 18 Models >30 mpg (Highway) 8 8 20 25 Emerging Markets GM intends to increase its presence in the emerging Asian markets over the next couple of years. At the same time, GM intends to double its product quality and increase its efficiencies to reduce costs and increase sales turnover. Norton (2012) argues that India, China, and Eastern Europe are developing very fast thereby increasing their demand for vehicles. For instance, the Indian government has backed up a compressive system aimed at increasing growth of auto industries in India through the establishment of the Automotive Mission Plan (AMP), as well as the automotive Testing and R&D infrastructure project (NATRIP). At the same time, the government of China is in the process of loosening restrictions of finances in the automobile industry by allowing automobile dealers to develop financial structures of their own. In addition, the economy of China is growing very fast thereby providing a good opportunity for expansion. This is because a majority of Chinese people would be able to buy GM’s vehicle without difficulties because prices of most cars are affordable (Hill and Jones, 2011). In its bid to expand into these markets, GM has developed a raft of strategies. Firstly, GM is planning to create a good relationship between it and the government of these countries by establishing manufacturing plants that meet the requirements of these countries. It believes that doing this will enable it get easy access to these markets without any restrictions. In addition, it intends to employ a large number of its staff from these countries as a way of creating jobs for the citizens of these countries. Creating jobs for the people of these countries will indeed enable the company receive a warm welcome that will be good for its operations in these countries (More, 2009). Cisco Systems (2010) reports that, for GM to execute its globalization strategy of entering the emerging markets, GM has embraced a globally integrated business model that focused on the use of highly standardized manufacturing and engineering policies that could be implemented with ease and embraced in all markets globally. The company’s global standard-based operating model aims at augmenting the move by GM to conquer the emerging markets, save cost and improve efficiencies through the utilization of a common infrastructure process and component. In order to support the new unified operating system, GM invested heavily on information technology so as to improve the integration of its manufacturing plants across the globe, save cost and improve the introduction of collaborations and communication applications. However, the key to this strategy’s implementation was on the use of a modern standard-based network architecture known as Plant Floor Controls Network (PFCN) at over 150 GM manufacturing plants globally. GM used PFCN solution to replace the aging and heavily customized legacy networks of GM that the company could not rely on any more because it was difficult and expensive to maintain. Cisco Systems (2010) reports that PFCN enabled GM to standardize the design of every network of each plant and developed a single team of engineering that troubleshoot and monitor network operations all over the world. These strategies have resulted in several benefits to the company. For instance, the strategy has helped GM reduce its network downtime by close to 70% thereby reducing unplanned work stoppages on the floor. Cisco Systems (2010) also noted that GM now requires two-thirds fewer network analysts and engineers to work on the same number of plants. Cisco Systems (2010) reveals that despite the current economic challenges, GM has put most of its focus on the future using a master plan known as “One Company.” The “One Company” is a type of a unifying strategy that is intended to bring together engineering, sales operations and manufacturing units. This strategy aims at establishing a highly flexible and efficient business platform capable of enabling GM to design its products globally and manufacture its vehicles anywhere, and sell anywhere, as well. The main ingredient of this strategy according to Cisco Systems (2010) has been a multi-year program established to modernize and standardize information networks in order to support the global manufacturing plants of GM. The components have been found to be very important to the company since they enhance the smooth running of GM’s plants, as well as control all the automated machines and programmable equipment of the floor of the factory. Small Car manufacturing Small cars are becoming more fashionable to many consumers. This is because they are relatively cheaper and consume less fuel compared to big vehicles. Therefore, GM’s new strategy of improving its sales turnover has been on the manufacture of small vehicles. For instance, it is noted that GM failed during its first years of entry into the Indian market because it did not understand the Indian market. This is because it failed to understand the significance of the small car market to Indian people. Furthermore, there were already other automobile companies from Korea and Japan that offered stiff competition to GM’s vehicles. However, soon after understanding the Indian market, GM has changed its strategy in India by manufacturing small cars that are on high demand. For instance, the company managed to released two small cars namely Chevrolet Spark in 2007 and later Chevrolet Beat, which it released in January 2010 (Dexheimer, 2012). The Beat model has so far proved a great success in the Indian market after GM released its diesel consumption in the Indian market in 2011. Following the success stories of the first two small cars in Indian market, GM is currently at the final stages of introducing smaller car brands in the Indian market as a way of consolidating its market share. In fact, GM is also using this strategy to penetrate the South American market. This became apparent when the company announced recently that it intends to spend about $500 million to finance the manufacturing of small cars in Brazil, Paraguay, and Argentina (Carmohn, 2010). GM believes that quality is one of the key to the company’s success especially in the competitive industry where it operates. In this regard, GM understands that in order to gain competitive advantage over other firms in the industry, it must demonstrate high quality in the vehicles it manufactures. One of the reasons cited to have led to poor performance was the fact that GM failed to keep up with the new innovative ways of manufacturing cars that other competitors such as Ford and Toyota were already employing in their manufacturing process. Therefore, to remain competitive, GM has developed a strong research and development department that conducts research on the best technologies that can be used in its vehicle manufacturing process in order to attract more customers to the organization (Society for Human Resource Management Staff, 2006). For instance, GM has for as long time like many other auto companies relied on lithium technology as its preferred battery manufacturing material. Nevertheless, currently GM has gone beyond lithium technology and is investing in SAKT13, which a rechargeable solid-state battery. This technology has the potential of lowering the battery-manufacturing cost, which is indeed a good cost cutting strategy (Society for Human Resource Management Staff, 2006). GM recognizes the fact that those vehicles are some of the greatest emitters of green house gases that blocks the ozone layer resulting in global warming. As a corporate social responsible company, GM is championing the development of cars that emit little amount of gases to the atmosphere. As a result, through innovation and development strategy, GM brands are currently the least emitters of green house gases. This has given it an edge over its rival in the industry. Furthermore, the move has improved the company’s relationship with the government of the United States and other nations where the company intends to set foot in the near future. At the same time, GM is in the process of making an electric car model as a way of accomplishing its “green strategy” which aims at reducing emissions to the environment (Klum, 2011). Customers-focused Approach Customers are the most important asset for any business venture. This is because no company can survive without customers. Therefore, it is always very important for any company operating in a competitive environment to ensure that there is close contact with customers. Pundits have argued that GM almost went bankrupt because of its lack of focus on customers. This is because it assumed that, being that it was a dominant company in the United States, and then it would be able to continue attracting more customers even without making effort, which happened not to be the case. This is due to the fact that GM ended up losing most of its customers including those whom it perceived to be loyal to rival companies such as Honda, Ford, and Toyota (Dreher et al., 2009). After realizing its past failures, GM has now come up with a more vibrant marketing strategy that it hopes will help lure many customers back to the company. Firstly, GM intends to employ a customer-focused approach to its manufacturing processes. This strategy will ensure that vehicles are manufactured in accordance with the needs of the customer. However, the company also intends to provide its clients with the best in terms of quality by using the most innovative technology in its manufacturing processes. GM has invested greatly in research and development, which it hopes will enable it discover and keep in pace with the market trends so as to continue satisfying the needs of its customers according to GM’s new chief executive officer (Dreher et al., 2009). Marketing Inci (2009) argues that marketing is a vital tool that a company can use to persuade customers to its business. As a result, a tool cannot be ignored if the organization is to remain viable and competitive. Many companies, even those that do not operate in a very competitive environment invest significantly in marketing. Nonetheless, GM’s decline in performance is cited to have been partly attributed to poor marketing strategy (Inci, 2009). In this regard, it is cited as having depended on the old system of show-room displays where customers had to be forced to travel extra miles to the show room in order to see the car of their choice. Many customers saw this technique as antiquated coupled with the fact that it causes a lot of inconvenience to customers according to Inci (2009). Nevertheless, GM is currently in the process of supporting this old culture by the most modern marketing techniques so as to be able to reach many customers across the globe. For instance, GM has adopted the social media marketing technique such as facebook, use of viral marketing campaign by posting its products of YouTube, email marketing and search engine marketing and the Fastlane blog it launched in 2005. At the same time, GM has also abandoned the Super Bowl ad, which has been using for a very long time because the ad is expensive and the company cannot afford especially in this hard economic times. Instead, GM went a notch higher by signing a deal with the Manchester United football club, which it hopes will help it advertise its brand to a wide audience all over the world (Dexheimer, 2012). Recommendations It is certain that the auto industry is evolving very fast and becoming more competitive by the day. As such, GM need to employ more proactive strategies focusing on the needs of its customers since this will be the best way of maintaining loyalty. In addition, GM should focus more on quality of its automobiles, which should also reflect the current market trend in terms of fuel efficiency, less pollution, and fashionable. References Carmohn, S. (2010). An analysis and explanation of the failure of General Motors on the basis of the theoretical framework of path dependency in the field of crisis management. New York, NY: GRIN Verlag. Cisco Systems, Inc. (2010). General Motors prepares for future with next-generation information networks for global manufacturing operations; on track to achieve 166% ROI over five years. Cisco Business Transformation Series – Connected Manufacturing. Pp. 1-9. Dreher, J., Lawler, M. Stewart, J., Strasorier, G., & Thorne, M. (2009). General Motors metrics for sustainable manufacturing. May 14, pp. 3-20. Dexheimer, E. (2012). GM’s new marketing strategy plays out on the field. Retrieved from http://medillmoneymavens.com/2012/06/04/gms-new-marketing-strategy-plays-out-on-the-field/. General Motors Company (2010). Annual report. Pp. 1-286. Hill, C.W.L., & Jones, G.R. (2011). Essentials of Strategic Management. Manson, OH: Cengage Learning. Inci, D. (2009). The New Marketing Focus of General Motors. Retrieved from http://www.optimum7.com/internet-marketing/business-strategy/new-marketing-focus-general-motors.html. Klum, E. (2011). General Motors Growth Strategy. Retrieved from http://www.streetdirectory.com/travel_guide/51055/cars/general_motors_growth_strategy.html. More, R. (2009). How General Motors lost its focus – and its way. Ivey Business Journal. Retrieved from http://www.iveybusinessjournal.com/topics/strategy/how-general-motors-lost-its-focus-%E2%80%93-and-its-way#.USWcXmdOsdM. Norton, M. (2012). General Motors business strategy. Pp. 1-5. Society for Human Resource Management Staff (2006). The essentials of strategy. Boston: Harvard Business Press. Read More