General Motors: Strategic Analysis - Essay Example

Strategic Management Table of Contents Strategic Management Table of Contents 2 Q 4 Strategic Analysis  4 Porter’s Five Forces Analysis 7 Internal Analysis 8 Q. 2. 9 SWOT Analysis 9 Analysis 10 Q. 3. 12 Ansoff’s Matrix: 12 Methods of Development: 13 Competitive Strategy: 15 Q. 4. 16 Change Management: Lewin’s Force Field Analysis 16 Change Management: Kotter’s Strategies for Change 17 Cultural Web: 18 Part B: Reflective Report 20 Referencing 22 Task: A: Questions 1-4 Q. 1. Strategic Analysis  General Motors (GM) was founded on 16th September 1908, and over the past century it has experienced phenomenal growth to become one of the biggest companies in the world. As on 2008, GM was the largest selling automobile company in the United States and the 2nd largest automobile company in the world, closely following Toyota Motor of Japan. Prior to 2008, it was the largest selling automobile company in the world for a record consecutive 76 years. Prior to the global economic crisis of 2008, it was a multinational behemoth with presence in about 140 countries, manufacturing facilities in 34 countries and an employee base of about 250,000. GM has a strong presence and a matching distribution network in major European Union markets like Russia, Germany, UK, Italy, Turkey, France, Spain and Poland. The company also has a wide portfolio of brands which are primarily designed for the EU markets like Saab, Opel and Vauxhall. GM also sold its US brands like Chevrolet, Cadillac, Buick and Hummer in these markets. The shrinking consumer market as well as tougher credit situations worsened the situations for GM, and it had to seek the US government’s aid for bailout. As a part of the emergency aid, GM had agreed to a string of efficiency measures, which included selling off loss making units like its Europe division and closing down some other brands. GM initiated the sell off process of GM Europe, but backed out later as Opel, its marquee European car brand, is a critical component of its global development strategy (Vlasic, 2009). PESTEL Analysis Political Factors: GM was heavily influenced by political factors both in the US and also in Europe. As it filed for bankruptcy protection in US and for government aid, it had to succumb to government pressure and accept a string of harsh measures that resulted in a major worldwide restructuring of its operations. In case of its European unit, it faced stiff opposition when it tried to close it manufacturing facilities in Germany and UK. Going forward, GM had to take into account political factors when it shortlisted possible suitors for the European unit. Economic Factors: The world recession brought GM to its knees to the extent that it had to file for bankruptcy protection in US courts on June 1, 2009. In the year ending 2008, GM absorbed a 21% decrease in sales in its strongest market, North America and a relatively modest decrease of about 6.5% in the European market. However, these shrinks were partially offset by the growing markets of South America and Asia. The recession had a cyclical and vicious effect on GM’s US sales. With decreased availability of credit, there was a reduced off take of vehicles from dealers. In addition, increasing job losses due to recession meant lesser number potential customers. Just prior to the meltdown, the price of crude had skyrocketed to about $145 per barrel which made the owning and running a car, very expensive (Clifford, 2009). The European arm was adversely effected by all these factors, and in addition there was the unfavorable Pound with which, it had to operate manufacturing units beset with high cost structures. Social Factors: The economic crisis had deeply influenced the social fabric too. The highly uncertain economic scenario had brought in a gloomy feeling and that resulted in a decreased spending in all sectors, including automobile. On the restructuring front, GM faced major negative publicity when it tried closing its loss making plants across various countries.   Technological Factors: Technology was a major factor that resulted in the present scenario of its affairs. While GM continued manufacturing and developing big and powerful-and hence gas guzzling-cars, the consumer preference had slowly but surely shifted to lightweight, environment friendly and fuel efficient cars. The company also fell short of its Japanese and European competitors in terms of introducing newer models, thereby losing more and more customers to them. Environmental and Legal Factors: Increased consumer awareness about global warming had resulted in a major shift in consumer thinking – consumers now wanted more fuel efficient and environment friendly cars. GM had fallen short of its global competitors in terms of developing newer, environment friendly technology. Porter’s Five Forces Analysis Bargaining Power of Suppliers: Manufacturing of cars primarily requires three components – capital, parts and labor. GM, by virtue of its long history, has a huge and well balanced supply network in place, and that leave little threat from suppliers. However, supply of labor is highly controlled by UAW, the dominant labor union in US and hence poses significant threat to its operations and profitability. The bargaining power of the last input-capital is critical to the profitability. Given the extremely tight credit situations of the economy in 2008 end, this factor had a considerable threat to the profitability of GM. Bargaining Power of Buyers: With supply outstripping demand, sellers frequently engage in price wars to woo customers. However, given that the industry is almost an oligopoly with the top 5-6 brands occupying a major part of the market; individual buyers have little or no bargaining power against the manufacturers. Substitutes and Complimentary Products: While cars have very little threat from substitutions, the profitability of car manufacturers is influenced by price of other accessories – primarily fuel. There is a substantial threat on car manufacturers from the rising cost of fossil fuels. However, with hybrid technology and fuel cell technology being developed by almost all car manufacturers, this factor will get diminished in future. Rivalry among Competitors: Worldwide, passenger vehicles market is dominated by vary large and competitive players and there is intense competition among all these players. Car manufacturers constantly try and innovate to offer better cars and more responsive after sales service. Potential New Entrants: Development and production of a new car involves extremely high amount of capital. In addition, a successful car requires an efficient supply chain, highly visible sales channels and high brand recall. As such, the threat from potential new entrants is extremely low for car industry as a whole and GM as an individual player. Internal Analysis Core Competencies: GM being one of the largest car manufacturers of the world, its natural core competence lies in its technology. It has world’s 2nd largest R&D budget, and spent nearly $8 billion in research and development in the automotive segment (Jaruzelski & Dehoff, 2008). In addition, GM has sales channels in more than 140 countries in the world, thereby giving it extremely good understanding of consumer buying trends. This is aptly evident from the fact that one of its models, Open Insignia, was adjudged the European Car of the Year in 2009 (English, 2008). Additionally, GM’s ability of “decentralized implementation of a centrally directed coherent product policy” is considered to be a great organizational strength. Q. 2. SWOT Analysis Strengths: Technology: One of the most important strengths of General Motors is its technological prowess. With more than $8 billion in R&D expenditure, GM is preceded only by Toyota in terms of expenditure in the R&D segment. Portfolio of marquee brands: GM has an array of legacy as well as new star brands, giving it instant brand recall in virtually any market. Weaknesses: Skewed product portfolio: One of the chronic weaknesses of GM is it’s over reliance on SUVs and other high powered vehicles. With rising fuel costs and increased awareness about global warming, consumers are increasingly opting for fuel efficient and hybrid technology cars. Bloated cost structure: GM’s cost structures are extremely bloated as compared to its Japanese competitors due to its large pool of retired employees. Opportunities: Emerging economies: GM is a major brand in the emerging economies, especially China and Russia. With China all racing ahead in terms of economic growth, it offers a great market opportunity (Rowley, 2009). Renegotiated contracts with UAW: GM used this opportunity to renegotiate with UAW for a reduced medical bill for retired employee. With potentially $5 billion in savings, this can renegotiate terms with its main labor union that may make GM a better structured company (Vlasic & Bunkley, 2009). Threats: Precarious financial situation: GM’s financial health deteriorated rapidly, and it is now dependent on government aid for its cash flow requirements. This has drastically curtailed its ability to invest in new ideas. Negative publicity: Once it filed for bankruptcy, it attracted considerable negative publicity and buyers are now skeptical about buying GM’s products.  Analysis The above SWOT analysis provides of a comprehensive analysis as well as road map for the management of GM to work upon. The company needs to restructure its financially considerably. This is much needed since with such a debt and liability heavy financial it might find roadblocks to its expansion plans. The company has to develop its marketing strategy accordingly so the revenue flow increase. The company needs to re strategize its global presence so that it can target the developing markets of the world in order to capitalize on the increasing demand for automobiles in those markets. GM enjoys a unique advantage and expertise in research. This should be religiously followed to develop more environment friendly cars. With consumers reluctant to pay higher fuel prices, eco-friendly cars that run on alternative sources of fuel is sure to provide the much needed fillip to the portfolio and image of GM. The company needs to relocate the hierarchical structure and the age division of its employees. This has been one of the major causes behind increasing the cost of the company. With Toyota really coming of competition, once global leaders GM needs to reformulate its strategies accordingly to maintain the lost glory. Q. 3. Ansoff’s Matrix: Ansoff’s matrix is one of the most well known tools that help decision-makers chart out future growth plans for a company. Ansof’s matrix consists of four quadrants, and represents various combinations of new and existing products in new and existing markets. Given the diverse nature of GM’s product portfolio and the wide range of markets it operated in, GM could adopt multiple strategies for growth. Market Penetration Strategy: While GM’s European operations were incurring losses, other car manufacturers with similar product portfolio managed to earn profits. With a wide range of cars in its portfolio, GM could adopt the market penetration strategy to increase its sales and return to profitability. Market Development: While India and China are very similar markets, GM has a substantially higher market share in China that India. GM can use same models, or develop India specific cars on the same platform and expand its market share in India and other similar emerging economies. Product Development Strategy: Every serious car manufacturer should always have ‘product development strategy’ as one of their growth strategies. GM’s portfolio is heavily biased towards powerful SUVs but has little or no presence in alternative technologies like fuel cell cars, battery operated cars or hybrid cars. GM should invest heavily in these technologies as with depleting petroleum reserves, these technologies will drive future growth.   Diversification: Diversification should be the least preferred strategy for GM. In its last 100 years of existence, GM has already entered the markets of about 140 countries.  Given the present economic conditions, it will not be advisable for GM to spend resources to develop a car for a market that is not big enough.   With more than 2 million vehicles sold in 2008, GM’s European operations were a multi-billion dollar business unit and had a whole array of stakeholders (General Motors, 2008). The most important stakeholders of this division were the parent company of GM, the US government & other shareholders of GM, the local governments in Europe, its car dealers in Europe, suppliers & vendors, financial institutions, lenders, banks and employees. The entire phase of initiating sale of the European operations and the subsequent cancellation of the deal can be analyzed through Kotter’s strategies for change. Kotter’s strategies for change describe 8 stages that result in a successful change management (Flash, et al., 2006). Methods of Development: Organic Growth: The domain of strategic management has devised several strategies that any organization a can use for its expansion. A company can take the normal route of going for the organic growth, through increasing the volume of sales and reducing the cost of doing business. GM faces a unique case of huge amount of liabilities to shareholders and investors, as such it will not be perhaps feasible to pool funds any further to fuel the growth. Merger: A company can only the route of corporate restructuring and opt for a merger with another similar company. The former can expect to enjoy the benefits of synergy in the process. GM can well utilize its transnational experience and adopt the route of corporate merger to its benefit. Joint Venture: In case the management of the GM does not feel prudent to go by the acquisition mode, the next bet alternative that it can take is to plan a merger with a similar company. However, the decision to go by the joint venture route demands a through weighing of all the pros and cons. Through a JV, the liability burdened might well find a route to use its brand image as well as refrain from burning a lot of cash. Acquisition: Acquisition is the last feasible alternative that GM can think of. The increasing amount of liabilities in the financials of the company will surely discourage the investors from adding funds to the requirements of the company. Competitive Strategy: Corporate Level Strategy: BCG Portfolio Matrix The BCG matrix designed by the famous Boston Consulting Group is perhaps the best available tool with the management of GM to analyse and form an appropriate corporate strategy. The different brands of GM can be allocated a specific room in the matrix. It can be found that Cadillac occupies a star status, due to its best performance. GM should concentrate on two of its new brands, Hummer and Vauxhall, since they are comparatively new and the company should need to provide enough attention both financially and managerially to convert these to brands from question mark to the star category. Saab and Opel are the two cash cows in the arsenal of GM. These two brands have been providing decent amount of support to the GM group for quite some time now. Business Level Strategy: Porter’s Generic Strategy An analysis of the Porter’s generic strategy will reveal that GM needs to concentrate on the strategies of product differentiation, in which it will be able to strengthen its presence in the unexplored areas of the world. GM already enjoys an enviable position, in terms of its range of differentiated cars, in the demanding European market; it however needs to build on this trend aggressively and make its presence felt in other geographies as well. The financial analysis of the company and the books of accounts give a clear verdict regarding the inability of the company to focus on attaining the low cost structure. Q. 4. Change Management: Lewin’s Force Field Analysis Stakeholders of an organization comprise individuals or groups who have interest directly or indirectly in its operations and are in some way or the other benefitted through its profitable performance. Stakeholders are internal and external, and the company remains bound to ensure that both are benefitted through it. In the case of GM, the possibility of the shutdown of its European operations would have put all the stakeholders at a serious stake owing to major devaluation that it had underwent right from the initial stages of the economic recession. Driving Forces: Backing the initial decision of GM to sell GM-Europe, the major driving force was the bidding capacity of Magna. Additionally, Magna had promised that neither it would shut down any of the plants, nor it would implement a layoff. Quite obviously, these factors were pro-employee and hence negated the chances of disruptive instances. Restraining Forces: The strongest restraining force in this episode of industrial history was Opel. Through the sale of GM-Europe, the automobile giant would lose Opel which is a vital component of GM’s brand portfolio. This would impede GM’s product development abilities to a great extent because Opel is an integral part of the company’s product development program. Moreover, on gaining independence, Opel would offer stiff competition. Most naturally, GM’s stakeholders couldn’t accept such developments as they would affect their value. Change Management: Kotter’s Strategies for Change Create Urgency: There was an extremely high degree of urgency that initiated this phase. One of the key conditions of US government’s financial aid was divestment of loss making units. Since the European unit was losing money, there was a high degree of urgency from GM to divest this business unit. Guiding Coalition: The most important stakeholders including the UK and the German governments, the suppliers, employees and shareholders were all committed towards this change. The then German Chancellor Angela Merkel, GM’s chief negotiator John Smith and auto union leaders as well as political figures of other stakeholder countries were driving the change initiative. Create a Vision for Change: The vision of the change process was clearly defined. After GM announced its intention to sell off the European division, a number of organizations expressed interest. However, the two most important and serious bidders were a consortium of companies led by Canadian auto components firm Magna, and the other being a Belgium based private equity firm RHJ International. The consortium led by Magna proposed that Magna and Sberbank will hold 55%; GM will hold 35% and the employees of Opel will own about 10% of the shares. The German government backed this proposal by offering 4 billion pounds in loans. The Magna led consortium also promised not to close any plants or cut any jobs (Telegraph, 2009). Communicating the Vision: The deal attracted a lot of media attention and the details of the deal were very clearly communicated to all stakeholders. Removing the Obstacles: Despite successfully completing the previous stages of managing a change, the deal was called off as the decision makers could not completely remove all the obstacles. The two main reasons why many stakeholders opposed the sale of GM’s European business to Magna were: Opel being a very important component of GM’s worldwide product development program, its loss would have seriously hampered GM’s ability to introduce more models at a fast rate. Creation of an independent Opel would have increased the competition. Local competitors of Opel like Volkswagen threatened to discontinue business with Magna as this may lead to diffusion of technology and possible clash of interests (Hetzner, 2009). Cultural Web: Stories: The transitory phase within GM and in its external environment was tense. The recent bankruptcy of GM was in sharp contrast with its rich legacy and hence was upsetting for the stakeholders. Rituals and Routines: For a player like GM, selloff is a drastic decision. A mammoth employee base speaks of the company’s health and the satisfaction quotient of its employees. GM definitely scored high on this. Hence, the selloff decision was like a blow. Control Systems: GM’s financial health was sound. Sale of GM-Europe would put the employees of that division in a state of uncertainty even though Magna had promised no layoff would take place post-selloff. Part B: Reflective Report Here I will like to express my experience and learning while I was leading a small team in charge of a particular activity in the entire chain of events of organizing the seminar. As the team leader of the refreshments team, I was primarily responsible for two set of activities – first, act in synchronization with other team to ensure the entire chain of activities run smoothly and second, coordinate among my team members to ensure all deliverables are properly met. While enacting the role of the team leader of this team, I felt fortunate as I could put in practice various theoretical models of leadership, conflict management and project management I have learnt here. My experience of being a leader was a truly learning one in the strictest sense of the term. The pressing deadline coupled with the quality constraints had to be taken care of judiciously. We had a great team, a team that understands how to perform. Leading such a team perhaps takes a lot of pressure from the team leader. I had planned out the entire chain of activities along with peers. We decided our individual roles. The research team had to sit after a regular interval along with the ream designing the draft. This enabled me to monitor the progress from both ends. This was the first time I was exposed to a leadership role with well defined deliverables and dedicated resources. As the team leader, I was supposed to understand our goal, break it up in SAMRT (Specific, Achievable, Measurable, Relevant and Time bound) activities and allocate those activities among my team members. This entire activity of breaking up bigger goals into smaller activities helped me fine tune my analytical faculties. This activity helped me quantify abstract activities and gave me valuable lessons in setting up systems and policy frameworks. Leading a team of peers is a challenging job, especially when the time period available to establish leadership is small and there is lessened scope of positive or negative rewards. In such a scenario, I adopted the participative leadership style where I would take decisions only after discussion with all my team members. This helped me motivate my team members and bring out the best performance from them. A bottom up approach to decision making also helped all team members understand the final goal, and hence it was easier for my team members to take decisions when any unplanned situations cropped up. As the team leader, I often faced situations that required me to allocate job responsibilities to individual team members. While bigger activities could be planned for and were allocated during the planning stage, there were quite a few unexpected and unplanned for activities that had to be taken care of. I extensively used theory of constraints to identify most critical activities and delegate them to the most appropriate team members. This helped our team to reach our goals without many problems. The success of a team leader is only as good as the team he is leading. Under such a situation, I felt that we are happy and successful too, mainly because everything went on as per plans and most importantly, each one of us enjoyed the role that he/she played. Referencing Clifford, C. July 2, 2009. Oils record high, one year later. CNN Money. [Online]. Available at: http://money.cnn.com/2009/07/02/markets/year_oil/index.htm [Accessed on January 14, 2010]. English, A. November 17, 2008. Vauxhall/Opel Insignia wins 2009 Car of the Year. Telegraph. [Online]. Available at: http://www.telegraph.co.uk/motoring/3471800/VauxhallOpel-Insignia-wins-2009-Car-of-the-Year.html [Accessed on January 14, 2010]. Flash, P. et al. 2006. Organizational Transformation Models & benchmarks. UMTC .[Pdf]. Available at: http://www1.umn.edu/systemwide/strategic_positioning/tf_final_admin_0608/SC_Appendix_G_PEL_Report.pdf [Accessed on January 14, 2010]. General Motors. 2008. 2008 Sales Highlights. [Online]. 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Available at: http://www.telegraph.co.uk/finance/newsbysector/transport/general-motors/6168159/GM-agrees-to-sell-European-business-Opel-to-Magna-Vauxhalls-future-unclear.html [Accessed on January 14, 2010]. Vlasic, B. November 3, 2009. G.M. Decides to Keep Opel, Its European Unit. The New York Time. [Online]. Available at: http://www.nytimes.com/2009/11/04/business/global/04gm.html?_r=2 [Accessed on January 14, 2010]. Vlasic, B. & Bunkley, N. February 16, 2009. Union Talks Seen as Key as G.M. Makes Case for Funds. The New York Times. [Online]. Available at: http://www.nytimes.com/2009/02/17/business/economy/17auto.html [Accessed on January 14, 2010]. Read More