This is a special discussion of a case study applying the Four Principles of Purposeful Action to GM’s decline over the past two decades, with special focus on the company’s most recent and rapid deterioration.
General guidelines are included at the end of this post.
The case study is centered on two discussion topics.
1. Discuss GM on the basis of the four principles of purposeful action: (i) action, (ii) ethical balance, (iii) desires that motivate action, (iv) the environment, including geo-politics, competition, management and other key influencers and individuals (archetypes and BrookMaster).
A brief comparison on GM and Toyota would be helpful in discussing the four principles of purposeful action.
GM: After World War II there was big demand for each and every product that was introduced in the market. There is reason for this was rationing of product usage came to a halt. Two of the major industries emerged out of this boom one is housing and automotive. GM took advantage of this market. In order to be the competition GM focused on producing cars at the least cost. The concept of manufacturing cars at least cost helped GM to evolve into a mass manufacturing company. In mass manufacturing system of production raw materials are purchased at the lowest price. The raw materials and finished products will have high inventory. Whether a car has demand in the market or not still the inventory of the car will be high. It is the job of the marketing team to come with ideas to sell it. In this business model GM quickly transformed from visionary to a goal oriented company. The only goal of GM was to be the largest producer and seller of cars, which sacrificed its vision and mission. Every action taken inside the company had no purpose to benefit the society. There was no ethical balance in the form of producing cars that consumed lot of gas without any forecast for environmental impact at later stage. Executives and leaders were happy as for as the goals were accomplished. The desire that motivated these goal oriented action were in the form of: financial numbers, bonus package and salaries for the executives. The company gave the least importance on the desire to serve the welfare of the employees, society and environment. Hence company lost to listen the voice of internal and external customers, which resulted in low quality cars, low employment morale, lack of visionary leadership and motivation and poor financial planning. The only thing that was helping GM these days is that customers were enticed by emotional market strategy as “GM is the car built by Americans for Americans” and selling to rental car companies. Even rental car market share fell to other Japanese and Korean car manufacturers in the millennium years. On the whole GM got locked in the ego and arrogant pride as the largest car producers and lost the humbleness in its action.
Toyota on the contrary: After World War II Japan economy was in shambles. The quality of all the industrial products developed in Japan was not up to the international market. Toyota was producing car that was least desired by consumers around the world. Moreover the company was in deep financial shambles. Most of the financial institution did not want to give any kind of financial support to the company. In this crisis, there was one company that provided financial support to Toyota with a stipulated condition. The stipulation was that Toyota can only borrow when it sells a car and the amount must equal to the selling price of the car. This means if Toyota sells one car the company can borrow the money equal to the selling price of that particular car. Toyota accepted this challenge. The management was looking for ideas to produce and sell the car. This created the leaders in Toyota to develop the concept Kaizen meaning continuous improvement (Phase III of Purposeful Action), which later became Toyota production system. Kaizen was applied at every level of the company from the top leadership to the bottom management, from shop floor to dealership place. This became the vision of the company. Every action applied by the employee had to evaluate how it continuously improves the process. This led to employment empowerment. There was open communication at all levels. Toyota saw the company as integrated system not separate entity from the environment, which was not in the case of GM. Every action taken inside company was customer focused. The company sent its executives to see how other companies around the world were manufacturing their products. The executives went to developed nations in the west from Germany to USA. They were open-minded to benchmark companies from other than companies that were producing cars. The benchmarking process did not lose customer focus. Toyota developed the concept called quality circles which gather information to improve the overall quality for each and every process of the company from both its internal and external end user. In this process the company paid every attention to the welfare of the employee. This boosted the morale and motivation of the employees. One important thing was Toyota maintained high ethics of commitment. It never layoffs employees to cut cost instead every aspect was focused on improving the quality of the product without losing its vision on customer focus. Toyota maintained product line was customer wanted for its needs and necessities. Also made sure the cost of maintenance of the car was at the least cost related to were and tear of the vehicle due to operation.
One the whole Toyota’s action had a purpose at every aspect of its business; ethics to stick to its commitment and were not driven by financial goals; desire to serve the customers, employees and society better.
Sources from www.businessweek.com
For example Toyota-General Motors sold 9.37 million vehicles worldwide in 2007 and lost $38.7 billion. Toyota sold 9.37 million vehicles in 2007 and made $17.1 billion. That was the second best sales total in GM’s 100-year history and the biggest loss ever for any automaker in the world. For Toyota, that was roughly $1,800 in profit for every vehicle sold. For GM, it was an average loss of $4,100 for every vehicle sold.
2. What kind of a leadership is required for the present scenario of GM.? Please provide your views, with justification.
As mentioned in the first question on the comparative analysis of GM and Toyota. GM should focus applying purposeful actions in their operations. The company should develop and implement Kaizens at all levels. Eliminate bureaucracy in the management and involve everyone to seek better solution for both welfare of the company and society. In the recent years GM has improved its quality of cars both in design and performance. It is time for the executives to listen to both internal and external customers. The company should develop health welfare programs for its employees to boast and improve the well being of its employees. One way is to help its employees to eliminate unhealthy practices like smoking and consuming alcohol. Providing incentives for people improving their health which will indirectly reduce the health care cost. The reason for this is the number of employees working for GM is more than 100,000.
Sources from websites: www.businessweek.com and yahoo.com:
Health care, pensions and other benefits -General Motors isn’t bankrupt, but the once-great firm is on the rocks, having lost nearly $4 billion last year alone through September, recently announcing 30,000 layoffs. And at first glance, its long decline would seem to be GM’s fault. Consider perhaps its foremost headache: Its hulking health insurance costs for which workers pay nothing out of pocket, and retirees very little. They have about 145,000 employees, active employees, and we have health care coverage for 1.1 million retirees, independents and family members. Last year we spent $5.2 billion on health care coverage for all of our employees in the U.S. basically. It equates to about $1,500 a car.
That’s more than the steel in an average car and $1,500 that GM’s foreign rivals, with government health insurance, that don’t pay. GM’s got another cost disadvantage as well: full pensions after only 30 years of service, regardless of age. To pay for this largesse, tack on another $1,000 per car.
The lushest benefit of all, however, may be GM’s jobs bank. Workers whose plant closes can transfer elsewhere in the company or, if they choose not to, take classes, do community service, continue to get full pay and never retire. So in Baltimore, when a GM plant closed recently, the jobless weren’t exactly distraught.
When you add the jobs bank to the pensions and health care tab, GM has a total cost disadvantage, compared to non-U.S. rivals, of $2,500 or more per car — before it even starts making one.
Questions and background information for this case study discussion were prepared by Chandrika, Discussion Leader.
This discussion will continue for the next three weeks, through midnight on April 21. Each student will discuss in depth the two questions posted above, applying the specific principles assigned to each student. Assignments of principles will be posted under Assignments in Blackboard. Posts should be based upon research, with appropriate references and links.
This discussion will carry more weight with respect to course grade than a weekly discussion.