General Motors. Managing Complex Change.
Fierce global or national competition, resulting in a loss of a market share, is the prime reason for organizations restructuring. The ‘repositioning’ process can be effective with the implementation of one of two approaches to the organizational change. The first one is the companies’ extension of their resources by mergers, acquisitions, or organic growth, due to which synergistic gains are possible to obtain. The second approach is the organizations’ ability to restructure themselves by adopting cost cutting measures, making cultural changes, altering strategies and philosophy, and downsizing, which will result in the increase of productivity gains. Many scholars have carried researches on the most effective practices of restructuring activity and have found that organizations, which followed the latter of these two strategies, saved themselves from bankruptcy and became more successful than earlier. However, organizations encounter many problems in enforcing the changes such as resistance, shown by workers, which usually results from bureaucratic attitudes of the senior managers, fear of losing a job, vested interests, low tolerance among employees, as well as from the climate of uncertainty that prevails in the company. Overcoming resistance requires an in-depth understanding of the current mood of the staff. The change strategies such as coaching, motivation, allocating rewards, two-ways communication, and training can influence the culture of the organization.
The current paper demonstrates a deep understanding of the organizational change and examines how far General Motors was successful in implementing it when suffering from huge losses and being on the verge of closure, as well as explains different factors and conditions, which forced GM to change the management.
Overview of General Motor
General Motors was founded by William C. Durant in 1908, in Michigan City of United States. Over the years the company evolved into the biggest automobile producer in the world, manufacturing a wide range of cars and commercial vehicles, possessing a high market share, and enjoying a competitive position in the automobile sector. The company offered employment opportunities to more than 310,000 people in nearly 110 countries. However, in the first half of eighties GM started experiencing challenges as the market share and sales volume declined due to the customers’ expectations for fuel efficient cars and the stiff competition, offered by Japanese automobile producers. The increased cost of production and the large share, captured by Japanese car producers, further directed the company to bankruptcy and put it on the verge of closure in 2009 (“General Motors Corporation,” 2016).
The rationale of Change Management and its Importance
Korir, Mukotive, Loice, and Kimeli (2012) explain change management as an effective management system of replacing old business processes with the new ones in such a manner that senior managers, executive management, and employees put their efforts jointly to implement the new technologies and processes for organizational change. The findings of Allen et al. also support these authors, because they assert that the change is inevitable for organizations, society, and individuals, and it should include attitudes and values reform, needs and goals reconsidering, technology changes, and transformations in legal and political control of the government (Allen et al., 2007). Hence, change management is an organizational process and a systematic approach, used to introduce the change, from the perspective of an organization, as well as on the individual level. In order to achieve organizational restructuring, change management should consist of a set of activities, which include identifying and instilling new values, norms, behaviors and attitudes within the organization to encourage new methods of increasing the efficiency of workers and overcoming resistance to change (Harley & Broyles, 2010). Besides, the organizational change helps to enhance the consensus among stakeholders and customers. It also includes those reforms that can better satisfy their needs, as well as provides planning and implementation of all policies and procedures of transition from one organizational structure to another. The extracts from various pieces of literature confirm that for better control of the management, there is a constant and imminent demand for organizational change even in successful companies (Lunenburg, 2010).
According to Whelan and Somerville, three major drivers, which accelerate the organizational change faster than ever before are technology, globalization, and government (Whelan & Somerville, 2010). In the first instance, technology impacts the structure of the company, determines the appropriate job for individuals, affects workers’ behavior and attitudes, controls the social structure within the company, and, finally, evaluates the organization’s ability to fulfill its goals (Mills & Mills, 2008). Bovey and Hede also agree that “technology is the tool of knowledge, techniques and actions, which a company utilizes for transforming inputs into outputs.” The inclusion of new technology accelerates the process of the converting investments into profits. For instance, new methods such as Just-in-time can greatly minimize production costs and increase the profits (Bovey & Hede, 2001). According to the theory of Perrow, each of the four types of technology in public sector i.e. routine, non-routine, craft, and engineering deals with all aspects of change in the organizational structure. For example, routine technologies lead to machine bureaucratic structure. Thus, the implementation of new appliances will result in the reorganization of the company. Second, the impact of good management in the organization would encourage the government to reconsider its position, policies, and the role in the market by initiating liberal laws, deregulation and privatization (Ford & Ford, 2009).
Finally, globalization of industries is widely considered as a prime feature of the organizational change. Globalization has forced many companies to restructure their operations and processes, as well as to reposition themselves in a more open market (Dawson, 2003). These organizations have to present their strategies on multi-faceted and complex platforms instead of using single platforms. Besides, globalization has promoted coordination and inter-dependency between governments and organizations, causing significant changes in their corporate ruling of the overseas facilities (Cameroon & Green, 2004). From the above-mentioned arguments of different authors, it is apparent that organizational change is unavoidable because many organizations are becoming smaller. Hence, adaptation management is a significant approach in coping with changes.
Problems Encountered by General Motors
The prime forces, which resulted in the downfall of General Motors, include the following:
The intense competition among leading automobile manufacturers for capturing the maximum market share with the help of their fuel efficient and economical cars was one of the prime factors in the sharp decline of GM’s sales. The rise of oil prices and the Gulf oil crisis in 2007 further affected its sales all over Europe, China, and the United States. North America and China were the consistent and the largest markets of General Motors over the two decades, and the company held the monopoly in them. In 2008, the company sold 2.8 million vehicles in the USA while Toyota was trailing with 2.3 million. It is worth observing that despite GM continued to lead in American and European markets, its share was diminishing and declining from 31% in 1999 to 23% in the year 2008. From 2009 onwards, the company was also failing to compete with the fuel-efficient brands of Toyota, Ford, and Chrysler, which resulted in 45 percent loss of its market share in the United States and Chinese markets (“General Motors Corporation,” 2016).
In 2008, undoubtedly, the company sold 5 million vehicles but most of its sales were comprised of heavy vehicles such as trucks, carriers, and SUVs. Another force that impacted the company was the financial crisis, caused by political and economic factors in overseas markets, which affected cash flow and liquidity of the company. The political and economic circumstances in foreign markets decreased the sales of its popular brands. For example, the Chinese government imposed a new legislation on foreign companies, obliging them to establish facilities with minimum 50% of equity participation with local companies and to source raw materials from domestic companies. It also regulated the control of foreign exchange by restricting the transfer of money to the native country to a minimum period of three years. Thus, all these factors led the company to bankruptcy in 2009 (Langlois, 2009; General Motors Company, 2014).
One of the challenging internal issues that caused GM’s bankruptcy was an agreement with several trade unions. Most of its employees were the members of The United Auto Workers trade union. The union had an agreement with the GM’s management on the subject of wages, pension, and health benefits, which imposed an obligation on the company to provide high wages for its employers. For instance, the company had to pay an average of $73 per hour to its workers as compared to Toyota Motor Corporation, which paid roughly $44 to an ordinary employee. Furthermore, under this agreement GM operated its plants at 80% of their maximum capacity, irrespective of the demand for vehicles in the market. The excessive and undesired production resulted in the accumulation of stocks and inventories at almost all of its facilities in the United States and hampered the company’s ability to adopt cost reduction measures (Krolicki & Bailey, 2009).
Lack of two-way communication between the top and the middle order managers was also one of the critical factors that limited the growth of the company in those foreign markets, where the company could easily establish its marketing network. The senior managers’ bureaucratic attitude and vested interests resulted in the loss of the valuable information and the failure to take timely actions for implementing fast decisions, which brought further disaster to the company.
Furthermore, senior managers did not favor adopting the Japanese style of working, because they believed that their American cultural values and beliefs would be affected. These managers believed that workers of the lower ranks should not be involved in management because of their limited capabilities, whereas Japanese management encouraged all workers to offer new ideas and rewarded them with salary benefits and out of turn promotion if their proposals were advantageous for the company. General Motors suffered, in brief, from bureaucratic and autocratic leadership (Sullivan, Sullivan, & Buffton, 2002).
Objectives of General Motors
General Motors recognized such key areas that led the company to crisis as high costs, cultural differences, and a change in the production procedures as well as set the following objectives to revive the company:
1. Structural Change; 2. Cost cutting measures; 3. Process change; 4. Cultural change.
General Motors Strategies and Planned Activities
Once the largest producers of General Motors automobiles experienced a decline in sales after 2001, the financial crisis further worsened its balance sheet and increased liabilities. In 2007, Toyota became the largest automobile producer in terms of sales volume thus, surpassing the General Motors annual turnover and capturing a sizable portion of its US and Chinese markets. In 2008, the company received financial grants from the Canadian and US governments for revival of its organizational structure, but despite all the efforts, GM declared bankruptcy in June 2009 (General Motors Company, 2014).
The new management team set the objectives to fight for the future of GM by including enterprise resource planning systems, which offered significant benefits to the companies in increasing their productivity, efficiency, cost reduction, TQM, and result producing strategies. ERP systems usually involve the application of change management policies. GM also adopted various methods such as cost cutting, cultural change, and transformation in the production processes for repositioning the organization at global platform. The company implemented the Just-in-time manufacturing and the lean production process in its US facilities in order to reduce the operational expenses. It also eliminated the obsolete processes and underperforming models from the market by strictly following the strategy of the closure management. The enterprise also encouraged conducting surveys and creating focus groups for enhancing the market communication, which helped in designing cars. General Motors also introduced new leadership and reduced levels of top management to increase the communication between workers and executives (Aladwani, 2001; “General Motors,” 2008).
Kotter’s Change Management Model:
The above factors show that GM encountered severe challenges and problems in implementing organizational change. However, in the case of General Motors, Kotter’s model of change was able to support the organization because this model involves best practices and innovative strategies, which a company can adopt, to manage the change at different stages (Kotter, 2006).
1. Understanding the Emergency of the Change: The first step gives the awareness of the need to implement a change immediately, because it will accelerate the processes of transformation. GM conducted an in-depth analysis to prioritize the areas of the change, and achieved it by making the internal and external examinations of the company.
2. Formation of a Team to Lead a Change: The second step helped General Motors to manage the workforce by increasing a two-way communication and substituting the bureaucratic culture of the company with the effective leadership, which increased the involvement of all employees from top to bottom levels in the implementation of the change.
3. Establishment of the Vision for Change: At this step the company identified and developed a clear idea of executing the reform. General Motors introduced a clear vision and the purpose of change to all employees, encouraging them to face new challenges, because new ideas could develop resistance to reorganization.
4. Communicating the Vision within the Organization: The fourth step, initiated by GM, explained the change to all levels of the organization with the help of effective communication systems, so that all workers understood their role and involvement and were aware of new developments, which the company wanted to implement for organizational change.
5. Empowering Workers to Make Changes: The fifth step encouraged the empowering of all the employees of the organization to make suggestions, so that their contributions could bring positive results of change. During the crisis, GM enabled its sales team to listen to the customers’ needs and to collect data on consumers’ satisfaction with the company. It helped the company to design cars according to the clients’ demands.
6. Identification of Objectives: The identification of objectives is also one of the prime stages of the change management model. GM set the objectives of cost reduction, culture change, and reform in the production processes, which largely helped the organization in designing appropriate strategies.
7. Maintaining Persistency: Continuous improvement and adopting necessary measures to accelerate the change is also mandatory for the organization. Thus, GM’s operations demanded maintaining the consistency in all of its processes for the achievement of the desired results. By doing this, the company discontinued those processes that were hindering the change.
8. Reinforcement of the Change: The management of GM implemented the strategies of change in such a manner that they impacted all the employees and increased their morale, passion, and motivation to improve their performance and productivity.
Results Achieved from Changed Management Processes
General Motors focused on customers’ needs, culture, and cars to become more profitable and competitive. The company also empowered employees to increase communication with customers for collecting the market information, which proved to be valuable for the management. The company also overhauled the internal culture, which was retarding the growth in the international market. GM’s encouragement of the employees to focus on customers for providing more accounts and faster execution of decisions led to an increased involvement of workers in improving the week areas of the organization. The new management developed passion among the staff and changed the structure of General Motors by reducing the levels of management, thus, creating a simpler organization with more authority given to the workers and closer to the market and customers. The company followed five concrete steps of former CEO Henderson to ensure the processes such as faster execution, adoption of the latest technology, healthy balance sheets, sustainable results, and removal of the obsolete processes in production.
Resistance to change prevailed not only in GM’s senior managers but also related to individuals and teams. Therefore, management established norms of performance and behaviors and communicated them to the employees. Earlier these values were not present in the GM’s culture. This method increased the boundaries of expected behaviors among all workers, because they feared sanctions in case of a refusal to comply with the management directives. Employees’ tolerance to work in a challenging environment was enhanced by motivating and awarding them for delivering superior performance (General Motors Company, 2014).
Cost-Cutting Measures and Change in Production Processes
The company reduced overhead expenses and adopted cost-cutting measures throughout its organizational activities and production processes. GM followed the closure management by downsizing the labor force, reducing the number of brands, executives, plants, and removing the excessive dealers’ network. General Motors also adopted the production processes, usually practiced by leading automobile manufacturers, such as Just-in-time and the Lean Production System. These strategies not only improved the level of inventory, but also resulted in considerable improvement of the company’s financial position, as well as increased sales all over the world. The employment figures of 1998-2008 show the results of the cost-cutting in General Motors. The organization reduced the strength of the staff from 225000 workers to 102000,that brought considerable savings to the company. After the bankruptcy, GM took several significant actions such as selling the rights of underperforming brands Saturn, Saab, Hummer, and Pontiac and eliminating 40 percent of its U.S. dealerships, reducing it from the previous total of 6,000 dealers to only 3,500. The company also decreased the number of U.S. plants from 45 to 31, discharged 26 percent of the employees from 92,000 to 69,500, and, most significantly, eliminated $80 billion debt through the bankruptcy proceedings (Smerd, 2009; General Motors Company, 2014).
Judging from the above findings, GM needs to improve the communication to increase the workers’ awareness and knowledge. First, the company’s management should be more specific in understanding the urgency of change and the downsizing. Second, despite the fact that the company was successful in implementing the change, it still needs to encourage the employees’ input and involve the workers in the specific organizational reforms for future purposes, because change management has become a continuous feature even in successful organizations due to the need to increase productivity and growth. The company must involve employees in the change process by creating surveys and focus groups or by appointing a representative for larger groups of workers and considering their suggestions for resolving the current problems. However, GM has to be more careful, as the extensive participation of the staff can also paralyze the operation of the organization. The company should also focus on changing the perception of people. The negative image, developed by customers, regarding the performance and the operating life of vehicles affected the sales greatly. GM should concentrate on developing more fuel-efficient cars to compete with Toyota, Ford, and Chrysler, as well as increase the number of customer care centers so that clients can receive the after-sales service. Finally, leaders should be more passionate as this feature may develop workers’ desire to improve General Motors.
General Motors, the world’s largest producer of automobiles has lost its market share to Toyota, Ford, and Chrysler in beginning of the 21st century. The prime reasons, which contributed to its underperformance, were the high costs of production processes, high salaries, pensions, and health benefits, prevailing culture of the organization, and obsolete production methods. These circumstances resulted in company’s declaration of its bankruptcy in 2009. General Motors responded to the change after recovering from bankruptcy. The company adopted the strategies of cost-cutting, cultural change, closure management, and innovative production processes. The cultural change removed the layers of bureaucracy, increased the two-way communication and greater accountability of senior managers, and increased the participation of the employees. Cost-cutting measures proved to be successful for the company, which dismissed the surplus of the underperforming staff throughout its facilities in the United States, reduced the numbers of plants, discontinued ineffective models, decreased the number of dealers, and introduced modern production methods such as Just-in-time and the Lean Production Processes. In conclusion, these strategies largely helped General Motors to resolve the crisis and implement the organizational change.