Leadership and Performance Management - General Motors - Assignment Example

Performance & Leadership Management Submitted [Pick the Contents Task Decision Making Failures 3 1Key Findings 3 2Evidences 4 1.3Technical Details 6 Task 2 Organizational Performance of General Motors 7 2.1 Key Findings 7 2.2 Evidences 8 2.3 Technical Details 9 Task 3 Organizational Leaders 10 3.1 Key Findings 10 3.2 Evidences 11 3.3. Technical Details 13 References 15 Task 1 Decision Making Failures A critical analysis of GM’s past five years performance leads to an understanding that due to their leadership’s bad decision making, the firm incurred major losses. Some of these decisions that cumulatively broke GM’s back and make it file for bankruptcy. In addition to that, recession also added to their demise. Heavy operating costs allowed other competitors with lower costs to capture North American market which was GM’s territory earlier. While assessing some of the decisions taken by GM’s leadership, it was found that closure of GM’s hybrid cars unit along with layoffs and prior faulty acquisitions added to GM’s expense list which had no means to be satisfied. 1.1 Key Findings GM has faced problems due to its highly bureaucratic culture and sluggish approach towards development and innovation. Its slow performance in the recent years has its roots in its earlier catastrophic decisions that were taken in 1970s and 80s but had a long-term impact on the organizational performance which ultimately leads to a government bailout in 2009. GM has made several bad investments in the vehicle models that were not answering consumer’s requirements and also were competitive to each other which further resulted in slow growth of the company. GM had various brands at its portfolio which required major expenses in terms of research and development for proper brand management. Failure to keep up with consumers’ demands ultimately lead to slow sales of these brands which affected cash inflow in turn (Maynard, 2009). Instead of ensuring that consumers’ demands for compact and energy-efficient cars is met, GM under the leadership of Wagoner, shut down EV1 electric cars program. With lower vehicle sales, the operating expenses and manufacturing costs increased greatly as a result of which GM was forced to increase its prices. The burden was passed onto the consumer which act as a deterrent for GM’s sales. As a result of this program’s shutdown, billions were lost in terms of research and development. Furthermore, there was a major recall from the roads which made GM compensate the lessees for the losses incurred. The already manufactured models were crushed which not only failed to recover original manufacturing costs but also added to it due to extra expenses incurred in terms of amortization. Failure to capture the niche market on timely basis allowed Japanese cars to capture a major North market share which was the territory of GM earlier (Hartung, 2009). Shutting down hybrid cars program had a major impact on GM’s profitability. But most importantly, it affected the brand image greatly. It strengthen GM’s persona of being a giant and slow enterprise incapable of understanding consumer’s requirement and respond to it accordingly. Due to global recession and GM’s series of bad decisions especially poor brand management, faulty investments and shut down of hybrid cars, GM filed a loss of over $ 30 million dollars. These losses include major amounts in terms of lowered share prices and also exceptional operational expenses. After filing these losses, GM filed for bankruptcy and was later bailed out by US government. 1.2 Evidences One of the major evidences that indicated GM’s catastrophic decision making failures was GM’s financial statements and other reports published on the subject matter. According to Hargreaves (2008), “General Motors reported a huge second-quarter net loss Friday of $15.5 billion, after restructuring and other charges, as the automakers run of troubles continued. The automaker lost $27.33 per share in the quarter, compared to a profit of $784 million, or $1.37 per share, a year earlier. Even factoring out those charges, GM posted a stunning $6.3 billion loss on operations. That works out to $11.21 per share, far above the $2.62-a-share loss projected by Thomson Reuters”. A critical analysis of the impact of global recession and GM’s faulty decision making illustrates that in the prior year, GM incurred major losses due to labour call outs and strikes. In addition to that, failure to respond to consumers requirements decreased the sales greatly. The situation was further aggravated by the banking crisis in United States that made GM lose its sales only in United States by 21 percent. These arguments are further supported by analysis of More (2009). More (2009) asserts that GM has faced difficulty in ascertaining that it has predefined market segments. Lack of identification has resulted in absence of focus on niche markets. Furthermore, increasing fixed costs and negative investment trends had a greater impact on GM’s cash assets which made it recognize an exceptional loss of 567 million in its financial statements (Marketwatch, 2013). Furthermore, due to exchange rate issues and negative cash flows due to exceptional depreciation and amortization costs, the net cash deficit was recorded at 19.88 billion. Changes in stock prices, net negative cash flows, reported losses in sales and extraordinary depreciation and amortization charges were identified as the fundamental factors behind GM’s bankruptcy in 2008. A more retrospective view defines that GM not only ignored the demands of consumers and kept its resources utilized in heavy motor vehicles requiring more fuel consumption. Failure to adapt innovative approach and locking out millions in terms of research and development added to these expenses that were reported in 2008. Given below, is a view of losses reported in a consolidated income statement of GM. Adapted from Marketwatch (2013) 1.3 Technical Details For the purpose of this assignment, financial statements of GM and the trends of various heads given in income statements are examined. No statistical analysis is performed however nature of trends as shown at NASDAQ and Yahoo financials are used for corroboration of the data. Furthermore, other news articles belonging to 2008 are included in the review. Task 2 Organizational Performance of General Motors GM has shown a major shift in its performance trends over all last five years. A critical analysis indicates that sales in 2008 were not significantly different than those reported in 2012 however it was the higher losses reported due to depreciation, amortization and higher costs of goods sold that made GM report losses of over $ 30 million in 2008. 2.1 Key Findings It was found that GM’s sales were almost 149 billion in 2008. However, a major change in sales was observed in 2009 which was equivalent to $104.59 billion. Considering GM’s history, it can be said that this downturn can be a result of economic recession that emerged in 2008 and also lower consumer trust in GM’s products. Due to lower sales, the costs of goods sold were also exceptionally lower in five-year trend. GM reported losses in 2008 and 2009. Due to lower sales but consistent depreciation and amortization expenses, the gross reported losses were 7.8 billion as compared to that of 1. 03 billion of 2008. However, with increasing sales in following three years, there was a subsequent increase in GM gross income. A noticeable factor is GM’s attitude towards research and development. Due to prior financial crisis and billions remaining unrecovered before 2008, GM did not incurred expenses in terms of R&D from 2008-2010. It was only in 2011 and 2012 that these expenses were reported. This is the same period when GM decided to revert back to its original hybrid cars’ program and other innovative models. After profits reported in 2010, GM went public and the shares owned by US government were offered due to which government ownership has reduced extensively. It was found that GM has reported its highest profits in 2011 since its inception. The shift from earlier trend of continuous losses was due to higher sales in North American and European region. Furthermore, it was found that during this period, GM has decreased its expenses greatly. GM has further ventured into emerging markets like China and India where middle class segment is appearing as a major market. Since Japanese cars receive less reception in Chinese markets, there is a major opportunity available for GM in the Asian region. 2.2 Evidences A critical analysis of income statements of GM illustrated that GM has transformed from an organization requiring help of US tax payers to a self-sustaining entity. Although over the period of time, GM has sustained major losses in Europe and as a result of currency conversion, it has also reported some losses. However, major growth in North America and then entry in Asian market has provided it a major room to flourish. Due to reported major losses in 2009, GM opted to close some of its product lines that reduced the extent of operational and manufacturing costs allowing it to spend more on research and development of hybrid cars. Due to profits reported in 2010, the shares earlier owned by US government were presented for public offering in the form of stock options and preferred shares. Further analysis indicated that GM has made North American market a centre of its focus with brands like Chevrolet and Cadillac being the main products. On the contrary, in European market, Opel is the leading brand. Despite all the efforts, GM has not been able to gain a grip over European market. In order to significantly reduce the expenses being incurred in Europe, plants in Germany and France are being closed. In addition to that, GM has made a strategic alliance with Peugeot, PSA group which is a leading automaker in Europe. Although, since acquisition, the shares owned by GM have shown major losses in prices, the resultant is an exceptional change in the heads of unusual expenses i.e. 35.5 billion. In 2010, GM has shown exceptional growth in Chinese market which is also shown in its balance sheets as well. In China, GM has made a strategic alliance with SAIC motor with Buick being its major brand in the region. In order to capitalize on emerging bourgeois class of Asian market including China, Korea and India, it is attempting to introduce smaller, more energy efficient models based on hybrid, electric and alternative fuel technology. From 2010 to 2012, the sales in China have increased from over 25 billion to 33 billion with cash equivalents increasing at the same rate (GM, 2012, p. 24).Given below is the comparative analysis of year 2011 and 2012 in terms of gross profits. Adapted from Marketwatch (2013) 2.3 Technical Details For evidences, mainly financial statements of General Motors are used extensively. In order to identify the possible changes in different heads, the notes given with financial statements proved to be a great help. Furthermore, these reports helped in understanding the approach of GM towards different markets. No statistical analysis was performed and for the sake of benchmarking, 2008 was considered as a base year. Task 3 Organizational Leaders For the purpose of this task, the profile of GM’s recent CEO and Chairman Daniel Akerson is used as a case study. The purpose of selecting him as the research subject is to corroborate his leadership profile with the financial discussions performed in the earlier tasks. 3.1 Key Findings Daniel Akerson is current CEO and Chairman of GM. He is an ex-navy man who has worked with several big names prior to joining GM. Prior to joining GM, he has worked with Nextel and Carlyle Group in the capacity of CEO (Bloomsberg, 2013). Akerson was appointed as a director by US Treasury after the bailout however he was made the CEO in 2010. Where Akerson has many credentials on his portfolio as he has performed in leadership roles in past, however GM recent performance is attributed to Akerson leadership as he has walked GM through the losses of 2009 to the continuous profits in the financial years of 2010-12. Analysis of GM’s performance during Akerson’s management tenure indicated that GM has managed to introduce major changes in its operations in terms of efficiency and effectiveness. After joining, Akerson has made substantial changes in GM’s earlier bureaucratic culture. As a result of which, there were major layoffs. Also, due to blunt approach of Akerson, many managers left as he introduced greater degree of accountability in the operations. It is during the tenure of Akerson that GM has managed to focus more on its hybrid technology. The earlier time taking regime of operations has been replaced by more robust culture. Analysis of one of Akerson speech given to his engineers indicated that he is willing to replace slow operations and time taking managerial processes with more vigilant approach. Akerson’s leadership style appears to be authoritative with locus of control present in the senior management. 3.2 Evidences The critical analysis of literature available regarding Akerson’s leadership style indicated that he has little tolerance for slow growth. Akerson has managed to drive GM out of losses to major profits however he is still struggling to introduce stability in its internal culture. His exceptional focus on operational effectiveness and lesser attention to employees’ moral is reflected by one of his statements as he says, “It’s not my role to make people comfortable. I don’t know what it was like here five years ago, and really I don’t care. We’re in a war (Welch, 2011)”. In addition to that, he has also been observed to push his workforce to extend their potential of producing quality. In order to gain major market share, he ordered his engineers to produce 120, 000 units of Volt i.e. the electric car, initially (DuBois, 2013). The idea was to introduce a streak of energy and enthusiasm in his workforce. However, after analysing the feasibility of the project itself, the demand was curtailed to half. This measure illustrated that Akerson may be fond of challenges however he prefers to make informed decisions and also make changes accordingly. According to one of his partners, William E. Conway Jr., co-founder and managing partner of Carlyle Group, “People say he is tough but I wouldn’t say that. Dan will make the tough decisions, but he is also willing to change his mind (Welch, 2011).” Another interesting attribute of his leadership style is his will to push himself and his workforce to the maximum limits. He has introduced the concept of standing in the shoes of competitors and combating their strengths (DuBois, 2011).His current approach appears to be highly contradictory with the earlier GM’s culture and organizational philosophy, therefore the question arises what impact it will have on GM in the long-run. In order to make sustainable changes, Akerson is required to ensure that he spends ample time at GM. His approach can be cut-throat and brutally aggressive but given the state of GM, slow recovery is not an option. According to Michael Useem who is a professor of management at Wharton, “More companies should follow GMs example, even if it is temporarily painful, Thats not always easy, especially during an activity when your own executives talk about other companies cutthroat strategies in the first person. It does take a thicker skin to get those kinds of darts thrown in your back without flinching when they hit (Dubois, 2011)."The practice itself is self-critical and allows GM’s executives to be aware of their own weaknesses on timely basis. There have been times when Akerson has been accused of losing grip on his managers and also on the operations. Some of the examples of such fall outs are major layoffs by him and also voluntary resignations by senior managers (Muller, 2011). Continuous replacements of senior managers in Europeans market along with abrupt layoffs not only raise questions on Akerson’s leadership stability but also disturb the operational effectiveness greatly. It is difficult for investors to expect any returns on their investments when the senior position holders in the management are absent. Secondly, at times when GM is embarking into new markets, struggling with regaining the prior status in North American market and also trying to stay afloat in Europe, such random decisions with no thorough consideration for the future can disturb Akerson’s control over GM. If analysed in the light of management theories like trait, contingency and functional theories, it can be said that Akerson may not be considered as a motivational leader however his autocratic transformational style makes him a suitable match for GM’s current needs. GM has sustained slow growth due to low accountability of its senior managers and highly bureaucratic culture. Although, Akerson’s leadership style seems to be daunting, random and exceptionally demanding which contradicts with the previous GM culture but his leadership style has produced major outputs. It can be said that he has precisely what GM needs right now, energy and resilience. However, question arises if he will be required here after five years when GM is on the road of success and the managers along with the workforce have developed receptiveness for accountability and responsibility. Given below is the illustration of growth rates during past five years. The image shows transformation in GM’s profitability in 2010 which is precisely the period when Akerson joined GM. Adapted from Marketwatch (2013) 3.3. Technical Details For this task, various articles published in websites like CNN and Forbes were used to analyse Daniel Akerson’s leadership style. In order to study his leadership style extensively, he was analysed in the light of management theories as well It was found that he does not have an ideal amiable leadership style however his autocratic approach appears to be a suitable match for GM’s current needs. In order to further understand the implications of his leadership, his measures were corroborated with the financial performance of GM. The financial statistics were acquired from Marketwatch.com and it was found that after joining of Akerson, GM began demonstrating a profitable performance level. Daniel Akerson has so far, failed to motivate employees and develop personal relations with them, however he also made remarkable changes in GM’s organizational model that stand for efficiency and financial stability. References Bloomsberg Businessweek., 2013. Executive Profile: Daniel F. Akerson, [online] Available at: http://investing.businessweek.com/research/stocks/people/person.asp?personId=93549&ticker=GM [Accessed 3 May, 2013]. DuBois, S., 2011. Why Attacking Your Company Can Make it Strong, [online] Available at: http://management.fortune.cnn.com/2011/07/06/why-attacking-your-company-can-make-it-stronger/#more-3521 [Accessed 3 May, 2013]. DuBois, S., 2013. GM’s Akerson: Next Chevy Volt should be profitable, [online] Available at: http://tech.fortune.cnn.com/2013/04/30/dan-akerson-gm/ [Accessed 3 May, 2013]. General Motors., 2012. Annual Reports 2012, [online] Available at: http://www.gmannualreport.com/ [Accessed 2 May, 2013]. Hartung, A., 2009. The Fall of GM, [online] Available at: http://sparkpartners.com/documents/thefallofgm_adam_hartung.pdf [Accessed 2 May, 2013]. Hargreaves, S., 2008. GM Posts $ 15.5 billion loss, [online] Available at: http://money.cnn.com/2008/08/01/news/companies/general_motors/ [Accessed 2 May, 2013]. Marketwatch., 2013. Annual Financial for General Motors, [online] Available at: http://www.marketwatch.com/investing/stock/gm/financials/cash-flow [Accessed 2 May, 2013]. Maynard, M., 2009. A painful departure for G.M. brands . The New York Times. [online] Available at: http://www.nytimes.com/2009/02/18/business/18brands.html?_r=2 [Accessed 2 May, 2013]. More, R., 2009. How General Motors Lost its Focus- and Its Way, [online] Available at: http://www.iveybusinessjournal.com/topics/strategy/how-general-motors-lost-its-focus-%E2%80%93-and-its-way#.UYUK3c6DrIU [Accessed 2 May, 2013]. Muller, J., 2012. Dan Akerson Runs GM With A Tight Fist, But Appears To Be Losing His Grip. Available at: http://www.forbes.com/sites/joannmuller/2012/07/31/dan-akerson-runs-gm-with-a-tight-fist-but-appears-to-be-losing-his-grip/2/ [Accessed 3 May, 2013]. Welch, D., 2011. General Motors CEO is not a car guy, [online] Available at: http://www.businessweek.com/magazine/general-motors-ceo-dan-akerson-is-not-a-car-guy-08252011.html#p4 [Accessed 3 May, 2013]. Read More