Organization Analysis of General Motors - Case Study Example

Organization Analysis of General Motors Organization Analysis of General Motors Porter’s Five Forces Internal Rivalry The US and global automotive sectors are highly competitive. In fact, competition has been growing stiffer since the 1970s and is likely to become more intense in the future. Companies compete on many dimensions, which are influenced by price and non-price factors. In recent times, the industry has become more diverse and volatile, particularly in regards to market share; this poses a formidable threat to profits and sustainability (Bakewell & Darazsdi, 2014). General Motors has been directly affected by the intense competition in its industry; this is illustrated by the growing presence of foreign automakers in the US market and their gravitation towards GM’s objective of market leadership. For example, Toyota, a Japanese firm, now leads GM in markets that were previously considered GM’s strongholds (e.g., some US states). The fact that the global automotive industry has become more mature and complex indicates that competition will only intensify. Industry growth is becoming flatter, and many competitors with comparable market presence are jostling for domination and all of them have large financial resources that can be used to influence market share and innovation (Lewandowski, 2014). Japanese automakers have many cost leadership advantages that GM is still struggling to successfully create. High exit barriers make it imperative to continue producing and competing in order to recover investments and reduce prices than to leave the market altogether. Threat of New Entrants The industry has high and numerous entry barriers that favor established companies like GM. A majority of people would expect automobile manufacturing to demand huge economies of scale, which is a vital entry barrier. In addition, prospective entrants must achieve significant market share before they can attain required efficient scale; failure to do this could result in major cost disadvantages. Entry also requires huge capital investments and large and efficient supply chains that take time to build. This is why most new entrants (e.g., Tesla) focus on niche markets that have limited impacts on the market shares of established firms like GM. The regulatory environment also makes it very difficult for new entrants looking to compete in the automotive industry (McKee, 2014). For example, most governments have strict requirements on safety, durability, and reliability that carry adverse implications if they are not observed by companies. These implications include fiscal penalties that pose a huge risk to new entrants’ survivability. Established firms, on the other hand, can compete intensely and remain profitable despite the regulatory challenges inherent in the industry. Finally, building a reputation takes time and considerable investment that new entrants cannot muster. Substitutes and Complements The threat of substitutes and complements can be rated as between weak and moderate. In reality, there is no adequate replacement for automobiles. Although other modes of transport like railways and commercial aircraft are also efficient, automobiles are still preferred because of their personalized nature, sustainability, and affordability (Helper & Henderson, 2014). With global production increasing at a rate that cannot be matched by aircraft and train manufacturers, vehicular transport is still the primary mode of travel and transport. This proves that the threat of substitutes and complements is weak to moderate. Bargaining Power of Buyers Although individual buyers have some power over price in a specific dealership, it is becoming apparent that they have limited influence on manufacturers. Customers can conveniently, and with minimum financial implications, migrate to other automobile retailers. Moreover, customers now enjoy more access to industry information (shares, prices, costs, etc.) that empowers them to choose, based on numerous factors, between manufacturers and retailers (McKee, 2014). However, since there are millions of individual buyers representing a small percentage of aggregate sales, they enjoy limited bargaining power. Consequently, they pose a minor threat to established firms like GM. Bargaining Power of Suppliers Automakers require various inputs (services, raw materials, labor, parts, etc.). The prices of these inputs have a major impact on the profitability of producers. There are few suppliers automakers can choose from, especially because the materials used in the automotive industry are not exactly abundant. For example, in the United States, the aluminum used in making parts and vehicles is produced by a limited number of companies (Lesser, 2014). This gives them the edge when negotiating terms of supply with GM and other producers. This explains why some manufacturers have turned to carbon fiber instead of aluminum as an automobile component. Not only is it light and durable, but they can also produce it without having to deal with suppliers. Although manufacturers have large supply chains and distribution networks, these have limited bargaining power that cannot be used to gain significant leverage in their dealings with suppliers. Force Level of Threat Suppliers Strong Internal rivalry Strong Buyers Weak Substitutes and complements Weak New entrants Weak Organizational Structure and Design and their Links to Strategy Organizational Structure According to the information presented in Daft’s Organization Theory & Design (2012) General Motors can be described as a multinational, for-profit automobile manufacturer. Organization Design GM’s design is based on two factors championed by Daft (2012): structural dimensions and contingency factors. Structural dimensions include formalization, specialization, hierarchy of authority, and centralization. Contingency factors include culture, goals and strategy, environment, technology, and size. Structural Dimensions Formalization GM is highly formalized. Being a multinational, for-profit, and manufacturing organization, the company has a lot of written documentation that explain procedures, policy manuals, job descriptions, and regulations (Daft, 2012). There are also many documents that detail the firm’s activities and behavior in its industry. Due to GM’s size, it is unsurprising that the organization holds many meetings, seminars and group sessions that must be documented for future reference. In addition, employees must constantly be provided with information on their duties and expectations to optimize their performance. As such, the amount of written documentation in the company is large. Specialization GM is a major proponent and beneficiary of specialization. Since it is a manufacturing organization, there are many tasks and processes that must be executed to the highest standards in order to maintain high levels of quality (McKee, 2014). As a consequence, the company hires employees who specialize in certain aspects of automobile manufacturing so that individual processes can be completed in an efficient, sustainable, and effective manner. Hierarchy of Authority The leadership at GM is highly hierarchical. As a result of its large workforce and extensive operations, the company has implemented a systematic system that is based on vertical communication, delegation of duties, and protocol. All employees report to supervisors who also have supervisors who, ultimately, report to the CEO (Daft, 2012). The CEO sits on and reports to the board, which has the final word on strategic and organizational issues. The spans of control at GM are narrow, and this makes GM’s hierarchy very tall. Centralization General Motors is highly centralized; this is a common feature in the American style of management that emphasizes order and processes and features high-level bureaucracy. Decision-making is restricted to senior management, and junior employees are rarely allowed to make any decisions (Daft, 2012). In cases where a junior worker is faced with organizational-level decision-making, chances are that the employee will have to wait for his supervisor to intervene. The supervisor will also seek approval from his supervisor. Ultimately, the queue will go all the way to the CEO and, in some cases, the board. Contingency factors Culture GM’s culture is based on integrity, investment, customers, information, and innovation. Following its bankruptcy and subsequent bailout by the US government, GM adopted a new corporate culture that was inspired by cost leadership and cost-cutting (Helper & Henderson, 2014). However, in the last two years the company has placed customers at the center of its organizational culture by making customer experience and satisfaction its ultimate goal. Goals and Strategy GM is focused on becoming the largest automaker in the world and the most trusted automobile manufacturing brand in the world. In regards to the first objective, the company has been competing directly with Toyota, which currently leads global production. With respect to the second goal, GM is still a trusted brand in many countries in the world (McKee, 2014). In China, for example, the firm sells more vehicles than any other foreign automaker. GM’s strategy is based on producing quality, reliable, and affordable vehicles that give consumers a great driving experience. The company also banks on excellent customer service (maintenance, dealerships, etc.) to drive sales. In terms of generic strategies, GM currently uses cost leadership mixed with differentiation as its primary strategy to compete against its rivals. Environment GM’s external environment is both complex and wide. This is hardly surprising given that the company operates as a multinational, has a very large workforce, and competes in an industry where competition is cutthroat (Lewandowski, 2014). The firm’s external environment comprises all the PESTLE (political, economic, social, technological, legal, and environmental) factors. These factors combine to form the company’s larger external environment over which it has limited control. Technology General Motors relies heavily on technology to drive its growth and build its brand. Since its establishment, the company has used and developed different technologies and innovations to gain competitive advantage in the global automobile manufacturing industry (Anderson, 2014). The company continues to embrace technology and innovation and has placed them at the center of its strategic blueprint. Size As the world’s second largest automaker, it is safe to say that GM’s size is commensurate with its position. GM is a very large organization and one of the leading employers in the US (Helper & Henderson, 2014). Before experiencing financial difficulties and losing its leadership of automobile production to Toyota, the firm had led global vehicle output for 77 consecutive years. In addition, the company has extensive operations in its domestic market – the United States – and abroad. Link between Strategy and Organization Design GM’s strategy has a huge bearing on its design and vice-versa. The firm’s strategy influences its internal characteristics while its organization design aspects affect its competitive approach because it is developed to support it. Since the firm intends to expand and introduce new products, it “feels” and looks different from other manufacturers whose goal is maintaining market share for popular brands in stable markets (Anderson, 2014). The table below shows how GM’s organization design is related to its strategic direction, based on Porter’s competitive strategies. The table shows that Based on the above table, it is clear that GM’s strategy and design influence each other to a great extent. This proves that there is a positive correlation between the company’s structure, design, and strategic orientation. Strategy: Differentiation Design Innovation. Large R&D budget strong research capability. Flexible and horizontally coordinated. Learning orientation. Focus on value and customer experience. Values employee creativity. Risk taking. Strategy: Cost Leadership Design Highly centralized. Strict supervision. Routine processes and tasks. Efficiency orientation. Strict cost control. Highly efficient supply chain and logistics systems. Standard operating procedures. Low employee development and empowerment. References Anderson, C. (2014). Makers: The new industrial revolution. New York: McClelland & Stewart. Bakewell, T., & Darazsdi, J. (2014). Claiming your place at the boardroom table: The essential handbook to excellence in governance and effective directorship. New York: McGraw Hill Professional. Daft, R. (2012). Organization theory and design (11th ed.). Cincinnati, Ohio: Cengage Learning. Helper, S., & Henderson, R. (2014). Management practices, relational contracts, and the decline of General Motors. Cambridge, Mass.: National Bureau of Economic Research. Lewandowski, R. (2014). Beyond lean production: Emphasizing speed and innovation to beat the competition (Illustrated ed.). London: CRC Press. Lesser, R. (2014). Intelligent manufacturing: Reviving U.S. manufacturing including lessons learned from Delphi Packard Electric and General Motors. Boca Raton: CRC Press, Taylor & Francis Group. McKee, S. (2014). Power branding: Leveraging the success of the worlds best brands (Unabridged ed.). London: St. Martins Press. Read More