General Motors Strategy and SWOT Analysis - Essay Example

1. General Motors (GM) is regarded as one of the largest industrial corporations in the world, employing over 325 000 people globally and operating in 32 countries. Ironically, it is one of the least profitable global carmakers owing to various factors, some of which would be highlighted in detail below. The company was formed in 1908 and it comprised of 25 independent car companies of which GM acted as a holding company. Through the years, it went through various ups and downs it its operations. One of the major challenges if faced was the stiff competition from other rival competitors such as ford motor company. The emergency of the low cost Japanese made cars compounded the difficult situation of competition which was already taking a toll on General Motors. Various global changes also took place in the motor industry such as new technological innovations, new marketing strategies that specifically focused on meeting the interests of the customers among other factors. In response, GM invested heavily in its endeavour to keep pace with these global changes. However, the major setback that hampered its efforts was the aspect of bureaucracy resulting from hundreds of divisions within the company which made it difficult to have focused, well coordinated operation systems. During its heydays, GM used to pay very high benefit packages since it was very profitable especially during the mid 1970s when it dominated the US markets. However, due to changing global trends especially the emergency and ultimate dominance of other rival competitors such as Toyota and Nissan, GM has lost some of its competitive advantages to these rivals. Compared to Toyota, GM pays as much as $35 for pension benefits whilst Toyota pays around $11, which gives it a cost advantage of about $1500 a car contrary to GM’s position. GM has to charge less premium than its strongest competitors hence it sells its vehicles at a loss. GM is now in a predicament of continuing paying high benefits to its workers against the backdrop of losses owing to the union laws that are a bit stringent such that it cannot abruptly cut these benefits to meet the global trends nor simply layoff some of the workers. It seems GM’s revenues are higher than those of Toyota but at the end of the day Toyota has higher earnings as a result of the fact that GM spends more money on operating costs and other expenses. GM makes more cars than it can profitably sell which means that it would end up selling at a loss. In fact it is no longer getting profits from its manufacturing business. This price war has often led it to offer discount. One major challenge is the ability to meet the global changes in customer needs. 2. Basically, SWOT stands for strengths (S), weaknesses (W) while on the other hand the external environmental factors are regarded as either opportunities (O) or threats (T). These are environmental factors that often impact on the operations of a company that need to be considered when making decisions that affect it. There are quite a number of strengths for GM which could be fully utilised to reach proportionally high goals. Since this company is a merger of 25 independent companies, it has strength of having a pool of resources that are brought to work together under one holding company. This is can go a long way in alleviating a crisis of shortage of skilled labour force if fully utilised. Another major area of strength of GM is its ability to have a global patent, that is exclusive rights to their brand name and product that is different from the products already existing. GM is a globally recognised company operating in many different countries producing its own brands. This is an added advantage it can capitalise on by producing vehicles that can make it absolutely unique from those manufactured by other rival competitors already in the market. Having good reputation among its customers is another probable strength for GM. This can be achieved through establishing a good rapport among its customers which in turn would yield mutual understanding between the two. It should strive to establish well defined communication channels which can make the company stand better chances of positive growth. However, there are certain weaknesses bedevilling GM in its endeavour to achieve this feat of establishing itself as a globally acclaimed and reputable car manufacturer. One major weakness that is evident in its operations is the apparent excessive number of employees. In 2005 it employed over 325 000 workers with more than 30 000 managers. It has more white collar workers than the production workers in some instance. Another weakness faced by GM is that of having hundreds of divisions within one company. This is a serious weakness as it lacks proper channels of streamlining management decisions. Each division has got its own management which is problematic in running the company. Each division procures its own materials to use which causes high costs to the company and more costs are also incurred in undertaking marketing research hence this would be a major draw back. Also, these divisions seem to be competing against each other which is counter productive. On the other hand, its opportunities lie in its ability to penetrate international markets which may have a different appeal than the local markets. By virtue of reaching global markets, GM stands better chances of establishing itself as a force to reckon with in the car manufacturing industry which can be very profitable in its business operations. Venturing into global markets is advantageous in that different people have different tastes hence this can go a long way in attracting potential buyers from across the globe. Reaching global markets in particular requires concerted efforts such as making use of modern communication technology such as the internet which is accessible to a wide range of people especially during the contemporary period. Use of the internet can be used as an effective communication strategy that would be aimed at targeting particular groups of people likely to be potential customers. Use of the internal system which links all the divisions together can also be a very effective opportunity that can be harnessed. Another opportunity is the use of low cost lean manufacturing that is used by the Japanese and product diversification is another viable opportunity that can be fully utilised to reap positive benefits. In view of the above discussion, it can be noted that these opportunities can stimulate positive growth if carefully managed. On the other hand, each company, whether new or old is faced with various threats. In this particular case, threats include price wars with rival competitors who are well established. Toyota and Nissan in this case as well as Ford are acclaimed rival competitors who are also out in full force competing for the same customers with GM. The aspect of pricing of the finished cars such that they can be profitable is a bit contentious issue given that very high prices would deter the customers from buying the cars while at the same time, very low prices would result in losses as is the case. One major identifiable threat in this case is that other competitors in the industry of manufacturing cars are managing to keep pace with the changes that are taking place in the global markets whilst GM is still lagging behind. Whilst it heavily invests in its endeavour to keep up pace with some of the global changes, the problem is that of implementing the programs since there are so many decision makers in the same company. 3. “A SWOT analysis is a useful instrument for helping managers to identify internal strengths and weaknesses of a business and external opportunities and threats facing it,” (Strydom J. p 31). This analysis is very important to marketing managers as it allows them to focus on key strategic issues based on the notion that an effective strategy fully utilises the strengths and opportunities of a business and strives to minimise the weaknesses and threats. The aspect of global patents is very important as it gives a company exclusive rights to its brand. There would be very little chances of duplication of products since the company would have its own legal, licensed product. In this way the customers would have trust in that particular product which will in turn cultivate mutual trust. GM can capitalise on this since it is also an established motor manufacturer in US and globally. This in turn often requires concerted efforts to instil confidence in the customers which removes barriers that may exist such scepticism about the brand. The major weakness faced by GM is that of excessive number of employees which is problematic in that some would end up being liabilities to the company as there would be a tendency of duplication of roles. In this scenario, each division has got its own management structure and there are various management levels. These structures are bureaucratic in that there would be no clearly defined channels of overall decision making processes as managers from various divisions would also want to take an active role in decision making process. This makes it difficult for the management to streamline decisions such as implementing quality initiatives quickly. Having hundreds of divisions within one company is another major setback as all this divisions would be drawing more money on expenditure than the profits they would generate. As it stands, each division procures its own manufacturing materials. At the end of the day, these divisions are competing against each other as they are making different models of cars. It would be wise if these divisions combine their efforts and specialise in producing quality cars that meet the expectations of the customers. In other words, centralised management is the solution to the problems faced by GM. Some of the opportunities which can be enjoyed by GM include the adoption and use of internet which can be effectively harnessed to reach a wider range of customers at a relatively cheaper cost compared to other forms of advertising using other conventional media. This endeavour calls for precision on the market segment being targeted. There is need to identify the targeted audiences which can make marketing relatively easier as the company would know its specific target group hence easy to reach them. Carefully planned information can be disseminated via the internet which is easily accessible to almost everyone. The use of improved IT that is able to link all the company’s branches would be an added advantage as it would allow easy access to all the information about the operations of the organisation especially to the management. GM’s threat is that of failing to keep pace global technological innovations. Though it invested heavily to improve its technology such as automated factories, it often lacked the know how to implement it. Ford and Chrysler, rival competitors had learned the new manufacturing methods better because they had centralised management systems that made implementation of new initiatives faster than GM which had multiple divisional management structures. In spite of efforts to strengthen its global operations, it still has to meet the challenge of its global competitors. The aspect of pricing is another major challenge to GM the reason why it is regarded as the least profit making organisation in the field of car manufacturing. It is mainly affected by the fact that it pays high benefit packages to its employees and it also has a disproportionately high number of white collar workers which gobbles much of its funds. It can not price its otherwise low quality cars compared to rival competitors, higher as it would result in reduction of sales which lowers revenue. 4. GM has the potential to perform better and even outclass its competitors if it tries to implement certain strategic measures in its operations that would result in the reduction of operational costs. Reorganizing the company’s hundreds of division into a single, manageable entity is the most effective strategy that can certainly bail out GM from its loss making status into a formidable profit making organization. In this regard, the divisional companies are competing against each other instead of working together to improve the quality of certain specific models of cars then work as a single entity. Having many companies under one umbrella is a poor strategy that often leads to losses. The main problem bedevilling it is the lack of well coordinated management structures since each company has got is own management. In other words, each company under the umbrella name is independently operating from each other which makes it difficult to implement strategic decisions that affect the overall operations of the company. Therefore, centralising management is another solution to the current predicament of conflicts in decision making. Like other competitors such as Ford and Chrysler, management is highly centralised such that all the decisions made are followed by the whole company unlike GM’s situation where the management is decentralised hence the managers in different companies would have different views on proposals that can bring about change. Implementing an effective marketing strategy can go a long way in improving the company’s ability to satisfy customer needs. GM used to operate on the wrong philosophy that large cars meant large profits. This shows that it seriously lacked vital information about the needs and interests of the customers which is a poor strategy in business. A good strategy ought to take into consideration the needs of the customers and how it can satisfy them profitably. The customers seem to prefer less expensive quality cars which are smaller, the concept which GM lacked. Diversification of products is another strategy than can improve the performance of an organisation especially if the main product offered by a company suffers unprecedented decline or loss of sales. Venturing into other business such as finance, computers and IT or even aircraft like what GM has undertaken to do is a remarkable stance that can cushion the company from an unexpected mishap that can take place in the market. For instance, there has been a major shake up in the car manufacturing industry such as oil crisis as well as the emergency of low cost Japanese cars that seem to be preferred by customers. Other departments would remain productive in the event of such scenarios. 5. A close financial analysis of GM shows that its return on invested capital is about 1% compared to Toyota’s 6%. This is attributable to quite a number of factors that characterised both GM’s operations as well as other market factors since its inception. It can be noted that from 1925-1975, GM dominated the US car market controlling over 65% of domestic sales. However, the emergency of low cost Japanese cars offered a source of strong competition which resulted in GM’s sales plummeting. This period heralded a turning point in GM’s financial position as it embarked on a massive investment drive to try to turn around the fortunes of the company in the face of stiff competition. To avert the effects of stiff competition, GM began using its huge resources to improve quality as well as reduce costs. By 1990, it can be noted that the company had used over $100billion which was enough to buy Toyota and Honda given their market value at that time. It also invested over $50billion to improve its update in technology. However, these initiatives were not very successful as it lacked people with the know how to fully utilise the technology which was even costly to the company. GM also embarked on the Saturn project where it invested $1.9billion for the factory equipment. By 1991 Saturn had built only 50 000 cars short of its 240 000 and it made a loss of $700million. Even though it had improved in 1992, it still made losses. One main reason for GM’s failure to make profit from investments in technology like its rival competitor Ford was the difficulty to fully implement the initiative as a result of the bureaucratic structure which existed in its divisions. It took longer for it to respond to technological advances which reduced its ability to respond to customer needs and demands. It even embarked on global penetration of the market, but it still fell short of meeting the challenges of its competitors. In other words, it was investing more than it would profitably gain. Some of the set backs facing GM include the challenge of the competitors. Ironically, it pays its workers more than them which compounds its financial stress. It pays an average of $35 for pension and medical aid for each employee compared to $11 by Toyota. As a result, it gains less premium than Toyota which gets about $1 500 per car sold. Given this state of affairs, it can be noted that GM is selling at a loss. It is also faced with the predicament of price wars against its rivals. It has to reach a compromise and offer a discount in its car sales because it has excess capacity where it makes more cars than it can profitably sell. In view of this scenario, it can be noted that GM has the capacity to generate revenue but its profit margins remain very low. 6. The major recommendation for GM is the need to streamline its activities towards meeting one organisational goal. Divisions within one company are disadvantageous in that each company is responsible for its own affairs, hence it would have its own strategy of operating. It becomes difficult for the implementation of long term strategic decisions that affect the overall company. The environment in which companies operate is subject to change and some of these changes cannot just go unnoticed. During the contemporary period, there are a lot of changes taking place such as new technological advancements which makes production in the manufacturing industry relatively cheaper and easier. It would be folly for the company to ignore such technological changes as it would be bound to perform badly in the face of growing competition. Decision making should therefore, be streamlined and centralised as a way of increasing efficiency in implementing strategic decisions that help improve the operations of the company. It is highly recommended that adoption of new technological innovations be given priority as they greatly improve the operations of the company. This can be achieved through establishing a centralised line of authority which speaks with one voice unlike various divisions which have conflicting interests. Various divisions within the company greatly strain its potential for growth as it pays heavily to meet the operating costs. In the case of GM, each division was supposed to procure its own material for use which is a burden on the budget of the company. Instead, it was going to be wise if all these costs were directed towards attaining one goal. Since each decision is entitled to oversee its operations, it becomes very difficult to properly account for the losses or profits gained. Another major recommendation that can be made to GM is to revamp the bureaucratic structures of management that exist in the corporation. There are so many managers within the company structures which causes duplication of duties. This would just be strenuous to the company as unnecessary salaries and benefits would be paid to workers who are not productive which would result in the company operating at a loss even if it would be in a position of generating quite a substantial amount of revenue. 7. GM has underscored the need to reduce the cost structure through implementing of new lean production techniques which are cheaper after realising its past failures that have seen it remaining one of the least profitable global car manufactures despite the massive investment attempts to keep pace with the technological changes taking place in the global environments. It has also started investing in technology that can be built into its cars and reduce the cost of producing it. It has also embarked on launching a centralized vehicle launch center and also to implement common systems and processes as well as best practices in its entire operations. In 2000, GM started building a $1billion state-of-the-art manufacturing plant that utilises most advanced flexible manufacturing configurations to help GM raise its quality nearer to that of its Japanese competitors. This resulted in improved productivity than any of its other US competitors. This was also coupled with finding more cost effective ways to mange its supply chain which was also aimed at improving relationship with the suppliers of its parts. GM also embarked on introducing a new initiative in 2000 meant to reduce costs where its Global Manufacturing System is being implemented across all GM facilities worldwide to standardize its approach to making cars. This was done through a standardised IT system that linked all car plants directly to its chain of global suppliers to improve efficiency in its global supply chain management. This resulted in a sharp rise in its production of vehicles across North America. It also improved its IT structures. This helped GM to implement its business model in many ways. It permitted fast global coordination in design and engineering development. This allowed engineers to share information globally and this reduced costs as well as duplication of work by engineers in different research areas. GM has also undertaken to strengthen its global operations through venturing into new markets particularly in Europe and Asia. It also embarked on joint ventures with other car manufactures in a bid to better its chances of growth. For instance, it entered into an alliance with a Russian company to produce a line of low cost Chevrolets tailored to meet the needs of customers in Eastern Europe. However, in spite of all these major changes, GM’s major challenge has been associated with difficulties finding the right way to brand and market its cars as a result of the increase in global competition and it is investing in millions of dollars to promote its brand name. Whilst there has been a notable increase in GM’s car sales owing to its concerted efforts in major investments meant to meet the global standards, it is still regarded as one of the least profitable car manufacturer as a result of the excessively high benefit packs paid to its workforce which is still very high. This is one of the major setbacks bedevilling GM in its operations. Bibliography Strydom J. (2004), Marketing, 3rd Edition, Juta & Co Ltd, SA. Armstrong, G. & Kotler P.(1996) Principles of Marketing, 7th Edition, Englewood Cliffs: Prentice Hall. Berry T. & Wilson D. (2001), On Target: The Book of Marketing plans. How to develop and implement a successful marketing Plan. Palo Alto Software, Inc USA. Burgess S.M. (1998), The New Marketing, Zebra Press, SA. Cant M.C. (2000), Marketing Management, 4th Edition Juta and Co Ltd, SA. Kotler P. (1999), Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. Read More