Strategic Management Used At General Motors Business Essay

Automotive legend of the last century, GM, is one of the biggest corporations in the world. Although GM had big turmoils in its business, it still operates successfully in all over the universe. The aim of this assignment is to determine the GM’s business strategies with rises and falls by looking into their history, having the data of what and how did they do in their businesses and analysing their company activities.

Being a leader and pioneer of the automobile industry since this sector’s infancy times , General Motors Corporation still keeps its successful place in this competitive business. Since 1908, General Motors Corporation (GM) is one of the largest auto producer in the world as measured by global industry sales, whose headquarters is in United States of America. William C. Durant was the founder of General Motors Company with being an innovator in automobile technology. As being a multinational automobile manaufacturer General Motors employes about 280 million people all around the world with the total assets of 149 billion US Dollars. The company manufacturers the cars and the trucks in 55 different countries (exluding US and Canada). General Motors has sub-brands under its management. Buick, Cadillac, Chevrolet, Hummer, Pontiac, Saab, Vauxhall, Holden, Saturn and Wuling are some one the names of General Motors’ brands.

The General Motors Company placed into a global market throughout the 1920s. Meanwhile, the company built itself as a firm which provided prestige, power and the other options. As a competitor, Ford, that focused on lower costs and lower prices, reversely GM targeted customers who had likely money to spend on more featurative products. During the World War II, General Motors Company manufactured armament and military vehicles,both for Allied and Axis forces. GM had improved its business level and becomed the largest corporation in the United States after the world war II.

During the 1950s, style, desing, and engineering innovations are applied into the company’s production line. In 1960s, GM also focused on insurance, home appliances, financing, electronics, locomotives and banking etc. In request for the smaller cars of European producers , GM introduced Chevrolet Corvair, that was ciriticized for safety issues in following days.

In the next decade, oil prices went up and as well as the oil costs , environmental problems are taken into consider at those times. Therefore, there were a shift from huge oil guzzling cars to smaller European cars increased with the first energy crisis. After that , second crisis followed quickly by rising the concern for pollution and controlling of over emission and safety problems resulted GM lose of its market share to more economical and smaller vehicles.

Especially between 1980s and 1990s , the Japanese imports rocketed ( See Appendix 1) ,so that, that time of a period was a hardship for GM, which was plagued by high competition with Japanese companies. As a result of this, GM had chenged its strategies like redesingining and reengineering of its car models. However , because of the high production costs , GM had continioued its high losses in the market with huge numbers. In 1990s, General Motors Company had started to close many of its plants and also cut the jobs. With these turmoils among the company, GM followed different strategies ,like buying Saab and Daewoo, and a little portion of Subaru and Suzuki’s shares, that were sold later for increasing the money. As follows, GM merged with FIAT car company which lasted five years.

In the late-1990s, General Motors Company seemed on the way to big recovery, with sales stabilizing and stock increasing. However, end of the 2001 September, the company started to have challenges, and the system was changed again. In the following next few years, General Motors became a survivor in the highly competitive automobile industry with the economic recession in 2008, therefore the company had bailed out by the government for avoiding bankruptcy. (bbc.co.uk, 2010)

‘In the first quarter of 2009, the auto giant posted a 6 billion dollars loss and said that it burned through 10.2 billion dollars of cash in the first three months of the year as revenue plummeted by 20 billion dollars'(about.com, 2010). However, besides these hard circumstances, in the first half of 2010, the General Motors sold more vehicles in China than in the US. (Constantini,2010)

3. STRATEGÄ°C ANALYSÄ°S OF GENERAL MOTORS

Analysing the company’s internal and external environments, there are many different frameworks and models exist for companies. By having some strategies enables the firms to get better understanding of the critical factors for their future success. Some sof the strategic analysis methods are Dunning’s Eclectic Paradigm (Cavusgil et al., 2008), Porter’s Diamond and Five forces, Directional Policy Matrix, Mintzberg’s School of Thoughts (Mintzberg et al., 2003) Value Chain Analysis (Johnson et al., 2008), SWOT analysis (Kotler and Keller, 2009), etc. The suitable frameworks choosing is depends on what the company needs to address and in what circumstances it needs to do so (Johnson et al., 2008). ‘ This is because many firms today operate both on a national, regional and global basis and as such need appropriate strategy for each individual environment’ (Schlie and Yip, 2000).

As being a multinational enterprise, GM operates in approximately 57 countries, including Canada and US, and they serve and operate in variety of services from improvement, marketing, manufacturing of cars, trucks to economy and insurance services (Datamonitor, 2009).

A potent tool and a flexible framework that could assist in describing and assessing competitive pressures in an industry and industry attractiveness is the Porter’s five forces (FF) model (Niederhut-Bollmann and Theuvsen, 2008). The model helps a company to decide how and where to make strategic changes for gaining and sustaining competitive advantages over rival firms and thereby generating above-average return on investments (Niederhut-Bollmann and Theuvsen, 2008).

Figure 1: Michael Porter’s Five Forces

Source: Michael E. Porter “The Five Competitive Forces That Shape Strategy, 2008

In addition, one the school of the Mintzberg Ten School of Thoughts, The Design School, gives us another highly essential analysis for the firms. According to Mintzberg, The Design School ‘sees strategy formation as achieving the essential fit between internal and external aspects'(Mintzberg et al., 2003:p23). Meanwhile, strenghts and weaknesses are given as the internal capabilities, on the other hand, opportunities and threads are seen as the external possibilities.

Figure 2: Mintzberg’s Design School of Thought

Source:http://blogtext.org/russelldavison/article/7281.html

Therefore, in this assignment, the General Motors Company will be analysed through company strategies. Firstly competitive advantage and analysis will be done according to Michael Porter’s five forces. Secondly, internal and external analysis will be given according to Mintzberg’s Design School by applying the SWOT analysis. Finally, in the last to secion Value Chain and BCG Matrix Analysis will be examined.

3.1. COMPETITIVE ADVANTAGE ANALYSIS OF GM ACCORDING TO MICHAEL PORTER’S FIVE FORCES

The competitive analysis of a company is an essential element of identifying components which are a threat to reduce profitability. For assesing over the competitive problems , Michael Porter’s five forces analysis is the one of the most efficient way. Porter (2004) has brought the light of five such factors: (1) Rivalry between existing competitors, (2) Barriers to entry, (3) Pressure of price from Substitutes/Complementaries, (4) Bargaining power of buyers, (5) Bargaining power of suppliers. Therefore, General Motors Corporation’s competitive advantage analysis will be done according to Michael Porter’s five forces .

3.1.1. Rivalry Between Existing Competitors: ‘Rivalry occurs, because one or more competitors either feels the pressure or sees the opportunity to improve position’ (Porter, 2004 :p.17). Additionally, ‘The strategies pursued by one firm can be successful only to the extent that they provide competitive advantage over the strategies pursued by rival firms.’ ( David, 2011 :p.107-108). Therefore, if we look at the GM motors in this section, in the 1970s and 1980s, competition in the US automobile industry had become much more strong with the increase of foreign rivals such as Honda, Toyota and Nissan (See Appendix 2). Although GM was a leader of the automobile industry at that period of time, its rivals had started to compete with GM providing some different offers. For example, Toyota started to produce cars with lower price than GM cars , whereas the quality of cars were high. So that, the competitros of GM became well-known brands ,while GM had difficulties with competing with them.

3.1.2. Barriers To Entry: According to Porter, new capacity may be brought to an industry by new entrants. Furthermore, gaining the market share, and getting high proportion of resources can be achieved by new entries. Meanwhile, the presence of of new corporations in an any industry can push the prices down and may decrease the profitability. Although these entries may seem as a threat, those may protect the established companies. During the both world wars, GM made a high profit, and it enlarged its business. Being a leader of the sector and being a well-known brand placed the GM’s competitors very difficult positon to entry the industry. Especially for the smaller firms, competing with the GM was very hard. In early 20s, GM invented self-starters by differentiating itself from Ford, later on , in 1970s, Japanese and European companies introduced their fuel-efficient models to the industry.

3.1.3 Pressure of Price From Substitutes/Complementaries : ‘All of the companies are in the competition broadly with the industries manufacturing substitute and complementary products’ (Porter, 2004). In this highly competitive automobile industry, any change in the prices on complementaries such as gas, tires, could have a important effect on the demand for automobiles. If we look at the GM, recent rising gas prices are highly to get a bigger effect on GM. Because, generally GM’s cars are energy inefficient. Therefore, this will have great impact on GM.

3.1.4. Bargaining Power of Buyers: ‘Buyers compete with the industry by forcing down prices, bargaining for higher quality and more services, and playing competitors against each other, all at the expense of industry profitability'(Porter, 2004 p:24). As a result of highly improved information technologies, and as well as with globalization, customers of the GM (like for the other companies) became more aware of the what were they buying and how much were they paying. Furthermore, getting the information the rivals of GM from the internet increased the bargaining power of dealers of GM.

3.1.5. Bargaining Power of Suppliers: ‘ Suppliers of an industry plays a significant role for their businesses. They may reduce the quality of the products, or may raise the prices up. For GM, raw materials and machine parts suppliers’ threat is very low, because there many suppliers for those sections (Nytimes, 2011). However, the powerful labour union, United Auto Workers (UAW), is a potential threat to GM’s economical capability and endurance. For example, the liability of pension and health-care costs acquired an additional 1,400 to the cost of every vehicle comes from GM place compared with competitor products (The Economist, 2008). This is a magnificent amount and GM needs to search ways to cut this liability, therefore, GM may get more economical improvement and the growth of the company.

Figure 3: Michael Porter’s Five Forces adopted to GM

Source: Author

3.2. INTERNAL & EXTERNAL ANALYSIS OF GM ACCORDING TO MINTZBERG’S DESIGN SCHOOL

Mintzberg explained The Design School as in the following: ‘The Design School sees strategy formation as achieving the essential fit between internal and external aspects'(Mintzberg et al., 2003:p23). In this definition, internal factors are given as strenghts and weaknesses. Besides this, opportunities and threats are described as external factors. Therefore, for analysing the GENERAL MOTOR’S external and internal factors we should do a SWOT Analysis with the light of Mintzberg’s Design School.

3.2.1. Strenghts:

During the 20th century, GM has been the automotive leader in car industry. Although the company had some turmoils, its market share is still very much competitive in the sector. GM is well established not only in US but all around the world. Moreover, GM also have an rising share in the Chinese market (See Appendix 3). If GM takes the right decisions, there will be no reason for GM becoming a boss of the car industry again with.

In addition, GM has wide range of brands such as Cadillac, Chevrolet, and Vauxhall. Company operates in more than hundred countries in the world with employing the approximately 250,000 people (gm.com, 2010) . Therefore, General Motors, with its global experience and its huge market share in the world, is still keeps the professional place in the automobile industry.

General Motors Corporation uses OnStar Satellite Technology. This technology provides its customers security and safety facilities. For example, in the event of emergency , the system allows the driver to communicate with OnStar personnel just away a button immediately.

GM has been controlling the costs by alliance and partnership with corporations like Shanhai Automobile Industry Corp., Toyota Motor Corp., Daimler AG. So that, GM improved its cost reduction system by sharing the company costs.

3.2.2. Weaknesses:

For analysing the GM’s weaknesses, first, we should consider that, this company is an US firm. So that, from its early years until present times, it is still over dependent to US market. The company should take the benefit for expanding globally.

According to an article issued by Associated Press (2010), GM had low credit ratio which is determined as junk-credit (BB-). On the other hand, another problem is downsizing. GM put on the market some of its brands and it closed them completely. Additionally, the inactive profitability is the other issue of GM. After the global economic recession in 2008 , company’s profit margins and sales went down dramatically.

Staying one step behind on alternative energy movement is the biggest weakness for General Motors Company. The competitors of GM like Honda, Toyota, are using fuel efficiently, and also that are producing more ecological and environment friendly vehicles. Therefore, this may led problems such as decrease of market share and loss in company profit.

GM’s organizational structure is designed vertically. This causes a lack of information between the levels in the company, from bottom to top. So that, many problems can be occur because of the operational and top managerial levels uncommunicative situation.

3.2.3. Opportunities:

One of the lightly opportunities of GM is maintaining the Global Expansion . In the last few years, GM achieved a substantial rise in the Chinese market, that made the GM alarm to major on the foreign markets.

The other advantage for GM to take is the catching up the hybrid technology cars. Although they had lagged behind the alternative energy, it is not late for the automotive giant becoming again once it was.

Recently, GM started to operate Green-Manufacturing systems, such as water-borne technology, reduction goals for hazardous and non-hazardous waste at source ( See Appendix 4).

Developing new vehicle models and designs is the big advantage for GM. Because, as we know, what is in today will be out tomorrow. Therefore, focusing on innovations should be the urgent mission through the GM company.

3.2.4. Threats:

The threat of the increase in the supply costs is very common in automobile industry like as the other industries. This threat pushes the firms to reduce manufacturing and production costs as much as possible, without carrying away the product quality. For instance, the fluctuation in the steel prices between 2005 and 2010 had a negative impact on GM’s production costs, especially as a result of the economic crisis , the rise in 2008, put a negative impcat on GM ( See Appendix 5).

The other danger for GM is the increase in fuel prices (See Appendix 6). As same with the rising in the steel prices, after the economic recession in 2008, the sales have plummeted considerably. Therefore, soaring in fuel costs has played a magnificant role in enhancing the advantage for development of hybrid and more fuel efficient vehicles respectively.

The increasing competition factor is the another big threat for General Motors. Because, GM is not a leader once it was, currently there are many different brands in the industry, which are working hard for competing with their rivals. Therefore, GM should always keep the innovation on top for competing in the industry.

Figure 4: SWOT Analysis of General Motors

Source: Author

3.3. VALUE CHAIN ANALYSIS OF GM

Value Chain is called to add value to the product and remove excess waste of resource consumption, in other word, to maximize the value of work done by the systematic and asset management. Supplier of products and processes that increase the effectiveness of all stages up to final customers and to maintain, so used to gain competitive advantage. Value Chain  Management focuses on the destruction of waste inside the company and also focuses on the customer’s satisfaction inside the company .

Value Chain assits to the companies to identify activities where it may well apply its presence potentials (Diez-Vial, 2009) and also identify which activities to outsource in order to decrease prices by getting opportunity of country-specific advatages. One of the compenent of manufacturing is outsourcing which is congress the features of GM’s activities that needs a much more labour to the other countries where labour costs are cheaper, and this could relieve GM from employment responsibility . Additionally, recently GM could be able to resolve problems with United Automobile Workers.

Michael Porter (2004) examined a set of interconnected generic activities common to a variety of companies. According to Porter, Value Chain Analysis is described as below:

Figure 5: Value Chain Activities Table

Source: http://www.netmba.com/strategy/value-chain/

GM, for instance, gives highly importance on its customer relationships. For the theory part, Service activities are the activities that continue and enhance the product’s value including customer support, repair services, etc. Meanwhile, for the GM strategy, they are using OnStar Technology which enables the customers get in touch with the call center of GM in an emergency situations.

3.4. BCG MATRIX ANALYSIS OF GM

The BCG Matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit ( Lancaster and Reynolds, 2004) . To ensure long-term value creation, high-growth products and low-growth products should be undertaken by the companies in need of cash inputs and generate a lot of cash respectively.

Figure 6: BCG Matrix adapted for GM

Source: (Lancaster&Reynolds, 2004)

As I mentioned above, determining the factors of industry and as well as firms’ businesses is playing an essential role for gaining competitive advantage in the global market. Till before the two decades, oil prices had gone up with high percentages. So that, this and the environmental factors had oushed the automobile sector to the fuel efficiency vehicles. With the consideration of BCG Matrix applied to the GM, GM should pull off the brands like Pontiac, Hummer which are fuel-efficiency and oil-guzzling cars. Furthermore, more investment should put into producing smaller fuel-efficient vehicles, and also HEVs ( Hybrid Electric Vehicles).

4. CONCLUSION

In conclusion, analysing the General Motors Corporation is done by using some strategical analysing methods, such as Porter’s FF, Value Chain, BCG Matrix, and Swot Analysis. Searching and applying the systems into the GM is quite broad because of the company’s long time history which is more than a hundred years. In to the this content, the Company is analysed in detail according to factors of competitive advantage, internal and external.

Therefore , I reached up a conclusion for GM. Of course, every single company and firm can make mistake in their business life cycle, however, minimizing those mistakes is one of the essential area for the firms. If we turn to GM, they had been really successful in the industry when there were no any other competitors. However, once GM’s rivals entered to the business, GM started lose its market share globally. Because they overlooked at them, they didnt do many things until they lose their profits. After that , they changed some system, they started to struggled with their rivals. So that, with consideering all the analysed strategic forces above and the company, some recommendations should be done.

For forthcoming improvements, first of all, General Motors should describe possible and suitable sector to serve. And also GM should concern about arrangement application and differentation strategy. For example, Focus strategy may assist GM to enable to reduce the costs as GM diverge from broad-line manufacturer to another varieties. By doing his, GM will be able to differntiate its product from the other rivals , because of focusing on a specific niche market that may perform much more better .

The other one is to stay ready for even every hard and difficult circumstances, such as financial crisis. Although , generally it is an unexpected factor, companies, and also GM, should gain their SWOT analysis under the line of Threats. Staying in prepare positon always gives high competitive advantage with the other competitirs in the global industry.

Last but not least is maintaining the speed of rivalry environment, GM should enhance and improve its product development. Alongside with the product development, environmental factors should be considered as well for gaining the high quality of business.

5. RECOMMENDATION

In my opinion, General Motors should follow some strategies such as restructuring, product development, liquidation and market development. If GM does the product development, this would allow them to sustain the speed of rivalry environment. As a pratic example of this theory is Hybrid SUV vehicles, which matches the GM shape with continuing the portion of SUV, basically that allocate the company to keep on with trend models.

My another recommendation for GM is reevaluation of the market. Global market is a market that which changes frequently. First GM vehicles’ had got tradition style, however, among the changing industry, they started to produce big cars, especially for the US market. One practical example for that case is to produce ultra-modern vehicles. If they manufacture that futuristic cars before the Honda or Toyota Company, they would gain an advantage in competitive industry.

Lastly, liquidation is very essential for GM. The reason for that is, its assets are much more than its incomes. If General Motors can get the assests through the cash, therefore, GM could be more available finance. Moreover , when they achieving that process, GM wouldn’t have to rely on US market, they could be independent in global industry.

6. APPENDIX

Appendix 1 – Imported Japanese Cars Develoopment:

Source: http://www.emeraldinsight.com/journals.htm?articleid=1501956HYPERLINK “http://www.emeraldinsight.com/journals.htm?articleid=1501956&show=html”&HYPERLINK “http://www.emeraldinsight.com/journals.htm?articleid=1501956&show=html”show=html

Appendix 2 – Auto Sales Monthly Change:

Source: http://www.wstreet.com/investing/stocks/19359_gms_fire_sale_and_auto_sales_preview.html

Appendix 3 -China Car Market Soars:

Source: http://seekingalpha.com/article/243737-outlook-2011-china-says-no-more-cars-down-goes-auto-industry

Appendix 4 – Green Manufacturing Processes:

Source: http://www.emeraldinsight.com/journals.htm?articleid=1863551HYPERLINK “http://www.emeraldinsight.com/journals.htm?articleid=1863551&show=abstract”&HYPERLINK “http://www.emeraldinsight.com/journals.htm?articleid=1863551&show=abstract”show=abstract

Appendix 5 – Steel Prices Between 2005 and 2010:

Source: : http://www.ttiinc.com/object/ME_Materials_Steel

Appendix 6 – Rise in Fuel Prices Between 2009 and 2010:

Source:http://www.bbc.co.uk/news/business-12098981

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