Organizations undergo various significant changes when implementing new strategies in their mission towards achieving success. Change occurs many times throughout an organization’s existence as the environment in which it operates evolves, which is a vital and normal occurrence in any successful company. Change has become the routine in many companies both in the public and private sector, being attributed to the: fluctuations in the economy, people becoming more enlightened, urbanization, and the shift in power and authority in the society. This is the reason why the subject of organizational change has become common in many businesses and corporate entities worldwide.
Thus an organization’s change endeavors should always be aimed at improving the overall functionality and competence of the entity. Society now demands more services from the government and also more products from the business sector, thus necessitating companies to implement organizational change to remain relevant in the market. Some of the strategies successfully adopted by various companies include down-sizing, right-sizing, new product development, changed processes, and governmental actions with respect to trends, issues, and problems that are driving the changes. Thus, the kind of organizational change adopted all depends on the situation facing the company and the goals it intends to achieve. In conducting a study on organizational changes, we will consider General Motors as our case study.
General Motors, formed in the year 1908, is one of the world’s largest automakers and has its headquarters in Detroit, United States. The company is a multi-national firm with 31 plants spread around the world and has 205,000 employees. The company manufactures several vehicle brands, which are: “Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden, Jiefang, Opel, Vauxhall and Wuling” (Ferguson, &2009). The company’s major markets are the United States, China, Brazil, Germany, the United Kingdom, Canada, and Italy.
Since its formation, GM has been reputed for; vehicle safety, security and information products. However, it was not spared by the global economic turmoil with its sales drastically dropping leading to reduced revenues for the automaker. For instance, in 2009 General Motors’ sales fell by 30% compared to other auto manufacturers; Ford’s fell down by 21% and Toyota’s fell down by 38%. These conditions have put GM in a compromising situation that almost threatened to collapse of the one of the world’s largest employers. The company has incurred losses in billions of dollars in the past few years and has been asking for the government support in this crisis.
GM, just like other companies, has been compelled to implement some changes in its structure and operations to cope with the economic conditions. However, change can be achieved through various ways or models, which can be applied depending on the type of entity and it’s complexity in operations. One of the models and the most suitable one for GM is the “change now, profits later” model. This means that all the resources are geared towards implementing new strategies and not necessarily immediate profit making activities. It involves changes in strategies, technology structure management and personnel.
GM started by changing its CEO; it employed an executive who has no experience in motor business but rather an expert in financial management. The next move was downsizing: this is reducing the labor force of the company permanently to create a leaner company that can be effectively and efficiently run. This can be due to bad economic conditions or just a decision by the management to reduce operating costs so as to optimize on the overall performance of the company. The following is the reorganization points adopted, which gives a guideline for implementation of the required changes in the company. The plan generally entailed improvement of its vehicles safety, fuel efficiency for its cars, reduction of carbon emissions from its vehicles and the countries dependency on imported fuels.
Downsizing can also be referred to as: “reorganizing, reengineering, restructuring, or rightsizing.” In spite of the word used, downsizing is basically “layoffs that may or may not be accompanied by systematic restructuring programs such as staff reductions, plant closings, or other forms of reducing payroll expenses” (Senior & Swailes 2010). GM started downsizing its employees in the 90’s and has continued so into the twentieth century due to the changes in stock market, and low revenues due to market instabilities in the United States.
The latest strategy to downsize the company was in April 30th 2009, GM laid off 47,000 workers and 2,600 dealers to avoid an foresighted bankruptcy suit of a $44 billion debt. This lay off was a massive 23 percent of the current 250,000 workforce. The management has cited that the saddening changes were meant to enable the company to stay in business in the present economic recession and to enable it to prosper more even after the market conditions have recovered. The change occurred in phases; the first lay off happened in May 1st 2009 in which 3,400 employees were laid off and a strategy to reduce the remaining employees’ salaries was underway. Each employee would have a 3-10% cut in their salary depending on the position of the person in the company. The company devised a program to compensate the employees by awarding little benefits.
The laid off personnel were to be given a one month’s pay for every two years up to six months, they would keep the company’s car for a month and get job placement help organized by the company for three months. GM also transferred the health care obligations for the workers to the United Auto Workers Union to which it paid $30 billion and $1.4 billion of stock to be paid in four years and also faced of longtime health care benefits for its white-collar retirees respectively. This move of course has led to the abandonment of some brands because there aren’t enough workers to enable production nor is there capital for operation.
One of them is the Pontiac and also stopped manufacturing the hummer H2 which was generating losses for the company. GM has also close down many plants due to the reduced production and the sales level. “Examples of plants that have recently been closed down due to lack of business are, two assembly plants in Michigan and Ohio and temporarily closed down nine inactive North American assembly plants in response to the weak demand and about 2,000 workers went home” (Shepardson & Priddleurl 2009).
In the late 2008 and early 2009 at the time the global economy was experiencing a free fall, GM and also other automakers were biting the cold and had the governments as the last resort to bail them out of their desperate situation. It was getting obvious that these companies and especially GM were getting bankrupt and that would mean trouble for every one including the government due to the huge eminent loss of jobs and the overall impact on the national economy. Since GM has been among America’s biggest employer and its down fall would have been a major hit on the US economy, the government was enthusiastic on saving the company from the crisis. The government therefore agreed to help by giving out loans for the automakers to make cars for the few people that still wanted them. It allocated $24.9 billion of the $700 billion bailout fund for the Big 3 auto companies: $17.4 billion for General Motors and Chrysler $6 billion for GMAC” (Ferguson &Van, 2009).
But the US government gave vesting condition that GM had to undergo some restructuring if it was to qualify for financing. Some of the changes as mentioned earlier were; downsizing, closure of some plants and dropping some of its dealers. GM would then surrender its common stock, and preferred stock to the government, hence giving the government a 60% ownership and an agreement to repay the loan by 2012. The company also guaranteed to cut its debt by $30 billion through giving the debtors ownership rights by exchanging the debts for equity. The company also put up for sale some of its models Saab, Saturn and Hummers so as to reduce their models to 40, thus reducing the number of employees in the country by almost half. These changes were broad but mainly involved closing down 14 factories, cutting 29,000 jobs and shedding 2,400 dealers.
Brands and Channels
The firm should set a niche on its main brands, which are, “the Chevrolet”, “Cadillac”, “Buick” and “GMC.” The hummer will be phased out in one year and by the end of 2010 the brand should have been sold-off. The Saba and Saturn will remain in the market for two more years until the end of GM’s contracts with the dealers which are to end in 2011. Any dealer who wishes to end the contract before then will be appreciated as longer as all the pending sales are cleared up. The company’s focus on its four main brands and three retail channels from six will necessitate major changes in the marketing and human resource departments.
The few brands will also affect the company’s sales quantity but will improve quality and subsequently its profits because according to many quality experts the way to a successful performance in business is quality not quantity. The four brands have been a major source of revenue for the company since their establishment and therefore concentrating on them would be a good strategy for the company.
The company also planned on reducing its number of nameplates (list of automobile sales by model) by 25% by the year 2012. This is to emphasize on the reduction of it brands and the intention to concentrate on better supported entries. Considering the ever rising fuel costs the company will continue emphasizing on its intention to produce vehicles that are fuel efficient. The company approximated that by 2012, 70% of its nameplates will be fuel efficient and is intended to increase by 10% by the year 2014.It intends to achieve this by launching new technologies in the period that are geared towards fuel saving.
The number of GM’s dealers has been the company’s strong point for a long time due to excellent accessibility and convenience of its products to the customers. The wide range of dealers however recently has been a disadvantage to it because they are mostly located in outdated business areas while their competitors have theirs in prime areas. The company is therefore dropping a large number of its dealers in a bid to restructure its dealer’s network, while moving others to prime locations where there are active markets. This action promises to increase the dealer’s profits and eventually the company’s revenues.
The dealers are expected to reduce by 25% mostly in regions where there is unhealthy competition among them; such as metro and suburban areas. GM will continue to identify suitable locations for its dealers and aim at competing with their competitors’ existing dealers. This will enable them to achieve its objective of “having the right number of dealers in the right locations operated by the right entrepreneurs” (Wong, 2010). In small markets the company intends to keep its historic reputation and reorganization will be initiated by the dealers themselves hence implying negligible costs on the company.
GM intends to change its operations from a business confined in a few major regions to a global entity through product development so as to boost it revenues. GM will now carry out product development activities worldwide so a to achieve global purchasing and global manufacturing operations in all regions through the use of high-volume global vehicle architectures (Shepardson,& Priddleur 2009).
The vehicles designed will be suitable for all markets so as to capitalize on the economies of scale and the engineering skills available for the company. GM‘s global architectures will be able to satisfy the markets ever changing demands because they are flexible and hence will consent to sharing assembly tools and facilities for different types of vehicles. GM predicts that by 2012 half of its sales will be from cars from its comprehensive architectures, and will go up to 90% by the year 2014. The advantage of this new product development strategy is that the company will achieve; material cost savings, lower engineering and capital investment, and better and faster execution of operations hence improving its returns on investment (Senior,& Swailes,2010).
The labour hours per vehicle have been cut down by 26% hence reducing on labour cots incurred per vehicle. However, despite the move it still has a competitive disadvantage because the company provides huge pension and health care benefits for its retired employees contrary to its competitors. GM intends to have an agreement with the United Auto Workers Union so as to transfer the responsibility to the union. GM has also reduced the number of salaried personnel by 40% and will reduce by another 14% so as to achieve a targeted $1 billon savings on salaries.
Compliance with Federal Fuel Economy and Emissions Regulations
The government has been keen on reduction of fuel consumption by making laws for automakers to comply with in the production of vehicles. GM has attempted to comply with these orders by manufacturing vehicles that are fuel efficient and in fact as of 2008; the company had 20 models with 30 mileages per gallon, a figure higher than any of its competitor’s. The firm also has production of fuel efficient vehicles as one of its most essential long term projects that it will embark on for the next ten years. It is investing in hybrid and plug-in vehicles, for both cars and trucks models. Currently, the company has 9 hybrid models and it intends to increase the number to 14 models in 2012 and 26 models in 2014.
For instance, one of its main brands, the Chevrolet Volt, will have a single electrical charge system and hence economical on gas. However, the development of this technology will be a capital intensive venture but will have huge long term benefits and the company intends to work closely with the government and other partners to achieve this.
The above organizational changes are the core restructuring strategies that GM has launched, which address the entire organization, specific regions or specific products. The reorganization plan is a roll-out plan and the immediate strategies have been implemented while the long term plans are still underway. GM is slowly gaining the market confidence considering it is recovering from an eminent bankruptcy and the global economy, which is slowly awakening. From the plan above, for GM to remain competitive in the automobile industry, it is should consider going global completely like most of its competitors especially Toyota, which has been opening new markets worldwide and hence GM should follow suit and expand more so as to attain more markets, which will boost its sales and consequently revenues. The company should also establish manufacturing plants in overseas markets so as to save on costs incurred on importation of vehicles to foreign markets.
GM should also allocate some funds to research and development of new products, markets and more relevant structural plans. The company strategy on the environment is adequate, though it should invest more on carbon emission reduction if it is to win customer preference and loyalty too. However, the above strategies will need capital for implementation but with the investor’s shunning away from it, it looks the last resort are the host governments, thus GM has to trade wisely with its options. Although, GM expectations of any investors will be very minimal for a long time since it will take a long time for stakeholders to gain confidence in the company, GM’s recovery will obviously be a sacrifice for the company and the stakeholders but the accruing benefits will be worth it.
Ferguson, R. & Van A. T. (2009). From General to Government Motors. Toronto Star, 13-15.
Senior, B. & Swailes, S. (2010). Organizational Change. London: Pearson Publishers.
Shepardson, D. & Priddleurl, A. (2009). GM to Roll out Two-Seat, Urban Electric Prototype – Two-Seater Targeting City Driving to Hit 35 Miles per Hour. The Detroit News, 26-28.
Wong, S. (2010). GM to Introduce 25 New and Updated Models in China. Bloomberg Businessweek, 4-11.