Case Study on

THE CHALLENGES OF GLOBAL COMPETITION

Submitted by:Vishal dhamja (087) Mayank Shukla (010) Babita Gawain (078) 4. Viswajeet biswal (061)
1. 2. 3.

GENERAL MOTORS

 1980 to 1990, GM experiences for certain strategic

THE CASE

decision taken by Roger smith (CEO of GM) The major strategic efforts were
A Joint ventures with Toyota , The development of a completely new car (Saturn) ,

A major reconstructing of GMs five divisions ,

And the acquisition of the two high tech subsidiaries ,

Electronic Data System (EDS) and Hughes Aircraft.

Large car seller (1989 sale $127 billion)in the world

but low market share (one-fourth lower than it had been at the beginning of the decade) In 1990 , Roger smith (CEO of GM) was preparing to retire from the chairmanship .

INTRODUCTION
The Joint Venture with Toyota (NUMMI) In 1983 , GM announced that it would participate in a 50- 50 joint venture
with Toyota to build 2 lakh small cars per year at a plant in Fremont California . GM hoped to learn the secretes of Japanese automating method , & Toyota would gain experienced in operating facilities in the United states , something it had never done in the past The new company was called New United Motor Manufacturing Inc. (NUMMI)

1983-1996 time frame they targeted three complete care development cycles at the plant. 1st car, Toyota already produced and sold in japan , but would be marketed in US under the Chevrolet Nova name plate. Toyota would produce the drive train and several other components in Japan and would ship them to the NUMMI plant where stamping and

Cont
in NUMMI plant, they used Japanese production and

management techniques
just-in time-inventory system to minimize expense save space and increase quality by providing no parts stock-

piles the effects of defective components. Innovated way to manage and select the workforce. i.e. training (production philosophies) and selection process (35 hr screening)
But GM believed their traditional management philosophy
Which assumed an adversarial relationship between

management and labor and Assumed an intimidation was required to make an employees work . Inefficient labor ( workers dont know their contribution in production)
By 1986 NUMMI was in operation and by 1987 it seemed

to be a success. Workers productivity had increased enough that one study estimated it would cost $750 more and take 50 %

 GM had applied ill-prepared or unwilling application which

Cont

learned at NUMMI to its other operations. GM rotated teams of managers through NUMMI prepared training tapes and other instructional materials on the NUMMI concepts NUMMI trained managers that moved other GM divisions generally found that their new ideas received an unfriendly reception . Some left for job elsewhere Though NUMMI was profitable in its first two years of operations, it lost approximately $100million in1988 . Sales of the nova were weaker than expected and were expected to fall by 50000 units to about 150000 cars in 1988 The 1996 cutoff date was rapidly approaching and GM had yet to decide what to do with NUMMI work force when the operations was disbanded. 1987, they had contact with United Auto Workers(UAW) for work force .

THE SATURN : GM starts from scratch

Same year 1983 (NUMMI project announced), GM

announced another innovative project: the Saturn car , named after the rockets that propelled astronauts to the moon. The Saturn would be the first new GM name plate since 1918 Companies mission would be to market vehicles developed and manufactured in the united states that are world leaders in quality cost, and customer satisfaction through the integration of people , technology and business systems and to transfers knowledge and experience throughout GM . The Saturn plant was fully automated and the most advanced robotic and automation technologies would assemble more of the car then ever before. Highly computerized accounting and management system would make whole operation paperless .

Cont
There would be no hourly workers ; instead workers would be

paid additional pay based on 80 percent of the national average autoworkers wage , with additional pay based on an incentive plan which rewarded good worker performance. The saturn production workers would enjoy more autonomy than workers at any other automakers plant. They would participate in the hiring process and would approve new additions their team (Workers were organized into 165 teams of ten employees each) And they have authority to stop the entire line if problem developed The original plans called for a $5billion investment in the project, which would begin producing 500000 import fighting cars at the new plant in spring hill Tennessee, in 1990 As the year passed the plans were scales back instead was cut back to 6000 new hires , only 3000 workers would be employed. Project budget was cut back to $1.7 billion and its projected

Cont
The cars made more expensive and larger than

originally envisioned. (high fixed cost) 1990, GM announced new products before( like the X cars and J cars )that were supposed to beat the Japanese at their own game and had fallen short . Some analyst stated that what saturn really had to offer the corporation and If the car was a money loser before it ever hit the showroom floor, then its value had to in the lessons the corporation would learn by producing the car . 1989, Saturn project seemed redundant.

1984: GM Reorganizes
In 1980s it was becoming evident to GMs top management that

the corporation s organization was an impediment to the kind of adaptability that was required to respond to the rapid changes in the global auto industry .since 1916 GM had been composed of five separate divisions Chevrolet , Pontiac, Buick, Oldsmobile and Cadillac that operated independently of one another . Two other major divisions, fisher body a nd general motors assembly division (GMAD) were responsible for the engineering and tooling / assembly operations. As competition in the industry heated up and costs and quick responses to market changes become more important the flaws of the ossified management structure became impossible to ignore. A consulting firm McKinsey and company was brought in to assess the situation it concluded that fisher body and GMAD had become bureaucratic empires unto themselves and that a complete reorganization was in order. The five car division were divided into two super groups BOC, composed of Buick Oldsmobile and Cadillac and CPC, composed of Chevrolet, Pontiac , GM of Canada , NUMMI and

Cont.
The old division would continue to serve as a marketing

arm Many of the 10000 fisher body employees affected were upset by the change Another complications arose when it became clear that the reorganization was serving the informal communications network that had developed over the years and was largely the means by which things were accomplished in the overly bureaucratized behemoth. By the late 1980s the reorganization seemed to have been at least partially successful. The quality of GM cars was higher than it had been at the beginning of the decade and the organization was more flexible for having gone through tremendous change The head of the CPC super group had already organized his groups along functional lines with a strictly vertical chain of command , which meant that disputes had to be resolved at the highest levels of management .

GM Acquires electronic data systems (EDS)

In 1984 , while GM was adapting to the changes wrought

by the reorganization , the company made its biggest acquisition to date a $2.55 billion buyout of electronic data systems (EDS) a rapidly growing firm that designed and operated data processing systems. Founded by billionaire entrepreneur h. ross perot the company was the 3rd largest in its field and was flourishing its earning per share quadrupled between 1980 and 1983. Roger thought that EDS would be good for GM in number of ways The automaker had 200ibm mainframe computers and 200000 terminals but no centralized data processing system to coordinate interdepartmental operations The system inefficiency was estimated to costs GM $600 million per year . Smith envisioned EDS developing a new data processing systems for GM that would coordinate the collection of financial and operations data from throughout the company process health care claims ( the company used 187

Cont
Smith also felt that that exposure to the highly competitive

corporate culture of eds would be good for GM The company was known for its rigorous traning and testing program , strict codes of ethics and emphasis on results. EDS was based largely on performance incentives at GM Poor performance by a GM employee often went unaddressed for years The merger of the 8000 GM computers employees with the 6000 EDS employees did not go smoothly . There was no clear strategy for integrating the two companies The news that they would be absorbed into the EDS organization hit the GM employees hard Already distressed that they would lose their generous GM pensions and benefits Despite the difficulties by 1986 EDS had modernized GM health care claim processing systems , saving the company $200 million annually .

Another high- tech acquisition: Hughes aircraft co.

A year after buying EDS , GM outbid ford and Boeing to acquire

the Hughes aircraft company The $5billion cost price tag was almost double the cost of EDS and made the sale the largest acquisition outside the oil business in history Hughes developed a wide range of electronic defense systems that were used in everything from air craft and weapons guidance systems to surveillance satellites The company employed 26000 engineers and more than 1450 PhD who were developing more than 100 different technologies for use in 12000 products and services. Hughes was grouped with GM Delco electronics and Delco systems operations subsidiaries and the instrument and systems display subgroup of the AC spark plug division to form GM Hughes electronics corporation(GMHE) Smith believed that high tech acquisitions like EDS and HUGHES would make GM the world leader in automotive technologies In a letter to smith he noted that the Japanese are not beating us with technology or money they use old equipment and buil better

The challenge ahead

In 1990 GM had spend $77 billion in its decade-long

effort to modernize its plant, automate its equipment and develop new car models. Trucks and foreign car operation were doing well, earning more the $3.2 billion in 1989. But in north American car business continued lose money . Despite of huge investment, car and truck assembly efficiency had only improve 5% scince1980. compare with 31 % improvement at ford . GM average cost 250 $ more to build than ford cars and $750 more then Japanese modal made in US. GM become high cost producer. Profitability per vehicle fell from $ 588 per vehicle in 1984 to $12 per vehicle. Market share fall down almost 12 % from 34.7 % . But

Cont
In domestic market consumer buying behavior changed.

Long term use of vehicle and household savings . Foreign manufactures penetrated and increase their the market share due to success of transplant in US. the voluntary import quotas that had restricted the number of cars Japanese manufacturers to look for new ways to penetrate the US market. In 1980, Establishing production facilities in the US became economically attractive to Japanese manufacture . Many more Japanese company transplant their production in US (eg. HONDA ) And US producers market share dropped two third of a point and import market share fall down one third of a point. And GM was the big domestic producer whose market share suffered most. But GM still good and improve the quality in cars by 1990.

ROGER SMITHS RETIREMENT

August 1990 , after spend 9 year as GMs CEO Roger Smith retried. And Robert stempel took place of him.

At the end
A Joint ventures with Toyota , The development of a completely new car (Saturn) , A major reconstructing of GMs five divisions , And the acquisition of the two high tech subsidiaries , Electronic Data System (EDS) and Hughes Aircraft. Transplant of foreign producer in US market

Question
Evaluate the actions taken by Roger Smith during

the 1990s. Were they right action to take? Was general motors in better position at the end of the decade than it had been when the decade started?
What should roger smiths successors do?

Will general motors be able to survive in the

world auto industry?