General Motors is one of the world’s major automobile manufacturing companies with well-accepted brands such as Chevrolet, Buick, Opel, GMC, Holden, GM Daewoo, Wuling, Vauxhall and Cadillac. The company’s largest markets are the United States, Brazil, the UK, China, Canada, Germany, and Russia. In 2009, the Japanese automobile manufacturer Toyota exceeded the number of vehicle sales for GM to become the leading auto manufacturer in the world. This success can be credited to a number of factors among them the Kaizen concept which is essentially a company culture observed at Toyota (Helper & Henderson 2014). This trend is a cause of concern for the General Motors Company as current trends such as global competition and advancement in technology could cause a threat to the survival of the company.
The operational area of analysis will focus on the company’s operation management practices, which have significant influence of the level of productivity of the firm as well as the quality and design status of the company.
The goal of this paper is to suggest operation strategies that would improve the product quality of the firm as well as realize cost efficiencies through the Kaizen and Market focus concepts in use at Toyota. This paper will describe how lack of proper operation management at General Motors contributed to the crisis as well as the role of market focus in remedying the situation. This paper also aims to make recommendations best suited to the company.
General Motors has been a leading automobile manufacturer for over 70 years. However the company has faced numerous challenges including bankruptcy in 2009. To remedy this, it is essential to borrow effective strategies from the competition in order to return this company to its former glory.
Description and Analysis of Operations
Definition of the Problem
The General Motors (GM) was a successful automobile company until it went bankrupt in 2009. This bankruptcy was preceded by a fall in market share of the company between 1980 and 2009 from 62.2% to 19.8% (Helper & Henderson 2014). The management at the time of the declining market share failed to identify and suitably react to this change in order to avoid the bankruptcy in 2009. The issues facing General Motors resulted from failing to identify change when it happened as well as failing to undertake necessary action in response to that change. The issues faced by the company resulted from problems at the management level.
The problems at General Motors (GM) can be divided into problems of motivation and perception in analyzing the reason for slow and expensive product development processes as well as inferior design and quality at GM. The problems of perception arise from the failure to identify changing trends due to current success in a particular field. GM had been the leading company in the automobile business in the United States and thus made a false perception of the threat presented by new companies such as Toyota into the market (Igrassia, 2009). Problems of motivation are considered as unwillingness to respond to the need for change when it is determined. General Motors faced this problem due to the lack of past experience with intense competition which led to the managers dismissing the threat of new entrants – Japanese firms into the American automobile industry (Helper & Henderson 2014). The main reason why Toyota presented such a significant challenge to the continuity of GM is due to the management practices which reflected an effective company culture.
Operational Area of Analysis
General Motors compromised on quality, design, productivity and effective managerial practices. The operation management problems illustrated by GM were those of lower productivity and poor quality resulting from the existing assembly operations and poor operations management practices (Ingrasia 2009). The difference between how Toyota managed assembly and product design from that of General Motors was evident in the quality of their vehicles; Toyota surpassed GM in terms of product design and productivity; this is an important reason of its success in a foreign country. At GM operating executives have held significant power and responsibility over the affairs of the company and thus can be held responsible for its failure (Ingrassia, 2009).
The issues of quality and design are a common concern for numerous consumers of automobiles. Helper and Henderson (2014) suggest that the decline of the once great General Motors can be explained by inferior quality and poor design. In the 1980s and 1990s automobile consumers made complains regarding the quality of American cars including noise vibration and poor ride quality. In 2000 the average price of GM cars was $3000 less in comparison to Honda and Toyota. The quality rankings of Chevrolet only begun to approach Toyota’s in 2012. According to Ingrassia (2009), GM made look-alike cars and focused on the production of big SUVs; the sales of these SUVs were affected by a rise in gas prices.
The level of productivity is important for the success of any organization in any industry (Collier & Evans, 2015). The level of productivity was less for General Motors than its competitors in most aspects of operations (Helper & Henderson 2014). In terms of assembly operations, GM was also lower in terms of productivity in comparison to its rivals. Figure 1 illustrates that the period of assembly required by GM was almost twice that of Toyota; the comparison is between a GM plant and a Toyota plant in terms of assembly operations by MIT International Motor Vehicle Program.
Managerial practices are an indispensable component of an organization as managers make important decisions which guide the direction of a company (Collier & Evans, 2015). The decline of General Motors can also be attributed to inefficient managerial practices; competitors of the firm such as Toyota have managed to introduce automobiles with better design and quality due to the suitable strategies and practices of management (Helper & Henderson 2014). The management of GM’s supplier network was considerably less effective than other automobile producers such as Toyota. Research suggests that the managers at General Motors were just as skilled as their counterparts. GM’s direct labor costs were 10% of the total costs with purchased parts at 70% (Helper & Henderson 2014); this and the lack of an effective company culture also the crisis faced by General Motors. GM was restricted by the generous labor deals it had signed in the 1970s defeat smaller competitors such as Ford but did not anticipate the entry of new companies without such labor contracts like Nissan and Honda. Despite the aforementioned problems in different areas, it is possible to device relevant and significant strategies to resolve the concerns of the company.
Operations Improvement Recommendations and Plan
There are many things which contributed to the downfall of GM among them was poor management, lapses in quality, and compromised designs all of which pointed to a restrictive corporate culture (Ingrassia, 2009). In order to deal with the issues of productivity, design, and quality it would be wise for the operations managers at GM to introduce the concept of Kaizen as part of their company culture. Market focus is also important as it would help the organization improve its financial position and even its market share.
Kaizen Concept
The concept of Kaizen refers to making continuous improvements (Collier & Evans, 2015). It is among the main reasons for the Toyota Company’s rise to success surpassing General Motors. Toyota’s company culture entails valuing the suggestions of employees and implementing them for improvements. This concept is not new to GM; in 1984 GM and Toyota made an agreement to work together which involved the creation of a new plant called NUMMI – New United Motor Manufacturing Incorporated (Helper & Henderson, 2014). GM sent some of its workers to a Japan where they were put on the assembly line; these Union workers were surprised that employee suggestions were both encouraged and taken seriously (Helper & Henderson, 2014). This evidences the lack of a company culture that promotes employee participation at GM. After this benchmarking experience the quality of production at GM improved significantly however this concept was not adopted by GM after this.
The Kaizen concept should be adopted at GM for a number of reasons. First, this concept proved effective when it was implemented in 1984. Secondly it is very important to take the suggestions of employees serious because it affects the organization in a number of ways; employees drive business results due to the amount of effort and the level of motivation they put in their work. Highly motivated employees who feel appreciated will present better results in terms of better products and higher productivity resulting from improved attendance and attention to their work (Helper & Henderson, 2014). Incorporating the Kaizen concept as part of the company culture at GM would thus be effective in dealing with slacking and lack of motivation for employees which is a main cause for low productivity and poor quality. By improving on the quality of goods as well as increasing productivity levels GM’s competitive ability increases and consequently it receives and augmented market share (Collier & Evans, 2015).
Market Focus Concept
The concept of market focus is significant in the success of organizations. It refers to the capacity of the management to continuously focus critical financial and human resources on market opportunities which can generate and sustain positive net cash flow in the long-term. In the case of General Motors, the lack of market focus has led to the threat of competition from companies like Honda and Toyota which despite the global financial downturn have maintained significant net cash flows (More, 2009). The managers did not realize that their strategies were not creating positive net cash flow due to excessive competition.
Enhancing the market focus for GM would help the organization maintain a positive net cash flow and avoid bankruptcy. According to More (2009), the main reason for GM’s fall is due to the loss of market share which can be remedied by a high market focus across the different levels of portfolio – divisions, brands, models, cosmetic and physical variations, market segments, suppliers and dealers. Previously, GM was more concerned with increased revenue and market share than sustaining a positive net cash flow.
This recommendation is based on the success of other companies such as Toyota and Honda which have aligned their organizational processes – market and strategic planning, with the market focus concept. Application of this concept has worked for other major automobile companies and is thus likely to work comparably well for General Motors. These companies drive their market focus toward business opportunities which create high cash flows. They also present an ability to promptly abandon market opportunities which cannot create positive net cash flow in the long run. The benefit of this strategy is that is allows a company to successfully deal with economic and market downturns such as the one in 2009 that led to the GMs bankruptcy (More, 2009). This strategy worked for Toyota in 2009 in dealing with short term losses and declining sales; the cash reserves held by the company due to high level of market focus in previous year helped it to deal with the downturn.
The plan for introducing the Kaizen method at GM would be through the benchmarking tool. This practice has worked before for the company and could help both employees and managers learn best practices from the leading organization in the industry. To implement the market focus strategy, GM must introduce a car-market segment shares as well as car-positive cash flow in the business (More, 2009). The car-market segment shares challenges operations managers to ensure that every car in the market by GM holds a significant proportion of the market share.
Conclusion
In summary, General Motors had been the leading automobile company before the entry of their Japanese counterparts into the American market. Companies such as Toyota introduced new concepts and practices into the American automobile industry which presented a challenge for GM. These companies also began to increase their market share in the US which meant the decline of GM’s market share. This fall in market share 1980 – 2009, was followed by the bankruptcy of GM in 2009. Many researchers attribute the fall of GM to poor quality and design, low productivity, and ineffective market practices that could not compete with those of companies such as Toyota. The recommendation to remedying the problems at GM would involve borrowing some of the concepts and practices at Toyota which is the leading automobile company globally. These include the Kaizen and market focus concepts; these practices have proven vital for the success of Toyota and are thus applicable to a company of the same status and in the same industry.
References
Collier, D. A., & Evans, J. R. (2015). OM5 (5th ed.). Stamford: Cengage Learning.
Helper, S. & Henderson, R. (2014). Management practices, relational contracts and the decline of general motors. Working Paper
Ingrassia, P. (2009) How GM lost its way. The Wall Street Journal.
More, R. (2009). How General Motors lost its focus and its way. Ivey Business Journal.
Appendix
Figure 1: The productivity of GM’s Framingham assembly plant versus the Toyota Takaoka assembly plant, 1986
Source: Helper, S. and Henderson, R. 2014.
