COURSE : Total Marks : 80
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Case 01 GM’s E-Business Strategy
US-based General Motors (GM), the largest automobile company in the world, was in trouble in the late 1990s. The company’s market share in the US automobile market had been steadily declining from a high of 50% in the late 1960s to a low of 28% by 1999.Analysts pointed out that GM had been in the grip of a vicious circle.
The company faced low demand for its automobiles as they were not developed in line with the changing customer needs and preferences. However, GM continued producing automobiles which did not met customer requirements, leading to excess inventories at its factories and dealers.
The building up of inventory at the dealers made the company even more desperate, and most often it resorted to higher dealer incentives which reduced the company’s profits significantly. This again forced GM to produce more cars to compensate for the eroded profit margins. Commenting on the dilemma GM faced in the late 1990s, John Paul MacDuffie, Professor, Wharton Business School, explained, “That belief in volume, and doing whatever it takes to keep volume, has driven a lot of their decisions.
GM’s labor costs are fixed, meaning they remain the same regardless of what the volume of sales is. GM wanted to keep factories open as much as possible. There was some value in that strategy, but I think they overdid it.” Analysts added that the reason for the decline in GM’s US market share was that it had AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
failed to introduce new models that customers wanted in quick time. To address this challenge, GM made e-business a strategic priority. It wanted to reinvent itself by embracing e-business across its value chain.
In August 1999, after a year of research in collaboration with Forrester Research, GM launched a business division called e-GM that was responsible for all of the company’s websites and its On Star communication system. Through this initiative, the company planned to reduce costs, improve quality and boost demand for its products.
Ult also wanted to position itself as a provider of Internet-based information services and a major player in the e-commerce arena. Commenting on this, Computerworld magazine quoted, “GM wants to be more than your car company. Think in-car, real-time stock quotes, talking e-mail messages and video games.
Think satellite-based radio services and online car financing. Think of a multibillion-dollar online trading exchange. These are just a few of the businesses in which GM is making huge information technology investments. “The philosophy that drove GM e-projects was the ‘launch and learn’ approach. The company launched e-business projects, did pilot tests for them and then decided whether to abandon or continue them. However, analysts expressed doubts whether GM would be able to successfully implement its e-business strategy, and if it did, what the significance of this strategy for the company would be.
Commenting on this, Derek Slater, Executive Editor of CIO Magazine said, “Can e-business make a difference for an old economy, big and slow manufacturer the way it can for nimble, information-based businesses?” Raising similar doubts, an Internet World magazine article queried, “Will Internet hardware and services become GM’S best products? And this in turn raises this question: Will Internet services become GM’s core product some day?”
NEED FOR E-BUSINESS STRATEGY
With the advent of the Internet wave in 1999, GM wanted to reposition itself strategically. It wanted to make use of its vast customer base and huge assets to emerge as a leading player in the new economy businesses of entertainment and e-commerce. The 1999 annual report of GM stated: “Besides mergers and acquisitions, there is no bigger trend in business today than that towards electronic...