Synopsis of Case
This case analyses the changes in GM’s strategy and structure of over time beginning with its “birth” and the business model Alfred Sloan developed for the company in the 1920s, through its attempt to compete with low-cost Japanese competitors, and then to its bankruptcy in June 2009. Sloan's original strategy was one of differentiation that enabled GM to become the leading carmaker and the largest company in the world. However, its focus on differentiation over time blinded GM to the need to control costs, when confronted with the realities of low-cost Japanese competition in the 1980s and 1990s the company had no quick way to respond. Throughout this period GM invested over $100 billion to improve its technology to reduce costs and increase quality such as investments in automation, in its new Saturn division, and even in joint ventures with Toyota to learn that company's lean manufacturing techniques. GM also engaged in a massive downsizing process and in a structural reorganization to reduce costs and streamline its operations. This investment in new technology and change in organizational structure seemed to payoff in the 1990s as GM, and the Big Three US carmakers achieved some success and slowed the fall in their market share. However, the case documents how GM could never match the progress made by its Japanese competitors so that despite its improving performance it kept falling behind because its high cost structure made it almost impossible to compete against efficient global carmakers.
The main teaching objectives of this case are as follows:
1. To demonstrate the relationship between strategy and structure and to show how one affects the other. 2. To show the benefits of a successful differentiation strategy but also to show how a focus on differentiation can drive out a concern for low costs. 3. To show how increasing global competition in the environment from the emergence of efficient competitors can totally disrupt the strategy of a successful company. 4. To demonstrate the problems and expense involved in developing the distinctive competences that are necessary to regain competitive advantage in a more competitive industry environment. 5. To illustrate the dynamics of global competition and the problems associated with developing a global structure. 6. To show the importance of managing the relationship between product differentiation and a company’s cost structure in order to maintain profitability over time.
This case is best used in sequence after the Global Auto Industry and Toyota cases have been discussed. At this point, students will understand the dramatic changes that have taken place in competition in the domestic and global auto industries in the last few decades, and will understand the competitive issues involved. They will appreciate the problems that GM faced when its differentiation advantage disappeared and it was left as a high-cost carmaker competing against a set of more efficient and effective Japanese and global car companies. The GM case shows dramatically how changes in the environment can threaten the viability of a company's business model and how regaining competitive advantage once it is lost is a difficult process that can take decades, assuming it can be done at all.
Strategic Issues and Discussion Questions
1. What strategy was developed by Henry Ford to compete in the car industry?
Henry Ford developed a low cost strategy for his company and pioneered the introduction of mass production to reduce manufacturing costs. To pursue a low cost strategy Ford made the appropriate product/market/distinctive competence choices: First, he developed a mass market for his car by offering only one model of car to the whole market. Second, he limited the level of product differentiation--all Model T's were highly standardized. Third, Ford chose to develop a manufacturing distinctive...