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The G.M. Case

The G.M. Case. Class Notes. THE G.M. CASE SYNOPSIS. SYNOPSIS OF THE CASE 1. HENRY FORD STRATEGY A. LOW - COST B. MASS PRODUCTION C. DEVELOPED MASS MARKET - ONE MODEL “T” D. LIMITED PRODUCT DIFFERENTATION

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The G.M. Case

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  1. The G.M. Case Class Notes

  2. THE G.M. CASESYNOPSIS SYNOPSIS OF THE CASE 1. HENRY FORD STRATEGY A. LOW - COST B. MASS PRODUCTION C. DEVELOPED MASS MARKET - ONE MODEL “T” D. LIMITED PRODUCT DIFFERENTATION E. MFG. DISTINCTIVE COMPETENCE - STANDARDIZATION OF QUALITY COMPONENT PARTS FOR EASY AND CHEAP ASSEMBLY

  3. THE G.M. CASESYNOPSIS 2. ALFRED P. SLOAN STRATEGY • BROAD DIFFERENTIATION OF PRODUCT • DECENTRALIZATION - PROFIT CENTERS • FIVE DIVISIONS - FIVE MARKET SEGMENTS • CUSTOMER COULD UPGRADE WITHIN G.M. CHEVROLET, PONTIAC, OLDSMOBILE, BUICK, AND CADILLAC • MASS PRODUCTION

  4. THE G.M. CASE SYNOPSIS 3. DEVELOPING PROBLEMS AT G.M. • VERTICAL INTEGRATION CARRIED TOO FAR - 60% • TRANSFER PRICING PROBLEMS - CORPORATE CONTROL • HIGH COST - POOR QUALITY • PRODUCT DIFFERENTIATION BETWEEN DIVISIONS BECAME EXCESSIVE - DISTRUCTIVE COMPETITION • ROI DECLINED • TOO MANY MODELS AND PLATFORMS

  5. THE G.M. CASESYNOPSIS 4. OIL CRISIS AND JAPANESE COMPETITION • SMALL CARS - G.M. LITTLE EXPERIENCE • LEAN PRODUCTION - LOW COST • HIGH QUALITY • G.M. EUROPEAN DIVISION HAD THESE SKILLS BUT COULD NOT TRANSFER THEM TO U.S.

  6. THE G.M. CASESYNOPSIS 5. ROGER SMITH ERA - 1980’S • AN ATTEMPT TO REDUCE COST, INCREASE QUALITY, AND IMPROVE CUSTOMER RESPONSIVENESS • FUNCTIONAL - LEVEL STRATEGY • $50 BILLION INVESTMENT • AUTOMATION AND ROBOTICS - PEOPLE IGNORED • TOYOTA NUMMI JOINT VENTURE - LEAN PRODUCTION • SATURN PROJECT

  7. THE G.M. CASESYNOPSIS 5. ROGER SMITH ERA - 1980’S CONT. • BUSINESS - LEVEL STRATEGY • 80 MODELS AND 15 PLATFORMS • REDUCTION OF MODELS AND PLATFORMS • CONSOLIDATION OF FUNCTIONAL ACTIVITIES • LOST ITS DIFFERENTIATION - DIVISION MODELS ALL BEGAN TO LOOK ALIKE • DIVISIONS LOST THEIR AUTONOMY

  8. THE G.M. CASE SYNOPSIS 5. ROGER SMITH ERA - 1980’S CONT. • CORPORATE - LEVEL STRATEGY • COSTS REDUCED BUT STILL TOO HIGH: $1,800 - $600 • REDUCED LEVEL OF VERTICAL INTEGRATION - MORE OUTSOURCING. • PURCHASED EDS AND HUGHES AIRCRAFT WITHOUT MUCH SYNERGISTIC EFFECT.

  9. THE G.M. CASE SYNOPSIS 5. ROGER SMITH ERA - 1980’S CONT. • CORPORATE - LEVEL STRATEGY • CAR DIVISIONS DIVIDED AND COMBINED INTO TWO BUSINESS GROUPS: CPC (SMALL CARS) - CHEV AND PONTIAC AND BOC (LARGE CARS) - BUICK, OLDS, AND CADILLAC • DID NOT WORK: COSTS STILL HIGH, LACK OF DIFFERENTIATION AMONG MODELS, DIVISIONS LOST AUTONOMY

  10. G.M. CASE ISSUES • Leadership, Vision, And Mission: Focus • Technology Vs. People • Profit Vs. Market Share • Financial Considerations • Competition: Quality, Cost, And Product Differentiation • Vertical Integration Vs. Outsourcing • Strategy - Structure Link • EDS And Hughes Aircraft • The Oldsmobile division

  11. THE G.M. VISION GM’s vision is to be the world leader in transportation products and related services. We will earn our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people.

  12. G.M. CASE MISSION STATEMENT G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stock-holders will receive a sustained superior return on their investment.

  13. G.M. OBJECTIVES • BECOME PROFITABLE • SATISFY CUSTOMERS WITH BETTER PRODUCTS • GROW THE BUSINESS IN FUTURE YEARS

  14. G. M. SWOT ANALYSIS • STRENGTHS • SIZE AND MARKET SHARE • TECHNOLOGY POTENTIAL • NEW LEADERSHIP • QUALITY IMPROVEMENT AND PERCEPTION THEREOF • MODEL ACCEPTANCE HAS IMPROVED • BENEFITS DERIVED FROM A NEW STRATEGY - STRUCTURE APPORACH AND RELATIONSHIP.

  15. G. M. SWOT ANALYSIS • WEAKNESSES • Failure To Make Technology Work • Too Much Vertical Integration • Bureaucratic Culture • Relationship With UAW • Relationship Of Strategy To Structure

  16. G. M. SWOT ANALYSIS • WEAKNESSES cont. • Product Design Problems - Public Acceptance And Reduction Of Cycle Time • Market Share And Profitability • Negative Effects Of Downsizing • Still Much To Learn About Lean Production - High Cost Producer • Hughes Aircraft Situation

  17. G. M. SWOT ANALYSIS • OPPORTUNITIES • USE OF KNOWLEDGE GAINED FROM SATURN EXPERINCE AND TOYOTA (NUMMI) JOINT VENTURE. • EXPANSION OF THEIR GLOBAL PRESENCE - THEIR OWN EUROPEAN MODEL OPERATON AS AN EXAMPLE. • CONTINUE TO BUILD ON THE NEWFOUND CUSTOMER CONFIDENCE. • CHANGING CONSUMER DEMAND FOR NEW MODEL TYPES AND STYLES - EXPANSION AND LEADERSHIP.

  18. G. M. SWOT ANALYSIS • THREATS • DOMESTIC AND FOREIGN COMPETITION • U.S. FEDERAL LEGISLATION AND REGULATION • CONSUMER LAWSUITS • FOREIGN LEGISLATION AND REGULATION • DECLINING QUALITY OF THE INFASTRUCTURE IN THIS COUNTRY • DECLINING VALUE OF JAPANESE YEN

  19. G. M. SWOT ANALYSIS • INDUSTRY ANALYSIS • MATURE • PRODUCT SEGMENTATION BY PRICE AND FUNCTION • TECHNOLOGY CHANGING IN MFG. PROCESS AND PRODUCT DESIGN • OVERCAPACITY WORLDWIDE

  20. G. M. SWOT ANALYSIS • INDUSTRY ANALYSIS • MEGADEALERS AND AUTO SUPERMARKETS • WORLDWIDE DEMAND - STAGNATION - DECLINE • MUST BE WORLD CLASS IN EVERY RESPECT - PRODUCT, MFG. OPERATIONS, FINANCING, AND DISTRIBUTION

  21. 1992 RATIO ANALYSIS INDUSTRY G.M. COMMENTS Current Ratio 1.4 1.1 Low Quick Ratio 0.7 1.0 OK Inventory Turnover 6.5 11.2 Good Debt Ratio 64.5 96.7 Poor ROA 4.6 0 Poor ROE 6.6 0 Poor

  22. COMPETITOR ANALYSIS • Cost - G.M. too high • Quality - G.M. marginal, competition continues to improve • Styling - G.M. must watch • Product line and segmentation - price and function - G.M. OK • Suppliers - G.M. too vertically integrated • Buyers - sport utility and pick-ups • New entrants - not likely a threat

  23. STRATEGIC CHOICE G.M. has been through some difficult times the past 10 years or so and appears to have learned some hard lessons. Based on these lessons G.M. has begun to adopt a strategy of restoring profitability to its North American operations, by aggressive marketing, redesigned products, decentralized MGT style, and a profit rather than a market share goal.

  24. RECOMMENDATIONS CUT COSTS BY: • Dropping Unsuccessful Product Lines • Trimming Its Product Line • Reduce the Number of Basic Platforms • Standardizing Component Parts Across Models • Reducing the Number of Parts Needed to Produce a Car

  25. RECOMMENDATIONS CUT COSTS BY: con’t • Streamlining Operations by Consolidations Within the Corporation • Decentralizing Decision Making • Integration of It Design & MFG Activities • Better Managing Its Supplier Relationships

  26. RECOMMENDATIONS • Focus resources on core products, cars, & trucks . • Realignment of organizational structure to support core products and meet costs & quality goals. • Example: self managed creative work teams to figure out how to speed-up product development & improve product development. • Implement common systems & processes where possible. • Balance needs of employees and unions with needs of the company.

  27. GM UP-DATE • MADE A PROFIT EVERY YEAR SINCE 1993 • % OF THE MARKET APPROX. 30% • CONTINUE TO DOWNSIZE AND CUT COSTS • STILL HAVE SOME UNION PROBLEMS • HAVE REORGANIZED TOP MANAGEMENT • OUT-SOURCING MORE-VERTICAL INTEGRATION DECREASING • INCREASING OVERSEAS OPERATIONS - EAST EUROPE, RUSSIA, ASIA, AND SOUTH AMERICA

  28. GM 1998 UP-DATE • GENERAL STRIKE DURING SUMMER 1998 • ESTIMATED EARNINGS DOWN 20% • REORGANIZATION - MERGING ITS NORTH AMERICAN AND EUROPEAN OPERATIONS UNDER A SINGLE PRESIDENT WITH GLOBAL RESPONSIBILITIES (RICHARD WAGONER, JR., 45) COMBINED SALES OF $135 BILLION

  29. GM 1998 UP-DATE con’t • THERE ARE NOW FOUR REGIONAL DIVISIONS - NORTH AMERICA, EUROPE, ASIA, AND LATIN AMERICA • CHAIRMAN AND CEO JOHN (JACK) F. SMITH, JR. MAY NOT BE THE MAN TO FIX G.M. • SPINNING OFF DELPHI AS AN INDEPENDENT COMPANY

  30. GM 1998 UP-DATE con’t • COST CUTTING MEASURES--OPERATION YELLOWSTONE--SMALL CARS--LOSING $1000 PER CAR--SUPPLIERS WILL CODESIGN AND USE MODULARITY • NEW PLANTS WILL BE HALF THE SIZE OF THE OLD PLANTS AND COST ABOUT $300 MILLION • MORE ALUMINUM WILL BE USED TO KEEP THE WEIGHT DOWN IN THE FUTURE

  31. GM 1999 UP-DATE • 1998 SALES $161.3 BILLION • 1998 NET INCOME ALMOST $3.0 BILLION • EST. 1999 SALES $176.6 BILLION • EST. 1999 NET INCOME $6.0 BILLION • OUTSIDE NORTH AMERICA 1) CADILLAC 2) CHEVROLET 3) GMC 4) HOLDEN 5) ISUZU(49%) 6) OPEL 7) SAAB (50% - 100%) 8) VAUXHALL 9) NUMMI JOINT VENTURE WITH TOYOTA

  32. GM 1999 UP-DATE con’t • MARKET SHARE DOWN TO 30% • INVESTED IN OVERSEAS PLANTS IN BRAZIL, CHINA, INDIA, POLAND, RUSSIA, THAILAND • SEEKING A 10% MARKET SHARE IN ASIA • SEEKING BROADER TIES WITH HONDA, DAEWOO, AND SUBARU

  33. GM 2000 UP-DATE • RICK WAGONER NEW CEO • JACK SMITH STILL CHAIRMAN OF THE BOARD • JOHN SMALE, FORMER CEO OF P&G, RETIRED FROM GM BOARD AFTER 19 YEARS(1982)

  34. GM 2000 UP-DATE con’t • US MARKET SHARE DOWN TO 28% • PURCHASED A 20% SHARE IN FIAT AUTO OF ITALY • GM PUSHING SUVs AND TRUCKS • OLDS-ALL RELATIVELY NEW MODELS-STILL SUFFERING LOW SALES

  35. 2001 G.M. Update • G.M. paid $600 million to double its stake in Suzuki to 20% • G.M. paid $340 million on a joint venture with Auto VAZ (Russia’s biggest automaker) to build 75,000 SUVs a year • G.M. made a $400 million deal to take over many assets of Daewoo Motors(Korean Automaker). This gives G.M. a 67% stake in Daewoo.

  36. 2001 G.M. Update (Cont’d) • G.M. is working on a deal to combine Hughes Electronics (and Direct TV) with Rupert Murdoch’s news corporation, Echostar (no. 2 U.S. satellite TV business). • G.M. plans to discontinue the following models:Camero and Firebird as well as the Olds line.

  37. 2002 UP-DATE • MARKET SHARE INCREASED FOR THE SECOND STRAIGHT YEAR. FIRST TIME THIS HAS HAPPENED SINCE 1976. 2000 – 27.8% 2001 – 28.1% 2002 – 28.4% • LAST YEAR GM POSTED ITS FIRST MARKET-SHARE GAIN SINCE 1987. • MUCH OF GM’S GAIN CAME AT THE EXPENSE OF FORD. FORD’S TRADITIONAL BRANDS WERE DOWN NEARLY 9 PERCENT. CHRYSLER GROUP SALES WERE DOWN ABOUT 3 PERCENT.

  38. 2002 UP-DATE (cont’d.) • CADILLAC SALES INCREASED 16% • CHEVY – BECAUSE OF THE SUBURBAN AND SOME OTHER TRUCKS – IS THE LARGEST SELLING BRAND OF VEHICLES THAT COST $30,000 OR MORE • OTHER BEST SELLERS 1. TRUCKS – FORD F-150 SERIES (TOP SELLING VEHICLE IN US.) 2. SUV – FORD EXPLORER 3. TOYOTA CAMERY NO. 1 & HONDA ACCORD NO. 2 CARS 4. TOYOTA – 1.8 MILLION UNIT SALES, BEST YEAR YET (45 YRS.). LEXUS WAS THE MOST POPULAR LUXURY BRAND.

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