HBS: Executive Decision Making at General Motors

In 1908, entrepreneur and visionary Billy Durant had created the first automotive conglomerate and the industry’s first vertically integrated company through a series of mergers and acquisitions. There were 25 automobile manufactures , suppliers and others who operated independently and report directly to Durant. There were duplication , internal competition and high cost of production. By 1920 due to poor management and economic recession , Durant lost control of the company to the Dupont family. The Doponts appointed Alfred P. Sloan to reorganize GM’s structure and management processes to be line with Dupont strategy

Sloan Strategy
Three major strategies
Ingenious Marketing policy : Pricing of various different cars from economic class to deluxe. Within the company there would be no duplication in the price fields. GM had car for every purse and purpose which gave competitive advantage from its competitors.
Commitment to innovation: Innovation includes annual vehicle change, high compression , over head valves , V-8 engines, automatic transmissions they also include financial innovations like credit financing facilities.
International Diversification: GM began exporting of cars in 1925 and the purchased British vehicle firm Vauxhall in 1925, German operation Opel in 1929 and Australian Holden in 1931.

Sloan devised a multidivisional structure to replace Durant’s loose management system. The system was known as “decentralization with coordinate control”. A General Manager run each car division, which contain assembly, production, engineering and sales. General Motor’s subsidiary and many assembly plants in 15 counties operated independently. Divisions were aggregated in group and each group was headed by group executive. This role reduced number of direct reports to CEO. Assisting CEO in his role was a Management Committee. Members of this committee included president , chairman , CEO, CFO, any vice – chairs and executive vice presidents. Group executives did not serve on Management Committee. There was a policy group which had responsibility for supporting Management Committee. The Heads of each staff area such as finance, purchase, personnel , engineering chaired the policy group.

Policy group met monthly to set standards and policies and to make recommendation to the Management Committee. Policy group had no funding authority. Executive would review proposals with General Manager and would then take proposal to the monthly meeting of policy group. That policy group would then decide on the matter or make a recommendation to the management Committee.

GM sales were large to cover costs of plants dedicated to single model of car, and to absorb the duplication of functions , processes and competitive inside the organization.

Problems Started 1960s to 1990s
Competition increased from inside and outside, divisions were competing with each other for market share, there was brand confusion in market, new car manufacturers have entered market with low cost cars, and govt. tightened regulation and standards for environment and safety. Unlike its foreign competitors GM was not able to respond quickly to market changes and duplication, confusion and resistance continued in GM.

In 1960s and 1970s, cost and product proliferation consideration led to a limited consolidation of some of the assembly/manufacturing operations into a more centralized assembly division. More focus was given towards costs than on revenue. North American operations were restructured into a new organization with two car groups. The Buick, Oldsmobile, Cadillac (BOC) group making large cars and Chevrolet, Pontiac , and Canada (CPC) group focused on making small cars.

Despite change in organizational and external environment, the management committee and Policy Group stayed roughly the same. The reorganization of 1980s slows down decision making. It added one more layer of required reviews on top of divisional management review. Senior management becomes more internally focused. Policy Group staff shifted their focus from recommendation to gathering of data to support particular position. There were pre-meeting to avoid surprises at regular meetings and lining up of votes before meeting.

By 1990s there was fear for its survival, amid rumors of bankruptcy.

Restructure 1992
In 1992 , board of directors acted and then chairman was replaced with Jack Smith. Jack Smith reduced overlapping of product lines by eliminating similar competing models, developed common systems for product development, and eliminated two vehicle group structure and policy group.

Established North American Operation Board to manage North America and globally combine remaining regions into a General Motors International Operations organization at Zurich. Subsidiaries outside US like Opel and Holden continue to operate as independent organization.

In 1998, Single Automotive Strategy Board (ASB) was established, chaired by COO. Smith eliminated GM International Operation organization and strategy Board. Leaders of critical global processes in now report directly to CEO.

Matrix organization was introduced. Four regional presidents formed the vertical columns. The horizontal rows were made up of Global Process Leaders, representing the critical functions. Staff in each region reported directly to both the global process leader of their function and to the region president.

Policy and decision making
The four regional Presidents and their strategic board was responsible for developing , reviewing and approving regional operating budget and business plans. Decisions were taken at regional level and “Notice of Decision” were sent to the ASB to keep it informed.

Global process Leaders were responsible for their functions across the entire company. They had their own council which met monthly or quarterly.

Regions were initially given dominating role in the matrix. Salaries and other expanses for functions were included in or allocated to the regional budget. The CEO and CFO set profit targets and allocated capital and engineering budgets to the four regions. Functions with only a few exceptions, did not have capital budget.

Automotive Strategy Board
The regional strategy board and the global process councils came together at ASB, which along with GM’s board of directors made the major decisions for the company.

was responsible for the company’s over all strategic direction.
made decisions about financial commitments and resource allocation.
ASB review and approve corporate budget
Global process Leaders propose new policies to ASB and policy was formulated

ASB staff was required to make pre-meeting preparation. ASB staff open their secure website where all planned presentation were posted. ASB member was expected to review and comment on material and vote on them. Voting helped to eliminate topics where there might already be agreement and to focus the discussion on remaining topics.
They were required to funnel questions to appropriate presenter who were expected to focus their time in the meeting on those questions.

Supporting Matrix
The regional presidents had to take responsibility of geographic activities and global process leader. This gives better sense of balance. Each ASB member was given individual objective with one week to respond. To make ASB meeting run smoothly and ensure good interaction ground rules and guidelines were established. ASB director was responsible for managing agenda and maintaining action –items and approval list.

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