The main essence of organisational change is to bring improvements to the systems, processes, infrastructure, and even cultures of organisations. In this case study, we shall take a very brief look at how one of the world’s leading automotive brands weathered the issues that battered it for a time and come out stronger than ever through the meticulous management of organisational change.
The Organisation
The organisation in focus is General Motors. This is a multinational automotive corporation that has grown in its product portfolio to include financial services, industrial services, and logistics. General Motors, or GM, is Fortune 500’s 13th largest corporation, the largest automaker in the US, and one of the automobile giants in the world. In October 2017, GM’s net worth peaked at US$66.82B. As of June 2020, the company registered a net worth of US$40.07B, primarily because of the ongoing global health crisis.
Established in September 1908, GM’s rise to fame was meteoric in the first 50 years of its existence. Unfortunately, the reinvigorated economy and industrial might of the Japanese meant stiffer competition. There were also European brands that were cropping up as early as the 1960s that somehow put a dent on the prestige of GM-made automobiles.
In June 2009, GM filed for bankruptcy. While the event was called the largest setback in American business, it was also the shortest-lived. The Chapter 11 bankruptcy reorganisation only lasted 40 days.
Today, GM is back on track to becoming a global force in the automotive industry.
Factors behind the Organisational Change
This case study will focus on how General Motors was able to turn its deficit into an asset through a successful reorganisation of its workflows and processes. These are all key elements to effective organisational change. General Motors utilised a modified conceptual framework based on Kotter’s Integrative Model of Organisational Dynamics and the Burke-Litwin model. There were two key takeaways in the organisational elements that need to change.
- External Forces
The principal factor that required radical changes in GM’s operation is the growing competition from overseas automotive brands, especially Toyota. While the Japanese automaker is not a US Fortune 500 company, it is 6th in the Global 500 list. In 2010, Toyota had a net worth of US$120.58B compared to GM’s US$56.15B net worth in the same period. As of June 2020, Toyota has a net worth of US$174.89B, US$134.82B more than the June 2020 net worth of General Motors.
The entry of Toyota was not only the main concern of GM. It also felt threatened by the emerging automotive market from both China and India as well as smaller players around the world. The combined forces of overseas automotive players put a dent on the profitability of GM.
Another external factor that GM had to contend with was the financial crisis of 2007-2008. The crisis exposed the vulnerabilities of GM’s cash flows.
- Internal Forces
There were two key internal factors that led to the recognition of the need for organisational change at General Motors. These factors include high labour costs and operating inefficiency.
General Motors was paying its employees at an average rate of US$74 per hour. Toyota, on the other hand, was only paying its employees an average of US$44 every hour. The higher labour costs at GM is the direct result of a collective agreement it has with its labour union.
What complicated the high labour costs was the protocol in place related to the operation of its manufacturing facilities. General Motors required its plant facilities to be at a minimum operating capacity of 80 percent. This is regardless of whether the operations are needed or not. The picture is very different over at Toyota. The Japanese brand is well-known for maximising resources, operating its units only at full capacity.
It is the combination of these factors, plus a few more extraneous influences that prompted GM to file for bankruptcy protection in 2009.
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Managing the Organisational Change
General Motors embarked on a radical change to get its act together. The organisation utilised Lewin’s 3-step model of change and Kotter’s 8-step organisational change plan to address the different issues identified during the change diagnosis phase.
- Cost and Process Changes
One of the most significant changes that GM has undergone is the cutting of costs. The organisation reduced the production of some of its car models, while also abandoning the production of other car brands. The company focused on models that are generating better revenue for the company.
The organisation also had to let go of more than 125,000 employees. From a high of 226,000 employees in 1998, GM only had about 101,000 by 2009. This includes a 20,000-strong reduction in its factory workers.
The company also reduced employee salaries and benefits. Not only did the change affected the rank-and-file, it also meant substantial changes in the upper management. The company reduced the salary of mid-level managers by 3 to 7 percent. Company executives also took a 10 percent cut from their average pay.
The cost change measures were never easy as the company had an existing agreement with its trade union. However, the company prevailed by laying the cards on the table and engaging union leaders and members in more constructive ways.
Structural and Cultural Changes
Another significant change that GM brought in 2009 was a change in its structure and culture. The company scrapped its automotive product board. The 8-man unit is tasked with the formulation of automotive strategies and is required to report their recommendations straight to the CEO. The scrapping of the automotive product board led to faster resolution of issues.
The company also embarked on an ambitious journey of improving the culture of its workforce. General Motors took its cue from rivals by emphasising employee accountability and responsibility. This resulted in improved people empowerment, which also led to an improvement in overall employee productivity.
Unfortunately, GM employed a top-down approach in the initial stages of the reorganisation process. This was met with criticisms as the move disregarded the voice of the people. As such, GM changed its approach to involve more of the ordinary employees. This improved employee satisfaction and a renewed interest in making the change work.
General Motors was able to come out of its financial doldrums in just 40 days. This was possible only because of the radical changes that the GM management were willing to make and the willingness of its people to accept change.