Leadership And Change Management At General Motors Commerce Essay
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Part of: Automotive Industry
General Motors (GM), one of the world’s largest automakers, was initially founded by William Durant in 1902 and held a remarkable presence in the automobile industry for almost a century. It is predominantly engaged in the designing, manufacturing and marketing of cars, trucks, and other automobile parts in North America, Europe, Latin America, and Asia Pacific regions. Additionally, GM also provides vehicle safety, security and information services through GM OnStar. This company sells not only cars but also trucks under several brands such as Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Hummer, Opel, Pontiac, Saab, Saturn and Vauxhall in 31 different countries (Datamonitor). The main headquarters is located in Detroit, Michigan where over 200,000 people are currently employed globally. Its largest market is in the U.S, followed by China, Brazil, the UK, Canada, Russia and finally Germany. Globally, the automobiles and components industry was severely affected by the global economic downturn in 2008. Unfortunately, the recession in the global economy harmed GM’s business by adversely affecting its revenues, results of operations, cash flows, and financial condition. According to Isidore (2009) in CNN Money, General Motors filed for bankruptcy on June 1, 2009. . This move was once viewed as unimaginable, since it was one of the world’s leading automakers. However, after years of losses and market share declines topped by a major plunge in sales, bankruptcy was inevitable. A new company financed by the US Treasury stepped in and purchased most of GM’s assets and trademarks. By July 10, 2009, the company’s name changed from General Motors Corporation to General Motors Company. Consequently, the company experienced major changes such as massive job cuts, closure of a dozen facilities, emergence of new leaders, etc. In order to evaluate the radical change undergone by General Motors, both internal and external factors leading up to the change must be identified. Several pressures such as economic conditions, competition, government intervention, technology, resource availability, and people can cause change (Porter, Smith & Fagg, 2006). In order to be successful, organizations increasingly need to be scanning the environment to anticipate the appropriate change action. More importantly, they need to be proactive in their attitude to change. In the case of General Motors, the causes of change were economic conditions on a global scale and unavailability of financial resources. Even though there was a resistance to change, GM had to swiftly evaluate the situation and devise new strategies on how to move forward. The success of the transition of an organizational change is mainly dependent upon the leadership of senior management (Porter, Smith & Fagg, 2006). The Chief Executive Officer at GM, Mr. Fritz Henderson, was replaced by Mr. Edward Whitacre in 2009. He was the former Chairman and CEO at AT&T from 1990-2007. Mr. Whitacre serves on the Board of the Institute for International Economics and the Boards of Burlington Northern Santa Fe, Exxon Mobil and the PGA Tour (Datamonitor-GM). Furthermore, he is also involved in The Business Council. Even though leaders of General Motors are still trying to implement stability, the transition leading up to the radical change could have been more efficient and effective.
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LEADERSHIP THEORIES AND APPLICATION TO GM
1.1 Leadership Theories:
Amongst the many definitions of a leader, Bryman (1992, p. 3) describes “The leader is characterized by a strong drive for responsibility and task completion, vigor and persistence in the pursuit of goals, venturesomeness and originality in problem solving, drive to exercise initiative in social situations, self confidence and sense of personal identity, willingness to accept the consequences of his or her decisions and actions, readiness to absorb interpersonal stress, willingness to tolerate frustration and delay, ability to influence other people’s behavior and the capacity to structure social interaction systems to the purpose at hand”. A true leader has the ability to motivate his or her followers. While the early leadership theories focused on the leader’s individual characteristics and behavior, later theories explored the duties of the followers and the environment contributing to the success of a leader. Up to the late 1940’s, it was believed that leadership qualities were innate primarily by men or passed along from generation to generation. Whether a leader is born or made was the controversial question that arose in the past. Historical evidence can justify that many effective leaders seem to be born with innate aptitudes. This is known as the Traits theory, which has three broad types of traits. The first is primarily based on the physical factors such as appearance, physique, height, etc. Secondly, the traits reflected on the person’s abilities including intelligence, fluency of speech, and knowledge. The third type covers a wide range of personality characteristics such as conservatism, self-confidence, dominance, and emotional control (Bryman, 1992).
On the contrary, the Style theory describes that employees will perform better depending on the adopted style of their leader (Porter, Smith & Fagg, 2006). In other words, the same group of people will behave differently according to the leader’s style. A type of leadership that follows the style theory is transactional leadership, based upon contingency where reward or punishment is given depending on the subordinate’s performance. The leader designates a specific task, and the subordinate is fully responsible to carry it out despite the circumstances. The emphasis is based on goal clarification, the setting of tasks and objectives, and organizational rewards and punishments. While this approach still remains popular, certain limitations exist such as the assumption that the subordinate is strictly motivated by money and reward (Dave Paper). On the other hand, transformational leadership theory is centralized on the development of commitment and motivation among followers. A transformational leader creates a vision and eventually persuades his or her followers to ‘buy in’ in order to transform the performance of the organization (Porter, Smith & Fagg, 2006). Even though people won’t readily accept a radical vision, the transformational leader will do whatever it takes to get every person on board. This concept is based on a relational contract, where subordinates willingly contribute beyond the requirements. Both transactional and transformational are equally important to help increase organizational competitiveness in an era of global competition (Mohamed & Rafiuddin, 2010).
Yet, another leadership theory is that of Vroom and Yetton’s decision-making model. According to Porter, Smith and Fagg (2006, p.76), “All leaders are considered as decision-makers, and their effectiveness can be determined by examining the quality of decisions taken over time”. The most appropriate style of leadership is flexible which depends upon the subordinates’ preferred style, the situation and the task facing the leader. Vroom and Yetton defined five key types of leadership where two are autocratic, two are consultative and one is group-based. The way how the leader obtains information or the way how the leader makes a decision is different for each type. Situational factors influence which method is considered the most pertinent. While the path-goal theory of leadership is similar to the Vroom and Yetton’s model, many differences exist. A characteristic of the path-goal theory also involves a participative leadership, where the leaders consult with the followers and take their ideas into account for decision-making. However, the leaders are expected to guide, encourage, and support their subordinates in achieving the goals. For example, they are required to clear the path by removing roadblocks so that the subordinates know which way to go (Dave’s Paper). Moreover, the leaders are to be supportive by showing concern for the followers’ welfare and creating a friendly working environment. Another similarity to the Vroom and Yetton’s model is that the path-goal oriented leader will also vary in his or her approach depending on the situation.
Finally, a term used to characterize brilliant forms of influence, exceptional, gifted, and even heroic is known as charismatic leadership. According to Galvin, Balkundi and Walkman (2010, p.477), “Subordinates who view a leader as charismatic will tend to see the leader and his or her vision as core their own identity and will be willing to sacrifice so as to benefit the collective and achieve the goals and vision of the leader’. Some distinguishing attributes possessed by the charismatic leader are confidence, power, success, and influence. A transformational leader can also be qualified to be charismatic and vice versa. Since a transformational leader instills the vision onto the subordinates, he or she can do so in a charismatic manner.
1.2 Leadership in General Motors
Leadership models and theories should be used as frameworks for developing personal styles, and self-reflecting. While various theories exist, a successful leader should know their industries, have astute insights, and are willing to induce the changes necessary to their organization (Van Wart, 2010). Furthermore, they are an inspirational figure, where they can influence their followers in the course of events. In the case of GM, the former chief executive, Mr. Fritz Henderson was asked to step down from the position. Mr. Henderson had worked along the former GM president, Mr. Rick Wagoner, throughout his career. According to Madslien (2009), “This could pose serious problems for GM, which may now find it hard to find not only a replacement for the charismatic car guy”. However, concerns such as the fact that Mr. Henderson was clinging on to power in the name of stability were expressed. Additionally, he was eagerly trying to rebuild the company based on the traditional model that GM used prior the crisis. Based on this analysis, it shows that the former CEO was not apt for changeability. He can be categorized as being a transactional leader, where a clear structure must be set in place and subordinates are required to just follow. Fritz Henderson could also have been path-goal oriented, where he would direct the subordinates, tell them what to do, and provide appropriate guidelines. The new CEO stated, “Mr. Henderson had done a remarkable job in leading the company through an unprecedented period of challenge and change” (General Motors BBC article, 2009).
On the contrary, Mr. Ed Whitacre, who replaced Fritz Henderson, is more of a transformational and charismatic leader. The newly-appointed CEO, who previously ran the AT&T telecoms company, was brought in as chairman by the Obama administration. General Motors needed an outsider, who had no attachments, as the leader. When he accepted the post, he announced that sweeping management changes needed to be made at GM (Luft, 2009). The fact that Mr. Whitacre reorganized and restructured departments three days after taking over demonstrates that he is both transformational and path-goal oriented. He managed to guide his followers in how to achieve the goals and objectives set in place for the future GM. Moreover, he had a vision to recreate General Motors and put passion and energy into everything. This type of leader constantly sells the vision to his followers. With all the changes that GM was experiencing, Whitacre realized the workforce was rattled and immediately addressed it by sending a companywide email. According to Bloomberg Businessweek, the email reassured the employees that the major leadership changes are all behind them (2009). Even though Whitacre might be somewhat naÃ¯ve in the time frame of product development amongst other areas, he strategically designates other people to overlook the areas he lacks in knowledge. Furthermore, he wants to give people more responsibility and authority deeper in the organization and hold them accountable for their doings (Luft, 2009). In decision-making, this leader follows Group procedure, where he shares the problems with followers and seeks consensus agreement. Essentially, as a transformational, charismatic, path-goal oriented leader, Mr. Whitacre will try to ensure a smooth and successful transition for GM as a company and for the employees. General Motors new management team will focus more on leadership duties and responsibilities to meet their objectives to design, build and sell the world’s best vehicle.
2.0 EXTERNAL AND INTERNAL FACTORS
Organizations are expected to experience changes due to the instability and inconsistency of the environment. Organizational change is usually provoked by some driving force such as decrease in productivity and services, substantial cuts in funding, major new markets and clients, etc (Barbara and Fleming, 2006). The reasons why and how changes occur can only be understood if an internal and external analysis of the company is performed. The Porter’s five forces, PESTLE and SWOT analysis, and internal resources can be used to conduct an environmental scanning; hence, objectives and strategies can be formulated and used to implement the changes.
2.1 PESTLE Analysis
PESTLE analysis is a framework comprised of political, economical, social, technological, legal, and environmental components. From the beginning, General Motors has always been affected by the law and government regulations. Most of the regulations are associated with the environment and concerns for safe automobiles. For example, the EU recently restricted the usage of heavy metals due to environmental issues. Additionally, the vehicle emissions regulations have also become stricter (Datamonitor: Automobile). Economically, since 2008, the global automotive industry has been severely affected by the major global credit crisis where both North America and Europe encountered recession. This in turn caused unstable oil prices, decreases in employment rate and decrease in consumer spending. Other essential components are the sociological and environment factors. With the increasing interest of the environment worldwide specifically in the US and Europe, General Motors has taken a firm stance in Corporate Social Responsibility in all its business practices. This includes the operation of the factories and business offices, usage of renewable and recyclable materials, production of fuel-efficient cars and trucks, and less emission of greenhouse gases (GM website). Additionally, society has become relatively materialistic and driven by status quo. General Motors is aware of this; therefore, it would target each market depending on status and income. The last component in the PESTLE analysis is the technological component. The rise of the internet worldwide has affected not only the automobile industry, but many others as well. GM can benefit from the increasing usage of the internet, because more and more consumers can access its website and view products more easily.
2.2 Porter’s Five Forces
Porter’s five forces of competition framework can be used to analyze the intensity of competition and the level of profitability (Grant, 2005). These five forces include competition from substitutes, entrants, power of suppliers, power of buyers, and established rivals. In replace of purchasing automobiles, consumers can use public transportation such as buses, trains, and bicycles. Moreover, consumers can also choose from other automobile products that are not GM-related making the threat of substitutes high-risk. High barriers to entry such as large capital allow the threat of new entrants very low-risk. In the automobile industry, the bargaining power of suppliers is considered low, since these suppliers rely on the automakers to purchase the raw materials such as steel, paint, glass, aluminum, etc. In regards to the bargaining power of the buyers, the risk is high. Customers can choose not only from other automobile manufacturers, but also from many automobile dealers that exist. Finally, there is a high rivalry existing among the competitors of General Motors. The major competitors include Toyota Motor Corporation, Honda Motor Co., Ford Motor Company, Mazda Motor Corporation and several other automakers (Datamonitor- GM)
2.3 Internal Analysis
According to Porter, Smith, and Fagg (2006, p.393), “Environmental analysis also requires an examination of the organization’s internal environment. Internal analysis is concerned with the resources and capabilities that an organization must seek to understand before it can pursue any form of strategy”. An internal audit includes the organization’s human, financial and other resources which contribute to supporting its strategies. General Motors employs more than 200,000 people worldwide. Moreover, it has created a business environment based upon mutual respect, responsibility, and understanding. One of GM goals is to give employees more responsibility and authority and hold them accountable (GM website). In other words, this company believes in empowering its employees. Additionally, GM understands the effectiveness of performance when personal life and work are linked. Given that General Motors is considered to be one of the largest employers in the world, the benefits offered are just as grand. Amongst some of these benefits are medical plan including dental, investment options, life insurance, paid holidays and discounts on GM products and services. Financially, GM leaders and employees are committed to building its market share, revenue, earnings and cash flow with the goal of paying back its loans by 2010. In the year ended 2009 the estimated worldwide market share was recorded as 11.6%. Furthermore, vehicle sales in the US fell drastically since the peak in 2007 (GM Annual report).
2.4 SWOT Analysis
Once an audit of external and internal influences has been conducted, a framework such as SWOT analysis can be used to link an organization’s resources and capabilities. Then, the implications of strategies can be identified (Porter, Smith and Fagg, 2006). SWOT represents strengths, weaknesses, opportunities, and threats. It is the most widely used analytical management technique.
General Motors not only has a strong brand portfolio, but also has a wide portfolio of regional brands like Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab, and Saturn. The strong brand portfolio spanning the global market allows GM to gain a competitive advantage. Also, since it has an extensive geographic presence in 207 locations, General Motors is able to spread its risks across the global markets.
GM incurred significant losses from 2005 through 2008 due to operations and restructurings. The company’s liquidity position along with its operating performance was negatively affected by the industry conditions. Additionally, there was a major decline in sales in major business segments.
The increase in the global truck market experienced a growth during 2004 and 2008 and will continuously have a steady growth for the future. This represents an opportunity for General Motors to capitalize on this market which can positively affect its revenues and profits. Moreover, there has been a worldwide demand for hybrid electric vehicles. Therefore, General Motors has been focusing on developing new high technology products for these eco-friendly automobiles. Consequently, this would boost the demand for GM’s products.
Due to the ongoing global recession, GM’s business would be significantly affected in its revenues, results of operations, cash flow and financial condition. More importantly, the global automotive industry is extremely competitive, where General Motors are facing strong competitors. As a result, there would be an adverse effect on vehicle pricing and market share.
3.0 CHANGE THEORIES AND APPLICATION TO GM
According to Palmer (2006, p.50), “Variety of pressures on managers: the environment, discovery of deviations from standards, new desires and visions of the future or the fundamental nature of organizations themselves”. He also continues on stating that the result of change is, ironically, stability. While these pressures for change are constant, advantages of a changing organization are better integration, teamwork, common values, and mindsets. All these benefits contribute to achieving a better organization with more efficient and effective outcomes. John Kotter explains that some forces for change are greater economic integration, maturation and slowdown, technology, and fall of socialist countries and their reorientation toward capitalist economies (Palmer, 2006).
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3.1 Change Theories
Several change management theories describe the process of developing a planned approach to the changes taken place in an organization. The first model is John Kotter’s 8 steps, which was published in 1995 in the Harvard Business Review. Firstly, establishing the need for urgency refers to performing market analysis by determining the problems and opportunities. The second step, ensuring there is a powerful change group to guide the change can be performed by creating team structures to help drive the change and making sure the teams have sufficient power to guide the change. Thirdly, developing a vision can be carried out by providing focus for change. Then, the vision must be communicated by using multiple channels to constantly communicate this vision. The next step is empowering the staff by removing organizational policies and structures that inhibit the achievement of the vision. Once this is done, the organization must empower the staff which help support the need for change and provide motivation. Consolidating gains is the seventh step. This refers to rewarding those who engage positively with the change. Last but not least, the change must be linked to organizational performance and leadership (Palmer, 2006).
However, while the Kotter’s 8 steps outline the management of an organizational change, the Bridges Transition Model suggests that change will not be successful if transition doesn’t occur. In this case, transition is defined as the ending of something, which is the first phase. The second phase is the neutral zone, which is a confusing state between the old reality and the new. During this phase, people are not ready or comfortable to welcome the new beginnings. Much importance must be given during this stage, because the change might be jeopardized if the organization decides to prematurely escape. However, if the neutral zone is completed successfully, many opportunities for creative transformation can be presented. The final phase is acceptance of the new beginnings and identification with the new situation (Bridges, 1995).
Similarly, another model of change that was developed in the earlier days is that of Lewin’s. His model also consisted of three phases like Bridge’s Transition Model. The first phase is identified as unfreezing, where it involved dismantling the existing mindset of the people. For example, a change in the organizational culture would take place in this stage. According to Brown (1998, p.6), “Organizational culture refers to norms, attitudes, values, and beliefs that conduct the behavior of members of an organization with each other and with external stakeholders”. Changing is the second phase of Lewin’s model where actual changes are implemented so the organization progresses to the new position. Just like Bridge’s, this phase is also accounted as the hardest to overcome. In the last phase also known as refreezing, the changes are stabilized. They have been accepted and become the new norm. At this point, the need for recruiting new staff untainted by old habits might be fitting for the organization (Senior and Fleming, 2006).
3.2 Changes in General Motors
In 2007, General Motors declared record sales of more than nine million vehicles for the third consecutive year. Despite that this company had such an achievement, environmental turbulences such as the global recession in 2009 forced GM to declare bankruptcy. This was considered as the biggest failure of an industrial company in US history (BBC website- GM ready to file). According to the news article GM ready to file for bankruptcy, “GM, once the largest company in the world, has been losing market share since the early 1980s” (2009). Some causes leading up to this disastrous event are high production costs and collapse in credit markets and consumer spending. Furthermore, the automaker was slow in moving away from the production of gas-guzzling SUVs when consumers were looking for more fuel-efficient vehicles (BBC-Website, 2009). Even though restructuring of the company was necessary, the transition and resistance to change were posed challenging.
Using Bridge’s Transition Model, the radical change that occurred in General Motors can be evaluated. In the first phase, the organization realized there were major discrepancies between its goals and the current system of operation. Consequently, General Motors accepted the fact that it was the end of their glorious era and placed its fate in the hands of the US government. The new GM left the government holding 60% of the company’s equity (Clark, 2009). Since this automaker was an iconic symbol of the American auto industry, it was necessary to preserve it. General Motors then entered the second phase, the neutral zone, of the Bridge’s Transition Model. Herein, the company faced many barriers and resistance to the changes that were taking place. According to Bridges, management and employees would feel anxious, disoriented, resentful, and self-protective (Bridges, 1995). At this stage, it is natural for people to feel confused between rushing forward and going back to the old ways. The GM official website states that the company has a new global operating structure, a leaner and more streamlined leadership team, and a restructured Board of Directors (GM Website). The designated leaders take a crucial role in the neutral zone. The newly-appointed CEO Ed Whitacre exercised his authority by drawing up a new management blueprint to improve accountability and responsibility for key market performance within General Motors (Luft, 2009). Inevitably, during the restructuring and reorganizing, employers were fearful for their jobs. Bridges (1995, p.41) advises, “Communications help to keep people feeling included in and connected to the organization”. On March 31, 2010 Whitacre decided to send out a companywide email to ease the anxiety and anticipation that had been developing during the change. In his email, he wrote, “A smart company changes and adapts to the needs of the business. So, while there will always be individual moves within GM, I want to reassure you that the major leadership changes are behind us” (Welch, 2010). Once General Motors was out of the neutral zone, the company was able to indulge in the new beginnings that have been much anticipated for. Even though the new GM decided to get rid of Hummer, Saturn, Pontiac, and Saab, it still held on to the most profitable brands such as Chevrolet, Cadillac, Buick, and GMC. Additionally, it will continue to press on for structural cost reduction and a healthier balance sheet with a significant lower debt. Most importantly, the automaker will strictly concentrate on investing in innovative products and new technology.
3.3 Resistance to Change
While the new GM managed to leave the neutral zone of the change process, it was prolonged because of the resistance to change. Some reasons why individuals resist change are routine, security, economic factors, fear of the unknown and selective information processing (Porter, Smith and Fagg, 2006). In the case of General Motors, management and employees were confined to the traditional way of the company’s operations. Even more so, they knew that restructuring and layoffs were going to take place; therefore, they lost their sense of security and allowed anxiety to take over.
4.0 LINKAGE OF LEADERSHIP AND CHANGE
According to Porter, Smith and Fagg (2006, p.301), “The change agent should be at the center of any change process, and one of the most important jobs for him or her to do is to develop a good relationship between all the parties involved in the change process. This is vital to ensure that commitment, trust and mutual respect develop”. The change agent is also known as the leader of the organization. During the transition of the old GM to the new GM, Mr. Ed Whitacre was designated as the CEO. He immediately recognized the importance of organizational development by changing its structure and the people within it. A successful change is accompanied by the redistribution of power within the company so that the decision-making is moved towards shared power (Porter, Smith and Fagg, 2006). CEO Whitacre alongside other directors and managers had to work together as a team in order to carry out the changes successfully. They may even have had to find themselves adopting the role as a transformational leader. As leaders, they are responsible in having a clear sense of direction in order to keep the organization moving on track towards the agreed objectives and goals. However, leaders cannot accomplish a successful change on their own. They need to also depend on the subordinates, which can be achieved by encouraging teamwork, empowerment, and acceptance of certain failures (Porter, Smith and Fagg, 2006).
5.0 RECOMMENDATIONS / CONCLUSION
While General Motors was able to fast-track the change process with the right leadership in place, certain actions could have been done differently to maximize efficiency and minimize resistance. Palmer suggests that resistance to change can be managed by communication to the followers, participation from everyone involved, negotiation between the leaders and the subordinates, and explicit or implicit coercion (Palmer, 2006). Although Mr. Whitacre automatically sent out a companywide email when the company was in turmoil, it was not necessarily effective. Alternatively, he could have done a video conferencing with all the employees worldwide. In this manner, not only would his body language be viewed, but also would he be able to display emotions. According to Bridges (1995, p.41), “Communications help to keep people feeling included in and connected to the organization”. Without communications in place, wrong information can be multiplied and people develop apathy. Moreover, since the new General Motors wanted to revive its innovativeness, it is recommended for the company to expose people to new aspects of their tasks and opportunities for collaboration (Vermeulen, Puranam and Gulati, 2010). Also, while an organization is in neutral zone, creativity should be encouraged. This can be fostered by providing training in the techniques of discovery and innovation, encouraging experiment, embracing losses or setbacks, and looking for opportunities to brainstorm new answers to old problems (Bridges, 1995). All these must be carried out by the changing agents or the leaders.
In conclusion, General Motors was able to identify their disparities and firmly decided to change the organization in order to accomplish its goals and objectives. More importantly, it acted quickly and and realized that current leadership talent did not have the capabilities to deal with the radical change. As a result, General Motors was assigned a charismatic, transformational leader to guide it through change, solve complex problems, and build for the future.
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