Case Summary Executive Decision Making at General Motors

Case Summary of Executive Decision Making at General Motors

"How does an organization achieve consistency, or fit, between the environment and its strategy,

structure, and decision-making processes? The GM case will allow us to discuss the question of

how to go about aligning an organization with a dynamic environment, and in so doing, ensuring

that it is also self-adapting. A last important theme of this case is the role of the CEO."

Wagoner (Chairman and CEO of GM):

"How to balance the global effective system and local focus expertise? The matrix organization is

the key factor. It replaced the historic multi-divisional structure and its proliferation of vehicles,

architectures, and processes that had almost cause GM's demise"

~Case Context~

Alfred Sloan's GM: Revving up (1920~1956)

* In 1908: Billy Durant

Created the first automotive conglomerate and first vertically integrated company in the industry.

− Challenge: Poor management decision because internal competition and duplication were

tolerated and often encouraged.

* In 1918: Alfred Sloan

Reorganized GM's structure and management processes to be in line with its strategies.

− Strategy: Three major strategies included an ingenuous marketing policy, a commitment to

innovation, and international diversification.

− Structure: Multi-divisional structure called "decentralization with coordinated control."

− Policy and Decision-Making Processes: Coordinated control in the decentralized organization

came from Management Committee and the Policy Groups.



Management Committee:

Ultimately responsibility for decisions around resource allocation, spending authorities, and

planning for GM's future resided until 1992.



Policy Groups:

Met monthly to set standards and policies to provide recommendations to Management

Committee, while they had no funding authority.

− Result: Ranked #1 of Fortune 500 (in 1955) in both sales and net profits.

− Challenges: Innovation structure is unchanged until 1990; independence and decentralization

may not be able to respond the major changes quickly.

Coasting Toward Collision (1960s-1990s)

Increased competition and oil crisis in 1970s tested GM's prevailing strategy, structure, and

senior management process. However, GM's internal focus and its 'not invented here' attitude

didn't help.

− Strategy: With focus on market share, the divisions compete with each other. Top managers

became more focused on cost than revenue.

− Structure: The effectiveness of decentralized organization began to break down as operational

complexity and internal competition increased. Each division and global region has its own

functions and lacked of the economics of scale.

− Policy and Decision-Making Processes: Slowed down decision-making by adding a new layer

of required review, and managers focused on lining up needed votes before meetings. The staff

kept executives from knowing what going on with customers and employees.

− Result: GM was branded a "dinosaur" by the early 1990.

Getting Back on a Common Track (1992 and Beyond)

In 1992, Jack Smith was in charge of CEO and Chairman. He eliminated Policy Group, abolished

the two vehicle groups, and replaced the Management Committee with President's Council.

− Strategy: Reduced overlapping product lines, developing common systems for product

development, focused on speeding up to decision-making process, and eliminating the

interdivisional competition.

− Structure:

1. In North America, GM consolidated automotive engineering, manufacturing, and purchasing

into one North America organization.

2. In 1998, GM established a single Automotive Strategy Board (ASB) chaired by Wagoner.

3. Also in 1998, GM was reorganized into matrix organization, or 'basketweave', including four

Region Presidents