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Organizational Theory BUSM 3194 Introduction General Motors Corporation (GMC) is a car manufacturer which is established in 1908 in Flint,

Michigan, which was founded by William Durant (Stolovitch et al. 2006). According to Penn (2007), based on global sales, General Motors is the largest automaker in the world, with a staggering 284,000 employees world-wide. General Motors manufactures both cars and trucks under many brand names, including brands like Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Opel, Vauxhall and Wuling, which are sold in 34 different countries (GM Website 2010). General Motors has been the leader in the automaker industry until late 2006. Through all these years, General Motors had been plagued by problems that were both caused by external factors such as the presence of cheaper car models offered by Japan and Korea, as well as the oil and financial crises. Internal factors such as its toxic culture and mismanagement play a role in the downfall. As they enter 2007, the company ran into some financial turmoil. In early 2008, the company reported a loss of $38.7 billion, or $68.45 per diluted share in 2007, compared to a reported loss of $2 billion, or $3.50 per diluted share in 2006 (Autospies, 2008). This result inevitably led to shut down several manufacturing plants and caused thousands of employees to lose their jobs. Walsh (2008) notes that General Motors has no choice but to close the plants in Janesville, Moraine, Oshawa, Ontario and Mexico in 2010 and a total of 8000 jobs will be eliminated. What has caused General Motors, a once-successful automobile company, to nosedive into such dire situations? In order to answer this question, we have to look into the background of General Motors. Hence, this essay is written to discuss the nature of General Motors organizational structure, followed by a discussion of two incidents on how the external environment has affected General Motors organizational structure and vice-versa, using stakeholder theory and resource dependency theory. Structure of General Motors In 1908, William Durant created the first automotive conglomerate and the industrys first vertically-integrated company through a series of mergers and acquisitions (Capelli 1999). Durant was a good at making deals, but not good at managing 1

Organizational Theory BUSM 3194 (Stolovitch et al. 2006). By 1920 due to poor management and economic recession, Durant lost control of the company to the duPont family. Pierre duPont then appointed Alfred P. Sloan to reorganize General Motors structure and management as he had experience in managing production and running a business (Betz 2001). Sloan then devised a multidivisional structure to replace Durants management system. In this multidivisional structure, or M-form for short, it is a means to alleviate overburdened decision-makers (Hatch & Cunliffe 2006). It consists of operating divisions, each representing a separate business in which the top corporate officer delegates responsibilities for day-to-day operations and strategy to divisional managers, and each division represents a distinct, self contained business with its own functional hierarchy (Hitt et al. 2008).In this structure, a General Manager ran each car division, which contain assembly, production, engineering and sales. General Motors subsidiaries and many assembly plants operated independently. Divisions were aggregated in group and each group was headed by group executive. This role reduced number of direct reports to CEO. However, problems started happening. Different divisions were competing with each other for market share. There were duplication, brand confusion, internal competition and high cost of production. Due to its vast size, General Motors was not able to respond quickly as fast as its competitors. This went on till the nineties, when there were rumours of bankruptcy. This prompted to General Motors to restructure and matrix structure was introduced in 1998. Four regional presidents, namely North America, Europe, South America and Asia, formed the vertical columns and they were made directly accountable for operations in their respective zones. This was done on a parallel rather than integrated basis (Bordenave & Lung 2003).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. Together with the four regional presidents, these people formed an automotive strategy board which was under the direct authority of General Motors president and head of operations (Bordenave & Lung 2003).

Organizational Theory BUSM 3194 However, this matrix structure was not without its weakness, and the most glaring part is when it was difficult to hold any of the managers accountable due to the diffusion of responsibilities along multiple supervisors (Hatch & Cunliffe 2006). In 2008, Fritz Henderson became the new CEO of General Motors, and almost immediately he removed the layers of bureaucracy, most notably eliminating the automotive strategy board, and replaced it with a single eight-person executive committee to speed up day-to-day decision-making (Smerd 2009). This effectively marked the end of the matrix structure, and the start of multidivisional structure of the company. How General Motors has affected the external environment Absence of stakeholder theory the Corvair incident The Corvair incident probably underlined one of the controversies that marred the image of General Motors, and also showed the commitment of bad decisions by General Motors due to the totalitarianism that existed in General Motors. Commitment to bad decisions is the most obvious symptom of organizational decay, according to Schwartz (1991). The Corvair was manufactured in the response to the market threat posed by Volkswagen (Fisse & Braithwaite 1983), and it contained a lot of defects, particularly the balance of the car. The problem of the whole issue was that the engineering staff knew about the problems before the Corvair was launched, yet the management conveniently coerced the dissenters to either stop those objections or find other places to work (Schwartz 1991). The result of this stupidity was the loss of numerous lives and millions of dollars spent in legal expenses. All this could have been avoided if the management had decided to place a stabilizer bar which cost only $15. The Corvair incident showed that how the absence of stakeholder theory could affect the external environment. Stakeholder theory is a framework for organizations to balance the interests between the various stakeholders, and as the organizations satisfies the interests of their stakeholders, it must not sacrifice their obligations to social responsibilities (Hatch & Cunliffe 2006). In order to cut cost and boost profits, lives were lost as a result of the whole saga. This whole incident was also compounded by the blind faith and loyalty that the employees possessed. There was 3

Organizational Theory BUSM 3194 this culture in General Motors that promotion was often depended on other factors other than competence, and those who pledged to obey the rules were considered team players (Schwartz 1991). No one dared to rock the boat and take the unpopular stand against General Motors. After the Corvair incident, the US auto industry moved swiftly to introduce new regulations for automobile safety. It is only after this that General Motors began to start being responsible and increased its expenditure on safety research, reporting procedures and also, strengthened its decision-making structure (Fisse & Braithwaite 1983). How General Motors is affected by the external environment Resource dependency theory the case in Silao To a large extent, the progress of General Motors is determined by the environment in congruence to the basis of the resource dependence theory. Based on the assumption that organizations are controlled by their environment, it is the managers job to understand the power dependency relationships between their organizations and other network actors, and then plan and execute ways to offset external influence and creating countervailing dependence (Hatch & Cunliffe 2006). An organizations vulnerability to its environment is the result of its need for resources that are controlled by the environment, and the environment derives its power over the organization from this dependence (Hatch & Cunliffe 2006). The policymakers in Guanajuato were looking to industrialize the area, and when they heard of General Motors were investigating possible locations for a new plant to replace its Mexico City facility, which was outdated and constantly mired in industrial conflicts dating back to 1982, they jumped at the chance and started wooing General Motors by offering a host of incentives in order to seal the deal (Rothstein 2005). Here, the states policymakers needed foreign investments to boost the economy, and they were dependent on General Motors to make that successful. For General Motors case, it was looking for a place that could provide cheap labour and the infrastructure to make General Motors viable and profitable. It is also crucial for the suppliers to be located close to General Motors as this would cut the time needed for the supplies to arrive, and ultimately it would reduce costs. Silao was able to provide all these, which suited General Motors well. 4

Organizational Theory BUSM 3194 The labour pool was full of young and inexpensive workforce; however, they were lowly educated. For General Motors to be able fully rely on this human resource, they had to send these employees for training to be more qualified to become workers. The environment had to be flexible in order to adapt to the constant changes in order to meet the demands from the economic and technological progress. As a result of this interdependency, Silao saw the rise of local automotive sector, as well as achieving their goal of creating thousands of stable jobs for workers with basic educations. Also, thousands of jobs had been created that were unrelated to the auto industry, and this development had shifted the industrial centre of Guanajuato from Leon to Silao (Rothstein 2005). Conclusion The fall of General Motors as an automobile goliath is not really an unexpected one. In fact, because of poor management decisions and leadership, as underlined in the Corvair incident, it sets the stage of its downfall, albeit slowly. We have since seen over the years how the structure in General Motors have transformed, from a vertically integrated organization to a multidivisional structure, to a matrix structure, and recently back to multidivisional structure. Whereas it is important to have a strong organizational structure that is functional yet flexible, there is a need to have capable people up in the leadership. It would probably be an overstatement to say that Alfred Sloan was the best manager, but if not for him who introduced M-form structure in General Motors, General Motors may not have enjoyed the best part of prosperity in the 20th century and would have failed under Durant in the early 20th century. We have discussed about the stakeholder theory and the resource dependency theory, citing examples from the Corvair incident and the case in Silao, and environment does play a part in ensuring the viability of an organization. The Corvair incident has shown that with a totalitarian management who do not listen to feedback, it has a significant impact on the external environment, which is the lives that are lost. In the Silao case, resource dependency is the key factor for industrialization in that region to happen. All in all, to sustain an organization, the

Organizational Theory BUSM 3194 structure that the organization adopts, as well as the management decisions, plays a role in ensuring its viability. (1776 words)

Organizational Theory BUSM 3194 Reference Autospies 2008, GM Report Losses of $38.7 BILLION in 2007!, Autospies, viewed 4th March 2010, <http://www.autospies.com/news/GM-Report-Losses-Of-38-7BILLION-in-2007-26439> Betz, F 2001, Executive Strategy: Strategic Management and Information Technology, John Wiley & Sons, New York Bordenave, G & Lung, Y 2003, The Twin Internationalization Strategies of US Automakers: GM and Ford, in Freyssenet, M, Shimizu, K & Volpato, G (eds.), Globalization or regionalization of the American and Asian car industry?, Vasubgstoke, New York, Palgrave Macmillan, pp. 53-94. Capelli, P 1999, the New Deal at Work: Managing the Market-driven Workforce, Harvard Business School Press, USA Fisse, B & Braithwaite, J 1983, the Impact of Publicity on Corporate Offenders, State University of New York Press, Albany, USA General Motors 2010, General Motors Corporate Information About, General Motors, viewed 3rd March 2010, < http://www.gm.com/corporate/about> Hatch, MJ & Cunliffe, A 2006, Organization Theory: Modern, Symbolic, and Postmodern Perspectives, 2nd edn, Oxford University Press, New York Hitt, MA, Ireland, RD & Hoskisson, RE 2008, Strategic Management: Competitiveness and Globalization: Concepts & Cases, 8th edn, Cengage Learning, USA Penn, I 2007, US Automaker CEOs: Congress Should Address Skewed Japanese Yen, Articlebase, viewed 5th March 2010, <http://www.articlesbase.com/automotivearticles/us-automaker-ceos-congress-should-address-skewed-japanese-yen161808.html> Rothstein, J 2005, Economic Development Policymaking down the Global Commodity Chain: Attracting an auto Industry to Silao, Mexico, Social Forces, vol. 84, no. 1, pp. 49-69. 7

Organizational Theory BUSM 3194 Schwartz, H 1991, Narcissism Project and Corporate Decay: The Case of General Motors, Business Ethics Quarterly, vol. 1, no. 3, pp. 249-268. Smerd, J 2009, Can a new corporate culture save General Motors?, Crains Detroit Business, viewed 6th March 2010, <http://www.crainsdetroit.com/article/20091109/EMAIL01/911099979> Stolovitch, HD, Pershing, JA & Keeps, EJ 2006, Handbook of Human Performance Technology, 3rd edn, John Wiley & Sons, San Francisco, USA Walsh, D 2008, Facing bankruptcy threat, General Motors to slash thousands more jobs, World Socialist Web Site, viewed 4th March 2010, < http://www.wsws.org/articles/2008/jul2008/gm-j08.shtml>

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