Management Practices, Relational Contracts, and the Decline of General Motors
What led to General Motors' decline? Long regarded as one of the best managed and most successful firms in the world, its share of the US market fell from 62.6 to 19.8 percent between 1980 and 2009, and in 2009 the firm went bankrupt. The authors argue that the conventional explanations for GM's decline are seriously incomplete. They discuss a number of causes for the firm's difficulties, and make the case that one of the reasons that GM began to struggle was because rival Toyota's practices were rooted in the widespread deployment of effective relational contracts--agreements based on subjective measures of performance that could neither be fully specified beforehand nor verified after the fact and that were thus enforced by the shadow of the future. GM's history, organizational structure, and managerial practices made it very difficult to maintain these kinds of agreements either within the firm or between the firm and its suppliers. The authors also argue that at least two aspects of GM's experience seem common to a wide range of firms. First, past success often led to extended periods of denial: Indeed a pattern of denial following extended success appears to be a worldwide phenomenon. Second, many large American manufacturers had difficulty adopting the bundle of practices pioneered by firms like Toyota. The paper concludes by discussing the implications of this history for efforts to revive American manufacturing. Key concepts include: Public support for economic growth has usually focused on the diffusion of technology-based insights. Learning more about when (and what type of) relational contracts are likely to be valuable may be just as important. For General Motors, the historical success of the firm led its senior managers to deny and/or misperceive the nature of the threat presented by Japanese competition for much of the 1970s and 1980s. GM faced difficulties in the 1990s once the firm had made the decision to adopt Toyota's managerial practices. It took time for GM to understand exactly what Toyota was doing. Then problems in building new relational contracts greatly slowed GM's efforts to respond effectively, either through innovation or by imitating Toyota's efforts. Closed for comment; 0 Comment(s) posted.
Automobile Industry Analysis Essay
The automobile industry is one of the leading industries at the global level. It plays a crucial role in the development of the global economy because of the high revenues and increased customer demands. The automobile industry helps to foster economic development of the country; therefore, it is widely recognized as a major economic sector. The automobile industry consists of multiple companies specialized in car manufacturing, as well as the ones involved in marketing and distribution of automobile products, such as cars, buses, vans, trucks, motorcycles, mopeds and motorized bicycles. The global automobile industry incorporates several large car manufacturers’ blocs that work collaboratively suppliers at the global level.
The major goal of this paper is to provide a detailed analysis of automobile industry that gives a clear description of the industry today and its prospects for the future. Due attention should be paid to the use of the strategy tools and theories, such as Porter’s five forces and PESTEL analysis and other approaches.
Porter’s Five Forces Analysis
- Bargaining Power of Suppliers
The bargaining power of suppliers is low for the reason of the availability of multiple suppliers in the auto-parts industry. Nevertheless, due to the growth of the supply system and its specialization, supported by new technological advancements, manufacturers have an opportunity to reject the delivery of materials because of poor quality (Pearlson et al. 39).
- Bargaining Power of Customers
The bargaining power of customers is moderate because in the automobile industry, customers need to have enough information about automobile products’ characteristics, as well as other factors that influence their decision making: price, quality, product image, brand, and environmental impact of the product. Many car manufactures produce products with the same characteristics and sell them at the same price.
- Rivalry between Existing Players
The rivalry between the car manufacturers is focused on addressing the demands of customers in terms of lower prices, better product differentiation, more effective distribution strategies, and stronger business relationship with supply system. Currently, the existing players in the automobile industry are BMW, Ford, Audi, Honda, Mercedes Benz, Fiat, Lexus, Infiniti, Acura, Toyota, Volkswagen and others.
- Threat of Substitutes
The threat of substitutes is moderate because automobile products vary, although they have the same purpose. Due to product differentiation, customers have an opportunity to select products considering such factors as price, quality and design.
- Threat of New Entrants
The automobile industry has high level of barriers to entry. It needs specific machinery, facilities, equipment, human resources, technological devices, distribution channels, etc. The automobile industry is attractive to new entrants, but requires them to solve a number of problems, like customer preferences, industry demands, environmental demands, and others. Thus, the threat of new entrants is low.
Political and legal factors
Political factors have a strong impact on the development and growth of the automobile industry. The production of hybrid vehicles requires more financial support from local governments because of the environment friendliness. The production of new vehicles must comply with the established vehicle emission standards. Governments across the globe should provide financial support to favor the distribution of vehicles with lower CO2 emissions (Geels 67). Besides, taxes and import laws affect the automobile industry growth. In fact, there are some legal requirements that should be met by the car manufacturers, including environmental regulations aimed at reduction CO2 emissions.
The increased prices for cars are associated with the inflation rate and economic crisis. Besides, the industry is dependent on oil prices. The following factors play an important role in the industry’s shifting in supply demands and price elasticity: local government taxes,prices for materials and resources, population growth, buying capacity, types of economic activities, commercial usage of vehicles, fuel economy dependence, and other factors (Orsatoa & Wells 994). The profitability of the automobile industry is related to the financial opportunities of customers.
Socio-cultural factors that influence the development and growth of the automobile industry include population growth rate, education level, lifestyles, safety issues, cultural differences, and the effects of consumer buying habits, their attitudes toward “green” or ecological automobile products. The automobile industry growth is dependent on the preferences of customers, most of whom need to purchase cars for families. They consider the space available in the car, safety and price.
Technological innovations play a crucial role in the development of the automobile industry. Due to the use of new technologies it is possible to enhance standards of driving. Besides, currently, the automobile industry is experiencing the problem of fuel consumption. The innovation of new cars, which are characterized as environment friendly vehicles, is aimed at reduction of fuel consumption. Besides, technological innovations are aimed at meeting the requirements of customer safety. New seat belts, air bags and other devices help to avoid injuries sustained in collisions. Anti-Brake Systems help to increase the stopping distance even on slippery pavement. The automobile industry needs investments in research and development to ensure that new technologies are useful and meet the demands of customers (Pauwels et al., 142). ). The production of high performance vehicles by car manufactures is increasing due to the benefits provided to customers: higher engine output, more innovative braking and suspension systems and other technical characteristics that guarantee high quality of products.
There are some environment factors that affect industry development and growth, including fuel economy and air pollution caused by CO2 emissions. Environmental concerns make car manufactures use innovative technologies. The production of environment friendly vehicles, such as hybrid cars and electric vehicles, allows changing customer demands and preferences in the future. The advantages of these vehicles over gasoline cars include low emission and high energy efficiency (Zhuang et al. 137).
- Evolving industry due to popularity of cars among consumers;
- Contribution to changes in lifestyles;
- Product innovations due to new technology support and advancement;
- Involvement of cheap workforce from the developing countries in car manufacturing (e.g. India, China, Indonesia and other developing countries).
- Increased competition;
- Strict regulations;
- High taxes;
- Environmental concerns;
- High costs of research and development opppirtunities.
- Introduction of fuel efficient cars;
- The growth of strategic alliances;
- Changes in customer preferences;
- Expansion of markets (Pauwels et al. 142).
- Increased competition;
- Dependence on fuel prices;
- High production costs;
- High electricity costs;
- Inflation rate;
- Poor regulation of car markets (Orsatoa & Wells 1006).
Thus, it is necessary to conclude that currently the automotive industry is experiencing growth. The production and distribution of vehicles in China and other countries with cheap workforce have increased significantly. However, the automobile industry has some problems that require implementation of joint efforts, e.g. environmental, economic problems and technological concerns. The analysis of the automobile industry shows that it is possible to strengthen its growth at the global level. The knowledge of markets should be improved and strong brands should be built to adapt to the changing environment. Because of the large number of players in the automobile industry, the increased competition is the challenge for the industry. Besides, constant fluctuations of fuel prices lead to changes in the prices of cars. Local governments’ regulations affect the industry in some way.
Geels, Frank W. “The impact of the financial–economic crisis on sustainability transitions: Financial investment, governance and public discourse,” Environmental Innovation and Societal Transitions, 6 (March 2013): 67–95.
Orsatoa, R. J. & Wells, P. (2007). “U-turn: the rise and demise of the automobile industry,” Journal of Cleaner Production, 15(11–12): 994–1006.
Pauwels, Koen; Silva-Risso, Jorge; Srinivasan, Shuba; Hanssens, Dominique M. (2004). “New Products, Sales Promotions, and Firm Value: The Case of the Automobile Industry,” Journal of Marketing: 68. 4 (2004): 142-156.
Pearlson, Keri E., Saunders, Carol S. & Galletta, Dennis F. Managing and Using Information Systems, Binder Ready Version: A Strategic Approach. John Wiley & Sons, 2016.
Zhuang, Ye; Nie, Shida & Guo, Konghui. “A study of semi-active suspension with tuned mass damper,” in The Dynamics of Vehicles on Roads and Tracks: Proceedings of the 24th Symposium of the International Association for Vehicle System Dynamics (IAVSD 2015), Graz, Austria, 17-21 August 2015. CRC Press, 2016.