Case Study GM hierarchy
General Motors loses (industry record) $4. Billion. Costs were out of control. An internal study revealed that GM produced lower-quality vehicles while spending $800 more per car than their competitor Ford Motor Co. L.
Wall Street threatened to remove General Motor’s high Investment rating. The previous fall, the outside directors and board members pressed Robert Steppes for solutions to the crises that confronted the organization. On December 18, Steppes announced the plan to downsize General Motors by closing 21 plants, including the elimination of 74,000 jobs, and the sale of several unmotivated operations.
A subsequent announcement in February detailed Lana to reduce duplication and overhead by reorganizing the company’s three car and truck operations into a single North American groups. The board liked Steppe’s plans, but was dismayed with the pace that he Intended to phase It; Steppes proposed the cuts would not be completed until 1996.
Outside directors were far from pleased with Steppe’s approach. John G. Small, former chairman and CEO of Procter & Gamble and General Motors Director for 10 years, particularly was seriously alarmed.
He arranged meetings with General Motors’ Executives to discuss the firm’s tragedy and management. Regular secret meetings between directors took place to monitor and discuss the situation, excluding inside directors. On the 5th of April 1992, outside directors met In Dallas for dinner and concluded that they had had enough.
The following day, a landmark shift of power from managers to corporate directors took place as the board of directors revolted against the company’s top management team. The Aftermath Steppes was not the only one in the hot seat during the revolt.
Many of Steppe’s appointed close associates were also demoted. The board perceived that top managers lacked merit and that these managers “got ahead as their buddies got ahead. “2 For Instance, Steppes Insisted on making his longtime colleague, Lloyd Reuse, to become his right hand man against the board’s recommendation. With the company’s foundering performance, the board pressed on with the ouster of Gem’s top management.
Ousted: New Executives: Robert C. Steppes (Chairman and CEO) John F. Smith Jar. (President and COO) (Chief Financial Officer) Lloyd E.
Reuse (Executive Vice President) Harry Pearce (Chairman GM Hughes Electronics) F. Alan Smith (Executive Vice President) G.
Richard Wagoner (SCOFF & EVE) Louis Hughes (EVE International Operations) PROBLEM STATEMENT: The main issue in the case is the slow pace of change and decision-making instituted by General Motor’s top management in order to address the company’s poor performance. The tall organizational structure of the firm exacerbated the situation as the hierarchy slowed down communication process while increasing operating costs. ASSUMPTION: Shareholders have been pressuring the company for answers and results.
Gem’s top management has been advised that if they do not take action, the firm will be alienable to lawsuits from shareholders due to misfeasance or nonappearance. ANALYSIS: Robert Steppes Joined General Motors in 1958 as an engineer. He has a degree in Mechanical Engineering from Worcester Polytechnic Institute and a Master’s in Business Administration from Michigan State University.
The manner in which he acquired his position supports that he has Legitimate Power, and his experience and education confirm that he also possess Expert Power.
In fact, the Board agreed with the plans that he proposed, until he shared the timeline in which he intends to accomplish the plan. The delay in the delivery of their strategy may be attributed to General Motor’s tall hierarchy. Prior to Steppe’s administration as CEO, the company was reorganized into two newsgroups that created a new level of bureaucracy between the divisions and GM headquarters, which ultimately led to miscommunication, costly duplication of effort and a proliferation of look-alike models that were very difficult to sell. Tall structures do have their advantages. It allows clarity and managerial control.
The narrow span of control enables managers to closely supervise their subordinates. But, when the structure becomes too tall, it takes longer for communication to travel to all the levels, which can hamper decision making and progress. However, we should not easily dismiss the prospect that Steppes demonstrated poor listening and decision-making skills. Air Millstone, a New York lawyer and legal counsel for Gem’s outside directors since 1985 related in an interview: “There were frequent conversations between us (the board) and Bob Steppes in which our concerns were made clear to him.
Assuming that the board members are intelligent individuals, they cannot be waded by connections – expertise and skills are imperative to influence the board.
Thus, with the shareholders and company’s best interest in mind, the board should indeed restructure the organization’s top management to prevent the company further losses. The board’s rationale for the upheaval was simple: “Regaining profitability requires a more aggressive management approach to remove excess costs. “4 John F Smith Jar. Was best qualified to replace Steppes. He made $4.
5 Million overseas for GM and successfully established operations, productivity and quality in
Gem’s Europe plants. Smith exercised Expert Power. Once the top management has been replaced, the new executives can proceed to implement the necessary changes that were originally planned with the urgency that it required. This includes closing of several plants, and the downsizing of General Motor’s white-collar workers which bloated operation costs in order to achieve a flatter hierarchy. Afterwards, Smith can focus on measures to improve the efficiency and productivity of the company in order for it to regain traction in the automotive industry.
