198 16 Case Studies of Flowing Streams

16.1 Case Study of General Motors

16.1.1 Background

Automakers in the early 2000s were facing a host of critical issues such as globalization
and economic uncertainty to new technologies and increasing consumer demands.
These considerations often stood in the way of profitability and shareholder
value. Competition had been intensifying for the “Big Three” US automakers
(GM, Ford, and Chrysler) since the entry of overseas competitors in the early 1980s.
At that time, foreign automakers, especially those from Japan and then South Korea,
entered the US market. They succeeded in capturing significant market share
by appealing to shifting consumer tastes for smaller cars (Klepper 2001). Forced to
find ways to regain their competitiveness, General Motors (GM) took extensive
actions to improve product quality, streamline manufacturing, and assembly pro-
cesses; increase the vehicle content and features offered as standard; and develop
new marketing and branding strategies. These measures had helped GM stay in the
game, but continuous improvement in all areas was still needed to boost profitability
and shareholder value.
For nearly eight decades, General Motors Corporation has been the annual global
industry sales leader. Established in 1908, GM today employs 0.207 million people
around the world. GM cars and trucks have been sold globally under the following
brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel,
Pontiac, Saab, Saturn, and Vauxhall.
Based in Detroit, GM has been one of the world’s largest manufacturers of cars
and trucks. GM is the market leader in the USA and China; is well positioned in Russia,
Brazil, and India; and is having sizable operations throughout Europe, the rest of
South America, and Asia. As part of its growth strategy aimed at creating a global
presence, GM bought Saab and formed alliances with Fiat, Isuzu, Subaru, and Suzuki.
GM also entered into technology collaborations with Toyota and Honda, and vehicle
ventures with Toyota and Renault. GM analyzes its business results through five
segments: GM North America (GMNA), GM Europe (GME), GM International
Operations (GMIO), GM South America (GMSA), and GM Financial.1

16.1.2 Continuity and Change Forces in GM

GM was exposed to a host of challenges which demanded it to maintain the continuity

and at the same time mange the change resulting from its strategic actions. Based on
secondary sources and discussions with select senior executives, the various forces
that accounted for continuity and change are summarized as follows.

1
GM Annual Report (2011) available at http://www.gm.com/content/dam/gmcom/COMPANY/
Investors/Stockholder_Information/PDFs/2011_GM_Annual_Report.pdf

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16.1 Case Study of General Motors 199

16.1.2.1 Continuity Forces

The various continuity forces that were identified in case of GM are:

Huge customer base: GM is spread across the globe and had millions of customers.
The industry-wide generic, one-size-fits-all supply chain model with similar lead
times and service levels to all customers is no longer adequate in a highly competitive
and technology-driven manufacturing environment. Thus, for GM having a huge
customer base is critical for greater market share, but at the same time it offers a
high resistance for bringing change in business strategies.
Well-entrenched infrastructure: GM has heavy investments in the development of
its infrastructure in the form of:
• Production setups which requires sufficient economies of scale to justify its use.
• Manpower, both staff and line, for carrying out the operations. Any change in the
strategy would require taking the existing manpower into confidence for its
successful implementation.
• Inventory management and purchase decisions, which significantly affect the
management of the working capital.
GM also has huge R&D infrastructure in the form of huge R&D setups spread
across the globe. A global R&D center has also been established in India. The R&D
expense in year 2011 was $8,124 million which was $6,962 in 2010.
Core competence: GM’s core competence lies in the effective management of brands
across various segments of customers. GM has been able to take full advantage of
the opportunities to match customer requirements across the product offerings of
different divisions. GM’s multi-divisional structure was created by Alfred Sloan,
the CEO of GM from 1923 to 1946. Sloan’s vision had been to migrate customers
through GM’s different brands as customers matured, but GM neither could not
consistently coordinate across brands nor could share customer data to realize that
vision.2 Therefore, the existing core competencies act as a deterrent for change.
However, with the new horizons emerging in green technologies, the intensity of
this force has reduced.
Technology: Amortization of R&D and technology expenses being a necessary
requirement, GM finds it difficult to shift to alternative technologies and change
its product strategies.
Global supply chain and distribution network: One of the key supply side issues
involved long scheduling lead times and unreliable production schedules that led to
excess inventory throughout the value chain. Lengthy demand planning cycles and
lack of visibility to supplier, material, and production constraints were causing
scheduling delays and short-term production changes. GM has extensive supply

2
Alfred P. Sloan (1990) “My years with General Motors”, with a new introduction by Peter F.
Drucker ,Currency and Doubleday, Doubleday Dell Publishing Group, New York.

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200 16 Case Studies of Flowing Streams

chain network. It has the management philosophy of having control on every stage
of supply chain so that it can effectively target the inefficient links and keep the cost
to minimum. It becomes quite evident from the above discussion that supply chain
forms an important continuity element in strategizing new business plans.
Existing culture: GM lagged behind at times not because it is technically or
financially not as sound as Toyota. The reason why it lagged behind may be its work
culture. It has a slow approach which needs to be changed. Whereas the working
culture has restrained GM to continue to work in the way it has been doing, heavy
focus on core values of providing wide range of vehicle solutions has been pushing
it for change. The old internally focused, consensus-driven, and overly complicated
culture in GM has been changed into risk taking, leading global teams, committed
to build the best vehicles in the world in most efficient way it can.
Performance: For many years, GM has been world’s number one automaker. This
focus has led to designing its strategy centering around gaining maximum market
share, without being much worried about the cost and the resulting low profitability.
This led to the state of bankruptcy of GM, which has now been overcome by gov-
ernment support.
The assessment of the various continuity forces, using tool given in Table A.1, is
shown in Fig. 11.3a in Chap. 11.

16.1.2.2 Change Forces

The industry analysts forecast growth of approximately 12.8 million units between
2012 and 2016 in just four stage-developing markets – Brazil, Russia, India, and
China. Some dominant change forces identified for GM are:
Globalization: The process of globalization is all pervasive and GM is no excep-
tion. It has been facing competition from Asian automakers that came to foreign
markets with higher-content vehicles (i.e., with many options included as standard
equipment) to overcome the customization constraint imposed by the lead time of
shipping product overseas. Because globalization connects activities occurring in
an extremely diverse set of locations, it is an inherently complex process, one that
cannot call for a static set of strategic responses or result in a single societal or
competitive outcome.
New opportunities: For many years, the model for the global car industry was the
United States – the single largest car market in the world. But now, the USA repre-
sents less than one-quarter of the world industry, and its market share has been
declining further. Stephen D’Arcy of PricewaterhouseCoopers believes that all the
growth in the global auto industry in the next decade will come from emerging market
countries such as India, China, and Eastern Europe. Tough new ceilings on pollution
and fuel efficiency standards are being introduced both in the USA and Europe.
These factors have led GM to change its way of designing new vehicles, that is,
instead of providing a large fuel guzzling vehicle it has started including small

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16.1 Case Study of General Motors 201

cars in its portfolio. Roughly 70% are outside the USA, and it is expected to grow
further and 43.4% from emerging markets such as BRIC.3
Competition: The forces of globalization and technological developments are
changing the thinking of the ways of functioning of GM around the world. Even
though GM has its core strength in providing wide range of better vehicles, yet the
continuous updation of product offerings by the competitors may require it to
develop a dynamic strategy plan which will take into consideration the changes in
the competitive space.
Customer needs: In today’s competitive market, it has become imperative to offer
something new and different. The ability to better sense customer demand and shift-
ing preferences, and respond by making and delivering a vehicle to order within a
shorter and more reliable timeframe than its competitors is becoming crucial. What’s
more, the advent of the Internet had enabled original-equipment manufacturers
(OEMs) to have a more direct relationship with customers, opening doors to new
marketing and sales opportunities and introducing speed in all operations.
New technology: With the changing times, the emergence of advanced technologies is
paving the way for more and more sophisticated vehicles. Due to the rapidly changing
technology contained in today’s automobiles, successful OEMs are expected to
keep pace by implementing and maintaining a modern and flexible product develop-
ment. At the same time, the focus on green technologies and reducing level of natural
fuels has made global OEMs to find means of reducing dependence on organic
fuels. For example, Honda and Toyota have introduced Hybrid vehicles to aid in
reducing pollution levels. To keep up with them, GM would have to find newer
means to be either at par or offer better technologies in coming future.
E-business: E-commerce is having profound effects on the car industry. Consumers
use the Internet to become better informed before making an automobile purchase.
Online sites like Autobytel steer millions of car buyers toward specific dealers while
the same sites deliver competing bids for cars, insurance, and financing in a manner
that lowers costs and improves satisfaction among consumers. This trend has been
increasing, thereby requiring GM to keep its IT interface updated and provide customers
the choice of effectively evaluating its products.
Mergers and acquisitions: Automotive mergers and acquisitions act as a means of
increasing market share and improving reach. Other related reasons include attain-
ing economies of scale and augmenting product ranges. Automotive mergers are
turning into a strategic option for companies looking to accelerate growth. In
addition to corporate-level alliances, functional collaborations are increasing all
over the globe. In the recent past, several technology and platform-sharing agree-
ments have been forged, enabling companies to reduce product development times
and costs. In 2010, it acquired 100% of the outstanding equity interest of GM

3
GM Annual Report (2011) available at http://www.gm.com/content/dam/gmcom/COMPANY/
Investors/Stockholder_Information/PDFs/2011_GM_Annual_Report.pdf

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202 16 Case Studies of Flowing Streams

Strasbourg (GMS), in Oct 2010, acquired 100% of the outstanding equity of an

automotive finance company AmeriCredit, and renamed as GM Financial Company
Inc. Continuing with in 2011, it completed the acquisition of an additional 6.9% in
GM Korea Company.4
Government policy and legislation: The regulation of greenhouse gases from motor
vehicles follows a long history of every country’s automotive exhaust emission stan-
dards. The automotive industry typically opposes such regulation citing high com-
pliance costs, technological infeasibility, and/or widespread economic impacts.
Government regulations to improve safety and reduce air pollutant emissions and
oil use have added significant cost to vehicles.
The assessment of the impact of various change forces on GM, using tool given
in Table A.2, has been summarized in Fig. 11.3b in Chap. 11.

16.1.3 Mapping GM on Continuity–Change Matrix

From the assessment of various continuity and change forces, it becomes quite
evident that GM has been experiencing a high level of continuity as well as change
forces (Fig. 11.4 in Chap. 11). This characteristic is similar to firms facing high
continuity forces and high change forces on the continuity–change matrix and can
be addressed using flowing stream strategy as a preferred approach.

16.1.4 Categorization of Continuity Forces

Being one of the oldest and largest automotive organizations, GM carries a huge
baggage of continuity forces. These forces can be analyzed by differentiating them
on the basis of their level of significance, viz., vital, desirable, and burden (VDB
analysis). The various strategic actions to be taken can be summarized as given in
Table 16.1.

16.1.5 Categorization of Change Forces

Global automotive industry has been experiencing high level of change forces
presented by the emerging business environment. The various strategic actions to be
taken to tackle these changes can be taken by dividing the change forces on the basis
of their impact, viz., high, medium, and low impact. These strategic actions for GM
are summarized in Table 16.2.

4
GM Annual Report (2011) available at http://www.gm.com/content/dam/gmcom/COMPANY/
Investors/Stockholder_Information/PDFs/2011_GM_Annual_Report.pdf

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16.1 Case Study of General Motors 203

Table 16.1 VDB analysis and strategic actions for continuity forces of GM
Category Continuity forces Strategic actions
Vital Customer base, core competence, Use with change forces, viz., competition,
supply chain, and distribution customer needs, new opportunities
network
Desirable Existing infrastructure, technology, Modify to suit the emerging scenario
performance presented by change forces of new
technology, globalization, mergers and
acquisitions, and government policies
and regulations
Burden Outdated technology, existing Drop or undertake a major change program
culture

Table 16.2 Impact analysis and strategic actions for change forces of GM
Category Change forces Strategic actions
High impact Globalization, competition, These can be used with following continuity
customer needs, new forces for getting better performance:
opportunities, new customer base, core competence, and
technologies supply chain and distribution network
Medium impact Government policies and Partly account for when formulating future
legislations, mergers and strategies
acquisitions, e-business
Low impact – Ignore

16.1.6 Strategic Crystal Analysis

The strategic crystal giving various continuity and change forces on one plane and key
customer and strategic factors on the other is depicted in Fig. 16.1. The relationships
between the various elements of the strategic crystal are summarized in Appendix C.

16.1.7 Selection of Strategic Channels

In the framework of flowing stream strategy, four key strategic channels are envisaged,
viz., divert, shift, partition, and integrate. These are ordered in terms of maturity of
strategic flexibility and complexity of strategy implementation. GM as an organiza-
tion has used these strategic channels with growing strategic maturity in the flow.
GM possesses a momentum of its continuity in terms of rich legacy of its customer
base, infrastructure, technology, core competencies, brand equity, and culture that
propels it in a particular strategic direction. The changed strategic situation of GM
demands a change of its course, but the continuity momentum would invariably
act as an inertial force and create resistance to change. The simplest strategic channel
with which GM has gone ahead with the required change with minimal disruption
to the continuity has been to divert the continuity momentum in the new direction.

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204 16 Case Studies of Flowing Streams

Key Customer
Factors
Cost
Choice
Delivery
Connectivity
Service
Speed

Change
Continuity Forces
Forces
Globalization
Customer Base
New Opportunities
Entrenched Infrastructure
Competition
Core Competence
Customer Needs
Technology
New Technology
Global Supply Chain and
Distribution Network e-Business
Existing Culture Mergers & Acquisitions
Performance Government Policy and
Legislation

Key Enterprise
Factors
Financial Performance
Customer Satisfaction
Productivity
Quality
Flexibility
Risk
Learning Level

Fig. 16.1 Flowing stream strategy crystal for GM

This has enabled it to change in a natural manner by leveraging the strengths of the
continuity of the stream (Fig. 16.2).
Being one of the oldest and largest auto giant, GM got trapped into the exploita-
tion syndrome of its core competencies until reached to the brink of extinction.
Under the changed scenario of intense Japanese competition led by introduction of
high-quality fuel efficient cars, a partial diversion was witnessed toward designing
and manufacturing small cars.
For large global corporations like GM, the burden of continuity might be huge in
view of the size of the organization and its network of alliances and relationships.
This has made GM resistant to change. A substantial part of this continuity might be
in noncore areas and/or leading toward obsolescence. The next key channel of flowing
stream strategy for GM could be to shift the unwanted burden of continuity. This might
be possible in many ways; the most popular one is outsourcing of R&D and product
development activities to low cost and technically superior destinations like India.
However, GM has been finding ways to integrate the opposite forces of change
and continuity upfront. The implementation of this channel would require ingenious

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16.2 Case Study of Hero MotoCorp Limited 205

Impact
High
Partition /
Shift Integrate
Integrate
Change Forces

Medium
Impact — Partition /
Partition
Integrate
Impact
Low

Divert Divert

Burden Desirable Vital

Continuity Forces

Fig. 16.2 Channel selection matrix for GM

ways of synthesizing the paradoxically opposite forces yet provide cohesive and
pragmatic mechanisms that can be effectively implemented. This would result in
changing nature of continuity or it can be said that the continuity itself propels
change. This is quite evident from the fact that GM has started integrating wider
technological competencies, such as fuel cell development, and electronic applica-
tion competencies.

16.1.8 SAP–LAP Analysis for Execution

The GM’s case is subject to SAP–LAP analysis by understanding its situation,

identifying key actors responsible and priority processes for strategy execution.
A graphical presentation of the same is given in Fig. 16.3.

16.2 Case Study of Hero MotoCorp Limited

This case study incorporates more elaborate steps and tools such as dynamic assessment
and mapping, and aligning strategies with strategic direction or intent.

16.2.1 Introduction of Case Company

Hero MotoCorp Limited (formerly Hero Honda Motors Limited) is the world’s
largest two-wheeler manufacturer from last more than one decade. The company

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Appendices 263

Table C.1 (continued)

S. No. Relationship Nature of Interaction
5. Change forces – The firm factors are the most important for determining how
Firm factors effectively GM can handle the change forces. Factors like
flexibility will have to be changed as per the emerging
globalization of business. Similarly, the risk factor will depend
on the level of competition being faced in new business
environment. Development and adaptation of new technologies
will drive the learning level requirements of GM. Mergers and
acquisitions and government policy will require a change in the
quality level and flexibility factors of GM
6. Firm factors – 1. The customer need of cost depends on GM’s financial
Customers factors performance projection and risk level of business, for
determining the sale value of its services
2. Customers’ choice and service factor will govern GMs ability
to maintain customer satisfaction and being flexible in its new
service development
3. Delivery factor of customer depends on the productivity
and quality parameters of GM
4. Connectivity and speed will, to a large extent, depend
on the learning level of GM and its ability to be flexible
for providing better vehicles

sushil@dms.iitd.ac.in