Case Study:
General Motors Undergoes Major Organizational Change to Survive
The 15 General Motors dealers who flew to Detroit [in September 2009] for a dinner with GM management were not an easily rattled bunch. They had endured the worst auto sales slide in 25 years, as well as the bankruptcy of the iconic carmaker on which they had built their businesses. Only three months had passed since GM accepted a $50 billion federal bailout, announcing the retirement of four of its eight brands and the shutting down of I ,900 dealers-a third of its domestic retail network. These dealers were the survivors, some of the more prosperous people in their towns, and they wanted a little reassurance. CEO Fritz Henderson gathered the group in a private conference room at the Westin Detroit Metro Airport and tried to demonstrate that he had a plan, according to an executive in the room who asked not to be named because he was not authorized to describe the dinner. Henderson announced that GM was going on the offensive with better models, new marketing, and a plan to remake its sclerotic corporate culture. Then he introduced the other GM boss in the room, the one the government had sent to keep an eye on the company. Edward E. Whitacre Jr., a laconic, squintyeyed, six-foot-four-inch Texan, had been GM's nonexecutive chairman for barely two months. He was typically blunt. "We're going to get this turned around, " Whitacre promised. And if the current leadership can't fix the company, he said, "we'll find someone who can." ... ot Henderson, as it turns out. Whitacre and the board fired him on December I, ending his tryout on day 14 3. The board, reconstituted in July with Whitacre and seven other new members joining five others from the old guard, had been skeptical that Henderson, a GM lifer, was radical enough to change the company. Whitacre-the former telecom executive who turned a broken Baby Bell into the resurgent AT&T-decided he was the man to fix GM. "Fritz was moving to change things," says an executive with direct knowledge of the decision who was not authorized to speak about it. "But a lot more needed to be done." ... Within three months of Henderson's ouster, he had eased out four other executives, reassigned 20 more, and brought in seven outsiders to fill top jobsa shock to an insular company that had long been famous for paving over failure while compensating it handsomely. The tide also swept out solid performers allied with the old regime, such as Vice-Chairman Bob Lutz, who had overseen the development of the Chevy Malibu, the Cadillac CT S, and eight other vehicles that were beginning to sell well. Lutz was marginalized by Whitacre and announced his retirement, effective May 1. "In the past," says Lutz, "GM was accused of not enough change. You have to find the balance between the pace of change and trauma to the organization." People close to Whitacre say he would rather cope with trauma than accept the status quo at a company that lost $84.3 million a day in 2008. Three days after taking over, he reorganized sales and marketing, and then, after just three months, let his deputy reorganize the departments againa restructuring of the restructuring that caused middle managers to fear for their jobs and even question whether Whitacre had the right disposition for his. Some say the fear has made them more cautious when Whitacre wants them to take more risk .... Former CEO Rick Wagoner, who lost $88 billion between 2005 and 2009, used a dozen metrics to evaluate his executives. Whitacre, who holds just one meeting per week with his 1 3-member management team, has boiled it down to six: market share, revenue, operating profit, cash flow, quality, and customer satisfaction. He wants nimble managers who decide fast and correct mistakes faster .... The two people tasked with remaking GM's image with consumers, North American President Mark L. Reuss and Marketing Vice-President Susan Docherty, are in their 40s and taking on massive responsibility for the first time in their careers. "He realizes the biggest change GM needs is cultural," says Jim Kahan, who was senior vicepresident for corporate strategy under Whitacre at AT&T. ... Now Whitacre is rushing to take the company public and recoup most or all of the Treasury Department's $40 billion equity stake in GM. On April 21 [20 I 0], Whitacre announced that G M had finished paying off $8.4 billion to the Governments of the U.S., Canada, and Ontario five years ahead of schedule .... The U.S. still owns $2 billion in preferred shares, which GM will buy back, and 61% of the company. Canada owns 11.7%, while the United Auto Workers' retiree health-care fund holds 17SYtl, and bondholders I 0% .... Whitacre wants GM to take big risks, too. After the company launches its Chevrolet Volt electric car in November, it hopes to sell 45,000 globally in 20 II, a huge number for a $ 40,000 compact car that needs to be plugged in at night. Demand for electric cars in unproven; less expensive hybrids have grabbed only 2% of the total market in a decade. Whitacre told GM staff that he thinks the Volt will be a hit and wants them to boost production. If he's wrong, the Volt (which is already unlikely to make money because of its steep development costs and $8,000 battery) will generate even more red ink .... In Whitacre's first months on the job he merged marketing and sales-easing out the 78-year-old Lutz, putting Susan Docherty, 47, in charge of both, and handing the North American organization to Reuss. It took Reuss three months to conclude that Whitacre's new structure was a flop. Docherty, a stylish hard-charger who raced up GM's ranks while working for Hummer and GMC trucks, often told her staff that the new GM would demand long hours. If anyone didn't like it, they should go, she told Business Week last year. Yet the job proved too much even for her. After several meetings with Whitacre, Reuss split sales and marketing again on March 2. Docherty went from head of sales to vice-president for marketing. Whitacre realized that all of the change had rattled the workforce, so on March 31 he sent a companywide e-mail, obtained by Bloomberg Businessweek. "A smart company changes and adapts to the needs of the business. So, while there will always be individual moves within GM, I want to reassure you that the major leadership changes are behind us." It will take more than e-mails to prove GM is stable. Few believed Whitacre's letter, says a senior GM product developer who requested anonymity because he doesn't want to anger the boss. Everyone is on pins and needles, he says .... Whitacre wants to roll out the cars faster, but some product developers say he's na·ive about how long it takes to bring a product to market. After nine months inside GM, he will still stroll up to a clay model and ask why it can't be in showrooms in a year, griped one designer, who asked not to be named. It typically takes three. Whitacre can't change that-and he knows better than to micromanage the car guys. He doesn't attend V ice-Chairman Tom Stephens' Thursday morning product development meetings; he lets Stephens and chief designer Ed Welburn come up with the models, then approves funding. In his race to get GM ready for an IPO, Whitacre has delegated a lot to Reuss. His mission is to build sales without pumping up profit-eating incentives. For years, says Duane Paddock, a Buffalo, New York Chevy dealer, GM built as many cars as it hoped to sell and strong-armed the dealers into taking the inventory. If that didn't work, GM would lay on heavy rebates and give away profit to get the sales volume . At the same time, dealers complained that they had to subscribe to an outside service to track the incentives GM is offering on various models. GM gives the dealers that information, but in reports so complex that many dealers have trouble deciphering them. On Whitacre's orders, Reuss is trying to demystify the process. In March, embattled Toyota spent a company record amount on incentives to lure back wary consumers, offering 0% financing and other discounts. Reuss refused to get pulled in, dropping GM's average incentive from last year by $1,200 a car, to $3,5 00. GM's market share tumbled to 1 7.6% in March from 1 9.4% during January and February. But Reuss kept prices up and beat his sales goals. As March was coming to a close, Whitacre looked at the numbers and said: "This looks like we're headed toward growth in a positive way," Reuss recalls. "That's good." ... Whitacre had his prairie charm working in March, when he paid his first visit to a GM assembly plant. At the Malibu factory in Fairfax, Kansas, he walked the assembly line in jeans and a plain black sweatshirt, stopping to shake hands with workers and ask them what they did. He even tried to hang a body panel on a Malibu. "They nearly threw me out of the building," he joked later to workers and reporters. One worker said that in 25 years on the line he had never seen a GM CEO. Whitacre then held a series of "diagonal slice meetings " with employees from all levels of the factory. Some liked that he didn't come at them with edicts about boosting production. Instead, says Dave Robertson, a 29-year line worker who attended one of the meetings, he just said GM needed to "sell more cars." He told the workers they could help by building quality vehicles, and if they needed anything, they should say so. "We're all in this together," he said, promising to come back in a month to talk about "the future of the plant."
Q1. Which of the forces for change are causing GM to undertake major organizational change? Explain.
Q2. Which of the four targeted areas of change is GM focusing on? Provide examples.
Q3. How can Whitacre increase innovation within GM? Provide specific recommendations, achieving positive organizational change? Provide specific recommendations.
Q4. Why are some GM employees resisting change? Explain.
Q5. How might GM use Lewin's and Kotter's models of change to increase the probability of achieving positive organizational change? Provide specific recommendations.
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.