Change in Organization Structure at General Motors (GM)

One hundred years ago, carriage maker William "Billy" Durant placed a big bet on the fledgling auto industry in the early 1900s and created General Motors (GM) Corp. Riding America's rise as a superpower, GM went on to dominate the automobile industry for decades, producing some iconic cars and trucks, as well as numerous safety, marketing and technological advances.Surviving for a century is no small feat and requires constant change and adaption. In order to survive in the fiercely competent automobile industry GM has changed its organizational structure multiple times. It has evolved from a decentralized structure to a matrix structure. We will now analyze in detail how GM changed its organization structure over time.

1. Revving up (1920–1956) The GM that we now know has evolved over a history of more than 100 years. In 1908, entrepreneur and visionary Billy Durant had created the first automotive conglomerate and the industry’s first vertically integrated company through a series of mergers and acquisitions. Each of the 25 automobile manufacturers, component suppliers, and various other businesses operated independently and reported directly to Durant, establishing a GM culture where internal competition and duplication were tolerated and often encouraged. By 1920, through a series of poor management decisions combined with an economic recession in the United States, Durant lost control of the company to the DuPont family. The DuPonts appointed Alfred P. Sloan, Jr. to reorganize GM’s structure and management processes to be in line with its strategies.

Strategy Three major strategies drove GM through the next several decades. First, the company developed a “pricing pyramid” to structure the pricing of the various different car brands, from the most economical Chevrolet up to the deluxe Cadillac. Customers would shift their purchases up the ladder as their economic situation improved. This policy distinguished General Motors from its competitors and allowed GM to produce “a car for every purse and purpose.”

The second strategy was a focus on research and innovation. These innovations included annual vehicle changes, high compression, overhead valve V-8 engines, premium gasoline, chrome tail fins, and the fully automatic transmission. They also involved new financial products, such as credit financing through the General Motors Acceptance Corporation subsidiary.

Thirdly, GM pursued a strategy of diversification, both inside and outside the U.S. GM began exporting cars in 1925 and then purchased the British vehicle firm Vauxhall in 1925, the German operation Opel in 1929, and Australia’s Holden in 1931.

Over the years GM’s market share and performance grew. In 1955, the first Fortune 500 ranking listed GM at the top in both sales and net profits. By the next year GM became the first company to net more than $1 billion, on revenues of $10.8 billion (see Exhibit 1 for financials).

Structure Many of the powerful divisions were still run by their original founders at this time. Mr.Sloan devised a multidivisional structure to replace Durant’s loose management system. This new structure maintained a delicate balance between centralization and decentralization. It was called by the company as “decentralization with coordinated control.” From coordination GM got efficiencies and economies. From decentralization they got initiative, responsibility, development of personnel, decisions close to the facts, in essence all the qualities necessary for an organization to adapt to new conditions. Mr. Sloan wanted to get the best of both worlds.

A general manager ran each car division, such as Chevrolet, Buick, Cadillac, as an autonomous company, with a self-contained set of functions that included engineering, assembly, production, and sales. GM’s subsidiaries and many assembly plants in 15 countries around the world also operated independently. They focused on their home markets and developed their own ways of organizing and doing business (see Exhibit 2 for organization charts).

Divisions were aggregated into groups, headed by a group executive. This reduced the number of direct reports to the CEO and thus allowed the CEO to focus on guiding the broad policies of the enterprise. Assisting the CEO in his role was a Management Committee where ultimate responsibility for decisions around resource allocation, spending authorities, and planning for GM’s future lied. Members of this committee included the top officers of the company—the president, chairman of the board, chief executive officer, the chief financial officer, any vice-chairs and executive vice presidents, many of whom also served on GM’s board of directors.

A board of directors and staff functions completed the organization. The heads of each staff area, such as finance, purchasing, personnel, and engineering, chaired a committee, or “policy group,” which had responsibility for supporting the Management Committee in its policy-setting and decision-making role. The staff worked closely with their functional counterparts in the divisions to coordinate policy development and implementation and to share best practices across the company.

2. Coasting Toward Collision (1960s–1990s) The challenges facing the corporation began to shift in the 1960s and 1970s, testing the organization’s prevailing strategy, structure, and senior management processes. Increased competition, from inside and outside the U.S., tighter governmental regulation and standards, and a proliferation of car models and platforms all heightened the complexity of running the organization. When the oil crisis of the 1970s led to a demand for more fuel-efficient cars, GM was unable to respond quickly.

Strategy GM’s strategic response to these changing circumstances was continued duplication, confusion, and resistance. With a focus on market share, the divisions competed with each other to expand sales by moving their cars into different price classes, leading to a proliferation of car platforms, models, and components, the homogenization of cars across the divisions, and brand confusion.

The CEO at the top became more focused on costs than on revenue and fought safety and environmental standards. The focus on cost cutting was so fierce ha for the first time in many decades innovation and experimentation took a back seat.

Structure The effectiveness of this decentralized organization began to break down over the years as operational complexity and internal competition increased. Each division and each global region continued to have its own management, engineering, and marketing processes, advertising campaigns, and dealer networks. In the 1960s and 1970s, cost and product proliferation considerations led to a limited consolidation of some of the assembly/manufacturing operations into a more centralized assembly division. However, this step was not enough to make GM competitive, especially in light of safety, environmental, and energy regulations. These regulations drove a fundamental change in the vehicle structure from body-on-frame, rear-wheel-drive vehicles to body frame-integral, front-wheel-drive vehicles. This change, as well as a lack of cost competitiveness, led, a decade later, to a restructuring of the North American operations into a new organization with two car groups. The Buick, Oldsmobile, and Cadillac (BOC) group concentrated on making large cars; and the Chevrolet, Pontiac, and Canada (CPC) group focused on making small cars (see Exhibit 2 for organization charts).

Policy Group staff shifted their focus from recommending companywide policies, standards, and practices to gathering data, bound up in thick gray notebooks, to support particular positions. Policy Group meetings, instead of debating issues, would simply confirm that executives had done their homework by obtaining needed reviews and approvals.

At the same time, divisions devised ways to circumvent many decisions that actually got made. There were too many interfaces to manage and too many coordinating bodies. The staff kept executives out of the dirt and from knowing what was going on with customers and employees. The number of committee reports and committee meeting time led to an excessive internal focus. Basically, GM was paralyzed. By the early 1990s, GM was branded a dinosaur. The newspapers referred to GM’s death spiral and inexorable decline. There was fear for its survival, amid rumors of bankruptcy.

3. Getting Back on a Common Track (1992 and Beyond) In 1992, the board of directors replaced the then chairman and CEO with GM veteran Jack Smith as CEO and president. Smith, who had led the turnaround of GM Europe, believed he had no choice but to act, despite concerns about another reorganization. He eliminated the Policy Groups, abolished the two vehicle groups, and replaced the Management Committee with a five member President’s Council, made up of the CEO and president, the CFO, the EVP of Corporate Affairs and Staff Support Group, the EVP and general counsel, and the EVP of GM International Operations.

Strategy With GM’s market share continuing to fall, they took steps were taken to overhaul processes and reduce overlapping product lines, eliminating similar, often competing, models, and developing common systems for product development, design, and manufacturing. They also focused on speeding up and bringing more discipline to the decision-making process, streamlining the bureaucracy, and eliminating the interdivisional competition that had dominated the old GM.

Structure Restructuring of GM came in two steps. First, to manage North America, Smith established the North American Operations Strategy Board, which initially met almost daily. Globally, Smith combined the remaining regions into a General Motors International Operations organization based in Zurich, Switzerland, with its own strategy board. Unlike North America, where the vehicle divisions were now responsible only for marketing and sales, countries and vehicle subsidiaries outside of North America, such as Opel and Holden, continued to operate as fully integrated and independent organizations.

The second step toward restructuring GM occurred on October 6, 1998, when the company announced the establishment of a single Automotive Strategy Board (ASB), chaired by newly appointed president and COO Wagoner. GM International Operations organization and strategy board was eliminated. The heads of the North America, Asia Pacific, Europe, and Latin America, Africa, and the Middle East regions, each of which was to have its own strategy board, joined leaders of critical global processes in now reporting directly to the president.

A critical component of the reorganization was the matrixed organization or “basketweave” organization (see Exhibit 2 for organization chart). The four Region Presidents formed the vertical columns and had responsibility for operating and financial results. The horizontal rows were made up of Global Process Leaders, representing the critical functions, such as Product Development, Manufacturing, Sales, Service and Marketing, Human Resources, Planning, Research and Development, Purchasing, Information Systems, and Finance. Unlike the former heads of the policy groups who had responsibility for North America only, the Global Process Leaders had worldwide responsibility for decisions around policy and direction, as well as for the quality and consistency of processes.

Policy and Decision-Making Processes Regional decisions: The four Region Presidents and their strategy boards were responsible for developing, reviewing, and approving regional operating budgets and business plans. The boards therefore scrutinized detailed appropriation requests, product recalls, and product programs pertaining to their particular region, and then sent on to the ASB those items that needed higher-level review, deliberation, or approval.

Functional decisions: Global Process Leaders were responsible for their functions across the entire company. They had their own councils, which met monthly or quarterly and which served as forums for developing programs and plans, streamlining processes, and accomplishing functional business objectives across the regions. Some processes, such as Purchasing, Finance, Quality, and Information Systems, were streamlined and taken global since they were already well established across the company. Other processes, such as Manufacturing, Labor Relations, Human Resources, Public Policy and Communications, Design and Engineering, had a rougher time, either because they did not lend themselves to a global view because they had not yet really developed a national structure or because of the difficulty of changing processes while continuing to conduct business.

Balancing the matrix: In the new organization the regions were initially given the dominant role in the matrix, with budgeting and financial reporting accountabilities. Functional staffs, with the exception of corporate staff, had dual reporting lines; salaries and other expenses for the functions were included in, or allocated to, the region’s budgets. The CEO and CFO set profit targets and allocated capital and engineering budgets to the four regions. Regions were then responsible for deciding how to use that budget for their own product priorities. Functions, with only a few exceptions, did not have capital budgets.

The Automotive Strategy Board: The Matrix in Action In the new organization, the regional strategy boards and the global process councils came together at ASB, which, along with GM’s board of directors, made the major decisions for the company.

Roles of the ASB Governance and oversight: In its governance role, the ASB made decisions about financial commitments and resource allocation, such as approving new plants, product programs or other capital projects, within its spending authorities. As the management committee of GM, the ASB provided high-level oversight for new ventures and addressed concerns around staffing, budgets, and change-management processes.

Policy setting: Another key role of the ASB was policy formulation. The Global Process Leaders proposed new policies to the ASB, usually after significant discussion within the regions, for further debate, input, and final approval.

Alignment: The ASB played additional roles that promoted organizational alignment, coordination, and communication. The meetings aimed at getting up everyone leveled up and

jointly understanding critical decisions. The aim was to make people understand they we did what they do. In this role ASB was more concerned with modifying GM’s culture and was more focused on the how, than the what.

Strategic decision making: While the ASB was chartered with responsibility for GM’s strategic direction, strategic planning was not a set agenda item. Rather, strategic issues, such acquisitions, growth strategies, and resource allocations, were debated and decided upon as they arose, often after considerable debate.

Exhibit 1: Financial Performance

Source: Compiled from Standard & Poor’s Compustat®

Exhibit 2: GM Organization Charts

ORGANIZATION—1937

CadillacBuickOldsmobilePontiacChevroletGM CanadaTruck & CoachFisher BodyGM Parts

OpelVauxhallHolden sContinentalIndiaMexicoBrazil

Profits (Gray)

10

5

0

-5

-10

-15

-20

-25

-30

Sales (Black)

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

200

180

160

140

120

100

80

60

40

20

0

)$ Billion(General Motors Sales and Profits

Board of Directors

irmanCha

onsEngineering Labor Public Relati Overseas Exec. Personnel FinancialDistribution Manufacturing

Policy Groups

sidentPre

GroupsAccessory

CompaniesAffiliated

Buildingand

RealtyHousehold

upsGroseasOver

GroupsCar

GroupEngineGeneral

StaffsFinance

StaffsOperating

ORGANIZATION—1984

Exhibit 2 (continued)

ORGANIZATION—1998

INFORMATION SYSTEMS AND SERVICES

LEGAL/PUBLIC POLICY

FINANCE

COMMUNICATIONS

PURCHASING

PLANNING AND R&D

HUMAN RESOURCES

POWERTRAIN

QUALITY

SALES/SERVICE/MARKETING

MANUFACTURING AND LABOR RELATIONS

PRODUCT DEVELOPMENT

StaffsCorporate

President, COO

Board of Directors

Chairman, CEO

GMNAdersLeaProcessGlobal

GMLAAMGMEPGMA

hairmanVice C

“BASKETWEAVE” ORGANIZATION—2004

REGION PRESIDENTS

GLOBAL PROCESS LEADERS GM

North America GM GM

Europe Asia Pacific GM

Latin America

Product Development

Manufacturing and Labor Relations

Sales/Service/Marketing

Quality

Powertrain

Human Resources

Planning and R&D

Purchasing

Communications

Finance

Legal/Public Policy

Information Systems and Services

Source: Harvard Business Review