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Category: Business Strategy
By: Pedro Vaccara

Defining GM’s Strategic Intent

When defining a firm’s strategic intent we should focus on how the firm defines wining and the way it sustains this objective over time. In the case of GM the company has been going through a lot of changes in the past years, and the critical situation requires the redefinition (re: invention) of its winning strategy. The firm has to provide new operational objectives in order to change its current situation and provide some guidance and consistency over a period of time.

Currently GM is focusing its “Re: Invention” winning strategy on the following important points:

-       Technology and innovation

GM is trying to revive its brand distinctiveness once again. The company is trying to leverage its strategy through innovation, technology and excellence in management of resources. The firm is trying to get its innovation out to the market and make it first than anybody else.

-       An environmentally friendly design strategy (Fuel economy and alternative energy sources for cars engines).

GM is basing its wining strategy on developing environmentally friendly cars. Through innovation, GM is trying to transform its cars from “gas-friendly to gas-free.” The company is finally adapting to high-energy prices and betting its future revenues on a more social responsible customer.

-       Connection with customers (customer focus orientation).

GM management is making an effort to establish a direct connection with customers and giving the impression that their voice is now important for the company. Every employee must have the commitment to spread the word out about product innovation and quality. This connection is the key for GM because its reputation is lagging behind the quality, innovation and great designs of its current products.

-       Warranty and quality (Trust in their own products)

GM is showing to the world the trust it has on the quality of its cars. In fact GM now offer a “60 day satisfaction warranty.” This strategy is reflected under the slogan: “If you don’t love it we’ll take it back. We are that confident we have the best car for you.”

Consequently, in my personal opinion, the strategic intent for GM should be the following:

We want to become a worldwide leader automaker providing total customer value through customer-driven service, innovation, technology and competitive operations. We want to re: invent the automobile industry focusing on protecting and contributing to a cleaner world. We want to become a good place to work, a place in which every employee feels proud of its responsibilities and performance with the company. A place in which, customers and suppliers are our top priority and communications with them are fluent in every possible contact point. A place in which, distributors are proud to become part of our family and feel confident, like us, of the quality and safety of our products. Finally, we must experiment with ideas to develop new designs and innovative products and launch them accordingly, to satisfy consumer taste and allow stockholders to realize a fair return on their investment. 


Evaluation of GM’s intended strategy

As consequence of many years of bad strategic decisions and operational troubles GM US market share has fallen to 20 percent for the first time in decades (51 percent at the peak of the company dominance) and its sales outside the United States now almost equal its domestic sales. GM has become a bureaucratic organization with immense dimensions and difficult to manage. The innovation and customer focus orientation that once served as the pillar of the organization had blurred. For many years now, GM has been producing boring and low-quality cars with lack of innovation and distinctiveness creating a total disconnection between customers’ needs and its products.

GM core problems can be summarized in the following points:

-       Deficient product development (including lack of innovation) and the difficulty to develop cars that appeal to the market have created a bad reputation for its brands and the company in general.

-       Lack of customer focus orientation and the impossibility to listen to the market voice has been impeding GM to create customer value and therefore hurting its sales in large scale.

-       Disproportioned increase in healthcare and benefits costs giving in to union demands and creating a program that paid workers even when plants were not running have created financial deficiencies and affected cash flows and operations.

-       The increasing size of its divisional organizational structure due to bureaucracy and the difficulty to manage many brands across many markets around the world have developed into a major managerial problem for the company.

To solve these problems GM new management leaded by Chief Executive Ed Witacre and CEO Fritz Henderson developed a strategy in order to correct these deficiencies and turn things around. This strategy will be analyzed and changes will be suggested if considered.

Strategic architecture:

As stated above, bureaucracy grew disproportionate in GM due to its many different geographical units and brands around the world. The size of the company was too large that revenues could not cope with costs anymore. As a consequence of this situation GM started to cut costs on R&D and share designs and parts among models, hurting its own brands distinctiveness. GM cars were no longer a symbol of innovation and instead became a symbol of poor quality.

In 2008, GM’s divisional organizational structure had 4 geographical units and many more if we address the product divisions (i.e. Buick, Pontiac, Chevrolet, Opel, Etc).  These units were autonomous and were in charge of managing individual product markets separated from strategic control managed from the headquarters. This strategy was very successful during many years but lack of communication among units and bad management decisions created an expensive structure, difficult to control and maintain.

GM corporate management decided to restructure the four different geographical units to get them to collaborate with each other on designing, manufacturing, and marketing cars. Key decisions about product development were centralized in the headquarters through a global council in charge of allocating resources on new model developments. Management thought that this decision would reduce overall cost structure over the next years. Functional areas now work more closely with each other and a central committee oversees the entire process of making cars.

This strategy might have helped GM to enhance control over costs incurred because of duplication of responsibilities in operations but the problem is that in a company of these dimensions excessive centralized control can hurt geographic divisions sometimes, because decision teams at the headquarters might not have the knowledge and the tools to react quickly to international market trends in general. Therefore it is extremely necessary to maintain clear policies and fluent communication between headquarters and operational divisions at all times.

Also, the strategy does not seem to address the fact that too many independent car divisions cannot be maintained anymore due to complexity of markets and lack of resources. It seems necessary that unprofitable divisions disappear because revenues are not sufficient to subsidize them anymore. A deep re-structure and a re-launch of profitable brands will be necessary as well.

Deficient product development:

This is one of the key departments at GM. In 2007, management reorganized the product development process to make it speedier, cheaper and more effective and put designer and engineer departments to work together in developing cars more effectively. They cut the process of developing new cars from four years to twenty months adopting Japanese practices in which small percentage of parts were reused from one generation of cars to the next. The firm is also working on innovation using several new technologies to compete with hybrid cars from other brands and to develop cars that will run on hydrogen fuel cell, electricity and ethanol.

This strategy seems to work fine due to the raising costs on gas and current damage on the environment but before implementing GM should address the availability of these alternative fuels. It is important to revise current infrastructure to estimate feasibility of the strategy and partner with energy providers and government agencies in order to create a joint strategy. It has no sense to develop cleaner cars if the customer will not have the possibility to refill engines with ethanol and hydrogen, for example.

In the same line, the product development team, especially designers, need to align with the marketing department in order to do market research and define the market segment and target potential costumers accordingly for these innovative cars.

Lack of customer focus:

GM was simply not listening to customers anymore and, for many years now, the company was trying to tell the market what to buy relying on costly incentives to attract customers. This strategy has been costing GM a great amount of resources and I believe that it was not a great one because lowering prices might have contributed to increase the gap between actual GM quality and consumers’ perception.

Since GM cars are already devaluated in the mind of the consumer, communications should take an important role to rebuild the brand distinctiveness. This functional area should team up with marketing to develop an aggressive campaign based on a product focus approach and education. It is necessary to close the perception gap with customers, thus reaching local communities will positively contribute to communicate all the great things that GM is doing for the environment and people in general. Finally, GM must emphasize in its brand’ distinctiveness when communication with customers.


Disproportioned increase in healthcare and benefits costs:

The cost of pension and healthcare costs was almost $6 billion in 2006.  GM paid its United Auto Workers (UAW) slightly more than other car manufacturers but due to union demands and wrong managerial decisions, the cost of pension and health care costs were disproportionate, constituting around $2000 to the cost of each car. Also, GM had agreed to paid workers years after a layoff. Therefore, to avoid unemployment benefits, the company had to maintain production of cars that were not selling and to offer early-retirement packages that will increase the number of retirees. 

Recently, GM has negotiated an agreement in which employees and retirees will pay for part of the healthcare costs and plans to make more changes to its retiree pension program. The problem is that current labor costs situation is affecting GM’s operations in a great scale. Every time GM wants to close a plant or discontinued an unprofitable brand, unemployment benefits cost increase. Meanwhile healthcare and pension costs are rising every year. GM needs to act now, therefore it is extremely important to go beyond these measures and establish a long-term agreement with the UAW and a seek commitment from every employee to keep the firm afloat, because if not, all the employees will lose their healthcare and pension benefits anyway. 


GM’s Action Plan to Implement Strategic Changes

Strategic Architecture

Reducing size (including healthcare and benefits) to maximize production seems to be the way for GM. In addition, it will be important to establish a more cooperative R&D structure in which designers and engineers at a corporate level receive the input from regional divisions in term of new market trends and customer taste. In a highly competitive market, GM needs to take innovations out to the market fast and in an effective way. The following plan of action should take place to improve strategic architecture and become more competitive.

Short term:

-       Establish a more cooperative centralized R&D structure to control developing costs effectively and to share knowledge and tools to react quickly to international market trends in general. Management of operational areas/divisions should offer inputs and ideas to the corporate R&D team during quarterly meetings creating a complete synergy between business units and headquarters when deciding over new product development and brand strategy.

-       GM has to many car divisions that cannot be maintained anymore. Unfortunately, it is necessary to sell the Saturn, Saab and Opel divisions right away and other unprofitable brands must disappear as well. Strategic regional operations must be maintained if profitable, but if not, production needs to be outsourced to reduce costs.

Long term:

-       Create joint ventures with universities and other outside vendors to obtain new technologies and increase innovation. In the same line, R&D should be a priority among the firm and support must be offered to employees in every level to contribute with new innovative ideas.

-       GM needs to take union agreements further. Maintain retirement benefits but reduce healthcare costs and layoff benefits even more. Create a fund with reduction surplus and after few years of savings the company should start a buy-out campaign in order to reduce labor costs and hire new employees under new conditions and policies. Layoff benefits should be eliminated and new employees should be placed on a strict healthcare and retiree plan. GM should also partner with universities to get less expensive professionals through joint programs.

-       Product manager’s structure should be explored in the future to further control costs (individual P&L) and stretch Brand’ distinctiveness in the marketplace.

Core Competencies:

Product development:

People seem to be very interested in the new GM environmentally friendly line and this strategy seems to work fine due to the raising cost on gas a more environmentally conscious population. Therefore it is extremely necessary to address issues like availability of alternative fuels and revise current infrastructure to estimate feasibility of the strategy in the long run.

I will recommend a two-phase plan to improve product development:

Phase I (Pre-launching):

-       GM is already producing some environmentally vehicles but it will good to run a national survey to address the customers and understand which fuel-efficient vehicles are most likely to be purchased.

-       Before launching any new model, the product development team, especially designers, must align with the marketing department in order to develop a marketing (business) plan for the new vehicle, identify market needs, segment it properly and target potential costumers accordingly.

-       It is necessary to guarantee energy supply for cleaner energy vehicles. GM should partner with energy providers and government agencies to make these fuels more available. Laws for cleaner fuels need to be passed in congress, public infrastructure needs to be built to support new developments and relationships with private energy providers (hydrogen, ethanol, etc) have to be developed to guarantee supply.

-       It will also be pertinent to start discussion forums with customers in order to address these issues and lobby for a change in legislation to make cleaner fuels and electricity available for this new generation of cars.

Phase II (long-run):

-       GM should partner with energy providers, universities and research companies to develop new technologies and reduce costs when developing environmentally friendly cars.

-       GM should maintain a small quantity of profitable brands at least for the next 3 years and expand to new markets after that. Leveraging this strategy with a strong customer based revenues from current profitable models.

Customer Relationships:

It is important for GM to realize that in order to improve its reputation with customers the company needs to establish a close connection with them and become a customer centric organization at every level. My recommended action plan to improve this situation will involve direct and ongoing contact with consumers.


-       GM should start a two-way communication with costumers in order to rebuild its deteriorated image, close the perception gap and discover the latest trends in the market. Auto-shows, test drives, website, etc are good initiatives. The website can also serve to build a database in order to evaluate purchase intention.

-       GM needs to focus in establishing ways to communicate innovations and quality. An aggressive public relations campaign should be launched using key opinion leaders and employees (buzz marketing) to educate potential customers and spread the word out about the new GM’s environmental strategy, product innovations and quality.

-       A customer retention program will prevent customers to leave in the future and create a solid base of clients to support current brands and new product launches. GM should offer value-added incentives to its current customers.

-       GM should run a national survey to evaluate the outcomes of its marketing strategy in terms of customer satisfaction in every point of contact with the company (e.g. service, dealers, inquires, customer service, etc).



I used to be a GM customer many years ago until they lost me. Therefore, I thought that the best way to conclude my analysis on the GM’s strategy was to ask myself the following question: Would I buy a GM car today if I had the chance? And to be honest I think that I would definitely think about buying a hybrid, electric or fuel efficient SUV due to their innovative features, good warranty and competitive cost.

I truly believe that the problem of GM is a matter of rebuilding people’s trust again. Therefore improving its connection with the public and receiving a commitment from every GM employee it is extremely important for the company. His image has been so damaged through many years that its technological advances and ongoing innovations will take sometime to reach the market place. It is a matter of convincing the consumers once again, to believe in GM brands. It is a matter of developing distinctiveness (in terms of benefits and customer value) for its cars and individual strategies for each segment of the market in which they compete.

Off course that building this trust will not be an easy task, so it is important that GM never again forgets about the individuals that can make a company to become a great one, the customers. Honestly, I foresee a great future for this company because I believe that they are in the right track but they need to work harder and who knows? Maybe in the near future when the time comes to change my “Mazda,” I will go and visit one of their dealers to test their products.














-       David Welch, Henderson's Strategy to Fix GM Business. Business Week Magazine (June 17, 2009).

-       The New York Times, General Motors. Wednesday September 23, 2009.

-       GM Corporate Website, Re: invention.

-       Dess, Lumpkin and Eisner (2008). Strategic Management: Text and Cases. McGraw-Hill Irwin. New York, USA

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