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 (19201956)
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
industrys 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 GMs 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 Australias Holden in 1931.


Over the years GMs 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 Durants 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. GMs 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
GMs future lied. Members of this committee included the top officers of the companythe
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 GMs 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 (1960s1990s)
The challenges facing the corporation began to shift in the 1960s and 1970s, testing the
organizations 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
GMs 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 GMs 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 Presidents 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 GMs 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 regions 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 GMs 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 GMs culture and was more
focused on the how, than the what.
Strategic decision making: While the ASB was chartered with responsibility for GMs 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 & Poors Compustat



Exhibit 2: GM Organization Charts
ORGANIZATION1937

Cadillac
Buick
Oldsmobile
Pontiac
Chevrolet
GM Canada
Truck & Coach
Fisher Body
GM Parts
Opel
Vauxhall
Holden s
Continental
India
Mexico
Brazil



General Motors Sales and Profits
( $ Billion )
0
20
40
60
80
100
120
140
160
180
200
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
-30
-25
-20
-15
-10
-5
0
5
10

Operating
Staffs
Finance
Staffs
General
Engine
Group
Car
Groups
Over seas
Gro ups
Household
alty Re
nd a
ding Buil
Affiliated
Companies
Accessory
Groups
Pre sident
Groups Policy
Manufacturing Distribution Financial

Exec. Personnel
Overseas Public Relati Labor Engineering ons
Cha irman
Directors Board of





ORGANIZATION1984

Exhibit 2 (continued)

ORGANIZATION1998



Vice C hairman
GMA P GME GMLAAM
Global Process
Lea ders
GMNA
man, CEO Chair
Board of Directors
nt, COO Preside
Corporate
Staffs
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



BASKETWEAVE ORGANIZATION2004


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