General Motors – 2005 G E N E R A L M O T O R S 2 0 0 5

G E N E R A L M O T O R S 2 0 0 5 Outline Company Background Current Situation and Basic Facts External Environment: Opportunities and Threats Internal Environment: Strengths and Weaknesses Analysis of Strategic Factors Strategic Formulation, Evaluation, and Recommendation Strategic Implementation, Evaluation, and Control Limitation and Conclusion Question and Answer

Company Background

Current Situation and Basic Facts

External Environment: Opportunities and Threats

Internal Environment: Strengths and Weaknesses

Analysis of Strategic Factors

Strategic Formulation, Evaluation, and Recommendation

Strategic Implementation, Evaluation, and Control

Limitation and Conclusion

Question and Answer

G E N E R A L M O T O R S 2 0 0 5 Company Background Creation 1897-1909 General Motors was found by William “Billy” Durant on September 16, 1908 in MI. Started with Buick, then acquired Oldsmobile, Cadillac, and Oakland (Pontiac) Acceleration 1910-1929 GM set the pace of production, design, and marketing innovation for other to follow. Added Chevrolet, Vauxhall, and Opel Philosophy of “a car for every purse and purpose” Emotion 1930-1959 During World War II, GM still committed on innovation 100% of GM production was in supported the war including airplane, truck and tank

General Motors was found by William “Billy” Durant on September 16, 1908 in MI.

Started with Buick, then acquired Oldsmobile, Cadillac, and Oakland (Pontiac)

GM set the pace of production, design, and marketing innovation for other to follow.

Added Chevrolet, Vauxhall, and Opel

Philosophy of “a car for every purse and purpose”

During World War II, GM still committed on innovation

100% of GM production was in supported the war including airplane, truck and tank

G E N E R A L M O T O R S 2 0 0 5 Company Background Revolution 1960-1979 Due to environmental concern, increase in gas price, GM did the largest reengineering program ever, with an age of lighter, aerodynamic, and more fuel-efficient vehicles. Acted as a pioneer, an air bag, and reducing emission with catalytic converter for instance Also played a lead role, in developing guidance and navigation system in Apollo 11 Globalization 1980-1999 GM re-invented itself as an integrated global team and focus on innovation growth. Opened the big plant in Spain, Joint venture with China and India Added Saab and HUMMER to strengthen both the reach and variety of vehicle sold worldwide Innovation 2000-Present Environmental concern about the energy, GM has created innovation vehicles. More fuel-efficient engines to biofuels and hybrid, and Hydrogen fuel cell.

Due to environmental concern, increase in gas price, GM did the largest reengineering

program ever, with an age of lighter, aerodynamic, and more fuel-efficient vehicles.

Acted as a pioneer, an air bag, and reducing emission with catalytic converter for instance

Also played a lead role, in developing guidance and navigation system in Apollo 11

GM re-invented itself as an integrated global team and focus on innovation growth.

Opened the big plant in Spain, Joint venture with China and India

Added Saab and HUMMER to strengthen both the reach and variety of vehicle sold worldwide

Environmental concern about the energy, GM has created innovation vehicles.

More fuel-efficient engines to biofuels and hybrid, and Hydrogen fuel cell.

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Operation Performance Two main businesses: Automotive and other operations, and Financing and insurance Automotive business with four main sectors: GMNA, GME, GMLAAM, and GMAP Plus one type of business that GM acts as an investor. General Motor North America General Motor Europe General Motor Latin America/Africa/Middle East General Motor Asia Pacific

Two main businesses: Automotive and other operations, and Financing and

insurance

Automotive business with four main sectors: GMNA, GME, GMLAAM, and GMAP

Plus one type of business that GM acts as an investor.

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Operation Performance (cont) GM’s automotive business has eight divisions, which are Chevrolet, Saturn, Cadillac, Hummer, GMC, Pontiac, Buick and Saab Regardless of decline in demand or non-profitability, GM had to run its plants at 80% capacity, minimum due to its union agreements. It seems like GM’s operation is in trouble, especially in non-profitable product lines and over capacity production

GM’s automotive business has eight divisions, which are Chevrolet, Saturn,

Cadillac, Hummer, GMC, Pontiac, Buick and Saab

Regardless of decline in demand or non-profitability, GM had to run its plants at

80% capacity, minimum due to its union agreements.

It seems like GM’s operation is in trouble, especially in non-profitable product lines

and over capacity production

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Financial Performance Total Net Sales of Automotive $193,517 million Stock Price, Market Capitalization and Liquidation Stock Price: 73% Market Cap: $15 B Liquidation: $19.8 B Net Sales $2,805 million Net Income $(89) million Automotive business

Total Net Sales of Automotive

Stock Price, Market Capitalization and Liquidation

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Financial Performance (cont) GMAC’s Net Income 2003: $2.8 billion 2004: $2.9 billion 2002: $1.9 billion General Motor Account Commercial The financial performance mirrors that GM is in trouble with its core business – Automotive.

GMAC’s Net Income

The financial performance mirrors that GM is in trouble with its core business –

Automotive.

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Marketing Performance Offering a car to feed every market segment and every geographic area. An increase in sales – an increase in GM’s total net sales in 2004. 15,925 ▲ 17,070 GM Asia Pacific 3,585 ▲ 4,240 GM Latin America/Africa/Mid-East 19,537 ▲ 20,606 GM Europe 16,970 ▲ 17,302 Industry -- US. 19,841 ▲ 20,275 Industry -- North America GM North America (in thousands) GM Vehicle unit sales by region: $577 ▲ $729 GMAsiaPacific -331 ▲ $85 GMLatinAmr/Africa/MidEast -504 ▼ $-976 GMEurope $811 ▲ $1,583 GMNorth Amr GMA net income (loss) by region: $155,831 ▲ $161,545 Total net sales and revenues (dollars in millions) Auto & Other: 2003 2004 Unit sales versus Net sales and Revenues

Offering a car to feed every market segment and every geographic area.

An increase in sales – an increase in GM’s total net sales in 2004.

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Marketing Performance Offering a car to feed every market segment and every geographic area. An increase in sales – an increase in GM’s total net sales in 2004. Despite 52,000 sold unit per model, GM is about to lose 8% in overall sale in April. By the end of 2005, GM would lose its US. sales about 5.2%. GM is going down to the marketing problem very soon according to critics. Market Share of Automotive GMNA 2004: 26.7% GMNA 2003: 27.4% U.S. 2004: 27.2% U.S. 2003: 28.0% Global 2004: 14.5% Global 2003: 14.6%

Offering a car to feed every market segment and every geographic area.

An increase in sales – an increase in GM’s total net sales in 2004.

Despite 52,000 sold unit per model, GM is about to lose 8% in overall sale in April.

By the end of 2005, GM would lose its US. sales about 5.2%.

GM is going down to the marketing problem very soon according to critics.

Market Share of Automotive

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Human Resource Performance By the end of 2004, GM employed about 340,000 employees worldwide (110,000 salaried workers) GM paid $21.5 billions for the worldwide payrolls; $8.7 billions for US. Hourly payrolls. Average labor cost per active hour worked U.S. hourly decreases 6%. 2004: $73.73 2003: $78.39 6% Health Care Trend Rate Operating Expenses GM is now carrying on the “legacy cost” ($1,600 per vehicle sold). This puts GM in a cost disadvantage situation compared to competitors. GM has spent $5.6 billion on health care, retirement and pension plan.

By the end of 2004, GM employed about 340,000 employees worldwide (110,000

salaried workers)

GM paid $21.5 billions for the worldwide payrolls; $8.7 billions for US. Hourly

payrolls.

Average labor cost per active hour worked U.S. hourly decreases 6%.

GM is now carrying on the “legacy cost” ($1,600 per vehicle sold). This puts GM in

a cost disadvantage situation compared to competitors.

GM has spent $5.6 billion on health care, retirement and pension plan.

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Research and Development Performance R&D budget spending on 89 models in eight divisions $13.7 billion Chevrolet Saturn Cadillac Hummer GMC Pontiac Buick Saab Due to too fragmented in R&D budget distribution, each model has to be stayed longer in the market (nearly four years).

R&D budget spending on 89 models in eight divisions

Due to too fragmented in R&D budget distribution, each model has to be stayed

longer in the market (nearly four years).

G E N E R A L M O T O R S 2 0 0 5 Current Situation and Basic Facts Strategic Posture Conglomerate strategy – Automotive and Financial Pursuing growth Globalization strategy : Global industry Functional Level Business Level Corporate Level Broad differentiation Product leadership Not low-cost Strategy Capacity over real demand and engineering Design and engineering compromise Being differentiated requires building creative talent and flair, strong capabilities in basic research and corporate reputation for quality/technical leadership – Not GM

Conglomerate strategy – Automotive and Financial

Pursuing growth

Globalization strategy : Global industry

Broad differentiation

Product leadership

Not low-cost Strategy

Capacity over real demand and engineering

Design and engineering compromise

Being differentiated requires building creative talent and flair, strong capabilities in

basic research and corporate reputation for quality/technical leadership – Not GM

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Remote Environment Economic Factors An increase in gas prices An increase in a health care trend rate Social Factor A change in lifestyle to concern more about environment Technological Factors Alternative vehicles for alternative energies (Hybrid and Hydrogen car) Ecological Factors Global warming concern Eco-efficient

Economic Factors

An increase in gas prices

An increase in a health care trend rate

Social Factor

A change in lifestyle to concern more about environment

Technological Factors

Alternative vehicles for alternative energies (Hybrid and Hydrogen car)

Ecological Factors

Global warming concern

Eco-efficient

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Remote Environment (cont) - - √ √ Ecological Global warming concern Eco-efficient - √ Technological Hybrid car and hydrogen car technologies - - Political N/A - √ Social People’s attitude toward environmental impact √ √ - - Economic An increase in gas prices An increase in health care trend rate Threat Opportunity Factors Remote Environment Factors

Ecological

Global warming concern

Eco-efficient

Technological

Hybrid car and hydrogen car technologies

Political

N/A

Social

People’s attitude toward environmental impact

Economic

An increase in gas prices

An increase in health care trend rate

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Industry Environment Threat of New Entrants Mature industry Reached economies of scale Very high start-up cost Hard to access distribution channel Power of Suppliers Requires many parts in production Many suppliers in the industry Low switching cost

Threat of New Entrants

Mature industry

Reached economies of scale

Very high start-up cost

Hard to access distribution channel

Power of Suppliers

Requires many parts in production

Many suppliers in the industry

Low switching cost

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Industry Environment (cont) Power of Buyers Be a significant portion of revenues Low switching cost Not being large Threat of Substitutes Walking, riding bike, train, etc. Cannot compare in usability Not a new potential trend

Power of Buyers

Be a significant portion of revenues

Low switching cost

Not being large

Threat of Substitutes

Walking, riding bike, train, etc.

Cannot compare in usability

Not a new potential trend

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Industry Environment (cont) Intensity of Rivalry Mature and low growth High number of competitors High competition in market share A lack of differentiation opportunity

Intensity of Rivalry

Mature and low growth

High number of competitors

High competition in market share

A lack of differentiation opportunity

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Industry Environment (cont) √ - Intensity of Rivalry among Competitors - - Threat of Substitute Products √ - Bargaining Power of Buyers - - Bargaining Power of Suppliers - - Threat of New Entrants Threat Opportunity Factors Industry Environment Factors

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Operating Environment Competitive Position Cannot compete with the Koreans and Chinese on price Also cannot compete the Japanese on quality and the Europeans on performance. Less effective in R&D spending Bad in tracking and collecting customer profiles Creditor Private equity firms and hedge funds are ready to acquire potential companies.

Competitive Position

Cannot compete with the Koreans and Chinese on price

Also cannot compete the Japanese on quality and the Europeans on performance.

Less effective in R&D spending

Bad in tracking and collecting customer profiles

Creditor

Private equity firms and hedge funds are ready to acquire potential companies.

MT6280 Strategic and Competitive Policy Management Piyorot Piyachan 4829524 G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Operating Environment (cont) Customer Profiles A continued expansion in GM market share – China from 2002 to 2004 2003: 8.60% 2004: 9.30% 2002: 4.20% 121.42 % Increase in two years Time for “technology generates values” to replace “technology creates demand” Air-condition system Heated rearview mirrors Four-cylinder engine ABS 5-gear automatic transmission Comfort, ease of use Overall vehicle design Environmental friendliness Safety Driving dynamics/handling

Customer Profiles

A continued expansion in GM market share – China from 2002 to 2004

Time for “technology generates values” to replace “technology creates demand”

Air-condition system

Heated rearview mirrors

Four-cylinder engine

ABS

5-gear automatic transmission

Comfort, ease of use

Overall vehicle design

Environmental friendliness

Safety

Driving dynamics/handling

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Operating Environment (cont) - - Labor Market N/A - √ Creditors Private equities ready to take over - - Suppliers N/A - - √ √ Customer Profile Expansion in China market The presence of “technology generates value” approach √ √ √ √ √ - - - - - Competitive Position R&D advantage position Product quality Customer profile Price competitiveness Breadth of product line Threat Opportunity Factors Operating Environment Factors

Labor Market

N/A

Creditors

Private equities ready to take over

Suppliers

N/A

Customer Profile

Expansion in China market

The presence of “technology generates value” approach

Competitive Position

R&D advantage position

Product quality

Customer profile

Price competitiveness

Breadth of product line

G E N E R A L M O T O R S 2 0 0 5 External Environment: Opportunities and Threats Summary of External Environment 2.26 1.00 Total 0.10 0.15 0.09 0.24 0.15 0.14 0.20 2 1 3 2 3 2 2 0.05 0.15 0.03 0.12 0.05 0.07 0.10 Threats An increase in gas prices An increase in health care trend rate Bargaining power of buyer Intensity of rivalry among Competitors Competitor’s R&D advantage position Competitor’s product quality Competitor’s customer profile 0.15 0.30 0.40 0.10 0.24 3 2 4 2 3 0.05 0.15 0.10 0.05 0.08 Opportunities People’s attitude toward environmental impact Hybrid car and hydrogen car technologies Expansion in China market The presence of “technology generates value” approach Private equities ready to take over Weighted Score Score Weight External Factors External Factor Analysis Summary (EFAS): GM case

Threats

An increase in gas prices

An increase in health care trend rate

Bargaining power of buyer

Intensity of rivalry among Competitors

Competitor’s R&D advantage position

Competitor’s product quality

Competitor’s customer profile

Opportunities

People’s attitude toward environmental impact

Hybrid car and hydrogen car technologies

Expansion in China market

The presence of “technology generates value” approach

Private equities ready to take over

G E N E R A L M O T O R S 2 0 0 5 Internal Environment: Strengths and Weaknesses SWOT Analysis Core Competencies Tangible Global market share (14.5% as of 2004) Global market coverage Net sales of $193 billion in 2004 340,000 employees worldwide Number of plants Diversity of products Financing and insurance businesses Intangible World’s largest auto manufacturer Global brand and image Power to set industry standard Research and Development potential Technology potential Production and capacity potential Resources Capabilities Core Competencies

Tangible

Global market share (14.5% as of 2004)

Global market coverage

Net sales of $193 billion in 2004

340,000 employees worldwide

Number of plants

Diversity of products

Financing and insurance businesses

Intangible

World’s largest auto manufacturer

Global brand and image

Power to set industry standard

Research and Development potential

Technology potential

Production and capacity potential

G E N E R A L M O T O R S 2 0 0 5 Internal Environment: Strengths and Weaknesses SWOT Analysis (cont) Corporate Culture DNA of being number one makes inflexibilities and overlooks future problems. Result in over capacity, offering too much incentives to attract new employees Marketing Sale volume per model and U.S. sales Causes: wrong marketing strategy. Try to “push” rather than “pull”, too many product lines with 89 models 52,000 unit GM 80,000 unit Toyota 2005: 5.2% U.S. sales

Corporate Culture

DNA of being number one makes inflexibilities and overlooks future problems.

Result in over capacity, offering too much incentives to attract new employees

Marketing

Sale volume per model and U.S. sales

Causes: wrong marketing strategy. Try to “push” rather than “pull”, too many

product lines with 89 models

G E N E R A L M O T O R S 2 0 0 5 Internal Environment: Strengths and Weaknesses SWOT Analysis (cont) Finance 2003: 0.81 2002: 0.92 2004: 0.74 Current 2003: 0.65 2002: 0.77 2004: 0.54 Quick Liquidity Ratio Ability to pay short term obligation GM is losing its ability to cover liabilities compared to prior years. Result 2003: 0.94 2002: 0.98 2004: 0.94 Debt to Asset 2003: 1.17 2002: 2.09 2004: 1.09 Debt to Equity Leverage Ratio Percentage of fund provided by debt and equity GM can reduce risk from creditors and Stockholders. Result

G E N E R A L M O T O R S 2 0 0 5 Internal Environment: Strengths and Weaknesses SWOT Analysis (cont) Finance (cont) 2003: 0.41 2002: 0.48 2004: 0.40 Asset Turnover Activity Ratio How much revenue is being generated for every $1 of capital employed Currently non-evaluable Result 2003: 0.015 2004: 0.015 2002: 0.010 ROS 2003: 0.006 2004: 0.006 2002: 0.005 ROI Profitability Ratio a company's operational efficiency and utilization GM can better utilize its assets to generate revenue. Result 2003: $482,029 m 2002: $379,142 m Asset

G E N E R A L M O T O R S 2 0 0 5 Internal Environment: Strengths and Weaknesses SWOT Analysis (cont) Research and Development Not too bad performance as the revival of Cadillac But with too many product lines, the budget is too fragmented and not enough Operations and Logistics Compromises car design and engineering to boost up productivity and keep plants happy Human Resource Management Carry on a large expense in health care and pension – so called “legacy cost” 340,000 employees No of Employees $5.6 billion Health care and Pension $1,600 per unit Legacy cost

Research and Development

Not too bad performance as the revival of Cadillac

But with too many product lines, the budget is too fragmented and not enough

Operations and Logistics

Compromises car design and engineering to boost up productivity and keep plants

happy

Human Resource Management

Carry on a large expense in health care and pension – so called “legacy cost”

G E N E R A L M O T O R S 2 0 0 5 Internal Environment: Strengths and Weaknesses Summary of Internal Environment 3.04 1.00 Total 0.36 0.02 0.02 0.14 0.16 0.14 0.06 3 2 2 2 2 1 2 0.12 0.01 0.01 0.07 0.08 0.14 0.03 Weaknesses Decline in global market share and U.S. sales DNA of being number one Inflexibility in managerial style Inappropriate marketing strategy (push strategy) Bad operational practice (capacity over engineering) Too much health cost and retirement expenses Decline in employee and union relation 0.08 0.44 0.12 0.32 0.28 0.15 0.10 0.04 0.21 0.40 4 4 4 4 4 3 5 4 3 5 0.02 0.11 0.03 0.08 0.07 0.05 0.02 0.01 0.07 0.08 Strengths Global market share (14.5% as of 2004) Global market coverage (six regional areas) Net sales of $193,517 billion in 2004 340,000 employees worldwide Number of plants Diversity of products Lucrative financing and insurance businesses Global brand and image Research and Development and technology potential Production and capacity potential Weighted Score Score Weight Internal Factors Internal Factor Analysis Summary (IFAS): GM case

Weaknesses

Decline in global market share and U.S. sales

DNA of being number one

Inflexibility in managerial style

Inappropriate marketing strategy (push strategy)

Bad operational practice (capacity over engineering)

Too much health cost and retirement expenses

Decline in employee and union relation

Strengths

Global market share (14.5% as of 2004)

Global market coverage (six regional areas)

Net sales of $193,517 billion in 2004

340,000 employees worldwide

Number of plants

Diversity of products

Lucrative financing and insurance businesses

Global brand and image

Research and Development and technology potential

Production and capacity potential

G E N E R A L M O T O R S 2 0 0 5 Analysis of Strategic Factors Problems and Challenges Problem1: High Health Care and Retirement Expenses By the end of 2005, $5.6 billion to be paid out for the expenses Holding the “Legacy Cost” Problem2: Decline in Global and U.S. Market Share Continued decline in global and U.S. market share Cash drain out will then affect to GM’s liquidity status within five years. Current US. market share is 25.6% but the threshold is 25%. 2003: 14.6% 2002: 15.0% 2004: 14.5% Global Market Share US. Market Share 24% 20% Cash Flow $19.8 $17.4 $12.9 $(0.6) In five years

Problem1: High Health Care and Retirement Expenses

By the end of 2005, $5.6 billion to be paid out for the expenses

Holding the “Legacy Cost”

Problem2: Decline in Global and U.S. Market Share

Continued decline in global and U.S. market share

Cash drain out will then affect to GM’s liquidity status within five years.

Current US. market share is 25.6% but the threshold is 25%.

G E N E R A L M O T O R S 2 0 0 5 Analysis of Strategic Factors Problems and Challenges (cont) Challenge1: Chinese Market Expansion Due to a significant increase in market share in China To capture and dominate the market, GM has to move and move quickly. Challenge2: Alternative Vehicle Development Due to an increase in gas price, and environmental and pollution concerns Hybrid car and Hydrogen car Source: autospies.com Saturn Aura Hy-Wire Source: evlender.org

Challenge1: Chinese Market Expansion

Due to a significant increase in market share in China

To capture and dominate the market, GM has to move and move quickly.

Challenge2: Alternative Vehicle Development

Due to an increase in gas price, and environmental and pollution concerns

Hybrid car and Hydrogen car

G E N E R A L M O T O R S 2 0 0 5 Analysis of Strategic Factors Problems and Challenges (cont) Challenge3: Competitive Advantage Revival Due to intensity of competitive rivalry and threats from potential competitors To regain competitive advantages Challenge4: Environmental Friendliness Due to a trend of customer environmental concerns A long term challenge to create another source of competitive advantages

Challenge3: Competitive Advantage Revival

Due to intensity of competitive rivalry and threats from potential competitors

To regain competitive advantages

Challenge4: Environmental Friendliness

Due to a trend of customer environmental concerns

A long term challenge to create another source of competitive advantages

G E N E R A L M O T O R S 2 0 0 5 Analysis of Strategic Factors Review of Vision and Mission The current vision and mission statement are still proper to GM in order to drive the company forward with the current company and industry situation. VISION: "GM’s vision is to be the world leader in transportation products and related services. We will earn our customers’ enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people." MISSION: "GM is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stockholders will receive a sustained superior return on their investment."

The current vision and mission statement are still proper to GM in order to drive the company forward with the current company and industry situation.

G E N E R A L M O T O R S 2 0 0 5 Strategic Formulation, Evaluation, and Recommendation SAFER Framework The main framework to formulate, evaluate and recommend an appropriate set of strategies that the organization can use to pursue its staked out position in the industry [Shawyun, T, 2006] Situational Analysis The Input Stage TOWS Matrix The Matching Stage QSPM The Decision Stage

The main framework to formulate, evaluate and recommend an appropriate set of

strategies that the organization can use to pursue its staked out position in the

industry [Shawyun, T, 2006]

G E N E R A L M O T O R S 2 0 0 5 SAFER Framework: Situational Analysis Strategic Formulation, Evaluation, and Recommendation Opportunity Opportunity Opportunity Threat Threat Threat Threat Threat Hybrid car and hydrogen car technologies Expansion in China market Private equities ready to take over An increase in health care trend rate Intensity of Rivalry among Competitors Competitor’s R&D advantage position Competitor’s product quality Competitor’s customer profile Strength Strength Strength Strength Strength Weakness Weakness Weakness Weakness Global market coverage (six regional areas) 340,000 employees worldwide Number of plants Research and Development and technology potential Production and capacity potential Decline in global and U.S. market shares Inappropriate marketing strategy (push strategy) Bad operational practice (capacity over engineering) Too much health cost and retirement expenses Source Strategic Factors Strategic Factors Analysis Summary: GM case

Hybrid car and hydrogen car technologies

Expansion in China market

Private equities ready to take over

An increase in health care trend rate

Intensity of Rivalry among Competitors

Competitor’s R&D advantage position

Competitor’s product quality

Competitor’s customer profile

Global market coverage (six regional areas)

340,000 employees worldwide

Number of plants

Research and Development and technology potential

Production and capacity potential

Decline in global and U.S. market shares

Inappropriate marketing strategy (push strategy)

Bad operational practice (capacity over engineering)

Too much health cost and retirement expenses

G E N E R A L M O T O R S 2 0 0 5 SAFER Framework: TOWS Matrix Strategic Formulation, Evaluation, and Recommendation WT Strategies More reasonable incentive payment to reduce health care and retirement expense, and reflect with the current situation. Outsource unimportant product items to reduce cost. ST Strategies Turnaround GM’s assets (plants) to make GM smaller and more manageable. Turnaround GM’s product lines to make GM more compact. Innovation for continue being differentiation as competitive advantage. Marketing Improvement to pursue changes in customer profiles. Threats (T) An increase in health care trend rate Intensity of Rivalry among Competitors Competitor’s R&D advantage position Competitor’s product quality Competitor’s customer profile WO Strategies Product Development for U.S. market. Market Development for global market. Divestiture the Financial sectors to cope with health care and retirement expenses. Bankruptcy declaration to eliminate health care and retirement payment. Renegotiation with union about health care and retirement contracts in the next two years. SO Strategies Innovation for hybrid and hydrogen car to serve global market. Concentrated Growth in China. Opportunities (O) Hybrid car and hydrogen car technologies Expansion in China market Investors swoop in GM businesses Weaknesses (W) Decline in global and U.S. market shares Inappropriate marketing strategy (push strategy) Bad operational practice (capacity over engineering) Too much health cost and retirement expenses Strengths (S) Global market coverage (six regional areas) 340,000 employees worldwide Number of plants Net sales of $193,517 billion in 2004 Research and Development and technology potential Production and capacity potential 1 Legacy cost 2 Competitive Advantage

WT Strategies

More reasonable incentive payment to reduce

health care and retirement expense, and reflect

with the current situation.

Outsource unimportant product items to reduce

cost.

ST Strategies

Turnaround GM’s assets (plants) to make

GM smaller and more manageable.

Turnaround GM’s product lines to make GM

more compact.

Innovation for continue being differentiation

as competitive advantage.

Marketing Improvement to pursue changes

in customer profiles.

Threats (T)

An increase in health care trend rate

Intensity of Rivalry among Competitors

Competitor’s R&D advantage position

Competitor’s product quality

Competitor’s customer profile

WO Strategies

Product Development for U.S. market.

Market Development for global market.

Divestiture the Financial sectors to cope with

health care and retirement expenses.

Bankruptcy declaration to eliminate health care

and retirement payment.

Renegotiation with union about health care and

retirement contracts in the next two years.

SO Strategies

Innovation for hybrid and hydrogen car to

serve global market.

Concentrated Growth in China.

Opportunities (O)

Hybrid car and hydrogen car technologies

Expansion in China market

Investors swoop in GM businesses

Weaknesses (W)

Decline in global and U.S. market shares

Inappropriate marketing strategy (push strategy)

Bad operational practice (capacity over engineering)

Too much health cost and retirement expenses

Strengths (S)

Global market coverage (six regional areas)

340,000 employees worldwide

Number of plants

Net sales of $193,517 billion in 2004

Research and Development and technology potential

Production and capacity potential

G E N E R A L M O T O R S 2 0 0 5 SAFER Framework: Quantitative Strategic Planning Matrix (QSPM) Alternatives for a reduction in health care and retirement expenses Get loss from such expenses before the rebound. Strategic Formulation, Evaluation, and Recommendation 2.75 1.45 2.55 1.00 Attractiveness Score - - 0.50 0.60 - - - - 2 3 - - - - 0.50 0.20 - - - - 2 1 - - - - 0.75 0.40 - - - - 3 2 - - - - 0.25 0.20 - - Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems 0.60 0.30 0.30 - 0.45 3 3 3 - 3 0.40 0.10 0.10 - 0.15 2 1 1 - 1 0.60 0.30 0.20 - 0.30 3 3 2 - 2 0.20 0.10 0.10 - 0.15 Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Score Rating Score Rating Score Rating Renegotiation Bankruptcy Divestiture Weight Quantitative Strategic Planning Matrix (QSPM): GM case

Alternatives for a reduction in health care and retirement expenses

Get loss from such expenses before the rebound.

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Key External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

G E N E R A L M O T O R S 2 0 0 5 SAFER Framework: Quantitative Strategic Planning Matrix (QSPM) Alternatives for a reduction in health care and retirement expenses (cont) Why not “Divestiture” The financial sectors still in profit. Selling them is not a right thing to do. Why not “Bankruptcy” A ton of liquidity makes it unlikely Risky with employee strike Strategic Formulation, Evaluation, and Recommendation 2003: $2.8 billion 2004: $2.9 billion 2002: $1.9 billion $19.8 billion $2 billion in 54 days

Alternatives for a reduction in health care and retirement expenses (cont)

The financial sectors still in profit.

Selling them is not a right thing to do.

A ton of liquidity makes it unlikely

Risky with employee strike

G E N E R A L M O T O R S 2 0 0 5 SAFER Framework: Quantitative Strategic Planning Matrix (QSPM) Alternatives for competitive advantage revival Innovation for differentiation and Turnaround (plant) for better operations. Strategic Formulation, Evaluation, and Recommendation 2,45 2.75 3.45 1.00 Attractiveness Score 0.20 0.30 0.30 0.40 0.45 - 4 3 2 2 3 - 0.20 0.30 0.45 0.60 0.45 - 4 3 3 3 3 - 0.15 0.30 0.30 0.80 0.60 - 3 3 2 4 4 - 0.05 0.10 0.15 0.20 0.15 - Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems 0.15 - 0.15 0.20 0.30 3 - 3 2 2 0.10 - 0.15 0.20 0.30 2 - 3 2 2 0.15 - 0.15 0.40 0.60 3 - 3 4 4 0.05 - 0.05 0.10 0.15 Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Score Rating Score Rating Score Rating Turnaround (product lines) Turnaround (plants) Innovation Weight Quantitative Strategic Planning Matrix (QSPM): GM case

Alternatives for competitive advantage revival

Innovation for differentiation and Turnaround (plant) for better operations.

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Computer Information Systems

Key External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

G E N E R A L M O T O R S 2 0 0 5 SAFER Framework: Quantitative Strategic Planning Matrix (QSPM) Alternatives for competitive advantage revival (cont) Why not “Turnaround” (product line) High rate of compensation prices. To lose market penetration capability. $3,000 / vehicle Strategic Formulation, Evaluation, and Recommendation

Alternatives for competitive advantage revival (cont)

High rate of compensation prices.

To lose market penetration capability.

G E N E R A L M O T O R S 2 0 0 5 Recommended Strategies Cost reduction at plants Reduce overhead cost of over production Better utilize R&D budget More focus on core points Turnaround Maximize R&D, technologies and experience Seek differentiation Head to new technology emergences Stay in product leader Innovation Pursue growth in China Capture profit from the fastest growth market Reduce risk in U.S. market dependency Concentrated Growth Apply to the mature U.S. market Add on differentiation to existing products Generate more demand from the market Product Development Strategic Formulation, Evaluation, and Recommendation

Cost reduction at plants

Reduce overhead cost of over production

Better utilize R&D budget

More focus on core points

Maximize R&D, technologies and experience

Seek differentiation

Head to new technology emergences

Stay in product leader

Pursue growth in China

Capture profit from the fastest growth market

Reduce risk in U.S. market dependency

Apply to the mature U.S. market

Add on differentiation to existing products

Generate more demand from the market

G E N E R A L M O T O R S 2 0 0 5 Recommended Strategies (cont) Apply to global markets (EU, ME, and AP) Continue capturing profits Identify new target markets Market Development Focus one core competencies of the brand Reduce cost Gain advantage from excellent suppliers Have more focus on core competencies Outsourcing Renew marketing strategies and processes Have more reliable customer profiles Better collaborate with R&D, production Increase customer demand and satisfaction Marketing Improvement Renegotiate with union and restructure it Better control labor cost Reduce operating cost Reduce “legacy cost” Restructure of Employee Benefit Strategic Formulation, Evaluation, and Recommendation

Apply to global markets (EU, ME, and AP)

Continue capturing profits

Identify new target markets

Focus one core competencies of the brand

Reduce cost

Gain advantage from excellent suppliers

Have more focus on core competencies

Renew marketing strategies and processes

Have more reliable customer profiles

Better collaborate with R&D, production

Increase customer demand and satisfaction

Renegotiate with union and restructure it

Better control labor cost

Reduce operating cost

Reduce “legacy cost”

G E N E R A L M O T O R S 2 0 0 5 Comprehension of Recommended Strategies Operate in multi-business: automotive and financial Conglomerate Continue operating in global environment Globalization Pursue growth in both business lines Growth Drop out some less important plants around the world Turnaround Outsource less important parts to other suppliers Outsourcing A New Set of Corporate Strategies Strategic Formulation, Evaluation, and Recommendation

G E N E R A L M O T O R S 2 0 0 5 Comprehension of Recommended Strategies - More and more effort and money to be put into new market, such as China Fewer internal resources remains for capital-incentive production areas Outsourcing and Turnaround Define candidate blocks Define influence Outsource not core blocks Source: Roland Berger Strategy Consultants cited by [Koch A, et al, 2007] A New Set of Corporate Strategies (cont) Strategic Formulation, Evaluation, and Recommendation In-house develop Need more consideration To be outsourced

- More and more effort and money to be put into new market, such as China

Fewer internal resources remains for capital-incentive production areas

Define candidate blocks

Define influence

Outsource not core blocks

G E N E R A L M O T O R S 2 0 0 5 Comprehension of Recommended Strategies Continue with broad- differentiation to serve big range of markets Broad-Differentiation Global Capitalize on R&D and technology advancement to accelerate differentiation Innovation GMNA Modify existing products to create more demand in the US. Product Development GMAP Direct resources to penetrate the fast growth Chinese market Concentrated Growth The Rest develop new markets to shift the global market share Market Development A New Set of Business Strategies Strategic Formulation, Evaluation, and Recommendation

G E N E R A L M O T O R S 2 0 0 5 Comprehension of Recommended Strategies - To fight with a mature-start-declining stage in the U.S. market and North America Focus on “Attribute-oriented” rather than “Component-oriented” GMNA: Product Development Source: Roland Berger Strategy Consultants cited by [Koch A, et al, 2007] A New Set of Business Strategies (cont) Strategic Formulation, Evaluation, and Recommendation Air-condition system Heated rearview mirrors Four-cylinder engine ABS 5-gear automatic transmission Comfort, ease of use Overall vehicle design Environmental friendliness Safety Driving dynamics/handling Past/Present: Component-oriented Future: Attribute-oriented

- To fight with a mature-start-declining stage in the U.S. market and North America

Focus on “Attribute-oriented” rather than “Component-oriented”

Air-condition system

Heated rearview mirrors

Four-cylinder engine

ABS

5-gear automatic transmission

Comfort, ease of use

Overall vehicle design

Environmental friendliness

Safety

Driving dynamics/handling

G E N E R A L M O T O R S 2 0 0 5 Comprehension of Recommended Strategies Focus on engineering rather than capacity to be product leadership and follow the business strategy of innovation Engineering Focus Production Design and produce based on the “technology creates values” to serve real needs of consumers Value Focus R&D Do research based on the “ technology creates values” to tackle consumer’s behavior change more properly Value Focus Track and monitor changes in customer’s behavior and lifestyle to build better internal customer profiles Customer Orientation Marketing Change marketing strategy from “push” to “pull” to respond to today’s situation Demand Pull HR Restructure employee benefits to reduce overhead cost of health care and retirement plan. Restructure Benefits A New Set of Functional Strategies Strategic Formulation, Evaluation, and Recommendation

G E N E R A L M O T O R S 2 0 0 5 Comprehension of Recommended Strategies - Require deep collaboration from Production, R&D, and Marketing departments Production, R&D, and Marketing: Customer-Oriented Technology Source: Roland Berger Strategy Consultants cited by [Koch A, et al, 2007] A New Set of Functional Strategies (cont) Strategic Formulation, Evaluation, and Recommendation Brand fit Benefit customers Benefit manufacturer R&D Production Marketing R&D Production Marketing Source: Roland Berger Strategy Consultants cited by [Koch A, et al, 2007] R&D Production Marketing

Brand fit

Benefit customers

Benefit manufacturer

G E N E R A L M O T O R S 2 0 0 5 Comprehension of Recommended Strategies - A use of HMO, PPO and Blue Cross/Blue Shield HR Department: Benefit Restructure and Human Development The most important for a company, who acts as innovator and product leader Development of deep expertise in science and technology, culture, and skills HR Department: Human Development A New Set of Functional Strategies (cont) Strategic Formulation, Evaluation, and Recommendation Co-pay and Deductibles of HMOs and PPOs options Salaried Workers $600 million Blue Cross and Blue Shield UWA and Retirees $500 million $1.1 billion

The most important for a company, who acts as innovator and product leader

Development of deep expertise in science and technology, culture, and skills

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation Strategic Implementation, Evaluation, and Control The Balanced Scorecard Strategic implementation: short-term objective, functional tactic, outsource, etc. Balanced Scorecard as a tool for setting, achieving and measuring objectives Source: Adopted from [Shawyun, T, 2006]

The Balanced Scorecard

Strategic implementation: short-term objective, functional tactic, outsource, etc.

Balanced Scorecard as a tool for setting, achieving and measuring objectives

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Learning and Growth Perspective Learning and Growth Perspective Objectives Measure Target Human Capital Increase education and experience of employee Number of employee training in deep functional expertise Employee participation in professional or trade associations Percentage of employees with advanced degrees Minimum five courses per staff per year. Minimum twice per staff per year. 15% of employees getting advanced degrees within three years Enhance team-working skill Number of employee training in soft skill Minimum five courses per staff per year Emphasize a use of Personal Development Plan (PDP) Percentage of employee who attend the PDP program Percentage of employees who meet their PDP goals 90% within a year – about 25% quarterly 75% annually – about 20% quarterly Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Learning and Growth Perspective (cont) Learning and Growth Perspective Objectives Measure Target Information Capital Enhance the communication of knowledge and project experience across function Number of co-development projects Number of regional and global conference Internal communication rating 10% of overall projects per year Regional conference quarterly and global conference semiannually Reach 85% within three years Increase information available for access Percentage of employees who has this information available to them Reach 90% within three years Increase information capital readiness Percentage of accomplishment of information technologies and systems versus needs Minimum 75% in every area Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Learning and Growth Perspective (cont) Learning and Growth Perspective Objectives Measure Target Organizational Capital Enhance teamwork productivity Number of completed (in time and budget) co-development projects Number of internal cross-trained employees Increase 10% per year Increase 15% per year Employee satisfaction Number of employee feedback Turnover rate Empowerment index (number of managers) Minimum 75% of employee involve the survey Maximum 7% per year globally A ratio of manager to employee decreases 5% per year for five consecutive years Encourage healthy lifestyle Lost-time accidents Worker’s compensation claims Injury frequency rates Percentage of participants to healthy-promotion initiatives Decrease 10% per year Decrease 10% per year Decrease 10% per year Reach 70% within three years Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Internal Processes Perspective Internal Business Processes Perspective Objectives Measure Target Operational Management Processes Decrease operating cost Inventory turnover Planning accuracy Outsourced parts cost Labor cost Decrease 5% per year Maximum 15% of effort, cost and schedule deviations Decrease to 15% comparing with a current expense within two years Decrease 4% per year due to a restructure of employee benefits Increase quality On-time delivery rate Defect percentage Warranty claims Reach 90% within two years Maximum 0.05 % per part/model Maximum 0.05% per part/model Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Internal Processes Perspective (cont) Internal Business Processes Perspective Objectives Measure Target Innovation Processes Increase a success in innovative projects Dollars spent on research and development Employee hours on research and development Number of new projects or services introduced Number of new product joint ventures New product or service cycle time Revenue from new products or services Increase the R&D/sales ratio to 6% in two years Minimum 30 hours per week for R&D staff and minimum two hours per week for other Staff At least two new innovative products or services introduced per years regionally (e.g. product safety, customer health and environmental impacts) Minimum two new projects per year for each region Maximum three years before replacement Increase 10% each year Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Internal Processes Perspective (cont) Internal Business Processes Perspective Objectives Measure Target Innovation Processes Accelerate innovative projects Number of new products or services in the pipeline Time to market of new products and services In each region, at least two new products or services being progress concurrently at all time (e.g.. hybrid and hydrogen car) Faster by 10% each year Regulatory and Social Processes Emphasize Corporate Social Responsibility (CSR) activities Dollars spent on CSR Employee volunteer hours Number of CSR activities Increase 5% per year Minimum two hours per employee per month At least 12 activities per year per region Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Internal Processes Perspective (cont) Internal Business Processes Perspective Objectives Measure Target Customer Management Processes Better understanding of customer needs Number of customer profile produced Number of lead user utilization Minimum five new customer profiles produced regionally 90% of overall projects conduct ‘lead user’ within three years Enhance retaining customers rate Percentage of returned customers Grow 5% per year Deepen customer relationship Revenue from cross-selling multiple products and services Increase 10% per year Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Customer Perspective Customer Perspective Objectives Measure Target Create brand and technology awareness and recognition Number of ads launched per region Number of trade show attended Increase 20% in three years, 8% annually At least one per region semiannually Increase customer satisfaction and loyalty level Number of customer complaint Number of complaints resolved the first time Customer response time Number of proposals made Reduce 25% each year Increase 15% each year Reduce 50% in three years, 20% annually Minimum two proposals per year per region Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Customer Perspective (cont) Customer Perspective Objectives Measure Target Increase number of customers Total number of customers Retention rate New customer acquisition numbers Global market share U.S. market share Chinese market share Increase 15% in three years, 6% annually Increase 10% in three years, 4% annually Increase 10% in three years, 4% annually Reach 18% in three years, increase 1.5% annually Reach 27.5% in three years, increase 1.2% annually Reach 15% in three years, increase 4% per year Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Implementation The Balanced Scorecard: Financial Perspective Financial Perspective Objectives Measure Target Increase profitability Annual revenue Annual revenue from new products Gross profit margin from new product Return on Investment (ROI) Increase 10% each year Increase 35% each year Increase to 15% in three years Increase 20% in three years, 10% annually Increase shareholder satisfaction Share price Dividend payout Increase 75% in one year, then increase 7% annually Increase 10% annually Strategic Implementation, Evaluation, and Control

G E N E R A L M O T O R S 2 0 0 5 Strategic Evaluation and Control The Evaluation and Control Process Monthly progress review and quarterly comprehensive review Review Underlying Bases of Strategies (Changes in each area) Do significant differences occur? Take Corrective Action Measure Organizational Performance (Compare planned to actual progress toward meeting stated objectives) Do significant differences occur? Continue Present Course Strategic Implementation, Evaluation, and Control Yes Yes No No

The Evaluation and Control Process

Monthly progress review and quarterly comprehensive review

G E N E R A L M O T O R S 2 0 0 5 Limitation Limited Information Almost all information is for GM’s basic facts and current performances. Strategic analysis is produced from “past performance comparison” only. Generating more reliable and accuracy analysis results, and implementation and measurement plans requires “Benchmarking” and “Industry comparison” too. Limitation and Conclusion A Lack of Financial Projections Financial figures is the most obvious indicator for management in decision making. Create a budget plan Collect financial information Interest rate, inflation rate, exchange rate Find appropriate sources of capital investment Generate capital budgeting scenarios Calculate capital budgeting indication (NPV, IRR) Make decisions based on quantitative information 1 2 3 4 5 6

Limited Information

Almost all information is for GM’s basic facts and current performances.

Strategic analysis is produced from “past performance comparison” only.

Generating more reliable and accuracy analysis results, and implementation and

measurement plans requires “Benchmarking” and “Industry comparison” too.

A Lack of Financial Projections

Financial figures is the most obvious indicator for management in decision making.

G E N E R A L M O T O R S 2 0 0 5 Conclusion 97 years of experience, the 5 th of Fortune Global 500 company to become a struggling one. There is a list of problems to overcome before being acquired by investors For health care and retirement expenses, GM to trade off of money for employee satisfaction to keep the operation running Fortunately, its strengths and potential opportunities would help GM to stabilize its status and then strike back with better understanding in customers and technologies. Limitation and Conclusion

97 years of experience, the 5 th of Fortune Global 500 company to become a struggling one.

There is a list of problems to overcome before being acquired by investors

For health care and retirement expenses, GM to trade off of money for employee satisfaction

to keep the operation running

Fortunately, its strengths and potential opportunities would help GM to stabilize its status

and then strike back with better understanding in customers and technologies.

G E N E R A L M O T O R S 2 0 0 5 References