Executive Decision Making at General Motors Case Solution

1. Introduction and Problem Identification

General Motors was established in 1908 by entrepreneur Billy Durant. Created through acquisitions and mergers, General Motors was the industry’s first vertically integrated company which had 25 different automobile manufacturers and suppliers. These different manufacturers promoted duplication and internal competition, and because of Durant’s inability to manage this competition properly, he lost control of the company to Dupont Family. Dupont family brought Sloan to manage the company. Sloan diversified the company both within and outside U.S and over the year’s market share and performance of the company grew. In order to manage this internationally diversified company, Sloan introduced management committee and policy groups. With the passage of time, achieving the right balance between centralization/globalization and decentralization/localization became the major issue for the company. Many strategies were introduced by Sloan successors to handle this issue but time rendered all of them useless. Problems further increased in 1960’s when strict regulations were imposed by government. Many operations were centralized. In 1992, company was restructured. A matrix called ASB was established. Now ASB was demanding globalization/centralization of budgeting and planning department, and CEO was again facing the dilemma whether this strategy will help achieve a better balance or will disturb the already achieved one.

2. Strategic Alternative 1

General Motors currently have decentralized budget and planning division. Each region makes it own decision based on the local need. In the current scenario, CEO is faced with the option of globalizing both budgeting and planning. One strategy that CEO can pursue is letting both these departments work under the authority of four regional presidents and their strategy boards i.e. allow these departments to remain local. The plants have always operated as totally independent organizations. All four regions presidents understand the local needs and culture of their own particular region more than the global leaders. They can better understand the demands of local people and are fully aware of the local situation. Therefore, they can better decide upon the allocation of budget and planning. Moreover, localizing decision making will increase the speed of making and implementing decisions. Because decisions will not require the approval of top management, time to implement them will be reduced. Lastly, decentralized decision making will keep the top management or global leaders more focused on other diverse and important issues.

Decentralized decision making have it’s disadvantages too. Region president will have a large amount of the authority vested in them, and hence the accountability might reduce. Each region will become more focused on its own local interest while planning for the company. At times, the local objectives of the company might not be the same as that of the parent company; therefore, this decision might harm the interest of the company as a whole.

3. Strategic Alternative 2

The second alternative strategy that the company can pursue is to make both these departments global i.e. go as Automotive Strategy Board has proposed. By doing this, company can make decision making more streamlined. Based upon the need and growth of every product, global leaders can allocate budget and do the product planning. Since decisions will be made at the global level, more data and expertise will be available which will lead to better decision making. Also, globalizing decision making will standardize the goals and will introduce a consistency among all regions. Since each division will have its budget allocated and product planning done at the global level, this will reduce the autonomy given to each region president and hence will reduce the conflict. It will also help reduce inter-regional competition.

Talking about the disadvantages, globalizing budget and planning will cause senior management to become more focused internally and this might result in neglect of other global issues. Globalizing the two will also add extra level of hierarchy in making and implementing decisions. Centralization might also result in reduced accountability as tracing the relevant person would become difficult because of intense hierarchal structure of General Motors. Furthermore, top management is not aware of the local needs and culture. The decisions made by global leaders are made keeping in mind the whole company; therefore, they might fail to serve the needs of regional company.

4. Strategic Alternative 3

The third strategy that the company can pursue is to consolidate the global and local management while making a decision about budgets and planning for the company. For this strategy to work effectively the regional presidents can propose solution budget and product upon their regions local needs and then the global leaders can review it and make relevant changes based upon their experience and company’s global goals. Through this strategy, regional presidents can protect the local needs of their company and global leaders can guard the international goals and needs of the company. This strategy will also increase the interaction rate among the regional presidents and the global leaders.

However, a major disadvantage of using this strategy is the increased number of bodies coordinating the decision. The decisions made will be exposed to too much interference of top management, first at regional president level and then at the global level, and as already mentioned in case this might lead to dominance of personal interest and development of ‘Congress’ among the company. Since the decisions made by regional presidents will first have to get reviewed by the global leaders, any rejection will decrease the motivation of regional presidents and employees. The time required for decision making will also further increase because two different committees will be reviewing the decision. This will result in decreased business speed.

5. Recommended Strategy

At this point of time, CEO needs to make a decision that is not only best for the local needs but also is in the best interest of global needs of the company. Both centralization and decentralization have their advantages and disadvantages.