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gm value chain analysis

Category: Business Paper Type: Homework Reference: APA Words: 1500

This project is one of three reports I will complete as part of the strategic analysis of General Motors. This first report focuses on strategy analysis and includes the following sections. First, the major concepts related to strategy analysis will be defined. Second, those concepts will be applied to the case of General Motors in order to analyze the competitive position of the company in the global automobile industry. The analysis of company will be followed by its evaluation to identify the major problem it is facing and propose a solution that can be adopted to restore its lost competitive advantage. A short conclusion will close the report.

2. Concepts

Several strategic tools can be used to determine whether a firm is successful. The most used strategic tools are SWOT analysis, value chain analysis, and competitive advantage analysis. This section will define the concepts involved in these tools.

2.1. SWOT analysis

SWOT analysis is a strategic tool used to examine external forces and internal resources in order to determine a firm’s ability to respond effectively to the requirements of its external environment. The concepts related to external forces are defined first, followed by the concepts of the internal resources.

The purpose of the external analysis is to identify opportunities (O) and threats (T) in a firm external environment. Opportunities are external factors that a firm can take advantage of to accomplish its objectives. Threats are external factors that limit a firm’s ability to achieve its objectives. Opportunities and threats are found in either the industry or the general environments.

The purpose of the internal analysis is to identify strengths (S) and weaknesses (W) in a firm’s internal organization. Strengths are internal resources and competencies that a firm can effectively use to achieve its objectives. Weaknesses are internal resources and competencies that undermine a firm’s ability to achieve its objectives. Strengths and weaknesses can be either tangible resources, intangible resources, or organizational capabilities.

The identification of opportunities, threats, strengths and weaknesses is needed to conduct a company’s SWOT analysis. The purpose of the SWOT analysis is to determine the extent to which a firm can succeed in using its strengths to take advantage of opportunities, minimize the impact of threats, and attempt to correct some of its weaknesses. If successful, the firm is in a better position to achieve a competitive advantage.

2.2. Value chain analysis

After the SWOT analysis is completed, the next step in examining whether a firm can achieve a competitive advantage is to do a value chain analysis. When a firm performs an activity, it creates value. Value can be either low cost or differentiation. Value chain is a series of activities that take place from inputs, through transformation, to outputs. A core competency is an activity that is central to a firm’s survival. A distinctive competency is an activity that a firm performs better than any of its competitors.

Value chain analysis is a strategic tool whose purpose is to examine a firm’s competencies in order to identify the activities that a firm should perform to create the most value. A firm can create the most value when it performs the activities that are both core competencies and distinctive competencies. The activities that are not at the same time core competencies and distinctive competencies should be outsourced, unless they contribute in a distinctive way to supporting the creation of the most value. A firm that creates the most value is likely to achieve a competitive advantage.

2.3. Competitive advantage analysis

Competitive advantage is a set of value-creating strategies that are unique and that result in above-average performance in the long-term. To achieve competitive advantage, a firm needs to first identify the value that buyers are looking for. If buyers value low cost, the firm must excel in efficiency and/or process innovation. If however buyers value differentiation, then the firm must excel in quality and/or product innovation.

3. Analysis

The report will now apply the concepts discussed in the previous section to the specific case of General Motors. The analysis will help to determine whether this company has achieved a competitive advantage.

3.1. General Motors’ SWOT analysis

General Motors’ SWOT analysis is summarized in two tables. Table 1 focuses on the external analysis. Table 2 is devoted to the internal analysis. A short discussion of the information provided in both tables will follow.

Table 1 General Motors’ external analysis

Opportunities

Threats

Industry environment:

- Threat of entry: The threat of entry is low because potential competitors face high entry barriers such substantial investments in fixed assets and reputation of existing automakers

- Low bargaining power of suppliers: Suppliers have little bargaining power because they are too small to set the prices of auto parts

Industry environment:

- Intensity of rivalry among established firms: Intense competition from Japanese automakers is negatively affecting US car manufacturers

- Bargaining power of buyers: As buyers have several brands to choose from, they “shop around”, forcing automakers to offer huge incentives that depress their performance

General environment:

- Global forces: Rapidly expanding demand in emerging markets such as China and Brazil constitutes an opportunity for General Motors to sell more vehicles

- Political/legal forces: Increasingly looser anti-trust laws in the US allow firms such as General Motors to grow through acquisitions

General environment:

- Socio-cultural forces: Increasingly, buyers value environmentally-friendly cars, forcing automakers to invest large amounts of resources in green technologies

- Economic forces: The financial crisis of 2008 led banks to reinforce lending standards, substantially decreasing consumer spending

Table 2 General Motors’ internal analysis

Strengths

Weaknesses

- Intangible resources: With its strong presence in global markets, General Motors enjoys a worldwide reputation as a major automobile manufacturer

- Capabilities: Over the years, General Motors has acquired an experience that has helped to develop substantial competencies in integrating manufacturing operations

- Capabilities: General Motors is so complex and bureaucratic that it is less responsive to environmental changes as it stretches its resources over many models of vehicles and businesses unrelated to vehicles manufacturing

- Intangible resources: Employee dissatisfaction caused by benefit reduction results in costly strikes

SWOT analysis discussion: General Motors has good opportunities that can help the company to achieve a good performance. However, its weaknesses are so overwhelming that the company has been unable to take advantage of those opportunities. For instance, it has some many models and also businesses other than automobile manufacturing that the company is a highly bureaucratic and thus less flexible organization. This results in its inability to attract many buyers that tend to choose models that fit their changing preferences.

3.2. General Motors’ value chain analysis

General Motors’ core business is the manufacturing of automobiles. To make automobiles, the company performs several activities along its value chain. Its manufacturing activities include final assembly of more than 94 models of cars and SUVs (Sports Utility Vehicles). The firm also designs, engineers and manufactures engines, transmissions, castings, power products (e.g. electric batteries), and advanced sensors for vehicle safety. General Motors performs marketing activities such as participating in promotional auto racing events (Nascar Series, IndyCar Series, Grand-Am Rolex Sports car Series, and Le Mans Series). The company has financial and leasing activities (GMAC). It performs other activities such as distribution and warehouse functions, and engineering and testing facilities.

Of its multiple activities, General Motors’ core competencies are its final assembly of cars and SUVs. Since its creation more than a century ago, General Motors’ survival has been dependent on making automobiles. Most of its efforts have been oriented toward developing substantial core competencies in integrating automobile manufacturing operations. The firm’s other activities along its value chain are performed in support of automobiles manufacturing.

General Motors’ distinctive competencies have been its financial and leasing activities (GMAC). Despites its overall huge losses, the company has been posting profits for its GMAC division. The reason is because this division was able to excel in offering attractive financing and/or leasing services to customers. Unfortunately however, these distinctive competencies were not the company’s core competencies, undermining its ability to effectively compete in the activities that determine its survival (automobile assembly).

BUAD 4980 STRATEGIC MANAGEMENT REPORT 1 STRATEGY ANALYSIS GENERAL MOTORS Richard Mpoyi 1. Introduction This project is one of three reports I will complete as part of the strategic analysis of General Motors. This first report focuses on strategy analysis and includes the following sections. First, the major concepts related to strategy analysis will be defined. Second, those concepts will be applied to the case of General Motors in order to analyze the competitive position of the company in the global automobile industry. The analysis of company will be followed by its evaluation to identify the major problem it is facing and propose a solution that can be adopted to restore its lost competitive advantage. A short conclusion will close the report. 2. Concepts Several strategic tools can be used to determine whether a firm is successful. The most used strategic tools are SWOT analysis, value chain analysis, and competitive advantage analysis. This section will define the concepts involved in these tools. 2.1. SWOT analysis SWOT analysis is a strategic tool used to examine external forces and internal resources in order to determine a firms ability to respond effectively to the requirements of its external environment. The concepts related to external forces are defined first, followed by the concepts of the internal resources. The purpose of the external analysis is to identify opportunities (O) and threats (T) in a firm external environment. Opportunities are external factors that a firm can take advantage of to accomplish its objectives. Threats are external factors that limit a firms ability to achieve its objectives. Opportunities and threats are found in either the industry or the general environments. The purpose of the internal analysis is to identify strengths (S) and weaknesses (W) in a firms internal organization. Strengths are internal resources and competencies that a firm can effectively use to achieve its objectives. Weaknesses are internal resources and competencies that undermine a firms ability to achieve its objectives. Strengths and weaknesses can be either tangible resources, intangible resources, or organizational capabilities. The identification of opportunities, threats, strengths and weaknesses is needed to conduct a companys SWOT analysis. The purpose of the SWOT analysis is to determine the extent to which a firm can succeed in using its strengths to take advantage of opportunities, minimize the impact of threats, and attempt to correct some of its weaknesses. If successful, the firm is in a better position to achieve a competitive advantage. 2.2. Value chain analysis After the SWOT analysis is completed, the next step in examining whether a firm can achieve a competitive advantage is to do a value chain analysis. When a firm performs an activity, it creates value. Value can be either low cost or differentiation. Value chain is a series of activities that take place from inputs, through transformation, to outputs. A core competency is an activity that is central to a firms survival. A distinctive competency is an activity that a firm performs better than any of its competitors. Value chain analysis is a strategic tool whose purpose is to examine a firms competencies in order to identify the activities that a firm should perform to create the most value. A firm can create the most value when it performs the activities that are both core competencies and distinctive competencies. The activities that are not at the same time core competencies and distinctive competencies should be outsourced, unless they contribute in a distinctive way to supporting the creation of the most value. A firm that creates the most value is likely to achieve a competitive advantage. 2.3. Competitive advantage analysis Competitive advantage is a set of value-creating strategies that are unique and that result in above-average performance in the long-term. To achieve competitive advantage, a firm needs to first identify the value that buyers are looking for. If buyers value low cost, the firm must excel in efficiency and/or process innovation. If however buyers value differentiation, then the firm must excel in quality and/or product innovation. 3. Analysis The report will now apply the concepts discussed in the previous section to the specific case of General Motors. The analysis will help to determine whether this company has achieved a competitive advantage. 3.1. General Motors SWOT analysis General Motors SWOT analysis is summarized in two tables. Table 1 focuses on the external analysis. Table 2 is devoted to the internal analysis. A short discussion of the information provided in both tables will follow. Table 1 General Motors external analysis OpportunitiesThreatsIndustry environment - Threat of entry The threat of entry is low because potential competitors face high entry barriers such substantial investments in fixed assets and reputation of existing automakers - Low bargaining power of suppliers Suppliers have little bargaining power because they are too small to set the prices of auto partsIndustry environment - Intensity of rivalry among established firms Intense competition from Japanese automakers is negatively affecting US car manufacturers - Bargaining power of buyers As buyers have several brands to choose from, they shop around, forcing automakers to offer huge incentives that depress their performanceGeneral environment - Global forces Rapidly expanding demand in emerging markets such as China and Brazil constitutes an opportunity for General Motors to sell more vehicles - Political/legal forces Increasingly looser anti-trust laws in the US allow firms such as General Motors to grow through acquisitionsGeneral environment - Socio-cultural forces Increasingly, buyers value environmentally-friendly cars, forcing automakers to invest large amounts of resources in green technologies - Economic forces The financial crisis of 2008 led banks to reinforce lending standards, substantially decreasing consumer spendingTable 2 General Motors internal analysis StrengthsWeaknesses- Intangible resources With its strong presence in global markets, General Motors enjoys a worldwide reputation as a major automobile manufacturer - Capabilities Over the years, General Motors has acquired an experience that has helped to develop substantial competencies in integrating manufacturing operations- Capabilities General Motors is so complex and bureaucratic that it is less responsive to environmental changes as it stretches its resources over many models of vehicles and businesses unrelated to vehicles manufacturing - Intangible resources Employee dissatisfaction caused by benefit reduction results in costly strikes SWOT analysis discussion General Motors has good opportunities that can help the company to achieve a good performance. However, its weaknesses are so overwhelming that the company has been unable to take advantage of those opportunities. For instance, it has some many models and also businesses other than automobile manufacturing that the company is a highly bureaucratic and thus less flexible organization. This results in its inability to attract many buyers that tend to choose models that fit their changing preferences. 3.2. General Motors value chain analysis General Motors core business is the manufacturing of automobiles. To make automobiles, the company performs several activities along its value chain. Its manufacturing activities include final assembly of more than 94 models of cars and SUVs (Sports Utility Vehicles). The firm also designs, engineers and manufactures engines, transmissions, castings, power products (e.g. electric batteries), and advanced sensors for vehicle safety. General Motors performs marketing activities such as participating in promotional auto racing events (Nascar Series, IndyCar Series, Grand-Am Rolex Sports car Series, and Le Mans Series). The company has financial and leasing activities (GMAC). It performs other activities such as distribution and warehouse functions, and engineering and testing facilities. Of its multiple activities, General Motors core competencies are its final assembly of cars and SUVs. Since its creation more than a century ago, General Motors survival has been dependent on making automobiles. Most of its efforts have been oriented toward developing substantial core competencies in integrating automobile manufacturing operations. The firms other activities along its value chain are performed in support of automobiles manufacturing. General Motors distinctive competencies have been its financial and leasing activities (GMAC). Despites its overall huge losses, the company has been posting profits for its GMAC division. The reason is because this division was able to excel in offering attractive financing and/or leasing services to customers. Unfortunately however, these distinctive competencies were not the companys core competencies, undermining its ability to effectively compete in the activities that determine its survival (automobile assembly). In its core business (automobile manufacturing), General Motors has several brands, including Chevrolet, Cadillac, GMC Trucks, Buick, and other brands that the company manufactures in foreign countries, such as Opel and Holden in Europe. This report will focus on Chevrolet. Chevrolet has several models that can be grouped by category. In the car category, models that the company makes include Spark, Sonic, Cruze, Malibu, Impala, and Volt (electric car). In the sports category, models are SS Sport Sedan, Camero, and Corvette. SUVs (Sports Utility Vehicles) is a broad category that includes crossovers, light trucks, pick-up trucks, and vans. Examples of crossovers are Equinox, Traverse and Taho. The main light truck is Suburban. The models of pick-up trucks General Motors makes include Colorado and Silverado. Last, vans that the company manufactures are City Express and Express. A model this report will focus on is Corvette, a sport car. The value Corvette is seeking is differentiation. Buyers of sport cars do not value low cost. Instead, they are looking for a high performing vehicle along a number of attributes that they desire. Aware of buyer preferences, General Motors engineers that work on Corvette are seeking to design a vehicle that has distinctive features sought sport car buyers. The price of Corvette (53,000) illustrates the fact that General Motors is not seeking low cost when manufacturing this model of Chevrolet. 3.3. General Motors competitive advantage analysis For the Corvette model, General Motors has not achieved a competitive advantage. As highlighted in the SWOT analysis above, the company has one major weakness, its high levels of complexity and bureaucracy, factors that lead to lack of flexibility and slow responsiveness to changing needs of car buyers. In addition, the value chain analysis showed that the companys core competencies were not its distinctive competencies, which means that the firm excels in activities that are not central to its success. Complexity and bureaucracy, coupled with a mismatch between core competencies and distinctive competencies, result in the inability to achieve a competitive advantage for Corvette. Because of these factors, General Motors is not in a position to excel in quality and product innovation, which is necessary if Corvette is to be the most differentiated sport car. 4. Evaluation The evidence presented in the previous section will now be interpreted to identify the main problem General Motors was confronting. Then the solution that the company can adopt to address its difficulties will be proposed. 4.1. Problem A major problem General Motors is facing is organizational complexity. Organizational complexity is caused by two main factors. First, the company has many brands, each with one or more models of vehicles. Second, in addition to manufacturing automobiles, General Motors has several other businesses such as making several automobile parts and competing in the financial sector (financing and leasing). 4.2. Solution A solution to overcome its challenges is for General Motors to reduce organizational complexity. Fortunately, there are some actions the company can take to correct the weaknesses that have led to this problem. The solution I propose is for General Motors to undertake corporate restructuring by reducing the number of brands (or product lines) and the number of models within each brand, and by selling off some of non-automobile manufacturing businesses. This will help General Motors to achieve strategic focus so it can concentrate its resources on fewer integrated activities. Furthermore, the company will be able to enhance strategic flexibility by investing substantial resources in innovative activities. A smaller but leaner General Motors will be in a position to fit its environment as it will be more likely to effectively address the requirements of the future automobile market. 5. Conclusion The report was an attempt to conduct a strategy analysis of General Motors. The concepts involved in strategy analysis were defined and then applied to the case of General Motors. The discussion revealed that because of organizational complexity, General Motors failed to achieve competitive advantage for the model the report focused on, namely Corvette, a sport car. To address organizational complexity, the report proposed that General Motors divest several activities by reducing the number of models and by selling off activities non-essential to the manufacturing of automobiles. PAGE MERGEFORMAT 3 Y, 4IsNXp xpop, Yu),j-BXRH8@ I7E10(2O4k LEzqO2POuz_gx7 svnB2,E3p9GQd H I jZ29LZ15xl.(zmd@23ln-@iDtd6lB63yy@tHjpUyeXry3sFXI O5YYS.7bdn671. tn/w/t6PssL. JiN AI)t2 Lmx(-ixQCJuWlQyI@ m2DBAR4 wnaQ W0xBdT/.3-FbYLKK 6HhfPQh)GBms_CZys v@c)h7JicFS.NP eI Q@cpaAV.9HdHVXAYr A pxSL93U5U NC(pu@d4)t9M4WP5flk_X-C wTB Y, Ao Ye zxTVOlp /gTpJ EG, AozAryerb/Ch, Eoo. 6Q

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