Students are required to write a 1500 word report on a management problem or potential management problem they identify in the Case Study (Available on Learning@Griffith).
1. Introduction and Problem Identification:
2. Discussion on the problems of GM:
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Analysis on the problem faced by GM indicates that the organization lost its market focus . Focusing on product diversification helps the organizations to increase their market share. However, along with it the businesses also need to have strong cash flow. If the product diversification and development efforts as well as the efforts to increase profitability are balanced, a business can have strong financial issues.
Discussion on the business strategies of GM indicates that the organization gives importance on attracting new customers by launching new products. The focus on new product development or the product diversification helps the businesses to make a large customer base (Helper & Henderson, 2014). As a result, a business can increase its market share by enriching the product portfolio with new items. But, retaining large share in market does not ensure that the organization is running profitably. If the growth rate of any division in the business is lower, it will not be able to provide satisfactory return on the investments made on the particular division. It, in turn, will reduce cash flow of the organization. In case of GM also, the organization has faced the similar problem . It offered the customers with many new products but has not given importance on earning profit from all the product categories. Thus, financial performance of the organization reduced.
GM management gave importance on assessing the impacts of the external business environment on the organizational activities. According to the management, the economic slowdown reduced the credit availability in the market. As the consumers have become affected due to the poor financial condition, their expenditure on the automobile products also reduced. As a result, demand of the products offered by GM decreased and it caused significant loss to the business. The economic issues in the market can cause losses for the business (Acharya et al.2015). However, in case of GM, the economic issue may not be the reason behind its loss of profitability. The idea can be supported by the performance of other organizations in automobile industry during the period. The other organizations in the automobile industry earned significantly high cash flow. It reflects that the business strategies of GM are causing the problem in increasing its cash flow.
Reduced profitability in the product categories is one of the main reasons behind the decreasing cash flow of GM. The organization has invested on many new and diversified products (Vahlne & Johanson, 2017; More , 2009). However, many of the products are not profitable enough. It indicates that the organization does not earn money from these business units despite their investment on them. Clearly, the lack of income reduced the cash flow.
An organization needs to use its resource and capabilities to the optimum level for remaining profitable (Baker, 2014). In other words, the businesses require investing on those units which can provide them with significant amount of income. Otherwise, earning profit or maintaining the cash flow would be difficult for the business. In order to remain profitable, the organizations need to make their business decisions on basis of the business growth rate and the profitability.
If any division of the organization is found to be low profit making, then the businesses need to use the resources to a more profitable way. It can make the business unit either closed or sell it for using the strategy in a more profitable way.
The Ansoff’s growth matrix provides the organizations with suitable techniques for enhancing the growth in existing and new market. The matrix reflects that the businesses need to take the market penetration, product development strategies for increasing the growth in existing market. The organizations should increase to make a loyal customer base in the existing markets with the existing products to earn significant amount of profit. On the contrary, in case of new markets, the businesses require adopting the market development and product diversification strategies to enhance the profitability (Bocken et al., 2016). In the current case, GM management focuses on developing new products only which help them to increase the share in existing markets. However, it has not given importance on making its position stronger in the existing markets. Because of the nature, the organization lost its profitability in the current markets.
3.Conclusion and Recommendations:
Identifying the units which are running in loss and re-investing the resources: GM already has many new products in its portfolio. Each of the products is not equally profit making. It is evident that investing on these units is not an effective idea for the businesses. So, the organization needs to identify the units which are not able to provide the sound income and invest the resources being employed by these units to other profitable sections. Reducing the offerings will reduce the extra burden of the organization and will also help it to give more importance on profitable activities.
Focusing more on the profitable business units: GM management requires giving importance on identification of the product categories which earn the maximum profit. Identification of the profit-making business units will help GM to give more importance on such units. The management should put effort to increase the profitability of these units by providing attractive offers and finding out new customer groups for these units. Penetrating the market with such products can help GM to strengthen its position.
Increasing the customer loyalty: Increasing the customer loyalty is another way that can help GM management to have a strong source of income. It should start the loyalty programs to attract the new customers. In addition, developing the loyalty programs can make the organization more attractive to the existing customers as well. In case of GM, attracting the customers for its products is a problem. If the organization gives importance on making the customers interested to use products of the organization repeatedly, having a solid source of income will be easier for it.
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