Strategic Mang

BUAD 4980

STRATEGIC MANAGEMENT

REPORT #1: COMPETITIVE ADVANTAGE ANALYSIS

GENERAL MOTORS

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 competitive advantage analysis and includes the following sections. The first section will define key strategic tools and related concepts necessary to conduct a competitive advantage analysis. The second section will apply those strategic tools and concepts to the case of General Motors. The third section will evaluate the evidence from the analysis in order to both identify a major problem the company is facing and propose a solution that can be adopted to address the problem. A short conclusion will close the report.

2. CONCEPTS

Several strategic tools are used to determine whether a firm has achieved a competitive advantage. This section will define the concepts involved in SWOT analysis, value chain analysis, performance analysis, and competitive advantage analysis.

2.1. SWOT analysis

SWOT analysis involves an external analysis and an internal analysis. The purpose of the external analysis is to identify opportunities (O) and threats (T) in a firm’s external environment. An opportunity is an external factor that a firm can take advantage of to accomplish its objectives. A threat is external factor that limits a firm’s ability to achieve its objectives. A strength is a resource or a capability that is a source of a firm’s core competencies. A weakness is a resource or a capability that is not a good source of a firm’s core competencies.

The identification of opportunities, threats, strengths and weaknesses is needed to conduct a company’s SWOT analysis. SWOT analysis is a strategic tool used to identify opportunities and threats in the external environment, and resources and capabilities in the internal organization. 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.

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 means either low cost or differentiation. Value chain is a series of activities that take place from inputs, through transformation, to outputs. Core competencies are resources and capabilities that a firm can successfully use to achieve competitive advantage. The purpose of value chain analysis is to identify the activities that create the most value.

A firm should perform the activities that create the most value. However, the activities that do not create the most value should be outsourced, that is, purchased from suppliers. As suppliers tend to focus on few core activities that they are best at, they are more likely to create the most value. Because the firm can purchase suppliers’ activities at either the lowest cost or the highest quality, outsourcing therefore needs to take place.

2.3. Performance analysis

SWOT analysis and value chain analysis will provide strategic managers with the necessary information to conduct a performance analysis. Performance analysis is a strategic tool used to evaluate whether a firm has been effective in accomplishing its targets. Effectiveness is the extent to which a firm has achieved its financial and strategic performance targets. Financial measures are indicators that help to evaluate a firm’s ability to fulfill its economic responsibilities. Strategic measures are indicators used to evaluate a firm’s ability to achieve competitive advantage.

The balanced scorecard is an approach designed to provide a comprehensive view of performance. Performance is a multidimensional concept. Each dimension needs its performance target as it is associated with a specific set of stakeholders with their unique interests. To be meaningful, a good performance analysis should involve multiple measures to address the interests of several sets of stakeholders.

2.4. Competitive advantage analysis

A firm that creates the most value is likely to achieve a competitive advantage. 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 a competitive advantage, a firm’s managers need 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. However, if buyers value differentiation, then the firm must excel in quality and/or product innovation.

3. ANALYSIS

The previous section defined the strategic tools and related concepts that are needed to conduct a competitive advantage analysis. In this section, those strategic tools and concepts will be applied to the specific case of General Motors. At the completion of this section, SWOT analysis, value chain analysis, and performance analysis will together help to determine whether General Motors has achieved a competitive advantage.

3.1. SWOT analysis

To conduct General Motors’ SWOT analysis, it is necessary to identify its opportunities, threats, strengths and weaknesses. Opportunities and threats are summarized in Table 1. Table 2 focuses on strengths and weaknesses.

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 General Motors - 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 are allowing 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 - Global forces: After the breakup of the European Union (EU), vehicles made in the rest of EU will be exported to the United Kingdom at higher prices

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 successfully designed strategies needed to develop substantial competencies in integrating manufacturing operations	- Capabilities: With more than 95 models of automobiles and several non-automobile businesses, General Motors is so complex and so bureaucratic that it is less responsive to environmental changes - Intangible resources: Employee dissatisfaction caused by benefit reduction results in costly strikes

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, because it is a bureaucratic and less flexible organization, General Motors couldn’t attract many buyers that tend to choose models of vehicles that fit their changing preferences. Likewise, with so many models of automobiles, the company has several models of vehicles that target the same customers and therefore that compete among them.

3.2. Value chain analysis

General Motors’ core business is the manufacturing of automobiles (passenger cars and sports utility vehicles or SUVs). Two of General Motors’ core competencies are its worldwide reputation and its almost unlimited borrowing capacity (including borrowing from the government). Three activities that General Motors performs along its value chain are making auto parts (engines, transmissions, castings and advanced sensors), final assembly of automobiles, and financial and leasing operations. The company has outsourced selling activities and after-sale services activities.

This report will focus on a sports car called Corvette, one of several models of the Chevrolet brand. The value General Motors is seeking to create for its Corvette model is differentiation. Buyers of sports cars are looking for a high performing vehicle along a number of attributes that they desire. Aware of buyers’ preferences, engineers at General Motors have deigned a model with clearly identifiable features that set Corvette apart from competing sports cars. For instance, it has five distinct and selectable driver modes that electronically calibrate up to 12 performance variables to adapt to any road. Using premium and authentic materials, Corvette offers both packages that take it to the highest level of customization, and a variety of available accessories for any driver. The price range (between $66,415 and $86,860) illustrates the fact that Corvette buyers value, not low cost, but a top of the line and highly differentiated sports model (www.gm.com/).

3.3. Performance analysis

The indicator used to analyze the financial performance of Corvette will focus on sales in the United States. The number of Corvette sold went from 12,624 in 2010 to 33,329 in 2015, representing an increase of 164% in just five years. When compared to competing sports cars, Corvette was well ahead. Whereas sports car buyers purchased 33,329 Corvette in 2015, the closest competitors, Subaru Impreza, Volkswagen GTI, and Lexus RC, sold respectively 28,164, 19,337, and 11,791 (www.GoodCarBadCar.net).

The indicator used to analyze strategic performance will be based on quality. The most important quality issues for Corvette in 2015 were recalls and customer complaints. There were 915 vehicles recalled, primarily for parking brake (783), but also for air bag (89) and for suspension (43). In addition, corvette faced 15 complaints mostly related to steering and transmission problems (www.carcomplaints.com/chevrolet/corvette/2015).

3.4. Competitive advantage analysis

For the Corvette model, General Motors has achieved a competitive advantage. Based on the value chain analysis, Corvette has excelled in quality and product innovation. Specifically, Corvette engineers have designed and manufactured a model that has reached precision performance and race-proven technology that many sports car buyers were looking for. Also, the performance analysis has shown that Corvette was the most preferred sports car. To paraphrase Rita Cook (2015), Corvette owned the sports car market in the United States.

4. Evaluation

The evidence presented in the previous section will now be interpreted to identify the main problem General Motors has been confronting. Then the solution that the company can adopt to address the problem will be proposed.

4.1. Problem

One key problem General Motors was facing is its lack of focus. One factor that is causing this problem is the high number of models of automobiles (more than 95 models) along with operating several non-automobile businesses.

4.2. Solution

One solution that General Motors can adopt to address its lack of focus is to divest several models of vehicles and several non-automobile businesses. By reducing its size through massive divestments, General Motors will be able to achieve strategic focus. Strategic focus will help the company to concentrate its resources on fewer activities in its automobile business. Strategic focus will enhance General Motors’ strategic flexibility because resources generated by divestments will be invested in innovative activities. Strategic flexibility will put General Motors in a position to fit its environment as it will be more likely to effectively respond to changing 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 competitive advantage analysis were defined and then applied to the case of General Motors. The evidence presented revealed that General Motors lacked strategic focus because it unnecessarily performs numerous activities, both within the automobile industry as well as in other industries. To address the problem, the report has proposed that the company engage in massive divestments of models of its vehicles and of non-automobile businesses if it is to achieve a competitive advantage.