Assignment

CASE STUDY

Faulty Engineering and Communication Plague General Motors1

Damper on the Party

It should have been a cause for celebration. For the first time in history, a woman

was tapped to lead one of the big three automakers in the United States. In addition to

being the first female chief executive officer at a U. S. automaker, 52 year-old Mara T.

Barra, was listed as number seven on Forbes’ 2014 list of the World’s Most Powerful

Women (Muller, p. 68).

In January 2014, the Board of Directors of General Motors appointed Barra, a 33-

year GM “lifer,” as its new CEO, with many observers commenting that Ms. Barra had a

very different personal style than previous GM CEOs (Foroohar, p. 36). The ascent of

Barra was an opportunity for long time advocates of more women in top leadership

positions to toast the automaker, and it seemed an opportunity for Barra herself to reflect

on her rise through the ranks at GM. Just two weeks into her tenure as CEO, however,

Barra was informed that 700,000 Chevrolet Cobalts had to be recalled because of a faulty

ignition switch that caused the car to lose power if the key chain was jostled, which was

linked to 13 deaths. Causing great concern was the fact that there were indications that

GM engineers knew about the faulty switch as far back as 2001. Although the company

had returned to profitability since its 2009 restructuring and government bailout, those

profits were at risk due to the potential costs of the recall, government fines, various

lawsuits and yet to be determined settlements with families.

Barra hired Anton Valukas, a former United States attorney to find out why it

took the company so long to identify the problem with the ignition switch. As she waited

for the report, which would not be released until June, 2014, she had to endure questions

about how much she knew or should have known especially given her role in

manufacturing at GM prior to being named CEO. And, when the report was finally

released, she had to decide what changes would lead to leaving the problems identified in

the report behind as she molded the “new GM.”

Education and Training of a CEO

Barra learned about engineering and the auto industry when she was given an

opportunity to attend the GM Institute, a cooperative trade school founded in 1919 and

run by GM from 1926 until it became Kettering University in 1982. Barra’s began her

working career at GM as a co-op student in a Pontiac metal stamping facility and it was

there that she became interested in manufacturing (Muller, p. 69). In 1985 she was given

a full time position as a quality inspector in a Pontiac plant. In a tense national labour

negotiation in 1999, GM put her in charge of improving communication with plant

employees where she developed a reputation for honesty and straight talk.

It was off to Stanford for Barra in 1988 where she completed her MBA, paid for

by GM. In 2003, GM put Barra in charge of running its Detroit-Hamtramck Assembly

plant. The plant made Cadillacs, Buicks and Pontiacs, but not the Cobalt, which Barra

would emphasize years later as the recall crisis evolved. She was later put in charge of

manufacturing, engineering, developing factory processes and machinery. In 2009, Fritz

Henderson, who was chosen by President Obama to replace Rick Wagoner as CEO

during the company’s restructuring and government bailout, put Barra in charge of

human resources. In January, 2014, with strong support from then CEO and board

chairman, Dan Akerson, the GM board of directors appointed Barra as CEO.

No Honeymoon for Barra

Most CEOs enjoy a period of time after their appointments to ease into their roles,

get to know the players internally and externally, and capitalize on “low hanging fruit.”

But, there was to be no honeymoon for Barra. Barely into her new job, she found herself

apologizing to customers for at least 31 accidents in which 13 people were killed,

although some thought the number was higher, and presiding over a recall of Cobalts

which was expanded to 2.6 million with an additional 27 million additional cars recalled

for other problems (Foroohar, p. 34). Two months after the initial recall, a congressional

subcommittee demanded that Barra appear before it to answer questions about why GM

had waited so long to recall the Cobalt when it had known about the problem with the

ignition switch for years. Barra said she couldn’t answer their questions definitively until

a GM internal probe was complete. She did say that in her tenure as CEO she would

focus on eradicating the “old General Motors” and its tendency to avoid communicating

bad news upwards in the organization in favor of a “new General Motors” with better

internal communication and a renewed focus on the customer (Muller, p. 72).

History of General Motors

The second industrial revolution was the impetus for the creation of many great

companies, and many of those in the United States, including DuPont, General Electric,

Coca-Cola, and Exxon-Mobil. From the mid-1920s until the last quarter of the 20th

century, however, no single company had amassed the reputation for market dominance

and management excellence that General Motors had and no company consistently

dominated the list of largest companies.

William C. Durant was an entrepreneur/deal-maker most responsible for the

creation of General Motors in 1908 in his adopted hometown of Flint, Michigan—first as

a holding company for the Buick car company he ran and quickly for a number of other

auto brands. Thus, at the same time Henry Ford was establishing a major auto company

based on one car model (the Model T) and one colour (black) in nearby Dearborn,

Michigan, “Billy” Durant was creating a multi-brand strategy with each brand

representing different combinations of styling, comfort, and features through purchases of

companies like Oldsmobile and Cadillac, and Chevrolet a few years later (Madsen,

1999).

With the coming of the Japanese automakers to North America in the 1970s,

however, GM’s dominant position in the worldwide auto industry started a steady decline

in market share, in the U.S. and globally. In fact, General Motors had overtaken Ford

Motor Company as global vehicle sales leader in 1931, and held that title for every year

until 2007. Yet, by 2008 General Motors was asking for a government bailout to avoid

bankruptcy. After a short period under Chapter 11 U.S. court protection and $49.5 billion

in U.S. government funds and $10.6 billion from the Canadian and Ontario governments,

General Motors re-emerged in 2010, made one of the largest initial public stock offerings

in history (as the “new” GM) and returned to profitability by year-end.

Over the years following the first U.S. and Canadian government investments to

save GM, General Motors experienced five different CEOs. Rick Wagoner was the CEO

when the company first asked for government assistance and was removed as part of

President Obama’s automotive task force actions. Wagoner was succeeded by former

CFO, Fritz Henderson, whose tenure as CEO was less than one year. Henderson was

then followed as CEO by Ed Whitacre, who had been named chairman of the board by

the U.S. government as General Motors emerged from Chapter 11 protection. Dan

Akerson, first appointed to the board of GM in mid-2009 by the U.S. Treasury, followed

as CEO in September of 2010 and decided to step down as of mid-January 2014. In one

of his first decisions as CEO in 2010, Akerson moved Mary Barra from head of HR to

global head for product development and logistics.

Recent Financial Performance

During fiscal 2013, General Motors sold 9.7 million vehicles globally and earned

a net profit of $3.8 billion on revenue of $155.4 billion. While that profit figure was

down from 2012, Barra explained in her letter to shareholders in the company’s 2013

annual report (General Motors, p. 4) that the underlying business was performing very

well as witnessed by earnings before interest, taxes, and special items being up $700

million to $8.6 billion. She also went on to report that GM’s Board of Directors had

declared a 30-cent per share dividend per common share, “a first for today’s GM.”

As 2014 wore on many were advising the U.S. government to sell the remaining

portion of its stake in “Government Motors,” which had cost $49.5 in total. The stigma

of having the government as the largest shareholder was not a comfortable position for a

large U.S. company, especially one that was once the primary symbol of capitalism in

America.

The Role of Organizational Culture and Communication in the Crisis

The problems with the Chevy Cobalt were known by GM engineers long before

Barra became CEO. Even as the first 2003 Cobalt was being readied to roll off the

assembly line, the engineers knew about the problem with the ignition switch, which

caused the Cobalt’s key to slip out of the run position when it was jostled causing the car

to lose power thereby disabling the airbags. As far back as 2001, the GM engineer who

designed the switch called it “the switch from hell” (Healey and Meier, p. B1); engineers

did look at possible ways to fix the problem then, that’s all they did. In 2005, in a move

that now, in hindsight, looks unbelievable, GM sent out a service bulletin to its dealers

who were reporting customer complaints about unexpected shut offs which instructed

dealers to tell customers to remove heavy items from their key chains. The ignition

switch was quietly redesigned in 2006 without changing the part number which GM later

cited as one of the reasons that the recall did not happen until 2014 (Healey and Meier, p.

A1). Clearly there were problems in GM’s engineering departments, but it was the report

commissioned by Barra that outlined a more organization-wide problem at GM.

The 350-page Valukas Report was released on June 5, 2014. The New York

Times reported that it exposed “…severe shortcomings in the company’s culture”

(Morgenson, p. 8). The New York Times story also stated that the report found problems

with identifying decision-makers and accountability of committees. The practice where

“everyone agrees to a plan of action after a meeting “but then leaves the room with no

intention to follow through,” was dubbed the “GM nod” (Morgenson, p. 8). The

Valukas Report also described “the GM Salute” whereby people in meetings would cross

their arms and point outwards as a signal that the responsibility for a particular action

belonged to someone else, (Morgenson, p. 8). Employees were coached to avoid certain

language when writing safety reports. Instead of talking about problems, they were

advised to use words like “issue, condition or matter.” Words like dangerous were not

recommended (Vlasic, p. B8). An example of the company’s use of language was calling

the ignition switch problem a customer satisfaction issue rather than a safety issue. The

Valukas report made specific recommendations to deal with accountability and

communication when it said that GM should create a more open environment for

employees to bring problems to the attention of senior people in the organization.

Barra, herself, spoke about problems with GM’s culture and its approach to

internal communication when she testified before Congress. She admitted that GM was

not good at communicating, which she attributed to silos in the organization in which

information know in one area of the company didn’t get communicated to other areas that

would benefit from the information (Muller, p. 73). Organizational theorists like

Deborah J. Cornwall, Managing Director of the Corlund Group, agreed that in large

organizations it can be difficult for employees to get bad news up to decision-makers.

“The challenge for managers is creating an environment in which even negative

information can find its way up,” she said. “The tendency in large hierarchical

organizations is to tell the boss what he wants to hear” (Auriemma, p. B9).

The Future for Barra and GM

With 219,000 employees—30,000 people in product development alone—there

were a lot of people for Mary Barra to hear from and a lot of challenges competing for

her attention. On the domestic front, GM is getting praise for its vehicles from Consumer

Reports and from the Insurance Institute for Highway Safety. Customers reported a high

level of satisfaction with brands like Chevrolet, Buick, GMC and Cadillac (Muller, p.

69). But the automaker was facing huge write-downs from the ignition switch recall and

other recalls, further investigations by U.S. regulators, various lawsuits, and claims of

families who lost loved ones. Concerns about the weak European economy and a

slowdown in China were also potential problems. As Barra considered the opportunities

and threats facing GM, getting people in the organization talking to each other would no

doubt be a consideration.

 

Discussion Questions

1. How did information flow (downward, upward, and horizontal) at GM before Mary

Barra became the CEO?

2. What were the barriers to the flow of information (downward, upward, and

horizontal) when Mary Barra became the CEO?

3. What could Mary Barra do to improve the flow of information (downward, upward,

and horizontal) and what objectives would she have. 500-580 words

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