With a focus on corporate governance concerns

With a focal point on corporate administration concerns ( non simply a “ demigod ” narrative ) , compare the instance of General Motors ( GM ) to the instance of General Electric ( GE ) for the period 1970-2000, and discourse what GE did successfully but GM failed to make.

Introduction:

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Through comparative case-study analysis of General Motors ( GM ) and General Electric ( GE ) , this paper aims to supply an in-depth scrutiny of the jobs ‘historically’ associated with ‘certain forms’ of corporate administration ;historically, because all analysis provided will be retrospective, and ; limited merely tocertain signifiersof corporate administration because the two Companies, which are the topics of this survey, do non supply illustrations of every signifier of corporate administration which is, or has in the past been, employed by the multi-national organisation.

The construction of this paper:

This paper shall get down with a brief analysis of the planetary concern clime from 1970 to 2000, with peculiar focal point on the most popular signifiers of corporate administration employed by the transnational corporation during this period. This brief analysis shall supply a good contextual debut to the several organisational constructions of GM and GE, two descriptive analyses which shall busy the chief organic structure of this paper.

Key subjects which shall be discussed during these analyses include corporate stigmatization ( including the importance of standardised stigmatization ) , competitory advantage, the relationship between these two constructs, transparence and fiscal revelation, the differentiation between ownership and control ( bureau theory ) , the jobs with over-divisionalization, the function of the Board of Directors and the importance of effectual group processes.

The planetary concern clime from 1970 to 2000? a brief over-view:

At the beginning it should be noted that the farther back in clip we go, the less able we are to faithfully generalise about the province of the planetary concern clime[ 1 ], and hence, the more necessary it is to divide our analysis into jurisdictionally specific corporate markets ; as Mayer ( xxx ) writes ( p76 ) ,there is a close relation between the types of activities undertaken in different states and theirinstitutional structures…[ and ] a relation between the construction of establishments and the types of high tech activities undertaken. The contrast between German and US patenting is exemplifying of this.

For these grounds, the undermentioned overview shall concentrate its attending on those facets of the planetary concern market which were relevant to the development of both GM and GE during this 30 twelvemonth period ; viz. , those facets relevant to the Anglo-American engineering sector.

The early 1970’s signalled the beginning of what might be described as the new managerialism ; engineering houses were still really much at the clemency of a prevailing, if tailing, cold-war clime, and if a taking engineering company wanted to keep market leading it was necessary to encompass to the full this niche sector. For illustration, in 1971, General Motors designed and manufactured ‘the mobility system for the Lunar Roving Vehicle which enabled Apollo 15 spacemans to carry through world ‘s first vehicular thrust on the moon’ [ GM, Corporate Info, History- 1970 [ 2 ] ] .

It was besides in the late 1960’s and early 1970’s that the thoughts of corporate societal, and in peculiar environmental, duty were born, thoughts spurred in portion by a wealth of research conducted into the effects of industrial fabrication on the planetary environment, and besides the constitution of the Environmental Engineering and Pollution Control ( EE & A ; Personal computer ) organisation, by 3M, in 1970. Large engineering companies responded by set uping their ain air and H2O pollution control programmes, and in 1971, General Motors themselves appointed an Environmental Activities Staff to concentrate on the public presentation of GM merchandises in the environment.

Whilst these corporate responses to predominate political and economic force per unit areas might good be described as a signifier of corporate administration, there was no existent sense of an implicit in principle, or incorporate doctrine of corporate administration in either the U.K. or the U.S. at this clip.

That is non to state that, behind the scenes, no 1 was believing about uniting the organisational way of their corporations ; by the mid-1970’s, in the U.K. ( Jensen and Meckling, 1976 ) , and somewhat later in the U.S. ( Fama and Jensen, 1983 ) , there could be identified a standardized and progressively popular manner of understanding corporate administration ; viz. , the bureau, or contractual-nexus theory.

This theory conceptualises the ‘firm’ as a series of interrelated contractual relationships between the company stakeholders, chiefly the proprietors, the directors, the Board of Directors, the General Meeting ( i.e. the stockholder representatives ) and the employees. This theory has been extensively criticised for its failure to cover with the built-in corporate inefficiency caused by the divergency of involvement between, in peculiar the directors and the proprietors of a corporate organisation: “Managers bear the full cost of neglecting to prosecute their ain ends, but gaining control merely a fraction of the benefits.” McColgan, 2001, p4 [ 3 ] . A natural consequence of this inefficiency is the demand for increased bureau costs, i.e. ‘the amount of monitoring costs, adhering costs, and residuary loss’ which are required to scrutinize director public presentation ( Jensen and Meckling, 1976 ) . Despite these concerns, bureau theory remained the most outstanding administration model until the early 1990’s where a series of public corporate dirts in the UK created a demand for a new more accountable signifier of corporate administration.

Of these event, likely most noteworthy were the prostration of the BCCI bank in 1991 [ BBC, 9ThursdayJuly 1991 [ 4 ] ] and the Robert Maxwell pension dirt of the same twelvemonth, in which it became public cognition that Mr Maxwell had consistently plundered the Mirror Group Newspapers ‘ pension fund [ Telegraph, 10ThursdayApril 2001 [ 5 ] ] .

Such events led to greater calls for answerability and monitoring, but besides lead research workers and practicians to oppugn the adequateness of the current bureau theoretical account of corporate administration. Such research workers started analyzing the nature of power within the ‘firm’ , oppugning whether effectual motive towards shared ends could truly be achieved through effectual monitoring entirely.

The consequence: a motion towards a new theory of corporate administration ; viz. , the societal entity theoretical account. Building upon an premise that the corporation really serves a positive intent in the market-place, i.e. that companies are non simply formed as a consequence of neglecting capital markets, the logical decision reached by the new societal entity theoreticians is that internal ordinance and supervising is sufficient to oblige all stakeholders towards shared aims and ends. Thus the ‘team’ construct was introduced, a construct which, unlike the artificiality of its contractual predecessor, could account for horizontal stakeholder engagement and a civilization of shared duty and wages. Underliing this new theory of corporate administration is the psychological theory of societal influence theory ( Tedeschi and Felson, 1994 ) .

In decision, this historical analysis of the development of corporate administration in a altering Anglo-American concern clime [ between 1970 and 2000 ] has outlined many of the political and economic force per unit areas which have forced the form of corporate administration in these several legal powers. We should maintain these considerations in head in the following two subdivisions of this essay, where we shall analyze, in great deepness, the instances of GM and GE from 1970 to 2000:

CASE STUDY 1: General Motors and corporate administration from 1970 to 2000:

1970 was non a good twelvemonth for General Motors Corporation ; whilst the automotive gross revenues sector in general was enduring from heavy fiscal losingss as a consequence of the depression in the late 1960’s, by 1970, GM’s major challengers Chrysler and American Motors were get downing to demo pronounced net income additions since March of the old twelvemonth ; in contrast, General Motors Corporation were still steadily losing money, demoing a 16.6 % lessening in gross revenues since March of the old twelvemonth [ Article in Time Magazine, Monday 27 April 1970, available online at hypertext transfer protocol: //www.time.com/time/magazine/article/0,9171,909158,00.html? promoid=googlep ] .

In order to understand why GM Corporation found themselves in this desparate place it is first of import to understand the [ so ] predominating consumer car market. Prior to the depression of the 1960’s, GM Motors had ever thrived on a ‘trade-up’ market, i.e. promoting consumers to merchandise in their smaller autos for larger, more powerful 1s. By 1969, it was clear that this signifier of selling was non turn outing successful ; market research indicated that the ( so ) modern consumer was more interested in the little, compact auto.

GM Corporation did non wholly disregard this analysis, for in 1970, GM came out with a scope of ‘intermediate’ autos to seek and profit from this altering consumer market. As it transpired, this was non a prudent pick ; the consumer truly was merely interested in the compact auto, and seemed loath to give in to GM’s persistent efforts to acquire them to compromise with a minor trade up.

GM’s major rivals, viz. Ford, Chrysler and Chevy, had non fallen for this error. They has come out with their ain trade names of compact auto, and their steady gross revenues increased during the 1970’s truly started to gnaw any market lead which GM Corporation had enjoyed for so many old ages antecedently.

By the late 1970’s GM had managed to recover a outstanding market place, chiefly due to its go oning market leading in the heavy responsibility vehicle sector, which has remained GM’s staff of life and butter ever-since. Unfortunately for GM Corporation this market place was yet once more to be undermined, when it found itself unable to vie with the Asiatic auto industry market which was able to do their autos at significantly lower unit costs, and therefore offer their autos to the consumers for a lower retail monetary value. GM responded by seeking to cut their industry costs, but every bit difficult as they tried, the company merely could non recover control of its former market lead.

There were serious negotiations at to whether GM would so hold a hereafter in the planetary automotive gross revenues sector, but once more, until the 1980’s GM managed to keep on to stay in the ‘Big Three’ preponderantly because it was so plus hazard that it was able to prolong same major fiscal hurt without holding to hold industry.

By 1991, the same old jobs were to return, this clip caused by the increasing oil monetary values ; war in the Middle East started to experience at hand, and the end point increases in fuel monetary values meant that GM’s latest production line of heavy vehicles were merely non selling, consumers taking to buy autos with significantly lower fuel ingestions. By the late 1990’s, market analysts were get downing to foretell that GM may merely non last into the new millenary ; a impression which, some thirty old ages earlier, would hold been universally ridiculed.

From this brief historical analysis, what is instantly clear is that GM has repeatedly been a victim of hapless corporate determinations ; declining to bring forth compact autos, instead taking to keep an unviable niche market sector. But what is ill-defined is whether these repeatedly hapless determinations are a consequence of hapless senior direction, or really a consequence of an inappropriate signifier of corporate administration.

In world, as we shall now see, it is most likely that it wasboth! An inappropriate and ( perchance ) outdated signifier of corporate administration giving rise to cut down net income borders every bit good as hapless communicating channels between each arm of the disconnected GM company and the Board of Directors ( which is the primary ground for this Board being unprepared to cover with crisesthe minute they arise) , and besides a Board of Directors made up of industry professionals with excessively stiff an mentality on concern pattern, and excessively willing to trust on old neglecting concern theoretical accounts to foretell the hereafter success of the GM Corporation.

Traditionally, GM Corporation is what one might depict as a modified M-Form Company, i.e. a company with a multidivisional organisation construction ( Chandler, 1962 ) , but besides which besides has alone characteristics that separates it from any other M-form company of its sort.

The GM Group itself comprised of many different trade names and subordinate companies, each directed as to which type and form of auto to do ( delivered by senior owner-executive edict ) , but otherwise left to their ain devices to develop individualized stigmatization and invention. As Freeland ( 2001 ) notes, General Motors suffered from conflated map caused by excessively much divisional liberty combined with inappropriate owner-executive edict, orders from CEO’s with excessively much independent discretion and a ‘management by Numberss approach’ to concern.

In its earlier old ages, this over-divisionalization was considered to be a good thing for GM ; each subdivision and subordinate of the company being able to react rapidly, themselves, to altering demands, whilst maintaining at least a limited degree of merchandise ( if non trade name ) standardisation. It is a shame that the lone existent signifier of merchandise standardization was a universally implemented committedness to bring forthing heavy responsibility, larger vehicles ; a committedness which, as we have seen earlier, was partially responsible for GM’s loss of market leading in the late 1960’s and early 1970’s.

On top of this, an built-in unfavorable judgment of this theoretical account is its inability to pass on its successes and weaknesss: subordinates were left to develop their ain inventions, with small to no sharing civilization, i.e. where certain patterns proved successful, they could, if communicated suitably, have increased profitableness across the board, In world it would merely be word of oral cavity which finally communicated these techniques back to the board of GM Directors and beyond.

In decision, GM motors suffered from over-divisionalization, which non simply led to hapless intra-organisational communicating, but besides resulted in a market of non-standardised, and frequently ‘cannibalistic [ 6 ] ’ , branding. The necessary deductions of this is a decrease in commercial fight ; as Loomis ( 2006 ) notes, “today, General Motors ‘ direction is concerned that the company can non vie because it is over-divisionalized, and it is trying to standardise its assorted trade names around the world.” This is a decision supported by the work of He and Mahoney ( 2006 ) .

CASE STUDY 2: General Electric and corporate administration from 1970 to 2000:

In 1970, as a response to a slightly down capital market in consumer-economics, the General Electric Company decided to sell its computing machine division to the Honeywell Group.

In the early 1980’s, in visible radiation of the increased focal point on corporate environmental and societal duty ( as discussed in the first subdivision of this essay ) , a major legal action was brought against the GE company to pay the costs of an environmental clean-up operation in Waterside ( New York Times, 21 January 1983 ) .

On top of this, the development of the Asiatic electronics industry market during the 1970’s and 1980’s meant that General Electric Company were forced to analyze new ways of cut downing fabrication costs and increasing their net income borders to remain in front of their challenger, and now planetary, rivals.

The response, viz. a series of determinations to amend the corporate administration of the General Electric Company, has been hailed as one of the most successful company transmutations of its sort, to day of the month. A big portion of this success was due to the pioneering leading of Mr Jack Welch, the CEO of the GEC for over 20 old ages.

During Mr Welch’s term of office, the GEC initiated five cardinal inventions in their corporate administration ; viz. , the debut of the General Electric Operating System, the launch of the GE Globalization enterprise, the debut of GE product-services, the employment of the Six Sigma quality control direction procedure and the development of GEC Online.

Let us now examine each of these cardinal enterprises in bend, and measure how successful each was in re-transforming the GEC into an untouchable market leader.

The General Electric Operating System has been described by the company as a ‘learning civilization in action’ [ GEC available online at hypertext transfer protocol: //www.ge.com/en/company/companyinfo/at_a_glance/operating_system.htm ] .

The Operating System is procedural model designed to bridge the communicating between all of the GEC subordinates across the Earth. The purpose of this invention is to guarantee that best patterns are identified, publicised and so replicated across the full GEC Group.

The GE Operating System works on the rule that the Group as a whole can accomplish net income potency far greater than the mere amount of its component parts. Regular meetings are held in which top executives are given a opportunity to maintain up with the advancement of the front-line directors of GEC’s many planetary subordinate companies. As a consequence of this Operating System, the GEC now boast that they are able to take a regional invention and implement it across their full planetary web within one month.

In many regard, it was this procedural foundation which paved the manner for GEC’s 2nd corporate enterprise, under the leading of Jack Welch ; viz. , the execution of the GEC’s globalisation scheme.

The purpose behind this scheme was to increase the per centum of company production which occurred outside the U.S. By set uping new fabrication installations across the Earth, and ever guaranting that each new arm of the Group was efficaciously monitored and supported through regular scheme meetings, the Company was able to harvest the wagess of globalisation within a comparatively short period of clip.

By the mid 1980’s, GEC’s unique market place gave them an every bit alone penetration into the altering consumer electronics market. GEC’s market analysts predicted a market non simply for electronic merchandises, but besides service solutions. Thus the GEC Product Services enterprise was born ; GEC would now non simply be known for their top quality electronic merchandises but besides their effectual service solutions.

One of the most important enterprises which were implemented by the General Electric Company, under the leading of Jack Welch, was its subscription to the Six Sigma merchandise defects plan.

Based upon the “zero defects” construct, pioneered by the research of concern guru Phil Crosby, the thought behind the six sigma merchandise defect plan is to virtually extinguish merchandise defects through a procedure of capableness techniques.

In brief, the procedure plants by placing each and every possible phase, in the fabrication, where merchandise defect is possible, and extinguishing as many of these possible booby traps as possible. An account of the precise methodological analysis of the six sigma programme is beyond the range of this essay, but it should be noted that the terminal consequence is important: at six-sigma, a company can vouch merely 0.002 defects/ million parts.

The immense fiscal nest eggs which resulted from this effectual decrease of merchandise defects in GE’s fabrication processes allowed GEC to increase their net income borders, and go on to remain in front of their market rivals.

More late, GEC has implemented its e-business enterprise, although in visible radiation of the fact that this was non truly implemented until after 2000, a full treatment of this invention is beyond the range of this essay.

The combined consequence of these GEC enterprises was to duplicate its service gross, from eight billion dollars in 1996, to 19 billion dollars in 2001, every bit good as to duplicate its income gross obtained from its non-U.S. subordinates, from 20 % in 1985 to over 40 % by 2000:In 1985, GE obtained 20 per centum of its gross from outside the United States – now it is over 40 per centum ; GE has besides managed to duplicate its services gross – from US $ 8 billion in 1996 to about US $ 19 billion in 2001.” [ Arthur and Cooper ( 2005 ) p4 ]

Decisions: what did General Electric Company do successfully which General Motors failed to make?

In decision, through comparative case-study analysis of the General Motors Corporation ( GMC ) and the General Electric Company ( GEC ) , we have been able to see the benefits of using a flexible attack to corporate administration.

GMC, as the first existent commercial leader in its sector, can non be criticised for its initial over-divisionalization ; after all, if a company is traveling to accomplish a speedy planetary presence, it is of import that the bulk of decision-making procedures be divested with the front-line directors. GMC should hold realised that this procedure would necessitate to be backed up with alterations in their corporate administration ; by staying over-divisionalized, the GMC faced non simply the hurts of a non-standardized trade name, but were non able to harvest the benefits of a shared civilization of invention and acquisition.

GEC on the other manus were able to react quickly to altering market forces through their execution of an Operating System. By promoting bipartisan communicating throughout the Group, the GEC were able to guarantee that best patterns were employed to maximum consequence wherever appropriate.

On top of this, the GEC’s committedness to the six-sigma programme ensured that its production costs could be kept every bit low as possible, a factor which is progressively of import in visible radiation of the speed uping planetary competition in the consumer electronics sector.

Sing, Board determinations: the GMC showed a stiff, and unfounded, trust on selling merely one type of merchandise ; viz. , heavy responsibility vehicles. This determination was straight responsible for the company slack witnessed in the early 1970’s. In contrast, the GEC were invariably seeking to alter and increase the figure of merchandises available to run into the turning ( and altering ) consumer demand ; this can be seen by the debut of their Service Product enterprise in the mid 1980’s.

In general, if lessons are to be learned, it is that in the modern commercial clime, a company can no longer rely on old stiff concern theoretical accounts to foretell future profitableness. A corporation must follow a signifier of corporate administration which focuses progressively upon communicating, transparence and the psychological science of human interaction and which is flexible plenty to recognize its ain weaknesss and adjust its way consequently.

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