Sample Critical Thinking On General Motors – Case Study

Introduction

General Motors first opened its doors in 1908 and it was the only car manufacture in the area. General motors expanded and by 1920s it was the biggest manufacture of vehicles, this happened under the management of Alfred Salon (Hashim, 2014). Alfred Salon consistently pushed for different styles and models of car every year. At the time, the company already had four different types of car models to their name. Furthermore, General Motors was the sole manufacturer of cars; it had no other competition, thereof. However, this success was not to last long, because when Toyota Company started to manufacture cars everything changed for General Motors. In 2007, General Motors was evaluated to have made a loss of over $30 billion. General Motors was affected severely that it could barely run its own operations and therefore, it had to rely on bank loans and later it was declared bankrupt (Hashim, 2014).
General Motors main problem was lack of innovation (Moore, 2009). They continually manufactured outdated cars that did not match with the preferences of their customers. For a business to do well, it requires the presence of two essential conditions: the establishment of market share and the manufacturing of cars that make money. Without both of these circumstances, the market share strategy, and method will come up short. Each level of the corporate portfolio must make, boost, and support the client’s taste. In the event that any level of the portfolio is not aligned to customer car choice, quick move must be made to rapidly turn the methodology around, reallocate assets being utilized in manufacturing, close the activity down, or offer a way out the circumstance (Moore, 2009). This implies that each car in General Motors markets had to contribute to the overall industry in the business portions in which it contends. General Motors should not have continued to manufacture autos that competed in small markets since Toyota had taken up most of the market share. Each General Motor vehicle should have likewise made and contributed to the long-run net income of the overall industry (Moore, 2009). Therefore, General Motors had been reluctant on innovation by the time Toyota was started and were caught unaware. In this paper will look at three concepts – the rational decision-making process, heuristics, and confirmation bias to explain more about the poor business decision made by General Motors.

The Rational Decision Making Process

This process refers to a situation where a company has to analyze data using a systematic procedure to make a decision. This process requires very specific scrutiny and consideration of data to make decisions in an organization. Balanced choice making taking into account logically acquired data is what rational decision making advocates to decrease the possibility of the same problem reoccurring again. This method can likewise diminish disappointments because the assessment and determination procedure of this method are in light of typical and rational data and learning. Rational decision-making can help business supervisors to manage hard issues in a complex domain.
“It is a well-defined step-by-step approach that required defining problems, identifying the weighing and decision criteria, listing out the various alternatives, deliberating the present and future consequences of each alternative, and rating each alternative on each criterion” (Simon,1978). Utilizing this model, the issue will be attended to by using simple steps, and all parts of the subject will be considered with conceivable arrangements and afterward settle on good decision.

Application of the concepts

The concept of the Rational Decision Making Process requires a manager of an organization to analyze data and follow the five steps in making a decision. In the case of General Motors, they failed to analyze data and make decision from the information they had from observing the reaction of their customers. This concept is based on facts and it evidently clear that General Motors were making losses. From this information, the manager should have taken action to eliminate this problem. General motors were making losses because it manufactured models that their customers did not like and cash flow per unit car was not realistic. General Motors failed to identify the problem, which is the first step of rational decision-making process. They did not know where the problem was, or they ignored additionally, they did not take note of what their competitors were manufacturing, or what their customers’ new taste was.
Therefore, General Motors observed how many customers were buying their cars, but they did not do anything. The underlying cause was lack of initiative to solve the problem, which was visible to them. For a manager to avoid such poor business decisions he needs to be keen on what is always happening; and when they notice an area of improvement, it is critical that they take prompt action. Delay or ignorance will result in the organization making losses to a point that it may never recover from it.

Heuristics

Heuristics can be defined as mental shortcuts to avoid the long and tiresome process of coming up with a decision (Gilovich, Griffin & Kahneman, 2002). It includes processes where an individual does a general, as opposed to specific, way of doing things. Other forms of heuristics include intuitive decisions and an informed guess.

Application of the concepts

The concept of heuristics refers to a situation where an individual is forced to decide on the way forward on a general approach rather than a specific one. In this case, they have to rely on their intuition or their previous experiences, which is solving it the way we did before (Perrow, 1972). This concept applies to General Motors in that probably the managers did not have all the information about the changing taste of the market. For this reason, they opted not to change their car models because they did not understand the needs of their customers. Therefore, the underlying cause of General motor’s problem is they probably failed to make a decision or find a solution to their problem because they did not want to go the long way. Heuristics, however, advocates for use of common sense to make decision. General Motors’ managers should have tried to understand what was going on then decide on the action to be taken. Business managers should take risks and courageously make decision even in the event they do not lack all the required information. They should use their judgment to make decisions

Confirmation Bias

Confirmation bias refers to a way of thinking of individual that shows his beliefs. Confirmation bias is evident when an individual tends to be biased, for example on will support things that he is more emotionally attached to, or believes in.

Application of the concepts

The management of General Motors was more focused on making more money and forgot to check if their customers were satisfied with their products. The senior level managers were only after their selfish gain. They cared more for promotion and salary increment. They made biased decisions that only favored them and not the organization as a whole. Confirmation Bias is applicable in this case study in that, the managers made one-sided decisions; they were only after one result. If the decision produced a different result, other than what they want, they ignored it. The managers had a vision, but refused to act on the evidence that their products were outdated and instead chose to imagine otherwise. It is important for business managers to avoid dreaming and act on the evidence that is right in front of them

Conclusion

General Motors was for a long time a good example to other companies and was unfortunate that it failed to sustain its good name. Among the reasons why General Motors made losses include; the greedy nature of the management whose main focus was being rich and getting high managerial positions as opposed to taking care of the organization. Other reasons include; the company did not care for innovation and completely ignored what its competitors were manufacturing. Different concepts to explain the problem faced by General Motors are the rational decision-making, heuristics, and confirmation bias. In the rational decision making process, General Motors failed to identify the problem, or ignored it altogether. In heuristics, they used shortcuts to try to solve the problem but it did not work. While in confirmation bias, the management was only interested in making decisions that would only benefit them.

References

Gilovich, T., Griffin, D., & Kahneman, D. (2002). Heuristics and biases. Cambridge, U.K.: Cambridge University Press.
Hashim, M. (2014). Organizational change: Case study of GM (General Motor). Apex Journal. Retrieved 15 March 2015, from http://www.apexjournal.org/jbamsr/archive/2014/Jan/fulltext/Hashim.pdf
More, R. (2009). How General Motors Lost Its Focus – And Its Way |. Ivey Business Journal. Retrieved 11 March 2015, from http://iveybusinessjournal.com/publication/how-general-motors-lost-its-focus-and-its-way/
Perrow, C. (1972). Complex organizations. Glenview, Ill.: Scott, Foresman.
Simon, H. (1978). Rational decision-making in business organizations. Pittsburgh, PA.: [s.n.].