How Much Can the Internet Help General Motors - Essay Example

Information Systems How much can the Internet help General Motors (GM) (Answering case study questions # 2 and 3.) 1. Introduction GM’s auto sales have been declining since the 1970s as it took GM more time and money than competitors to produce a car. This is because the firm was saddled with a lumbering bureaucracy and inefficient production process. Moreover, GM information systems had no centralized system to link computers or coordinate operations from one department to another. In the early 1980s, GM tried to standardize and integrate its systems and continue to work on streamlining its information architecture and information technology infrastructure. In 1999, GM added a new division to use the power of the Internet and e-commerce (e-GM) to enhance all of its business processes. GM management believes that Internet technology could be the catalyst for the company to reconstruct its entire value chain and transform itself into a customer-focused business. This report will evaluate the business strategy and the role of Internet in relation to this strategy. More importantly, it will explore the significance of GM’s e-commerce and e-business initiatives. 2. GM and the Internet When Wagoner became president and chief operating office in 1998, he moved to merge GM and create a “one company” philosophy. This means no small effort in a company built upon many sovereign business units and brands. In the past according to Kurtzman and Rifkin (2002), a customer buy five Cadillac in a row and walk into a Pontiac dealership to buy his son a Pontiac, and no one would have heard of him. Under Wagoner, that circumstances will become ancient history as he intends to unite information warehouses on customers across brands to create real customer relationships with GM. GM will no longer be just a giant monolith in Detroit but will become a portal to targeted one-one marketing with its customers. Wagoner has adopted the process of management concept as well and put his own vertical and horizontal leaders in place. As a young, rising star at GM, Wagoner also had a different view of the Internet and the power of e-business (p.121). 2.1 The Role of Internet in GM’s Business Strategy Wagoner seized the opportunity and initiated plans to form e-GM to served notice how serious the company was about the Internet. Although he believes that all the e-business initiatives were important, he realized at the outset that the most important and difficult challenge would be an order-to-delivery system that would do nothing less than transform GM into a Dell or Gateway of the automotive industry. They believed that ‘Order to delivery’ or ‘build to order’ is the glue that is going to transform GM from a manufacturing-centric company to a customer-centric company. Moreover, it is going to transform them from a manufacturer that builds for inventory to a manufacturer that builds for customer requirements (Kurtzman and Rifkin 2002, p.122). In a company as big and bureaucratic as GM, the best initiatives can smothered into submission by inertia and institutional bloat. When it became clear in 1998 to Wagoner and GM’s strategy board that e-business was going to radically change the landscape, especially in the business-to-consumer marketplace, they moved quickly to establish a more focused company-wide e-business effort. By creating e-GM as the company’s Internet business division, GM could both eliminate the technological redundancies that had sprung up across the corporation’s e-business initiatives and jumpstart the effort to sell vehicles online. Consumers had already embraced the Web as a crucial adjunct to their automobile shopping experience. The Internet was not just for books, CDs, and videos anymore. Web pure plays line AutoBytel and Cars.com were forcing the bricks and mortar companies to pay attention to the Internet’s potential. Online shopping was already having a profound impact on the sale of vehicles, and GM had to become a player. Consumers demanded it. If they could not buy direct, as this spate of dot.com start-ups had promised and failed to deliver, they could certainly change the buying experience dramatically by shopping online. GM according to McCormack et. al. (2002) has divested itself of much its manufacturing by spinning off into a separate company called Delphi the making of parts and accessories that together account for 60 to 70% of the cost of producing a car. Rather than owning, or at least controlling, suppliers of parts and accessories, GM will in the future buy them at auction and on the Internet through its Covisant business-to-business (B2B) hub. GM they added is joining a growing list of global competitors who are increasingly functioning as a syndicate or confederacy which coordinates a divers network of supply chain partners. Instead of seeing the activities of the firm ending at the edges of individual companies, chains of activities are being performed by different organization in a coordinated fashion. The driving forces of the actions that seem contrary to the theory and the strategy of most of the successful corporations of the 20th century it the Internet. It is because it has practically eliminated the physical cost of communications and coordination, thus undermining the theory that reduced transactional cost can be achieved only inside the corporation. This means that the most productive and most profitable way to organize is to unbundled (p.88). If anything at GM convinced Wagoner that launch and learn is the correct e-business philosophy, the OnStar system is becoming a standard feature on almost all GM cars and trucks. OnStar became a separate division in 1996. The innovative system began as a way to offer consumers better safety and service directly inside their vehicles. Building upon the initial OnStar technology, which provided pioneering global positioning systems and cellular communications devices as part of the car, GM has, over the years, ramped up the OnStar effort to include a spate of new technologies that bolsters the original offerings and ties the vehicle directly to the Internet. When Wagoner created e-GM, he decided that OnStar was such critical piece of the e-business strategy. OnStar has continued to add technology and features that have turned GM vehicles into moving Internet portals and phone booths. Since Onstar uses innovative voice-activated software, drivers with the system now have a raft of cyber-options available without taking their hands off the steering wheel. Another initiative is the internet portal called Socrates that enables user to search all of GM’s internal sites from one starting point. More than 100,000 GM employees can now access more than 500 internal GM sites through Socrates. These include access to HR information, online training programs, and best practices repository (Case Study 6). GM can benefit from e-HR by focusing on more strategic, consultative, and operational issues of its human resources. The portal itself can help create a web-savvy workforce and enhance the company’s ability to communicate and collaborate with one another. For instance, through the portal’s ‘Employee Service Center’ can directly modify their HR-related information. Thus beyond the grand strategy of transforming GM into a wired company lies a more fundamental business case as a portal save a significant amount of money and time. Socrates is receiving three million hits a day from employees but GM management still believes that it was not reaching everyone. GM wanted ubiquitous access for their employees so they could log on to the company’s websites from anywhere. GM agreement with AOL and Sun Microsystems to link its entire employee to the Internet, either through personal computer or television made this possible. Achieving these entire goal certainly require reliance on a super Internet infrastructure plus extensive organizational change. GM created ‘Covisint’ an order-to-delivery infrastructure to make all of this a reality. Radicals understand that the Internet gives the buying power to the customer, and for big automakers, that shift is explosive. Nearly 80% of car buyers according to Kurtzman and Rifkin (2002) already log on to the Internet for information and pricing before they go to a car dealer to make a purchase. Most would be happy to eliminate the traditionally unpleasant haggling that dealer engage in. Indeed, more and more buyers are realizing that they can order the car they want, custom-fitted for them, rather than settle for inventory on the dealer’s lot (p.124). For a manufacturer the size of GM, which sells nearly 9 million vehicles a year, such a shift in buying style is tectonic. 2.2 The Value of GM’s e-Commerce and e-Business Initiatives GM’s ambitious undertaking meant moving from a make-and-sell to sense-and-respond organization. First, the company had to start tuning into what customers wanted by sensing the marketplace better. GM had been making the wrong products and the declining market share and the glut of inventory at the dealer lots were proof of this. Second, GM had to put in place an organization that could respond more quickly and effectively to customer demand in order to provide better service quality. This meant rethinking key processes and replacing the functional mind-set with a more cross-functional, collaborative approach. The Internet thus became a critical tool for sensing consumer preferences and market trends. In collaboration with dealers, GM developed BuyPower, an online portal that let potential customers get detailed product and dealer information. By monitoring the ‘click streams’ of online shoppers doing vehicle research, GM now gains a wealth of information that helps with product development, production planning, and sales forecasting. The company also set dealer councils, regular forums for getting dealer input on consumer trends and better ways to sell. To align real demand with production schedules and provide visibility into the order-to-deliver (OTD) process, GM upgraded its vehicle order management (VOM) system to allow dealer access through the Internet. Before, customer-specified orders went to the end of the manufacturing queue, which is why lead-time was so long. Dealers were unable to specify the mix of inventory they want. Instead, GM pushed inventory to the dealers. With the new VOM system, dealers place orders for the vehicles they want on a weekly and daily basis and can see the status of those orders as they move through the order-fulfillment process. Because of these changes, lead times for special orders and dealer replenishment have improved by 60% (Cohen and Roussel 2004, p.220). Moreover, customer surveys shows that GM customers receive their vehicles eight days faster the vehicles from competitors and delivery reliability also has improved dramatically. Today, GM meets its delivery date commitments 90% of the time and they are recognized as one of the most reliable suppliers to the commercial fleet market. (Cohen and Roussel 2004, p.220). GM’s IT strategy is working as the company has taken an additional $1 billion out of IT expenses related to the supply chain since the OTD initiative was launched. IT brought reduced cycle times and lead times, more personalized vehicles with special features. Better integration with dealers, who have already embraced the VOM system and several other Web-based tools that are being built into an integrated workbench. Furthermore, GM is also looking at more build to order through the dealer channel, which valuable for its high-touch, high-tech capabilities, and a more flexible supply base. It is looking at more commonality among global systems and processes. GM may also use the extraordinary power of the internet to allow every investor to participate directly in the complete investment process (Little and Rhodes 2004, p.178). GM is expected to continue its improvement trajectory for the next several years, providing advantage that is more competitive for GM and setting new standards for customer satisfaction (Cohen and Roussel 2004, p.224). 3. Conclusion GM’s e-business strategy certainly requires reliance on the power of the Internet to achieve its goals. The company understands that the Internet gives the buying power to the customer as nearly 80% of customers rely on the Internet for information and pricing before making a purchase. Ordering a custom-fitted car online is the new buying style thus GM developed an online portal to let potential customers get detailed product and dealer information. By doing this, GM is not only establishing better customer relation but also gaining a wealth of information they can use for product development, production planning, and sales forecasting. GM’s e-business and e-commerce initiatives are no doubt beneficial as they can now produce the right product and deliver faster than competitors can. A competitive advantage that is only possible with the Internet. . 4. Bibliography Kurtzman Joel and Rifkin Glenn, 2002, Radical E: From Ge to Enron--Lessons on How to Rule the Web, Published 2002 John Wiley and Sons, ISBN: 0471150851 McCormack Kevin, Johnson William, and Walker William, 2002, Supply Chain Networks and Business Process Orientation: Advanced Strategies and Best Practices, Published 2002 CRC Press, ISBN: 1574443275 Cohen Shoshanah and Roussel Joseph, 2004, Strategic Supply Chain Management: The Five Disciplines for Top Performance, Published 2004 McGraw-Hill Professional, ISBN: 0071432175 Little Jeffrey and Rhodes Lucien, 2004, Understanding Wall Street, Published 2004 McGraw-Hill Professional, ISBN: 0071433732   Read More