The nature of strategic decision making at a large complex organization like GM appears to be done without having a thorough plan outlay to the planning groups or the business development unit within the company. There were several areas that put the company into the situation of making inappropriate strategic decision. The project was initially proposed by top two managements. Due to lack of thorough analysis and plan, they could not convince other managers in order to pursue this Chevy Volt project. This implied the missing link of strategic leadership that should have been a transformational force. In addition, the shareholder’s wealth creation had not been properly addressed and the well-defined business plan had not been emphasized and communicated when decisions were made. This implied that the management’s responsibility and expertise were all taken for granted that put the company in the threshold of a gamble betting on the success of this project. The accountability of management was disappeared.
The external environment trends that favor this project were the rising oil price, economic slowdown that made people to be more cautious about spending, the falling costs of manufacturing lithium ion batteries that help make the car price become more affordable, and global warming concern together with going-green concept. The Chevy Volt project could help promote the CSR of GM, which is favorable to the image and brand. These trends had signified that the external environment had been changed. As a green concept car, the Chevy Volt makes a point as far as cost saving for users goes in context of rising oil prices. However, what is crucial also can be exemplified in context of sustainable development process that the Chevy Volt can impact. Limiting carbon gas emission in the backdrop of global warming and greenhouse effect can significantly present a wider socio-economic relevancy and impact.
Cost is the most critical hurdle in pursuing with Chevy Volt. The cost factor is unfavorable given that GM had already invested substantial capital for the development of lithium ion batteries. The relevant cause for that could be observed from top management who were skeptical of Chevy Volt project. When the EV1 hybrid model, a green concept electric car running on conventional fuel cell, was introduced by the company way back in the 1990s and did not succeed, such model was a crucial loss in term of resource and brand image. In addition, the missing link among the strategy planning, formulation and lifecycles were also another internal obstacle unfavorable for pursuing the Chevy Volt project.
The strategic plans are based on how well the company analyzes the existing market situation, competitors and the market trend. The external environment analysis such as the macro and micro-economic factors should also be emphasized and properly addressed. The economic theory of demand and supply should also be brought in contention when making the decision and planning the strategy. The plan should be flexible enough to reflect the dynamic business environment when the revision and amendment to the strategic plan are necessary for business to gain competitive advantages over the competitors in a timely manner.
The Chevy Volt project strategic plan was based on assuming that oil prices would continue in rising trends which could then be able to market the company’s electric car model and generate profitability. Thus, falling oil prices could negatively affect the potential success of Chevy Volt.
When supply is relatively limited, while the demand can increase once the global economy recovers, it would be difficult for oil prices to remain low in the future. Rising oil prices demonstrates the typical economic basis of the law of demand, in which the price depends on the market equilibrium for a product. In addition, there are no substitute product as far as fuel goes. There is still no other alternative energy or technology that can match or surpass the oil in all aspects. Question 5: What will it take for the Chevy Volt to be a successful car? For the success of the Chevy Volt project, effective marketing strategy has to be formulated.
Marketing aspects should capitalize on the internal and external forces that influence the products within the industry and against its rival for the competitive factors. As the Chevy Volt is a high-tech car, the external analysis from operational and business perspective should focus on the competitive structure of the industry and factors; such as, innovations, socio-economic and environmental impact that defines value added product and the opportunistic cost that comes with it. Thus, innovation in the development process of the car should be fostered as one factor to benchmark against competitors in the industry, which is critical for success for a profitable outcome and goals achievements. Part of it also should focus on the strategic marketing aspects that give the car and its salient feature to reach the people through advertisement and awareness created in that regard are interrelated and need to be present for the Chevy Volt to be a successful car.
Last but not least is the price and related costs of Chevy Volt. The price must be affordable for target group of GM’s customers in order to boost the demand and achieve cost advantage over competitors in term of economies of scale, and the related maintenance cost and useful life of lithium ion battery must be reasonable enough to be able to convince target consumers to purchase the car. It is also suggested that the strategic plan has taken into account of effect of the capitalization on the capability and expertise the company has; effective strategic management of operational process and procedures; top management involvement, responsibility and accountability; collaborative approaches to leadership; cultural and structural upgrade of the corporate echelon and strategic management panel and process; careful analysis of the opportunities and threat; and the facilitation of a dynamic leadership culture.
Question 5: How risky is this venture for GM?
Launching this project is very risky for GM as it involved significant resources, time and capital investment. Given that GM has already exposed to potential bankruptcy, the success of Chevy Volt will be one of the critical factors affecting the possibility of GM to diminish the bankruptcy risk and boost the future cash flows.
Question 5: What are the costs of failure?
The cost of failure as far as Chevy Volt car concerns is huge and tremendous. Less involvement from the managers also brought to fore the cost and its effect to directly hit the company that brought it to the stage of total shutdown of its operations. Since the company has already been in the situation of potential bankruptcy, the Chevy Volt project that failed to impact the company strategic goals and its achievements posed the total effect of bankruptcy of GM and huge economic consequences as an aftermath, because the company is already on the process of huge public debt facilitated by the government to save itself from bankruptcy.
Question 5: What are the costs of not pursuing the project?
There are substantial costs and adverse impacts as far as Chevy Volt project concerns when it is not pursued at all. Example costs are the huge opportunistic cost lost in between; operational and business capability that went for a toss; marketing research that has not been capitalized effectively and efficiently for result outcome; change factor and organizational learning experience; cost factors in term of direct financial investments to investors, and stakeholders; resource accumulation; brand image and identity; corporation competencies that have not been capitalized; sustainable development plans; CSR; exposure to bankruptcy risk; and economic consequences.
Courtney from Study Moose
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