General Motors Crisis and Disaster Management
Executive Summary
A crisis is an event usually not expected and threatens to jeopardize the normal business continuity of an organization, cause harm to the organization’s stakeholders as well as to be destructive to the general public. A company should, therefore, have a crisis management plan to coordinate responses to deal with these events. Crisis management consists of planned procedures followed by an organization to handle, contain and resolve crises (Roll, 2014). This report will explore the type of crisis faced by General Motors and the crisis management adopted by the company; it will also analyze the level at which the company used media to deal with the crisis.
Table of Contents
2.1 Objectives of Crisis Management 1
3.0 Proposal for Effective Business Continuity. 3
4.0 Continuity Business Plan. 4
5.0 Company Public Relations. 4
General Motors Crisis and Disaster Management
1.0 Introduction
General Motors (GM) is an American manufacturing and selling cars, globally recognized and has its headquarters in Detroit, Michigan. The company has been experiencing challenges with their cars that have caused deaths; the company took initiatives to correct their mistakes through compensation and recall of faulty vehicles. The recall problem started in 1996 when the company recalled 470,000 cars as well as paying a fine of $11 million because of ECU software in Cadillacs made between the years 1991 to 1995 (Myers, 1995). The software was supposed to enrich the mixture of the engines fuel, this increased the carbon monoxide emitted and unburned hydrocarbon, causing environmental pollution.
The company produced and sold cars that had faulty ignition systems. The problem where ignition went off as the car was in motion mainly associated to Chevrolet Cobalts and turned off all electrical systems in the car including the airbag has caused thirteen deaths and recall of about 2.6 million cars. The first case was reported in the year 2001, but GM did nothing to curb this problem, even though they had knowledge of the fault. Until last year, the company had not recalled these cars; more than ten years after the first case reported and was fined $35 million. Other recall cases relate to GM vehicles leaking oil and catching fire, the company has recalled Over 1.4 million cars in the year 2015, becoming the third time in a period of about seven years the company recalls due to this problem (Pugliano, 2015).
2.0 Crisis management
2.1 Objectives of Crisis Management
The first objective a company should attain in crisis management is to identify the problem causing the crisis; this will form the beginning of the reconstruction process towards the original position the company held before the occurrence of crisis (Boin and Rhinard, 2008). GM should, therefore, conduct a thorough investigation into the main cause of ignition failures, oil leaking, and ECU software malfunctioning that caused the recall crisis.
Another objective is to manage the information flow. Negative information released to the public can damage the organization further; there should be a timely release of assuring information to the public in case of a crisis occurrence. The information will help calm the panic that might arise as a result and will show that the company cares and is taking measures to solve the crisis. GM highly involved the public through social media, facebook, and twitter, when they were filing for Chapter 11 for bankruptcy (Jacques, 2010). This move enabled GM to build trust with the public, who were their major support after the takeover. GM CEO, Mary Barra became the company’s face, frequently admitting mistakes through the media and apologizing to the public (Kupper, 2014). This move successfully convinced the public of GM sincere intentions to fix the problem after more than ten years.
The third intention of crisis management to get an understanding of the adversary, the company should be humane in handling those affected. Most companies usually take actions to change the future and forget that those affected by the occurrence of the crisis are still their customers (Johnson, 2014). They should, therefore, be provided with solutions that will make them satisfied in the long run. GM started a process of compensating the 13 families who lost their loved ones through the ignition failures. The owners of 2.6 million cars recalled are also in the process of compensation.
2.2 Pivotal Crisis
The main crisis facing General Motors is the ignition switch failure. The ignition switches were reported to shut off when the car is being driven; this prevented airbags from inflating, a case that caused deaths. The company reported that the failure only caused 13 deaths and about 31 crashes. Critics have argued that this number could be higher as the company did not consider other cases caused by the driven car like hitting other oncoming vehicles (Vlasic and Stout, 2014). Another case is where two young women died in an accident caused by the ignition switch failure but the woman driving was the only one counted and the one on the back seat not included because airbag deployment failure did not cause her death. By April 2014, the company had compensated 124 deaths, ten times more than what the company had reported, and could be higher as over 90% of claims were rejected Vlasic et al., 2014). The company also recalled the faulty vehicles. Over 800,000 cars made up of Chevrolet Cobalts, and Pontiac G5s models were the first to be recalled, a further 1.5 million vehicles related to ignition failure and faulty power steering also recalled. The number grew as the company recalled 2.7 million cars on May 15 and announced by mid-June that they were planning to recall a further 3.4 million cars for replacement of car keys that caused the ignition switches to rotate. On 30th June, the company also announced that 8.45 million more cars with faulty ignition switches would be recalled, bringing the total number of recalls in North America alone to about 29 million, more than eight times what the company reported (Isidore, 2014).
2.3 Phase of crisis
General Motors is at resolution phase of the crisis. The company is recovering from crises that have hit them hard; including the 2009 bankruptcy filing and the ignition switches failure to recall. Barra faced the media and accepted mistakes were done in the manufacturing of the cars and that the company made a bigger mistake hiding the fault even though they knew its existence for more than a decade (Geier, 2014). The company paid a fine of $35 million for the delay in taking corrective measures; they also compensated families of thirteen people who died due to the ignition switch failures. General Motors is also in the process of recalling more than 30 million cars manufactured with the faulty ignition and compensating those affected. These actions show evidence of GM picking up from their lowest and are regaining their place in the markets.
2.4 Turning Point
Mary Barra’s appointment as the CEO in February 2014 changed the situations at GM Company. This moment proved to be the turning point for General Motors; she has acted towards reviving a rotting company that is currently the second leading regarding sales worldwide. Her motto was not to let GM ignore the ignition switch scandal or the issue to be just bad memories at the company’s background, but it should be a regular reminder of consequences of doing the wrong things and a propeller to company’s culture change (Geier, 2014). The first thing Barra did was to admit the mistake on the part of the company in delaying to solve a known safety defect for more than a decade. She then went on to recruit professionals and experts to help transform the company (Vlasic and Stout, 2014). Kenneth Feinberg was a lawyer who helped the company on the compensation claims, Jeff Eller acted as a crisis management adviser and Anton R. Valukas to conduct an internal investigation, and she also fired thirteen employees and two engineers who were involved with the faulty ignition switches.
Barra used social media platforms to reach the public and show that the company was restructuring and taking a more transparent form. The company, therefore, could listen to what the public needed of them and acted promptly to satisfy them. The platform also served to correct the misconception people had about the company, building the image and brand of the company that was diminishing (Jacques, 2010). The company also started recalling the defective cars and compensating the owners as well as those who lost their loved ones; they also accepted to pay a fine of $35 million to the National Highway Traffic Safety Administration (NHTSA).
2.5 Stakeholders affected
The ignition switches scandal has caused a lot of negative effects to GM stakeholders. Their 13 reported customers lost their lives, more went unreported or not directly involved with the airbag deployment failure. More than 275 injuries have also been reported so far, 17 being serious ones, even though the company argues that they cannot compensate as they may not be directly linked to ignition failures (Bonime, 2014). The company also lost customers, many people now days take a deep thinking before purchasing a GM car, knowing the safety threats associated with them. Company employees also lost their jobs, 15 employees including executives and engineers dismissed as the organization adopted better safety measures. The shareholders are also reported to have lost $3 billion in the process of compensation and recalling the default vehicles (Isidore, 2014).
3.0 Proposal for Effective Business Continuity
For General Motors to continue with the process of reinstating it dominance in the market, they need a good business continuity plan that will ensure they meet their set objectives. This report proposes the following steps of business continuity:
- Stay calm and focused. The stakeholders of General Motors need to maintain a cool approach towards solving the crisis (Barabba, 2004, p. 56). The shareholders and the management should portray calm leadership and focus to the public which will earn them respect and trust. The shareholders should not hastily give up their shares as it will signify a future downfall; the management should not also show symptoms of panic, this will ensure that the company keeps the situation under control.
- Face the stakeholders. Stakeholders are the drivers of any company (Bonime, 2014). They should, therefore, be involved in any situation company faces; GM should communicate the situation and the plans they are to take in mitigating the problem.
- Act fast. The problem that most affected General Motors was the delay in solving the ignition switch fault; they took more than ten years, which caused more deaths, NHTSA fined the company for this delay. The company should act fast in solving a crisis, as early as possible to avoid further casualties caused by the crisis.
- Strategic roadmap. General Motors should have outlines on how to solve the crisis. The company should plan on responsibilities to be done and delegate the duties to individuals. The strategic roadmap will provide the management with a way to repair the damaged brand and restore operations to the normal. The company employees should undergo training on the plans towards reorganization; this will ensure the company can respond effectively towards the crisis (Jaffin, 2008).
- Nurture the company culture. Often, companies overlook the employees in the time of crisis (Kopper, 2014). General Motors dismissed 15 employees instead of involving them in the resolution process. Employees are the important assets a company has and should be trained and involved in solving a crisis. Employees have the best knowledge of the operations they are doing, in the case of a problem, they are best suited to solve it.
- Raise brand bar. The market experiences dynamic changes every time; the company should, therefore, upgrade their brand especially through the crisis (Kathleen, 2012). This brand upgrade will ensure that their brand maintains the competitive position in the market and that their competitors do not gain on their crisis period.
4.0 Continuity Business Plan
Disruptions in a company occur frequently and can cost a company even to liquidation (Elliot, Swartz, Herbane, 1999, p. 48). General Motors could have avoided the crisis they are currently facing if they had a good plan to recover from a setback like ignition switches scandal. This report provides the following plan that will assist GM to recover and maintain their businesses.
- Business Impact Analysis. In an occurrence of an event, the company should analyze and collect information on the event, the functions and processes affected should also be analyzed and quantified regarding costs (Intrieri, 2013). The company should identify necessary steps to undertake in the recovery process.
- Recovery Strategies. Explore and select the best alternative to solve the disruption, the company should ensure that the available resources can meet the recovery requirements. The documentation of all the recovery processes is important for reviewing purposes.
- Plan Development. GM should have a good recovery framework with procedures to followed during recovery; these procedures should be communicated to all teams and employees tasked with the recovery process.
- Testing and Exercise. Train and orient the employees and teams on the recovery strategies. Undertake the recovery process and review if the company has regained its usual course of business (Intrieri, 2013). At this stage, the company can update the business continuity plan to incorporate the lessons the company has learned from the recovery process.
5.0 Company Public Relations
When Mary Barra stepped in as the CEO, the company was at its lowest, recovering from the bankruptcy filing in 2009 and several scandals linked to the company. She took the initiative of restructuring the organization’s culture. Her main area of interest was the communication platforms that had failed in the organization; there was no communication both internally and externally (Jacques, 2010). Barra claimed that the ignition switch fault could not have caused the entire company downfall if the company had improved its communication internally, she points out that the company had over 30, 000 employees globally whom the company had entrusted the duty of engineering and safety, making it hard to have a good flow of information. The lack of information and contact allowed for the commission of a mistake and failure to be detected (Kuppler, 2014).
Barra used the media platform to reach the public and apologize on behalf of the company with an aim of restoring the company’s reputation. The company also used social sites like twitter and facebook that has improved the company transparency and trust within the public (Johnson, 2014). Barra also uses these platforms to reach out to the company customers with a stronger message of company’s genuine care for them. She has also used several editorials and even recorded videos during recall to ensure that the public, as well as the company, do not just bury the scandal but use it as a stepping stone towards the original position. The communication strategy has helped transform GM; Barra has shown a good method of solving a crisis in the current digital world, becoming the leader GM needed in its current times and situation (Geier, 2014).
6.0 Recommendations
This report after analyzing the situation facing General Motors gives the following recommendations that will assist the company transform to their global original position regarding sales. First, the company should use the ignition switch crisis as a cornerstone of its development; it is a disastrous phenomenon, but should be a teaching to enable the company to upgrade its culture and methods of handling issues (Ben, 2014). The company should also adopt a clear communication process and public involvement (Doss, Glover, Goz and Wigginton, 2015). This action will ensure that the company curbs any misconceptions being spread out there and give the public the assurance of controlling a situation in case of an occurrence. Employees should be trained on how to work as a unit and support each other towards the betterment of the company; they should also be involved in the decision processes in the company, which will give them motivation in executing the strategies set. Leaders chosen to drive the company should be highly skilled and knowledgeable to steer the company in the right direction; they should support the efforts of their CEO Mary Barra, who is doing a lot to transform the culture of a fallen company (Muller, 2014).
7.0 Conclusion
Crises occur to any company unexpectedly. The company should, therefore, have an effective crisis management plan to enable them to curb the setbacks the company will experience after that. Motor General suffered what might be the company’s biggest setback in its history, the ignition switches scandal. GM culture contributed to the mess as they delayed for over a decade to start correcting their mistakes. CEO Mary Barra is doing a lot to transform this culture, bringing on board experts and involving the public through social media platforms. This move will help in defusing the crisis and restore the company back to its feet. Use of media platforms proved to be the best strategy the company could use in influencing the public and creating a positive view of the company that was on the verge of losing its market share. Mary Barra was a leader General Motors needed.
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Appendices
Company Background
General Motors (GM) is an American manufacturing and selling cars, globally recognized and has its headquarters in Detroit, Michigan. GM was founded by Charles Stewart in the year 1908 to act as a parent company to McLaughlin Car Company and Buick Motor Company, which was under William “Billy” Durant’s management. GM grew and dominated sales for over 77 years, between 1931 and 2007 consecutively (Boin and Rhinard, 2008). It then ranked second between the years 2008 and 2010 due to its bankruptcy problems then regained its lead in 2011 (Kathleen, 2012). Currently, GM has distributors in 157 countries globally and has production sites in 31 countries with thirteen brands, and has produced and sold over 9.03 million cars. The company was declared bankrupt in the year 2009 and liquidated; a new company, General Motors was formed and tasked to take over most of the original company’s assets, including its name, General Motors.
