DaimlerChrysler and GM Organization Technology and Business.

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DaimlerChrysler and GM: Organization Technology and

Business Processes in the U.S. Auto Industry

This case illustrates how two GENERAL MOTORS urn workers and managers share
giant automobile cor-' General Motors is still the world's largest information, authority, and decision making.
porations, DaimlerChrysler auto maker, with employees in 35 countries. The Saturn car was a market triumph. But
and General Motors, have In the early 1990s, GM's U.S. auto business Saturn took seven years to roll out the first
tried to use information accounted for about 1.5 percent of the U.S. model and drained $5 billion from other car
technology to combat foreign and domestic economy, down from 5 percent in the 1950s. projects. GM had been selling Saturn at a loss
competitors. The case explores the Its sheer size has proved to be one of GM's to build up market share. In 1992, GM's
relationship between each firm's management greatest burdens. For 70 years, GM operated labor costs were $2358 per car, compared
strategy, organizational characteristics, along the lines laid down by CEO Alfred with $1872 for Chrysler and $1563 for Ford.
business processes, and information systems. Sloan, who rescued the firm from That made GM 40 percent less productive
It poses the following question: How has bankruptcy in the 1920s. Sloan separated than Ford. These figures do not begin to ap-
information technology addressed the the firm into five separate operating groups proach those of the Japanese, whose au-
problems confronting the U.S. automobile and divisions (Chevrolet, Pontiac, tomotive productivity surpasses all U.S.
industry? Oldsmobile, Buick, and Cadillac). Each corporations.
On October 26,1992 Robert C. Stempel division functioned as a semiautonomous
resigned as chairman and CEO of the company with its own marketing operations. CHRYSLER
General Motors Corporation because he had GM's management was a welter of
not moved quickly enough to make the bureaucracies. In auto industry downturns, Chrysler was
changes required to ensure the automotive always the weakest of Detroit's Big Three auto
GM covered the market with low-end
giant's survival. To counter massive financial Chevys and high-end Caddies. At the outset, makers (GM, Ford, and Chrysler). Founded in
losses and plummeting market share, this amalgam of top-down control and the 1930s by Walter P/ Chrysler through a series
Stempel had announced 10 months earlier decentralized execution enabled GM to build of mergers with smaller companies such as
that GM would have to close 21 of its North cars at lower cost than its rivals; but it could Dodge, and DeSoto, Chrysler prided itself on
American plants and cut 74,000 of its also charge more for the quality and superior engineering, especially in engines and
370,000 employees over three years. popularity of its models. By the 1960s, GM suspensions. In the 1940s and 1950s, Chrysler
Stempel was replaced by a more youthful started having trouble building smaller cars grew into a small, highly centralized firm with
and determined management team headed to compete with imports and started very little vertical integration. Unlike Ford and
by Jack Smith. GM, Chrysler relied on external suppliers for 70
eliminating differences among divisions. By
GM's plight reflected the depths of the the mid-1980s, GM had reduced differences percent of its major components and
decline of the once vigorous American au- among the divisions to the point that subassemblies, becoming more an auto
tomobile industry in the late 1980s. Year customers could not tell a Cadillac from a assembler than a huge vertically integrated
after year, as Americans came to view Chevrolet; the engines in low-end Chevys manufacturer such as GM. Although Chrysler
American-made cars as low in quality or were also found in high-end Oldsmobiles. Its did not develop a global market for its cars to
not stylish, car buyers purchased fewer and own brands started to compete with each cushion domestic downturns, its centralized and
fewer American cars, replacing them mostly other. Under Roger Smith, CEO from 1981 smaller firm could potentially move faster and
with Japanese models. be more innovative than its larger competitors.
to 1990, GM moved boldly, but often in the
During the late 1980s, Chrysler lost several
Ironically, at about the same time, the wrong direction. GM remained a far-flung
Chrysler Corporation announced strong vertically integrated corporation that at one hundred thousand units of sales annually
because it did not make improvements in engine
earnings and looked forward to a new period time manufactured up to 70 percent of its
development and in its mass-market cars—the
of strength and prosperity. During the own parts. Its costs were much higher than
small subcompacts and large rear-wheel drive
1980s, Chrysler had struggled with rising either its U.S. or Japanese competitors.
costs and declining sales of mass-market Like many large manufacturing firms, its vehicles. There was no new family of mid-priced,
mid-sized cars to rival Ford's Taurus or Honda's
cars. However, demand was strong for its organizational culture resisted change. GM
Accord. Customers could not distinguish
minivans and the hot Jeep Grand Cherokee. has made steady improvements in car quality,
Chrysler's key car models and brands from each
A stringent cost-cutting crusade eliminated but its selection and styling have lagged
$4 billion in operating costs in only three behind its U.S. and Japanese rivals. GM's other, and thus migrated to other brands. By the
early 1990s, fierce price cutting had upped
years. market share plunged from a peak of 52
Chrysler's breakeven point (the number of cars
Ten years before, Chrysler had been percent in the early 1960s to just 33 percent
the firm had to sell to start making a profit) to
battling bankruptcy and GM was flush with today. In 1979, GM's market share was 46
1.9 million units, up from 1.4 million.
cash. Had Chrysler finally turned itself percent.
around? Was this the beginning of the end GM created an entirely new Saturn au-
for the world's largest automobile maker? tomobile with a totally new division, labor
What is the role of information systems in force, and production system based on the
this tale of two auto makers and in the Japanese "lean production" model. Sat-
future of the U.S. automobile industry?

' 154 Part 1 Organizational Foundations


of Information Systems
GM's Information for GM and its suppliers. The system also communications systems and just-in-time
Systems Strategy sends suppliers schedules each morning on inventory management. Just-in-time (JIT)
Despite heavy investment in information what materials need to be delivered to what inventory management is obviously critical to
technology, GM's information systems were docks at what hour during that a company that has 70 percent of its parts
virtually archaic. It had more than 100 manufacturing day. made by outside suppliers. (JIT sup plies
mainframes and 34 computer centers but had Smith earmarked $40 billion for new needed parts to the production line on a last-
no centralized system to link computer plants and automation, but not all minute basis. This keeps factory inventory
operations or to coordinate operations from investments were fruitful. He spent heavily levels as low as possible and holds down
one department to another. Each division and on robots to paint cars and install wind production costs.) During the 1980s, Chrysler
group had its own hard ware and software so shields, hoping to reduce GM's unionized work achieved a 9 percent reduction in inventory
that the design group could not interact with force. At first, however, the robots and an increase in average quarterly inventory
production engineers via computer. GM accidentally painted themselves and dropped turnover from 6.38 times to 13.9 times. A
adopted a "shotgun" approach, pursuing windshields onto the front seats. Although a single corporation-wide net work connects
several high-technology paths simultaneously number of these problems were corrected, Chrysler's large and mid sized computers
in the hope that one or all of them would pay some robots stand unused today. The highly from various vendors and gives engineering
off. GM also believed it could overwhelm automated equipment never did what was workstations access to the large computers.
competitors by outspending them. GM also promised because GM did not train workers This makes it easier to move data from one
tried to use information technology to totally properly to use it and did not design its car system, stage of production, or plant to
overhaul the way it ran its business. models for easy robot assembly. Instead of another and facilitates just-in-time inventory
Recognizing the continuing power of the reducing its work force, GM had workers stay management.
divisions and the vast differences among them, on the line be cause of frequent robotic Chrysler had decided it needed a
Roger Smith, CEO of GM from 1981 to 1990, breakdowns. centralized pool of computerized CAD
sought to integrate the manufacturing and specifications that was accessible to all
administrative in formation systems by Chrysler's Information stages of production. In 1981, it installed a
purchasing Electronic Data Systems (EDS) of Systems Strategy sys tem to provide managers in all work
Dallas for $2.5 billion. EDS has supplied GM's In 1980, with $2.8 billion in debt, Chrysler areas and in all nine Chrysler plants with the
data processing and communications services. seemed headed for bankruptcy. Its financial same current design specifications. Tooling
EDS and its talented system designers were crisis galvanized its management to find new and design can access these data concurrently,
charged with conquering the administrative ways to cut costs, increase inventory turnover, so that a last-minute change in de sign can
chaos in the divisions: more than 16 different and improve quality. Its new management be immediately conveyed to tooling and
electronic mail systems, 28 different word team led by Lee lacocca instituted an manufacturing engineers. Chrysler created
processing systems, and a jumble of factory aggressive policy to bring its computer-based centralized business files for inventory,
floor systems that could not communicate systems under management control. Chrysler shipping, marketing, and a host of other
with management. Even worse, most of these didn't have the money to invest in several high- related activities.
systems were running on completely technology paths at once. It adopted a "rifle" All this centralized management
incompatible equipment. approach to systems: Build what was information makes scheduling and inventory
EDS consolidated its 5 computing centers absolutely essential, and build what would control much easier to coordinate. Chrysler's
and GM's 34 computing centers into 21 produce the biggest returns. Chrysler focused cars and trucks share many of the same
uniform information-processing centers for on building common systems—systems that parts. Chrysler set up electronic links between
GM and EDS work. EDS replaced the would work in 6000 dealer showrooms, 25 its computers and those of its suppliers, such
hundred different networks that served GM zone offices, 22 parts depots, and all of its as the Budd Company of Rochester, Michigan,
with the world's largest private digital manufacturing plants. which supplies U.S. auto companies with
telecommunications network. In 1993, EDS Chrysler built integrated systems. When sheet metal parts, wheel products, and
launched the Consistent Office Environment an order is captured electronically at the frames. Budd can ex tract manufacturing
project to replace its hodgepodge of desktop dealer, the same order is tied to production, releases electronically through terminals
models, network operating systems, and schedules, invoices, parts fore casts, installed in ail work areas and can deliver the
application development tools with standard projections, parts and inventory parts exactly when Chrysler needs them. A
hardware and software for its office management, and so forth. Chrysler's low new enhancement verifies the accuracy of
technology. degree of vertical integration put the advanced shipping notices electronically
GM started to replace 30 different company in a better position to concentrate transmitted by suppliers and helps Chrysler
materials and scheduling systems with one on only a few technologies. Because it was track inventory levels and payment schedules
integrated system to handle inventory, more of an auto assembler and distributor more closely.
manufacturing, and financial data. Factory than a manufacturer, it had less need for
managers can receive orders from the cat- expensive manufacturing technologies such Learning from the Japanese
divisions for the number and type of vehicles to as vision systems, programmable controllers, In the mid-1980s, MIT researchers found that
build and then can create an estimated 20- and robotics, all of which are far more the Toyota Motor Corporation's production
week manufacturing schedule important to GM and Ford. system represented a sharp departure from
Chrysler directed most of its information Henry Ford's mass-production
systems budget to corporate-wide
Part I Case Study 155
techniques. In "lean manufacturing," jeeps, minivans, and trucks. Hourly workers called cells, in which workers have more
Japanese auto makers focused on minimizing provide input to help Chrysler eliminate opportunity to design their own processes
waste and inventory and utilizing workers' wasted steps in the assembly process. Toyota and improve output. To combat GM's old
ideas. The emphasis is on maximizing cut waste by diagramming every step of its culture of fiefdoms and interdivisional
reliability and quality, and minimizing waste. assembly process. It moved tools closer to fighting that stifled innovation, Jack Smith
The ideal "lean" factory has parts built just as the workers and eliminated unnecessary replaced the old committee system with a
they are needed and has a level of quality so motions. Chrysler is now re designing its single strategy board on which GM's top
high that inspection is virtually redundant. assembly lines to be more like those of executives from manufacturing, engineering,
After studying Honda Motor Company, Toyota. Ten years ago, it took 6000 workers sales and marketing, finance, human
Chrysler started to cut $1 billion a year in to build 1000 cars a day. Now Chrysler can resources, logistics, purchasing, and
achieve the same output with half that many communications work together on common
operating costs arid began to rethink virtually
workers. goals. Every new G M car or truck must be
everything it did, from designing engines to
Involving suppliers early in the design explicitly targeted to 1 of 26 precisely de
reporting financial results. Chrysler
process, along with the platform team fined market segments, such as small sporty
overhauled its top-down autocratic
approach, has cut product development time cars or full-size pickup trucks. No two
management structure. It replaced its
by 20 to 40 percent while increasing quality. vehicles are allowed to overlap. A new launch
traditional rigid departments, such as the
For example, Chrysler was able to develop center at GM's engineering head quarters
engine division, with nimble Honda-like
its Durango utility vehicle in only 24 months. north of Detroit acts as a filter for all design
"cross-functional platform teams." The
The Dodge Viper sports car was designed in ideas. Teams of engineers, designers, and
teams combined experts from diverse areas only 36 months, a process that traditionally
such as design, manufacturing, marketing, marketers evaluate car and truck proposals
had taken Chrysler 4.5 years.
and purchasing together in one location and for cost, marketability, and compatibility
Consequently, Chrysler's profit per vehicle
were given the power to make basic decisions with other GM products. But unlike Chrysler
leaped from an average of $250 in the 1980s
ranging from styling to choice of suppliers. and Japanese auto makers, GM's teams are
to $2110 in 1994.
The platform teams work with suppliers not empowered to make the important
To support its new approach to product
early in the design process and give them product development decisions. The power
development, Chrysler built a new 3.5-mil-
more responsibilities. More than 300 of the functional departments such as
lion-square-foot Chrysler Technology Center
resident engineers from supplier firms work engineering and purchasing .is still
(CTC) 30 miles north of Detroit in Auburn
side by side with Chrysler employees. A Hills, Michigan. Chrysler leaders expect the maintained.
single supplier is held accountable for the CTC to further enhance productivity"^ Jack Smith has put even more emphasis
design prototypes and production of a providing the technology that will enable than his predecessors on standardizing GM's
specific system or part, including Chrysler to engineer things only once and not business processes and parts, along with its
responsibility for cost, quality, and on-time repeat them. For instance, a failed crash test information systems. He called for reducing
delivery. In the past, Chrysler chose suppliers in the past might have left engineers the number of basic car plat forms from 12
on the basis of competitive bids. scratching their heads. Now they can to 5. In the past, GM cars were built in
Development time was stretched because compare crash data from a test with plants dedicated to a single model; they
suppliers were not chosen until after designs theoretical predictions, moving closer to a seldom ran at full capacity. By reducing the
were finalized. Chrysler spent 12 to 18 solution with each successive prediction potential variations of each model, GM can
months sending out bids for quotations, cycle. Only when they need to test a solution now build several models in the same plant;
analyzing bids, and negotiating contracts would they actually have to crash another with fewer parts per car, the cars are much
with sup pliers before suppliers were car! Because hand-built prototypes cost easier to assemble. With fewer platforms,
selected. Additional time would be wasted $250,000 to $400,000, avoiding a few GM can operate with fewer engineers,
correcting problems with the suppliers' parts crash tests has a large payoff. Using -this simpler more flexible factories, smaller
or systems that were discovered during approach, engineers designed the LH car so inventories, more common parts, and
manufacturing. Under this new collaborative that*it passed its crash test the first time out. greater economies of scale. The company is
relationship, Chrysler has reduced the Every room in the CTC has eight-inch also adopting a standard software that
number of suppliers by over 50 percent and raised floors covering a total of 10,000 integrates computer-aided design and
shortened the production cycle. fiber-optic cables that can transmit massive manufacturing processes.
Chrysler has asked suppliers to suggest volumes of data at high speed. These cables Before Stempel stepped down, he
operational changes that it could make to link CTC's buildings to its main data center. initiated efforts to make GM's high parts
reduce its own costs as well as those of The CTC itself is scheduled to house 10 costs more competitive. GM consolidated
suppliers. Suppliers can use an on-line sys mainframe computers, 2 super computers, 27 worldwide purchasing operations into
tem to submit suggestions for making and control systems for all the center's data one at Detroit. GM required its company-
improvements. Chrysler and its suppliers can and computer networks. A total of 7000 owned suppliers to bid against outside
communicate using a common e-mail sys people work there. suppliers, while pressuring outside suppliers
tem. Nearly all suppliers have purchased GM similarly revamped its approach to for price reductions of up to 50 per cent. In
Catia, Chrysler's preferred CAD/CAM production and product development. The 1992, about 40 percent of GM parts were
software, to further coordinate their work. company is moving away from traditional coming from outside suppliers versus 70
Chrysler now has five separate platform assembly lines into smaller working units percent of the parts in Chrysler and 50
teams to design its large cars, small cars,
percent at Ford.

156 Part I Organizational Foundations of Information Systems


All these efforts have translated into per vehicle than GM for this reason.) Even and Mazda introduced assembly lines that
more efficient and quality-driven production after strengthening its brand images, it still can make half a dozen different vehicles,
and lower costs. From 1991 until the has too many models and too few the public whereas most Big Three plants only make
beginning of 1994, GM removed $2800 in actually wants, and an infrastructure of one or two different cars.
losses, before taxes, for every vehicle it- poorly located dealerships and underutilized
manufactured. Assembly time for the outdated factories. However, engineering
Chevrolet Cavalier and the Pontiac Sun-lire problems and parts shortages have crimped
Approaching the Twenty-
takes 40 percent less than the models they production. Implementing new programs First Century: Mergers
replaced. The number of parts for these and flexible manufacturing, combined with and the Internet
vehicles has been cut by 29 percent. Under stringent cost cutting, has proved extremely On May 8, 1998, Chrysler and Daimler-Benz
Jack Smith, GM's earnings have continued to difficult. GM has yet to show that it can once announced a merger of the two automobile
improve. The company has benefited from again become an auto-making star. companies, a merger that was completed
strong and diverse overseas operations and From near collapse, Chrysler has during the autumn of that year. Together the
gradual reductions in labor and emerged as a highly profitable cash ma- two companies recorded $131 billion in sales
manufacturing costs in North America. More chine. It continues to dominate the mini-van in 1997. The new company,
significantly, GM earned an average of market, and has launched successful new DaimlerChrysler AG, will maintain two
$1000 for each car and light truck sold in models such as the Jeep Grand Cherokee, headquarters, one in Michigan, and one in
North America, up from $500 per vehicle a the Chrysler Neon, the Chrysler Concorde, Stutgart, Germany. The two companies have
year earlier. It sold relatively more high-profit and Eagle Vision. One in six vehicles sold in complementary strengths, making the
vehicles. the United States comes from Chrysler, up rationale for the merger rather clear.
Yet GM is still less efficient than its from one in seven in 1995. Chrysler's presence in the United States is
competitors. It still takes GM longer to Chrysler still needs to work on quality strong but in Europe is very limited, whereas
make a Cavalier than it does Ford to make and productivity. Although its cars and Daimler's sales are focused heavily in
cars at its most efficient plants. It takes 46.5 trucks are more reliable than they were a Europe. By combining, both will have access
hours to produce a G M vehicle, compared decade ago, they still do not match the to established, successful marketing
with 34.7 hours at Ford and 27.6 hours at competition. While Detroit appears to have organizations in the two largest automobile
Nissan. Production costs remain high stopped losing ground to Japanese autos, markets in the world. Moreover, the two
because GM still buys a smaller proportion Japanese car makers are continuing to companies offer very different,
of its parts from outside suppliers than its improve plant efficiency and reduce their complementary lines of automobiles.
competitors. (Ford earns $500 more per product development time. Nissan Chrysler focuses on automobiles priced
vehicle and Chrysler $900 more from $11,000 to $40,000.

157 Part 1 Case Study


Daimler's luxury automobiles are much organizations and to include suppliers and GM services such as home mortgages. The
higher priced, starting about $30,000 and dealers. The newly formed company is also car buying sites are fighting back by offering
ranging up to $135,000. The merger also looking to cut $1.4 billion in IS costs during financing and insurance on-line and by
gives both greater access to each other's the first year and $3 billion more over the providing additional services to their users,
manufacturing facilities in various parts of following three to five years. Most of the such as e-mail notification of service
the world, increasing their flexibility to savings will come from personnel reductions reminders or manufacturers' recall
move production to the best location de- and from canceling previously planned announcements. Chrysler, GM, and Ford
pending upon cost and other key factors. application development. have also had to lower their prices while
Chrysler's ability to design and bring new As Detroit's auto makers approach the adding new features because Asian com-
automobiles to market rapidly should also be
twenty-first century, they face major petitors have lowered prices during their
a great help to the Daimler portion of the new
changes in economic conditions and in the economic downturn. All of these changes
company.
way cars are bought and sold. Today, at least bring new challenges to U.S. auto compa-
Observers believe the biggest challenge in
one-fourth of all new car buyers use •the nies as they look toward the future.
the merger is the culture clash. Germans and
Internet to research car purchases and shop
Americans tend to view business differently,
for the best price, and that number is
and those differences will have to be Sources: Fara Warner, "Car Race in Cyberspace,"
expected to reach 50 percent in a few years. The Wall Street Journal, February 18, 1999;
overcome. For example, one company thinks
A growing percentage are turning to on-line Kathleen Kerwin with Joann Muller, "Reviving GM,"
in terms of luxury cars, the other in terms of
auto buying services where they can select a Business Week, February 1,1999; Gregory White,
mass sales—Daimler sold 726,000 vehicles
car and even take delivery at home without Fara Warner, and Joseph B. White, "Competition
in 1997 whereas Chrysler sold 2.3 million.
ever setting foot in a dealership. To Rises, Car Prices Drop: A New Golden Age?" The
Information systems problems seem to be Wall Street Journal, January 8,1999; Karen Lowry
compete with the on-line car buying
limited. Years of integration effort have been Miller with Joann Muller, "The Auto Baron,"
services, DaimlerChrysler, GM, and Ford all
avoided by the serendipitous fact that both Business Week, November 16, 1998; Kathleen
have established Web sites where shoppers
companies use the same computer-aided Kerwin, Bob Wallace, "Now It's Cost-Cutting Time,"
can select options and obtain price quotes,
design (CAD) system, and both also use SAP Computerworld, November 23, 1998; "GM: It's Time
but they must still purchase through the auto
AG financial applications. The immediate to Face the Future," Business Week, July 27,1998;
companies' dealer networks. G M further Steven Lipin, "Chrysler Approves Deal with Daimler-
challenges seem to be the need to build an
enhanced its site to offer proprietary- Benz: Bit Questions Remain," The Wall Street
integrated, robust communications infra-
information such as special incentives on Journal, May 7,1998; Gregory L. White, "General
structure that will serve to unite the two
cars and dealers' actual inventory and to Motors to Take Na-, tionwide Test Drive on the Web,"
provide offers from other The Wall Street
158 Part 1 Organizational Foundations of
Information Systems
Journal, September 28,1998; Robert L. Simison, Maryann Keller, Rude Awakening: The Rise, Fall, and 3. What management, organization, and
"GM Turns to Computers to Cut Development Costs," Struggle for Recovery of General Motors, New York: technology issues explain the differ-
The Wall Street Journal, October 12, 1998; Jerry Harper Collins Publishers, 1990; David Woodruff ences in the way Chrysler and G M used
Flint, "Company of the Year: Chrysler," Forbes, with Elizabeth Lesly, "Surge at Chrysler," Business information systems?
January 13, 1997; Jeffrey H. Dyer, "How Chrysler Week, November 9,1992; and Edward Cone,
Created an American Keiretsu," Harvard Business "Chrysler," InformationWeek, September 7,1992. 4. What management, organization, and
Review, July-August 1996; Keith Bradsher, "What's technology factors were responsible for
New at GWI? Cars, for a Change,"The New York Chrysler's and GM's problems?
Times, September 8, 1996; David Woodruff et al.,
CASE STUDY QUESTIONS 5. How did GM and Chrysler redesign their
"Target Chrysler," Business Week, April 24, 1995;
Alex Taylor III, "GM's $11,000,000,000
business processes to compete more
1. Compare the roles played by information
Turnaround," Fortune, October 12,1994,and "Can effectively?
systems at Chrysler and GM. How did
GWI Remodel Itself?" Fortune, January 13, 1992; 6. How important are information systems
they affect the structure of the au-
Steve Lohr with James Bennet," Lessons in Rebounds in solving the problems of the American
from GWI and IBM," New York Times, October
tomobile industry itself?
automobile industry? What are some of
24,1994; Kathleen Kerwin, "GM's Aurora," Business 2. How much did information systems
the problems that technology cannot
Week, March 21, 1994; John Greenwald, "What contribute to GM's and Chrysler's suc-
Went Wrong?" Time Magazine, November 9, 1992; address?
cess or failure?

Parti Case Study 159j

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