Answer

Introduction

            One of the most notable corporate failures that occurred during and as a consequence of the subprime mortgage crisis and the United States of America’s recession of 2007-2009 was the corporate giant ; General Motors Company. General Motors Company filed for Chapter 11 protection in a Manhattan court in New York on 1^st June 2009 and became the fourth largest corporate bankruptcies after Lehman Brothers Holdings Inc., Washington Mutual and WorldCom Inc.in the history of the United States of America. The corporation was for many years, the largest vehicle manufacturer in the world before being   overtaken by Toyota Motor Corporation of Japan in 2008. The corporation used to manufacture vehicles in many countries all over the world before then. During its peak period it manufactured over 9 million vehicles annually and employed over 234,500 employees worldwide (SELBST 2009, pp. 3-10, 46).

When the company started experiencing problems, intense agitation by stakeholders for the Chairman and Chief Executive, Mr. Rick Wagoner, to resign begun. Mr. Wagoner listened to stakeholders and resigned in March 2009, just a few months before the company filed for Chapter 11 protection and was replaced by Mr. Fritz Henderson. Mr. Henderson’s tenure at the helm of the corporation was also short-lived as he was replaced after the corporation filed for reorganization under Chapter 11 by Daniel Akerson (DELAMAIDE 2009, pp. 36-38).  The company was also forced to lay off almost 130,000 workers worldwide and sell off some of its well-known brands such as Hummer, Saab and Saturn among other prime assets. At the end of it all the corporation was actually liquidated and a new entity by the same name of General Motors Company was incorporated which then bought the assets of the old General Motors Company (under liquidation).  Prior to incorporation of the new entity the company entered into negotiations with the United States’ treasury department, bondholders and other large creditors to buy shares in the new entity (DELAMAIDE 2009, pp. 36-38).

Factors that led to the organizational change at General Motors Company

            There are various factors that led to the fall of General Motors and which catalyzed the organizational change. One of the factors is that the company was insolvent prior to the bankruptcy filing. Prior to filing for Chapter 11 protection, the corporation had assets valued at $91.047 billion against total liabilities of $176.387 implying that it was insolvent technically.  Prior to the filing, the corporation was also facing union intransigence and mismanagement which also forced it to report poor financial results and hence file for Chapter 11 protection. The other factor is that the company was facing serious liquidity problems. Before filing for Chapter 11 reorganization, the company faced severe liquidity crisis which made it difficult for the company to meet its short term obligations (JACOBS, ARJEN and CHRISTE-ZEYSE 2013, pp. 772-792). The company also found it very difficult to sell off some non-core assets to improve its liquidity position. The other reason is that the company faced stiff competition from other large corporate entities such as Toyota Motor Corporation, Nissan, Hyundai, Volvo and Mercedes Benz. This led to loss of critical market share.  The next factor is that during the same time, customer preference shifted from fuel guzzlers which the company was mainly dealing in to fuel efficient cars manufactured by competitors (NAFEI 2013, pp. 1-n/a).   By the time General Motors Company responded to customer tastes and preferences for fuel-efficient cars, it was too late as most customers had shifted to its competitors.  There was therefore an urgent need for the organization to change to compete effectively and attain its goals. The last driving factor for the change is the fall in demand for vehicles in the United States of America. At about this time, the subprime mortgage crisis and the United States of America recession struck. This greatly reduced car sales as many prospective customers could not afford new cars. This problem still coupled with rising cost of petroleum products and rising cost of living worsened the situation. Demand for new cars was therefore reduced in those years (BARBAROUX 2011, pp. 626-639).

Organizational change

Some organizational change behaviorists have noted that change is the new constant in all organizations in the world. In most organizations, organizational change takes place continuously and impacts on the entire organization key success factors.  Organization change is increasing due to various factors such as increasing globalization, fast changing technology, fast changing consumer needs, cultural diversity and changing demographics patterns among others. Organizational performance in the modern workplace is increasingly being determined by the ability of management to recognize the need for change as well as implement the change strategies formulated effectively (MARROQUIN VELASQUEZ 2011).  Even though organizations may see the need to change the way they carry out their business, change is not always easy to implement successfully.  The main reason why strategic change in most organizations fails is because of resistance to change by employees, lack of top management support or lack of stakeholder’s support among others.  For strategic change to be implemented successfully, management must ensure the need for change is well understood by all stakeholders, effective channels of communication are opened, there is operational alignment and lastly there is readiness to change among all players in the organization (ALNAWEIGAH 2013, p. 55).

            There was a lot of resistance to change in General Motors Company from various stakeholders due to a number of factors. The resistance was mainly because implementation of organizational change does not automatically follow strategy formulation. When it became clear that General Motors had to change, a lot of work went into strategy formulation but even more effort was put in reducing resistance to change. There was both behavioral and systemic resistance to change. One of the main systemic resistance to the change was the sale of some of the company brands and assets which proved to be difficult and progressed slowly (DELAMAIDE 2009, pp. 36-38). Behavioral resistance to organizational change in General Motors Company originated from coalitions and power centers within the organization.  The corporation had to negotiate with its two largest creditors to agree to swap part of the debilitating debt owed with an equity stake in the new entity that would be incorporated.  Management had to negotiate with United Auto Workers Union (UAW) and bond holders to agree to swap part of their debt with equity stake in the new company (MARROQUIN VELASQUEZ 2011).

The process of implementing the organizational change

General Motors Company generally followed Kurt Lewin’s model of implementing organizational change. The change model involves unfreezing the previous behavior, changing to the new state and behavior and refreezing the new patterns. In unfreezing the previous behavior stage, the company replaced the Chairman and Chief Executive Officer by bringing a new face at the helm. The corporation also reconstituted the board with many new faces which also set the stage for change to occur (ALNAWEIGAH 2013, p. 55).  The company also filed for chapter 11 protection as part of this process. The next stage involves changing what needs to be changed to move to the new state and behavior. In this stage, the company sold off some of its brands such as Hummer, Saab and Saturn in a brand reorganization drive. The company incorporated a new entity and liquidated the old General Motors (STOLL 2009).  The company also negotiated with large creditors and obtained an agreement to swap part of their debts with equity stake in the new entity. The new leadership team in the company changed the culture of the organization, the organizational structure and chain of command. The company also cut the pay of employees in its efforts to reduce costs.           In refreezing new patterns, the company empowered employees to be more productive by motivating them well.  Employees who behaved in a manner consistent with the new change strategy were rewarded while those who did not were sanctioned. This refroze the new patterns of working, culture and systems (BARBAROUX 2011, pp. 626-639).

How the company overcame resistance to change 

            Initially there was a lot of resistance to the proposed changes in General Motors Corporation. Some of the large creditors such as bondholders and United Auto Workers Union (UAW) initially lobbied for liquidation of the company to get their money from the sale of company’s assets.  The new management had to overcome this resistance to ensure the company remained a going concern. There were many reasons why there was resistance to change.  One of the reasons was lack of trust and misunderstanding (STOLL 2009). Management overcame this type of resistance through education and communication. The company ensured that all employees and other stakeholders were fully aware of the implications of not implementing change or not changing at all, the process of implementing the change and the benefits of the change to the employees individually, the creditors and other stakeholders (ALNAWEIGAH 2013, p.55). The other reason why there was resistance to change was the fear of job losses and competing commitments.  It should be noted that before the company filed for Chapter 11 re-organization, it owed bondholders $27.2 billion and $ 20 billion to VEBA trust and Union Auto Workers in unpaid dues (STOLL 2009).  These creditors would naturally oppose any change unless they were assured that their interests would be safeguarded as a result of the change. Management overcame this resistance to change through participation and involvement of these parties.  The parties were invited to swap part of their debts with an equity stake in the new entity (BARBAROUX 2011, pp. 626-639).

The things that were changed

A lot of things were changed. One of the very first is that the Chairman and Chief executive officer was replaced and the board was reconstituted afresh. This brought in new faces at the helm of the company and hence infused new management ideas. The company filed for Chapter 11 protection to create time to reorganize its business without worrying about creditors. The next thing that was changed is that the company was liquidated and a new General Motors Company incorporated.  This new company saw new shareholders take over the company and instill new management strategies (NESBIT and LAM 2014, pp. 303-323).   The workers union, United Auto Workers (UAW), was allotted 20% of the paid up share capital through debt equity swap plan in the new General Motors Company. The corporation negotiated with the worker’s union and the union agreed that its members’ salaries be cut. The agreement with the unions also led to a reduction in healthcare costs by $1500 per employee (STOLL 2009).   The bond holders also accepted to swap their debt with an equity stake in the new entity to the tune of 10% of the authorized share capital, The Company made changes in the existing structure, cost and culture. The company also sold off some of its brands that were considered unprofitable which included Hummer, Saab and Saturn. The company made some changes affecting its corporate culture. The new leadership made certain board changes to improve decision making. The new culture improved the efficiency of employees and made them accountable for their actions (ALNAWEIGAH 2013, p.55).

Results of the change process at General Motors Company

The change process resulted to a reduction of employees to 101,000 from about 234,000 in all its business operations worldwide. Employee’s productivity improved as the staff adopted the new culture which enabled them to be accountable and responsible for their actions. The new change strategy increased the market share of the company in the United States of America and enabled the company to compete effectively with other motor vehicles manufacturers in the world (STOLL 2009). General Motors Company issued one of the largest Initial Public Share offering (IPO) in 2010 in the USA and has since returned to profitability. It is currently the largest motor vehicle manufacturer in North America and trades in over 120 countries of the world. The change process was worthwhile for it saved one of the largest corporate entities in the USA from imminent collapse (LINES 2011).

Conclusion

Implementing organizational change is very challenging. The challenge stems from the fact that change is heavily resisted by those who have benefited from the old order of things and mildly defended by those who stand to benefit from the change.  One of the best ways to implement change is by identifying a change agent who could be internal or external to the organization. The reason why implementation of change was successful at General Motors Company is because it had two change agents. The external change agent was the government of the USA. The government through the US Treasury, gave various types of loans to the company on condition that the company meets certain terms and conditions. This in effect compelled the company to implement the change successfully. The internal change agent was the newly appointed Chief Executive Officer and the newly reconstituted board. These two levels of leadership in the corporation gave strategic direction to implementation of change and monitored the way things were being done. The fact that the new Chief Executive Officer removed certain levels of decision making hastened decision making which also boosted implementation of  the planned organizational change tremendously.