General Motors & Eds Case Study

Nancy Kloc

GM & EDS Case Study  

02-02-2017

 STRATEGIES-AND-POLICIES-OAD-49100-Muscia

Ottawa University

Introduction

        General Motors (GM) is a U.S. based automaker with its headquarters in Detroit, Michigan. For most of the time General Motors had been seen as the largest car maker in the world; it occupied the top spot of global sales chart for as long as 78 years (1927-28, 1931-2006). The company manufactures cars and trucks in more than 34 countries and recently, employed 244,500 people around the world they also sell and service vehicles in some 140 countries. Electronic Data Systems (EDS) was American multinational information technology equipment, and Service Company headquartered in Plano, Texas. Ross Perot started EDS in 1962. Perot’s goal was to establish a company that offered high-end electronic data processing management personnel, along with the computer hardware, by targeting large corporations and by offering long-term contracts at a time when short-term contracts were the industry norm. With the avenue of Medicare in 1965, EDS had the opportunity to enter government contracting, and by 1968, Medicare and Medicaid contracts provided EDS about 25 percent of revenues. In 1984, General Motors agreed to buy EDS for $2.5 billion (Hitt, Ireland & Hoskisson, 2008, p. 900-907). This acquisition became the clash of the organizational cultures. Looking at a few questions from the merger will help to see the clash.

What was the implied strategy?

Even though it was minuscule in comparison, EDS was supposed to help the whale compete better against Japanese and other competitors by bringing order to GM’s massive, chaotic computer systems (Jacobson, 2012). The deal was crafted, so that, the strengths of each side would be enhanced by the merger (Levin, 1989). GM and EDS intended to form a great company that would take over the industries through innovation.

What was the realized strategy?

         The realized strategy was a huge difference in the cultures of the two companies. Perot was “customer first” based culture, while GM masked bureaucratic and competitive flaws that were weighing the company down and would quickly clash with EDS culture. Doron Levin puts it like this, “From the first, confusion reigned. Perot insisted on independence for E.D.S.; Smith demanded fealty to G.M. Perot's scrappy, entrepreneurial vigor - so attractive to Smith from a distance - clashed with the G.M. bureaucracy” (Levin, 1989). Both agreed the companies could remain independent of each other and yet form a strategy to make each other great. But what one saw as a definition of independence the other did not.

What is the impact of divergent Corporate Culture during the merger?

During the merger Corporate Culture clashed. Conflicts between the two managerial styles of Perot and GM executives caused continual friction. The opposing styles, between the two companies, quickly created issues among the rank and file (Levin, 1989). Perot ran his company with great dedication; high ethical and moral standards and he rewarded his employees well (Hitt, Ireland & Hoskisson, 2008, p. 900-907). GM employees knew little about the merger in advance and GM computer technicians found themselves reporting to EDS managers. There was conflict about the employees pay for EDS between Smith and Perot. Perot thought he should decide EDS salaries, but Smith claimed the amounts were too high compared with General Motors' payment structure (Levin, 1989).

What was the impact of powerful leaders on corporations?

The impact of powerful leaders on corporations is a power struggle, especially if they are in the same corporation. Perot had ideas that lead the corporation on a straight path to success. Perot was entrepreneurial based with a “can do” culture that stimulated growth and innovation in a software solutions company that strived to meet customer’s demands. Roger was looking to the 21st century and wanted to move GM forward. Roger’s was described as a man America needs who dared to vast dreams and plan decades into the future (Hitt, Ireland & Hoskisson, 2008, p. 900-907). Although Roger’s management skills only say quality suffer, styling stagnated, and profits and market shares fall (Hitt, Ireland & Hoskisson, 2008, p. 900-907). Two powerful leaders saw leadership from two different points of view. Perot obviously thought in a future mindset or his company would not have grown so quickly but Perot saw future, as a planned adventure not just dreams he dared to pursue.

What is the importance of “shared vision”?

The importance of shared vision is the sense of commitment it creates. When all staff aligns their own interests with the vision of the organization it inspires everyone to put in extra effort to achieve the common vision of the overall organization. It can motivate and excite the workers to innovate, since the success of the organization affects everyone. With a shared vision, every employee in the organization is a member of a larger team, which encourages the workers to support one another. This shared vision then clarifies workers’ and managers’ expectations creating a uniform vision in the organization. This environment helps to encourage communication between the management and the staff, which then promotes efficiency in the entire organization and helps to avoid conflicts that disrupt normal business operations.  

What are the hard issues, the soft issues associated with the merger?

One of the hard issues associated with the merger is the difference in the management style. A mistake was allowing Perot, EDS' founder and chairman, to continue running the company as if he still owned it, even though he had sold it to the automaker for $ 2.5 billion (Brown, 1986). Both parties were looking for and agreed upon ‘substantial independence’, yet the two executives understood this term in different ways. That, coupled with a poorly thought-out incentive structure that encouraged EDS to charge GM high prices, created an "intolerable situation" that was the primary reason GM's directors voted unanimously to remove Perot from the parent company's board and strip him of his chairmanship (Brown, 1986). The soft issue associated with the merger was the fact that the financial outlay was a small one, and Smith liked EDS's spirit, he thought it would help the automaker regain its status as the world's premier industrial power (Levin, 1989).

What has happened to Ross Perot since the end of the case?

In 1986 Perot sold his stock back to GM, in 1987 he invested $20 million in NeXT Corporation helping Steve Jobs and in 1988 Perot founded a new business called Perot Systems Corporation, Inc. (Naythons, 1987). Eventually, Perot retired and his son, Ross Perot, Jr. succeeded him as CEO. 1992 he appeared on CNN's Larry King Live and announced his intention to run as an independent if his supporters could get his name on the ballot in all fifty states (CNN, 2016). Perot enters the presidency race in October 1992 and comes in third behind Bill Clinton and incumbent President George H. W. Bush. In the 2008 and 2012 elections Perot publicly came out against the Republican candidate John McCain but endorsed Mitt Romney for president. He also announced that he would soon be launching a new website with updated economic graphs and charts. In June 2008, his blog launched, focusing on entitlements (Medicare, Medicaid, Social Security), the U.S. national debt, and related issues. In 2009 Dell Inc. buys Perot Systems Corporation Inc. for $3.9 billion making Ross Perot and his family worth $400 million (CNN, 2016). In 2012, Perot endorsed Romney for president again but in the 2016 election, Perot did not give any endorsements.