Working Paper: NBER ID: w19867
Authors: Susan Helper; Rebecca Henderson
Abstract: General Motors was once regarded as one of the best managed and most successful firms in the world, but between 1980 and 2009 its share of the US market fell from 62.6 to 19.8 percent, and in 2009 the firm went bankrupt. In this paper we argue that the conventional explanation for this decline - namely high legacy labor and health care costs - is seriously incomplete, and that GM's share collapsed for many of the same reasons that many of the other highly successful American firms of the 50s, 60s and 70s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing. We discuss a number of possible causes for these difficulties: including GM's historical practice of treating both its suppliers and its blue collar workforce as homogeneous, interchangeable entities, and its view that expertise could be partitioned so that there was minimal overlap of knowledge amongst functions or levels in the organizational hierarchy and decisions could be made using well-defined financial criteria. We suggest that this dynamic may have important implications for our understanding of the role of management in the modern, knowledge based firm, and for the potential revival of manufacturing in the United States.
Keywords: No keywords provided
JEL Codes: J24; L2; L21; L23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GM's historical success (N22) | denial of competitive threat from Japanese automakers (L49) |
| denial of competitive threat from Japanese automakers (L49) | cognitive biases within GM's senior management (D91) |
| difficulties in adopting Toyota's practices (L23) | ineffective relational contracts (L14) |
| ineffective relational contracts (L14) | adversarial relationships with workers and suppliers (L14) |
| GM's organizational structure (L22) | difficulties in adopting effective practices (O35) |
| adversarial relationships with workers and suppliers (L14) | hindered development of relational contracts (L14) |
| lack of trust and poor communication (D83) | difficulties in implementing relational contracts (L14) |
| GM's slower adaptation to practices (L15) | GM's decline (F64) |