Root Causes of Organizational Crisis: Resource-Based View and Industry-Based View

This case study explores the root causes of the organizational crisis at General Motors and applies the resource-based view and industry-based view theories to understand the predicament. It discusses the effects of the crisis, both financial and non-financial, and outlines steps to control the damage, manage the crisis, and prevent its re-occurrence.

Running Head: CASE STUDY 1
Case Study
Name:
Institution

Case Study 2
What are the root causes of this organizational crisis? (Write a brief description of the
following theories discussed in class and apply at least 2 of them to better understand GM’s
predicament: resource-based view, industry-based view, institutional based view, corporate
governance, a stakeholder management view of the firm).
The resource-based view is a strategic management tool that views resources as key to
the competitive advantage of an organization. This view looks at the internal environment of an
organization in establishing a competitive advantage (Day, 2014). The resources can either be
tangible or intangible. Tangible resources are the physical things that exist within the
organization such as machines, equipment, land, capital, and buildings. However, these resources
are of little competitive advantage to the organization as they can be acquired by the competition.
Intangible resources are assets that do not have a physical presence such as patents, intellectual
property, brand reputation, and trademarks. Such assets like brand reputation are built over time
and they provide sustainable competitive advantage since other firms cannot easily acquire them.
Resourced based view leads to two critical assumptions. The first one is heterogeneous
which means that resources, skills, and capabilities differ from one organization to the other. If
organizations had similarities in these resources, the competitive advantage would not have
existed. Heterogeneous assumptions enable an organization to employ different strategies to
achieve competitive advantage (Ismail & Haddaw, 2014). Another assumption is that resources
are immobile. Due to this, organizations cannot replicate the resources of the competitor or
implement the same strategies as the competitor.
The industry-based view is used in determining the strategy and performance of an
organization. In order to maintain a competitive advantage, an organization has to analyze the

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external environment in which it operates on and try to develop opportunities that will guarantee
a sustainable competitive advantage. This strategy locates an opportunity for high-level returns
and develops the assets of the organization in implementing the strategy.
The institution-based view focuses on the range and dynamic relations of institutions in
the organization. Strategic choices are not only determined by organization capabilities or
industry situations but informal and formal constraints of institutions. The institution-based view
is a combination of both the industry based and resource-based view. It incorporates the society
and the state in the formulation of the strategy.
Corporate governance is a set of rules and practices that determines how an organization
is running. It involves the balancing of the interests of the stakeholder. Corporate governance
involves every sphere of management from action plans, internal controls, performance
measurement, and corporate disclosure. The modern shareholder is not only interested in
profitability but also how the organization is displaying ethical behavior, good corporate
citizenship, and sustainability. Bad governance affects the reputation, integrity, and reliability of
the organization. Tolerance to cut cost and miscommunication can result in scandal search as the
one which faced General Motors.” The Elusive search for the root cause,” as it came to be
known unearthed corporate misconduct such as poor communication and putting profits ahead of
safety. GM lead engineer, Ray DeGiorgio had approved the change in sizes of the ignition
switches and springs and this lead to a faulty ignition system that did not meet torque
specifications (Domański, Guzik, Gwosdz & Dej, 2013). The company was also reluctant in
following the recommendation of investigations and the US Congress probed them as to why
they had taken such a long time in recalling the faulty cars. This indicates bad governance in
General Motors.

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The stakeholder management view holds that the stakeholders of the organization are
anyone affected by the operations of the company. They are the groups without their support, the
organization may cease to exist. They include the shareholders, consumers, suppliers,
community, governments, and more. Stakeholder management view is more important in the
global economy. This is because there exist laws between different states that hold a company
accountable. A good stakeholder approach helps the company to exist in the long run. The
predicament of General Motors was first addressed by the United States government when the
government saved the company from bankruptcy (Cheng, 2016). The State injected 50 billion
US dollars into the company to keep it afloat. This further stamps the importance of stakeholders
in the operation of the company. However, General Motors failed to consider the needs of the
consumer by selling faulting Chevrolet Cobalt cars and failing to take responsibility and
recalling the cars early (Pernicka, Glassner, Dittmar, Mrozowicki & Maciejewska, 2017). The
dragging of class action lawsuits by the lawyers of the company and poor investigation into the
non-deployment of the airbags in the cars shattered the image and reputation of the company
(Wanasika & Conner, 2018).. The company should have acted sooner to avert future lawsuits
and deaths. In the end, the company bowed to pressure and it had to recall over a million vehicles
with ignition defects at an estimated cost of 39.7 million US dollars.
What are the effects of the crisis? (Evaluate both financial/non-financial impacts before,
during, & after the crisis: e.g., the survival of the GM? the effects of GM's global business? key
employee retention?)
The General Motors at first denied the impending ignition switch issue by stating the
issue was resolved. The company neglected the issue by failing to fix the problem which had
started right from the year 2001. While the engineers who engaged in the production of the

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vehicle knew about the issue with the ignition system, nobody took the initiative to fix the
problem. The middle-level managers also failed to raise the issue with the top management, as it
was seen in the submission of the CEO Mary Barra (Benmelech, Meisenzahl & Ramcharan,
2017). She claimed she was not aware of the problem until 2013. During the period of the crisis,
the company culture of GM nod, in which everybody agrees to a proposed change but with no
intention to follow through also hampered the process of addressing the ignition issue.
Additionally, the issue passed through many committees but no solution was forthcoming. As a
result of the crisis, General Motors had to reconsider its culture and ethics (Maiorescu, 2016).
The company shifted from cost culture, by putting safety ahead of profits and embracing
customer culture. Additionally, regular communication between employees and management
was advocated to prevent future problems. The company had to set up a mechanism to
compensate the victims of the faulty cars. The company sought the services of compensation
expert Kenneth Feinberg who was tasked with auditing claims and evaluating the amount of
compensation. The full financial impact of the crisis had cost the company over 1.7 billion US
dollars with unspecified value charged as a penalty by the US Department of Justice. Luckily,
the crisis did not have a significant impact on the sales of the company. However, GM CEO
Mary Barra had to dismiss 15 employees and discipline others who were directly involved in the
crisis.
Outline the steps you would take to: control the damage, manage the crisis and solve the
problems that contributed to it, prevent the crisis from re-occurring.
As the CEO of General Motors, I would have been proactive by first accepting the
liability of the problem. I would have been open, transparent and honest in my submissions to the
regulating bodies and cooperate extensively with the investigating team. I would also issue a

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public apology to the victim of the crisis as well as developed a compensation scheme.
Additionally, I would have met with the stakeholders to discuss the effects of the crisis. In
managing the crisis, I would have formed a communication team to handle all offline and online
customer concerns. I would also have liaised with the dealers to give the affected consumers
alternative cars free of charge as they wait for the faulty ones to be fixed. I would also have
reviewed the guidelines and specifications requirements in the production process to ensure each
process meets the international standard. Lastly, I would form training and development
programs for the employees to further their skills. I would also develop protocols of escalating
potential issue and regularly communicate with the suppliers on key issues such as safety and the
need for delivering high-quality products.

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References
Benmelech, E., Meisenzahl, R. R., & Ramcharan, R. (2017). The real effects of liquidity during
the financial crisis: Evidence from automobiles. The Quarterly Journal of
Economics, 132(1), 317-365.
Cheng, Y. (2016). Who is leading whom in the General Motors recall: Understanding media
impacts on public relations efforts, public awareness, and financial markets. Research
Journal of the Institute for Public Relations, 3(1), 1-25.
Day, G. S. (2014). An outside-in approach to resource-based theories. Journal of the Academy of
Marketing Science, 42(1), 27-28.
Domański, B., Guzik, R., Gwosdz, K., & Dej, M. (2013). The crisis and beyond: the dynamics
and restructuring of automotive industry in Poland. International Journal of Automotive
Technology and Management 20, 13(2), 151-166.
Ismail, I. K., & Haddaw, A. A. (2014). The impact of the theory of legitimacy on the disclosure
of organizations in Jordan using a linear regression model. Journal of Business and
Management, 6(16), 190-196.
Maiorescu, R. D. (2016). Crisis management at General Motors and Toyota: An analysis of
gender-specific communication and media coverage. Public Relations Review, 42(4),
556-563.
Pernicka, S., Glassner, V., Dittmar, N., Mrozowicki, A., & Maciejewska, M. (2017). When does
solidarity end? Transnational labour cooperation during and after the crisis–the GM/Opel
case revisited. Economic and Industrial Democracy, 38(3), 375-399.

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Wanasika, I., & Conner, S. L. (2018). General Motors: The ignition switch from hell. Journal of
Case Studies, 36(2), 66-81.