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Management Practices, Relational Contracts, and the Decline of General Motors

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  • 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.

Suggested Citation

  • Susan Helper & Rebecca Henderson, 2014. "Management Practices, Relational Contracts, and the Decline of General Motors," NBER Working Papers 19867, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19867
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    References listed on IDEAS

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    Cited by:

    1. Kher, Hemant V. & Kydd, Christine T. & O'Brien, Terrence M., 2017. "Evolution of product quality in European, Japanese and US automotive firms: An exploratory longitudinal analysis," Omega, Elsevier, vol. 73(C), pages 29-36.
    2. John M. de Figueiredo & Brian S. Silverman, 2017. "On the Genesis of Interfirm Relational Contracts," Strategy Science, INFORMS, vol. 2(4), pages 234-245, December.
    3. Kukharskyy, Bohdan, 2016. "Relational contracts and global sourcing," Journal of International Economics, Elsevier, vol. 101(C), pages 123-147.
    4. Delgado, Mercedes & Mills, Karen G., 2020. "The supply chain economy: A new industry categorization for understanding innovation in services," Research Policy, Elsevier, vol. 49(8).
    5. Daniel Levy & Andrew T. Young, 2021. "Promise, trust, and betrayal: Costs of breaching an implicit contract," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 1031-1051, January.
    6. Palguta, Ján, 2019. "Political representation and public contracting: Evidence from municipal legislatures," European Economic Review, Elsevier, vol. 118(C), pages 411-431.
    7. Misani, Nicola, 2020. "Sustainability and Implicit Contracts," MPRA Paper 104963, University Library of Munich, Germany.
    8. Englmaier, Florian & Segal, Carmit, 2016. "Morale, Relationships, and Wages: An Experimental Study," VfS Annual Conference 2016 (Augsburg): Demographic Change 145662, Verein für Socialpolitik / German Economic Association.
    9. Blader, Steven & Gartenberg, Claudine & Prat, Andrea, 2016. "The Contingent Effect of Management Practices," CEPR Discussion Papers 11057, C.E.P.R. Discussion Papers.
    10. Hazhir Rahmandad & Rebecca Henderson & Nelson P. Repenning, 2018. "Making the Numbers? “Short Termism” and the Puzzle of Only Occasional Disaster," Management Science, INFORMS, vol. 64(3), pages 1328-1347, March.
    11. Ricard Gil & Myongjin Kim & Giorgio Zanarone, 2019. "Relational Contracting in Developed Economies: Lessons from Slot Exchanges in the us Airline Industry," The Japanese Economic Review, Springer, vol. 70(3), pages 411-421, September.
    12. Hao Qi & David M. Kotz, 2020. "The Impact of State-Owned Enterprises on China’s Economic Growth," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(1), pages 96-114, March.
    13. Oleg Sidorkin, 2015. "The Impact of Management Quality on Innovation Performance of Firms in Emerging Countries," CERGE-EI Working Papers wp555, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    14. Ricard Gil & Giorgio Zanarone, 2018. "On the determinants and consequences of informal contracting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 726-741, October.
    15. Jean Guillaume Forand & Jan Zapal, 2017. "The Demand and Supply of Favours in Dynamic Relationships," Working Papers 1705, University of Waterloo, Department of Economics, revised Sep 2017.
    16. Kukharskyy, Bohdan & Pflüger, Michael P., 2018. "Time Is on My Side: Relational Contracts and Aggregate Welfare," IZA Discussion Papers 11387, Institute of Labor Economics (IZA).
    17. Margaret A. Abernethy & Chung-Yu Hung & Laurence van Lent, 2020. "Expertise and Discretionary Bonus Decisions," Management Science, INFORMS, vol. 66(1), pages 415-432, January.
    18. Kukharskyy, Bohdan, 2015. "Relational contracts and global sourcing," University of Tübingen Working Papers in Business and Economics 83, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    19. Steven Blader & Claudine Gartenberg & Rebecca Henderson & Andrea Prat, 2015. "The Real Effects of Relational Contracts," American Economic Review, American Economic Association, vol. 105(5), pages 452-456, May.
    20. Nicholas Argyres & Janet Bercovitz & Giorgio Zanarone, 2020. "The role of relationship scope in sustaining relational contracts in interfirm networks," Strategic Management Journal, Wiley Blackwell, vol. 41(2), pages 222-245, February.
    21. GIL, Ricard & KIM, Myongjim & ZANARONE, Giorgio, 2016. "The Value of Relational Adaptation in Outsourcing: Evidence from the 2008 shock to the US Airline Industry," Discussion paper series HIAS-E-32, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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