Why GM is going for Bankruptcy .....

General Motors Corp. said Wednesday its talks with bondholders to cut its debt have failed, making the Big Three carmaker's Chapter 11 bankruptcy filing imminent.

GM said it has failed to secure the consent of enough holders of GM bonds to make the debt-for-equity swap deal go through.

When the debt exchange offer expired at midnight Tuesday, the principal amount of debt notes tendered by the bondholders was "substantially less than" the amount required by GM to satisfy the debt reduction requirement imposed by the Treasury Department under their loan agreements, the biggest U.S. automaker said in a statement.

GM had aimed to persuade the bondholders to trade in $27 billion in unsecured public debt notes in exchange for a 10 percent stake in the recapitalized GM.

GM had wanted to secure consent from bondholders whose combined loans account for 90 percent of the $27 billion.

The GM board of directors will meet later this week to discuss the company's "next step" in the wake of the latest move, GM said.

GM has until next Monday to work out a viable restructuring plan or face Chapter 11 bankruptcy protection.

GM has not shown any intention to extend talks with the bondholders while keeping intact the initial conditions it set for its debt- reduction plan. This means that the carmaker's negotiations with the bondholders have effectively ended, making it hard for the company to meet the requirements set by the Treasury, which has already committed $19.4 billion in aid.

The Business Vision and Company Mission Statement

While a business must continually adapt to its competitive environment, there are certain core ideals that remain relatively steady and provide guidance in the process of strategic decision-making. These unchanging ideals form the business vision and are expressed in the company mission statement.

In their 1996 article entitled Building Your Company's Vision, James Collins and Jerry Porras provided a framework for understanding business vision and articulating it in a mission statement.

The mission statement communicates the firm's core ideology and visionary goals, generally consisting of the following three components:

1. Core values to which the firm is committed
2. Core purpose of the firm
3. Visionary goals the firm will pursue to fulfill its mission

The firm's core values and purpose constitute its core ideology and remain relatively constant. They are independent of industry structure and the product life cycle.

The core ideology is not created in a mission statement; rather, the mission statement is simply an expression of what already exists. The specific phrasing of the ideology may change with the times, but the underlying ideology remains constant.

The three components of the business vision can be portrayed as follows:

Core Values				Core Purpose
		Business Vision
		Visionary Goals

Core Values

The core values are a few values (no more than five or so) that are central to the firm. Core values reflect the deeply held values of the organization and are independent of the current industry environment and management fads.

One way to determine whether a value is a core value to ask whether it would continue to be supported if circumstances changed and caused it to be seen as a liability. If the answer is that it would be kept, then it is core value. Another way to determine which values are core is to imagine the firm moving into a totally different industry. The values that would be carried with it into the new industry are the core values of the firm.

Core values will not change even if the industry in which the company operates changes. If the industry changes such that the core values are not appreciated, then the firm should seek new markets where its core values are viewed as an asset.

For example, if innovation is a core value but then 10 years down the road innovation is no longer valued by the current customers, rather than change its values the firm should seek new markets where innovation is advantageous.

The following are a few examples of values that some firms has chosen to be in their core:

• excellent customer service
• pioneering technology
• creativity
• integrity
• social responsibility

Core Purpose

The core purpose is the reason that the firm exists. This core purpose is expressed in a carefully formulated mission statement. Like the core values, the core purpose is relatively unchanging and for many firms endures for decades or even centuries. This purpose sets the firm apart from other firms in its industry and sets the direction in which the firm will proceed.

The core purpose is an idealistic reason for being. While firms exist to earn a profit, the profit motive should not be highlighted in the mission statement since it provides little direction to the firm's employees. What is more important is how the firm will earn its profit since the "how" is what defines the firm.

Initial attempts at stating a core purpose often result in too specific of a statement that focuses on a product or service. To isolate the core purpose, it is useful to ask "why" in response to first-pass, product-oriented mission statements. For example, if a market research firm initially states that its purpose is to provide market research data to its customers, asking "why" leads to the fact that the data is to help customers better understand their markets. Continuing to ask "why" may lead to the revelation that the firm's core purpose is to assist its clients in reaching their objectives by helping them to better understand their markets.

The core purpose and values of the firm are not selected - they are discovered. The stated ideology should not be a goal or aspiration but rather, it should portray the firm as it really is. Any attempt to state a value that is not already held by the firm's employees is likely to not be taken seriously.

Visionary Goals

The visionary goals are the lofty objectives that the firm's management decides to pursue. This vision describes some milestone that the firm will reach in the future and may require a decade or more to achieve. In contrast to the core ideology that the firm discovers, visionary goals are selected.

These visionary goals are longer term and more challenging than strategic or tactical goals. There may be only a 50% chance of realizing the vision, but the firm must believe that it can do so. Collins and Porras describe these lofty objectives as "Big, Hairy, Audacious Goals." These goals should be challenging enough so that people nearly gasp when they learn of them and realize the effort that will be required to reach them.

Most visionary goals fall into one of the following categories:

• Target - quantitative or qualitative goals such as a sales target or Ford's goal to "democratize the automobile."

• Common enemy - centered on overtaking a specific firm such as the 1950's goal of Philip-Morris to displace RJR.

• Role model - to become like another firm in a different industry or market. For example, a cycling accessories firm might strive to become "the Nike of the cycling industry."

• Internal transformation - especially appropriate for very large corporations. For example, GE set the goal of becoming number one or number two in every market it serves.

While visionary goals may require significant stretching to achieve, many visionary companies have succeeded in reaching them. Once such a goal is reached, it needs to be replaced; otherwise, it is unlikely that the organization will continue to be successful. For example, Ford succeeded in placing the automobile within the reach of everyday people, but did not replace this goal with a better one and General Motors overtook Ford in the 1930's.

Recommended Reading

Jeffrey Abrahams, The Mission Statement Book: 301 Corporate Mission Statements from America's Top Companies

Features 300 mission statements from companies such as:

• American Express
• AT&T Corp.
• Ben & Jerry's Homemade, Inc.
• Blockbuster Inc.
• Coca-Cola
• Exxon
• FedEx Corporation
• Ford Motor Company
• General Electric Company
• IBM
• Johnson & Johnson
• Kellogg Company
• Levi Strauss & Co.
• Microsoft Corporation
• Nike
• Southwest Airlines Co.
• Tootsie Roll Industries, Inc.
• United Parcel Service
• Washington Mutual Inc.

The Strategic Planning Process

In today's highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track.

A simplified view of the strategic planning process is shown by the following diagram:

The Strategic Planning Process

Mission & Objectives

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation & Control

Mission and Objectives

The mission statement describes the company's business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities.

Guided by the business vision, the firm's leaders can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

Environmental Scan

The environmental scan includes the following components:

• Internal analysis of the firm
• Analysis of the firm's industry (task environment)
• External macroenvironment (PEST analysis)

The internal analysis can identify the firm's strengths and weaknesses and the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by means of a SWOT analysis

An industry analysis can be performed using a framework developed by Michael Porter known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute products, and industry rivalry.

Strategy Formulation

Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats.

To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose.

Strategy Implementation

The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves organization of the firm's resources and motivation of the staff to achieve objectives.

The way in which the strategy is implemented can have a significant impact on whether it will be successful. In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected.

Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed.

Evaluation and control consists of the following steps:

1. Define parameters to be measured
2. Define target values for those parameters
3. Perform measurements
4. Compare measured results to the pre-defined standard
5. Make necessary changes

Recommended Reading

Bradford, Robert W., Duncan, Peter J., Tarcy, Brian, Simplified Strategic Planning: A No-Nonsense Guide for Busy People Who Want Results Fast!

Global system needs fixing

The global system needs fixing
Possible re-regulation of the global financial sector will be up for discussion in 2009. Something radical is
needed but I doubt this will happen. My own suggestions include:
1. A ban on short selling of stocks. These transactions bring no value to the real economy or people
and destroy value for the benefit of speculators. A total ban should be imposed with 30-year jail
sentences for anyone breaking the law. Alternatively short-selling could be allowed with a 95%
tax on each transaction, the kind of tax you impose on casinos or brothels. This would imply that
short-sellers are close in behaviour to pimps or beneath them.
2. Close all hedge funds. They are merely croupiers at the global casino and again bring no real
value to the global economy or people. Some financial executives would plead that they are
essential to the global economy but this is not true. Most of their activities have no value and any
remaining ones could be conducted by banks that will be looking for new work.
3. Create a global registry for significant financial transactions involving derivatives. And again
aim to tax them out of existence. At least with a central registry we would know where the
liability on derivatives was held, unlike today (January 2009) when there are $600 trillion worth
of derivatives with no one alive on the planet who actually knows who is liable for them, along
with $5 trillion worth of Credit Default Swaps (CDSs) related to these derivatives. The current
system is insane, criminal and negligent.
4. Create a managed global exchange rate system – Bretton Woods II to prevent currency
speculation. Currency could be exchanged for trading and tourism purposes and for limited and
registered corporate hedging purposes, but rampant speculation would be illegal or again taxed
at say 45% for each transaction with the revenue of the tax going to a Global Humanity Fund for
Education and Health. The speculators would thereby fund government spending for the people.
5. All off-shore tax havens should be closed. It only needs the 4-6 major economies of the world to
say that they will not deal with any organisation engaged in activities in off-shore tax havens for
these cesspits, which allow criminals, third-world murderers and Western corporate accountants
to stash away their gains, to cease existence.
6. The IMF, World Bank and G-8 should be restructured. Someone should inform the IMF and
World Bank ever so nicely that the Washington Consensus is dead. Their methodology consists
of “We will save your currency by propping it with funds, providing you destroy your real
economy with tax hikes, interest rates hikes and social spending cuts so that your people will
suffer. You should know that much of our funding will never reach your shores as we will
transfer them directly to your creditor banks in the West, some of whom are our personal
friends.” Such IMF polices have failed almost everywhere in the last 30 years. East Asians loath
the organisation and have focussed their policies to ensure they never have anything to do with
the IMF again. The bankruptcy of the IMF/World Bank policies is reflected in the fact that in
order to get out of this global crisis, every major economy in the world is undertaking policies
which are diametrically opposed to those of the IMF.