Using game theory to identify and assess the risks of General Motors

Using game theory to identify and assess the risks of General Motors

            The game theory could be an effective strategy in dealing with a risk. A renowned organization like General Motors will convert its traditional fuel-based vehicle line into an electric-based vehicle line. It is a significant transformation and requires the right approach. Game theory mainly involves identifying the effect of a decision on two important parties connected with the business. They are customers and employees. Customers will influence the decision-making process of the management. The company will consider the probable impact on customers after they have transformed their business from traditional line to modern electric business line. In this game, the customers are a major player as their preferences and needs would determine the ultimate sales and performance of electric vehicles (Wilks & Zimbelman, 2004). The second players are the employees.

Hence, the response of the employees or second player to the choices of the first player or customers will determine the success rate of EVs. In this competitive market, without the effort and collaboration of employees, General Motors might not be able to sustain in the global market. Transformation might be easy; however, sustenance in the global market requires an effective risk management strategy. Along with customers and employees, the decision of the company can be influenced by competitors as well. They are the third player in the game. The risk of a team member leaving the company and work for a competitor might also prevail. This, in turn, would result in a loss of company capabilities.

Major types of risks involved while shifting from traditional to modern cars

Lack of investment in infrastructure- The electric revolution requires maximum effort from the government. If the government does not show interest in investing, the automotive manufacturers might face stagnancy. Approximately $2.7 trillion is required for reshaping the automotive industry into the electric vehicle (Walsh & Linton, 2000). Investment is required in car-charging points as well as in power grid expansion. Again, the manufacturers of General Motors should be significantly involved in improving the performance of the battery and ensure recycling. The end users must feel attracted to the new technologies, and without investment, the possibility of attracting end-users is almost negligible. The company might face issues while meeting the demands of a huge level of capital expenditure required for sustaining in the electric vehicle market. Hence, the company will be at risk if the infrastructure demands are not met appropriately.

Low accessibility to natural resources- The Company will sustain itself in the market only when natural resources are available abundantly. Fuel cars depend on the availability of natural resources, and due to the scarcity of natural resources in the global market, the automotive industry has witnessed slow growth. Similarly, in order to introduce electric vehicles in the market, it is necessary to deal with the supply crisis. Again, the economy is prone to recession, and it might have a severely negative impact on the sales of EVs. Understanding the impact of these realistic factors is necessary so that the company does not encounter similar issues as encountered by Tesla. It has consistently experienced supply shortages, and business partners have often refrained from collaboration.

A brief discussion on the type of risks and its assessment

Risks can be categorized into two types. These are residual risk and inherent risk. In case of inherent risk, the organization anticipates the issues that it might encounter while attempting to achieve its objectives (Miller, Cipriano & Ramsay, 2012). The organization also considers the type of risks and its probable impact. Inherent risks might result into unusual transactions within the business. Hence, in case of General Motors, low accessibility to resources is an inherent risk. Again, a residual risk results from the inherent risks. It is the residue of the overall risks encountered. It involves the product development process as well as the product distribution and marketing process. GM would encounter residual risks due to the lack of proper infrastructure related investments. It is natural to get affected if the company lacks appropriate control mechanism due to lack of infrastructure. Competitors would take advantage of this situation and the possibility of product failure prevails as well. It would be effective to mitigate both residual and inherent risk before transforming the business line.