I dunno what's going on with Harbaugh. The team has sucked for years but keeps sending tons of dudes to the NFL. It's so weird.
The two most prevalent theories are: 1) The Michigan administration has told him to rein in his sideline antics which takes away from who he is and 2) He has gotten away from his "West Coast Power" offensive philosophy that he ran at Stanford. When he ran that offense at Michigan, he was successful. Winning upper level bowl games and competitive with Ohio State. Things have gone off the rails now that he has tried to move to the read/spread option like every other top level college team. This, again, is Harbargh getting away from who he is which is a NASHUAL corch coaching in college. That's the problem he can fix. Going back to who he is.
The problem he can't fix quickly is recruiting. The overall talent pool, in Michigan, has declined over the last 20 years. Ohio State has completely walled off the top talent from leaving Ohio. In the past, that used to be Michigan's second biggest recruiting base. Harbargh, for whatever reason, completely ignores recruiting PA preferring to recruit the Baltimore-DC area and mining the one or two D1 prospects out of New England. As a result, he's forced to head out west and head south and bang heads with the SEC/Big 12/Pac 12 for talent. He loses out more than he wins.
The recruiting strategy use to be: Michigan-Ohio-PA-Illinois and supplement with Florida-Texas-California
Now it's: Michigan-Baltimore/DC-Scraps from Ohio-Florida-Texas-California and supplement with PA-Illinois
The most glaring this is seen is on the OL/DL. Michigan used churn out O-Lines that just wore the defense out during the course of a game. They don't do that any more. These teams are now seen at Wisconsin.
At some point, Michigan needs to decide what it wants to be. Does it want to be a team that bangs heads year-in/year-out with the elite of college football? Or, does it want to go back to what it was under Bo/Mo/Lloyd which is churning out consistent but not flashy 8-4 to 10-2 teams while being consistently ranked in the 10-20 range with the occasional bounce into the top 5 or 10.