The Success of Ford Motor Company - Research Paper Example

 TABLE OF CONTENTS S No. Subject Page No. 1 Introduction 3 2 Case Analysis 3 2.1 External Analysis 3 2.1.1 Industry 3 2.1.2 General Environment 3 2.1.3 Industry Environment 4 2.1.4 Competitive Environment 5 2.1.5 Summary of Opportunities & Threats 6 2.2 Internal Analysis 6 2.2.1 Firm’s Resources (Tangible & Intangible) 6 2.2.2 Capabilities Identification 6 2.2.3 Core Competency Analysis 7 2.2.4 Value Chain Analysis 7 2.2.5 Weaknesses 8 2.3 Integration (Pulling it all together) 9 2.4 Current Strategies 9 3 Recommendations: The road ahead 9 Reference List 12 1. Introduction Ford Motor Company is an American multinational firm and one of the leading automobile companies in the world. The Michigan based company was founded by Henry Ford in the year 1903. It belongs to the Big three of Detroit, namely Ford, General Motors and Chrysler, who dominated the American automobile industry during the 1960s and 1970s. Henry Ford pioneered the concept of mass production using the assembly line. He was also well known for the development of Ford into a fully integrated concern which encompassed financial firms, auto component suppliers and automobile manufacturing. 2. Case Analysis In our analysis, we briefly look at the problems faced by Ford using the strategy analysis framework. We highlight some of the issues mentioned in the case and support it with research in the automobile industry domain. 2.1 External Analysis The focus is restricted to the US automobile market; though we need to consider the global car market since the automobile industry is global in nature. Manufacturing, Research and Development and raw materials are often sourced from across the globe. Similarly, products manufactured in one country are often exported and sold in several other countries. 2.1.1 Industry Here, we are discussing the case in the context of the automotive industry in US. There are references to the global environment also. Some of the peripheral aspects of the case also deal with the global scenario. 2.1.2 General Environment The company was operating in a highly competitive US market. The US market was marked by consumers who were facing the brunt of a slow-growth economy with several macro-economic indicators at an all-time low. Naturally, this led to the demand for highly efficient automobiles. The concerns were with maximizing the value of every dollar earned. This was applicable to all consumer durable products. The political setup was stable and emphasized robust economic growth. Socio-economic forces tended to be positive for all the consumer durable goods that dominated the market. The environment was technology intensive and it permeated to all classes of products, more especially in the area of communication services. In automobile industry, hybrid cars, electric vehicles and traditional gasoline and diesel vehicles with higher fuel efficiency were making their presence felt. 2.1.3 Industry Environment We use the Porter’s 5-forces framework (Porter, 1980) to analyze the industry environment in brief. Bargaining Power of Suppliers: The industry was driven by the car manufacturers. Supplier power was low since they could not bargain for higher prices easily. Additionally, there were more suppliers who could cater to automobile companies; hence their potential to get better deals was poor. Bargaining Power of Buyers: Buyers could bargain and choose since there was tremendous choice. A customer could choose from at least 15 different companies out of which GM, Chrysler, Toyota and Honda were prominent. Threat of New Entrants: since the industry was highly capital intensive, this was not a prominent threat. A new player could not enter the industry without a high infusion of capital. Rivalry among existing firms: Competitive rivalry was intense and the basis of competition was product differentiation and price Threat of substitutes: there were no substitute products for passenger cars. The only choice lay in the customer’s option to shift between hatchbacks, sedans, SUVs, or pick-up trucks. The key force that exerts maximum stress on the industry is the rivalry among existing firms. This drives the basis for constant innovations and new product development. It was not an attractive industry in the context of the case. 2.1.4 Competitive Environment We can analyze Ford’s competitors from three angles: 1) American origin competitors, 2) Competitors of European origin and 3) Asian competitors. Among American competitors, GM and Chrysler are worthy competitors. GM has an edge over Ford in terms of being a leaner organization. Almost all parts supplies and raw materials are outsourced in the case of GM. Chrysler has been under financial stress, yet its impressive line-up of vehicles has ensured that competes on an equal footing with Ford and GM. Among European competitors, Volkswagen and Fiat have been steadily taking away a small percentage of market share. From the exhibit on page 539 of the case, we observe that European competitors, especially German brands have increased their market share to about 5% in the American market. Korean and Japanese competitors have managed to gain about 35-40% market share during the first decade of the millennium. It can be said to be a case of battling against a new eco-system. In the early 1980s as the Japanese entrants crowded the American market with their highly fuel efficient, light vehicles, they managed to take a large chunk of market share away from the American car makers. The American car industry was waging a war against a new eco-system (Moore, 1993) and the basis of competition had shifted drastically. 2.1.5 Summary of Opportunities & Threats Opportunities have been identified as a) compact car segments, b) fuel efficient vehicles and c) use of alternative fuels leading to development of hybrid vehicles, electric vehicles or vehicles that run using a mixture of ethanol and gasoline. Threats have been identified as i) Asian car makers such as Hyundai, Toyota and Honda with their range of light, fuel-efficient vehicles, ii) distracted management attention due to over-importance on non-core businesses. 2.2 Internal Analysis There are factors internal to the company that strengthen or weaken its case. In the case of Ford, we analyze several factors before suggesting recommendations for a future strategy. 2.2.1 Firm’s Resources (Tangible & Intangible) Ford has been strong on the manufacturing front. It does have hard resources in the form of land and capital assets. Capital assets are not restricted to just land, building and manufacturing assemblies, they can also be extended to the ownership of valuable assets of allied manufacturing companies which are owned by Ford. In terms of intellectual assets, Ford possesses a globally extended team of professionals across the various functions such as manufacturing, design and marketing. 2.2.2 Capabilities Identification In terms of capabilities, the softer side, there could be several intangibles possessed by Ford. An important point here is that a core capability could turn into a rigidity over a period of time if it is not flexible enough (Leonard-Barton, 1992). From the case, the identified capabilities are 1) Wide product range, catering to passenger cars, Sport utility vehicles and pick-up trucks, 2) Fully integrated company with financial assistance provided to customers in the form of loans, ownership of supplier companies, etc. 3) Established brands addressing value consumers and premium consumers 2.2.3 Core Competency Analysis Ford’s core competence lay in their ability to handle an integrated company. In addition to the manufacturing of vehicles, they were also able to handle a lot of allied services such as financial services, car rental businesses and their supplier firms (Mercer, 2009). When we test competencies against the four tests, Capability Rare Valuable Costly to Imitate Non-Substitutable Wide Product Range NO YES NO NO Fully-Integrated company YES NO YES NO Established Brands NO YES YES NO To conclude we can say that the competencies are in the form of established brands and they are definitely costly to imitate. Another critical finding is that the capabilities do not lend sufficient strength to Ford to compete effectively. 2.2.4 Value Chain Analysis We look at the primary activities of the value chain – sales, manufacturing and design. In the case of Ford, there have been problems because of the conglomerate nature of activity. Ford has always been fully integrated in its operations. Possibly, Ford needs to look at other avenues in terms of strengthening its relationship and forming alliances without committing large financial resources behind each venture. The role of strategic alliances and business networks could form a key role in future strategies (Webster, 1992). Ford needs to look at its suppliers as customers and identify specific areas which can be outsourced or where alliances would work better to yield results. Another improvement area could be on the after-sales service front. In a survey among the car manufacturers working out of Europe, it was observed that the entire automobile eco-system was interlinked and interdependent (Ehinlanwo & Zairi, 1996). Under such conditions, car manufacturers need to pay key attention to dealers who are responsible for after-sales service. Their training and infrastructure needs and financing requirements are critical to the survival and growth of the automobile industry. 2.2.5 Weaknesses On the organizational structure front, Ford was top-heavy with too many Presidents and Vice-presidents for every possible function. This could lead to delayed decisions and in many cases, sub-optimal decisions. In the effort to build consensus, the leadership team could be hampered from going ahead with the best possible solution. On the product front, Ford was keen on carrying over their Americanized models to other parts of the world without due regard to the local conditions. For Ford to make a substantial come-back into the top three global automakers club, it needs to keep local requirements in mind, while keeping the global image at the background of all their activities (Schlie & Yip, 2000). In the research paper, the authors suggest that automobile companies need to find the right balance between global standardization and local adaptation. As of now, Ford is stuck in the middle without a clear-cut strategy for the growing demand from the emerging economies such as those of Brazil, Russia, India and China (BRIC). On the marketing front, Ford did not focus on the social media aspect. They were keen to continue their advertising in routine print and television commercials. Possibly, emerging forms of advertising media need to be addressed. As Orkut and Facebook are emerging as the platform for dialogue among society, Ford needs to establish a stronger presence and brand recall here. 2.3 Integration (Pulling it all together) To summarize the analysis, we can say that 1) Ford had a tremendous asset base built up over a century of operations. 2) They were well spread out in Europe and Asia Pacific. 3) Their strengths lay in selective products, especially Sport Utility Vehicles (SUVs) during the 1990s and in large cars during the previous three decades. 3) They were not strong on the research and development front. Their core competences had not been identified clearly. 4) With regard to their counter thrust to competition in the form of fuel efficient vehicles from Japan and Korea, they were found lacking both in speed of response and in recognizing the magnitude of the threat. 2.4 Current Strategies They can be briefly summarized as a) A wide range of products in larger passenger vehicles (absence in compact car segment) b) focus on some marquee names purely for brand image, such as Jaguar-Land Rover at the expense of profitability. Effectively, Ford’s strategy has been focused on providing multiple branded cars and SUVs that cater to the entire spectrum of customers. In this sense, they employ a full-line, differentiation strategy. By ensuring that they own all peripheral businesses under automobile sector, they hoped to spread the mammoth costs under different heads. Besides, they were keen to recover these expenses through the multi-brand and multi-product strategy. These strategies have been adopted over a period of time based on the founder’s vision of creating a fully integrated company. The other motivation was to keep the company entrenched in the hands of the founding family. 3. Recommendations: The road ahead Firstly, Ford needs to streamline their product offering. Picking up cues from Nissan or Renault who use common platform to launch a series of new models, Ford needs to adopt the platform modularity for newer launches. This would optimize their set-up costs and launch costs during the design and pilot testing phase. This has been researched well and the concept has been applied not only to the automobile industry but also in other heavy capital intensive industry sectors. Salerno & Dias (2000) explain the concept of modular production and platform sharing as critical success factors in new product development. The concept has been echoed by Jariri & Zegordi (2008) who discuss an operational tool called Quality Function Deployment (QFD) for platform design. This tool helps in optimizing the various sub-assemblies and set-up costs involved in the manufacturing process. Secondly, Ford needs to get rid of assets or firms which are not performing well. They need to take a close look at expensive companies Volvo and Jaguar-Land Rover and see if their potential profitability holds true for ownership in the long run. The same ruthless measures need to be adopted while looking at supplier firms. Those which do not offer a long term support for Ford need to be sold off and the assets capitalized. Thirdly, Ford’s present moment of failure is due to the absence of strategic direction (Mercer, 2009). Since the author’s viewpoint points to a general failure of the top management team itself, Ford needs to reassess if the top management needs to be pruned. Perhaps the infusion of fresh blood in the form of younger talent could help arrest the slide. As of 2006, the appointment of Alan Mullaly as the Chief Executive Officer seems to be a step in the right direction. Finally, Ford needs to take a close look at the sales and marketing front. Are their dealers aligned to the company goals? Are there any deficiencies in the after-sales service? If the answers to these questions are in the affirmative, then Ford needs to address them quickly. The social media could be an active platform to get a first-hand feel of the consumer opinion. A sizable budget could be allocated to this media. Plus, it could help Ford get a 360 degree feedback for all its products and services. Reference List Ehinlanwo, Olajide Omotuyi & Zairi, Mohamed. (1996). Best practice in the car after-sales service: An empirical study of Ford, Toyota, Nissan and Fiat in Germany – Part 1. Business Process Re-engineering & Management Journal, 2(2), 39-56. Jariri, Fereydoon & Zegordi, Seyed Hesameddin. (2008). Quality function deployment planning for platform design. International Journal of Advanced Manufacturing Technology, 36, 419-430. Leonard-Barton, Dorothy. (1992). Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development. Strategic Management Journal, 13, 111-125. Mercer, Glen. (2009). Automobile Revolution (pp. 185-205). New York: Palgrave Moore, James F. (1993). Predators and Prey: A New Ecology of Competition. Harvard Business Review, 75-86 Porter, Michael E. (1980). Competitive Strategy. New York, Free Press. Salerno, M.S. and Dias, A.V.C. (2000). Product design modularity, modular production, modular organization: the evolution of modular concepts, Paper presented to the 8th GERPISA international colloquium: The World that Changed the Machine: The Future of the Auto Industry for the Next Century?, Palais du Luxembourg, Paris, 8-10 June. Schlie, Erik & Yip, George. (2000). Regional Follows Global: Strategy Mixes in the World Automotive Industry. European Management Journal, 18(4), 343-354. Webster, Frederick E. (1992). The changing role of marketing in the corporation. The Journal of Marketing, 56(4), 1-17. Williander, Mats. (2006). Fading eco-benign networks. The causes found at Volvo Car Corporation and Ford Motor Company. European Journal of Innovation Management, 9(1), 92-107. Read More