Case Study: Ford Motor Company

Ford Motor Company

http://corporate.ford.com/

Automobile Industry

 

BACKGROUND

Ford Motor Company was founded in 1903 by Henry Ford, after his first two attempts founding automotive companies were short-lived.  The first car sold was the Ford Model A; five years later, in 1908, the famous Model T was introduced (see Figure 1), selling over 15 million models until it was discontinued in 1927 (Ford Motor Company Timeline).  Ford has always been one of the top 3 automotive makers in the industry, with its main competitor being General Motors.  In 2010, Ford ranked the “world’s top-earning automaker” (Dess et al, 2012, p. C109).  A February 2016 Statista Report showed Ford is still neck and neck with General Motors in regards to market share—GM at 16.9%, Ford 16.1%, and Toyota at 14% market share (Selected Automakers).

Figure 1 Ford Model T

Source: The famous Ford Model T. “Ford Motor Company Timeline”. (2016). Ford Corporate. Retrieved March 19 2016, from http://corporate.ford.com/company/history.html

The automotive company recently hired from outside the company (even outside the industry).  Bill Ford (Henry Ford’s great grandson) hired Alan Mullaly, a CEO from Boeing, as the new CEO and President of Ford Motor Co in September of 2006. He was brought in to fix the internal senior staff trouble they were having and to get the company back on track after years of reporting losses.  Mullaly was just the guy to come in with a fresh perspective and get things turned around.

Within 4 years he cut unnecessary costs and put the focus back on the Ford brand (cutting out every other brand except Lincoln).  In 2014, Mark Fields succeeded Alan Mullaly as the new president and CEO of Ford Motor Co.  Fields promises to continue the focus on “One Ford”, investing in new technologies geared toward consumer demands for environmentally friendly and energy/fuel efficient options.  In 2015, the automotive portion of the company earned $140.6MM in revenue (see Figure 2) and profited $8.2MM (see Figure 3).

Figure 2 Operating Highlights

Source: Ford sales for 2015. Ford Motor Company 2015 Annual Report. (2016). Retrieved March 19 2016, from http://corporate.ford.com/content/dam/corporate/en/investors/reports-and-filings/Annual%20Reports/2015-Annual-Report.pdf

Figure 3 Summary of Income

Source: Profit and Loss, comparing 2015 and 2014. Ford Motor Company 2015 Annual Report. (2016). Retrieved March 19 2016, from http://corporate.ford.com/content/dam/corporate/en/investors/reports-and-filings/Annual%20Reports/2015-Annual-Report.pdf

 Mullaly’s management style and his methods for cutting costs may not have earned him any friends or favors, but it was effective.  Dess et al explain:

Mulally’s cutback plan built on the 14 plant closures and 30,000-plus job cuts announced by Ford in January 2007. Ford’s new plan added two more North American plants to the closure list and exceeded the targeted $5 billion in cost cuts by the end of 2008, but it pushed back a target for North American profitability by one year to 2009 and then again to 2011 (2012, p. C111).

Ford reinvested the money they saved with these cost-cuts back into the business.  They focused on creating smaller, energy efficient cars and cross-overs.  They repurposed some large truck making plants into smaller car, cross-over, and hybrid making plants.  Mullaly zoomed in on the fact that Ford manufacturers in other countries didn’t operate under one set standard.  He focused on getting everyone on board with streamlining the manufacturing and part-ordering process to be more cost-efficient. His vision was “One Ford”, so with that came trimming the fat.  The textbook, Strategic Management discusses this:

Ford had sold Jaguar and Land Rover to Tata Motors of India in 2008, Aston Martin having been sold to a British private equity group in 2007. Volvo was sold to Chinese manufacturer Geely Automotive in August 2010, and Ford discontinued the Mercury brand at the end of 2010 (Dess et al, 2012, p. C111).

ANALYSIS VIA PORTER’S FIVE FORCES MODEL

Based on the analysis above, Ford Motor Company needs to focus their attention on the major industry rivals (i.e., General Motors and Toyota).  The competition is fierce among these rivals.  It’s important for Ford Motor Co to invest in new technologies and continually improve their product.  The threat of substitute products and services consists of public transportation, bicycles, and walking.  While these are readily available, they’re not convenient—especially in regards to bad weather and set schedules.

The bargaining power of suppliers is weak because there are many other suppliers willing to take their spot at any given time.  Also, Ford Motor Co has the Ford Rouge Center where they make a lot of their own parts.  The bargaining power of the buyers is moderate because there are many buyers and the cost to switch to another car maker is relatively low.  However, it is a considerably large purchase for most individuals so change would not happen too frequently.  Finally, the threat of new entrants is low because the cost for entry is high.  A new entrant would need a lot of capital upfront and the means to run operations (high costs).

STRATEGY USED

Ford Motor Co always had a slight competitive advantage by sheer volume (bigger is better) and history (brand recognition).  Ford changed its strategy when they hired Alan Mullaly. Mullaly had his work cut out for him to ensure coherence to the new strategic direction.  Mullaly also put focus on value chain analysis.  This new focus has been successful in “righting the ship”, but not all companies will have such a turn around with these changes.  This was a big change for Ford because they had the same old mentality and senior management for 40+years.  Of course, it’s always beneficial to have a strategic plan and an efficient and effective value chain.  So, it can’t hurt to have these, but some companies will require different specific strategies, such as portfolio management.

According to the Strategic Management textbook the industry life cycle “refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry” (Dess et al, 2012, p. 187).  Ford’s strategies will be affected by life cycles in the industry.  For instance, their research and development (R & D) was conducted in the introduction phase at a company level and is still conducted today at the product level—they have to develop new technologies to keep up with consumer demands.  Every aspect of Value Chain is affected by the various life cycle phases of the company and its products.  For example, marketing and sales of a new product launch (introduction phase) is very different compared to a product that’s already in the growth or maturity phase.

Figure 4 The Value Chain: Primary and Support Activities

Source: The Value Chain: Primary and Support Activities by Dess, G., Lumpkin, G., & Eisner, A. (2012). Strategic Management (6e). Boston: McGraw-Hill Irwin.

Ensuring Coherence in Strategic Direction

One Ford Mission and Vision:

  • “People working together as a lean, global enterprise to make people’s lives better through automotive and mobility leadership” (Company Overview).

Business Objectives Found in Ford’s Sustainability Report:

  • “Aggressively restructure to operate profitably at the current demand and changing model mix
  • Accelerate development of new products our customers want and value
  • Finance our plan and improve our balance sheet
  • Work together effectively as one team” (Our Value Team)

Companies do well by getting everyone on board with the company vision, mission, and objectives.  Employees work better when they have attainable goals to achieve.  Visions and missions can create a sense of passion and not so much the feeling of redundancy with daily mundane tasks.  The business’s core objective help to better spell out what they specifically aim to achieve.  Breaking down the vision and overall objective into these separate tasks makes the likely hood of accomplishing the goals a real possibility.  Each depart knows their part toward achieving these goals (i.e. the Finance team would help with financing the plan and the Product team would help with the development of new products).

Value Chain Analysis

Figure 5 Value Chain Graphic

Source: Value Chain Graphic. Our Value Chain and Its Impacts – Sustainability Report 2013/14 – Ford Motor Company. (2016). Ford Corporate. Retrieved March 19 2016, from http://corporate.ford.com/microsites/sustainability-report-2013-14/blueprint-value.html

Ford recognizes the importance of being socially responsible, as a global company.  Ford touches so many aspects of the world in so many different locations.  All of the following bullet points are taken from Ford’s 2014/15 Sustainability Report, specifically from the “Our Value Chain and Its Impacts” page.  These points speak to the many ways they’re strategically focusing on the value chain and the real world applications of each category shown above in Figure 5.

Product Planning & Design

  • $6.4 billion spent on engineering, research and development in 2013
  • 718 U.S. utility patents were issued to Ford and subsidiaries for new technologies and processes developed in 2013
  • 23 new or significantly refreshed vehicles launched in 2014

Raw Material Extraction

  • Since 2011, Ford asked their global production supply base to report use of Conflict Minerals by material weight
  • Ford submitted their first Securities and Exchange Commission (SEC) report on conflict minerals in 2014

Logistics/Transportation

  • Ford has been tracking and reporting transportation- and logistics-related GHG emissions since 2006
  • Ford is reducing freight emissions by lessening the number of vehicle miles traveled to deliver parts, as well as improving route efficiencies and switching to lower-emission transport methods Africa, India and Australia

Supplier Parts Manufacturing

  • $100 billion spent with more than 12,100 production and non-production supplier companies globally in 2013
  • All of their direct suppliers adhere to their requirements on human rights, working conditions and environmental sustainability
  • To date, Ford’s supplier training programs have impacted more than 2,900 supplier representatives, who in turn have cascaded the training information to nearly 25,000 supplier managers and more than 485,000 individual workers as well as over 100,000 sub-tier supplier companies

Ford Manufacturing

  • In 2013, Ford employed 181,000 people globally
  • Also in 2014, Ford added 11,000 salaried and hourly jobs in the U.S. and Asia combined
  • In 2013, they contributed $3.2 billion in taxes globally
  • Reduced CO2 emissions from their global operations in 2013 by 15 percent per vehicle produced, compared to 2012
  • Also in 2013, Ford invested $37.7 million in local communities through charitable contributions

Sales

  • In 2013, Ford sold more than 6.33 million vehicles globally
  • Worldwide, they had 11,772 Ford and Lincoln dealerships as of year-end 2013

Use

  • Reduced fleet-average CO2 emissions from their U.S. car fleet by 2 percent and their truck fleet by 3 percent in 2012 compared with 2013
  • Reduced fleet-average CO2 emissions from their European vehicles by 18 percent from the 2007 to 2013 calendar years
  • For the 2014 model year, nine Ford Motor Company vehicles earned the highest possible Overall Vehicle Score of five stars in the New Car Assessment Program (NCAP) of the U.S. National Highway Traffic Safety Administration (NHSTA).
  • For the 2013 Insurance Institute for Highway Safety (IIHS) awards, 13 Ford Motor Company vehicles earned Top Safety Picks from the IIHS

Service

  • As of March 2013, more than 600 dealers in 48 states have participated in their green dealer onsite facility assessment to identify energy- and cost-saving opportunities and become certified to sell their electrified vehicles. More than 200 additional dealers signed up to undergo this process during the remainder of 2013
  • In the U.S., 2013 marked the 10-year anniversary of Ford’s Core Recovery Program, through which they have been reusing and recycling parts removed at dealership service centers for use in the production of new Ford vehicles. During the last 10 years, the program has saved approximately 120 million pounds of vehicle waste from being buried in landfills or being sent to junkyards

End of Life

  • In North America, about 95 percent of vehicles that go out of registration are processed by a dismantler or scrap metal recycling facility, with approximately 86 percent of the vehicle by weight recovered for reuse, remanufacturing or recycling
  • In Europe, Ford has take-back and recycling networks for Ford brand vehicles in 19 EU markets and participates in collective recycling systems in another 10. All Ford vehicles marketed in Europe are now certified as reaching recyclability of 85 percent and recoverability of 95 percent (2016, Our Value Chain)

COURSE OF ACTION RECOMMENDED

If I were in the position to advise Ford Motor Company, I would suggest continuing their investment in research and development.  Consumers are demanding environmentally friendly vehicles with the capability of interactive technology.  Below are the steps I would suggest taking for sustaining their competitive advantage:

  • Conduct market research to obtain new consumer needs and wants
  • Hold blind consumer reviews (where product managers and the marketing VP are behind a two way mirror while consumers objectively review the products) to aid in continually improving quality
  • Encourage employees to think outside the box and submit their ideas
  • Create an Idea page on the Ford intranet site where employees can submit their ideas for new products, ways to save (cut costs or time), new safety ideas, and ways to add value anywhere along the value chain
  • Continue to promote corporate social responsibility
  • Get involved in the communities where each plant and corporate office is located
  • Encourage employees to take responsibility for the work culture, and
  • Encourage a fun and creativity-inspiring environment for employees

OPINION

Through this interesting case study, we discovered the problems Ford was having with the old management.  It seems they grew complacent–thinking they were irreplaceable.  Bringing in an unbiased, outsider was a good way to “rid the garden of weeds”.  We also saw that restructuring can be beneficial and not just something that happens because of natural turnover.  Additionally, focusing on the strategic direction of the company (vision, mission, and objectives) helps get everyone working toward the same goal.  Finally, value chain analysis is an effective strategy to become an efficient, lean industry leader. What do you think?  Share in the comments below.

 


References

Company. (2016). Ford Corporate. Retrieved March 19 2016, from http://corporate.ford.com/company.html

Dess, G., Lumpkin, G., & Eisner, A. (2012). Strategic Management (6e). Boston: McGraw-Hill Irwin.

“Ford Motor Company Timeline”. (2016). Ford Corporate. Retrieved March 19 2016, from http://corporate.ford.com/company/history.html

“Ford Motor Company 2015 Annual Report”.(2016). Ford Corporate. Retrieved March 19 2016, from http://corporate.ford.com/content/dam/corporate/en/investors/reports-and-filings/Annual%20Reports/2015-Annual-Report.pdf

Our Value Chain and Its Impacts – Sustainability Report 2013/14 – Ford Motor Company. (2016). Ford Corporate. Retrieved March 19 2016, from http://corporate.ford.com/microsites/sustainability-report-2013-14/blueprint-value.html

“Selected automakers’ U.S. market share in February 2016”. (2016). Statista. Retrieved March 19 2016, from http://www.statista.com/statistics/343162/market-share-of-major-car-manufacturers-in-the-united-states/

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