STRATEGIC ANALYSIS: FORD MOTOR COMPANY
In this fiercely aggressive business world, the goal of most firms is to establish distinctive or unique capabilities to gain a competitive advantage in the marketplace through utilising the most of their core competencies. Competencies refer to the fundamental knowledge owned by the firm (knowledge, know-how, experience, innovation and unique information), and to be distinctive they are not confined to functional domains but cut across the firm and its organizational boundaries (, 2002). Today, business enterprises in developed countries operate in a more complicated, and more regulated, environment. The strategic task, then, is to create a distinctive way ahead, using whatever core competencies and resources at its disposal, against the background and influence of the environment. Through these distinctive capabilities the organisation seeks sustainable competitive advantage. Competition in many domestic and international markets appears to be entering a new phase, in which product quality and performance are becoming more important to customers than price. In such markets, the effective management of the new product development process is the essence of competitive advantage. Due to such changes, a review of the organisations’ strategic capabilities is a must if they are to keep up with the demands of the changing times. This paper analyses the strategic capabilities of Ford Motor Company in face of the ever-stiffening competition in the automotive industry, as a potential tool to further strengthen Ford’s position in the automobile market.
BRIEF FORD BACKGROUND
Few companies are as closely identified with the history and development of industry and society throughout the 20th century as Ford Motor Company. Ford Motor Company entered the business world on June 16, 1903, when Henry Ford and 11 business associates signed the company's articles of incorporation. As with most great enterprises, Ford Motor Company's beginnings were modest. With $28,000 in cash, the pioneering industrialists gave birth to what was to become one of the world's largest corporations. With the company's first sale came hope—a young Ford Motor Company had taken its first steps. The company went public and, on Feb. 24, 1956, had about 350,000 new stockholders. Today, With about 300,000 employees and 108 plants worldwide, the company’s core and affiliated automotive brands include Aston Martin, Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo. Its automotive-related services include Ford Motor Credit Company. They are currently headquartered at Dearborn, Michigan (US), and distribute automobiles, including cars and trucks, in 200 markets spanning six continents. Perhaps Ford Motor Company's single greatest contribution to automotive manufacturing was the moving assembly line. The line proved tremendously efficient, helping the company exceed the production levels of their competitors by a sizeable amount—and making the vehicles more affordable. The company is beginning its second century of existence with a worldwide organization that retains and expands Henry Ford's heritage by developing products that serve the varying and ever-changing needs of people in the global community.
Strengths. One of Ford’s most potent strength is that they are one of the world’s best known brands. As they have been in the business for 100 years now, the experience that they have in manufacturing cannot be overemphasised. They already have built a solid reputation for being a dependable automaker. Additionally, they have the strength of being diverse with respect to their product lines, having affiliated automotive brands including Aston Martin, Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo, which allows clients to choose from a variety of car models to fit their lifestyle. They are also known to be supportive of societal causes, in particular the fight for breast cancer and support after the September 11 attacks in the U.S. They pioneered the moving assembly line, which became their mechanism for making vehicles more efficiently and faster, therefore more affordable. Traditionally Ford's international operations were a source of that allowed the company to maintain its position as the second largest auto maker in the world and to respond to GM's competitive moves. During the worst years of the industrial recession in 1970s, those operations provided the cash that saved the company from bankruptcy, and gave it key products that were essential to stem its competitors' moves while it invested in new product development (Studer-Noguez, 2002). Today, and even if its US operations still represent the bulk of Ford's total operations and world assets, its foreign operations still make substantial contributions to the company's strong performance and leadership in the industry.
Weaknesses. The company's organizational structure has become inefficient as the company became more complex. This hindered Ford's ability to manage its international network of subsidiaries, branches, and companies. The weakness of its organizational strategy has, in fact, contributed to Ford's loss of relative competitive advantage during the 1930s and 1940s (Appel, 1993). Additionally, there are a lot of speculations over the likely performance of Ford in the future, as the company’s financing section is swamped down by hefty outstanding debts. The firm is not in risk of bankruptcy, but the Ford management is in a tight spot, and has to be extremely vigilant to not make it any tighter. There is also a notable management issues within the company, with the ousting of former CEO Jacques Nasser, replaced by William Clay Ford, Jr. in the Ford helm. Finally, because of the increasing competition, the company has witnessed a decline in overall sales, a weakness on their part as they have somehow failed to overcome the challenges that additional competition brings.
Opportunities. Ford Motors Company has the distinct opportunity to have cleaner engine emissions, in alignment with their corporate responsibility to become environment-friendly. Through working with environmental groups to help clean the environment, they also have the opportunity to further enhance their image to the general public. Since they have already started investing in Solar Power, the end is a more viable prospect. Ford could further widen the scope of their opportunities through specialising and rationalising its worldwide operations on a regional basis and to develop a network organization in which its subsidiaries would increase their transnational linkages. Besides Ford learning about the possibilities of producing quality automotive products in their areas of operation at a comparative cost advantage, other relevant factors could bring about new opportunities for exporting vehicles: the parent company's efficiency-seeking strategy; its competitive disadvantage in the small-car segment of the market and the competitors' moves in this market-segment; and the new more flexible regulations in the respective countries in which they have manufacturing plants. Further, with Ford’s existing capability to innovate on automobiles, they have the opportunity to penetrate a still larger scope of market.
Threats. As with any firm in the automotive industry, Ford faces very tight competitive rivalry in the auto market. Competition is escalating, with the threat of new entrants continuously flowing into the market from South Korea, China and new plants in Eastern Europe. For Motors is also exposed to the risk of movement in the price of raw materials such as steel, glass, rubber and fuel. The key economies in the US, Europe and the Pacific are also experiencing slow downs lately. These economic factors are latent threats for the company under analysis. Further, substitute products such as Natural gas, Electricity, Ethanol, Vegetable oil, Sunlight, Water poses a distinct threat to the sustainability of company sales. While Ford strategies responded to the local opportunities and competitive advantages that were built over time in different national markets, the competitiveness of foreign operations was also dependent upon the company's management capabilities and its overall position in the industry worldwide. If such factors were to perform under expectation, their competitiveness in the international scene would suffer seriously.
A resource is a basic element that a firm controls in order to best organise its operational processes. A resource, or set of resources, can be used to create competitive advantage (, 2002), that is why an audit of the resources of a firm is a must if it is to utilise them to create the latter. The sustainability of a company’s competitive advantage depends upon the ease with which the resources can be imitated or substituted (, 1993). When resources are combined they can lead to the formation of competencies and capabilities ( & , 1990).
Financial Resources. Although Ford Motor’s 2006 financial results showed a full-year net loss of $12.7 billion, their track record during the 100 years that they have been operating shows that they are the type of firm who is able to rebound from such downturn in profits. The decline in results reflected losses at the Ford North America business unit, an impairment charge for long-lived assets of Jaguar/Land Rover operations, and higher charges for personnel reduction programs, offset partially by more favourable market performance at Land Rover and improved results of Ford South America business unit, Other Automotive, and Ford Asia Pacific and Africa/Mazda segment. The automotive sector’s revenue, income and cash are generated primarily from sales of vehicles to Ford dealers and distributors, while their financial services sector’s revenue is generated primarily from interest on finance receivables, net of certain deferred origination costs that are included as a reduction of financing revenue. To improve the business and its profitability, Ford plans to reduce their costs through material cost actions, health care cost reductions and capacity and personnel reductions.
Human Resources. The approximate number of individuals employed by Ford and their consolidated entities (including entities that they do not control) as of 2006 is at 300,000. There is a marked decrease (approximately at 8%) from December 31, 2004 to December 31, 2005, which primarily reflected the sale of Hertz, partially offset by the formation of ACH which employs approximately 17,700 Ford hourly workers who were previously assigned to Visteon and approximately 2,500 former Visteon employees.
Physical Resources. To date, they have 108 plants worldwide which houses the 300,000 employees that they have in their payroll. They also have a worldwide engineering release system (WERS), a computerized global communications network, established in 1989 – before 2000 was launched - to facilitate the co-ordination between subsidiaries and affiliates. Today, this system allows about 20,000 Ford workers around the world to share design and manufacturing information as they develop new products. Ford did not choose to expand its manufacturing operations in low-cost production sites or rationalize its operations (closing more plants, downsizing the labour force further, or increasing the movement of parts and components between various locations) on a worldwide basis.
Intangible Resources. Finally, a discussion of Ford's global strategy would be incomplete if no reference were made to the strategic alliances and international joint ventures with other auto companies (most notably with Mazda, but also with other Asia, European, and even some US auto makers) that have been established in order jointly to develop, engineer, design, market, and even produce vehicles in the United States and abroad. These associations, which preceded Ford 2000, have proliferated and have become vital in maintaining a competitive position for a company not only in specific local markets but also at the global level. They also represent a marked change both from Ford's previous practices that maintained full ownership of their operations and protected know-how and other ownership advantages, and from the US anti-trust laws that prohibited large firms from entering into such associations. Through them, Ford was able to serve local and global markets, to reduce production, development, and marketing costs, and to cope with excess capacity in the industry. These partnerships also contributed to the geographic dispersion and inter-regional integration of different functions of the value-chain of production. While this integration took place outside the borders of the corporation, it complemented Ford's efforts to design a global configuration for its organization and network of subsidiaries.
VALUE CHAIN ANALYSIS
(1985) in his seminal work of value chain proposed it as a tool to identify and to analyse the origins of competitive advantages and suggested that the activities of the business could be grouped into two: primary and support activities. What activities a business undertakes is linked to achieving its competitive advantage, and Ford seemed to be best prepared to implement a global strategy, because of the superior competitive advantages of its foreign operations compared with GM and Chrysler. Paradoxically, Ford's rivals showed a greater disposition to use resources from outside of the United States. It was not until 1994 that Ford focused on developing a global strategy as a means to enhance its competitive position in the industry. Before then, Ford largely focused on building a strategy that would allow the company to recover its competitive position in its own home market, which was essential for survival. An analysis of the structural and institutional factors that shaped Ford's strategic response both to the new industry rules and the short-term challenges posed by other industry competitors explains this paradox. A number of broad sustainability challenges set the context for all of the value chain activities (see appendix 1). These issues apply across the value chain: (1) Population growth; (2) Urbanization; (3) Child mortality; (4) Maternal health; (5) Infectious diseases; (6) Biodiversity; (7) Loss of ecosystem services; (8) Poverty; (9) Education; and (10) Gender Equality. All these issues are attended to by the Ford Motor Company in alignment with their efforts to maintain sustainable competitive advantage through preserving the good public image that their clients expect from them.
Ford has several core competencies which they could utilise to further gain advantage over their competitors, and if possible, overtake General Motors in its market leadership in the automotive industry. One core competency of the company is their brand management. The strength of their automotive marketing has been such that their brand is known even in the parts of the world where cars are not the common medium of transportation. Another core competency is their supply chain management, which links to their ability to maintain a steady stream of raw materials coming in for production because of their long-term good standing with their steel, glass, plastic and other raw materials supplier. Their highly coordinated logistics system handled by outsourced firms also form part of their core competencies, leading to excellent inventory management and always on schedule production activities. Another marked core competency is their ability at the moving assembly line. Being the pioneer of such mass production system, they were able to get ahead of the competitors manufacturing processes-wise and were also able to save on costs and time. Yet another core competency is Ford’s focusing on its product development technology under a single product-information-management program through standardising and incorporating them. If sustainable development is to achieve its potential, it must be integrated into the planning and measurement systems of business enterprises. And for that to happen, the concept must be articulated in terms that are familiar to business leaders. Many observers believe that more stakeholders -- investors, consumers, nongovernmental organizations and others -- will insist that companies to take environmental and social costs as seriously as they take purely financial costs. In addition, investors are expected to increasingly seek out sustainable companies and avoid firms with poor environmental performance, judging the sustainable companies as better risks over the long term. Likewise, consumers are expected to search for products that perform well environmentally.
Appendix 1. Ford’s Value Chain
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