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Ford Motors have the history of providing excellent products ranging from small cars to luxurious brands to its customers. Ford had secured 25% US automobile market in 1998. It is ranked as a 2nd largest automobile manufacturer in the United States and the fifth-largest in the world rankings as of 2010. Ford is ranked at number eight in the 2010 Fortune 500 list based on its global revenues in 2009. As of 2010, the company earned the profit of $ 6.6 Billion which was utilized to manage its debt requirement of $33.6 Billion. In the year 2007, the company earned more quality survey awards than any other automaker.
All this was not possible if we take a look at the company¶s performance in the year 1999 and onwards. Its market share dropped from 25% to 14%, the market value of its products fell. The company was at the verge of collapse. High debt, failed market image, retracting customers and sky rocketing operational costs were the some of the issues Ford Motors was facing. Ford related its market failure with the increased prices of gasoline and weak US economy.
The expert reviews about the market failure of Ford motors give another dimension to its failure. According to them, Ford took eyes off the market trends and consumer preferences. They emphasized only on the product lines (SUVs and trucks), they had increased operational costs and they lacked communication with the customers and appropriate market research. The products offered at Ford were free from innovation.
Porter (1980) relayed that a company can gain competitive edge via cost efficiency, product diversification and focus on the goals. The company can succeed only because of its
strategies it uses against the competition and how well it handle its strategies. Two types of advantages a company can master, cost efficiency and differentiation (Porter, 1985).
Today firms are keen on developing plans based on their strategies that can give them edge over their competitors. In this case study, Ford motors re-engineered its processes, devised new goals and differentiated its branding and product strategies in order to sustain in the market.
Alan Mulally, the CEO of Ford Motors, took an initiative to improve the company¶s image and its operations. He devised couple of strategies to come out of the black hole which was sooner or later going to eat the company out. With the redefined image, and revolutionized products, the company was able to pay off some of its debts.
The 2008 automotive industry crisis has severely affected the car makers and the credit markets as well in the form of recession, volatile oil prices and decreased rate of employment in United States and Western Europe. These factors had negative impact on the car makers and the factors that shape customers¶ buying decisions. This resulted in the delayed consumer purchasing or leasing decline in the vehicles sales around the globe. The estimated worldwide market share of General Motors was 12.4%, 13.3% and 13.5% in 2008, 2007 and 2006.
These negative factors have had a drastic effect on the General Motor¶s largest market. United States. Despite these economic conditions affecting the United States in 2008, General Motors have maintained the largest market share in the United States.
The company took few strategy wise changes to cope with issues relating to the declining sales and market shares. GM decentralized the decision making process to get the quick decisions in times of need. The managers running the branches across the globe are empowered to make critical decisions on company¶s behalf. The company revised its marketing goals and devised new marketing plans. It is involved in providing innovative products to the consumers with environment friendly cars. The competitive advantage of General Motors lies in the innovative cars it produces.
Toyota took over the US market with low cost automobiles to compete with the then market leaders; General Motors and Ford. It competes to serve the different market segments. Toyota products are considered to be efficient as compared to other models in terms of fuel consumption and have captured huge market segment. Toyota is also engaged in other business lines to support its business.
Toyota has secured large market share in US and Japanese. Its various vehicles are well liked in the developing markets for their efficiency and reliability. Toyota has quite a few car companies in the developing markets like Russia, China or India which gives competition to it.
Toyota cars are sometimes out of the range of the people in these developing markets so these small scale regional companies are better available options to them. Toyota¶s competitive edge lies in its efficient and reliable products.
FORD¶S COMPETITIVE ADVANTAGE
After many decades, the company launched a new strategic plan in 2000 to focus on the 21st century. The new strategy was aimed at increasing the market share, increase the revenues earned and production of smart cars with fuel efficiency. Ford implemented the centralized decision making system. This allowed the company to concentrate on the available market opportunities both locally and internationally. With the implementation of centralized decision making system, the top management becomes more engaged in the development of products to satisfy the customer expectations in various markets (Porter, 1986). This strategy allowed the company to improve the communication system from top to bottom.
Ford Motors adopted the strategy that allowed it low production cost by cutting all the excessive cost involved in its operations. The huge expenditure on raw materials was cut down and the online manufacturing process was introduced that focuses on the development of cars on one process rather than having different segments of engineering and production. This strategy establishes cost advantage and gives the company advantage over its competitors in terms of lower cost (Porter, 1983). In the mean while company focused on producing smart cars that were not price sensitive and offered the functionality of traditional ford cars.
The market position of Ford has been enhanced due to multiple factors. Firstly, since it fought hard against bankruptcy and refused governmental funding as its competitors did, the consumer trust has increased in the company and its brands. Secondly, its products are widely accepted by the consumers and integrating with the first factor, the company has increased market share. Lastly, the company has adopted the strategy to provide smart cars to the consumers it will further benefit the company in terms of market share and increased volumes (GLG Expert, 2009). Ford can benefit from the industrial recovery by offering and focusing on the consumer- oriented products and give value to them while generating reasonable profits.
The demand for better fuel economic cars has increased due to high energy prices with the increasing wealth of developing world; the Ford motors currently believe in providing few automobile models to sell around the globe with some modifications; to be called world cars. Ford Fiesta is the first world car which was designed by Ford Europe and was produced in US and China. The future strategy of Ford Company is to develop more world cars with the idea of providing standardized products to its worldwide markets. The company developed its competitive edge that carried it to the future. They introduced a technology which was already in use by its competitors but with the new perspective and modification. The tech gadget called Ford SYNC. It is a science sync-equipped in the vehicles that can connect the driver with so many options.
Ford SYNC is a company fitted, fully integrated communication and entertainment system that connects the users with internet through his smart phone and allows them to make telephone calls and control music and other functions using voice commands. This system is the
integrated interface developed by Ford and Microsoft that operates on Microsoft Windows Embedded Automotive operating system.
Ford is currently not performing very well in the US markets but the losses are considered to be acceptable as the company has shifted its focus to profitability, small scale operations and more flexible in terms of operations. In April 2009, the company¶s strategy to meet its debts removed $ 9.9B in liabilities which makes 28% of its total. This resulted in the $2.7 billion profit for the year 2009 to the company.
Source: Wikinvest In the light of this case study and the various Google sources, it is clear that the resizing of the company, improved brand image and more importantly the company¶s strategy to meet its debt, even in the presence of Government¶s funding option, has given Ford motors a new face. It has a new style in the market. The people trust the company for its promise to provide standardized cars at somewhat affordable prices.
The introduction of Ford SYNC has given it an edge to sustain its failing image. The continuous improvements in the SYNC and the right marketing plans for its products has changed the view points of people which resulted full fledged profit of $2.7 billion after the duration of four years. Instead of bragging about the technological advancements in its products the company is engaged in the activities to tell the people how good the product is.
MULALLY AND SMALL WORLD CARS Ford prioritizes the production of small cars in North America. It has shifted its focus (of 70%) from SUVs and trucks production to the production of small cars which makes 60% of its production portfolio and it further tries to launch more vehicles in the country by the year 2012. If the company found a way to earn decent revenue on the sale of these smart cars then they have very positive probability to come up again and earn profitability. Mulally's strategies has so far kept Ford ahead of General Motors and Chrysler in the war of survival. The company insisted that it has enough saving to get out of economic downfall and is not in anyway need of government borrowing unlike its competitors who accepted the government funding. The performance and financial autonomy of Ford depends on its new operational strategy installed by Mr. Mulally. It enjoys its status of financial freedom and the only Detroit survivor when compared to GM who has gone through various governmental obligations and the bankruptcy of Chrysler.
Though it is still not performing so well in terms of money but the signs of recovery are very visible. Its market share for retails has gone up. It employed new agreements with the labor workers and brought its labor cost per hour to $55. GM and Chrysler are badly in need of cash where Ford has paid of 22% of its long term debt. The market share price increased nearly five fold since November 2009. Mr. Mulally¶s method has given a new direction to the company. He took loan against the company¶s assets after sensing the recession in year 2006. Borrowing cash meant that the company can say no to the government funding. Likewise, the company sold some of its brand names in order to get rid of the excessive expenses. Moreover, the company is selling small cars developed in Europe to the US market segments. The challenge before them was to make allpurpose, cross-cultural car that meets demand all around the world. Ford¶s first global called is called ³The Focus´ which is designed and engineered for the customers from all over the world. Focus is simple, fuel efficient and equipped with technology and safety features to appeal the consumers in all the markets. Focus is one of its other products on the way; it is the first one after the company¶s change of perspective from truck manufacturer to small, light and environment friendly cars. Ford has significant impact on the global operations of the company. The company is operating at three engineering units for the engineering of the cars. These platforms serve as C-car segment and gain annual sales of about 2 million vehicles through various models in different markets. Focus aims to serve all the markets ranging from Shanghai to Seattle. Ford expects to sell around two million vehicles a year within coming years through
new C-car platform and to save costs by avoiding multiple platforms. Market analysts have termed the project Focus as an important step for the company.
With the development of Focus and other passenger cars to come, the company believes it can compete with Toyota, Honda and other market leaders. The competition will be head-tohead and the analysts are afraid that won¶t be easy. The Japanese car makers are dominant car makers of small-car segments in the United States and other markets. Likewise, their customers have proved to be very loyal with their brands. Moreover, General Motors is, now improving and is out of bankruptcy with well financing from the government, working on the base work for the production strategies of its own products. Finally, Ford has yet to re-formulate its pricing strategy for its smart cars and to prove it can earn healthy profits on the sale of these cars.
RECOMMENDATIONS After conducting the in depth analysis of the company¶s success factors, revamped processes and other operational strategies as well as the study of case study, I came to the following recommendations for the Ford Motors that can help the company to leverage its market position and sustain profitability: 1. RESEARCH
Before designing a new model, the Ford motors should conduct a market research and survey to understand the customer preferences. Since the company is still under huge debts and has to come up again it has to keep an eye on the market trends and needs because one wrong step can lead it to the deepest pit which the company is scared of. Instead of changing the models each year, they should bring out the quality and performance in the existing projects by improving the production operations of the company.
Japanese car makers are already providing small cars and catering to the needs of the people in the segment. Fords main competitors in this market are Toyota, Honda and others. Who are offering products that are priced low, carrying nice features and their performance is not under rated in anyway. The C-car platforms at Ford require engineering the products that are innovative to gain the attraction of large number of potential buyers.
3. GREEN VEHICLES
Due to the increased emphasis by the government of US and other countries on the production of eco-friendly cars and other vehicles, it has become extremely very important for every car maker to introduce the cars which are more fuel efficient and emit less smoke without causing harm to the environment. The Japanese Car maker, Honda, has introduced a new car called Honda Civic GX as a green car. The car has won the title of greenest car of 2011 from the American Council for an Energy-Efficient Economy. Though Ford has also taken initiative of producing environmental friendly cars with the production of Ford Fiesta SFE (ranked at # 7 in the ACEE list), it is desirable that the company should introduce more eco-friendly cars in order to gain competitive advantage in this front as well.
Today it is an era of marketing. Only those who market them-self well are likely to succeed in this competitive market. Ford has won the marketer of the year award by highlighting the features of the product instead of the tech gadgets installed in it. The Ford¶s products are better than before with the newly devised strategies and promoted and marketed well by Mr. Farley, VP global marketing and sales. The sales are up 17% double the industry wide gain of 8.4%. I suggest that the company should continue with the current marketing strategies and the other promotional channels it is
already into. They should also engage into aggressive marketing and promotional activities to attract the customers about the newly introduced products. Savvy marketing and re-defined focus can be a good sign for this iconic company.
The Ford¶s small world cars are intended to sell in the developing markets and the other markets around the globe. These markets are highly price sensitive. The customers want excellent features, quality performance in the affordable prices which is why there are various regional competitors in these markets to compete with the Ford with their products priced low.
I suggest Ford motors to produce the cars which are better not only in the domains of features, performance, and fuel efficiency but also in the pricing of the car. The small cars concept can achieve its goals only if the cars are priced low with all the existing features of their products.
ALAN MULALLY AND CULTURE AT FORD It¶s been four years of Alan¶s tenure at Ford as a CEO; he has so far proved to be the right choice, by Bill Ford, needed by the company from years. At the time of his appointment, the company had a bureaucratic culture. The reaction of executives at Ford is quite imaginable at
Mr. Mulally¶s arrival. But his confidence, disciple and uncontrollable desire to win took over the reactions of the executives. He reduced Fords dependence on trucks due to the increased gas prices and he let this slip to entire organization to know this. His strategy to reduce power distance in the organization by inculcating the openness within the organization has won the support of all the executives and other team throughout the organization. He likes to communicate and understand the issues of his people rather than being understood. His leadership style is drawn from his experience at Boeing. His prime emphasis upon his arrival was to focus on the Ford brand, compete in all market segments with product modification, create your niche of carefully designed products and become the outclass car manufacturer in terms of quality, fuel efficiency, value and safety. His performance is exactly the same as he did at Boeing; communications, planning, direct reports and presentations from the business units. He introduced the culture where every body seems to listen and understand each other. The respect is an important factor in Mr. Mulally¶s cultural change. Everyone has the right to speak up but only when they are required to speak. He introduced color coding for the reports; green, yellow and red for good, cautions, problems. This helped the company executives to identify and resolve off-track operations and functions. The executive level meetings every Thursday are regarded as the official norm at Ford where all the people have to tell and explain what they are up to and which process requires the attention (communications). This helps him to understand what is happening in the entire organization.
The company is recovering not because of Mr. Mulally¶s cost cut or other operational strategies but also because of the culture he introduced in the company. Year 2008 and 2009 were the worst for Ford and every other manufacturing company or enterprise but the Ford¶s profitability in the last quarter of 2009 and the first months of 2010 shows the wisdom, character and courage of its CEO and his team. The research based on Alan Mulally¶s success, I have identified five important factors that I believe every leader must apply in their leadership to bring about the change. 1. PREPARATION Before starting his new job, Mulally did all the necessary homework required to learn about the culture and the market position of Ford. This allowed him to come up with clear understanding of what is required to be done. 2. PLAN He focused on the company¶s core brand, Ford and divested the other brands in the market. He came up with clear long term plan to invest in the company¶s core brand and borrowed money from banks after sensing the recession. This ultimately enabled the company to invest in its new production system while avoiding the government aid. 3. CLEAR PERSPECTIVE He communicates his plans pretty well. He speaks his perspective in a very clear tone to the members of his organization and outer world. His clear perspective about the fuel efficiency, safety measures and quality to be factors of consumer preferences serve as clear, understandable and concise guidelines for the company. 4. TRANSFORM THE CHANGE
He, after devising his plans in the organization, transformed the culture of Ford and brought transparency and collaboration forward in its culture. Continuous communications with all the executives and his strategy to listen to their needs and opinions has revolutionized the entire culture at Ford. 5. CONSISTENCY After setting up the goals and strategies within the Ford and transforming the culture, he remained focused on what his laid to his people and is still following what he devised them. He started the colour coding system for the problems and cautions so that these can be identified, discussed and rectified.
RESTORING FORD TO ITS ICONIC IDENTITY In 2006, William Clay Ford Jr., the then president of Ford, took a risk by hiring an aeronautical engineer to lead his company. All the other things are history now. Ford has been an exception to all the news related to the downsizing, arbitration in the automobile industry. Ford have gained respect and positive instances from the market with the credit going to the man at the top; Mr. Alan Mulally. He made the right decisions at right time by devising new plans and strategies in the company; he took the criticism of industry analysts and acted upon it. He foreseen the recession and took necessary steps to face the bad time and made promise to himself and the American people that if his action backfired he¶ll reduce his salary to $1 in order to pay off some of the penalty. He remained fearless in the bad times and sold some of the assets of the company and received some of the money against them which was good for the company, instead of loosing
more money on operating those assets and brand names, they decided to get rid of them. He had only one thing in mind, only Ford to focus on and he remained committed to his goals. Ford built its competitive advantage in the Ford SYNC gadget and brought innovation in the car industry. His perspective had long term goals. The automobile industry is about to rebound. GM is well financed from the government and is ready to penetrate the market. Ford has increased sales and its market share rose from 14% to 17% in 2010 (Wikinvest).Ford Focus won the number three top selling award with Ford Escape at number 10 in the Clunkers event last year. As of 2009, GM and Chrysler had borne the losses in terms of declining sales to 20% and 15% respectively. Yes, Ford is earning profits. After the industrial crisis that left the industry giants, GM and Chrysler, and other top suppliers under huge debt and bankruptcy, Ford is flying high. It earned the profit of $2.6 billion on the sales. The market share of Ford increased by 1.4 points from 14% to 17.5%. Mulally expects to succeed further. The Focus was the company¶s first global car based on Mr. Mulally¶s strategies, called One Ford. One Ford sells the same model which is built in the same way to all the markets around the globe. More than 75% of its parts will be easily availed in all the regions. The concept of One Ford insulates the consumers¶ preferences about the value quality, safety, fuel efficiency and design and integrates them into one single standardized car. This strategy will help Ford to meet the needs and wants of the people around the globe with fewer costs. If this idea of One Ford worked out, this will further lead to the sales of higher volume of Ford cars with 20% less cost of production than the earlier versions. Ford will continue to build its American models like Mustang and highly profitable F-150 series, the One Ford idea will
change the company¶s image globally about what Ford is in terms of its steering handling, door slamming sound etc. If the idea of One Ford works as it was planned, it will lead to the series of enormous benefits to the company and its connected suppliers. One of the biggest is the improvements in quality will be inevitable to the company. The Ford¶s focus on single C-car manufacturing plant will reduce the probability of errors more than 50%. In a survey conducted about the quality of Ford products it was revealed that the Ford¶s 2010 models were ranked at No.1 among other brands excluding luxury items. The concept of high quality means the lower costs to warranty and increased resale value to the customers. This will allow the consumers to accept low discount rates on the Ford products than they already had receiving from decades. The improvement in quality and increased customer value are key factors that can help Ford to earn a lot more money. Ford can also increase its operating profit margins from 7% to 13% this will give it more leverage of 7% to its profits in the year 2011. This extra profit can be used to pay further debt or pay out its dividends. Ford and GM enjoyed good financial repays in the year 2010 and many industry analysts are sure that they will further earn big profits in the year 2011. Ford has managed to enter into the contract with the American worker union for their support and strike free working conditions. The industry gurus estimated that Ford will pay profit sharing Checks of at least $5000 to its 42,000 union workers, depending on the performance of the company in the market. Since 2000, this would be the biggest payout by Ford to its union workers. Whereas, the workers at GM are likely to get less than the workers at Ford because the company didn¶t do quite as well.
Let the time decide who will survive and who will falter the survival war. But one thing is understood, that those who look ahead of time and their competitors in terms of innovation, and new techniques as did by Alan Mulally will have greater chance to survive and come up again regardless of the economic conditions, world and the industry.
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