Case study on Ford Motors


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Case study on Ford Motors

  1. 1. FORD MOTORS Ford Motors have the history of providing excellent products ranging from small cars toluxurious brands to its customers. Ford had secured 25% US automobile market in 1998. It isranked as a 2nd largest automobile manufacturer in the United States and the fifth-largest in theworld rankings as of 2010. Ford is ranked at number eight in the 2010 Fortune 500 list based onits global revenues in 2009. As of 2010, the company earned the profit of $ 6.6 Billion whichwas utilized to manage its debt requirement of $33.6 Billion. In the year 2007, the companyearned more quality survey awards than any other automaker. The company domain ford.comhad more than 11 million annual visitors by the year 2008 according to the US national survey. All this was not possible if we take a look at the company’s performance in the year 1999and 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 customersand sky rocketing operational costs were the some of the issues Ford Motors was facing. Fordrelated 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 itsfailure. According to them, Ford took eyes off the market trends and consumer preferences. Theyemphasized only on the product lines (SUVs and trucks), they had increased operational costsand they lacked communication with the customers and appropriate market research. Theproducts offered at Ford were free from innovation.
  2. 2. 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 itsstrategies it uses against the competition and how well it handle its strategies. Two types ofadvantages a company can master, cost efficiency and differentiation (Porter, 1985). Today firms are keen on developing plans based on their strategies that can give themedge over their competitors. In this case study, Ford motors re-engineered its processes, devisednew 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’simage and its operations. He devised couple of strategies to come out of the black hole whichwas sooner or later going to eat the company out which includes One Ford, divesting otherbrands in the market, insulating communications strategy within the organization, changing theculture of Ford, introducing coding system for the reports and many other functional strategies.With the redefined image, and revolutionized products, the company was able to pay off some ofits debts.COMPETITION ANALYSISGENERAL MOTORS The 2008 automotive industry crisis has severely affected the car makers and the creditmarkets as well in the form of recession, volatile oil prices and decreased rate of employment in
  3. 3. United States and Western Europe. These factors had negative impact on the car makers and thefactors that shape customers’ buying decisions. This resulted in the delayed consumer purchasingor leasing decline in the vehicles sales around the globe. The estimated worldwide market shareof 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, GeneralMotors have maintained the largest market share in the United States. The company took few strategy wise changes to cope with issues relating to the decliningsales and market shares. GM decentralized the decision making process to get the quickdecisions in times of need. The managers running the branches across the globe are empoweredto make critical decisions on company’s behalf. The company revised its marketing goals anddevised new marketing plans. It is involved in providing innovative products to the consumerswith environment friendly cars. The competitive advantage of General Motors lies in theinnovative cars it produces.TOYOTA MOTORS Toyota took over the US market with low cost automobiles to compete with the thenmarket 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
  4. 4. consumption and have captured huge market segment. Toyota is also engaged in other businesslines to support its business. Toyota has secured large market share in US and Japanese. Its various vehicles are wellliked in the developing markets for their efficiency and reliability. Toyota has quite a few carcompanies 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 thesesmall scale regional companies are better available options to them. Toyota’s competitive edgelies 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 the21st century. The new strategy was aimed at increasing the market share, increase the revenuesearned and production of smart cars with fuel efficiency. Ford implemented the centralizeddecision making system. This allowed the company to concentrate on the available marketopportunities both locally and internationally. With the implementation of centralized decisionmaking system, the top management becomes more engaged in the development of products tosatisfy the customer expectations in various markets (Porter, 1986). This strategy allowed thecompany to improve the communication system from top to bottom. Ford Motors adopted the strategy that allowed it low production cost by cutting all theexcessive cost involved in its operations. The huge expenditure on raw materials was cut down
  5. 5. and the online manufacturing process was introduced that focuses on the development of cars onone process rather than having different segments of engineering and production. This strategyestablishes cost advantage and gives the company advantage over its competitors in terms oflower cost (Porter, 1983). In the mean while company focused on producing smart cars that werenot price sensitive and offered the functionality of traditional ford cars. The market position of Ford has been enhanced due to multiple factors. Firstly, since itfought hard against bankruptcy and refused governmental funding as its competitors did, theconsumer trust has increased in the company and its brands. Secondly, its products are widelyaccepted by the consumers and integrating with the first factor, the company has increasedmarket share. Lastly, the company has adopted the strategy to provide smart cars to theconsumers 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 onthe 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 withthe increasing wealth of developing world; the Ford motors currently believe in providing fewautomobile 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 USand China. The future strategy of Ford Company is to develop more world cars with the idea ofproviding standardized products to its worldwide markets. The company developed its competitive edge that carried it to the future. They introduceda technology which was already in use by its competitors but with the new perspective and
  6. 6. modification. The tech gadget called Ford SYNC. It is a science sync-equipped in the vehiclesthat can connect the driver with so many options. Ford SYNC is a company fitted, fully integrated communication and entertainmentsystem that connects the users with internet through his smart phone and allows them to maketelephone calls and control music and other functions using voice commands. This system is theintegrated interface developed by Ford and Microsoft that operates on Microsoft WindowsEmbedded Automotive operating system. Ford is currently not performing very well in the US markets but the losses areconsidered to be acceptable as the company has shifted its focus to profitability, small scaleoperations and more flexible in terms of operations. In April 2009, the company’s strategy tomeet 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.
  7. 7. Source: Wikinvest In the light of this case study and the various Google sources, it is clear that the resizingof the company, improved brand image and more importantly the company’s strategy to meet itsdebt, even in the presence of Government’s funding option, has given Ford motors a new face. Ithas a new style in the market. The people trust the company for its promise to providestandardized cars at somewhat affordable prices. The introduction of Ford SYNC has given it an edge to sustain its failing image. Thecontinuous improvements in the SYNC and the right marketing plans for its products haschanged the view points of people which resulted full fledged profit of $2.7 billion after theduration of four years. Instead of bragging about the technological advancements in its productsthe company is engaged in the activities to tell the people how good the product is.MULALLY AND SMALL WORLD CARS
  8. 8. Ford prioritizes the production of small cars in North America. It has shifted its focus (of70%) from SUVs and trucks production to the production of small cars which makes 60% of itsproduction 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 havevery positive probability to come up again and earn profitability. Mulallys strategies has so far kept Ford ahead of General Motors and Chrysler in the warof survival. The company insisted that it has enough saving to get out of economic downfall andis not in anyway need of government borrowing unlike its competitors who accepted thegovernment funding. The performance and financial autonomy of Ford depends on its new operational strategyinstalled by Mr. Mulally. It enjoys its status of financial freedom and the only Detroit survivorwhen compared to GM who has gone through various governmental obligations and thebankruptcy of Chrysler. Though it is still not performing so well in terms of money but the signs of recovery arevery visible. Its market share for retails has gone up. It employed new agreements with the laborworkers and brought its labor cost per hour to $55. GM and Chrysler are badly in need of cashwhere Ford has paid of 22% of its long term debt. The market share price increased nearly fivefold since November 2009. Mr. Mulally’s method has given a new direction to the company. He took loan against thecompany’s assets after sensing the recession in year 2006. Borrowing cash meant that thecompany can say no to the government funding. Likewise, the company sold some of its brandnames in order to get rid of the excessive expenses. Moreover, the company is selling small cars
  9. 9. developed in Europe to the US market segments. The challenge before them was to make all-purpose, cross-cultural car that meets demand all around the world. Ford’s first global called is called “The Focus” which is designed and engineered for thecustomers from all over the world. Focus is simple, fuel efficient and equipped with technologyand safety features to appeal the consumers in all the markets. Focus is one of its other productson the way; it is the first one after the company’s change of perspective from truck manufacturerto small, light and environment friendly cars. Ford has significant impact on the globaloperations of the company. The company is operating at three engineering units for the engineering of the cars. Theseplatforms serve as C-car segment and gain annual sales of about 2 million vehicles throughvarious models in different markets. Focus aims to serve all the markets ranging from Shanghaito Seattle. Ford expects to sell around two million vehicles a year within coming years throughnew C-car platform and to save costs by avoiding multiple platforms. Market analysts havetermed the project Focus as an important step for the company. With the development of Focus and other passenger cars to come, the company believesit can compete with Toyota, Honda and other market leaders. The competition will be head-to-head and the analysts are afraid that won’t be easy. The Japanese car makers are dominant carmakers of small-car segments in the United States and other markets. Likewise, their customershave proved to be very loyal with their brands. Moreover, General Motors is, now improving andis out of bankruptcy with well financing from the government, working on the base work for the
  10. 10. production strategies of its own products. Finally, Ford has yet to re-formulate its pricingstrategy for its smart cars and to prove it can earn healthy profits on the sale of these cars.
  11. 11. RECOMMENDATIONS Ford motor is the only one in the US auto motor industry who tried to sustain itsleadership and its market position with effective strategies to match the market requirementsand needs. It updated its products with latest technology gadgets and equipped its products withthe latest ones. After conducting the in depth analysis of the company’s success factors, revampedprocesses and other operational strategies as well as the study of case study, I came to thefollowing recommendations for the Ford Motors that can help the company to leverage itsmarket 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. The company should focus more on the designs of its products and come up with more diverse and efficient models. 2. INNOVATION 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
  12. 12. 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.4. MARKETING
  13. 13. 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 company should link up with the TV sponsorships and engage in the public relations activities to attract the general public about how concerned the company is towards the social issues.5. PRICE 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.
  14. 14. 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 theright 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 atMr. Mulally’s arrival. But his confidence, disciple and uncontrollable desire to win took over thereactions of the executives. He reduced Fords dependence on trucks due to the increased gas prices and he let this slipto entire organization to know this. His strategy to reduce power distance in the organization byinculcating the openness within the organization has won the support of all the executives andother team throughout the organization. He likes to communicate and understand the issues ofhis people rather than being understood. His leadership style is drawn from his experience at Boeing. His prime emphasis upon hisarrival was to focus on the Ford brand, compete in all market segments with productmodification, create your niche of carefully designed products and become the outclass carmanufacturer in terms of quality, fuel efficiency, value and safety. His performance is exactly thesame as he did at Boeing; communications, planning, direct reports and presentations from thebusiness units.
  15. 15. 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 tospeak 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 toidentify and resolve off-track operations and functions. The executive level meetings everyThursday are regarded as the official norm at Ford where all the people have to tell and explainwhat they are up to and which process requires the attention (communications). This helps him tounderstand what is happening in the entire organization. The company is recovering not because of Mr. Mulally’s cost cut or other operationalstrategies but also because of the culture he introduced in the company. Year 2008 and 2009were the worst for Ford and every other manufacturing company or enterprise but the Ford’sprofitability in the last quarter of 2009 and the first months of 2010 shows the wisdom, characterand courage of its CEO and his team. The research based on Alan Mulally’s success, I have identified five important factorsthat 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
  16. 16. 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 anaeronautical engineer to lead his company. All the other things are history now. Ford has been anexception to all the news related to the downsizing, arbitration in the automobile industry. Ford
  17. 17. have gained respect and positive instances from the market with the credit going to the man atthe top; Mr. Alan Mulally. He made the right decisions at right time by devising new plans and strategies in thecompany; he took the criticism of industry analysts and acted upon it. He foreseen the recessionand took necessary steps to face the bad time and made promise to himself and the Americanpeople that if his action backfired he’ll reduce his salary to $1 in order to pay off some of thepenalty. He remained fearless in the bad times and sold some of the assets of the company andreceived some of the money against them which was good for the company, instead of loosingmore money on operating those assets and brand names, they decided to get rid of them. He hadonly 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 inthe car industry. His perspective had long term goals. The automobile industry is about torebound. 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 10in the Clunkers event last year. As of 2009, GM and Chrysler had borne the losses in terms ofdeclining sales to 20% and 15% respectively. Yes, Ford is earning profits. After the industrial crisis that left the industry giants, GMand Chrysler, and other top suppliers under huge debt and bankruptcy, Ford is flying high. Itearned the profit of $2.6 billion on the sales. The market share of Ford increased by 1.4 pointsfrom 14% to 17.5%. Mulally expects to succeed further.
  18. 18. The Focus was the company’s first global car based on Mr. Mulally’s strategies, calledOne Ford. One Ford sells the same model which is built in the same way to all the marketsaround the globe. More than 75% of its parts will be easily availed in all the regions. The conceptof One Ford insulates the consumers’ preferences about the value quality, safety, fuel efficiencyand design and integrates them into one single standardized car. This strategy will help Ford tomeet 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 ofFord cars with 20% less cost of production than the earlier versions. Ford will continue to buildits American models like Mustang and highly profitable F-150 series, the One Ford idea willchange the company’s image globally about what Ford is in terms of its steering handling, doorslamming sound etc. If the idea of One Ford works as it was planned, it will lead to the series of enormousbenefits to the company and its connected suppliers. One of the biggest is the improvements inquality will be inevitable to the company. The Ford’s focus on single C-car manufacturing plantwill reduce the probability of errors more than 50%. In a survey conducted about the quality ofFord products it was revealed that the Ford’s 2010 models were ranked at No.1 among otherbrands excluding luxury items. The concept of high quality means the lower costs to warrantyand increased resale value to the customers. This will allow the consumers to accept lowdiscount 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 helpFord to earn a lot more money. Ford can also increase its operating profit margins from 7% to
  19. 19. 13% this will give it more leverage of 7% to its profits in the year 2011. This extra profit can beused to pay further debt or pay out its dividends. Ford and GM enjoyed good financial repays in the year 2010 and many industry analystsare sure that they will further earn big profits in the year 2011. Ford has managed to enter intothe 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 its42,000 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 arelikely 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 thingis 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 upagain regardless of the economic conditions, world and the industry.
  20. 20. REFERENCESA Technical Companion to Windows Embedded Automotive 7 (final). Microsoft Corporation.Retrieved on May 28, 2011 from SYNC. Ford Motor Company. 2010. Retrieved on May 28, 2011 from R. Mulally., (2011). New York Times Website, Retrieved on May 29, 2011 from, Matthew D., and John D. Stoll (2009). Ford Trims Debt 28%. The Wall Street Journal.Retrieved on May 28, 2011 from, Dee Ann and Tom Kirshner, (2011).Ford 2010 profit highest in a decade as sales rise,Bloomberg Business Week. Retrieved on May 27, 2011 from, S., (2009). Five Things Alan Mulally is Doing to Help Ford Win, Government ExecutiveWebsite., Retrieved on May 28, 2011 from Business and financial metrics, Wikinvest Website, Retrieved on May 28, 2011 from Domain Visitors, Site Analytics Website, Retrieved on May 28, 2011 from European arm lends a hand, (2008). The Economist, Retrieved on May 28, 2011 from Motor Company - Outlook Given Strategic Pursuits. (2009). GLG Research Website,Retrieved on May 28, 2011 from 50, CNN, Retrieved on May 27, 2011 from Cars Highlights,(2011). Greener Cars Org. Website, Retrieved on May 28, 2011 from
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  22. 22. Vlasic, B., (2010). Ford’s Bet: It’s a Small World After All, NY Times Website, Retrieved onMay 28, 2011 from;!--Undefined%20dynamic%20function%20data_sanitationlib::sanitize_string:1%20called--&%2359;