You have been hired as a consultant to help Ford Motor Company return to its glory days, when either Henry Ford or Alan Mulally ran the company. In doing so, you must produce a short report to Jim Hackett, Ford’s CEO, that conveys your observations of Ford’s current situation (situational analysis), and a proposal of strategic actions Ford should take to be the model automotive company of the 21st century. Thus, you task is to answer the following questions based solely on the information provided in the case:
Perform an analysis of Ford’s external and internal environments. As you do this, please make sure you organize your response by classifying external trends as opportunities and threats, and by classifying Ford’s internal environment as strengths and weaknesses. Because of the length of the report, select the most salient issues in your eyes. In addition, you must include at least three functional areas/value chain activities in your analysis of Ford’s internal environment (e.g., operations, marketing, and finance), and you must include issues regarding Ford’s financial situation.
Based on the external challenges (threats), positive external trends (opportunities), Ford’s limitations (weaknesses), and Ford’s strong suits (strengths) identified in point #1, provide 4 strategic suggestions for Ford’s executives to implement. In other words, combine opportunities/threats you identified, with Ford’s strengths/weaknesses in order to make suggestions on what decisions CEO Hackett needs to make. In your response, make sure you include both strategic actions related to business level strategy (how to compete) and corporate -level strategy (where to compete). Provide strong rationale for your choices.
CASE 34
Ford: An Auto Company in Transition
Pauline Assenza
Helaine Korn
Naga Lakshmi Damaraju
Alan B. Eisner
Nico Muller Art / Shutterstock
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No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
Because learning changes everything.®
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Ford
Icebreaker
How many of you own, or have ever had responsibility for the upkeep of a car made by GM, Ford, or Chrysler?
What is your opinion of this vehicle?
How many of you would consider buying a Ford in the future?
© McGraw Hill
Because almost every student has had the responsibility for the upkeep on an automobile, it might be illustrative to ask the above questions. It’s unlikely that a majority of students own or have responsibility for the upkeep on a car made by an American auto company. It is likely that the opinion of these American cars is not that high. The instructor may want to list the three companies (Ford, GM, Chrysler) on the board and tally the number of cars in each one, and then list the opinions for each company’s car. See if any trend emerges. It’s possible that the comments on Ford cars may not be as negative as those from the other two firms. The students’ reaction will demonstrate the uphill battle these American firms have to face in regaining consumer confidence in their products’ style and quality. This will prepare students to enter strategy analysis mode – what are the forces that might work against Ford as it tries to compete in the current environment? It might be useful to visit this website https://shop.ford.com/showroom/#/ to take a look at Ford’s current brands. As of 2018, Ford promoted Ford vehicles – the Fiesta, Focus, Fusion, Taurus, and the new C-Max, with the F150 pickup, and iconic Mustang being among the top brands. The company also promoted the Lincoln lineup, which is now a separate division, The Lincoln Motor Company, accessible at http://www.lincoln.com/. Ford had abandoned the Mercury brand, and Ford’s Volvo brand, which was acquired in 1999, had been sold to China’s Geely Automobile. Ford had divested its interest in Aston-Martin in 2007 and had sold off Jaguar and Land Rover to Tata Motors of India in 2008. New, “next generation” vehicles such as hybrids and EV’s were being promoted, using the “small-vehicle platform,” incorporating ideas from the Ford Silicon Valley Research Lab and advances in manufacturing technology. See http://corporate.ford.com/innovation for current news.
Question 1
Which of the following statements is most true?
Ford was one of the firms that had needed a government bailout after the 2007-2008 economic downturn.
Ford had to sell its Lincoln brand.
Ford has more market share in China than General Motors does.
American engineer and industrial icon Henry Ford did not invent the assembly line.
© McGraw Hill
ANSWER: d. Ford was the only automobile firm that had NOT needed a government bailout after the 2009 economic downturn. Although it sold off many other brands such as Jaguar, Land Rover, Aston Martin and Volvo, Ford did not sell the Lincoln brand. (Not in the case: In 2012, Mulally set Lincoln up as a separate division under the name The Lincoln Motor Company.) Ford was late to the China market, and GM had a higher brand penetration in China. American engineer and industrial icon Henry Ford had been a true innovator. He didn’t invent the automobile or the assembly line, but through his ability to recognize opportunities, articulate a vision, and inspire others to join him in fulfilling that vision, he was responsible for making significant changes in the trajectory of the automobile industry and even in the history of manufacturing in America. The assembly line concept was borrowed from other industries.
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Question 2
As part of its “mobility” strategy, Ford was partnering with ride-sharing service Lyft.
Yes.
No.
© McGraw Hill
ANSWER: b. General Motors had partnered with Lyft. Ford was partnering with Uber, which was trying out the Ford Fusion autonomous vehicle.
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Ford
Discussion Questions
What are key forces in the general and industry environments that affect Ford’s choice of strategy?
What internal resources and assets does Ford have that may give it a competitive advantage?
How should Ford compete?
© McGraw Hill
Ford
Intro: Strategy Concept
Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages, and has these key attributes:
Directs the organization toward overall goals and objectives.
Includes multiple stakeholders in decision making.
Needs to incorporate short-term and long-term perspectives.
Recognizes trade-offs between efficiency (cost) and effectiveness (performance).
Primary role of the organizational leader to articulate vision, mission and strategic objectives.
© McGraw Hill
Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. Strategic management has certain key attributes. Leaders face a large number of complex challenges. Leaders must be proactive, anticipate change and continually refine changes to their strategies. This requires a certain level of “ambidextrous behavior,” where leaders are alert to opportunities beyond the confines of their own jobs, and are also cooperative and seek out opportunities to combine their efforts with others. Leaders must make strategic management both a process and a way of thinking throughout the organization.
Ford
Intro: Hierarchy of Goals
Exhibit 1.6 A Hierarchy of Goals
© McGraw Hill
The primary role of the organizational leader is to articulate vision, mission, and strategic objectives.
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Ford
Intro: Strategic Vision
Company vision:
Massively inspiring.
Overarching.
Long-term.
Driven by and evokes passion.
Fundamental statement of the organization’s:
Values.
Aspiration.
Goals.
© McGraw Hill
Leaders must communicate their initial vision of the organization’s purpose: What was the original goal that evokes a powerful and compelling mental image of a shared future, one that would be massively inspiring, overarching, and long-term, representing a destination that is driven by and evokes passion?
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Ford
Intro: Strategic Mission
Mission statements:
Purpose of the company.
Scope of operations.
Basis of competition and competitive advantages.
More specific than vision.
Focused on the means by which the firm will compete.
Reflects an organization’s enduring, overarching strategic priorities and competitive positioning.
© McGraw Hill
The organizational mission also needs to be considered: A mission encompasses both the purpose of the company as well as the basis for competition and competitive advantages. In writing a mission statement, it is important to understand the definition of the business: 1) Who are its customers? 2) What customer need is the organization trying to fulfill? 3) How does the business create and deliver value to customers and satisfy their needs? Organizations must respond to multiple constituencies if they are to survive and prosper, and the mission provides a means of communicating to diverse organizational stakeholders. Although vision statements tend to be quite enduring and seldom change, a firm’s mission can and should change when competitive conditions dramatically change or the firm is faced with new threats or opportunities.
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Ford
Intro: Strategic Objectives
Strategic objectives:
Operationalize the mission statement.
Provide guidance on how the organization can fulfill or move toward the mission and vision.
© McGraw Hill
Anticipating that things might change, an organization’s leadership must then establish strategic objectives to operationalize the mission statement. That is, objectives help to operationalize the mission statement with specific yardsticks, and provide guidance on how the organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision.
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Ford
Mulally’s Vision
Mulally refocused Ford’s vision:
Mulally had a vision of a smaller and more profitable Ford, an exciting viable Ford delivering profitable growth for all.
The message was intended to communicate consistency across all departments, all segments, requiring people to work together with one plan, one goal.
“ONE Ford”
© McGraw Hill
After being brought in to reposition Ford for turnaround following its near bankruptcy in 2006, the one thing CEO Alan Mulally did early in his tenure was to refocus Ford’s vision into a smaller and more profitable Ford – “ONE Ford.” The ONE Ford message was intended to communicate consistency across all departments, all segments of the company, requiring people to work together as one team, with one plan, and one goal: “an exciting viable Ford delivering profitable growth for all.” Mulally wanted to leverage Ford’s unique automotive knowledge and assets to build cars and trucks that people wanted and valued.
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Ford
Mulally’s Mission
Mulally’s mission was to focus organizational stakeholders on the Ford brand.
Sell off the Premier Autos.
Integrate and leverage the Ford assets around the world.
© McGraw Hill
His mission was to focus organizational stakeholders on the Ford and Lincoln brands, close down Mercury, and sell off the other “premier” autos (Aston-Martin, Jaguar, Land Rover, and Volvo.) The management of these brands had confused customers, and had not added any value to the Ford name. Mulally wanted to “integrate and leverage” the Ford assets around the world.
Ford
Mulally’s Strategic Objectives
Mulally’s strategic objectives were to obtain operating profitability at a lower volume while changing the mix of products to better appeal to the market.
Make structural and procedural changes:
Reconfigure executive reporting relationships.
Close plants, cut jobs.
Increase goals for plant utilization and production levels.
Pay attention to market trends, develop more appealing vehicles.
© McGraw Hill
In order to operationalize this focused mission, Mulally had to set some strategic objectives. His overall strategy was to obtain operating profitability at a lower volume while changing the mix of products to better appeal to the market. Mulally had to make structural and procedural changes in the company. He reconfigured executive reporting relationships, closed plants and cut jobs, increased goals for plant utilization and production levels in each production unit, tried to pay attention to market trends and encourage designers to develop more appealing vehicles.
Ford
Field’s Mission, Vision, Objectives
CEO Mark Fields would be using innovation to solve the growing global transportation challenges.
Field’s vision was to make people’s lives better by changing the way the world moves.
Fields’ mission was to deliver top quartile shareholder returns through both the auto and mobility businesses.
Fields’ objectives included fortifying profits and updating the performance lineup; boosting luxury products; making investments in emerging opportunities.
Fields wanted to use technology to solve problems of mobility and access through innovative products and services.
© McGraw Hill
After Mulally retired in 2014, new CEO Mark Fields announced Ford would be using innovation “not only to create advanced new vehicles but also to help change the way the world moves by solving today’s growing global transportation challenges.” Fields’ vision was to make “people’s lives better by changing the way the world moves,” and the mission was to deliver top quartile shareholder returns through both the standard automotive and also the new high-growth mobility businesses. Fields’ objectives included fortifying profits for the standard-bearers – trucks, vans, commercial vehicles – as well as updating the performance line-up – Ford GT and Mustang; transforming the underperforming Lincoln, Continental and Navigator luxury products; and growing investments in emerging opportunities, especially in electrification, autonomous vehicles, and mobility services. Fields was focusing Ford’s efforts on technology – not just making products for people who could afford luxury vehicles, but using technology to solve problems of mobility and access, providing not only products but also transportation services that made people’s lives better.
Ford
Stakeholder Identification
Organizations must consider the needs of the larger community, and act in a socially responsible manner. This requires stakeholder identification.
Stakeholder Group Nature of Claim
Stockholders. Dividends, capital appreciation.
Employees. Wages, benefits, safe working environment, job security.
Suppliers. Payment on time, assurance of continued relationship.
Creditors. Payment of interest, repayment of principal.
Customers. Value, warranties.
Government. Taxes, compliance with regulations.
Communities. Good citizenship behavior such as charities, employment, not polluting the environment.
Exhibit 1.5 An Organization’s Key Stakeholders and the Nature of Their Claims
© McGraw Hill
It’s also important to consider the concept of stakeholder symbiosis, that stakeholders are dependent upon each other for their success and well-being; and that there is a need for organizations to consider the needs of the larger community, and act in a socially responsible manner. Leaders must pay attention to all stakeholder needs, including various stakeholder values and the organizational culture. See Chapter 1, Exhibit 1.5 for the diverse stakeholder groups and the claims they make on the organization
Ford
Stakeholder Dependencies
Dependencies among all stakeholders:
Parts suppliers, unionized workers, car dealerships dependent on car companies.
Local communities dependent on tax income.
Local businesses dependent on consumer spending.
State & government entities afraid of a burden on social systems if any of this failed.
2009 bailout by U.S. Congress.
Shareholders needed to be kept happy as Fields continued to experiment and innovate.
A clear, focused message was necessary.
© McGraw Hill
Although not in the case, the discussion over the fate of the auto industry in early 2009 clearly demonstrated the dependencies among all stakeholders. Parts suppliers, unionized autoworkers and car dealerships were all dependent on the car companies’ ability to produce cars that would sell; local communities were dependent on the tax income from dealerships and parts suppliers; local businesses were dependent on the continued ability of employees to spend money; state and government entities were afraid of the burden on social systems if any of this failed. Stockholders and the overall U.S. financial system were dependent on a somewhat predictable future. This is why the government felt it had to act to bail out General Motors and Chrysler in March 2009 by loaning them enough money to stay afloat. All the U.S. automobile-related industries had an obligation to act in good faith and accept the government’s terms. Although not needing this loan, Ford’s CEO Mulally had had to develop a sound strategy and give clear guidance. For an overview of this event, see http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm Going forward, with the threat of competition not only from General Motors, Fiat/Chrysler and the Japanese, Korean and German automakers, but also from Tesla, and even Apple, CEO Fields had to be careful to keep not only customers, suppliers and employees focused on the automotive products, but also keep shareholders happy as he continued to experiment and innovate with his idea to solve transportation and mobility problems in cities across the globe. Could Fields craft a clear, focused message, expressing a cohesive narrative or game plan that made sense to all?
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Ford
A New Vision
CEO Fields was replaced by Jim Hackett:
Vision of a seismic shift in personal transportation.
Need to execute a new strategy:
Winning portfolio of products.
Creating clean-running cars that included electric vehicles.
Building a viable autonomous vehicle business.
Focusing on Mobility Experiences that addressed problems of congested cities and roads.
Continue the innovative vision of Henry Ford.
Ultimate goal is to improve people’s lives.
© McGraw Hill
Investors were confused by Fields’ message, so Fields was replaced by new CEO Jim Hackett, who planned to execute strategy that could develop a winning portfolio of products, create clean-running cars that included electric vehicles, build a viable autonomous vehicle business with products such as ride-hailing and delivery solutions for city leaders, and focus on Mobility Experiences that addressed problems of congested cities and roads. The vision of a seismic shift in personal transportation was fully supported by Ford Board Chairman Bill Ford, who hoped to continue the innovative vision of his great-grandfather Henry Ford. The ultimate goal was to improve people’s lives.
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Ford
Intro: Strategic Management
Strategic Management involves:
Analysis.
Strategic goals (vision, mission, strategic objectives).
Internal and external environment.
Decisions: Formulation
What industries should we compete in?
How should we compete in those industries?
Actions: Implementation.
Allocate necessary resources.
Design the organization to bring intended strategies to reality.
How can Ford create a sustainable competitive advantage in the marketplace that is not only unique and valuable but also difficult for competitors to copy or substitute?
© McGraw Hill
How can Ford create a sustainable competitive advantage in the marketplace that is not only unique and valuable but also difficult for competitors to copy or substitute?
During strategic analysis, the leader does “advance work” to anticipate unforeseen environmental developments, identify unanticipated resource constraints, assess changes in his or her preferences for how to manage. During strategy formulation, the organization addresses the issue of how to compete in a given business to attain competitive advantage. Strategies are formulated at the business, corporate, and international levels. Entrepreneurial initiatives may also play a role. In strategy implementation, depending on the type of organization structure, the leader might include key individuals in a discussion around selecting which strategies might be best to implement at which level within the organization. The leader must ensure proper strategic controls and organizational design, and establish effective means to coordinate and integrate activities within the firm as well as with suppliers, customers and possible alliance partners. Leaders should also be committed to excellence and ethical behavior while promoting learning and continuous improvement. Here’s where innovation is important. The basic question strategic management tries to answer is: How can we create competitive advantages in the marketplace that are not only unique and valuable but also difficult for competitors to copy or substitute?
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Ford
External Environment
Q1: What are the forces in the external environment that affect Ford?
External Scanning:
Surveillance of a firm’s external environment:
Predict environmental changes to come.
Detect changes already under way.
Proactive mode.
External Monitoring:
Track evolution of:
Environmental trends.
Sequence of events.
Streams of activities.
© McGraw Hill
Organizational leaders must become aware of factors in the overall environment that might affect their ability to create a competitive advantage. So how do managers become environmentally aware? By doing scanning, monitoring, and gathering competitive intelligence, and using these inputs to develop forecasts. This prepares the firm to do more extensive analysis of the forces in the general environment and the industry or competitive environment. Environmental scanning involves surveillance of a firm’s external environment to predict environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint of the industry/competition, looking for key indicators of emerging trends – what catches your eye? Alerts the firm to critical trends before changes have developed a discernible pattern and before competitors recognize them. Environmental monitoring is a firm’s analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities. Leaders need to monitor the trends that have the potential to change the competitive landscape – what do you want to track? Firms need to CHOOSE the trends identified via the scanning activity, and regularly monitor or track these specific trends to evaluate the impact of these trends on their strategy process.
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Ford
General Environment
The general environment is composed of factors that are both hard to predict and difficult to control.
Technological.
Economic.
Global.
Demographic.
Sociocultural.
Political/Legal.
© McGraw Hill
What factors or trends might be most important to Ford? To assess how the external environment might affect Ford’s strategy, it’s necessary to take a look at the factors in the general external environment. Ford must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to deliver its products and sustain its business. See which factors in the general environment we might pick that have a significant impact on the automobile business.
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Ford
Environmental Forces
Political-Legal: Government intervention meant some firms lost control. Other forces include emission standards and unions.
Economic: First rising gas prices, then credit crunch meant customers were very cautious. These would give more weight to cost of car ownership in the consumer’s decision making, (also cost of maintenance).
Demographic: Automakers needed to attract younger, more affluent buyers to high status vehicles. They anticipate growth in developing countries.
Sociocultural: First the SUV was a status symbol, then going green (hybrid/electric) became the trend. There is now popularity in ride-sharing, Tesla, electric vehicles, and driverless cars.
Technological: Electric/hybrid and autonomous options were dependent on new technological developments.
© McGraw Hill
Based on the general environmental forces, the industry was under pressure, but there were also opportunities. Things were changing quickly, especially customer tastes, yet the auto industry’s lag time in development meant it took a long time to react. Possibly firms with well-coordinated and integrated research and development/logistical supply teams could have an advantage.
Ford
Five Forces Analysis
Segments of the competitive environment include:
Competitors.
Customers/Buyers.
Suppliers.
Substitutes.
New Entrants.
Sometimes called the task or industry environment.
Porter’s five forces model.
© McGraw Hill
It’s also necessary to assess the segments of the external competitive environment that include competitors, customers, and suppliers, substitutes and new entrants. Porter’s five forces model allows strategists to anticipate where the industry might be most vulnerable.
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Ford
Five Forces Model
Rivalry
Very High
Substitutes
Threat
Low
Buyers’ Power
Med -High
Suppliers’ Power
Low
Suggested: A few large and equally balanced competitors fighting for global market share; slow industry growth; current overcapacity; high exit barriers. Technological differentiation easily copied. Limited import restrictions for foreign companies.
Suggested: Consumers do not have much price negotiating power, but do have choices; small differences among major brands; minimal switching costs. Major customers are corporate and government fleet managers, and the dealers themselves – who are powerful.
Suggested: Low – do not have much power, except single sourced ones, but key suppliers may emerge.
Suggested: No real substitute for personal automobile transportation – status symbol. But alternatives exist in public transportation, ride-sharing, bicycle/scooter, and foot power, especially in urban areas.
Threat of New Entrants
Medium
Suggested: Hard for new companies to fund startup, but threats could come from foreign companies’ imports and technology innovators.
Based on the external environmental factor analysis, the U.S. auto industry had many challenges to profitability, primarily from slow industry growth. Equally balanced competitors make it difficult to achieve any advantage.
Access the text alternate for slide image.
© McGraw Hill
Ford, like other automakers, was confronting four key threats:
One was from the ever changing levels of rivalry among existing automakers.
The second was the growing power of buyers such as corporate and government fleet managers and the dealers.
Third was the threat of new entrants with advanced technology, such as Tesla and even Apple.
Fourth was the threat of substitutes – consumers, especially in urban areas, were forgoing car ownership in favor of ride-sharing or alternate transportation modes such as bicycles. Clearly, there were a few large and equally balanced firms that were pitched in a battle for a greater share of the global market. Slower industry growth was resulting in an increase in this rivalry. Overcapacity and high exit barriers were also making a contribution to the industry picture. Another threat was coming from the power of buyers. Most buyers were clearly beginning to see more viable choices in terms of the firms from which they could buy, and the options available. Although there was some difference between the major brands, customers did not have to deal with any switching costs. Major customers were corporate and government fleet managers, car-rental firms, and the dealers themselves. Suppliers did not seem to have much power, but they did become more important as the industry pressures mounted for access to various specialized parts or components, such as batteries or fuel cells. A new series of threats were coming from the ascendance of companies such as Tesla and others who were developing new technologies, especially electric or autonomous vehicles, self-driving cars. In addition, if these vehicles did not rely on internal combustion engines, the core competencies of the traditional auto manufacturers would no longer apply. Finally, substitutes were emerging, especially in urban areas, as residents considered the cost of automobile ownership and opted for ride-sharing or bike/scooter-sharing to better navigate congestions in large cities. Based on this external environmental factor analysis, the U.S. auto industry had many challenges to profitability, primarily from slow industry growth. Equally balanced competitors made it difficult for any one to achieve an advantage. There was always the possibility for overcapacity and rivals were trying to attract customers away from each other through price-cuts and incentives. That was the dangerous trend in this industry because companies were spending as much as they would earn in order to retain their market shares. So, there was growth without profitability. This was true for most American companies, while Japanese companies were able to capture better value by concentrating on offering much sophisticated product designs and technology. Product differentiation was susceptible to quick imitation in this industry, and in the absence of switching costs it was difficult to retain customers. Also, companies had high exit barriers as there were high fixed costs of exit, and also because exit would have had tremendous impact on the employment levels in the economy (one of the reasons for government intervention).
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Ford
Internal Analysis
Value-Chain Analysis:
Sequential process of value-creating activities.
Amount that buyers are willing to pay for what a firm provides them.
Value measured by total revenue.
Firm profitable to the extent the value it receives exceeds the total costs involved in creating its product or service.
Q2: What internal resources and assets does Ford have?
© McGraw Hill
When one firm outperforms others by a wide margin over a long period of time, it’s important to figure out how this could be. The answer may lie in how that firm arranges its activities and creates unique bundles of resources that allow it to sustain a competitive advantage. We should assess the relationships between the elements in Ford’s value chain. Remember, value-chain analysis is a strategic analysis of an organization that uses value-creating activities. Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price a firm’s product commands, and the quantity it can sell. A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. Creating value for buyers that exceeds the costs of production (i.e. …
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