Managing capability of Ford Motor Company - Coursework Example

Managing Capability Table of Contents Introduction 3 Organisational Resources and Capabilities and their Contribution 5 Tools and Frameworks to Evaluate Strategic Capability 6 Value Chain Analysis 7 Balanced Scorecard 7 Benchmarking 8 Ratio Analysis 9 VRIN Analysis 10 SWOT Analysis of Ford Motors 10 How Ford Obtains Competitive Advantage Through Its Capabilities 11 Conclusion 15 References 16 Introduction Managing capability is a vital constituent for an organisation in the present global business environment. Resources and capabilities are the major elements possessed by an organisation that facilitate it to gain sustainable competitive advantages. The organisations also need to lucidly distinguish between resources and capabilities. This is because a corporation may possesses firm-specific along with invaluable resources, however unless it possesses the capability to leverage those resources efficiently, it might not be capable towards creating a decisive competency (Hill & Jones, 2009). Capabilities of an organisation can be segregated into two deliverables including threshold capabilities and capabilities for gaining competitive advantage. These capabilities are driven by tangible and intangible resources that constitute of threshold and unique resources. Moreover, competencies are also a critical aspect of capabilities which entail core and threshold competencies. A complete amalgamation of these aspects and a well-organised organisational outlook can facilitate companies to manage capability for gaining sustainable competitive advantage (Cultivate, n.d.). Ford Motor Company has emerged as one of major sustainable companies in the automobile industry which makes utmost use of its resources and capabilities to derive competitive advantages. The company has focused on providing exceptional values to its customers all over the world. It has a unique combination of power and technology that makes its every vehicle a special one. A few of the very well known brands of Ford are Fiesta, Focus and Fusion. Mobilitys Muse started Ford Motor Company in the year of 1903 with the investment of US$28,000. It used to manufacture classic elegant vehicles but now with the advancement of technology and in keeping with evolving trends it is presently manufacturing high-tech business class vehicles. It also helps newer drivers all over the world to become safer drivers. In terms of its distinct capabilities, from the handling of vehicles to the elegant exterior finish and superior luxury interior, in every single aspect Ford has been mostly able meet the expectations of the national as well as global markets. It also manufactures trucks and utility vehicles. It always focuses to create a strong business periphery to serve the world better. In this endeavour, it has been taking initiatives for the betterment of the society by way of Corporate Social Responsibility (CSR). Ford has been ranked amongst the top 25 firms for its contribution towards CSR by “Tomorrow’s Value’. In this regard, Ford revealed that it manufactured it vehicles that consume less fossil fuel which leads to less carbon emission. In its long-term strategy, it has been stated that it is continuously reducing greenhouse gases from its manufacturing operations. More than 600 workers of Ford have been helping children and families who need aid with the help of non-profit organisations. It also helps to improve education segment and communities. Currently approximately 166,000 employees are workings in Ford all over the world [1] (Ford Motor Company, 2013). With these considerations, the paper intends to undertake a resource based analysis of Ford Motor Company which will take into consideration certain tools and frameworks such as Balanced Scorecard, Ratio Analysis and VRIN among others. Organisational Resources and Capabilities and their Contribution Ford is enriched with a unique set of resources and capabilities. Resources are actually productive assets of the firm which can either be assets like plant and machinery or can also be human resources. It may be tangible or intangible. Any productive resource can facilitate an organisation such as Ford to attain greater competitive advantage by rendering unique and exclusive offerings. In order to obtain desired outcomes the resources of an organisation need to work together in a synchronised manner. Capabilities can also serve different purposes like sales and distribution, research and development, operations and technological as well. The notion of resource based view (RBV) of a firm emerged in the year of 1990 where it has been determined that resources are the main factors of the firm for the strategy formulation. The RBV and the dynamic-capabilities approach (DCA) help to develop very highly related stream to research in the strategic management. RBV and DCA differ from firm to firm. There should be proper and full utilisation of resources to maximise its profits. Stakeholders of the firm like competitors, customers and suppliers also make their strategies towards a firm after analysing its resource and capabilities (Capron & Chatai, 2007). Organisational capability denotes management capabilities of internal resources of any organisation, for example, its human resources and also its competition with the other competitors. Organisational capabilities always work for the betterment of Ford Motors like it manufactures only those vehicles which demand is high in the market and which differs from any other product in the market in the same segment. Growth of organisational capabilities can increase the earning of a small firm. By improving customer relationship, recruiting knowledgeable workforce, forming flexible planning program and responsiveness, and creating competitive advantage Ford has excelled in its segment. Ford has lunched a few especially designed steps to create better relationship with its customer. For these, it has lunched two new websites namely www.customersaskford.com and www.dealersaskford.com, where existing and potential customers of Ford can clarify their any kind of confusions and questions. Ford has been taking steps to interact more and more with the customers through web based channel (Cisco Systems, Inc, 2007). Recruiting knowledgeable workforce is another vital organisational capability of Ford which increases its productivity and quality. Ford Motors is a globally leading automatic company based in Dearborn, Mich, having its manufacturing and selling business in six continents. It is a highly competitive vehicle manufacturer, so it earnings are quite high. In recent times, Ford has intended to add 2000 new employees in Missouri plant in the US to meet its demand for trucks. It has given huge employment opportunities to the unemployed youth (Bloomberg L.P, 2013). Tools and Frameworks to Evaluate Strategic Capability A fundamental facet of strategic management is how a firm manages and sustains its competitive advantage. To evaluate strategic capability, there are a few tools which can be used to understand the prevailing scenario of Ford such as value chain, balanced scorecard, benchmarking, ratio analysis, and VRIN. Value Chain Analysis Value chain is a special chain of activities which a firm uses in order to deliver high performance for the offered products and services. There are a few kinds of value chains that are available like traditional or physical value chain and virtual value chain. Value chain is used as a powerful tool to make strategic planning. Contextually, it is observed that Ford always aims to maintain a coherence amid the varied components of its value chain structure to ensure better business design, which starts with product planning and design, transportation, procurement of raw materials, bringing parts and components, assembling and painting, sales, use, service and ends with the conclusion of the life cycle known as product life cycle (PLC). Supply chain is a crucial component of value chain which comprises building capability at particular supplier facilities, engaging with strategic suppliers and collaborating with peers in the automotive industry. Ford is transforming itself from a legacy auto maker to globally acclaimed vehicle manufacturer. Moreover, in this regard, Internet has rendered a value chain service which has aided the business of Ford in recent years. After creation of web based chain system, Ford has saved a substantial figure of working capital by cutting down its excessive expenses (Nasse & et. al., 1999). Balanced Scorecard Balanced scorecard is a strategy formation and management tool used for managing organisational capabilities. It is a strategic framework which facilitates to comprehend a holistic viewpoint of an organisation that in turn enables to attain competitive advantages. This significant framework was developed by Robert S. Kaplan and David P. Norton. In balanced scorecard, there are certain parameters which include financial (financial performance measures), customer, learning and growth along with internal business perspective among others. Ford establishes accountability for its health and safety issues through its scorecard process. The company has a comprehensive set of environmental targets and a detailed scorecard to report an appraisal against these targets. Ford has strong financial resources which drive it to formulate its strategies. It also undertakes continuous learning in terms of making sustained innovation in its offered vehicles through the aid of research and development (Nasse & et. al., 1999). Benchmarking Benchmarking is a process which enables an organisation to measure its existing position with that of its nearest competitors and market leaders in the industry. It is an ongoing task to implement world’s best practices to deliver customer satisfaction. There are several types of benchmarking such as product benchmarking, process benchmarking, strategic benchmarking and performance benchmarking. Product benchmarking is also known as customer satisfaction benchmarking. It can be used to recognise the basic performance and other features present in a product to boost customer satisfaction. On the other hand, performance benchmarking is used to measure the inter-firm comparison. It is also known as result benchmarking. Ford uses internal and external benchmarking. Internal benchmarking facilitates it to find out best leadership attributes from the plant which has shown outstanding performance. External benchmarking on safety processes helps it to achieve remarkable performance. Ford always prefers roles and responsibilities based benchmarking. It intends meet its benchmarking endeavours based on fairness and transparency and follows human rights code regulations in its activities such as Romanian labour law (Nandi, n.d.). Ratio Analysis Ratio analysis is a tool to analyse the financial health of an organisation. Ratio analysis is done from the data of balance sheets and other financial statements of current year to compare it with the ratios of previous years. Certain key ratios used by Ford are depicted below: Ratios Ford’s Present Status Current Ratio 3.3 Quick Ratio 3.1 Debt Equity Ratio 597.7 Receivables Turnover Ratio 12.2 Asset Turnover Ratio 0.7 Inventory Turnover Ratio 15.0 Return On Equity 33.97 Return On Capital 3.42 Sources: (Kocia, n.d.; Bloomberg L.P, 2013) Additionally, it can be stated that current ratio facilitates to determine whether a company has enough liquid cash in hand to pay its debt. It should be in between 1.5 to 3. However, in case of Ford, its 3.3, thus, Ford needs to strictly consider this factor. VRIN Analysis VRIN analysis takes into consideration four major components including valuable, rare, in-imitable and non-substitutable. This analysis is done by companies to obtain competitive advantage on the basis of resource based view. Capabilities are a special kind of resources of a firm to increase its productivity. Resources of any firm consist of its organisational processes, assets, capabilities and knowledge among others. In case of Ford, valuable resources of the company include its human resources, plants and machineries and research and development segment among others. Similarly, rare resources of Ford include its offered new fusion hybrid and other environmental friendly offerings. Contextually, in-imitable resources of Ford entail its technical competencies and non-substitutable resources comprise its organisation design which focuses on continued innovation and cooperation [3] (Ford Motor Company, 2013) In this respect, SWOT analysis will provide a way to understand the strengths and weaknesses of the company. SWOT Analysis of Ford Motors Main strength of Ford is high skilled employees who lead to high production, strong brand awareness and strong technological usage. Its main weakness is continuous decline in its global market share. Emerging economies like China and India where there is certainly an increasing demand of quality and exclusive vehicles are its main opportunities. Moreover, Ford’s dual fuel vehicle can be an opportunity in the American and European markets. A crucial threat would be continuous high class vehicle production from the main competitors (Yousigma, n.d.). How Ford Obtains Competitive Advantage Through Its Capabilities Existence of a firm depends upon its profit earnings. Profit is calculated by deducting total cost from total revenues. This amount is called gross profit of earning before interests, taxes and depreciation (EBITD) after it needs to deduct taxes and depreciation to get net profit or earnings after taxes (EAT). Thus, to calculate earnings per share (EPS), it needs to deduct preference share capital and then that amount needs to be divided by the number of equity share. A firm’s aim always should be to maximise the value of its share. Currently, Ford’s share price is 13.83+0.42‎ (3.13 %‎) as on 3rd May as per New York Stock Exchange (NYSE). Ford’s gross profit has gone down a little year-on-year basis from USD 19,305 Millions in 2011-2012 to f USD 18,559 Millions in 2012-2013 [2] (Ford Motor Company, 2012). It’s not a good sign for the company. High profit leads to high EPS, which leads to high demand for the companies share. Managing investment decisions is another tough task for the managers. Designing the perfect capital structure for the company is very important, which is a sound combination or mix of equity and debt financing. Equity financing leads towards distributing greater amount of dividends to shareholders while debt financing leads to more interest chargeable to financial institution. On January 10, 2013, Ford declared to pay US$0.10 per share as dividends [2] (Ford Motor Company., 2012). Thus far, as the capabilities are concerned, it depends upon how a firm manages its cash inflows, return on capital employed, its turnover and margins. In the United States, Ford has been expanding its business at a rapid force, which has led to employment creation by a considerable extent. It’s planning to hire 2200 salaried workers in 2013. It is also going to invest US$6.2 billion in US plants by 2015 which this will create 2350 new hourly jobs. From these endeavours, it can be easily comprehensible that it has strong human resource capabilities. Ford is aiming to focus on increased expansion strategy to gain more and more market share. It has expansion plan on capacity and on new equipment in December’ 2013 worth US$773 million [3] (Ford Motor Company, 2013). Managing capability is a major responsibility for any kind of organisation. It greatly deals with every function of management such as marketing, finance, human resource, operations and information system. In marketing, it uses various kinds of marketing motivational models, marketing mix, strategic management models, and advertising and sales promotional methods. Market segmentation and market positioning need to be done to have the cutting edge competitive advantage. Marketing aspect of Ford Motors is organised in segments such as Ford marketing and sales, Ford customer service division, global marketing sales and service and global product marketing planning and strategy in a well established manner, which enable it to gain competitive advantages. Ford has substantial human resource force and its recruitment for inculcating new workers is a continuous process. Mostly, it recruits trained staff, by doing that it can save a big portion of capital as there will not be that much of training and development expenses. Ford has its unique one plan, one goal and one team strategy [3] (Ford Motor Company, 2013) Human resource of Ford consists of business operations, labour relations, workforce planning along with recruiting, benefits, compensation, personnel relations, organisation development, learning and development segments and HR strategy. Ford is also famous for its information technology segment. Customers of Ford can check their vehicle status at any time. On the other hand, resource based view (RBV) is an approach by which a firm can differentiate its actual performance and target performance in terms of its assets. Resource is actually what a firm has and capabilities stand for what it can do with the use of its available resources. The less difference between resources and capabilities shows a firm is competent enough. There always should be full utilisation of its available resources then only a firm can survive in the competition. Ford’s main advantages are regarding its decision making capabilities. It’s flexible and adaptive as well which enable it to obtain strategic competitive advantages. In the present scenario, a firm cannot survive by only selling its products. For that it needs to earn goodwill by serving the globe in terms of corporate social responsibility (CSR). According to Ford Motors’ survey Ford and Lincoln provide aids worth US$35.1 million and US$84.6 million to the charities and non-profit organisations. Ford grants fund to local education by its Ford Britain Trust program. As a result, Ford has been recognised by the Ethisphere Institute, as a leading ethical company in the globe [4] (Ford Motor Company, 2013) Ford also has taken various environment friendly steps to reduce emissions like clean diesel engines, small displacement turbo petrol engines, bio fuel-compatible vehicles, electric hybrid, and hydrogen internal combustion and fuel cell technologies. Wind turbines of its sites generate around 6.7 million kilowatt hours electricity which is sufficient to lighten 2000 homes. It also takes the responsibility to dispose of its old vehicles battery free of charge from the customers end to keep the environment clean. Resources of the firm must also protect the trade secrets and the use of legal standards. Research and development capability should always be there to keep a firm’s product up-to-date as per the market. In this regard, Ford has a number of many skilled workers who manage all its management segments. Its human resource engaging in engineering segment always maintains high standard towards its manufacturing process. These aspects entail body engineering, electrical and electronic system engineering and chassis engineering among others. Ford is completely versatile on purchasing its product parts and services. It organises itself in such a way so that it can take decisions fast enough regarding its business strategy, global vehicle production facilities, global power train purchasing, materials along with services purchasing and global supplier technical assistance [4] (Ford Motor Company, 2013) Conclusion It can be said that there should be well driven resources and capabilities to gain profits. The profit earning capabilities of a resource or capability depends upon appropriability and sustainability of competitive advantage. Strategy should be designed after determining the potential capabilities and resources. On the very first stage, capabilities should be selected by the way of identifying, ranking. Then, capabilities should be building up by renewing existing one or combining old with the new one. After building the capabilities, firms should deploy its capabilities like leveraging, transferring, exploiting and reconfiguring. Finally, it should protect its capabilities (Birchall & Tovstiga, 2005) References Birchall, D. & Tovstiga., G., 2005. Capabilities for Strategic Advantage. Curran Publishing Services. Bloomberg L.P, 2013. Ford Adding 2,000 Workers. News. [Online] Available at: http://www.businessweek.com/ap/2013-05-02/ford-adding-2-000-workers-to-missouri-plant [Accessed May 06, 2013]. Capron, L. & Chatain, O., 2007. Faculty and Research. Alliance. [Online] Available at: http://www.insead.edu/alliance/research_center/docs/capron_chatain_competitors.pdf [Accessed May 06, 2013]. Cisco Systems, Inc, 2007. Ford’s Innovative Customer. Success Story. [Online] Available at: http://www.cisco.com/web/about/ac79/docs/wp/Ford_CS_1119.pdf [Accessed May 06, 2013]. Cultivate, No Date. Business Tool: Resource Analysis. Rationale and Application. [Online] Available at: http://www.cultivate-em.com/uploads/business-tool---resource-analysis.pdf [Accessed May 06, 2013]. [1]. Ford Motor Company, 2013. One Team, One Goal. Our Company. [Online] Available at: http://corporate.ford.com/our-company [Accessed May 06, 2013]. [2] Ford Motor Company, 2012. Managements Discussion and Analysis of Financial Condition and Results of Operations. Profitable Growth for All. [Online] Available at: http://corporate.ford.com/doc/ar2012-2012%20Annual%20Report.pdf [Accessed May 06, 2013]. [3] Ford Motor Company, 2013. Discover Why Its a Great Time to Work at Ford. Career Paths. [Online] Available at: http://corporate.ford.com/careers/career-paths/human-resources?&ccode=IN [Accessed May 06, 2013]. [4] Ford Motor Company, 2013. Looking Out For Local Communities And Environmental Issues. Corporate Social Responsibility. [Online] Available at: http://www.ford.co.uk/experience-ford/AboutFord/CorporateSocialResponsibility [Accessed May 06, 2013]. Hill, C. & Jones, G. R., 2009. Strategic Management: An Integrated Approach: Theory. Cengage Learning. Kocia, A., No Date. Ratio Analysis. Comparative Analysis: Ford Motor Company Toyota Motor Corp. [Online] Available at: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CDkQFjAB&url=http%3A%2F%2Fcoin.wne.uw.edu.pl%2Fakocia%2Fasf%2FPresentation_Ford%2520%26%2520Toyota_en.ppt&ei=efqFUarxJoizrAe2p4DoBQ&usg=AFQjCNEs2tM5ZglGkAPeeIi-54Pb7MwiUw&sig2=vERA-7m0NNsnOIhIW-BS4Q&bvm=bv.45960087,d.bmk [Accessed May 06, 2013]. Nandi, S.N., No Date. Benchmarking. Knowledgebase. pp. 53-60. Nasse, J. & et. al., 1999. Automotive clicks. Customer Fulfillment in the Digital Economy. pp.6.1-6.4 Yousigma, No Date. Ford Motor SWOT Analysis. Comparative Analysis. [Online] Available at: http://yousigma.com/comparativeanalysis/fordmotorswot.pdf [Accessed May 06, 2013]. Read More