Business Strategy Analysis for Ford Motor Company - Essay Example

Table of Contents Executive Summary ……………………………………………………………………………2 Company Brief…………………………………………………………………………………..2 Industry Analysis: Porter’s Five Forces………………………………………………………2 Threat of Substitutes……………………………………………………………………2 Rivalry between Established Competitors……………………………………………3 Barriers to Entry…………………………………………………………………………3 Supplier Power…………………………………………………………………………..3 Buyer Power……………………………………………………………………………..4 Internal Analysis…………………………………………………………………………………4 Key Strengths……………………………………………………………………………4 Key Weaknesses………………………………………………………………………..4 Value Chain Analysis…………………………………………………………………………...5 Logistics………………………………………………………………………………….5 Operations……………………………………………………………………………….5 Marketing…………………………………………………………………………………6 Resource Management…………………………………………………………………………6 Financial Resources…………………………………………………………………….6 Human Resources………………………………………………………………………7 Physical Resources……………………………………………………………………..7 Intangible Resources……………………………………………………………………7 Cost and Benefit Drivers………………………………………………………………………..8 Economies of Scope……………………………………………………………………8 Economies of Scale…………………………………………………………………….8 Integration………………………………………………………………………………..8 Conclusion……………………………………………………………………………………….9 Reference List………………………………………………………………………………….10 Ford Motor Company: Business Strategy Analysis Executive Summary Ford Motor Company became a world-class automaker by employing specific competitive strategies. This paper uses Porter’s Five Forces and Value Chain to analyze the company’s strategic mechanisms in attaining that global edge. Company Brief Ford Motor Company sprouted in the American market around 1903 when Henry Ford, an engineer who offered important chunks of his time experimenting with gasoline-powered vehicles, incorporated Ford Motor Company with eleven other investors. Around 1908, Ford took control of the industry by introducing the Model T which raced around the market for almost twenty years. The company is especially famous for its contribution of the assembly line, granting the mass production of automobiles by 1913 (Ford motor, n.d.). For decades, it remained to be the second largest automaker worldwide, only behind General Motors (Freysennet, 1998). Today Ford has major operations in America, Asia Pacific Africa, and Europe. It used to manufacture diverse car and truck brands, to wit, Ford, Lincoln, Mazda, Jaguar, Aston Martin, Volvo, Land Rover and Mercury (Freysennet, 1998). Recently, however, it is streamlining (though less than an overhauling) its global and domestic approach to avert unwanted outcomes. Ford sold off Jaguar, Aston Martin, Land Rover, Volvo; and conclusive in ceasing the production of Mercury by the end of this year (Weaver, 2010). Industry Analysis: Porter’s Five Forces Threat of Substitutes. Automobiles give the end-users a sense of individuality which other modes of transportation (e.g. trains, and buses) don’t inherently offer. However this doesn’t give them an entire advantage. Owning private vehicles doesn’t only involve a costly purchase but also entails a probably costly responsibility as well in sustaining its usability mainly in times like repairing damaged parts/areas, or supplying gasoline. Moreover, in a global perspective, people are culturally and/or socially distinct (Bradley, et al., 2005). Not all people find automobiles a commodity. Thus, the threat of substitutes is only fair and varies greatly in different geographic market locations. Rivalry between Established Competitors. Though the oligopolistic structure of the automotive industry should partly eliminate price-based competition, the concentration ratios could no longer disguise the ongoing competition (Bradley, et al., 2005). This may not even be some sleazy plan to reinforce competition but a by-product of the economic slumps such that companies ultimately attempted to generate maximum sales to finance its operations. With Honda, Toyota, Volkswagen joining the game, competition has weakened the industry’s oligopoly. Barriers to Entry. Automotive firms who have entered the international arena have varied lucks. Established automobile companies usually form strategic alliances, take over ownerships, or combine with other companies to enter new markets where barriers to entry are relatively low. The same extent of entry exists in newer markets like Asia, Africa, and South America (Bradley, et al., 2005). Still, local market research is core tactic to survive in local markets. Supplier Power. Suppliers in the automotive industry are price-takers. Besides the fact that there has not been an expansive growth in this industry, they are highly dependent on extremely few automakers (Bradley, et al., 2005). This goes without saying that suppliers are submissive to the firm’s whims while firms, in turn, enjoy a relatively strong power over them. Buyer Power. Consumers are usually the price-makers in the automotive industry. Such is the case because of the moderate threat of substitutes. Consumer sales form part of the higher percentage of sales more than the fleet sales (Bradley, et al., 2005). Furthermore, the company only possesses a low bargaining power but with a huge consumer base, automotive firms may remain to be adaptive and a grounded industry for a long time (Bradley, et al., 2005). Internal Analysis Key Strengths. For decades, Ford Motor has been the second largest automaker in the world. International brand awareness is one of its key strengths. That alone complements its product quality and at the same time gives Ford ample opportunities to grow wherever and however it wants. Its corporate reputation granted the company a strong market base in Europe and a strengthening one in North America (Ford Motor, 2010). Another key strength of Ford is its subsidiary, Ford Credit. Ford Credit proved stability when it supported automotive companies during the times after banks ceased to finance. Only this second quarter this year, it already generated $ 888M (Ford, n.d.b). Ford Credit is a subsidiary asset that may give the company an easy entry into other necessary strategic alliances should they plan to since it is a value they could add. Key Weaknesses. Ford Motor’s bureaucratic management approach may hinder fast implementation of activities essential for company growth. Its organizational structure has six management layers (Hitt, et al., 2009) that actually lead to an internal strife around 1960 further resulting to the failure of its Edsel car (New York, n.d.). Besides, bureaucracy often gives way to personal interests than to organizational interests. Ford bought stakes from Mazda in 1979 and gradually forged an epitome of a healthy tie-up in the automotive industry. Ford Motor and Mazda have seen how beneficial it was to produce for both companies, (i.e. Ford being the manufacturer of Mazda 6 and Ford Mustang). However, Ford is now selling its shares in Mazda – possibly indicating a crumbling alliance with Mazda (Reuters, 2008). With all the technological benefit offered by Mazda, Ford will be susceptible to change course. Value Chain Analysis Logistics. In effort to ward off further harm to its already grim financial position, Ford concerns itself with any way that could trim down costs. It keeps an efficient supply of its materials when it centralized its transportation. It is installing Order Dispatch Centers (ODCs) in plants while integrating IT solutions. In which case, Ford Motor was able to minimize problems with transportation, needless costs and surplus in shipments (Penske n.d.). Operations. Historically, Ford Motor only took on a local approach to gain competitive advantage. It was not until 1994 when it applied a new and global principle to restructure its value chain. Now, it considers sustainable development in every stage of its manufacturing activities (i.e. cutting emissions, and improving recyclability of its vehicle parts without compromising the needs of its consumers and stockholders) (Ford, n.d.a). As a matter of fact, Ford is designing hybrid cars (Explorer) which are noted to have a valuable environmental performance (Ford introduces 2010). Marketing. Effective marketing efforts made Ford a big and trusted name in the automotive industry. Besides its eco-friendly automobiles, Ford Motor had consistently been stuffing massive importance on quality. Just of April last year, Ford Taurus, Mustang, and Ranger passed to be high-quality performance vehicles according to a reputable survey. It defeated Honda while tying up with Toyota (Grayson, n.d.). Quality is what all companies always seemed to be about, but with Ford Motor’s constant emphasis on it, the company created a huge satisfied consumer base. To keep close contact with its consumers, Ford Motor also strategized the Ford Advantage Plan. After buying a new 2009 automobile, anyone laid off from the job may receive $ 700 monthly cash for a year from Ford Motor - another seemingly attractive marketing scheme from the company (Grayson, n.d.). Resource Management Financial Resources. Ford Motor technically slumped together with the economy during the recession. Yet still it was able to prop itself up without the need of government assistance unlike General Motors and Chrysler (2010). Central to that end was its Six Sigma program which aimed to knife out wanton costs (Penske, n.d.). Since then, the company showed signs of yearly improvement. In its second quarter this year, the profited $2.6B – a $ 338M difference from the same quarter last year and $ 932M difference from the previous quarter. Also, it preserved enough control in the once-weak North American market where the company generated a $6.2B improvement in the second quarter this year from a year ago (Ford, n.d.b). To shore up the business, it has been restructuring through cutting down costs from its operations to manpower especially in North America. It could be implied then that they wanted to achieve domestic advantage in its home market and to outlast its other major competitors (Ford n.d.c). Human Resources. For the past four years, Ford Motor lessened its workforce almost into half (from 300,000 to 176,000). The most marked reduction was in its North American operations, reducing more than half of its employees. This reduction was in line in its effort to go back to profitability in the said market. The company kept reducing still in 2009 by 10 per cent. Furthermore, the company entered into negotiations with labor unions in different countries permitting the company to minimize costs in workers’ incentives (e.g. bonuses, and educational assistance) (Ford, n.d.c). Physical Resources. Around six continents, Ford Motor currently has 80 plants (from 108 plants in 2008) which house the 176, 000 workers. Forming part of its global strategy was the establishment of the Worldwide Engineering Release System (WERS) for efficient engineering and production (Ford, n.d.d). Intangible Resources. Ford Motor’s high quality products and services founded its solid reputation. Though the Bridgestone/Firestone controversy and the health care and pension obligations once tarnished its corporate name, it was able to garner its stockholders’ and dealers’ trusts back when it rose from the recession without government bailout. Around 1997, the company decided for a consumer-oriented entrepreneurial approach. Ford Motor developed a “Knowledge Domain Team” to increase its knowledge base using an intranet. Consequently, the company enhanced the searching experience of its consumers when the “domain team” was able to gather intelligence information (Retail analysis, 2010). Ford Motor’s strategic alliances in different markets around the world further balanced the company’s competitive edge. These affiliations allowed Ford Motor to operate at the most minimal costs while generating the possible maximum revenues. Cost and Benefit Drivers Economies of Scope. Ford uses the same the production lines in manufacturing varied vehicles. As a result, it managed to have cost-efficient and time-saving production. The same internal combustion engines support its cars and trucks. In this sense, the company attains economies of scope allowing the production to be flexible (e.g. repairing and recycling parts easily) (Simley, n.d.). Economies of Scale. Ford Motor’s contribution of the assembly line changed the way how automakers manufacture vehicles. Every line involves specialization which helps cut down costs in the long run. Hence, in the automotive industry, economies of scale are easily reached. Besides that, Ford Motor is improving its fuel economy while increasing mileage in consideration to the environmental issues involved with automobiles since the 1980s (Bradsher, 2000). Integration. Deintegration is trending now in the automotive industry. Even Ford Motor already showed signs of deintegration since the early 1990s and so did other automakers. During that time, automakers started purchasing finished parts and units (seat assembly operation, leather and fabric seat operations) from suppliers in the hope since acquiring these parts would is less costly than manufacturing them (Madura, 2006). Even then, Ford Motor had been remarkably reducing its level of vertical integration. Such a strategy requires increasing specificity in assets that it becomes stiff for the company in the long run. At some stage in the recession, Ford Motor sold off Land Rover and Jaguar to Tata Motor at a discount. Before that, it got rid of Aston Martin to a consortium in 2007 (Lawrence, 2006). Now, it is relinquishing ownership of Volvo to a Chinese conglomerate (Bolduc, 2009) and discontinuing Mercury by the end of this year. Besides earning from these series of sell ups, it permitted the company to focus on its core brands - Ford and Lincoln. Ford Motor extends into different segments such as financing services (Ford Credit), and important units (rubber plantations, parts manufacturing) which focus on its core brands. Conclusions It was quite notable that Ford Motor learned the hardest way since its establishment almost a century ago. Even then it was the only automaker which emerged the strongest among other pioneering competitors (General Motors, and Chrysler). Though Ford had been gearing up for an environmental, social and economical sustainability while keeping the quality in every move it makes, it will have a long way to go especially with its strong global brand awareness. Ford also puts important stress on its intangible assets which actually builds a long-term competitive advantage and which they are gaining. Furthermore, Ford maintains careful control of an efficient value and supply chain enabling it to have a bird’s-eye view on what works and what doesn’t. Trimming down costs may be financially beneficial to the business but may not be to its manpower. Especially the legal action it might face right now as reports indicate, its reputation may once again be smeared the same way the Firestone controversy did to its name. Reference List Auto editors of consumer guide, n.d. 1960 Edsel. [online] Available at: http://auto.howstuffworks.com/1960-edsel.htm [Accessed 28 July 2010]. Bradley, D., et al., 2005. Automotive industry analysis. 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Economies of scope. [online] Available at: http://www.enotes.com/biz-encyclopedia/economies-scope [Accessed 28 July 2010]. Read More