Sector Matrix for Ford Motor Company - Essay Example

Analysis of Sector Matrix for Ford Motor Company Introduction Three tools are largely popular and relevant for analysing as well as prescribing remedies pertaining to the improvement of organisational performance. These are the Value Chain – propounded by Michael Porter, the Global Commodities Chain (GCC) Framework – put forward by Gary Gereffi and Miguel Korzeniewicz, and the Sector Matrix Theory – conceptualised by Julie Froud. This essay will aim at critically examining whether the sector matrix framework, gives a better strategic understanding of product markets than the concepts of product or commodity chains. Literature review and discussions will be centred on the Ford Motor Company which is, apart from being one of the Detroit Three (Sperling & Gordon, 2009, P. 55), also a significant player in the global automotive industry. The essay will also try to discuss the significance of the said tools at firm level as well as sectoral level by taking into consideration the changes in organisational activities at the firm level and their impacts on the intermediate as well as the macro levels. Value Chain Analysis Propounded by Michael E. Porter (1985), the Value Chain model is centred on organisational processes. Generally the manufacturing facility is categorised into subsystems – each having its own inputs, throughputs and outputs. The efficiency of activities aligned through value chain determines the cost of production and hence influences the profitability of the organisation. The activities are grouped into primary activities and secondary/support activities (Needle, 2010, P. 275). Figure 1: Porter's Value Chain (Source: Institute for Manufacturing, n.d.) The five main primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and after-sales service, while the secondary activities comprise procurement, human resource management, technological development and infrastructure. It has been observed that Ford Motor Company (Ford) being a foremost player in the global automobile industry, its business activities have extensive influence on almost all aspects of its environment. Figure 2: Value Chain of Ford (Source: Ford-website-a, n.d.) The figure appended above represents the interconnectivity of the main phases of Ford’s value chain. The management of Ford has recognised the fact that “these issues are interconnected at each stage and that positive and negative effects in one part of the chain can reverberate in the other parts” (Ford-website-a, n.d.), and hence, is trying to infuse the different phases with sustainability issues. Ford is aiming at improving its manufacturing efficiency and simultaneously reducing emissions. Moreover the company is also using recycled materials and is trying to enhance the reusability of its vehicles as part of its environment-friendly operations. The automobile behemoth is augmenting its activities related to corporate social responsibilities (CSR) in order to improve its relationships all through its value chain. Keeping in mind the fact that all business operations boil down to profitability, the company is trying to enhance its capacity so that it may respond spontaneously to the challenges as well as opportunities meet the changing trends of customers’ requirements and fulfil the expectations of its stakeholders. Global Commodity Chains According to Gary Gereffi (1999) “a commodity chain refers to the whole range of activities involved in the design, production, and marketing of a product” (Gereffi, 1999, P.1). Commodity chains can generally be classified into two groups, viz. producer-driven and buyer-driven. In producer-driven chains large, multinational manufacturers play pivotal roles in the coordination of complex production networks. Such commodity chains can be observed in capital as well as technology intensive industries. The automobile industry, on account of compliance with both these parameters, serves as a typical example of producer-driven chain that is characterised by multifaceted production systems and the involvement of numerous firms. As Gereffi (1994) had previously opined, the three major dimensions of Global Commodity Chains are a well defined input-output structure, territoriality and corporate governance (Pietrobelli & Sverrisson, 2004, P. 18). The input-output structure comprises a group of products as well as services that are interlinked through a sequence of activities and add to the value of the organisation. The organisations need well defined spatial dispersion networks pertaining to production as well as marketing and should employ various enterprises for this purpose. Territoriality plays an important role in determining the volumes of sales that an organisation may achieve through its marketing and sales activities. Finally, the corporate governance activities that are adopted by the company shape the authority as well as distribution of power within the organisational hierarchy and in turn “determine how financial, material, and human resources are allocated and flow within a chain” (Pietrobelli & Sverrisson, 2004, P. 18). The automobile industry is highly fragmented and consists of numerous suppliers. The segment pertaining to auto parts is divided between OEMs (original equipment manufacturers) and replacement market. OEMs are firms that manufacture components that are used by automakers in order to assemble new vehicles. Players in replacement markets manufacture components in order to substitute items incorporated in original assemblies. Distributors and suppliers of both OEMs as well as replacement components may be autonomous organisations or auxiliary business units of larger organisations. Producer-driven chains are directed largely by brand owners, and the same phenomenon is exhibited by Ford as well, as it owns Volvo (Pietrobelli & Sverrisson, 2004, P. 19). Sector Matrix Firms are generally seen as linear supply chains, whereas industries are conceptualised as groups of firms that often share common technological platforms in order to produce similar outputs. This basic premise forms the foundation of Porter’s Value Chain. It has been observed that “within the value chain firms are constantly struggling to enhance cost recovery and reduce costs of manufacture” (Haslam, Neale & Johal, 2000, P. 87). In order to achieve these objectives companies often try to expand their markets and search for cheaper sources of labour. In the course of such activities it has been experienced that “analysis is constrained within a linear supply chain and industry-centred view of the world of business and so strategic choices are also limited by the value chain model constructed by Porter” (Haslam, Neale & Johal, 2000, P. 87). Figure 3: Sector Matrix for Motor Industry (Source: Haslam, Neale & Johal, 2000, P. 102) As can be understood from the figure above, the primary objective of such a matrix form is to comprehend the interactions between demand and supply and their role in shaping business policies. This type of analysis gives rise to “a matrix of horizontal and vertical relations” (Haslam, Neale & Johal, 2000, P. 103). Ford being an automobile behemoth, exhibits the Chandlerian model of industrial administration dominates the entire value chain (Bromberg, 2004, P. 5). Like its peers, Ford is highly diversified as well as vertically integrated, and hence it consumes a significant portion of overall value chain. Owing to this fact the internal dynamics of the company play a major role in shaping the value chain as well as commodity chain and sector matrix. For companies of Ford’s stature that manufacture standardised products aimed at mass markets, production is obviously considered to be the core competency and manifestation of economies of scale serves as a basic competitive factor. As can be observed from the figure, the sets of activities, viz. durable as well as services are necessary to strike a balance between the demand and supply that are existent in the market. While the Value Chain model emphasises on the excellence of production and the Global Commodity Chain stresses mainly upon creating an effective marketing network, the Sector Matrix incorporates the fundamental tenets of both these frameworks and conceptualises an integrative model that is centred on demand substitution and a complementary supply interaction that is strategised through organisational activities that are analogous to the primary activities of Porter’s Value Chain. It is a more focussed as well as balanced framework that helps in efficiently scanning the business environment and align primary organisational activities with the aim to achieve growth as well profitability. The supply initiatives taken by automobile companies in order to counter the demand levels in the market depend to a large extent on market saturation. It has been observed that car-owners often prefer to purchase second-hand cars because of their lower price, but in the long run lose money through repetitive servicing as well as higher fuel consumption. These in turn reduce the return-on-sales for automobile companies (Froud et al., P. 325). Car manufacturers should boost the supply by developing fuel-efficient vehicles by using economical resources. This will help the companies to tap customers who desire to own a nice brand at a cheaper price-tag. Ford has already been taking such initiatives by developing models like the new Econetic which is friendly to both the environment as well as the buyers’ pocket (Auto Trader, 2010). Conclusion As has been observed through the course of this essay, the primary aim of this research was to critically examine whether the Sector Matrix framework, gives a better strategic understanding of product markets than the concepts of product or commodity chains. Substantial efforts were put in to discuss the relative significance of this tool in analysing the strategic understanding of product markets at the firm level as well as the sectoral level. It has been seen that the basic objective of the Sector Matrix framework is to analyse the complex interactions between demand and supply prevalent in the market and the roles that they play in shaping business policies. It was found that this type of analysis gives rise to a template of horizontal as well as vertical relations between demand substitution and subsequent supply interaction. From the literature review undertaken to analyse Sector Matrix with respect to the automobile industry in general and the Ford Motor Company as the type organisation, it was found that for a capital as well as technology intensive industry like automobiles the concept of linear supply chain is highly prominent and hence the companies in this industry require continual alignment of organisational processes to meet the customers’ requirements through high volumes of production and simultaneously achieve profitability through economies of scale. Unlike Porter’s Value Chain and Global Commodity Chain, Sector Matrix has been found to be a more efficient tool for evaluating the business environment and aligning the overall business operations in order to reduce the costs of production and meet demands optimally. References 1. Auto Trader. 2010. Ford Fiesta Econetic Car Review. [Online]. Available at: http://www.autotrader.co.uk/EDITORIAL/CARS/FEATURES/FORD/FIESTA/ford_fiesta_econetic_car_review.html [Accessed on March 23, 2010]. 2. Bromberg, T. 2004. New Forms of Company Co-operation and Effects on Industrial Relations. [Pdf]. Available at: http://www.wiso.tu-dortmund.de/wiso/is/Medienpool/Arbeitspapiere/ap-soz05.pdf [Accessed on March 16, 2010]. 3. Ford-website-a. No Date. Our Value Chain and its Impacts. Sustainability Report 2008/9. [Online]. Available at: http://www.ford.com/microsites/sustainability-report-2008-09/operations-value [Accessed on March 16, 2010]. 4. Froud, J., Haslam, C., Johal, S. & Williams, K. 1998. Breaking the Chains? A Sector Matrix for Motoring. Competition & Change. Vol. 3. OPA (Overseas Publishers Association) N.V. 5. Gereffi, G. August 12, 1999. A Commodity Chains Framework for Analyzing Global Industries. [Pdf]. Available at: http://eco.ieu.edu.tr/wp-content/Gereffi_CommodityChains99.pdf [Accessed on March 16, 2010]. 6. Haslam, C., Neale, A. & Johal, S. 2000. Economics in a Business Context. 3rd ed. Cengage Learning EMEA. 7. Institute for Manufacturing. No Date. Porter’s Value Chain. Cambridge University. [Online]. Available at: http://www.ifm.eng.cam.ac.uk/dstools/paradigm/valuch.html [Accessed on March 16, 2010]. 8. Needle, D. 2010. Business in Context. 5th ed. Cengage Learning EMEA. 9. Pietrobelli, C. & Sverrisson, A. 2004. Linking Local and Global Economies: The Ties that Bind. Routledge. 10. Sperling, D. & Gordon, D. 2009. Two Billion Cars: Driving Toward Sustainability. Oxford University Press US. Read More