Strategic Management Of Ford Company - Assignment Example

Strategic Management of Ford Company Table of Contents Table of Contents 2 Introduction 3 Stakeholder Model: Ford 4 Competitive Forces that Exist within the Automobile Industry 7 Competitive Rivalry within the Industry 8 Threat of Substitutes 9 Bargaining Power of Customers 10 Bargaining Power of Suppliers 11 Threats of New Entrants 11 Corporate Social Responsibility 12 Conclusion 13 References 14 Introduction Strategic management refers to the evaluations, decisions and actions undertaken by an organization seeking to build and sustain a long-term competitive edge over its rivals over time (Dess, Lumpkin. & Eisner 2008). It involves an analytical assessment of the organization’s set strategic goals including its mission, vision and the overall objectives that guide its operations. It also entails the process of decision making that empower the organization in identifying their choice of action and relevant procedures to be taken in executing the chosen line of action. Finally, strategic management assists in dictating the actions necessary to facilitate the implementation process of the set strategies. These actions are intended at supporting the decisions that would otherwise be rendered redundant if they stood alone. The organization’s management is responsible for developing the strategies necessary to guide the daily operations of the organization so that it is able to compete better with its rivals. In strategic management, there are various models in place that seek to assist companies achieve economic feasibility and at the same tie establish their presence in the markets in which they operate. This essay focuses on Ford’s strategic campaign through two such models; Porter’s Five Forces model and the Stakeholder model. The Ford Motor Company was founded by Henry Ford in 1903. Initially based in Michigan, USA, the multinational company has grown into one of the world’s largest motor vehicle producers. At its incorporation, the company had twelve investors. The company has since grown and currently has ownership of Lincoln line of vehicles as well as a sizeable stake in Mazda. Ford currently ranks fourth in accordance with Forbes list of 2014’s biggest auto companies after Toyota, the Volkswagen Group and Daimler which rank first, second and third respectively. Currently, Ford sells its vehicles all over the world but its predominant market remains the United States. Stakeholder Model: Ford Freeman, who is considered the “father of the stakeholder concept”, developed a number of definitions for the term stakeholder. In one, he considers a stakeholder to be any group or individual that prevails over or is prevailed upon by an organization’s operations. In another definition, he states that stakeholders are those groups that are vital to the sustenance and prosperity of a company (Fontaine, Antoine & Stefan 2006). Under the stakeholder model, a value creation concept exists that thinks of stakeholders as any person or group that increases value to an organization or, in dealing with the company, assumes some form of risk. Ford pinpoints its stakeholders through assiduous internal discussions during the inception phases of their sustainability agenda development. The company pays significance focus to its stakeholders and the value they offer it in its quest to dominate the motor industry. Currently, it involves its stakeholders in its operations both formally and informally. Ford employs various mechanisms to ensure all stakeholders’ inputs are considered and addressed as regards sustainability and societal matters. The stakeholder group at Ford consists of dealers, suppliers, investors, employees, customers and communities. Furthermore, the company also strives to build and nurture good working relations at the societal level with partners including but not limited to government agencies, civil right groups, unions, academic institutions as well as non-governmental organizations. Ford considers its employees as a fundamental stakeholder group and the driving force behind the company’s growth and success. In 2010, Ford had workforce 164,000 strong working in its 57 research and development facilities, 73 plants, 106 sales point and 57 research and development facilities distributed throughout the world. Ford’s employees benefit directly from the company through the income they earn. Additional benefits are realized through incentives such as medical cover, scholarship programs offered and capacity building initiatives, all aimed at improving the quality of lives of its workers and to ensure they remain motivated. Most of the company’s employees form part of worker unions which the company works closely in association with (Fordmotorcompany 2010). Customers are an important stakeholder group at the Ford Motors Company. The company enjoys a global consumer base consisting of about 5.5 million people exclusive of corporate clients. Ford’s customer stakeholders lay within three distinct groups; large commercial fleet clients, small business customers and individual buyers. Ford’s relationship with its customer base is somewhat mutually beneficial in that the company is able to generate income from the clients whereas the clients are able to enjoy the products and services offered by the car maker. Maintaining and developing this relationship forms the basis of strategic management since it is through this manner that the company can be able to compete in the market (Fordmotorcompany 2010). Ford also makes a point of interacting with various communities across the world. These communities consist of diversified groups such as civil societies, government agencies, employee unions and other community based organizations. These groups and individuals collectively link up to form communities which Ford has developed a working relationship with. Together, they work closely on issues concerning the environment, gender mainstreaming, labor management and human rights campaigns. Ford cooperates, directly and indirectly, with communities across the world on development and sustainability causes through charity events and development campaigns (Fordmotorcompany 2010). Dealers are another equally significant stakeholder group consisting of autonomous employers as well as other local economical benefactors. Dealers such as Gaplin Ford and various Lincoln dealers are considered to be emblematic of Ford to the community with which the company liaises and its clients. At the end of 2010, the company had approximately 12,000 dealers globally. The company strives to ensure that dealers receive sufficient cost-effective and quality stock in a timely manner so that they are able to benefit from the profits and revenue generation opportunities arising from the sale of motor vehicle (Fordmotorcompany 2010). Another stakeholder category that is rudimentary to the car maker’s operations is its suppliers since their successes are intertwined. Ford has approximately 1,400 production suppliers in addition to its 9,000 non-production suppliers for assembly as well as non-production deliverables including computers accessories and other marketing services. The relationship Ford has with its suppliers can be considered symbiotic in that the company’s capacity to produce and delivery are enhanced by the suppliers while at the same time the suppliers are well compensated for their efforts (Fordmotorcompany 2010). Ford has over 162,254 investors whose role in ensuring that the company is economically sustainable and is capable of delivering on its promises to other stakeholders cannot be over emphasized. Apart from incurring risks, the company’s investors put in time as well as resources into the company so as to increase the worth of their investments through profit generation and other financial returns such as dividends (Fordmotorcompany 2010). In some instances, stakeholders’ interests overlap. In the automotive market, such conflicts center on the quantity and/or quality of products as well as the modes or patterns of payment. In essence, each stakeholder is vested in their own interests. For instance, whereas dealers would rather maximize profits by selling vehicles at the highest possible price, this move infringes upon the interests of customers who then can only meet their mobility needs at this high costs. Similarly, where suppliers opt for lower production costs by using lower quality goods and services, the customers has to contend with the sub-standard quality of goods they receive. In another instance, investors may want to reduce operation costs by downsizing the company’s work force. Failure of suppliers to deliver on time due their inconveniences could hinder dealers from attaining their sales goals. Gardner’s power/interest matrix highlights the business concerns held by the various stakeholder groups and also the influence that these particular stakeholder group have on the company’s policy. In ideal situations, stakeholder groups would share the influence equally. Often, this is never the case. Certain stakeholders exercise greater control with regards to the company’s policies. As such, it becomes crucial to determine the importance of each group and align the company’s strategies with the level of effort needed to satisfy the needs of each group. In Ford’s case, four stakeholders form an integral part of the company’s operational and growth objectives and they include investors, customers, employees and suppliers. Communities and dealers, though they play a crucial role, may influence the company’s policies at a lower magnitude. The implications of eliminating these two groups would Competitive Forces that Exist within the Automobile Industry Ford produces and sells self-powered vehicles including trucks, cars, farm and other commercial vehicles. The automotive market can be considered as competitive in a perfect notion. The market has various players that differ in size as well as the products and services they offer to clients and as a result, customers are exposed to a variety of goods that vary in shape, size and quality. The meaning of this is that each client is able to opt for a product that suits their automotive needs. Here, brand marketing and loyalty are crucial factors that work in favor of select companies. There is also a clear pricing formula attributed to each company and hence prices are a product on the customer demands which in turn dictates the goods that customer are more likely to demand. As with all business endeavors, some form of competition exists that sets out to challenge the attainment of business growth objectives. Strategies are developed in order to overcome such competition and drive the company towards the achievement of profits. Effective management strategies are aimed at enabling companies to comprehend and cope with elements of the market that harbor competition. In effect, market competition may not necessarily come from direct competitors but through other agents such as suppliers, new potential entrants, possible substitute products and even suppliers. All these factors are considered to be competitive forces. Porter’s Five Competitive Forces has become a useful tool by which the management of companies can understand the best strategic direction to adopt so as to achieve their long-term objectives. The forces seek to determine the level and intensity of competition within a target market as well as the profitability that the organization can accrue within the industry. Fig 1. The diagram below represents the five competitive forces within any industry (Hill & Jones 2010). Competitive Rivalry within the Industry Rivalry refers to the level of the competitiveness that exists among the various players in a certain industry. The number of companies present in any industry determines the level of competitive rivalry within the market. According to economists, rivalry is measureable by the concentration of companies that offer similar goods or products within any market. The size of each individual player creates a variance that influences the nature of competition that is experienced. The strategies adopted by the various players also have implications on competitive intensity in the industry. A sense of similarity in the products may induce higher levels of competition. Lower market growth rates as well as high exit may raise the competition within the industry as well. If the competition is intense, it may stimulate certain pressures within the industry such as pressures on the price margins that may affect the profitability of businesses in the industry (Hill & Jones 2010). There are many players within the automotive industry and therefore it qualifies as being highly competitive. This level of competitiveness in the industry is set to increase due to globalization. Challenges such as inflation and the recession have had a significant effect on the industry and this has reflected in car prices (Matthias, Davies & Podpolny 2009). Most of the car manufacturers in the industry have been affected including the likes of Toyota, General Motors and Tata. Ford, through their advertising and marketing campaigns, developed incentives such as free credit for purchases made, but did not adjust their product prices (Blitterswijk & Karadzhov, 2009). With regards to size, Ford remains the second largest motor company in the United States. They have also been able to overcome geographical barriers in venturing in overseas markets (Hill & Jones 2010). Threat of Substitutes Any existing product within the market is easily threatened by the introduction of a new one that has a lower price and can in essence be its substitute. A significant share of the market that had already been captured by a company can easily be swayed by this new arrival thereby reducing demand for more established goods. The factors that dictate the threat of substitutes include the amount of brand loyalty customers have for certain goods, business-client relationships, switching costs for clients, the price performance of substitutes and the existing market trends. This applies in the automotive industry that has largely been subject to globalization which means that customers have an array of products to choose from as substitutes. An increase in product price affects demand for other similar products. Let us not forget that there are other means of transport that can as well fulfill the mobility needs of potential customers. Ford’s aggressive advertising campaigns, coupled with effective branding strategies have ensured that the company has been able to maintain its market share despite the emergence of substitute products (Hill & Jones 2010). Bargaining Power of Customers Customers have an underlying ability to influence price margins as well as production volumes. Their bargaining power is more influential in markets characterized by high consumer concentration since the vast number of small-scale operators in the supply industry causes it to operate at higher fixed cost and as such, the products offered are similar and are therefore easily substituted. In most markets, it is easy for one to switch to another product since consumers are price sensitive especially in cases where the product is less basic in terms of needs of the consumer. In such scenarios, consumers are usually fully aware of the production cost estimates of the product and whether or not a consumer can integrate backwards (Hill & Jones 2010). The motor industry is exclusive of such markets due to the relatively higher costs and longevity of goods supplied Vehicles are the second most sought after assets after houses. Consumers have various needs that impact on their decisions when choosing a car. Vehicle price and size rank highly among these decisions. Most potential buyers tend to carry out a lot of research as well as market research before they settle on a brand to purchase. Since the automotive market is flooded by a huge range of substitutes, customers’ bargaining power is even more influential. Bargaining Power of Suppliers Suppliers provide businesses with the inputs necessary to facilitate the supply of goods and services to the market. Factors that affect the bargaining power of suppliers depend entirely on the characteristics existing suppliers. A market can either have a few large suppliers or scattered small-scale sources. In the automobile industry is full of suppliers who major in providing spare parts as well as maintenance and repair services. For instance, there can be suppliers that major in supplying braking system, tires, cooling system, electrical system, exhaust and fuel injection as well as aluminum suppliers. The natural effect of suppliers having increased bargaining capabilities is high prices. If Ford is faced with the inevitability of paying more to its suppliers, this cost will in effect be passed on to customers through higher vehicle and spare part prices (Hill & Jones 2010). Threats of New Entrants Competition within the industry enables new companies to enter and establish themselves. The emergence of new competitors has an effect on various elements and dynamics within the market including product prices, brand loyalty and market share. However, this entry of new players into the market is in turn subject to barriers such as investment expenses, customer loyalty to particular brands, economies of scale, protection of properties and access to raw material. Entry into a new market may prove to be a difficult undertaking and requires matriculate management strategies to ensure that factors such as foreign cultures and geographical are taken into account. Ford takes into account the purpose and geographical terrain of the areas for which certain vehicles are manufactured (Hill & Jones 2010). Corporate Social Responsibility Corporate Social Responsibility (CSR) refers to the manner in which the management of certain organizations handles issues concerned with public welfare. It focuses on the corporate effort in taking responsibility on the quality of lives of individuals within the region of its vicinity and the overall environment which it impacts. CSR has over the past few years become a vital public relations tool as well as a means by which companies can form working relations with the government, non-governmental agents and the community at large. One of the major aspects of CSR is philanthropy in which donations either in form of money or assets are contributed for a worthy cause. It is an efficient means by which companies can be able to relate and face societal challenges with other stakeholders and by so doing, markets itself. Most companies seek to realign their philanthropic gestures to their business policies (Porter & Kramer, 2006). Another common CSR approach that has a long-term outlook involves the creation of shared value where it is assumed that the success of a company is dependent on social wellbeing (Forbes, 2012). This aspect suggests that companies can only thrive in healthy, well governed societies and as such, corporates should contribute towards societal welfare (Porter & Kramer, 2006). Considering Ford’s stakeholder model, the company’s objectives and products, the best approach to CSR would be through philanthropy and participation in environmental sustenance campaigns. Ford’s outstanding growth in the automotive market since its inception has made it a renowned business company. Its innovative application and adaption to technological developments are factors that are known to have contributed to this exponential growth. As such the company can share in its success by offering scholarship programs and financial contributions to academic and research institutions for the betterment of learning. Ford deals in commodities that have a negative effect on the environment through the generation of exhaust fumes. As such, it makes logical sense that the company focuses some of its efforts towards environmental sustenance. Conclusion Strategic management is aimed at giving companies a fighting chance in competitive markets. It highlights some of the crucial aspects that companies should focus on so as to ensure this happens. One of the fundament elements that companies are advised to focus on is stakeholder well-being. Ford Motor Company has developed a stakeholder model that places great significance on the welfare of the company’s stakeholders. All the activities of the company are centered on ensuring that their needs are met in an effective and timely manner. Here, emphasis is placed on the level of significance of each shareholder to the company’s operations and objectives. In order to know where the company should place its focus, it becomes vital to look into the nature of competition within the market using Porter’s model. References Blitterswijk, M. & Karadzhov, R., 2009, Financial and Strategic Analysis of Ford Motor Company and Tata Motors. CBS-M.Sc. Finance and Strategic Management. [Online] http://studenttheses.cbs.dk/bitstream/handle/10417/708/miel_van_blitterswijk_og_rosen_karadzhov.pdf?sequence=1 [Accessed: 23 December 2014] Dess, G.G., Lumpkin G.T. & Eisner A.B., 2008, Strategic management: text and cases. Boston: McGraw-Hill/Irwin. Fontaine, C., Antoine, H., & Stefan, S., 2006, The Stakeholder Theory [Online] Available at: http://diseniosesparragos.googlecode.com/svn/trunk/pdfs/diazPace/Stakeholders%20theory.pdf [Accessed: 23 December 2014] Fordmotorcompany 2010, Who are our Stakeholders? Available from: http://ophelia.sdsu.edu:8080/ford/12-10-2010/microsites/sustainability-report-2009-10/society-who.html [23 December 2014] Hill, C. & Jones, G., 2010, Strategic management theory: an integrated approach. Mason, OH: South-Western/Cengage Learning. Matthias, H., Davies, P. & Podpolny, D., 2009, The competetive Status of the UK automotive industry. Buckingham: PICSIE Books. Porter, M. & Kramer, M. 2006, “Strategy and Society”, Harvard Business Review. December Issue. pp. 76-929 Read More