Ford Strategic Management - Case Study Example

1 Introduction The American Automobile story is akin to the decline of the Roman Empire. Its home territory stands invaded by Japanese carmakers and its dominance has all but vanished and it is forced to look towards other markets for its survival. Out of the three big carmakers GM, Ford and Chrysler the last has been decimated and sold over once to the Europeans and is on the block again, this time to become a private entity. GM has lost its first position by numbers of cars sold to Toyota and Ford is struggling to survive yet another colossal loss. Both of them have been closing plants by the score and reducing labour force by the thousand, but to no avail. How did this come about and what are the chances of revival and survival? The first answer lies in the loss of competitive advantage and poor management strategies. The second lies in radical turnarounds again based on new strategic planning. 2 Competitive Advantage It is well established that companies devise strategies for competitive advantage (Porter M.E., 1985). He further elaborates that Competitive strategy is about being different and by offering a unique product or service (Porter, M.E., 1996). It means intentionally selecting a different set of activities to deliver a unique mix of value. In manufacturing the activities remain same, but their priorities and linkages are planned and routed differently to develop a unique set of values to reduce cost as well as to improve quality. It is this difference that is not imitable by competition that sets the company apart from its rivals and delivers the competitive advantage. This is what the Japanese did to dethrone their arch rivals, the US Auto makers. 3 The Diagnosis The external environment of the company plays a major role for constructing a competitive strategy. A PESTEL analysis shows specifically what is likely to happen in the markets in which an organisation operates. The Five Forces model (Porter M.E., 1985) is used for analysing competition within a particular industry. Environments have a great impact on companies. Strategy is the reaction or response to these external and internal situations. Ansoff et al (1976) state that, amongst other things, responsiveness to the problems is what strategy is all about. 3.1 PESTEL PESTEL Analysis measures the market potential and situation. These are external environmental factors that are beyond the control of the Management but have a marked bearing on growth and strategy. PESTEL stands for Political, Economic, Socio-Cultural, Technological, Ecological and Legal factors. POLITICAL factors cover Legislation and Regulation of transfer for capital and labour. In the US all auto makers had the law behind them and freedom to grow without fear of antitrust regulations. The legislation governing capital and labour are also conducive for enhancement of international business. ECONOMICAL factors are seen through economic indicators, business cycles, unemployment rates and industry structures. These have been good all along and even today the market for cars is buoyant but greater advantage has been taken by the Japanese auto makers. SOCIO-CULTURAL factors relate to customs and norms and the current consumer is becoming very mobile and cars are now seen as a necessity but cost and quality have become prime considerations. TECHNOLOGICAL factors are seen through the Life cycle phases of products and the Research and Development expenses. Until 1970 the carmakers enjoyed prolonged product cycles of heavy and expensive cars. But after the oil shock the Japanese started taking over the market with smaller and fuel efficient cars, which the US companies have not been able to match as yet. In R& D too the Japanese are far ahead. LEGAL factors comprise of the Judicial System and Government Regulations that affect an industry. These have been fair to all. Earlier regulations restricted imports into US but the Japanese circumvented it by establishing their factories in US itself. The PESTEL analysis clearly indicates favourable conditions for carmakers but the US majors failed to take advantage and became complacent. They were also unable to capitalize on the home conditions that were used to advantage by the Japanese instead. 3.2 FIVE FORCES Porter divides the competitive environment into five forces of ‘powers’, these are Power of buyers, Power of suppliers, Threat of new entrants, Threat of substitutes and Intensity of rivalry between existing firms. A Power of Buyers Four different reasons influence a buyers’ decision. They are also known as 4Ps. This needs careful study to understand customer behaviour (Kotler. P,. 1986). They are Product, Price, Promotion and Place or Time of offer. The buyer is greatly influence if the product or service is perceived as useful for him. Future valuation is also a decision making factor. The price is not usually a stand-alone factor. It has to be comparable with other products or services but with weight given to factors like quality and after sale service. Image plays a very important role. Whether it is the image of the product which enhances value or status or the image of the buyer when he acquires a product or service, both factors are extremely important for the buyer in arriving at a purchase decision. It is of great value to the buyer if a product or service is offered to him at a place and time that suits him. In recent years the 4P concept has come under criticism and as a result different marketing mixes have been put forward by Mindak and Fine (1981) and Nickels and Jonson (1976). But the one put forward by Booms and Bitner (1981) to include another 3Ps viz., Process, Physical Evidence and Participants has gained the most acceptability and popularity in marketing literature. Under Process, Marketing and Sales policies are important factors that attract a customer to a product. Warranties offered, after-sales service support and guarantees, quick response from employees are comfort levels that promote a product’s marketability. Some amount of mechanization and customer involvement such as try-outs and experimentation, feel of product or service is eases the point of sale. Physical Evidence is the defining of the environment where the marketing activity is to take place and is concerned with layout like Furnishings, Colours and Facilities. It is argued that the general ambience of the sales point makes for a good marketing strategy as the customer feels comfortable and is more inclined to conclude a deal in congenial atmosphere. Largely neglected earlier, but by far the most important aspect of marketing is Participation which relates to the adequate training of the employees that are involved in the marketing process. Their knowledge and confidence builds up an image of robust product and encourages the purchase decision. B The Power of Suppliers When there are many suppliers of components or services, they offer better terms and service to the company but when they are few, they normally offer goods and services as per their own priorities. The external factor that affects quality of service depends largely on the cooperation and coordination of various suppliers. Supply chain management includes considering the suppliers as partners and therefore all requirements and deliveries are to be planned as if they were extensions of the company itself. A good supply chain management will ensure and engender customer loyalty which is the single biggest achievement the company can boast of. ` C Threat of New Entrants The Evolutionary Cycle of Competitive Behaviour advocates that change takes place only when one of the competitors come out with an innovation and others follow it and improve upon it until it becomes an industry standard, at which time the cycle ends. The two ends of the cycle are Innovation and Efficiency. Then, with the introduction of another innovation, the cycle recommences. The performance of all players is evaluated vis-à-vis the efficiencies they are able to achieve. This theory evolved by Strebel (1966) suggests that evolution is a continuous process; no product can expect to be acceptable to customers in its present form and functionality to be for all time to come. D Threat of Substitutes At any point in time there is always a possibility that, inspired by the popularity and acceptability of a product, a substitute is offered that will replace it due to its better features or innovative idea (J. Schumpeter 1934). Innovation is creation of a new value and invention is the creation of a new product or service that offers this value to the customer. E Intensity of Rivalry This is an ongoing struggle and has to be met head on with innovative practices. All companies vie for competitive advantage and as a result new and better practices are adopted and the winner is one with lowest cost and best quality. The Five Force Analysis also finds the US companies short on ideas and practices. They also misread the power of the buyers who wanted mobility at low cost. Their supply chain was also not as strong as of their Asian rivals. They were outmaneuvered by the Japanese who managed all the five powers better with well defined strategies. 4 Recommendations for Ford Motor Company Ford has been attempting turnaround since the turn of the century by cutting down labour force and closing plants. Earlier it also tried consolidation by buying out rivals in Europe and by trying to get into niche segments that pay better prices for premium products. It also tried horizontal expansion by going into services and components which have a more stable income level. These ploys did bring some relief and some profits but they were set off by losses in the car manufacturing division. It has continuously lost share of the lucrative US market and is relegated to third position after Toyota and GM. The worst case scenario is that even its finance business is shaky because of the latest US sub-prime shock that has rocked the financial markets and can have a cascading effect. The car rental of Hertz too faces stiff competition. The annual production is also on the decline year on year. The new Strategy, the Way Forward envisages sale of Jaguar, Austin Martin and Volvo to generate much needed cash. It also will close loss making plants across US, especially in Detroit area and will sell off loss making or low intensity operations like services. It went under one major restructuring in 2002 and is planning to undertake another one currently. It will be partly undoing what it did previously. The way to gaining competitive advantage is not in doing different things, but in doing the same things differently. Ford should not be afraid to take a route not so dissimilar from what Toyota did. Three new huge emerging markets have materialized globally. China, India and Brazil are the new areas with growing economies and they have a huge customer base that is hungry for mobility. If Ford has to survive, it must invest in these countries and make them its hub for exporting to the world, at least to Asia Pacific, Middle East and Africa, from these new centres. Not only will it get advantage of cheaper labour but will also find a supply chain of high grade component manufacturers that is well equipped and eager to partner it for mutual profit. It must also change its product mix and concentrate on small and medium segments of cars as well as develop diesel engine manufacturing capacity as these are the products with high demand the world over. Bibliography Booms, B.H. and Bitner, M.J. (1981), “Marketing strategies and organization structures for service firms”, in Donnelly, J.H.and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL, pp. 47-51 Kotler, P., Armstrong, G,. Principles of Marketing, Prentice Hall & Pearson Education. Mindak, W.A. and Fine, S. (1981), “A fifth ‘P’: public relations”, in Donnely, J.H. and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL,pp. 71-3. Nickels, W.G. and Jolson M.A. (1976), “Packaging – the fifth P in the marketing mix, Advanced Management Journal, Winter,pp. 13-21. Porter, M. E. (1985). Competitive Strategy. New York: The Free Press. Porter, M. E. (1996). What is Strategy? Harvard Business Review, November-December, pp. 61-78. Strebel, P. (1996). Breakpoint; How to Stay in the Game. Mastering Management, Part 17, London; Financial Times. Schumpeter, J. (1934), The Theory of Economic Development, Harvard University Press, Cambridge, Massachusetts Read More