Strategic Management of Ford Motor Company - Essay Example

 Strategic Management Report Analysis of Ford Case Study - Ford and the World Automobile Industry (2009 Report) Table of Contents 1. Introduction 3 2. Ford Motor Company – overview 3 3. Industry analysis 4 3.1 Industry characteristics and policies 4 3.2 SWOT analysis 5 4. Strategic Analysis 6 4.2 PESTEL analysis 7 4.3 Porter Five Forces 8 5. Ford - Presentation and analysis of key organizational strategies 9 6. Conclusion 10 7. Recommendations 12 References 1. Introduction One of the key challenges of firms operating in the modern market is to locate the resources required for the development of their activities. The recession of 2008 onwards has led firms in all industries to develop innovative strategies – aim to compete their rivals and stabilize their position. The industries, which have already reached their higher level of growth, like the automotive industry, are expected to proceed to key strategic measures in order to ensure their survival. In the last two years, the performance of the automotive industry indicates that the specific industry has already reached a high level of performance – compared to the most industrial sectors worldwide. It is for this reason that most firms of the specici industry have started to report losses – which, in certain cases, are extremely high. However, the survival of the firms operating in the specific industry can be achieved through additional measures – such the ones developed by managers in Ford Motor Company. Current paper examines the framework of the strategic policies developed by Ford Motor Company especially in regard to the increase of its competitiveness towards its rivals. The external organizational environment has been thoroughly examined, using strategic tools as PESTEL analysis and SWOT analysis. The Porter’s five forces model has been also employed in the study in order to identify the firm’s needs and challenges as an important competitor in the automotive industry. 2. Ford Motor Company – overview Ford was first established in 1903. Since then, the firm has managed to expand its activities at such point, that it is now considered as the third major competitor in the global automotive industry. The firm’s growth is highly based on its brands, which are well known in the global automotive market. On the other hand, the firm has managed to achieve a stable growth, a fact that indicates its ability to transform its strategies in order to meet the market trends. The performance of the firm during the first quarter has been encouraging – compared 2008 when the effects of the crisis on the organizational profitability were made clear. The firm’s external environment should reveal the changes that should be promoted across the organization aiming to ensure the stabilization of the firm’s performance. The major competitors of the firm in the context of the global market are General Motors, Chrysler and Toyota – after the bankruptcy of the two first companies, Toyota has been left as the main competitor of Ford. The performance of the firm in the last six months can be made clear in the Table 1 below. Table 1- Ford sales – from February up to November (Source: http://www.marketwatch.com/investing/stock/F/charts) 3. Industry analysis 3.1 Industry characteristics and policies The development of corporate activities worldwide has been adversely affected by the global financial crisis. In the automotive industry, the effects of recent recession have been quite strong: in 2009 Chrysler and General Motors ‘filed for Chapter 11 protection’ (case study); Ford Motor Company managed to avoid the bankruptcy. However, the losses of the firm have been significant. In 2008 the firm’s profits were reduced by $14.7 billion. In 2009 and 2010 the initiatives of the US government in order to stabilize the automotive industry have been quite successful; the success of the above initiatives can be identified in Ford’s financial statements of 2009. On the other hand, an important problem had to be resolved in order for the firm’s position in the industry to be secured: funds had to be allocated for the financing of the firm’s operations – at least, up to the market’s recovery. Moreover, the firm’s strategic plans need to be updated; emphasis should be paid on smaller and cheaper cars; the production of luxury cars had to be limited – meeting the market trends which revealed a switch in the traditional preferences of customers: cars of smaller size – and lower cost – are more likely to be preferred by customers; on the other hand, the continuous decline in the sales of luxury cars – a phenomenon that led to the bankruptcy of Chrysler and General Motors – had to be appropriately addressed; indeed, the plants of the firm were reduced and emphasis was given on smaller and cheaper cars that could best respond to the needs of the customers. The trends of automotive industry have been changed in the context of the global recession: a) price has become more important element from quality when buying a car, b) cars with specific functional characteristics may be preferred instead of conventional vehicles – for instance, those vehicles based on energy – save schemes, c) all the major competitors in the automotive industry are multinationals, a fact that proves the level of the effect of globalization on firms of the particular industry. 3.2 SWOT analysis One of the key problems that should be addressed by the firm is the continuous increase of competition in the global market. However, the firm is able to effectively face the pressure from its competitors under the terms that it will proceed to the necessary update of its strategies – in the context described below. At this point, the SWOT analysis should be used in order to understand the firm’s power towards its competitors: a) strengths: a1) the firm has a stable performance – despite the crisis, a2) the firm has a long history in the automotive industry, a3) the firm ensures the development of all necessary plans for the increase of its performance, b) weaknesses: b1) the firm has not an extended network of strategic alliances; this fact is extremely negative regarding the potential of the firm to face the strong market turbulences, b2) the cost reduction method currently used by the firm should be reviewed; by leaving its traditional method of cost reduction, extensive outsourcing, the firm has been engaged in cost reduction policies that put under risk the firm’s stability, c) opportunities: c1) the automotive industry would have opportunities for further growth if alternatively energy sources could be developed, c2) the development of the automotive industry is important; even if the profits of the firm are relatively low, still there are chances for growth by investing on innovation and technology, d) threats: two are the major threats for firms in the automotive industries: d1) the reduction of oil production - as a source of energy, d2) the lowering of the standards of the firm’s products; cars of low quality are likely to enter the market and lead to the lowering of the standards set in regard to the products of the specific sector. 4. Strategic Analysis 4.1 PESTEL analysis In order to understand the potentials of the firm within the automotive industry it would be necessary to identify the conditions of this industry – focusing on the challenges that firms of various sizes have to face. The PESTEL analysis can be used for explaining the key sectors that can influence the performance of organizations, either in the short or the long term (Hussey, 1998, p.12). In the context of the PESTEL analysis, the external organizational environment is studied and analyzed. In the case of FORD Motor Company, the PESTEL analysis would reveal the challenges that the firm is expected to face when trying to develop its strategies. In accordance with the principles of PESTEL analysis, the following factors are expected to influence the organizational performance: a) Political, b) Economic, c) Social, d) Technological, e) Environmental and f) Legal. The above factors could be further analyzed as follows: a) in the context of the global market, the conditions of the political environment can be characterized as extremely unstable; however, most governments worldwide tend to support the firms of the automobile industry – which can influence the local economies. Another characteristic of the global political environment is the continuous change of legislation related to the automobile industry. Under these terms, strict merger and tax policies could adversely affect the growth of the firms operating in the automotive industry, b) economic; the global economic climate is rather discouraging regarding business activities of various types; however, still there are chances for success taking into consideration the following facts: b1) the relatively high rate of car production – as indicated in a relevant report included in the case study (p. 537), b2) innovation is always a key strategic tool for organizational growth (Williams et al., 1997, p.31), b3) the alteration of existing business structure – through mergers and acquisitions – could improve a firm’s financial status helping in the retrieval of funds necessary for the organizational activities, c) Social; currently, the social needs worldwide have been highly differentiated; being driven by the decrease of employment rate and the decrease of the individuals’ potential to buy a car, d) Technological; the improvement of technology worldwide has helped to the introduction of vehicles with advanced technological characteristics; Ford Motor Company continuously update its products/ car aiming to meet the needs of customers for innovative vehicles, e) environmental; the expansion of sustainability worldwide has supported by a series of relevant initiatives and plans; technology which protects the environment is available to firms operating in the automotive industry – referring to the vehicles based on electricity, a scheme which has been adopted by the firm so that by the end of 2011 automobiles based on the use of electricity will be included in the firm’s product-list, f) legal; the legal provisions regarding the development of business activities in the automotive industry are not highly differentiated among firms operating in the specific sector; however, the introduction of legislation which promotes high taxes in the firms operating in this industry would discourage the firms of this industry from trying to improve their profitability. 4.2 Porter Five Forces In the long firm, the ability of the firm to survive within its industry will be depended on a series of criteria; the level at which the firm will be able to face the competition developed in the particular industry will be decisive regarding the continuation of the firm’s operations (Best et al., 2005, p.17). On the other hand, the specific firm – as all other firms operating in the automotive industry – is likely to face a series of challenges. These challenges have the form of forces against the organization; using the five forces model of Porter, it could be noted that the forces most influencing the performance of Ford Motor Company are the following ones: a) competitors; the competition in the specific industry is extremely high; in order for the firm to survive it is necessary to identify the resources required for the development of its strategic plans, b) new entrants; as already noted the competition in the automotive industry is already extremely strong; new firms are not likely to enter the specific industry which is characterized by severe economic crisis even in firms which have been traditionally powerful – such as General Motors and Chrysler, c) suppliers; the suppliers of the firm are located worldwide; there is no strong dependence on a particular supplier; actually, the material provided to the firm for the manufacturing of its products are available in all markets worldwide – a fact that minimize risk in regard to the automotive industry, d) substitute products; because of their nature, the products of the firm need to be continuously monitored – referring to all phases of the relevant projects, e) the industry; the differentiation in the consumers’ preferences in regard to the automotive industry is a common phenomenon – as in all other industries worldwide. In case that these differentiations are highly increased, then the full update of existing organizational policies may be required. 5. Ford - Presentation and analysis of key organizational strategies The strategic decisions developed by the firm’s managers in 2009 – period under evaluation – have been aligned with the market trends. Moreover, effort has been made so that the risks for the firm to be reduced – taking into consideration the reduction of the profits for the automotive industry worldwide. The key strategic policies of the firm in the specific period have been the following ones: a) limitation of the firm’s operational activities; in fact, this initiative can be characterized as change in the firm’s existing production line. The firm’s reduced the investment made on the production of luxury cars – a fact that led to the limitation of the numbers of luxury cars produced by the firm. Moreover, emphasis has been given to the cars of smaller size – the cost of which is rather low. The specific strategic decision reduced the firm’s operational costs while at the same time it helped towards the increase of the firm’s profitability, b) development of appropriate plans for ensuring the financing of the firm’s activities; a detailed plan of action has been produced aiming to ensure that the funds required for the development of the firm’s various activities will be retrieved; the specific plan is quite important especially under the terms that the access of firms to financing has been made quite difficult. The existence of a well-prepared and detailed plan for financing would be significantly help the stabilization of the firm in its industry (Hussey, 1998, p.12). The firm has managed to avoid bankruptcy but it is still under such threat unless a radical growth of profits is achieved – a target, which is feasible if appropriate strategic plans are developed, c) alteration of firm’s traditional cost-saving methods – referring especially to outsourcing as a common cost –saving technique (Sadler et al., 2003, p. 131). 6. Conclusion In the last two years, the development of Ford Motor Company has faced significant delays. The global recession has been considered as having contributed most in the specific problem. However, the firm’s managers tried to increase the company’s competitiveness – even within the strong turbulences in all industries worldwide. The performance of the firm in 2009 has proved that the above plans have achieved the targets set. However, in order for the firm’s performance to be stabilized, additional measures should be taken by the organizational leaders – in the context suggested below. One of the firm’s key advantages towards its competitors is its ability to continuously change its strategies in order to meet the market trends and the customers’ preferences (Sadler et al., 2003, p. 131). Reference can be made for instance to the change in the firm’s production line meeting the needs of the consumers for smaller and cheaper cars. In the long term, the specific practice can help the firm to increase its growth towards its rivals – and further improve its position within the automotive industry (Dobson et al., 2004, p.151). On the other hand, the examination of the firm’s external environment showed that the firm has to face a series of different influences: the economic and the legal environment favours the development of entrepreneurial activities in the particular sector. However, the political environment does not adequately support the operational activities of firms in the automotive industry – including Ford Motor Company. The measures promoted by the government in regard to the support of the automotive industry have not appropriately designed; this problem is revealed through the following fact: by keeping the automotive industry under the close monitoring of the relevant authorities, government in US is able to intervene drastically in any initiative developed in the particular sector. Even if the above plan of action can help towards the stabilization of the specific industry – which can be based on the governmental support in case of any severe market turbulence – it can also lead to negative consequences. An indicative example is the case where the performance of a firm operating in the automotive industry is extremely low and funds are required for the financing of its activities. If the access of the firm in the sources of financing is satisfactory, then there is no particular problem; however, if the firm does not have access to such sources (financing institutions or private investors) then alternative solutions need to be made. The merger with another company would be a potential solution (Finlay, 2000, p. 5). The consolidation of the firm would also another alternative available. However, in practice, these initiatives cannot be easily developed mostly because the state controls extremely close the firms of the automotive industry; the survival of the firms is related to the local economy. Moreover, the state is likely to prevent the development of such plans aiming to ensure the stabilization of the market – which is highly influenced by the automotive industry. 7. Recommendations The conditions in the global automotive industry do not favour the growth of business activities. However, firms, which invest on innovation and continuous update of operational modes, have more chances to survive within the international market. In the case of Ford Motor Company, the stabilization of organizational performance would require a series of specific measures: a) continuous update of the firm’s products aiming to respond to the market trends, b) alteration of the quality/ functionality of the firm’s products in accordance with the relevant advances of technology/ changes in the energy characteristics of vehicles; at this point, reference should be made to the plan of the company ‘to include in its production line the electric automobiles by 2011’ (case study), c) increase of the firm’s financing by the state; referring to the US government it should be noted that the intervention of the state in market crisis can be quite important for the limitation of the crisis and the restructuring of the market. The managers in Ford have tried to attract the interest of foreign investors – aiming to locate the funds for the development of the organization’s activities; however, such practice can be proved quite dangerous – referring to the long term stability of the firm. For this reason, the provision of aid by the state could be characterized as the most efficient measure for ensuring the survival of the firm within its industry, d) increase and alteration of the rules related to the entrance of foreigners in the specific industry; in any case, the competition in the industry should not be adversely affected but the terms under which firms of different cultural and economic characteristics operate within a particular market should be made clear. Bibliography Abrams, R., Kleiner, E. (2003) The successful business plan: secrets & strategies. The Planning Shop Bensoussan, B., Fleisher, C. (2008) Analysis without paralysis: 10 tools to make better strategic decisions. 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