Fiats Fall from Grace - Can Fiat Turn It Around - Case Study Example

CASE REPORT FIAT’S FALL FROM GRACE: CAN FIAT TURN IT AROUND? Table of Contents Page Abstract……………………………………………………………………….. 2 1. Introduction……………………………………………………………….. 3 2. Research aim……………………………………………………………….. 4 3. Research objectives………………………………………………………… 4 3.1. Strategy related objectives……………………………………………… 4 3.2. Policy related objectives…………………………………………………. 5 4. Literature Review…………………………………………………………….. 6 5. Research Methodology………………………………………………………. 8 5.1. Primary research………………………………………………………… 8 5.1. (a). Questionnaire……………………………………………………… 9 5.1. (b). Survey……………………………………………………………… 9 5.2. Secondary Research……………………………………………………… 10 6. Recommendations…………………………………………………………….. 10 7. Conclusion…………………………………………………………………….. 10 8. References……………………………………………………………………… 12 9. Bibliography…………………………………………………………………… 15 Abstract This research study has identified three basic problems faced by Fiat in Italy. In the first instance Fiat strategically failed to focus on broader market oriented approaches that some of its smaller rivals in particular and bigger rivals in general successfully adopted. In other words Fiat was affected by a microscopic strategy orientation. Secondly Fiat’s current problems can be basically attributed to its inability to identify growth drivers such as technology driven productivity gains and capturing niche markets and retaining them. Finally this study has particularly identified Fiat’s inability to reorganize its internal and external strategic value chain and supply chain management processes to achieve positive synergies related to costs and corresponding benefits. 1. Introduction More than a century of operations at Fiat were essentially characterized by typical Italian family business approach. The Agnelli family dynasty has been controlling Fiat ever since its inception and even today the family and its related people have roughly 34% of the shares. The company was growing from strength to strength, diversifying in the process in to one of the biggest European Business Conglomerate (Cammarata, Kurucz, Maj, Pavlovic & Portmann, 2006). Its diversification strategy spread in to a number of unrelated businesses as well. Aircraft manufacturing to pharmaceuticals Fiat spread its organizational umbrella. Currently its mammoth organizational structure has become unwieldy. Fiat has been going through a series of downs and very rare ups for a number of years now (Barry, 2009). The organization’s inability to come to terms with the changing patterns of international trade and above all its structural orientation in the rapidly changing external competitive environment was not only flawed but also strategically divergent. It is the latter problem that affected the company much more than any other. The recent efforts to turn around the company financially and operationally have been met with no success because in the first place the company has been relying too much on corporate outcomes related to volume sales and capturing market shares while its smaller rivals have been concentrating on technology related productivity goals to identify niche markets in far corners of the globe(Landmann, Wolters, Bernhart & Harsten, 2000). Despite a growing threat coming from these bigger competitors, Fiat was more or less occupied with fluid external environment that particularly had an impact on new product launches rather than testing the mood of the customer. Fiat’s inability to effect internal structural changes along with a focus on the rapidly transient strategic competitive environment has been the main reason for its current debacle. While its competitors concentrated on merger and acquisition (M&A) related synergies, there was very little or no effort by Fiat to integrate its existing scale related advantages in to the existing operational environment (Fiat News, 2009). Thus its strategic market orientation was lacking in many respects. 2. Research aim The research aim of this paper is to establish a series of correlations and regressions between and among endogenous and exogenous variables of Fiat’s strategic failure to convert its once ace like performance to integrate growth related synergies to achieve competitive advantage and maintain its position in the market (Jones, 2006). In the first instance Fiats inability to focus on competition related market orientation outcome has to be examined against the backdrop of an ailing car manufacturing industry. Indeed even bigger competitors were not able to significantly alter their cash flow related fortunes. This study would focus on this aspect as well so that success of smaller rivals can be posited against Fiat’s failure as determined by its inability to bring about desirable changes in its organizational environment including SWOT and VRIO (value, rarity, inimitability, organization). Thus this study would focus on the most obvious correlation between Fiat’s organizational management failure and the internal and external environmental factors, among others. 3. Research objectives Research objectives of this study are divided in to strategy related objectives and policy related objectives. 3.1. Strategy related objectives The study would make an effort to focus attention on the fact that Fiat’s strategic failure in converting its initial successes in to an integrated systemic orientation was due to its inability to read the motives of its smaller competitors. Next another objective of this paper is to examine the strategic significance of Fiat’s recent decisions to diversify and their impact on the organizational and corporate goals. 3.2. Policy related objectives To examine the impact of policy related outcomes on the recent rapid decline in the corporate goals of the organization. To find proof of Fiat’s skewed policy direction in the most critical period of 1990’s and the early 2000 to focus on the subsequent decline. 4. Literature Review Fiat invariably focused on organizational outcomes that had very little to do with value chain and supply chain management. Internal value chain management at Fiat only scraped the surface of the SWOT – strengths, weaknesses, opportunities and threats – environment which was highly characterized by opportunities and threats associated with the external supply chain related outcomes (McDonough, 2009) . The net result was a gradual decline in operational capabilities vis-à-vis its more technology driven growth oriented competitors who were becoming more frugal in their international operations. The current literature on the subject is essentially characterized by a dichotomy in analysis. Specifically the literature is divided into Fiat’s business strategy and its competitive environmental analysis (Automotive News, 2009). The former is influenced by a broader segment of theoretical and conceptual contingency framework building while the latter is underlined by the ever increasing parametric growth of literature on the shifting organizational environment. In fact this latter approach bears the whole mark of the fluid car manufacturing industry’s industry concentration ratios in the world. Fiat’s business strategy was invariably domestic oriented in the past. However the regulatory environment in Europe drastically changed with further expansion of the EU. Fiat was little too late to realize the impact of this all too important shift in the EU regulatory regime and when it realized that how competitors like Toyota, Nisan, Honda, Volkswagen and BMW were focused on the shifting competitive environment and were strategically reorienting themselves to meet an ever increasingly globalizing market demand (Morrison, 2006). This process was characterized by the Fiat’s failure to identify the competitive strategy related outcomes at the organizational level in the external world. Fiat’s history can be divided in to three convenient periods the first include its domestic market oriented approach to aggressive selling, emerging from the stagnation of the earlier years before 1950. 1960 onwards the car manufacturing giant in Europe realized that its technology need to be revamped and the marketing strategy should be reoriented. This attitude continued till the late seventies. By 1980s Japanese car manufactures were exporting their far revolutionary models to the rest of the world while the EU was highly protected against such exports (Sauter, 1998). However, gradually the walls of protectionism – both tariff and nontariff – began to be dismantled one after the other. Finally during the start of the current epoch in the late nineties the car manufacturing industry in the EU in particular and the rest of the world in general began to develop what can be see even today as the symptoms of disintegration. In other words smaller but more technology intensive car companies began to challenge the market dominance of bigger competitors. This study would basically examine the first two epochs while more intensely concentrating on the third epoch. This literature review would seek to delineate both strategy related and policy related outcomes at Fiat on the aftermath of the early 2000’s developments in the European car manufacturing industry in particular and the world in general. For instance many failures that took place in the car manufacturing industry could be directly or indirectly connected with failed M&A activity. On the other hand within the organization particular strategic and policy related weaknesses at Fiat were responsible for its current struggle for survival (Scharioth & Huber, 2003). In fact the symptoms were obvious to its competitors a long time ago. Thus many offered to buy Fiat. Instead of changing strategy within the organization Fiat tried to show its strength by offering to acquire smaller businesses and above all diversifying in to equally troublesome industries. 5. Research Methodology Research methodology of this paper would consist of two segments. They are primary research and secondary research. The sole purpose of this research methodology is to establish the correlations and regressions between and among endogenous and exogenous variables of Fiat’s business strategy and policy failure concerning the current corporate uncertainty within the organization and its impact on the overall strategic competitive and operational outcomes. 5. 1. Primary research The primary research segment will focus on the results of the survey and the questionnaire. The survey will include a process of interviewing some industry executives. The number of executives would not exceed twenty. This limit would enable the researcher to keep the survey within definable limits. The questionnaire would be more specifically designed to identify the most debated industry specific problems in Europe. Fiat’s domestic market will also receive some attention in these questions but nevertheless the questionnaire in its general focus would seek to identify Fiat’s global problems. 5. 1. (a). Survey The survey involves a set of questions numbering 10 and they have been designed to elicit the most relevant information from the interviewees. Depending on their responses the survey would be either successful or not so successful. However this researcher would sift the answers in a manner to arrive at fairly reasonable conclusions on the Fiat’s current situation. Thus any correlation and metrics related to the survey would be established after subjecting the results to a rigorous analysis. The analysis would be basically determined by two factors. In the first place the analysis would contain Fiat’s strategic environmental analysis in which some metrics on its performance would also be included. Secondly it would have a clear focus on the current developments in the EU car industry in particular and rest of the world in general (Heneric, Licht & Sofka, 2005). Thus some of the survey questions would be focused on Fiat’s strategic competitive environment and its ultimate impact on the company. 5.1.(b). Questionnaire The questionnaire of this study would be given to 60 industry employees in offices in the EU. The researcher would include 20 questions on car manufacturing industry’s current situation in Europe in particular and the rest of the world in general. A significant number of questions would be on Fiat’s current problems to determine their awareness of Fiat’s business strategy related issues and policy issues. This questionnaire would attempt to elicit responses depending on the Fiat’s organizational problems and their impact on its current operations. While it’s domestic operations in Italy would receive a considerable amount of focus there would be an equally good attempt to frame the questions in a manner to identify the Fiat’s strategic concerns and policy misdirection. 5.2. Secondary Research Secondary research aspect of this paper would involve gathering information from already published literature such as books, journal articles, newspapers and even internet sources. 6. Recommendations Fiat’s management must be able to identify the most obvious predicament, viz. the strategic competitive environment of the industry requires not diversification but concentration on technology driven growth drivers such as fuel efficiency, lighter aerodynamics and above all user friendly digital dashboards. Fiat should invest in next generation cars as are being unveiled by Toyota (e.g. Lexus), Hyundai, Lamborghini, Ford (e.g. Fusion Hybrid) and Audi (Gottschalk & Kalmbach, 2007). Fiat’s current market orientation strategy has to be redefined with particular emphasis on cost restructuring and productivity gains related to technology. Finally Fiat’s current level of activity in Europe need to be redesigned and resized to avoid the negative impact of diversification on its strategic strength-opportunity related external environment. 7. Conclusion Fiat’s success story in the past has been relegated to the same old fashioned story book like evolution. Its success as a family business in Italy and Europe depended on the dynamic character of the family dynasty, especially the patriarch (Dunford & Greco, 2006). In the 21st century what matters is the strategic orientation of the business organization and the related flexibility in policy decisions. Fiat’s strategic market orientation and policy decision making process were not in conformance with the modern developments in the industry. Particularly after the late 1990’s the car manufacturing industry acquired a more complex and diverse dimension. Right now Fiat is faced with mounting debt and ever increasing uncertainty. Against this backdrop, a family business like Fiat needed more and more concentration on the strategic competitive environment while at the same time focusing on its internal value chain and external supply chain management process (Foggin, 2003). As a result of neglect, smaller and more technology oriented competitors were able to identify niche markets and even mass markets in the world and orient themselves towards marketing hybrids that consumers immediately noticed. Finally Fiat gradually developed technology related deficiencies in design, planning and specifically user friendly technology while its competitors began to concentrate on fuel efficient aerodynamically advanced smaller versions. As a result Fiat’s sales both in Europe and rest of the world were affected and finally with the removal of protection and subsidies Fiat found it almost impossible to compete against such big rivals like Toyota and even smaller rivals like Alpha Romeo (Forden, 2009). REFERENCES 1. ‘2010 Fiat 500C Convertible Test Drive: Open-air Fun in 37 MPG Fiat-Chrysler Retro 500 Cabriolets’, Automotive News, July 22 2009, Retrieved from: www.popularmechanics.com on September 17 2009. 2. 02. Barry C 2009, ‘Fiat technology coming to US soon’, The Associated Press, September 15 2009, Retrieved from: www.businessweek.com on September 17 2009. Wolf Sauter (Author) › Visit Amazon's Wolf Sauter Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central Janet Morrison (Author) › Visit Amazon's Janet Morrison Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central 03.Cammarata V., Kurucz V., Maj V., Pavlovic A & Portmann K 2006, The FIAT Case: A Therapeutical Crisis, Retrieved from: www.lulu.com on September 17 2009. 4. Carazoo.com, ‘Upcoming Models from Fiat’, Article Alley, April 2 2009, Retrieved from: www.articlealley.com on September 17 2009. 5. Dunford M &Michael Dunford (Author) › Visit Amazon's Michael Dunford Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central Greco L 2006, After the Three Italies: Wealth, Inequality and Industrial Change (RGS-IBG Book Series), Wiley-Blackwell, Massachusetts. 6. Foggin S 2003, ‘Road Test: Fiat Stilo (2002-) Small Family’, Channel 4, July 28 2003, Retrieved from: www.channel4.com on September 17 2009. 7. Forden S G 2009, ‘Alfa Romeo Favors Giulia Sedan Over Small Car for U.S. Comeback’, Bloomberg.com, September 17 2009, Retrieved from: www.bloomberg.com on September 17 2009. 8. Gottschalk B & Kalmbach R (Eds) 2007, Mastering Automotive Challenges, Kogan Page, London. 9. Heneric O., Licht G & Sofka W (Eds) 2005, ‘Europe's Automotive Industry on the Move: Competitiveness in a Changing World’, ZEW Economic Studies, Vol.32 Physica-Verlag Heidelberg, New York. 10. Jones T. M 2006, The Corporate Level Strategy of Fiat SpA, Retrieved from: www.nudgeadvisory.com on September 17 2009. 11. Landmann R., Wolters H., Bernhart W & Harsten H (Eds) 2000, The Future of the Automotive Industry: Challenges and Concepts for the 21st Century, SAE International, Pennsylvania. 12. McDonough M 2009, The Anatomic of a global Financial Crisis, January 22nd, 2009, Retrieved from: www.fiateconomics.com on September 17 2009. 13. Morrison J 2006, International Business Environment: Global and Local Marketplace in a Changing World, 2nd edition, Palgrave Macmillan, New York. 14. Sauter W 1998, Competition Law and Industrial Policy in the EU, Oxford University Press, Oxford. 15. Scharioth J & Huber M (Eds) 2003, Achieving Excellence in Stakeholder Management, Springer, Germany. 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