Fords Value Chain Analysis and Its Impact on Business - Essay Example

STRATEGIC MANAGEMENT Table of Contents Table of Contents 2 Introduction 3 Analysis and discussion 3 a)Ford’s Value chain analysis and its impact on business 3 b)Sector Matrix analysis of Ford Motors and its impact on business 7 Conclusion 9 Why sector matrix is better than value chain in terms of strategic understanding of a company? 9 References 11 Introduction In this age of technological innovation and competitiveness, sustainability and organization performance is the prime requirement of an organization. This is because; in order to amplify the demand and market share of an organization, sustainability is extremely essential. If the organization sustains for longer period of time, then it might become successful in developing varied types of inventive product-lines that may easily satisfy the changing requirements of the customers. As a result of which, the profitability and brand image of the organization might get enhanced to a significant extent as compared to many other rival players. Moreover, by improvement of the brand image, the threat of new entrants and substitute products in the market region might get reduced and the loyalty and position of the organization might get amplified day by day. However, in order to improve the performance and productivity of the organization, varied types of tools are used such as value chain of Michel Porter, global commodity chain by Gary Gereffi and Miguel Korzeniewicz and sector matrix theory by Julie Froud and et al. The Rationale of this essay is to examine and analyze critically, whether sector matrix offers a better understanding of product market than concept of product or commodity chain. In order to describe it, the essay is divided into three parts, which is entirely based on Ford Motor Company. Analysis and discussion a) Ford’s Value chain analysis and its impact on business The concept of value chain is developed by Michael. E. Porter that mainly focuses on organizational processes so as to improve the manufacturing facilities of the organization that may amplify its profitability and productivity among others (Porter, 2000). The manufacturing facility is divided into three subsystems, comprising of inputs, throughputs and outputs so as to determine the total cost of the production. After analyzing the production cost, the profitability of the product or the organization might be analyzed among many other rival players. Apart from manufacturing facilities, both the primary and secondary activities also offer significant impact over the production cost of the organization. Due to this reason, most of the automobile organizations, such as Ford Motors desire to offer high attention over the activities of value chain in order to reduce its production cost. Only then, it might become successful in increasing its profit margin as well as total revenue in this competitive market among others (Jean-Paul, 2009). Figure 1: Fords Value Chain (Source: Ford, 2013a) From the above figure, it might be clearly revealed the ways by which each activity is interconnected with another in case of the Value Chain of Ford Motors. Due to this fact, the organization of Ford Motors always tries to maintain, all the activities very efficiently so as to reduce any sort of issues. As issues arising in any stage might affect the other that may hinder the prosperity and brand image of the organization of Ford Motors in the market among others. However, in order to improve the sustainability of the organization in the market, Ford Motors is trying to offer more concentration over manufacturing activities so as to reduce the rate of carbon dioxide and many other green house gas emissions in the atmosphere. The prime aim behind this motive is to enhance the reputation and market share of the organization of Ford Motors as well as reliability in the market among many other existing rival players. This acted as a boon for the organization of Ford Motors that amplified its corporate social responsibility (CSR) thereby enhancing its loyalty and trust within the heart of the target customers. Due to which, the total sale of the product lines of Ford Motors enhanced from 25214 in the month of august to 66983 by the month of October of 2013 in the market of United States (Ford, 2013b). Other than this, the organization of Ford Motors is trying to utilize recycled materials in order to amplify the reusability of its product lines as compared to its contenders. By doing so, the organization of Ford Motors is trying to amplify the environment-friendly operations as well as the relationship with the customers. Moreover, in order to cope up with varied types of up-coming challenges, the organization of Ford Motors is trying to offer more attention to its value chain capabilities. By doing so, the competitive advantage and position of the organization of Ford Motors might get enhanced in this aggressive market thereby reducing its repairs or break-down issues significantly. Thus, it might be stated that value chain analysis might enhance the financial position and brand value of the organization of Ford Motors as compared to others (Porter, 2000). Furthermore, other than value chain activities, the commodity chain also plays an active role in improving the reputation and loyalty of an automobile organization in this aggressive and challenging market. This is because; commodity chain is considered as a factor comprising of a wide range of activities, such as design, production as well as sale or marketing of the product. All these activities of commodity chain are controlled by both producer as well as buyers but it differs from one industry to another. However, in case of automobile industry, the power and control of producers is quite higher as compared to buyers. This is mainly due to the presence of numerous production systems as well as numerous firms (Froud & et. al. 2006). Apart from this, as stated by Gereffi (2000) that global commodity chain is composed of well-developed input-output structure, corporate governance, territoriality as well as planned manufacturing unit that helps to improve the prosperity and productivity of the organization. Along with this, such type of interlinked activities also helped the organization of Ford Motors to reduce its issues and enhance its value chain. Moreover due to the implementation of four-wheel drive systems in their product lines such as Ford Freestyle, Ford Five-hundred and Volvo by Ford Motors entirely matched its production techniques with its core competencies (Ford, 2013). This is done in order to improve the manufacturing techniques thereby reducing the cost for labor or workforce. Therefore, in-spite of highly fragmented market, the organization of Ford Motors became successful in enhancing its total sale and profitability as compared to many other rival players (Gereffi, 2000). Thus, it might be revealed that, value chain and global commodity chain offers significant influence over the production and manufacturing techniques of an automobile organization thereby enhancing its demand and competitive advantage. b) Sector Matrix analysis of Ford Motors and its impact on business Figure 2: Fords Sector Matrix (Froud & et. al., 2006) After analyzing the above figure, it might be stated that sector matrix is considered as a tool that may be used to analyze the connection between demand and supply as well as its role in developing various business activities and strategies. The organization of Ford Motors comprises of a chandlerian model and so it dominates its value chain that amplifies its prosperity and image among others. Apart from this, as the organization of Ford Motors includes a vertically integrated as well as diversified production system, so it offers a significant influence over its value chain, commodity chain and sector matrix (Ford, 2013c). Therefore, the organization of Ford Motors tries to manufacture high quality of product lines with advanced machineries and techniques so as to maintain a balance between demand and supply of the market. Other than this, in order to enhance the demand and market share of the product lines of Ford Motors, it improves its production system as well as its global commodity chain activities (Froud & et. al., 2006). However, due to the balance between the value-chain as well as global commodity chain activities, the demand and supply functions of the market might be easily stabilized. Therefore, after analyzing the business environment, i.e. improvement of the per capita income of the customers, the organizations maintain its activities accordingly. This is done; in order to amplify the total sale and demand of the product lines of the organization of Ford Motors as compared to others. As a result of which, the organization of Ford Motors successfully amplifies its profitability and reliability in the market that may increase its future opportunities (Ford, 2013d). Similarly, in case of reduction in the disposable income of the interested customers, the organization of Ford Motors tries to lower the cost of its vehicles so as to retain its demand and prosperity in the market. Along with this, consumer wants and competition is also analyzed at the time of preparation of the products so that, it might be sold within a limited time span. For example: the organization of Ford Motors tried to renovate the engines of old or second hand Chevrolets so as to amplify its market share and reliability in the market (Gibbon, 2000). Therefore, it might be revealed clearly from the above mentioned points that sector matrix helps to analyze the demand and supply of a product in the market or the current scenario of the market. By evaluating it, the marketer or the producer of the organization adjusts the policies or strategies of the production and manufacturing units. Hence, it might be revealed that sector matrix directly influences the value chain as well as global commodity chain of an organization (Julie & et al., 1998). Thus, sector matrix provides a better understanding of the automobile industry rather than value chain as well as global commodity chain, thereby redefining the phrases of competition and demand of the customers. As a result of such scanning of the market opportunities, sector matrix helps to improve the growth and profitability of the organization to a significant extent as compared to its existing rival players (Froud & et. al. 2006). Conclusion Why sector matrix is better than value chain in terms of strategic understanding of a company? Conclusively, it might be stated that, substantial efforts are offered to evaluate the effectiveness and significance of the technique of sector matrix over product markets both at the firm level and at sector level of the organization. At the time of analyzing the effectiveness, it had been observed that sector matrix is a very effective technique that may be used to evaluate the interaction of demand and supply of a specific product in the market. Moreover, after analyzing the interaction of demand and supply, it helps to determine the business policies and strategies of the organization thereby amplifying its profitability and ranking in the market among others. Apart from this, on the basis of the evaluation of demand and supply, the automobile organization such as Ford Motors alternates its ideas and concentration over production and logistics divisions. For example: at times of high disposable income of the customers, the demand of the SUV or luxury vehicles is extremely high and in order to cope up with this demand, the organization of Ford Motors presented varied designs such as Ford Freestyle, Volvo models etc to its customers. By doing so, the organization tried to attract or motivate the customer towards its brand that amplified its popularity and dominance in the market to a considerable extent. Similarly at time of low demand of the product lines of Ford Motors, it tried to offer more concentration over second hand cars so as to improve its image and dependency in the market. Moreover, from the above mentioned information of sector matrix and Ford Motor Company, it might be revealed that automobile organization need to offer high attention over the processes, techniques and technologies used. This is because; only by explaining the benefits of these factors, the organizations of automobile industries might satisfy the changing requirements of the customers in this age of competitiveness. Otherwise, due to lack of technical information, the brand image and prosperity of the competitor might get enhanced to a significant extent. Apart from this, it might also be revealed that, due to the implementation of varied types of improved technologies, the profitability and total revenue of the organization might also get enhanced among other existing rival players. Hence, it might be revealed that, other than porter’s value chain and global commodity chain, sector matrix is recognized as one of the most effective tool to analyze business environment and to implement the respective operations, so as to enhance its productivity and customer demands of the market. So that, in-spite of extreme competition and high bargaining power of the customers, a specific brand such as Ford Motors remains in the top-most position in automobile market as compared to many other rivals. Hence, sector matrix is considered as the best tool to analyze the market opportunities and company perspectives. References Ford Motor Co., 2013a. Our Value Chain and Its Impacts. [Online] Available at: http://corporate.ford.com/microsites/sustainability-report-2012-13/blueprint-value [Accessed on 14th June, 2014]. Ford Motor Co., 2013b. Sustainability 2012/13. [Online] Available at: http://corporate.ford.com/microsites/sustainability-report-2012-13/environment-data-economy [Accessed on 14th June, 2014]. Ford Motor Co., 2013c. Ford Motor Company Achieves Best October U.S. Retail Sales Since 2004; Multiple Performance Records Set. [Online] Available at: https://media.ford.com/content/dam/fordmedia/North%20America/US/2013/11/01/October13sales.pdf [Accessed on 14th June, 2014]. Ford Motor CO., 2013d. Ford Motor Company August Retail Sales Surge to Highest Levels Since 2006. [Online] Available at: https://media.ford.com/content/dam/fordmedia/North%20America/US/2013/09/04/August13sales.pdf [Accessed on 14th June, 2014]. Froud, J. & et. al. 2006. Financialization and strategy: Narratives and Numbers. Abingdon: Routledge. Gereffi, G. 2000. ‘The Organization Of Buyer-Driven Global Commodity Chains: How Us Retailers Shape Overseas Production Networks.’ Westport: Greenwood Press. Gibbon, P. 2000. Global Commodity Chains and Economic Upgrading in Less Developed Countries Centre for Development Research. New York: FT Prentice Hall. Jean-Paul, 2009. Commodity Chain Analysis.: processes involved  in commodity distribution. New York: FT Prentice Hall. Julie, F. & et. al. 1998. Breaking the Chains? A Sector Matrix for Motoring, Vol 3. London: Overseas Publishers Association. Porter, M. 2000. Competitive Advantage of Sector Matrix. New York: Free Press. Read More