The Dramatic Decline in Fiats Performance - Essay Example

1. Internal and external factors responsible for the dramatic decline in Fiat’s performance: Gaps in Product Lines During the years 1995-2001, when all the other players like Mercedes and Volkswagen invested huge amount of money in their R & D, Fiat Auto invested a considerably less amount in the same which lead to a huge gap in its product lines. All the competitors of Fiat launched new models constantly in the market and slashed the prices causing severe erosion in the market share and revenues of Fiat Auto. Problems with the quality of the cars Fiat Auto is well known as a manufacturer of ‘small cars’ since its inception in the Italian automobile industry. But even as the foreign players flooded the Italian car market with small cars during the mid and late 1990s and generations changed, the company did nothing to change its image. Additionally, it was also felt that the company was very late in addressing the quality issues related to its products. This delay in improving the quality of its products dissuaded customers from buying Fiat’s cars. This was also a major reason because of which Fiat was not able succeed in the American car market despite its affordability and this also lead the company to withdraw itself from the American car market. Financial Crunch Towards the end of 1990s, the company also experienced a financial crunch due to its diversification measures. The acquisitions made by Fiat Auto during the period contributed to its problem since the performance of some of the acquired businesses was rather disappointing and additionally they also resulted in added costs for the company. Another factor responsible for this situation of the company was that the company bought a few firms when it was at the top of its business cycles and consequently had to shell out a lot of money to acquire them. The debts of Fiat were largely the result of such acquisitions made by the Italian automobile giant. Lack of proper Co-ordination Factors that are related to planning and control play a vital role in the decline of the Italian automotive giant. The role played by the R&D department is to be seriously taken into account while discussing about the crisis or performance decline of Fiat. The reason behind this can be described as the “supremacy” of the Engineers at the R&D wing. The most serious problem recognized is the “supremacy” of Engineering over customers’ needs. The requests of Marketing are often rejected because considered as wrong from an engineering perspective. This is an issue of huge concern because Marketing is the one that gives information about customers’ needs, expectations, and market trends. Whenever a company’s value chain is observed, equal importance is given to almost all the aspects of the value chain and marketing is in no way exclusion for this. In the case of FIAT, marketing is not given much importance in the value chain of the company. As already discussed in the above paragraph, there has always been a misunderstanding and lack of co-ordination between the R&D and Marketing departments of the company. Also, the supremacy of the R&D department over the later was very high. As a result, FIAT is not able to use Marketing as an important source in order to understand market trends. The result is the FIAT’s attempt to build something which is perfect from an Engineering perspective but absolutely far from customers’ needs and tastes. Failing in the proper implementation of the outsourcing strategy Many market analysts have a feeling that FIAT lacks of the fundamental ability of understanding customers’ needs and tastes; this is relevant in order to produce and offer car models able to satisfy customers’ expectations. The company has got an outsourcing policy according to which the operative and productive cycles are split into many segments. When it comes to outsourcing the activities of a company, a lot of care is to be taken (Cook, Foundations of Control). It the outsourcing strategies are not implemented in a proper manner then they would lead to a lot of negative implications and consequences for the company to face and this is what has happened with FIAT – the Italian automotive giant. In a value chain, suppliers are given more importance by the manufacturer as the later is dependent on the suppliers for the smooth functioning of the organization (Cook, Operations and Value Chain Management). As the dependence of the manufacturer increases upon the suppliers, simultaneously the complexity in the value chain also increases hand-in-hand. In this case, the company has lost control of the value chain on a whole. This in turn had serious social implications. This when related to the company, it led into the action of firing employees. 2. Leadership at FIAT The Italian automotive giant FIAT was started and grew gradually under the leadership of Giovanni Agnelli, one of the members of the Agnelli family. He strengthened the production system of the group’s automobile division. It was as a result of his leadership and innovative strategies; FIAT was able to offer many vehicles at affordable prices through FIAT Auto. After the death of Giovanni Agnelli, Vittorio Valletta who was a close associate of the later and also a key executive of FIAT Auto became the chairman of the group. It was under his leadership that the group entered an era of prosperity. Fiat’s era of prosperity can be largely attributed to the growth of the mass car market in Italy during the 1950s (Piper). Later in the year 1966, Gianni Agnelli, the grandson of Giovanni Agnelli and the head of the Agnelli family, took over as the group’s chairman. He was strong believer of the ‘American style of Management’ and hence he fired many old managers and introduced assembly-line production into the company. Another point that is apt for discussion at this point is Gianni Agnelli’s leadership and political clout helped the company to survive a host of problems through the late 1960s and the early 1990s (Cook, Managing Change and Innovation). The credit of the company being diversified into various functions other than automobile goes to Gianni Agnelli. He was the one who took the company on a diversification drive during the 1980s and 1990s. It was a strong urge that Gianni Agnelli had to grow through diversification. By the year 2001, this resulted in the company operating in automobiles, commercial vehicles, agriculture, construction machinery, aviation, metallurgical products, publishing (newspapers), telecommunications, production system insurance and several other businesses. 3. Management Control Systems of FIAT Auto The major problems that were responsible to the crisis at Fiat Auto were lack of proper control and coordination. Added to this was the lack of proper planning in implementation of various strategies of the company. All these points were discussed in detail in the above paragraphs. The diversification strategies employed by the company also were responsible for the crisis of the company. As discussed in the earlier sections of this paper, the company bought certain firms when it was on the top of its business cycles and consequently had to shell out a lot of money to acquire the firms. This led to the debts of the company. Hence, this clearly shows that the top management had failed in the proper implementation of the diversification strategies of the company. As far as Fiat is concerned, during the early years of its evolution as a company, the people who lead the Italian automotive giant had influenced in developing and strengthening the company to establish a mark in the Italian auto industry and at the same time have taken the company to an era of prosperity (Piper). They also made automotives that were affordable to common public. As the years passed, Gianni Agnelli who became the chairman of the group in the year 1966 also played a good part in shaping the future of the company but at the same time as a strong believer of the American style of management, he removed many of the managers who were working with the company since years and introduced many new changes into the company some of which were responsible in the decline of the company’s performance. The management of the company also failed to keep abreast of the changing trends in the car market during the mid 1990s. There was also a vital role that was played by the interventions of the government in the Italian market which also were partly responsible for the crisis of Fiat Auto. The advent of liberalization, the Italian government took many steps in order to liberalize and privatize its economy and many of its industries. The regulatory policies of the government also became very stringent. In order to increase the flow of investments the Government of Italy realized that there is an immense need to integrate the Italian economy with the global economy. In 1992, the Italian government privatized its public utility sectors and also gave a green signal for foreign players to open up operations in Italy (Piper). This resulted in foreign players like General Motors, Ford and Toyota entering the Italian automobile industry and established themselves in the market thereby hosting a stiff competition to FIAT Auto. After the Italian economy was opened up to foreign players, foreign car companies relied on price cuts, improvement of quality and new innovative designs in order to gain market share. Fiat failed to keep abreast of the changing trends in the car market during the mid 1990s. Bibliography 1. Cook, Charlie. "Communication and Information Technology." Power point Presentation. 2007. 2. —. "Foundations of Control." Power pont presentation. 2007. 3. —. "Managing Change and Innovation." Power point presentation. 2007. 4. —. "Operations and Value Chain Management." Power Point Presentaion. 2007. 5. Piper, Jurgen. Fiat Auto: The Italian Giant in Trouble. Case Study. Frankfurt: Metzler Bank, 2002. Read More