Business Problems - Ford Motor Company - Essay Example

Research and Analysis of Business Problems Table of Contents: Particulars Page No.s Executive Summary 3 Position 5 Sense 7 Uncover 8 Solve 10 Build 11 Achieve 13 Conclusion 15 Bibliography 15 Executive Summary: Ford Motor Company is in the production of cars, SUVs, trucks, car accessories and other services to its customers for more than a century as of date. It has a global presence and its vehicle showrooms are present in North America, Europe, Asia Pacific, Latin America, Middle East, Africa and Caribbean areas. It also has many official business partners with which it liaisons for joint ventures. The company fosters transparency in its governance through solid principles founded at the time of its inception which are updated in a timely manner. It is now ranking 7th in the Fortune 500 list of companies. (Anon. 2009) - 1. It is on an aggressive restructuring phase to deliver new products to its customers. These products need to be efficiently designed in terms of quality, value, fuel efficiency and safety. Its revenues are highly dependent on the sales of trucks and SUVs which are quite famous in the market. Of late, the demand for these heavy vehicles has started to dwindle due to the ongoing recession since 2007. 2008 has particularly been a very difficult year for the automotive as well as Ford motor company. Questions are being raised about its very sustainability because the demand for its famous products has fallen very drastically. Not only that, because the company did not think of catering to the small car market from past ten years, many loyal customers who are in need of such cars are now shifting towards other companies. The result of such lapse in conquering the small car market is the closure of 12 manufacturing facility units in North America. Not only that, several tough decisions like layoffs and attritions have also been taken in the recent past. Buyouts were also undertaken to reduce the U.S. payroll. This implies that the company is not able to capture the faster younger generation preferences both in U.S. and other emerging markets. Fortunately, the company has redrafted its priorities. It is planning to undertake aggressive restructuring and enter into the small and midsize car business through accelerated production. In this journey, it is encountering certain issues regarding the GHG emissions for vehicles, entry into emerging markets, quality of competitiveness and other related costs. These are the general issues which every automotive company would face. However, capturing the North American markets and entry into emerging markets through its small and midsize car production are the necessary actions to be taken up to ensure sustainability and improve on its balance sheet. For this, it needs to do responsible restructuring instead of downsizing the company. It needs to shift its workers from the production of the trucks and SUVs to small and midsized cars. Thus, it can address the ethical issues which encircled the organization during the previous attritions. Feasibility analysis has to be conducted to understand the expected demand for its small and midsized cars. According to that demand, it needs to estimate the production for which cost-benefit analysis has to be drawn out. This will clarify the term within which the company plans to return back to profitability. In this way, the previous miss-management of issues can be curbed to a large extent and the issue of sustainability can be solved. (Anon. 2009) - 2. Position: Ford Motor Company, a century old company, is in the business of making cars, SUV’s, trucks and many other transportation oriented services. It’s Model - T is reckoned to be the first car on which driving experiments were done. The company ranks 7th in the fortune 500 companies list and believe in extending value to its customers. As such, it would never try to compromise on its product quality. Vision: The Company has a very clear vision of providing transportation. This transportation should be: Sustainable Affordable. Values: As earlier mentioned, the company gives great importance to extending value to its customers. It believes that there can be no compromise in such extension of service. Mission: The Company has envisaged a comprehensive mission statement of maintaining Ford unity to achieve this vision. This unity is irrespective of its global presence. Every Ford showroom or production unit is unified in this mission. There is no entertainment of any issues which may contradict this mission. To further exemplify this statement, unity in team, plan and goals of the organization have also been laid out. Team unity emphasizes lean management system to achieve leadership in the automotive sector. Plan unity is to restructure the organization through change in the model mix. The production of smaller cars would be aggressively taken up in place of trucks and bigger vehicles to improve the profitability. By performing the above steps, the strategic goal of progress in the balance sheet could be achieved to sustain for long period in the market. These vision, values, mission and strategic goals can be inscribed in a simple balanced score card as below: (Niven. P.R. 2006). The company has to maintain good relationships with the following stakeholders to achieve above mentioned objectives: Employees: There are around 245,000 individuals who work for the organization at 100 different plants. The company has been on the verge of making losses from past two years. Tough decisions regarding the layoffs and alterations are on the roll out for which employee co-operation is much needed. Customers: On a worldwide basis, there are 6 million customers to the organization in the form of retail individuals, business customers comprising of small and large fleet businesses. Dealers: Owing to the longevity of the organization, its dealers have been associated with it from past many years. They have shaped themselves into employers and contributors to their local economies. Suppliers: There are around 2000 production suppliers and 9000 non-production related goods and services suppliers associated with the company. Communities: The Company believes in being a good neighbor to its surrounding vicinities. It has been one of the key success factors from its inception. Shareholders: These are the people who provide the required capital to fund the organization’s activities of manufacturing and selling the vehicles. Other than these, government regulators, non-government officers and civil organizations that are directly or indirectly related to the company also become a part of the stake holders when it comes to taking decisions regarding a particular activity. (Anon. 2007/8) - 3. Sense: The year 2008 has been a very difficult year for the automotive industry. We can have general sense of the ongoing things at Ford, by having a look at the following table: Particulars 2006 2007 2008 Sales/revenue 160.1 billions 172.5 billions 146.3 billions Net Income / Loss -12.6 billions -2.7 billions -14.7 billions Share Holder return 1% -10% -37% Energy Efficient Index (Lower % desirable) 74% 74.4% 69.9% Employee Satisfaction 62 64 66 Dealer attitude 64 69 68 On an average 100 employees - Days lost per 200,000 hrs. worked 14.5 12.6 13.5 Top safety pick awards 6 8 14 The sales which have increased in the year 2007 have drastically come down in the year 2008 resulting in a net loss of 14.7 millions. The company is making continuous losses and the share holder’s returns have also diminished by more than one third per share. Employee productivity is also falling. In this scenario, bare sustainability of the organization is the core issue to be addressed. The main cause for such dismal performance is the fact that the company’s costs are increasing on one hand and revenues are falling on the other. (Anon. 2008/9) - 4. Uncover: An analysis of the effects of all above mentioned issues on the stake holders would help us to understand their view points and arrive at possible conclusions: Employees: Reduction in work force, pay raises and benefit programs only worsens the worker’s productivity. Research specialists suggest that not even 25% of the cost benefit can be achieved through labor attrition. (Keller. J.J., 2009). Customers: The Company was opposed to small and mid size car production from past ten years. In these recessionary trends, customers prefer lower end cars. Thus, they were shifting to other car companies. The result is that the company had to close North America’s manufacturing facilities and cut down production levels in other areas. Dealers: When vehicles are not moving fast, dealers become wary with the company and that can be seen in the slight reversal of the dealer attitude statistics given in the table below. If this continues, it would only worsen the situation. Suppliers: The Company wants to produce best in class vehicles. The parts supplied as such should be of good quality for which suppliers would demand higher prices. Communities: Automotive sector is always on the watch by the communities regarding the GHG emissions. The Company is trying to electrify vehicles and improve the safety standards. Lots of money would have to be expended to maintain those safety standards. If those standards are not maintained, the company may have to be closed. Share holders: The net worth of the share holders has already reduced by 1/3rd in 2008. If this continues then the company would have to bear higher capital cost in the future. Solve: The following fish bone diagram illustrates the causes of increase in costs and decrease in revenues. It also explains the cascading effect of all the issues put together: ( Anon. 2003 - 09) - 5. 1. Equipment - Research driven specialized equipment to be used. 2. Materials - Costly materials to get the best product. 3. Process - Best in class vehicle preparation 4. Environment - Lower Co2 emissions. 5. People - Lower employee productivity. 6. Management - Lack of maturity in management. 7. Sustainability issue - Due to high costs and lower revenue realization. In short, the company is facing issues of lower labor productivity, higher input costs and capital costs. After struggling through all these issues when products are released in the markets, the demand for its products has reduced leading to lower revenues. Build: The crux of all these problems is complete miss-management of issues. The decisions taken up by the organization are only short term oriented and as such, the sustainability of the company on the longer term, based on these decisions, is highly difficult. For the long term, decisions need to be taken up based on the ethical issues, feasibility analysis and cost-benefit analysis reports. Ethical issues: The Company is trying to maintain good ethical balance with all its stake holders. The production of electric battery vehicles, lowering of GHG emissions and grabbing safety awards establish its efforts towards this direction. But, the mass reduction of work force to bring down production to the demand level is not a welcome decision. This leads of unavailability of staff at times of need, low morale and insecurity feelings in the surviving staff. Not only that, the supplementary employment costs to the displaced workers would also be huge. That means the company is incurring costs with no beneficial return for the same. On the other hand, if these workers were redirected to the production of some other product in demand like that of small and mid size cars, the company would have gained both ethical good will and improved demand for its products. It would also not lose on its market share because of non-production of small and mid size cars. Fortunately, these ideas are being slated in the sustainability report for the current year. If they can be implemented, responsible restructuring of the organization could be done to improve the financial performance of the company. (Cascio. F.Wayne, 2002). Feasibility Analysis: Solving ethical issues through production of small and midsized cars is possible only if the feasibility of such activity can be established in terms of financial, technical and organizational viability. Financial feasibility: For small and midsized car production, The capital to be infused and the period within which it is estimated to be earned by the organization, The time taken for such production and The magnitude of required changes to be undertaken has to be examined before making a decision. Technical feasibility: The Company values best in class production. Technical parameters whether such high standards could be incorporated in S&M car production have to be checked before drawing any conclusion. Organizational feasibility: Acceptance of such production in the staff, Mode of operation, procedures and practices to be followed Have to be clearly designed to have an organizational feasibility for any product. Through feasibility analysis, volume of production can be estimated. (Keyes. J., 2009). Cost Benefit Analysis: It examines every project on two basic points of cost and benefit to the organization. In the case of Ford motor company: The estimated demand for the small and midsized cars in the market The estimated costs of such cars are also arrived at. By equating the demand and production costs scenario, cost benefit analysis can be done. The fixed costs incurred under current production would be dead costs till one level of production. Hence only the variable costs have to be taken up for performing cost benefit analysis. The breakeven point of any production can be estimated through cost benefit analysis. The estimated demand and the volume of production ascertained through the feasibility analysis will help to arrive at a particular production figure. If the production figure is more than the breakeven point, then the company is sure to gain profits in the S&M car segment. Hence, the company should strive to produce and sell more than the breakeven point. (Sharpe. C., 1998). Achieve: The main problem at Ford is that of sustainability. The company has to ensure that it makes profits from its operations. For that, the following steps need to be undertaken: 1. The demand for trucks and SUV’s has fallen drastically. As such, the company has to reduce the production of such units commensurate to the expected demand. 2. The other production facilities of the plant have to be diverted towards the production of small and midsized cars after conducting feasibility and cost benefit analysis. This is because consumers prefer more of small cars due to the ongoing recessionary trends. This can lead to many advantages: The company is on the move of aggressive restructuring. But, this restructuring should not mean labor attritions. Employees can be retained by carrying on responsible restructuring. This will address all the ethical issues relating to work force reduction. If required, previous workers who were retrenched from the organization could be employed again to ensure availability of labor to meet the production demands. Hiring and training costs can be minimized because the existing employees are diverted to new production sites. Market share should be increased by understanding the needs of U.S. and other emerging markets users. Designing of the vehicles should be catchy to achieve this. This goes a long way in improving the sales revenue for the company. 3. The company is incurring high research and input costs for building environment friendly vehicles. Electrification of vehicles which can reduce these emissions has to be undertaken on a speedy manner both in big and small vehicles. In this way, the input costs could also be reduced. 4. Management in future has to take mature decisions to sustain benefits on a long term perspective. Conclusion: It has been concluded that miss-management of issues was the sole responsible factor for the century old company to incur losses. In future such mistakes should not be repeated. The company should now concentrate on increasing its market share by producing small and midsized cars. Responsible restructuring has to be undertaken during the production of such vehicles. These cars have to be marketed in U.S. and other emerging markets to capture those markets. In this way, the company can increase production on one side and enjoy better revenues on the other through increased demand. Thus, the sustainability issue would be solved. Bibliography: Book References: Niven. Paul. Balanced Score Card Step By Step Maximizing Performance & Maintaining Results. 2nd edition. (U.K.) John Wiley & Sons. 2006. 3rd Chapter. Keller. J.J. Human Resources Management Guide: An Essential Tool For Managing Day To Day HR Responsibilities. (U.K.) J.J. Keller & Associates, Inc. 10th Chapter. Cascio. F. Wayne. 2002. Responsible Restructuring: Creative & Profitable Alternatives to Layoffs. San Francisco. Berrett - Koehler Publications inc. 2002. 1st Chapter. Keyes Jessica. Leading IT Projects - The IT Manager’s Guide. (U.K.) Auerbach Publications. 2009. Part - III, Reference - f. Journal References: Sharpe Cat. How to Conduct Cost Benefit Analysis (A Journal). ASTD.org. 1998 Internet References: Anonymous. Fortune 500. CNN Money.com. 2009. Last Accessed: 11th November, 2009. http://www.ford.com/microsites/sustainability-report-2007-08/society-who Anonymous. About Ford. Company Information. 2009. Last Accessed: 11th November, 2009. http://www.ford.com/about-ford/company-information Anonymous. Who Are Our Stakeholders? Sustainability Report. 2007/8. Last Accessed: 11th November, 2009. http://money.cnn.com/magazines/fortune/fortune500/2008/full_list/ Anonymous. Blue Print for Sustainability. Our Future Works. 2008/9. Last Accessed: 11th November, 2009. http://www.ford.com/doc/sr08-blueprint-summary.pdf Anonymous. Fish Bone Diagram/Cause Effect Diagram. Vertex 42. 2003-09. Last Accessed: 11th November, 2009. http://www.vertex42.com/ExcelTemplates/fishbone-diagram.html Read More