A Case Analysis Report on Ford Motor Company

A Case Analysis R Report eport on F Ford ord Motor Compan Company y Table of Contents Abstract......................................................................................................4 1.0 Introduction..........................................................................................5 2.0 Main body..............................................................................................6 2.1 Porter's Five Forces Model.......................................................................6 2.1.1The main strength of competition in the industry......................................6 2.1.2 Threat of new entrants…………................................................................6 2.1.3 Bargaining power of suppliers.................................................................6 2.1.4 Bargaining power of buyers.....................................................................7 2.1.5 Threat of substitute products of services..................................................7 2.2 PEST analysis............................................................................................7 2. 2.1 Political factors......................................................................................7 2.2.2 Economic factors.....................................................................................7 2.2.3 Social factors..........................................................................................8 2.2.4 Technological factors...............................................................................8 2.3 SWOT analysis...........................................................................................9 2.3.1 Strength.................................................................................................9 2.3.2 Weakness...............................................................................................9 2.3.3 Opportunity............................................................................................10 2.3.4 Threats...................................................................................................10 3.0 Discussion..................................................................................................11 3.1 Porter’s Generic Strategies..........................................................................11 3.2 VRIO frameworks.......................................................................................12 3.3 Core capabilities.........................................................................................12 3.4 The strategy clock......................................................................................13 4.0 Evaluation...................................................................................................13 5.0 Conclusions.................................................................................................14 6.0 Recommendations........................................................................................14 References........................................................................................................16 Bibliography.......................................................................................................18 Appendix A.........................................................................................................19 Appendix B......................................................................................................20 Abstrac Abstractt Ford is one of the most largest and successful car manufacturers in the world, but in 2014, its economic benefits fell 56%. This report aimed to make recommendations for Ford to change the rapid decline in its net profit and bring forward suggestions for Ford’s development strategy in future. The report was through PEST analysis, SWOT analysis and Porter's Five Forces Model to analyze the external and internal status, opportunities, challenges that Ford faced at that time. The report concluded that it was proper for Ford in the adoption of differentiation strategy, but Ford's differentiation strategy in future must match the needs of consumers to make the difference valuable. Ford has taken a more mature system and experience in adopting the vertical integration strategy, however, it needs part or component producers of different links to make timely 1/9 adjustments to meet the diverse needs of consumers. Ford's attention to the views of consumers is desirable, which needs further increasing the effective communication between the various departments within the company. Ford’s adoption of high-quality, low-price strategy requires its ability to understand and meet what customer needs and control product cost better. Finally the report was from four aspects: differentiation strategy, internal communication, outsourcing and hybrid strategy to put forward recommendations for Ford's future development. Keywords: Ford; differentiation strategy; vertical integration strategy; hybrid strategy, consumer demand 1.0 Introduction Ford Motor Company is one of the largest automobile manufacturers in the world, it was founded in 1903 and it owns Ford and Lincoln brands (Bayou and Korvin, 2008). In addition to making cars, the company also owns the world's largest credit company Ford Financial, the world's largest car rental company - Hertz and a customer service brand - Quality Care (Kochhar and Kelkar, 2003). In 2008 when the economic crisis occurred, Ford was the only automotive group which set itself from the economic crisis without the help from the country. Ford has been the second best-selling brand form seventy-five years in the US auto market, it is second only to General Motors (Levinson et al., 2011). In 2007, because of high oil prices, the sales of its large SUV and trucks reduced and it was surpassed by Toyota, becoming the third best-selling brand in the US market. Ford's past success was related to its successful strategies. However, with the change in the market environment and the fierce market competition, the positive role of Ford's past strategies reduced, in 2014, Ford's profit fell 56% (Geum, Lee and Park, 2014). In the following content, it was first through PEST analysis, SWOT analysis and Porter's five forces model to analyze the external and internal status, opportunities, challenges of Ford at that time, then it carried out a critical analysis on Ford's current strategies to bring forward recommendations on Ford's strategies in future. 2.0 Main body 2.1 Porter's Five Forces Model 2.1.1The main strength of competition in the industry Since the 1960s, enterprises in Western Europe, Japan, South Korea and other countries entered the US market through the approach of selling products first, then establishing manufacturing enterprises (Kochhar and Kelkar, 2003). Today, a dozen of car manufacturers compete in the US. The statistics in 2014 showed that foreign brands have occupied half of the US auto market; in the small and medium sized passenger car market, foreign brands have occupied the majority of market share; in the more profitable SUV and pickup market, local manufacturers in the US has been losing their competitive edge (Geum, Lee and Park, 2014). With their obsolete product models and 2/9 slow product development, products of American motor companies can not catch with best products of motor companies in Japan in product quality and yield. 2.1.2 Threat of new entrants Automobile production needs a growing capital cost, making new competitors less possibly to enter the market. Government policies on emissions and fuel consumption will further restrict new entrants. 2.1.3 Bargaining power of suppliers Cooperation between car manufacturers and suppliers maintains an increasing trend. To sign long-term contracts with suppliers is becoming increasingly common. General Motors and its two major capital equipment suppliers signed a long-term agreement indefinitely. Ford and several major suppliers have signed a five-year contract (Geum, Lee and Park, 2014). Therefore, the bargaining power of suppliers is reduced relatively. 2.1.4 Bargaining power of buyers To attract customers, car manufacturers compete to lower prices and give discounts. Customer can bargain to a considerable extent on price, warranty and other service projects. Consumers have stronger bargaining power. 2.1.5 Threat of substitute products of services Facing growing purchasing, insurance, parking and maintenance costs, large urban residents have chosen the use of public transport. The biggest challenge that the global automotive industry faces currently is the development of economic, environmentally friendly vehicles with appealing styles. Most car companies have released a new environmental strategy: in the short term, they will take reducing carbon dioxide emissions as the main objective, their long-term goal is to achieve the harmonious development of cars and the natural environment through the application of new technologies to ultimately achieve zero emission (Barth, 2014). 2.2 PEST analysis 2. 2.1 Political factors For automobile manufacturers, increasing government control systems and the pressure from the environment prompt them to increase fuel efficiency, safety and pollution control standards. Clean air requirements, global warming and the introduction of the new fuel economy standards will challenge Ford's new product plans. 2.2.2 Economic factors The US economy performed strongly in 2014, in 2014 the US GDP increased by 2.4% than the previous year, reaching $ 16800 billion, which was the highest annual growth rate since the financial crisis in 2008, the unemployment rate dropped to less than 6 percent during the year of 2014, the US consumers’ confidence finally restored to the previous high before the economic crisis in 2008, while the US stocks leaped and bounded, the Dow rose to 18,000 points at the end of the year, refreshing the historically 3/9 high levels more than 50 times (Barth, 2014). In 2015, the US economy is more likely to continue to maintain a strong increase. As the economy improves, Americans will have more income to purchase vehicles, but the presence of environmental awareness and the rising cost of living and other factors, consumers pay more attention to environmental protection and low fuel consumption cars. Moreover, there will be more and more women who buy a new car, and in the automotive market, they are expected to exhibit the same purchasing power as men. People who are 55 years old or older constitute 25% of new car consumers, and this proportion will increase (Barth, 2014). Older buyers prefer driving safety and convenience, including electronic systems which warn sleepy drivers, non-glare dial and simplify electronic control devices. 2.2.4 Technological factors The advent of the information age has brought revolutionary and innovative technology to the automotive industry in many ways. Cars in future will be easier to be operated and are equipped with intelligent systems: fast, agile computers make engine and transmission systems more efficient; scanning radar system will help drivers to avoid an accident; infrared system can improve visibility at night (Bayou and Korvin, 2008). In production, the use of robotics will be more extensive. Car manufacturers will develop more alternative fuel vehicles. 2.3 SWOT analysis 2.3.1 Strength Ford is the world's second-size car and truck manufacturer. Ford's mass production capability enables it to reach economies of scale (Kochhar and Kelkar, 2003). Ford's portfolio is well balanced, its diversified financial services and product production greatly enhance its ability to resist risks. Ford implemented vertical integration strategy, for example, Ford glass plant produced all glass used by Ford’s cars and trucks in North America, Ford Credit provided credit for its distributors and consumers (Geum, Lee and Park, 2014). Through successful joint ventures with foreign companies, Ford achieved product diversification, updating technology and improving product quality. For example, by working with Mazda and Nissan, Ford reduced costs and improved quality. 2.3.2 Weakness Compared with the main competitors, Ford sent more income on pensions, benefits and other aspects of compensation. The United Auto Workers union has considerable power to interfere the company's business, it can block Ford’s plant construction projects abroad, overseas procurement plans, or close the plants or dismiss the workers. Even when Ford faced enormous difficulties, it still fought for more medical costs, pension and other benefits for workers (Geum, Lee and Park, 2014). Ford's most competitive products are trucks and SUV, but with rising environmental awareness as well as a variety of living costs, US consumers’ concern on large cars will shift to small cars, which will be a longterm trend, the demand of the US market for carts with large output volume will be 4/9 reduced to the lowest within the decade, which required Ford to make adjustments towards its product strategy. Company Hourly Pay Annual Pay Ford $70.1 $141,020 General Motors $73.26 $146,520 Chrysler $75.86 $151,720 Japanese motor companies in US $48 $96,000 Table 1: Comparison on pay of workers of automobile companies in US Sources: http://work.chron.com/average-pay-auto-workers-union-member-24071.html 2.3.3 Opportunity Since 2005, several major car companies such as Toyota, General Motors, Chrysler have undergone recalls due to quality problems, which led to consumers’ concerns regarding vehicle quality (Geum, Lee and Park, 2014). Ford announced that the company would focus more on quality, which would continue to reduce the cost of auto recall in a way, it would also help with maintaining Ford's image. Contemporary society and consumers pay more and more attention to environmental protection and energy saving. In June 2010, Ford released the 11th sustainable development report, disclosing that Ford will focus on investment in sustainable development, especially the investment in energy saving and emission reduction, which helps to improve their corporate image (Geum, Lee and Park, 2014). 2.3.4 Threats In the US auto industry, imported cars occupy a large market share. Among the ten bestselling vehicles in US in 2014, six were Japanese vehicles. Continuous depreciation of the yen improves its price competitiveness. There will be slowdown or possible recession in the US economy. 3.0 Discussion 3.1 Porter’s Generic Strategies Porter's Generic Strategies include three types: cost leadership strategy, differentiation strategy and focus strategy (Porter, 1980). At present, there is more serious product homogeneity in the automotive industry, the consumer brand loyalty is low and there is strong bargaining power. Automobile manufacturers tend to adopt the form of discounting to attract consumers and they are caught in a vicious cycle of price wars, which is very not conducive to the development of enterprises, therefore it is better for Ford to take a differentiation strategy. As differentiation strategy will help to build customer loyalty for the company, weakening the bargaining power of consumers and reducing the sensitivity of consumers’ for prices. 3.2 VRIO frameworks Considering from the perspective of value, Ford's large-scale production capacity and vertical integration strategy can help to control its production costs, its diversified 5/9 business portfolio will help Ford to better withstand market risks, the joint ventures of Ford with foreign companies are better able to improve its product quality and technical levels to achieve product differentiation strategy. Judging from the perspective of rarity, Ford’s vertical integration strategy is rare, the main reason for Ford’s using vertical integration management lies in that Ford can highly effectively control most aspects of the manufacturing and assembly processes. Ford controls the quality of key components and improves the brand reputation at the same time. Most competitors of Ford such as GM, are more willing to use a horizontal integration strategy (Brand, Anable and Tran, 2013). From the perspective of inimitability, automobile production includes many aspects and the manufacturing is very difficult, thus it is very difficult for other car companies to gain competitive advantages through the use of a vertical integration strategy within a short period of time. Considering from organization, Ford has taken a vertical integration strategy for several decades and it has more mature systems and experience. 3.3 Core capabilities One of Ford's core capabilities is the value innovation (Barth, 2014). The value innovation is not simply improving the technical competitiveness of their products, but creating more value for customers to win customers and win the success for the enterprise. Ford persists in the concept of using low costs to manufacture high-quality cars, as well as the concept of trying to understand the needs of consumers, with the best materials, the best employees to manufacture cars that everyone can afford, these are the most perfect manifestations of its value innovation strategies (Geum, Lee, and Park, 2014). Ford has always insisted on reform according to customer feedback, adhering to customer service and serving customer in each link, such as market research, product design, production and advertising. Ford has 2.5 million customers per year, in order to understand their needs, the company regularly invites customers to discuss products and sales services and other issues with product designers and car salesman, it has specially designed a kind of software data system for managers and employees of each department to understand the detailed customer feedback (Barth, 2014). 3.4 The strategy clock Bowman's Strategic Clock Model assumes that the applicability of products or services of different companies is basically similar (Bowman and Faulkner, 1997), then the reasons for companies to choose one rather than the other companies may lie in the following aspects. First of all, the price of products and services of this company is lower than other companies. Second of all, customers believe that this enterprise’s products and services have higher added value. According to the analysis above, it can be seen that Ford’s large-scale production capacity and vertical integration strategy can help it to control production costs, the joint ventures between Ford and foreign companies, as well as the value innovation can better improve its product quality and technology levels to meet consumer demand. Ford can take hybrid strategy, that is, in providing customers with perceived added value, it can maintain low prices at the same time. 6/9 4.0 Ev Evaluation aluation It is correct for Ford to adopt differentiation strategy, but it is worth noting that Kochhar and Kelkar (2003) point out that whether differentiation strategy can succeed depends on whether a company can create differences in products between itself and its competitors, and these differences are considered to be valuable by customers. Ford’s differences in the past were mainly reflected in their stylish car styles, precise handling and high safety performance, but its high fuel consumption problem persists (Bayou and Korvin, 2008). In the context of increased environmental awareness of consumers, Ford's product differentiation strategy in the past failed to be recognized by most consumers. Therefore, Ford’s differentiation strategy in the future must match the needs of consumers, such a difference is valuable. Ford has a more mature system and experience in adoption of the vertical integration strategy, but as there are more and more diversified and personalized needs of consumers, which needs producers of parts or components of different links make timely adjustments, therefore increasing the difficulty in organizing the integration strategy (Kochhar and Kelkar, 2003). Ford's attention to the views of consumers is desirable, it is worth noting that as consumers’ demands are more diverse, there will be more and more information sent from the consumers back to Ford, then how to make these messages flow smoothly inside Ford and increase the effective communication between the various departments within the company is one of the challenges that Ford's value innovation faces in the future. Whether Ford's high-quality, low-price strategy can succeed in future depends on both Ford’s ability to understand and meet the demands of customers, and whether Ford has the ability to control product cost (Barth, 2014). 5.0 Conclusions Ford is one of the most largest and successful car manufacturers in the world, but in 2014, its economic benefits fell 56%, this report was through PEST analysis, SWOT analysis and external Porter's Five Forces Model to explore the external and internal status quo, opportunities, challenges that Ford faced in 2014. The author concluded that it was proper for Ford in the adoption of differentiation strategy, but Ford's differentiation strategy in future must match the needs of consumers to make the difference valuable. Ford has taken a more mature system and experience in adopting the vertical integration strategy, however, it needs part or component producers of different links to make timely adjustments to meet the diverse needs of consumers. Ford's attention to the views of consumers is desirable, which needs further increasing the effective communication between the various departments within the company. Ford’s adoption of high-quality, low-price strategy requires its ability to understand and meet what customer needs and control product cost better. 6.0 Recommendations Firstly, in taking the differentiation strategy in future, Ford should pay more attention to its automotive product differentiation in terms of energy saving and environmental 7/9 protection, such as making more use of technology to reduce fuel consumption, environmentally friendly materials and clean energy, etc., so that the product differentiation will be recognized by consumers. Secondly, the use of integration strategy can save costs and help to control the quality of products, but the disadvantage is that it fails to meet the diverse needs of consumers better, so Ford can outsource its non-core component production to other professional companies, taking advantages of other companies to meet consumer demand better. Thirdly, Ford should further promote effective communication between the various departments within the company, including establishing more and more flat organizational structures, a more transparent and equitable communication mechanism, as well as the use of more convenient communication tools. Finally, Ford needs to find a balance between high quality and low price of products, on the one hand, it needs to positively understand what consumer need, in addition to what the young needs, what the elderly and women need must also be taken into consideration, actively integrating consumer demand into the production and service process of cars to create high-quality products that consumers need. Then, it can use its vertical integration strategy and other strategies to control the cost of production of products, and through the use of advantages of its diverse business to provide consumers with quality services in order to reduce consumers’ costs for car purchase and use.