Ford Motor Company has had its fair share of success and has positioned itself as a premier U. S brand. But as witnessed by any other company, the lifecycle of Ford has edged towards decline to reflect the realities of the factors that surround the industry in which it operates. In the years following the 2008 financial meltdown, Ford was operating in a comfortable but challenging position in the auto industry, which has since been blemished by the near collapse of the company as a result of global recession.
With competition from Asian companies rife and a faltering economy, Ford is left with a huge task of formulating a strategy that will not only sustain its existence in the industry but to put it ahead of competition. SECTION 1: STRATEGIC ISSUES AT FORD Recent financial stand of Ford Motor Company has shown improved earnings of around $2,717,000,000 FYE 2009, sales of automotive have seen a significant fall to 4,817,000,000 units sold worldwide, a 13% fall from previous year as shown in Ford (2009) annual report.
As the only automobile company not to have been a participant in the TARP program as mentioned by Grant (2010), Ford had narrowly salvaged its position as one of the most powerful brands in automobile industry. Ford faces some pressing strategic issues which will be looked at in order to find the strategies that will address these issues. Underlying Issues at Ford Motor As most of Ford Motors problem are as a result of 2008 downturn, the business level strategy accounts for most of the issues at the company.
Given that most companies at a maturity level face corporate level strategy issues, the author thinks Ford’s CEO Allan Mulally has proven to be a competent leader given the circumstances. The uniqueness of the strategic issues at Ford are based on the market conditions. 1. Financial 2. Sales 3. Product line 4. Competition Given how inter-related these issues are, the author decides to focus on the main underlying issues as highlighted in the case study; that is financial and competition issues.
Sales and narrow product line are more on a business level as opposed to financial and competition which are more corporate in this context. Figure 1: Illustration of Ford strategic issues (sourced from Suleiman) 1. Financial Weak balanced sheet poses a huge financial problem to Ford as it brushes with near insolvency in 2008 which could have seen the company file for bankruptcy. Drop in revenue means the company has a small profitability and has to collateralize its asset to stay liquidated.
This is an issue for Ford because of the size of the company and the nature of its operations depends largely to close-fit financing. As it deals with thousands of suppliers with massive overhead expenditure, Ford relies heavily on efficiencies to maintain a sustainable margin to keep its investors as well as its operations. With a weaker balanced sheet, the most pressing issue faced by Ford Motor is its resource allocation. The company literally had to put up its famous blue logo as collateral, along with most of its assets to stay liquidated. The impact of a weak financial position is not very difficult to comprehend.
GM and Chrysler, world’s second and thirteenth largest automobile manufacturers respectively, had to file for chapter 11 bankruptcy protection. A weak financial position makes Ford susceptible to insolvency, which will affect its cost of capital, forcing to company to place in more collateral and pay high interest rates for funding. This will cause a ripple effect on Fords production, employees, R&D at a time where its main rivals are putting more of their capital into hybrid technology forcing a resource allocation restructuring directly affecting the company’s ROI. 2. Competition
As emerging markets account for larger share of world economy, competition to capture those markets provides opportunities for both product and market development. Ford has been slow in tapping into these markets and has led Asian car makers to not only capture those markets but also appease to Fords current market in North America and Europe pushing the company further towards decline in market share. In whichever angle one views Ford objectives, sales and profitability is obvious, staying ahead of competition then is very critical to its short-term and long-term sustainability.
It will be almost impossible to believe the number one luxury car manufacturer in America in Lexus, especially as the big three automobile companies account for about 60% of total vehicles sold in the country. Combination of cost leadership, innovation and segmentation has given Asian auto companies a grip in the world’s auto market, which only materialized in a matter of two decades. Oblivious strategies focusing less on global market development has resulted in significant loss of market share by Ford Motors to its rivals mostly from Asia.
The impact of competition as a strategic issue is clear cut in an industry as matured as the automobile. Losing competitiveness paves way for rivals to present their offerings as substitutes, which given the price advantage Asian rivals have, switching cost for consumers is reduced and they easily position themselves as popular choice. This will dramatically shape the industry and will force companies like Ford to consider fewer segments where their products are no longer patronized.
This in turn will affect the product line of the company, not that its anything fascinating as it is, and ultimately cause further fall in sales, resulting in a dismal financial performance. Nature of Strategic Issues and its Relationship with Current Strategies Figure 2: Fords “One Ford Annual Plan” (excerpt: Ford Motor Company, 2009 annual report) To better understand how these issues identified came about, the author looked at Ford’s current strategies and then relates them to the issues.
In this case, the author found current Ford strategies doesn’t go far enough to expand its regional segments. Prioritization of emerging markets would have addressed the issues of competition as Ford can use its strong brand to maintain a sustainable level of competition. Further arguments can be found in Appendix B. SECTION 2: STRATEGIC MODELS AND FRAMEWORK SUITABLE FOR ISSUES IDENTIFIED Slack and Lewis (2008) discussed strategy from operational point of view arguing for a sustainable strategy, there has to be a consideration of fit, sustainability and risk.
Ford Motor as a manufacturing company reconciles its strategies to align its resources together with customer requirements (Ford Motor Company, 2009 Report) making it one of the largest Automobile companies in the World. 3. 1. Competitor Analysis Porter (2008) outlined four additional competitive forces that hurt profits. These forces; to a larger extent defines the reality of competition in the auto industry, Ford lack of competitiveness can be defined by these new forces. 2. 1. 1 Porter’s 5 Forces Analysis
As major economies grapple with the scar of the 2008 financial tsunami, governments are now taking charge of industry playing fields, especially as they were involved in massive bailouts of these companies. The influencing factors that govern overall business system are governed by local governments. These factors are defined by Porter (1990) as imposed urgency to innovate to compete with companies in direct competition. As protectionism grows, Porters 5 forces analysis best describes the competitive forces Ford faces in entering new markets.
Boscor and Bratucu (2010) argued “Poor markets are important source for global innovation and for sustainable ideas, business models and technologies that can work across developed and developing markets” Ford Motors have failed to take full advantage of Base of the Pyramid strategy (Boscor and Bratucu, 2010) to segment new customers in new markets. As a result, its push for a global car strategy never achieved the goals it was set to achieve. Porters 5 forces look further into the factors that stifled competition for Ford especially in Asian markets.