Henry Ford and Toyota

“Henry Ford at Highland Park and Toyota during the 1980s and 1990s demonstrate that a growing car market is the necessary precondition for achieving superior productivity”. Describe the methods used to improve productivity and critically discuss whether a growing market is a necessary precondition. Productivity is “A measure of the efficiency of a person, machine, factory, system, etc. , in converting inputs into useful outputs. ” (BusinessDictionary. com) It is a way for companies to maintain their quality and quantity of products and services in a cost effective manner.

Especially if several companies are at the same level, able to access the same factors of inputs and goods, incur similar costs of production then price becomes the key to success during such competition. Such a growing market generally provides an opportunity and necessity to companies for achieving greater productivity. This essay will aim to evaluate a growing product market as a necessary precondition for achieving “super productivity” while taking the automobile industry as a growing industry, especially during the 1980s and 1990s, and using Ford’s and Toyota’s productive methods as examples.

In a growing industry, most companies would like to achieve superior productivity. Superior productivity is often associated with the advances a company’s production system will achieve through technological and managerial changes. In order to evaluate the necessity of growing product market as a precondition for superior productivity, one must understand the growing stage of the Product Life Cycle. The Product Life Cycle (PLC) has four stages; introductory, growth, mature and decline stage. The growing stage is like the transition period from the first to the second stage.

Since companies experience the highest level of competition in a growing product market, they try to expand their market share and indulge in different marketing, pricing and advancing methods to be the leaders of the market. Thus, achieving productivity becomes an “expensive” necessity in a growing product market, and the trick to stand out is always cost efficiency. The costs involved in achieving greater productivity are the costs of capital resources; machinery, incorporation of the most advanced technology and labour resources; wages and skill.

Capital productivity is calculated through the product/capital ratio, thus it can be increased by increasing the numerator or reducing the denominator. Advanced stages of production should be focused more upon rather than intermediate products, improve usage of existing goods and invest in technological innovation. The labour can also be made more productive in several ways such as providing better working conditions and environment, taking performance-motivating measures such as rewards for effectiveness, compensation packages and increased communication and also invest in training and skill building workshops.

In a growing product market, these costs require critical and effective management in order for the product to maintain and elevate its position in the market. The car market can be easily taken as a growing product market for the purpose of this essay since the time period between the 1980s and 1990s represents a booming output for the USA. “In 1985, Americans owned 137,300,000 passenger vehicles, or one car for every 1. 7 people in the country. The world average was one car for every 12 people.

” (Manning 2000 http://eightiesclub. tripod. com/id291. htm) and Ford Escort one of the leading products of the car industry at that time! Since then, Ford has not only lead the US car industry but has also been at a good position in Europe and the international market. (Ackel, Philip. 2005 http://www. grin. com/en/e-book/111658/factors-affecting-sales-of-the-automotive-industry-in-europe) The figure shows how market is slowly reaching saturation in Europe during the 1990s, yet Ford holds a great market share.

Henry Ford’s Model T at Highland Park in Detroit from 1909 till 1916 demonstrated Ford’s superior productivity and its dependency upon a growing car market. Considering the demand for the new mass-production methods were developed in order to maintain its quantity; he opened up branches in US and UK and also introduced “the world’s first moving assembly line for cars; and in 1914, to further improve labour productivity, he introduced the $5 daily wage for an eight-hour day (replacing $2. 34 for a nine-hour day).

” (Encyclopaedia Britannica http://www. britannica. com/EBchecked/topic/213265/Ford-Motor-Company) The Model T became very popular due to its affordability and durability due to which more than 15 million Model Ts were built in Detroit and Highland Park, Michigan (Encyclopaedia Britannica http://www. britannica. com/EBchecked/topic/387041/Model-T). In 1993 it was noticed Ford’s productivity had risen to 36. 1 percent whereby costs were cut down around $3 billion in 1991 and $1 billion in 1992 through organizational and supplier base restructuring.

Planned investment of $28 million in technology was also being made in the next five years for more productivity gains. (n. a. 1993. Ford Productivity is key to success http://news. google. com/newspapers? nid=2213&dat=19930414&id=luIvAAAAIBAJ&sjid=xjoDAAAAIBAJ&pg=4780,776050) One of the main reasons why Ford was able to cut edge in the market was because of the growing competition, and with the usage of superior capital and labour resources it was able to manage “quality achievement” awards along with top positioning in the market.

Productivity leading to top position in a growing car market has not only worked out for Ford, in fact it is the most relevant to Toyota than any other car group in the world. The company expanded at a rapid rate during the 1960s and ’70s while indulging in international trading. Toyota experienced noteworthy “…with innovations such as its luxury brand, Lexus (1989), and the first mass-produced hybrid-powered vehicle in the world, the Prius (1997). In 1999 Toyota was listed on both the London Stock Exchange and the New York Stock Exchange. ” (Encyclopaedia Britannica http://www. britannica.

com/EBchecked/topic/601332/Toyota-Motor-Corporation) Basically, “nobody in the car industry could miss the significance of Toyota's vastly superior productivity” (Heller 2006). Toyota gave more power to their employees who were able to bring the assembly line to a halt if defects appear (Jidoka), using kanban to effectively manage their supplies, using scientific ways of management by improving productive flow through models such as Just in Time, reduce waste and increase effectiveness (Production System 2012 http://www. toyota-global. com/company/vision_philosophy/toyota_production_system/) .

All these methods were highly effective during a time when the international car market was growing at a rapid rate and mainly because of Toyota by the late Eighties Japan was also on the same footing as Detroit in the U. S. auto market; “in 1987 Americans purchased 10. 2 million new autos -- and 20% of them were Japanese-made. ” (Manning 2000 http://eightiesclub. tripod. com/id291. htm) One of their most noteworthy ideas would be that of the U-car which displays perfect implementation of all methods of achieving productivity such as improvising on existing goods,