Xavier University-Ateneo De Cagayan School of Business and Management FORD: NO LONGER JUST AN AUTO COMPANY A Case Study In Partial Fulfilment of the Requirements for BA 23: Strategic Management Submitted to: Mrs. Lilibeth Celesios Submitted By: Veloso, Jean Xandra January 28 , 2020 Case `17 FORD: NO LONGER JUST AN AUTO COMPANY Problem: By the end of 1919, Ford was producing 50 percent of all the cars in the US. Unfortunately, in the 1990s, the company’s CEO had emphasized acquisitions to reshape Ford, but day-to-day business activities and vehicle development were ignored in the process. This lead to the decline in both profitability and Ford’s market share in US from 25% in 1999 to 18.6% in 2005. In 2005, the company was not just challenge on the decrease of their market share but also skidded out of control, losing 1.6 billion, pretax, in North American profit. On the other hand, competition for Auto Company had intensified when Japanese car makers began gaining a foothold in the market. Ford’s market share in US had dropped over time to 15.5% in 2011, to 14.9% in 2016. Also, Ford were facing a problem in general economic condition wherein they had a little control and a changing technological and sociocultural environment where consumer preferences were difficult to predict. This challenging global conditions meant 2014 year-end profit saw a 56 percent drop from 2013. Actual State: Going into 2017 up to present, there are several marked shifts in the overall landscape that threaten the company: the interest, electric vehicles, fluctuating oil prices, the development of autonomously controlled cars, and the reduction in demand for actual automobile ownership in favored of rental. Because of this shifts, CEO Mark Fields decided to restructure, creating a new focus, expanding the company’s scope from vehicles to “mobility” through business model innovation while shifting the “ONE Ford” culture to “TWO Fords” corporate culture. This means that Ford is no longer just an auto company but also a transportation services provider. In 2017, Ford was guiding profits lower, because of this intent to invest in the emerging mobility services opportunities. Desired State: To be the world’s number-one automobile manufacturer To hold the biggest market share in US as well as to obtain operating profitability To create the vehicles that can be accepted and adaptable by consumers around the globe. To be the largest manufacturers of hybrid Objectives: To address solutions for the problems and business issues that Ford is now facing in a globally competitive automotive industry. To be able to identify the trend and changes in the environment that resulted to the decrease of market share and profitability of the Ford Company. To be able to determine the strategies it needed to respond in the undergoing significant change or shifts in the general environment Areas of Consideration: Strengths: Huge value and integrated (“ONE Ford”) brand Geographic diversity is more with respect to the competition Adaptability to local markets Large customer base (global) Weaknesses: Slower implementation of innovation Higher cost of production High lead time to launch new products Relying too much on the North American market for profits Opportunities: Self driving cars and services Subsidy and other benefits on fuel efficient engines Emerging demand for small cars in developing countries (India, China) Threats: Fierce competition from the competitors and their aggressive marketing efforts in different countries Change in global concept from ownership to mobility Alternative Course of Actions: #1: Ford can set up a production facilities for their luxury/premium Lincoln cars in China China is one of the emerging markets in the world and the profit margin in Chinese market were strong with luxury cars and SUV have expanded immensely. By establishing their own production facilities in China, it could reduce the cost of import duties and will make their premium vehicles to be well-positioned. However, the cost for this action could be cultural differences, and managerial challenges in transferring knowledge to China. Hence, Ford should also need to adapt to the local market and leverage their core competencies. #2: JIT manufacturing approach JIT (Just in Time) approach attempts to reduce cost and improve workflow by carefully scheduling materials to arrive only when needed and at proper time. This will help in reducing production cost and storage cost and thus increase profitability. However, the cost of JIT approach could be risk of running out of stock, and more planning should be required. #3 Innovation to Product and Services Ford should create a service such as Airbnb, but for cars. Ford cars can be listed on an app for different users. For example, when the driver is unable to drive for a couple of days he can list his vehicle on the app and people can use that car for any number of days available. On the other hand, Ford should also improve their hybrid cars and self-driving cars by offering superb quality and services exclusive only for that product line. Though it may be costly and time consuming, but, the company can capture the value created by their own innovative activities, improves the branding, and provide prospect the feeling of exclusivity, thus, refining their desire to purchase. #4 Partnerships Ford can move beyond just developing cars and trucks. Ford should enter auto service industry and partner up with tech giants such as Apple, Google, Lyft, and Ube. It will help Ford explore new markets, such as ride hailing and car rentals. It will also enhance their product portfolio that will make the company to become a market leader with a broad differentiation for its cars. However, the dissimilarities of corporate culture between the two companies can be a risk to this alliances. Recommendation: For their mobility services, it is recommended for Ford to have a partnerships with a tech savy companies. It will lower the risk of entering a new industry and may take advantage of an already established successful company. Combining one of the best of the car manufacturing industry with the best of the ride hailing industry, they may create a more reliable and convenient mobility options. On the other hand, for their main product line of cars, it is recommended to have a JIT manufacturing approach to enhance their production process and lean production. For their luxury cars, it is recommended for them to have a production facility in the emerging market such as China to counter the problem of being viewed as foreign. They also needed to have a continuous innovation to their product and services and should invest wisely of Research and Development to established competitive advantage against their rivals and to become a leader in broad differentiation. This would also enhance the branding of Ford as a manufacturer of superb quality cars. In summary, the central issue of the case was to understand how Ford can keep up with its competitors when it comes to innovation and being tech savy in a constantly changing market. After analyzing the internal and external environment, we narrowed our research down to three alternativesProduction Facilities in China, JIT Approach, Continuous Innovation, and Partnerships. All these three alternatives are recommended for Ford to become a market leader in both mobility and automotive industry.
