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CASE 34

Ford: An Auto Company in Transition

Pauline Assenza

Helaine Korn Naga Lakshmi Damaraju Alan B. Eisner

Nico Muller Art / Shutterstock

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Ford Icebreaker

How many of you own, or have ever had responsibility for the upkeep of a car made by GM, Ford, or Chrysler?

What is your opinion of this vehicle?

How many of you would consider buying a Ford in the future?

Because almost every student has had the responsibility for the upkeep on an automobile, it might be illustrative to ask the above questions. It’s unlikely that a majority of students own or have responsibility for the upkeep on a car made by an American auto company. It is likely that the opinion of these American cars is not that high. The instructor may want to list the three companies (Ford, GM, Chrysler) on the board and tally the number of cars in each one, and then list the opinions for each company’s car. See if any trend emerges. It’s possible that the comments on Ford cars may not be as negative as those from the other two firms. The students’ reaction will demonstrate the uphill battle these American firms have to face in regaining consumer confidence in their products’ style and quality. This will prepare students to enter strategy analysis mode – what are the forces that might work against Ford as it tries to compete in the current environment? It might be useful to visit this website https://shop.ford.com/showroom/#/ to take a look at Ford’s current brands. As of 2018, Ford promoted Ford vehicles – the Fiesta, Focus, Fusion, Taurus, and the new C-Max, with the F150 pickup, and iconic Mustang being among the top brands. The company also promoted the Lincoln lineup, which is now a separate division, The Lincoln Motor Company, accessible at http://www.lincoln.com/. Ford had abandoned the Mercury brand, and Ford’s Volvo brand, which was acquired in 1999, had been sold to China’s Geely Automobile. Ford had divested its interest in Aston-Martin in 2007 and had sold off Jaguar and Land Rover to Tata Motors of India in 2008. New, “next generation” vehicles such as hybrids and EV’s were being promoted, using the “small-vehicle platform,” incorporating ideas from the Ford Silicon Valley Research Lab and advances in manufacturing technology. See http://corporate.ford.com/innovation for current news.

Question 1

Which of the following statements is most true?

Ford was one of the firms that had needed a government bailout after the 2007-2008 economic downturn.

Ford had to sell its Lincoln brand.

Ford has more market share in China than General Motors does.

American engineer and industrial icon Henry Ford did not invent the assembly line.

ANSWER: d. Ford was the only automobile firm that had NOT needed a government bailout after the 2009 economic downturn. Although it sold off many other brands such as Jaguar, Land Rover, Aston Martin and Volvo, Ford did not sell the Lincoln brand. (Not in the case: In 2012, Mulally set Lincoln up as a separate division under the name The Lincoln Motor Company.) Ford was late to the China market, and GM had a higher brand penetration in China. American engineer and industrial icon Henry Ford had been a true innovator. He didn’t invent the automobile or the assembly line, but through his ability to recognize opportunities, articulate a vision, and inspire others to join him in fulfilling that vision, he was responsible for making significant changes in the trajectory of the automobile industry and even in the history of manufacturing in America. The assembly line concept was borrowed from other industries.

Question 2

As part of its “mobility” strategy, Ford was partnering with ride-sharing service Lyft.

Yes.

No.

ANSWER: b. General Motors had partnered with Lyft. Ford was partnering with Uber, which was trying out the Ford Fusion autonomous vehicle.

Ford Discussion Questions

What are key forces in the general and industry environments that affect Ford’s choice of strategy?

What internal resources and assets does Ford have that may give it a competitive advantage?

How should Ford compete?

Ford Intro: Strategy Concept

Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages, and has these key attributes:

Directs the organization toward overall goals and objectives.

Includes multiple stakeholders in decision making.

Needs to incorporate short-term and long-term perspectives.

Recognizes trade-offs between efficiency (cost) and effectiveness (performance).

Primary role of the organizational leader to articulate vision, mission and strategic objectives.

Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. Strategic management has certain key attributes. Leaders face a large number of complex challenges. Leaders must be proactive, anticipate change and continually refine changes to their strategies. This requires a certain level of “ambidextrous behavior,” where leaders are alert to opportunities beyond the confines of their own jobs, and are also cooperative and seek out opportunities to combine their efforts with others. Leaders must make strategic management both a process and a way of thinking throughout the organization.

Ford Intro: Hierarchy of Goals

Exhibit 1.6 A Hierarchy of Goals

The primary role of the organizational leader is to articulate vision, mission, and strategic objectives.

Ford Intro: Strategic Vision

Company vision:

Massively inspiring.

Overarching.

Long-term.

Driven by and evokes passion.

Fundamental statement of the organization’s:

Values.

Aspiration.

Goals.

Leaders must communicate their initial vision of the organization’s purpose: What was the original goal that evokes a powerful and compelling mental image of a shared future, one that would be massively inspiring, overarching, and long-term, representing a destination that is driven by and evokes passion?

Ford Intro: Strategic Mission

Mission statements:

Purpose of the company.

Scope of operations.

Basis of competition and competitive advantages.

More specific than vision.

Focused on the means by which the firm will compete.

Reflects an organization’s enduring, overarching strategic priorities and competitive positioning.

The organizational mission also needs to be considered: A mission encompasses both the purpose of the company as well as the basis for competition and competitive advantages. In writing a mission statement, it is important to understand the definition of the business: 1) Who are its customers? 2) What customer need is the organization trying to fulfill? 3) How does the business create and deliver value to customers and satisfy their needs? Organizations must respond to multiple constituencies if they are to survive and prosper, and the mission provides a means of communicating to diverse organizational stakeholders. Although vision statements tend to be quite enduring and seldom change, a firm’s mission can and should change when competitive conditions dramatically change or the firm is faced with new threats or opportunities.

Ford Intro: Strategic Objectives

Strategic objectives:

Operationalize the mission statement.

Provide guidance on how the organization can fulfill or move toward the mission and vision.

Anticipating that things might change, an organization’s leadership must then establish strategic objectives to operationalize the mission statement. That is, objectives help to operationalize the mission statement with specific yardsticks, and provide guidance on how the organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision.

Ford Mulally’s Vision

Mulally refocused Ford’s vision:

Mulally had a vision of a smaller and more profitable Ford, an exciting viable Ford delivering profitable growth for all.

The message was intended to communicate consistency across all departments, all segments, requiring people to work together with one plan, one goal.

“ONE Ford”

After being brought in to reposition Ford for turnaround following its near bankruptcy in 2006, the one thing CEO Alan Mulally did early in his tenure was to refocus Ford’s vision into a smaller and more profitable Ford – “ONE Ford.” The ONE Ford message was intended to communicate consistency across all departments, all segments of the company, requiring people to work together as one team, with one plan, and one goal: “an exciting viable Ford delivering profitable growth for all.” Mulally wanted to leverage Ford’s unique automotive knowledge and assets to build cars and trucks that people wanted and valued.

Ford Mulally’s Mission

Mulally’s mission was to focus organizational stakeholders on the Ford brand.

Sell off the Premier Autos.

Integrate and leverage the Ford assets around the world.

His mission was to focus organizational stakeholders on the Ford and Lincoln brands, close down Mercury, and sell off the other “premier” autos (Aston-Martin, Jaguar, Land Rover, and Volvo.) The management of these brands had confused customers, and had not added any value to the Ford name. Mulally wanted to “integrate and leverage” the Ford assets around the world.

Ford Mulally’s Strategic Objectives

Mulally’s strategic objectives were to obtain operating profitability at a lower volume while changing the mix of products to better appeal to the market.

Make structural and procedural changes:

Reconfigure executive reporting relationships.

Close plants, cut jobs.

Increase goals for plant utilization and production levels.

Pay attention to market trends, develop more appealing vehicles.

In order to operationalize this focused mission, Mulally had to set some strategic objectives. His overall strategy was to obtain operating profitability at a lower volume while changing the mix of products to better appeal to the market. Mulally had to make structural and procedural changes in the company. He reconfigured executive reporting relationships, closed plants and cut jobs, increased goals for plant utilization and production levels in each production unit, tried to pay attention to market trends and encourage designers to develop more appealing vehicles.

Ford Field’s Mission, Vision, Objectives

CEO Mark Fields would be using innovation to solve the growing global transportation challenges.

Field’s vision was to make people’s lives better by changing the way the world moves.

Fields’ mission was to deliver top quartile shareholder returns through both the auto and mobility businesses.

Fields’ objectives included fortifying profits and updating the performance lineup; boosting luxury products; making investments in emerging opportunities.

Fields wanted to use technology to solve problems of mobility and access through innovative products and services.

After Mulally retired in 2014, new CEO Mark Fields announced Ford would be using innovation “not only to create advanced new vehicles but also to help change the way the world moves by solving today’s growing global transportation challenges.” Fields’ vision was to make “people’s lives better by changing the way the world moves,” and the mission was to deliver top quartile shareholder returns through both the standard automotive and also the new high-growth mobility businesses. Fields’ objectives included fortifying profits for the standard-bearers – trucks, vans, commercial vehicles – as well as updating the performance line-up – Ford GT and Mustang; transforming the underperforming Lincoln, Continental and Navigator luxury products; and growing investments in emerging opportunities, especially in electrification, autonomous vehicles, and mobility services. Fields was focusing Ford’s efforts on technology – not just making products for people who could afford luxury vehicles, but using technology to solve problems of mobility and access, providing not only products but also transportation services that made people’s lives better.

Ford Stakeholder Identification

Organizations must consider the needs of the larger community, and act in a socially responsible manner. This requires stakeholder identification.

Stakeholder Group	Nature of Claim
Stockholders.	Dividends, capital appreciation.
Employees.	Wages, benefits, safe working environment, job security.
Suppliers.	Payment on time, assurance of continued relationship.
Creditors.	Payment of interest, repayment of principal.
Customers.	Value, warranties.
Government.	Taxes, compliance with regulations.
Communities.	Good citizenship behavior such as charities, employment, not polluting the environment.

Exhibit 1.5 An Organization’s Key Stakeholders and the Nature of Their Claims

It’s also important to consider the concept of stakeholder symbiosis, that stakeholders are dependent upon each other for their success and well-being; and that there is a need for organizations to consider the needs of the larger community, and act in a socially responsible manner. Leaders must pay attention to all stakeholder needs, including various stakeholder values and the organizational culture. See Chapter 1, Exhibit 1.5 for the diverse stakeholder groups and the claims they make on the organization

Ford Stakeholder Dependencies

Dependencies among all stakeholders:

Parts suppliers, unionized workers, car dealerships dependent on car companies.

Local communities dependent on tax income.

Local businesses dependent on consumer spending.

State & government entities afraid of a burden on social systems if any of this failed.

2009 bailout by U.S. Congress.

Shareholders needed to be kept happy as Fields continued to experiment and innovate.

A clear, focused message was necessary.

Although not in the case, the discussion over the fate of the auto industry in early 2009 clearly demonstrated the dependencies among all stakeholders. Parts suppliers, unionized autoworkers and car dealerships were all dependent on the car companies’ ability to produce cars that would sell; local communities were dependent on the tax income from dealerships and parts suppliers; local businesses were dependent on the continued ability of employees to spend money; state and government entities were afraid of the burden on social systems if any of this failed. Stockholders and the overall U.S. financial system were dependent on a somewhat predictable future. This is why the government felt it had to act to bail out General Motors and Chrysler in March 2009 by loaning them enough money to stay afloat. All the U.S. automobile-related industries had an obligation to act in good faith and accept the government’s terms. Although not needing this loan, Ford’s CEO Mulally had had to develop a sound strategy and give clear guidance. For an overview of this event, see http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm Going forward, with the threat of competition not only from General Motors, Fiat/Chrysler and the Japanese, Korean and German automakers, but also from Tesla, and even Apple, CEO Fields had to be careful to keep not only customers, suppliers and employees focused on the automotive products, but also keep shareholders happy as he continued to experiment and innovate with his idea to solve transportation and mobility problems in cities across the globe. Could Fields craft a clear, focused message, expressing a cohesive narrative or game plan that made sense to all?

Ford A New Vision

CEO Fields was replaced by Jim Hackett:

Vision of a seismic shift in personal transportation.

Need to execute a new strategy:

Winning portfolio of products.

Creating clean-running cars that included electric vehicles.

Building a viable autonomous vehicle business.

Focusing on Mobility Experiences that addressed problems of congested cities and roads.

Continue the innovative vision of Henry Ford.

Ultimate goal is to improve people’s lives.

Investors were confused by Fields’ message, so Fields was replaced by new CEO Jim Hackett, who planned to execute strategy that could develop a winning portfolio of products, create clean-running cars that included electric vehicles, build a viable autonomous vehicle business with products such as ride-hailing and delivery solutions for city leaders, and focus on Mobility Experiences that addressed problems of congested cities and roads. The vision of a seismic shift in personal transportation was fully supported by Ford Board Chairman Bill Ford, who hoped to continue the innovative vision of his great-grandfather Henry Ford. The ultimate goal was to improve people’s lives.

Ford Intro: Strategic Management

Strategic Management involves:

Analysis.

Strategic goals (vision, mission, strategic objectives).

Internal and external environment.

Decisions: Formulation

What industries should we compete in?

How should we compete in those industries?

Actions: Implementation.

Allocate necessary resources.

Design the organization to bring intended strategies to reality.

How can Ford create a sustainable competitive advantage in the marketplace that is not only unique and valuable but also difficult for competitors to copy or substitute?

During strategic analysis, the leader does “advance work” to anticipate unforeseen environmental developments, identify unanticipated resource constraints, assess changes in his or her preferences for how to manage. During strategy formulation, the organization addresses the issue of how to compete in a given business to attain competitive advantage. Strategies are formulated at the business, corporate, and international levels. Entrepreneurial initiatives may also play a role. In strategy implementation, depending on the type of organization structure, the leader might include key individuals in a discussion around selecting which strategies might be best to implement at which level within the organization. The leader must ensure proper strategic controls and organizational design, and establish effective means to coordinate and integrate activities within the firm as well as with suppliers, customers and possible alliance partners. Leaders should also be committed to excellence and ethical behavior while promoting learning and continuous improvement. Here’s where innovation is important. The basic question strategic management tries to answer is: How can we create competitive advantages in the marketplace that are not only unique and valuable but also difficult for competitors to copy or substitute?

Ford External Environment

Q1: What are the forces in the external environment that affect Ford?

External Scanning:

Surveillance of a firm’s external environment:

Predict environmental changes to come.

Detect changes already under way.

Proactive mode.

External Monitoring:

Track evolution of:

Environmental trends.

Sequence of events.

Streams of activities.

Organizational leaders must become aware of factors in the overall environment that might affect their ability to create a competitive advantage. So how do managers become environmentally aware? By doing scanning, monitoring, and gathering competitive intelligence, and using these inputs to develop forecasts. This prepares the firm to do more extensive analysis of the forces in the general environment and the industry or competitive environment. Environmental scanning involves surveillance of a firm’s external environment to predict environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint of the industry/competition, looking for key indicators of emerging trends – what catches your eye? Alerts the firm to critical trends before changes have developed a discernible pattern and before competitors recognize them. Environmental monitoring is a firm’s analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities. Leaders need to monitor the trends that have the potential to change the competitive landscape – what do you want to track? Firms need to CHOOSE the trends identified via the scanning activity, and regularly monitor or track these specific trends to evaluate the impact of these trends on their strategy process.

Ford General Environment

The general environment is composed of factors that are both hard to predict and difficult to control.

Technological.

Economic.

Global.

Demographic.

Sociocultural.

Political/Legal.

What factors or trends might be most important to Ford? To assess how the external environment might affect Ford’s strategy, it’s necessary to take a look at the factors in the general external environment. Ford must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to deliver its products and sustain its business. See which factors in the general environment we might pick that have a significant impact on the automobile business.

Ford Environmental Forces

Political-Legal: Government intervention meant some firms lost control. Other forces include emission standards and unions.

Economic: First rising gas prices, then credit crunch meant customers were very cautious. These would give more weight to cost of car ownership in the consumer’s decision making, (also cost of maintenance).

Demographic: Automakers needed to attract younger, more affluent buyers to high status vehicles. They anticipate growth in developing countries.

Sociocultural: First the SUV was a status symbol, then going green (hybrid/electric) became the trend. There is now popularity in ride-sharing, Tesla, electric vehicles, and driverless cars.

Technological: Electric/hybrid and autonomous options were dependent on new technological developments.

Based on the general environmental forces, the industry was under pressure, but there were also opportunities. Things were changing quickly, especially customer tastes, yet the auto industry’s lag time in development meant it took a long time to react. Possibly firms with well-coordinated and integrated research and development/logistical supply teams could have an advantage.

Ford Five Forces Analysis

Segments of the competitive environment include:

Competitors.

Customers/Buyers.

Suppliers.

Substitutes.

New Entrants.

Sometimes called the task or industry environment.

Porter’s five forces model.

It’s also necessary to assess the segments of the external competitive environment that include competitors, customers, and suppliers, substitutes and new entrants. Porter’s five forces model allows strategists to anticipate where the industry might be most vulnerable.

Ford Five Forces Model

Rivalry

Very High

Substitutes

Threat

Low

Buyers’ Power

Med -High

Suppliers’ Power

Low

Suggested: A few large and equally balanced competitors fighting for global market share; slow industry growth; current overcapacity; high exit barriers. Technological differentiation easily copied. Limited import restrictions for foreign companies.

Suggested: Consumers do not have much price negotiating power, but do have choices; small differences among major brands; minimal switching costs. Major customers are corporate and government fleet managers, and the dealers themselves – who are powerful.

Suggested: Low – do not have much power, except single sourced ones, but key suppliers may emerge.

Suggested: No real substitute for personal automobile transportation – status symbol. But alternatives exist in public transportation, ride-sharing, bicycle/scooter, and foot power, especially in urban areas.

Threat of New Entrants

Medium

Suggested: Hard for new companies to fund startup, but threats could come from foreign companies’ imports and technology innovators.

Based on the external environmental factor analysis, the U.S. auto industry had many challenges to profitability, primarily from slow industry growth. Equally balanced competitors make it difficult to achieve any advantage.

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Ford, like other automakers, was confronting four key threats:

One was from the ever changing levels of rivalry among existing automakers.

The second was the growing power of buyers such as corporate and government fleet managers and the dealers.

Third was the threat of new entrants with advanced technology, such as Tesla and even Apple.

Fourth was the threat of substitutes – consumers, especially in urban areas, were forgoing car ownership in favor of ride-sharing or alternate transportation modes such as bicycles. Clearly, there were a few large and equally balanced firms that were pitched in a battle for a greater share of the global market. Slower industry growth was resulting in an increase in this rivalry. Overcapacity and high exit barriers were also making a contribution to the industry picture. Another threat was coming from the power of buyers. Most buyers were clearly beginning to see more viable choices in terms of the firms from which they could buy, and the options available. Although there was some difference between the major brands, customers did not have to deal with any switching costs. Major customers were corporate and government fleet managers, car-rental firms, and the dealers themselves. Suppliers did not seem to have much power, but they did become more important as the industry pressures mounted for access to various specialized parts or components, such as batteries or fuel cells. A new series of threats were coming from the ascendance of companies such as Tesla and others who were developing new technologies, especially electric or autonomous vehicles, self-driving cars. In addition, if these vehicles did not rely on internal combustion engines, the core competencies of the traditional auto manufacturers would no longer apply. Finally, substitutes were emerging, especially in urban areas, as residents considered the cost of automobile ownership and opted for ride-sharing or bike/scooter-sharing to better navigate congestions in large cities. Based on this external environmental factor analysis, the U.S. auto industry had many challenges to profitability, primarily from slow industry growth. Equally balanced competitors made it difficult for any one to achieve an advantage. There was always the possibility for overcapacity and rivals were trying to attract customers away from each other through price-cuts and incentives. That was the dangerous trend in this industry because companies were spending as much as they would earn in order to retain their market shares. So, there was growth without profitability. This was true for most American companies, while Japanese companies were able to capture better value by concentrating on offering much sophisticated product designs and technology. Product differentiation was susceptible to quick imitation in this industry, and in the absence of switching costs it was difficult to retain customers. Also, companies had high exit barriers as there were high fixed costs of exit, and also because exit would have had tremendous impact on the employment levels in the economy (one of the reasons for government intervention).

Ford Internal Analysis

Value-Chain Analysis:

Sequential process of value-creating activities.

Amount that buyers are willing to pay for what a firm provides them.

Value measured by total revenue.

Firm profitable to the extent the value it receives exceeds the total costs involved in creating its product or service.

Q2: What internal resources and assets does Ford have?

When one firm outperforms others by a wide margin over a long period of time, it’s important to figure out how this could be. The answer may lie in how that firm arranges its activities and creates unique bundles of resources that allow it to sustain a competitive advantage. We should assess the relationships between the elements in Ford’s value chain. Remember, value-chain analysis is a strategic analysis of an organization that uses value-creating activities. Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price a firm’s product commands, and the quantity it can sell. A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. Creating value for buyers that exceeds the costs of production (i.e. margin) is a key concept used in analyzing a firm’s competitive position.

Ford Value Chain

Exhibit 3.1 The Value Chain:

Primary and Support Activities

Source: Reprinted with permission of The Free Press, a division of Simon & Schuster Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by The Free Press. All rights reserved.

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Every activity should add value. Take a look at Exhibit 3.1 to see the value chain activities. Based on the relationships between these elements, Ford can make a choice of how to proceed to craft a competitive advantage.

Ford Value Chain: Primary Activities

Value Chain Activity Primary:	How does Ford create value?
Inbound logistics.	Assumed adequate.
Operations.	Outdated manufacturing facilities for some products; few “flexible manufacturing systems” that could build two or more models in one plant (possible legacy  “any color you want as long as it’s black”?); poor quality control in the past appears to be improving.
Outbound logistics.	Assumed adequate.
Marketing and sales.	Some strong brands built customer loyalty: Taurus, F150, Mustang.
Service.	Ability to manage massive product recalls.

In terms of primary activities, the key to Ford’s possible ability to differentiate itself in the market resided in its marketing. Certain brands, especially the F-150 truck and the Mustang, had iconic value. Although operations had been a problem in the past, Mulally had focused on improvements here. Fields and now Hackett had continued to refine the product lineup.

Value Chain Activity Primary: How does Ford create value?

Inbound logistics: Assumed adequate.

Operations: Outdated manufacturing facilities for some products; few “flexible manufacturing systems” that could build two or more models in one plant (possible legacy – “any color you want as long as it’s black”?); poor quality control in the past appears to be improving.

Outbound logistics: Assumed adequate.

Marketing and sales: Some strong brands built customer loyalty: Taurus, F150, Mustang.

Service: Ability to manage massive product recalls.

Ford Value Chain: Secondary Activities

Value Chain Activity Secondary:	How does Ford create value?
Procurement.	Poor material requirement planning in the past?
Technology development.	Technology strong but breakthroughs may not be disseminated quickly enough to support primary activities.
Human resource management.	Workforce culture had been highly bureaucratic, internal fiefdoms; lack of communication?
General administration.	Lack of knowledge sharing had led to duplication and complexity in operations with a concurrent increase in costs. Failure to coordinate activities meant inability to catch key trends and react appropriately. Mulally’s ONE Ford tried to fix this. Fields and Hackett’s restructuring, focus on Mobility, hoped to increase levels of innovation, but investors felt the lack of a unifying message.

With regards to support activities, a competitive advantage is achieved by developing a strong general administration that is built around visionary leadership and a culture that pushes for technological innovation. Under Mulally, Ford had pushed for more technological development. Mulally’s attention to general administration issues meant this could become a strength going forward if it was able to be protected. Certainly his vision had inspired some change. Under CEO Mark Fields and now under Jim Hackett it was unclear if these changes could be sustained and innovative technology could be further developed. In addition, there didn’t appear to be any clear strategy for how to integrate new acquisitions and innovations into the company as a whole.

Value Chain Activity Secondary: How does Ford create value?

Procurement: Poor material requirement planning in the past?

Technology development: Technology strong but breakthroughs may not be disseminated quickly enough to support primary activities .

Human resource management: Workforce culture had been highly bureaucratic, internal fiefdoms; lack of communication?

General administration: Lack of knowledge sharing had led to duplication and complexity in operations with a concurrent increase in costs. Failure to coordinate activities meant inability to catch key trends and react appropriately. Mulally’s ONE Ford tried to fix this. Fields and Hackett’s restructuring, focus on Mobility, hoped to increase levels of innovation, but investors felt the lack of a unifying message.

Ford Resource-Based View

Resource-Based View of the Firm:

Two perspectives:

The internal analysis of phenomena within a company.

An external analysis of the industry and its competitive environment.

Three key types of resources:

Tangible resources.

Intangible resources.

Organizational capabilities.

In addition, see the concept of the resource-based view of the firm, and the three key types of resources: tangible resources, intangible resources, and organizational capabilities. A firm’s strengths and capabilities – no matter how unique or impressive – do NOT necessarily lead to a competitive advantage. The resource-based view of the firm takes the perspective that firms’ competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute. Without these unique resources, the firm can only attain competitive parity. RBV goes beyond a SWOT analysis to integrate internal and external perspectives in a broader competitive context. RBV can reveal how core competencies embedded in a firm can help it exploit new product and market opportunities.

Ford Tangible Resources

Financial: Better than other U.S. automakers in the past.

Physical: Considerable physical resources worldwide. Too many unproductive facilities with high overhead, currently addressed.

Technological: Considerable advances, especially the hybrid electric and self-driving options.

Organizational: CEO Mulally streamlined reporting relationships, encouraged transparency in reporting problems so effective decisions could be made. CEO Fields then CEO Hackett made structural changes to pursue innovation.

Based on our reading of the case, we might identify tangible resources to include the above.

Ford Intangible Resources

Human: Although considerable depth in employee tenure and skill, past problems made it difficult to utilize this resource, operate effectively. Creation of the innovative Mobility division had the opportunity to attract talented engineer

Innovation and Creativity: CEO Fields invested in and acquired innovation, created an innovation and research center. CEO Hackett was continuing these investments.

Reputation: Poor, but improving?

An important issue to focus on here is the importance of intangible resources like innovation and reputation. Especially in mature brands, sustaining reputation is essential. Look at any intangible resources that are controlled by Ford that might enable it to develop and implement value-creating strategies.

Ford VRIN

Firm Resources and Sustainable Competitive Advantages (VRIN)

Is the resource or capability…	Implications:
Valuable?	Neutralize threats and exploit opportunities.
Rare?	Not many firms possess.
Difficult to imitate?	Physically unique. Path dependency (how accumulated over time). Casual ambiguity (difficult to disentangle what is or how it could be re-created). Social complexity (trust, interpersonal relationships, culture, reputation).
Difficult to substitute?	No equivalent strategic resources or capabilities.

Exhibit 3.6 Four Criteria for Assessing Sustainability of Resources and Capabilities

Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibit 3.6.

Ford VRIN Analysis

VRIN analysis: Ford had no valuable, rare, inimitable and non-substitutable capabilities that could become a source of sustainable competitive advantage.

Ford had an opportunity to benefit from imitating some of its rivals.

Mulally studied Toyota’s network of relationships between elements of its extended value chain.

Ford’s hybrid electric technology, Smart Mobility efforts gave it an edge over other U.S. automakers.

Applying the VRIN concept, Ford had no valuable, rare, in-imitable and non-substitutable capabilities that could become a source of sustainable competitive advantage. In comparison, the Japanese counterparts, specifically Toyota Motor Corporation had succeeded in developing a network of relationships with members in its extended value chain that had all the VRIN attributes and, therefore, was a source of sustainable competitive advantage. Because these network types of relationships could be studied and emulated, Ford did have an opportunity to benefit from imitating some of its rivals. In fact, Mulally flew to Japan in 2007 to meet with top executives at Toyota to seek their advice. The area where Ford had seen the most advance was in the hybrid electric technology and the Smart Mobility efforts. Although not inimitable, Ford appeared to have an edge over American rivals here.

Ford Q3. Business-Level Strategy

A competitive strategy is linked to the value chain, and supported by intangible assets.

Ford’s value chain shows how lack of coordination across the value chain activities could destroy value.

Concurrent lack of VRIN resources and intangible assets makes it almost impossible to create a sustainable competitive advantage.

Q3: How should Ford compete?

A competitive strategy is linked to the value chain, and supported by intangible assets. Ford had historical lack of coordination across the value chain. Resources and assets should provide a firm with the ability to create products that are unique and valuable to customers, but Ford did not have either VRIN resources or enduring intangible assets to allow it to do this.

Ford Business-Level Strategy

Three generic strategies to achieve competitive advantage:

1. Overall cost leadership is based on:

Creating a low-cost position relative to a firm’s peers.

Managing relationships throughout the entire value chain to lower costs.

2. Differentiation implies:

Products and/or services that are unique and valued.

Emphasis on non-price attributes for which customers will gladly pay a premium.

3. A focus strategy requires:

Narrow product lines, buyer segments, or targeted geographic markets.

Advantages obtained either through differentiation or cost leadership.

In order to achieve a sustainable competitive advantage, Ford had to assess its ability to contend with other automobile companies. The question of how to compete in a given business to attain competitive advantage requires an assessment of the types of competitive strategies, including the three generic strategies that are used to overcome the five forces and achieve a competitive advantage. Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The overall cost leadership and differentiation strategies strive to attain advantages industrywide, while focusers have a narrow target market in mind.

Ford Business-Level Strategy Options

Hard to see what competitive strategy would be best for Ford. It had tried differentiation in the past, and had been partly successful with pickup trucks and the Ford Mustang, but differentiation advantages are easily copied.

Ford did have an opportunity for cost leadership if it had been able to better manage its value chain relationships. Production efficiencies would have helped contain costs.

Ford, at the conclusion of this case, appeared to be stuck-in-the-middle.

In order to achieve a sustainable competitive advantage, Ford must assess its ability to contend with other auto companies.

It’s hard to see what competitive strategy would be best for Ford. It had tried differentiation in the past, and had been partly successful with pickup trucks and the Ford Mustang, but differentiation advantages are easily copied (NOT in the case: see Toyota’s push into the big truck category with the Tundra, and the 2009 J.D. Power & Associates initial quality results, which showed the F150 and Tundra tied for first place http://news.pickuptrucks.com/2009/06/f150-ridgeline-tundra-top-jd-power-and-associates-initial-quality-study.html ). Ford’s current advance into developing solutions to the mobility problem could have created differentiation, but all other auto manufacturers and others from outside the industry were moving in this direction as well. All Ford appeared to be able to do was maintain parity here. Ford would have had an opportunity for cost leadership if it had been able to better manage its value chain relationships. Production efficiencies would have helped contain costs, but, as with General Motors, health care and pension, and wage issues meant any production cost advantages would have rapidly evaporated into employee’s pockets. Ford, at the conclusion of this case, appeared to be stuck-in-the-middle.

Ford Corporate-Level Strategy

Corporate strategy focuses discussion on the questions of what businesses a corporation should compete in, and how the businesses should be managed to create value.

Diversification initiatives must create value for shareholders through:

Mergers and acquisitions.

Strategic alliances.

Joint ventures.

Internal development.

Diversification should create synergy.

Corporate strategy focuses discussion on the questions of what businesses a corporation should compete in, and how the businesses should be managed so they can create “synergy” – creating value through entering new markets or developing new technologies, either through related or unrelated diversification. Diversification is the process of firms expanding their operations by entering new businesses. In related diversification, a firm enters a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power. Whatever the choice, it should create value for all stakeholders – employees, suppliers, distributors, and the company itself. The choice of diversification strategy should create synergy so that all parties gain something they would not have had on their own.

Ford Corporate Strategy: Diversification

Achieving Synergy through Diversification:

Related businesses (horizontal relationships):

Sharing tangible resources.

Sharing intangible resources.

Leveraging core competencies.

Unrelated businesses (hierarchical relationships):

Value creation derives from corporate office.

Leveraging through shared support activities.

Companies can achieve synergy through diversification in two ways: See the slide.

Ford Diversification

Ford’s previous leadership followed an unrelated diversification strategy.

Investment in luxury car business and others.

No understanding or expertise in these businesses.

No scope or scale advantages possible, shareholder value destroyed.

Mulally attempted to leverage core competencies, activities that exist in business units that have meaningful relationships, shared activities⏤related diversification.

“ONE Ford” concept.

Ford’s previous leadership, primarily under Jacques Nasser, had followed an unrelated diversification strategy (some of the relationships were tenuous at best). The objective had been to move from low-margin businesses into high-margin businesses. (NOT in the case: As a result, the company divested from auto-parts making and invested in luxury car business, bought up dealerships and entered retailing, and even purchased junkyards.) On the face of it, the strategy seemed to be one of related diversification. However, though diversification into luxury-car markets, retailing, junkyard recycling etc., was related to the car business, there was little, if any, in common between those businesses. Ford Motor Company could not gain any scope or scale advantages with such diversification. Primarily a mass-market carmaker, Ford could not work any wonders in the luxury-car business (e.g., Jaguar had not been marketed as a “Ford” product, and the Lincoln brand had struggled to attain a true luxury identity). The company did not have any understanding or expertise of businesses such as junkyard recycling. Not only that, its entry into retailing by purchasing dealerships, actually angered the dealers and led to sour relationships with them. Consequently, the diversification strategy had failed and destroyed shareholder value. Related diversification seeks to add value through synergy, though leveraging the competencies and activities that exist in business units that have some meaningful relationships. Core competencies reflect the collective learning in organizations—how to coordinate diverse production skills, integrate multiple streams of technologies, and market diverse products and services to create value. Core competencies must create superior customer value; the different businesses must all have similar elements in the value chain that require similar skills; and these activities or skills must be difficult for competitors to imitate. Sharing activities means that value chain elements are shared across business units, so that two or more activities are done by one of the businesses. This allows for cost savings, but businesses need to make sure to keep control over quality and customer perception. Again, given its iconic legacy, Ford should have had considerable core competencies in automobile production; however, those competencies had not been well coordinated in the past. The different businesses had not integrated their multiple streams of technologies, or managed similar value chains in a way that created unique advantages over the competition. CEO Mulally was aware of this missed opportunity, and he took steps toward more integration and coordination, more sharing of activities across business units in an attempt to create synergy, and, ultimately, to grow market share. Mulally’s concept of the “ONE Ford” meant that all Ford vehicles competing in global segments would be the same in North America, Europe, and Asia – sharing activities through common parts and systems. Attaining this goal would reduce complexity, and thus costs, in the purchasing and manufacturing processes.

Ford Alliances and Acquisitions

Ford pursued alliances:

Overseas partners.

Smart Mobility subsidiary collaborated with other startups and tech companies.

Partnership with Uber.

Investment in Velodyne remote-sensing technology.

Investment in Argo AI software.

Motivate bike-sharing included Ford GoBike network.

Acquisition of Chariot ride-sharing service.

Mulally and then Fields also pursued alliances with overseas partners, and the move into “mobility” saw Fields create the Ford Smart Mobility subsidiary for investing efforts in mobility services. This entity was intended to design and build these services on its own and collaborate with other startups and tech companies as needed to pursue opportunities.

As part of this push into alternate technologies, Ford was pursuing a partnership with Uber, which was trying out the Ford Fusion autonomous vehicle. Ford had put Amazon’s virtual digital assistant Alexa in its cars. Ford had invested in Velodyne, a company that developed lidar remote-sensing technology for self-driving cars, and in artificial intelligence software firm Argo AI. Ford had acquired an app-based, crowd-sourced, ride-sharing service, Chariot. Ford had teamed up with Motivate, the global leader in bike-sharing to include the FordPass mobility network in the Ford GoBike commuting transportation option. Through its innovation and research centers, Ford was also developing strategies in fleet and data management, route and journey planning, and telematics, all in an effort to help solve congestion and help move people more efficiently in urban environments.

Ford Results of Diversification Efforts

Ford intended to develop new services and products.

New electric vehicles.

Self-driving cars.

Innovative solutions to transportation and mobility problems in cities across the globe.

Ford wanted to create value across all lines of business.

How could resources be shared, core competencies leveraged between traditional manufacturing and transportation/mobility solution businesses?

These diversification efforts were intended to develop both new services and products, including new electric vehicles and possibly a self-driving car, and to experiment with ways to provide innovative solutions to transportation and mobility problems in cities across the globe. The difficulty was that these efforts seemed more unrelated than related: what did bike-sharing and artificial intelligence have to do with the car business?

There was no doubt that the auto industry was changing, and that this disruption required a different way of creating value across all lines of business, but it was hard to see how either tangible or intangible resources could be shared, or core competencies leveraged between the traditional manufacturing and the transportation/mobility solution businesses. It appeared this needed a true visionary to guide the strategy here. Was current leadership up to the task?

Ford Organizational Design

Organizational structure.

Refers to formalized patterns of interactions that link a firm’s tasks, technologies, and people.

Structure provides a means of balancing two conflicting forces.

Need for the division of tasks into meaningful groupings.

Need to integrate the groupings for efficiency and effectiveness.

Strategy consists of analysis (setting goals, assessing the internal and external environment of the firm), formulation (deciding which industries to compete in and how to compete in those industries), and implementation, where organizational leaders allocate the necessary resources and design the organization to bring intended strategies to reality. Ford’s Alan Mulally made a choice of how to compete, therefore he must also make a decision about implementation, and the organization’s design. Chapter 10 stresses that organizational strategy has implications for a firm’s structure. We can relate to concepts from Chapter 10 such as the differences between various structures and the effectiveness of each possible structure for Ford’s possible choices of strategy. Organizational structure refers to formalized patterns of interactions that link a firm’s tasks, technologies, and people. Structure provides a means of balancing two conflicting forces: the need for the division of tasks into meaningful groupings, and the need to integrate the groupings for efficiency and effectiveness by coordinating and integrating key activities.

Ford Organizational Design Framework

Within the framework of an appropriate organizational design, managers must select a mix and balance of tools and techniques.

Factors facilitating effective coordination and integration of key activities include:

Common culture and shared values.

Horizontal organization structures.

Horizontal systems and processes.

Communications and information technologies.

Human resource practices.

Structure identifies the executive, managerial, and administrative organization of a firm and indicates responsibilities and hierarchical relationships. It also influences the flow of information as well as the context and nature of human interactions. Factors that facilitate the effective coordination and integration of key activities include having a common culture and shared values, horizontal organization structures, horizontal systems and processes, effective communications and information technologies, and involved human resource practices.

Ford Organizational Structures

Different structures:

Lead to different degrees of flexibility and permeability.

Can effect the amount of culture change required.

Can have an impact on relationships between internal and external constituencies.

Need the full support of the management team to implement.

An effective organizational design can encourage the flow of information and enhance working relationships between functional departments and activities. However, achieving the coordination and integration necessary to maximize the potential of an organization’s human capital involves much more than just creating a new structure. Different structures lead to different degrees of flexibility and permeability, and can affect the amount of culture change required. Structures can have an impact on relationships between internal and external constituencies, and therefore, need the full support of the management team to implement.

Ford Organizational Design: SBU

Mulally did some senior executive reorganization. Many of the newly appointed executives reported directly to him, giving him some centralized decision-making control.

Ford had an SBU, or strategic business unit structure, where the different divisions each acted as a profit center, yet certain key responsibilities such as product development, information technology, and quality all reported directly to Mulally. This meant Mulally had the ability to coordinate and control key functions while implementing his strategy.

Early on, Mulally did some senior executive reorganization. Many of the newly appointed executives reported directly to him, including the global head of product development, the head of worldwide purchasing, the chief of quality and advanced manufacturing, the head of information technology, the chief technical officer and the leaders of Ford’s global divisions – Europe, Asia Pacific, Africa, and America. This meant Ford utilized a strategic business unit (SBU) structure, or an organizational form in which products, projects, or product market divisions are grouped into homogenous units. Highly diversified corporations may consist of dozens of different divisions. A purely divisional structure would make it nearly impossible for the corporate office to plan and coordinate activities because the span of control would be too large. With an SBU structure, divisions with similar products, markets and/or technologies are grouped into homogenous units to achieve synergies, including those available through related diversification such as leveraging core competencies, sharing infrastructures, and market power. Generally the more related businesses are within a corporation, the fewer SBUs will be required. Each of the SBUs at Ford operated as a profit center, yet certain key responsibilities such as product development, information technology, and quality all reported directly to Mulally. This meant Mulally had the ability to coordinate & control key functions while implementing his strategy.

Ford Organizational Design: Subsidiary

CEO Fields created Smart Mobility LLC:

Startup subsidiary to design, build, grow, invest in emerging mobility services.

Could collaborate with other startups and tech companies as needed to pursue opportunities.

Semi-autonomous structure could be difficult to manage effectively to coordinate and integrate key activities.

CEO Mark Fields had not changed reporting relationships in the traditional lines of business, but had made a major change to the organizational structure when he created the new subsidiary Ford Smart Mobility LLC was created to design, build, grow, and invest in emerging mobility services. Designed to compete like a start-up company, Ford Smart Mobility LLC was planning to design and build mobility services on its own, and collaborate with start-ups and tech companies as needed to pursue opportunities. This entity showed up in the Income Statement for the first time in 2016 as “other.” This restructuring signaled that Ford would be using innovation “not only to create advanced new vehicles but also to help change the way the world moves by solving today’s growing global transportation challenges.” Although there was reason to focus efforts here, and create a semi-autonomous structure to do this, it could be difficult to figure out how to manage the mobility units effectively in a way that coordinated and integrated key activities.

Ford Managing Innovation

Mulally certainly had had the vision, dedication, and drive.

His restructuring provided the needed human and social capital resources; financial resources had returned improved margins.

Adaptive technological innovation had occurred.

Partnerships were being developed.

Fields had made management changes to accelerate innovation, had created the Smart Mobility entity to dedicate resources to this activity.

Hackett was continuing this drive in a new direction with a heave investment into the promise of “mobility” with the support of Bill Ford.

BUT was this pace and scope of innovation what it needed to be? Would this innovation yield the expected results?

Mulally certainly had demonstrated the vision, dedication, and drive to succeed. His restructuring efforts had provided the needed human and social capital resources, and the financial resources had returned improved margins. Fields had made changes in management in his term as CEO, many focused on accelerating innovation in connectivity, mobility, and autonomous vehicles, among other things. His push to create more innovation via the Smart Mobility entity meant resources were being dedicated to this activity. Fields had chosen Jim Hackett to head up this new division. Hackett, formerly the CEO of Steelcase, a Michigan furniture company, had been credited with developing that business into a global leader, transitioning it from a traditional furniture manufacturer into an industry innovator. The hope was that Hackett could use that vision, dedication and drive to grow Ford in a new direction. This heavy investment into the promise of “mobility”, although it still included cars and trucks, also required the development of autonomous technology (self-driving cars), electric vehicles, and other transportation services such as urban mobility solutions via ride-sharing, bike/scooter-sharing, and customized interior vehicle experiences serving multiple customer needs. Chairman Bill Ford was supporting this investment, with the hope that the company could make increased profit margins on new services, more than double what it had traditionally made selling cars and trucks. The remaining question left to ask was if the pace and scope of innovation was what it needed to be. Would this innovation yield the expected results?

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Ford Five Forces Model Alternate Text

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The Five Forces Model for Ford:

Rivalry is in the middle (very high): A few large and equally balanced competitors are fighting for global market share. There is slow industry growth and current overcapacity, as well as high exit barriers. Technological differentiation are easily copied. And there is limited import restrictions for foreign companies.

Below Rivalry is Threat of New Entrants (medium): It is hard for new companies to fund a startup, but threats could come from foreign companies' imports and technology innovators.

Above Rivalry is Substitutes Threat (low): There are no real substitutes for personal automobile transportation; it is a status symbol. But alternatives do exist in public transportation, ride-sharing, bicycles/scooters, and foot power, especially in urban areas.

To the left of Rivalry is Suppliers' Power (low): Suppliers do not have much power, except single-sourced ones. However, key suppliers may emerge.

To the right of Rivalry is Buyer's Power (medium-high): Consumers do not have much price negotiating power, but do have choices. There are small differences among major brands. There is minimal switching costs. Major customers are corporate and government fleet managers, and the dealers themselves, who are powerful.

Explanation: Based on the external environmental factor analysis, the U.S. auto industry had many challenges to profitability, primarily from slow industry growth. Equally balanced competitors make it difficult to achieve any advantage.

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Ford Value Chain Text Alternate

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This graphic shows two arrows pointing right. Under Primary Activities, the top arrow is broken into five parts: Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, Service. Below, is a larger arrow with Support Activities: General Admission, Human Resources Management, Technology Development, Procurement.

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