Ford Motor Company's Efforts to Redefine Strategies Essay

  • Length: 7 pages
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  • Subject: Business
  • Type: Essay
  • Paper: #85737345

Excerpt from Essay :

Ford Motor Company's efforts to redefine strategies to address key strategic issues during the upcoming fiscal year. The essay also reviews Ford's business-level strategy, the company's value chain activities and identifies Ford positioning with respect to the five forces of competition.

Ford's current business- level strategy was developed as a result of challenges the company has faced in the last decade. Ford saw their market share in the U.S. decline from 23.7% in 2000 to 15.5% in 2006. Over the same period Ford's North American division reported billions in losses from the Ford, Lincoln and Mercury product lines. To return the North American division to profitability, Ford launched an ambitious restructuring plan, the Way Forward. (Kirtane, Shukla, Wang and Zhan, 2006).

Over the last decade, Ford's business-level strategies were ambiguous, with the result that they were neither a successful differentiator nor cost leader. Ford failed to innovate on many of its products, including its compact and mid-sized vehicles, choosing instead to focus attention on its truck and SUV divisions, along with expanding its luxury portfolio. Neither the luxury or truck strategy could correctly be considered a focus strategy given that a large percentage of Ford's sales came from its other operations. With the rise in gas prices, Ford's luxury and truck strategy struggled as a consequence of consumers fleeing high gas consumption vehicles despite substantial price discounts. Many consumers switched to Ford's competitors, in particular to Japanese automakers (Kirtane et al., 2006).

During the same period Ford's costs grew disproportionately by comparison with its competitors. Analysts estimated that foreign automakers were able to produce cars at a cost of $2,500 less per vehicle than Ford due to lower overhead costs that included wages, pensions, and benefits. Ford's Way Forward plan initially called for 16 plant closures, with a 35% reduction in manufacturing jobs by 2008. According to Kirtane et al. (2006), these reductions would result in savings of $1,522 per car produced in North America. However with GM's fixed cost per vehicle of $2,354 less than Ford's, Ford would need to achieve further significant reductions just to achieve industry parity. Consequently, their business-level strategy does not meet the requirements for cost leadership given that Ford is not producing at the industry's lowest cost.

Ford's operations offer several opportunities for value-chain activities to achieve a competitive advantage, particularly in ways that advance their differentiation strategy. Ford's website lists the following value chain activities that offer the potential to improve environmental impacts, including greenhouse gas emissions, fuel economy, smog-forming emissions, land use, manufacturing waste, material use and recycling, and resource use:

Product planning and design

Logistics and transportation

Raw material extraction

Parts and components

Assembly and painting

Sales

Use

Service

End of life

Environmental and sustainability improvements will enhance the value of Ford's brand, at the same time that many value chain process improvements will also cut costs (Ford Motor Company, 2011).

With respect to the five forces of competition, Ford can best position itself to exploit at most three of the five competitive forces. The high capital costs for potential entrants means that Ford can focus its efforts on competing against its current rivals without the likelihood that additional competitors will be motivated to enter the industry. Given the intense the intensity of rivalry within the automotive industry, high entry barriers do not translate into much of a tactical advantage. To a somewhat greater extent, Ford can take advantage of the lack of feasible substitutes for the commuter. By far, Ford's best opportunity is making the most of captive suppliers by setting high standards and requiring suppliers to meet its demands for product specifications and price (QuickMBA, 2011). However, it must be noted that these positives are more than outweighed by the remaining factors. The low switching costs for buyers only serves to increase the intense rivalry between firms. Given the level of competition in the automotive industry, Ford is better off pursuing higher levels of product differentiation (Kirtane et al., 2006).

To this end, another aspect of Ford's plan involved efforts to refocus on the consumer by repositioning its brands. The Way Forward attempted to address the lack of product differentiation between Ford, Lincoln and Mercury by carefully focusing the company's brands on target segments. The difference between the new segmentation vs. The original segmentation was that Ford created a personality for their brands. As a result of creating an image around the brand, Ford will give customers within each segment a unique reason to buy the brand vs. rivals, thereby allowing Ford to increase its margins and create perceived switching costs. Given the crowded nature of the automotive industry, this differentiation strategy is essential (Kirtane et al., 2006).

Ford can also manage customer relationships to increase their strategic competitiveness. One means by which Ford executed this strategy resulted in their beating out the competition to win the top awards in five of 19 categories for J.D. Powers in the 2007 Initial Quality Study. The five winning vehicles were the Ford Mustang, Lincoln Mark LT, Lincoln MKZ, MazdaMX-5 Miata, and Mercury Milan. Altogether, Ford won 14 Top 3 finishes, beating all other competitors in the survey and taking the lead from the previous year's winner, Toyota. The Japanese automaker won only four Top 3 finishes, down from 11 the previous year. Nevertheless, Ford executives acknowledge that their biggest challenge is the perception gap, getting more car buyers to consider Ford (Herman, 2007).

Ford also uses technology to increase customer satisfaction and manage customer relationships. Understanding that customer care after the purchase is one of the most important determinants of brand loyalty, Ford streamlined the process for both customers and dealers to get information using a Web-based tool to provide a self-service website. Visits to www.customersaskford.com more than tripled from 80,000 to 250,000 following the website upgrade. According to Rose O'Malley, manager of customer and dealer contact at Ford, "If they [customers] had a good experience every time the dealer changed the oil and tuned the engine, that builds brand loyalty and repeat business. That's why Ford is taking steps to streamline and improve customer care using Web-based tools and other high-tech devices that its customers expect from a leading-edge car manufacturer." (Cisco Systems, 2007).

In addition to improved Web tools, Ford has begun monitoring 20 leading car-related blogs to see what bloggers are asking or saying about Ford vehicle; when appropriate a Ford representative responds. Ford is also implementing a chat room based on its in-car communications and entertainment system called Sync. O'Malley points out that the chat room provides another direct link to owners, providing an early indication of any concerns with the Sync product as well as allowing Ford to gather ideas for future enhancements. By monitoring consumer blogs, Ford has seen a 4% improvement in "sentiment towards Ford" (Cisco Systems, 2007).

In the past, Ford's lack of product differentiation between Ford, Lincoln, and Mercury led to cannibalization of each other's sales (Kirtane et al., 2006). However, the automaker has announced that its future luxury offerings will be better differentiated from their Ford counterparts. Future Lincoln offerings will feature unique interior and exterior designs, bespoke technologies and Lincoln-only powertrains. "The strategy isn't just new products, but full differentiation from the Ford brand in not only design, but in technology," announced Derrick Kuzak, Ford's group vice president of global product development, at the Detroit Auto Show. Kuzak further revealed that future Lincoln vehicles will not share any sheet metal with their Ford platform mates. Future Lincolns will also receive unique suspension tuning, all of which should help further differentiate them from Fords (Johnson, 2011).

Typically the intense rivalry that a crowded industry produces does not produce significant product differentiation at relatively low costs. However Ford's efforts at brand repositioning to appeal to different target segments, as previously discussed, will allow Ford to achieve relatively low cost product differentiation by creating perceived value.

Ford's Direct Competitor Comparison

Ford

Chrysler Group LLC

General Motors

Toyota Motor Corp

Industry

Market Cap:

38.42B

N/A

34.16B

9.74B

Employees

164,000

51,6231

208,000

317,716

96.94K

Quarterly Revenue Growth (yoy)

1.30%

N/A

18.70%

-29.40%

11.90%

Revenue (ttm)

41.95.B1

50.11B

Gross Margin (ttm)

15.23%

N/A

12.49%

12.04%

19.59%

EBITDA (ttm)

13.75B

N/A

12.45B

18.63B

4.78B

Operating Margin (ttm)

6.61%

N/A

4.24%

1.77%

6.96%

Net Income (ttm)

6.83B

-652.00M1

7.86B

2.81B

N/A

EPS (ttm)

1.74

N/A

4.75

0.90

2.24

1 = As of 2010

Source: Yahoo Finance, 2011

This table summarizes a competitive analysis, showing how Ford compares with its three largest competitors as well as industry averages.

Using the model of competitive rivalry, one can expect the following competitive behaviors. Other auto manufacturers are less likely to pursue differentiation strategies. Slow market growth, as happened during the recession, causes competitors to fight aggressively for market share. High exit barriers require that firms must compete. Low switching costs for consumers mean that there is a greater struggle to capture customers (QuickMBA, 2011). By understanding these characteristics of competitive rivalry Ford can better prepare itself to anticipate and…

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