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These businesses represented potential revenue with a lower startup cost than expansions on the manufacturing side.
To this point, the strategy had been successful. Ford's development functions had improved in efficiency and profitability had increased. Cost savings in 2000 totalled $500 million, for a total of $3.7 billion over the previous three years. There was some strategic logic to the push into services, in terms of capturing downstream revenues. However, this initiative did not support the previous objectives.
In 2001, Ford fell into tougher times. Whether the service businesses could be viewed as a distraction that harmed Ford's focus on its core business is questionable, but certainly those businesses were not a major factor helping Ford through this period. The main successes that helped Ford in this period were sales in Europe, which generated significant improvements in both revenues and profit. In North America, it was again automobile manufacturing that stabilized the firm in this tough time - in this case the Volvo, Jaguar and Aston Martin lines. At this point, the initial globalization strategy appears to have been forgotten entirely. Yet, this is precisely the time when the cost savings were theoretically manifesting their fullest advantages.
Ford seemed to deviate a bit from their previous strategies at the end of this period. Cost-cutting became such a focus that they even took away food and drinks at meetings, a move that smacks of desperation. Ford at this time decided that new product development - 20 new models a year over the course of several years - would be a priority. This does not support their previous strategy of streamlining development costs.
The streamlining strategy made sense in that the bulk of Ford's business is conducted in highly competitive mature markets. Reducing costs is one of the strategies in which a firm can compete in such a market. The cost reduction strategy was yielding results, as seen in the profitability figures for 1999 and 2000. The challenges of 2001 had resulted in poor performance but at that point Ford seemed to behave in a reactionary manner. As the challenges dissipated, Ford was then left with the task of recovering its market share and profits without any strong overarching strategy to guide them. Through this period, the Finance arm was responsible for most of the profits and was a stabilizing force in the company.
Throughout the entire evaluation period, Ford rode the wave of their trucks and SUVs. Sales of their main cars, the Taurus and Mercury Sable, declined dramatically over the period. It was only in 2003, a few years after the decline in truck sales had begun, that they devised a strategy to deal with this. That strategy was to use a Mazda engine in a new car, the Futura, that would be launched to replace the Taurus as a main competitor to the Accord and the Camry. By this point, Ford's strategies are reactionary. In 1994, they were cutting costs despite economic good times, low fuel prices, and a rise in their core truck-based lines. Ten years later they were reacting to a decline in car sales that had begun several years previous. Their cost-cutting strategies had gone from the innovative restructuring under Trotman to cutting out the coffee and sandwiches at meetings. Ford was no longer an innovator.
I would make three main recommendations for the future of Ford's marketing program. The first is that the marketing function should be split in such a manner that the main geographic regions are separated. The principle behind FAO was a strong one, but there is a point at which it is no longer the best option. The cost savings on the production and development side are being realized, but on the marketing side there is little benefit, given how different the needs of the American and European markets are. One component of marketing should be retained within FAO, that being the research component, as they provide the information and market research that drives the development side. So pre-production marketing would remain under the current structure and post-production marketing would be split off from FAO. The more sales-oriented aspects, however, or any other component of the Ford marketing function that is oriented towards post-production, should be specifically tailored to the needs of each unique market.
I would also recommend that a greater emphasis be placed on predicting future trends. For most of the time period in the case, Ford's marketing was geared towards selling what the production units were making. At times, this strategy left Ford in a situation where they were reacting after the fact to shifts in the automotive industry's key drivers. Nasser started taking a more consumer-centric approach with the made-to-order idea, but the follow-through does not appear to have been strong. However, the idea has merit - if Tauruses and Explorers are on the downswing, it is best not to have lots full of them.
The environment in which Ford operates moves quickly. Key drivers like fuel prices and the strength of the global economy change more quickly than do Ford's production and marketing capabilities, as we saw in 2001, a year in which Ford recorded heavy losses despite the fact that it was realizing cost savings from the Globalisation 2000 plan. Ford needs to continue on the path towards reading customer needs in advance, so that they are not caught so far out of position when these shifts occur. There is no evidence that Ford had a plan, for example, in the event that fuel prices spiked. Indeed, they knew throughout the 1990s that the Taurus was slumping, but did not put a strong focus on this vehicle until well into the 2000s, after fuel prices had spiked.
The third main recommendation is that Ford should focus its marketing on the developing world. The competition in the developed world is intense. The market is both mature and lucrative. This fierce rivalry has lead to rounds of cost-cutting in order to maintain profitability in the face of declining market share. In this type of situation, marketers may not be limited in the tools they have at their disposal, but they will inherently be limited in their effectiveness. The easier money is to be made in growing markets. This can be seen in the multi-billion dollar figures that each of the global auto companies is plugging into the Chinese market, for example. Ford's $1 billion, however, is not enough. That sort of money will get them into the game, but will not allow them to win it. Ford needs to put a greater focus on key emerging markets in order to capture the easy market share that is there for the taking. As the North American market in particular has shown, once a market matures, there is little a firm like Ford can do…[continue]
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