Ford's history and business development

¶ … Ford

The Organization and its Management Accounting Function

Ford Motors Company

Ford Motors is without any doubt one of the most reputable American symbols. The United States automobile manufacturer has been present within the international market for more than a century and, throughout this period, it has registered both successes as well as failures. And the most recent example of a failure is given by the negative financial returns registered for the past year. The organization had historically been focused on the manufacturing of large size and luxurious vehicles, and has invested great amounts of money in support of the adjacent technologies. Yet, as environmental concerns became more present in the minds of the population and as the international oil prices soared, consumer demands shifted towards small size and fuel efficient engines, which would be offered by Toyota. This was the scenario in which Ford lost its supremacy within the American market to its Japanese competitor. Following this situation, the emergence of the economic crisis within the U.S. further decreased demand for the Ford vehicles.

Despite these challenges however, company officials have declared that 2008 has been a positive year in terms of organizational restructuring. They argue they have used the time to internally strengthen the organization and prepare it for the fiercer competition.

The financial challenges were not only threatening to Ford, but also to its main U.S. rivals -- General Motors and Chrysler. Yet, unlike its competition, Ford refused to be the recipient of governmental funds under the Troubled Asset Release Program (TARP). External observers are unsure whether the move is in fact based on financial stability or on bravado, moreover when financial loses for 2008 totaled up to $14.6 billion -- more than five times larger than the losses of 2007. Even if it will not accept TARP funds, the Ford officials have declared their intention of relying more on debt. This strategy will be implemented with the borrowing of $10.1 billion in the first quarter of 2009 (Directorship, 2009).

Ford has created a controversial reputation for itself through its opening of plants outside the country. Some Americans have criticized the move as it took jobs away from the U.S. citizens and gave them to foreigners -- in exchange for cost efficiencies however. Yet, the company has been praised for supporting regional development in the zones where it operates and supporting economic stability. Currently, Ford operates more than 90 plants worldwide, but the difficulties in 2008 and 2009 have forced it to close some plants in North America. In 2008, the total number of individuals employed worldwide was of 213,000, but the current figures and unclear, yet smaller due to downsizing operations.

Ford Motors Company is ranked number 7 on the Forbes Fortune 500 list and it is highly recognized for its introduction of assembly lines in the automobile manufacturing process, which has even given birth to a trend called Fordism. The company's main competitors are U.S. manufacturers Chrysler and General Motors, as well as Japanese automobile maker Toyota. The environment in which it competes is extremely dynamic and sensitive to macroenvironmental forces -- demand is for instance pegged to employment and interest rates. Ford and other large manufacturers have created economies of scale and benefit from an increased access to resources, whereas smaller companies compete on niche segments (Hoovers, 2009).

An interesting approach to conducting business has been that of diversifying the portfolio of products and services they offered. In this order of ideas, Ford has historically generated its revenues from the sale of the manufactured vehicles. More recently however, they have expanded into the financial service sector through the offering of loans for their customers. In 2007, the new service generated next to $2 million in revenues, but the outcome was a negative one for 2008. In this light of events, the company currently strives to recuperate the money it lent to its customers and invest it in strengthening the organization. The strategy for 2009 is based on four pillar elements:

an aggressive restructuring with the aim of profitable operations given the current demand and the changing model mix an accelerated development for new products desired and valued by the customers an adequate financing of the plan in order to improve the balance sheet unifying the Ford employees in order to create a strong team and leverage global assets (Ford Motors Company 2008 Annual Report)

2. Management Accounting Function

Accounting management is a term only recently introduced in the specialized literature, but the practice is a long lasting one. What the accountant manager basically does is to assess the costs, inputs and processes associated with the organizational products and services. They then organize this gathered information in a way that managers know the costs per unit and the labor per unit incurred in the making of a respective product or service, as well as the number of vehicles employed in the distribution of the products or services (Williamson, 2003).

Overall, the role of accounting management is that of providing the organizational leaders with sufficient and adequate information to be used in the decision making process. This is true in all organizations, including Ford Motors Company, where managers use accounting data to reach the established desiderates, but also to assess the microenvironmental situation and establish SMART goals (Specific, Measurable, Attainable, Realistic and Time framed).

An actual analysis of the management accounting function within Ford is quite a difficult task for the simple reason that the process is generally designed for internal usage. Otherwise put, the means of collecting, processing and using the accounting data is subjected only to the interest of managers and is not made public to the shareholders and other stakeholder categories. Nonetheless, a look at the company's public documents will manage to shed some light into the function of accounting management.

Ford Europe is headquartered in Spain and the manager of this entity has released some information vital to the current endeavor. Through extrapolation, it can be believed that the accounting function at the Spanish headquarters is very much similar to the accounting function in all Ford facilities. In this order of ideas, the Ford headquarters centralize cost information from numerous plants, meaning then that the accounting system is very comprehensive and complex -- Ford Spain for instance centralizes cost information from 28 European plants. The information collected is structured into six systems, which are in fact the pillar elements in the accounting process. These systems are the materials information system, the finished products information system, the standard costs and deviation information system, the non-productive materials information system, the budgetary control system and the system for cost and variance analysis (Bhimani, 1996).

The model used in management accounting at Ford is based on standard cost, which also includes indirect costs. "Management accounting is based on a standard cost model. The availability of standard costs for each part of the production process enables variance calculations at different stages of production. Indirect costs included as part of standard costs are applied using a rate proportional to labor input. It is to be noted that the proportion of input decreases in relation to indirect manufacturing costs. This is also the case for inventories -- both work in process and finished products" (Bhimani, 1996).