Innovation management strategies at Ford Motor Company

¶ … Innovation Management at Ford Motors Company

Today's business community is characterized by numerous novel features, such as an increased focus on customer satisfaction in detriment of production (proof being the incremental emphasis on services rather than manufacturing) or employee on-the-job satisfaction and the creation of a pleasant and challenging working environment in the detriment of a stressful and competitive workplace. Without denying the importance of these modifications, one has to note that the most important change in the contemporaneous society -- in all of its aspects, not just business -- has been that of the role played by technological developments. We meet with these modifications on daily basis and they generally improve the quality of our lives by simplifying and reducing our workload or by increasing the utility of our leisure activities. For the business community however, technological innovations mean much more -- they generate intensified competition, increased customer demands, the need for more efficient resource allocation or a need and ability to better address environmental concerns. In this highly dynamic and challenging environment, organizations employ all available strategies to strengthen and consolidate their position within the market. One technique that helps them achieve this desiderate revolves around the introduction of innovation management concepts.

Due to the complexity of the concept, the specialized literature has yet to offer a universal definition. The explanation of this fact could suggest that the field changes on daily basis and that it is extremely difficult to enclose it in a definition. Still, in a most simplistic formulation, innovation management could be understood as the art and science of integrating the elements of novelty within organizational operations with the specified aim of increasing the company's abilities to achieve its established objectives. Innovation management occurs generally at three stages -- path, position and process. These levels of innovation management will be exemplified on one of the largest American automobile manufacturers -- Ford.

2. Company Description

The Ford Motor Company was founded in 1903 in Dearborn, Michigan by Henry Ford and the success and genius of the company laid in the founder's visionary ideas of creating an automobile accessible for the entire population, not just a few wealthy individuals. Once he managed to get the assembly lines working, triumphs did not linger. "Ford Motor began a manufacturing revolution with its mass production assembly lines in the early 20th century. The company is now firmly entrenched in the status quo as one of the world's largest makers of cars and trucks" (Hoovers, 2009). Today, Ford Motors represents one of the largest and most prominent and powerful organizations in the world. It created more than 200,000 jobs in the United States as well as outside the country and has succeeded in creating a favorable reputation. Its most notable brands include Lincoln and Mercury, and of course the most popular one, Ford. Aside manufacturing and selling cars, the group has also become involved in investments in other automobile companies, such as Mazda and Volvo. Finally, its third source of revenue consists of credit services, meaning that the company has opened a subsidiary, Ford Motor Credit, which helps customers purchase the desired Ford vehicles.

Relative to 2007, 2008 revealed weakening financial performances as the company's sales in both volumes as well as revenues significantly decreased from 6,555,000 units in 2007 to 5,532,000 units in 2008, respectively from $172.5 billion in 2007 to $146.3 billion in 2008. Foremost, the net profit was of a negative $14,672 million, as opposed to only a negative $2,723 in 2007 (Ford Motor Company 2008 Annual Report). Despite these downbeat results however, the Ford executives argue that the year has been a productive one as it allowed the organization to undergo several processes of organizational change that will strengthen Ford's competitive position and ability to succeed in the globally challenging market.

3. Path and Technological Trajectory

Ford Motors Company has products in all life cycles, commencing from introduction, continuing with growth and maturity and ending with decline. Innovation management allows the Ford executives to make the best informed decisions relative to these products, based on the life cycle in which they can be found. In the introductory stages for instance, the managers are focused on increasing product awareness and promotion, without much emphasis on profits. In the growth stage, they are striving to consolidate the market share and create brand recognition. Then, in the third stage of the product life cycle, the automobile leaders focus on consolidating the product and overcoming competition in a saturated market. Mergers and acquisitions are common at this stage and the most notable example could be the purchasing of 33.4% share interests in Mazda. Due to the financial challenges encountered in the recent past however, the Ford officials announced they would be reducing their control in the Japanese organization from 33.4 to only 13% (Murphy, 2008).

Finally, in the decline stage of the product life, the market is challenged by new items that reduce the competing capabilities of the old Ford vehicles. At this level, the company can choose to invest and try to restore the product, or it can choose to withdraw the respective automobile from the market (Marketing Teacher, 2009). At an overall industry level, the automobile sector is expected to enter its decline stages 65 years from now (Slide 3). Signs of the situation have been encountered in various instances throughout the past few years, when the American consumers, due to an increased focus on environmental concerns and the increasing oil prices, turned their attention to small size and fuel efficient cars. Upon the realization of this fact, Ford had already invested large sums of money into the development of large and luxurious vehicles and a change in its approach would have materialized in great financial losses. As such, at the decline stage, they decided to further invest in their products and hoped they would succeed. Unfortunately for the company, this did not happen as the market and the industry had been set on fuel efficiency. Coming to terms with the final stages of the decline process, the Dearborn-based organization decided to place less emphasis on large automobiles and turned their attention to small size and fuel efficient cars. The new and improved version of Ford Fiesta was as such created. "The new […] Ford Fiesta is purposely bold and sophisticated, designed to clearly stand out from any other car in markets around the world. In fact, the new Fiesta is specifically designed to appeal to increasingly savvy customers who value fuel efficiency, technology and aesthetics" (Website of the Ford Motors Company, 2009).

The technological trajectories are often associated with investments in research and development that improve the company's products as well as the organization as a whole. Despite the importance of these innovations, economic agents behave differently based on their nature -- supplier dominated, scale intensive, science based, information intensive or specialized supplier organizations. Ford is included in the category of scale intensive organizations and this means that they produce complex systems through the creation of economies of scale; these scale economies however make the company less adaptable to change and increase the risks of implementing modifications. Then, also directly linked to the business model, is the technological development of products and processes, which is achieved incrementally and gradually and with both internal and external assistance (in-house and suppliers). Finally, Ford Motors focused on most efficiently using the best practice concepts to design and produce its vehicles and integrated computer simulations to create economies with automobile testing and development (Slide 3).

The technological trajectories of Ford have historically been, and continue to be, ascendant in the meaning that their focus on research and development is an incremental one. Regardless of the object of their research, mostly the past emphasis on large and luxurious vehicles as opposed to the current stress on fuel efficient and environmentally friendly vehicles, the Dearborn based automobile manufacturer has always been one of the largest investors in R&D. Foremost, Ford has the largest research and development budget within the automobile industry and the second largest budget of all companies in all industries. In 2007 for instance, its R&D budget was of a total of $8.2 billion (Ramsey, 2007). The previous year, Ford had announced a £1 billion investment within the United Kingdom with the aim of advancing various "environmental projects such as biofuels, new-generation diesels, direct-injection petrol and light-weight materials" (Brighton, 2006). All in all, Ford's technological trajectory has been an ascendant one, revealing a great commitment to innovation and great managerial skills in promoting and integrating innovation.

5. Processes in Seizing Technological Innovation Opportunities

Historically, the Ford Motors Company has been favored in the competition for best technological innovations by its settlement in Michigan, the heart of the American automobile industry. This setting allowed it to maintain constant and fruitful communications with major players in both IT as well as automobile industry. It was as such able to rapidly integrate the advancements made into its products and improve its technological processes. Another means of scanning the industry for innovation was, as previously mentioned, the benchmarking against its primary competitors -- General Motors and Daimler-Chrysler. More recently, Ford also benchmarks its technological innovations and scans for new opportunities by looking at the strategic innovations adopted by Japanese manufacturers such as Toyota or Mitsubishi.

Then, in terms of selecting the actual innovations that would succeed, Ford strived to align what the IT industry had to offer with what the customers needed. Except for the recent mistakes in not developing environment friendly cars sooner (and the consequent loss of its position to Japanese manufacturer Toyota), Ford has generally been able to maintain close communications with its customers and identify and incorporate the technologies they desired. This in turn materialized in the adequate selection of the most desirable technologies that improved not only product features, but also customer utility and subsequently, organizational revenues.

Relative to the resources used in the process of technological innovation, as it has been previously mentioned, Ford uses its own assets and financial resources. In the context of the contemporaneous financial crisis, the automobile maker transformed part of its interests in Mazda into liquidities and as such increased its resource availability. Generally, the investment resources come from redistributed profits or from bank loans. Again, given the recent economic challenges within the U.S. And its automobile sector, Ford was forced to borrow money from the U.S. authorities less than two years ago. Yet, unlike GM and Chrysler, it declared that it does not desire to receive money under TARP (Troubled Assets Relief Program); they will however continue to accumulate debt from credits. "Though Ford will not take TARP funds, it is increasing its reliance on debt, having planned to draw $10.1 billion more on credit in the first quarter of 2009. The company claims it has 'sufficient liquidity to fund its business plan and product investments'" (Directorship, 2009).

The process of strategy implementation at Ford is generally a complex one as the company strives to maintain unity across its 90 worldwide agencies. Ensuring this unity nonetheless translates into difficult, and, at times, even tedious, implementation processes. The team of skilled and specialized managers makes intense efforts to transform an idea into a real life process and have so far succeeded in their endeavors. Also, since Ford is such a large company, they are less adaptable and major changes imply significant efforts. In implementing technological innovation however, the executives at the automobile manufacturing organization strive to reduce uncertainty, reduce risks, link the innovation to market needs and allocate sufficient resources (including capital, time, labor force and technologies). Once the idea is translated into a strategic approach, they test its validity, introduce it into product manufacturing and continually strive to improve it (Slide 5).

Learning from the previous successes and failures plays a pivotal part in the technological process at Ford and the company officials strive to continually improve their processes through training programs and through constant research of market and industry (customers and competitors) trends and needs.

6. Conclusions

The contemporaneous business community is characterized by numerous changes, the most prominent challenges coming from the treatment of employees, the satisfaction of customers and the integration of the latest technological development. These modifications generate an impending need to more efficiently address the matter of innovation management. Ford Motors Company is an undisputed international leader in terms of both sales and revenues, as well as technological efforts. The Dearborn-based organization has the largest R&D budget in the automobile industry and the second largest budget in all industries. Just like with any other organization, their efforts in implementing technological innovations are channeled onto three simultaneous channels -- path, position and process. The path section refers to the technological trajectory followed by Ford and this is, without any doubt, an ascendant one, increasing in focus and resources spent every year. Then, in terms of position, this refers to the usage of resources in consolidating the competitive position within the market and the industry. Despite its recent financial challenges, Ford Motors remains highly capable of financing its operations and investments through in-house funding; additional sources are attracted through bank loans and the company did not desire to be a recipient of the TARP funds as they already possess sufficient liquidities from the loan contracted two years ago. Finally, relative to the position, Ford is highly able to identify, seize and implement any opportunities for technological innovation. The Ford Motors executives scanned for opportunities for innovation management within the industry (the competitors) and maintained close communications with the IT specialists. They selected the most viable opportunities by linking the potential offer to the demand from customers. Then, they allocated sufficient resources, including all budgets, people and technologies, to implementing and improving the novel technology. All the efforts made across its existence of more than one century have materialized in a strong competitive position in both national and international market, major financial performances and millions of customers across the globe.

In terms of its future, this is yet uncertain and depends highly on the path followed by the contemporaneous economic crisis. As a recommendation for future triumphs however, Ford should remain focused on developing and integrating fuel-efficient engines. Actual statistics and estimated about the number of electric cars or hybrid cars are scare and often unreliable. Despite this however, the trend in industry endeavors and customer demands has already been set and the direction of the market is a clear one -- environmentally friendly technologies. Ford has to become integrated in this trend and invest additional resources in developing technologies that eliminate less waste, consume lower amounts of fuel and generate lower amounts of greenhouse gases. The endeavor will not only strengthen the company's competitive position within the international market, but will also attract customer satisfaction and improve Ford's overall reputation.

References:

Brighton, G., July 17, 2006, Ford to Drive Revolution with £1bn R&D Project, PSFK, http://www.psfk.com/2006/07/ford_to_drive_g.html last accessed on May 6, 2009

Murphy, J., November 18, 2008, Ford Cuts Mazda Stake, The Wall Street Journal

Ramrattan, L.B., 1998, R&D Rivalry in the U.S. Automobile Industry: A Simultaneous Equation Model Approach to Bain's Hypothesis, American Economist, Vol. 42

Ramsey, J., October 7, 2007, Ford is Biggest Spender on R&D, AutoBlog, http://www.autoblog.com/2007/10/07/ford-is-biggest-spender-on-randd / last accessed on May 6, 2009

January 29, 2009, Despite Record Losses, Ford Refuses TARP, Directorship, http://www.directorship.com/ford-won-t-take-tarp-money last accessed on May 6, 2009

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