Innovation Management at Ford Motors

¶ … 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.

4. Positions, Assets, Resources and Competition

The first statement to be made relative to Ford's usage of assets and resources to promote its innovative endeavors is that the automobile manufacturer invested large amounts of financial resources in research and development. As shown in the previous section, the company's R&D budget was of more than $8 billion last year. Relative to the competition, this was the largest investment within the entire automobile industry, revealing as such Ford's strong competitive position and their commitment to innovation. Additionally, aside financial resources, they also used their assets. The most relevant example in this sense is the selling of part of its interests in Mazda. It as such transformed its assets into liquidities -- the 20% shares in Mazda were converted into $540 million (Murphy) -- that better allowed them to pursue their innovation objectives.

The matter of technological innovation is not only a core focus of Ford's, but of all players within the American automobile industry. The reasons for the rivalry in terms of R&D are numerous, the most outstanding however being constituted by the desire to attract and satisfy as many customers as possible, managing as such to increase organizational revenues. "R&D efforts in the U.S. Auto industry are channeled into a variety of processes such as stamping, casting, machining, and assembling. Within the time-frame of our investigation, R&D efforts had to embrace sudden changes in taste toward small, fuel-efficient cars due to the OPEC crises and other concerns. […] Ford […] invested more in production technologies that made greater use of robotics. They developed product lines that competed directly with foreign makes and models. They have increased product performance and new design in all regional markets. They also have changed their industrial relation practice, making layoffs a function of declining sales rather than technological changes, outsourcing, productivity, and reorganizations" (Ramrattan, 1998).

The players in the American automobile industry consider sales as the main force of rivalry, but technological innovation and innovation management come to a close second position. Ford is striving to achieve innovation in terms of new product, new product features, as well as new processes. Otherwise put, they are determined to achieving "product innovation via new processes" (Ramrattan). Rivalry between Ford and other automobile manufacturers escalades in terms of being the first to get the patent for a new technological advancement or being the first to sell the product to an awaiting customer base. To this day, there are four top automobile manufacturers in the United States striving for the first technological patents (Slide 4). In overcoming the competition in the field of technological innovations, the Ford executives readjusted the budgets in the meaning of increasing them. Also, they hired more professionals that would work harder and compact the time spent on research. All these ensured that the company would be the first, or at least among the first, to launch a car incorporating the latest technological developments. Their reputation within the industry as such increased, their role in technological innovations increased as so did their profits.

Another means of using resources and assets to consolidate a strong competitive position in the field of technological innovation has been that of closely following the actions of the main rivals, namely General Motors and Daimler-Chrysler. "General Motors and Ford corporations react to changes in each other R&D expenditures at a level of 0.96, and 0.23, respectively" (Ramrattan). The innovation trends between these tree large players are close as all of them looked at the technological strategies developed and implemented by the rivals and adapted them to meet their own needs.

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.