Ford's internal environment strategy and competitive recovery

Internal Environment

Over the last several years, Ford has endured a tremendous amount of challenges. As the company would go from being on the verge of bankruptcy, to taking drastic action that would create a revolution inside the organization itself. Evidence of this can be seen with the large increase in sales that Ford would see during the third quarter of 2010 (as net income would increase by 68%). (Durban, 2010) This is helping the company, to be able to take a large amount of market share that had been lost to competitors. What this shows is that the new strategy that was implemented in 2006 would help the Ford to redefine itself. As they were able to begin selling popular crossover SUV's (like the Escape) and to recapture their dominance as far as truck sales are concerned. (Krisher, 2010) These two elements are important, because they are showing how a change in the internal environment would have a dramatic impact upon Ford. To fully understand this strategy requires: examining the effectiveness of the current policy, conducting a SWOT analysis, examining if their cost / pricing structure is competitive, determining if the company is stronger / weaker in comparison with rivals and looking at what issues require management's immediate attention. Together, these different elements will provide the greatest insights, as to how the internal environment is helping Ford to overcome the various challenges facing the industry.

How well is the present strategy working?

What are the current strategy and goals?

The current strategy / goals of Ford are: to continue to take market share from competitors and build cars / trucks that consumers are demanding. These two elements are important, because they are allowing the company to redefine itself, by producing vehicles that are of high quality and can meet the needs of consumers. For example, as oil prices were increasing and the economy was slowing. Ford began to aggressively market the Fiesta compact and the Edge wagon. At the same time, they would cut costs and improve quality. (Durban, 2010) This is important, because these factors would help the company to continue to post a profit during times when the industry was facing tremendous challenges.

Compare performance via benchmarks

Industry average

The last two years have seen nearly all of the major manufacturers, experience declines in sales ranging from -28.0% to an increase of 9.0%. In the case of Ford, they would see a decrease of 10.9% between 2008 and 2009. On the surface this appears to be troubling, as the company is experiencing similar challenges as the majority of the other auto manufacturers. However, when you look beyond this number and focus on the increase in market share for 2009, the company would see an improvement of 2.0%. ("Worldwide Car Sales by Manufacturer for 2009," 2010)

Performance vs. Past History

Over the last several years, Ford went from not having a PE ratio (due to the losses they were posting), to one that is currently trading at 8.14. ("Ford Motor Company," 2010)

Performance vs. Major Competitors

When you compare this to the major competitors, their PE ratios are significantly higher as Toyota currently has a reading of 20.24. At the same time, other companies such as Tesla Motors do not have a PE ratio. ("Ford Motor Company," 2010)

Performance vs. Industry

The industry average as far valuations is concerned is 16.24. ("Auto Manufacturers," 2010) This is important, because it shows how Ford is quietly seizing market share from their competitors. The below table compares the valuations of: Ford with select competitors and the industry average. ("Ford Motor Company," 2010)

Ford vs. Competitors / Industry

Company

PE Ratio

Ford

8.14

Toyota

20.24

Tesla

None

Industry Average

16.24

Key rivals

The biggest rivals that Ford would face worldwide include: Toyota, Honda, Volkswagen, Hyundai, General Motors, Chrysler and Nissan. In general, the majority of these manufacturers are wrestling with similar challenges as Ford. However, Hyundai is the biggest possible threat because they were able to increase sales during the recession and they offer a competitive product that is cheaper than Ford. ("Worldwide Car Sales by Manufacturer for 2009," 2010) That being said, if the company can focus on quality, they can be able to maintain higher prices and still dominate the auto industry. As consumers are willing to pay more for those vehicles they believe that are of superior quality. (Durban, 2010)

Examine critical trends

The two trends that are affecting the industry are: reducing the large amounts of debt and increasing the number of fuel efficient vehicles on the road. (Krisher, 2010)

Will low performance increase likelihood of dramatic strategy changes?

Yes. The reason why is because low performance will have an impact on sales and the ability of the company to retool for new models. If there is any kind of low performance in numerous models, this will result in a shift in strategy.

What are the resource strengths and weaknesses, and the external opportunities and threats?

Resources -- internal to the company

The various internal strengths for the company include: a good management team, low cost structure, earnings momentum, the credit services division and an outstanding supply chain. (Johnson, 2010)

External is specific to the focal firm; different firms have different opportunities and threats Weaknesses

A major external challenge that Ford could face in the future is aggressive competition from Hyundai. Where, their vehicles have some of the same features offered by Ford, while selling at a lower price. ("Ford Fusion vs. Hyundai Sonata," 2010)

Measures of strengths and capabilities

Competence, core competence, distinctive competence

As far as the three issues are concerned, Ford has received various forms of competence from their employees. Where, they agreed to reduce their labor costs and benefits, so that the company can remain competitive well into the future. (Krisher, 2010)

Evaluation of resources

Valuable, rare, difficult to imitate, difficult to substitute

The various resources that Ford has are easy to substitute. Where, a host of manufacturers will often mirror the same features being offered in Ford vehicles.

What all of this shows, is how Ford has the ability to take advantage of a number of different strengths and opportunities. This is depends upon the company's ability to: effectively manage it resources, continue with innovation and have the flexibility when adapting to the different changes that are taking place. The below picture illustrates the different strengths, weaknesses, opportunities and threats that Ford is currently facing. (Johnson, 2010)

Ford Strengths, Weaknesses, Opportunities and Threats

Strengths

Weaknesses

Opportunities

Threats

Good management team

Hyundai Sonata

Employee Concessions

Substitutes

Low cost structure

Earning momentum

Credit Services

Supply Chain

Increased profit margin, growing sales and improving market share

This is significant, because it shows how all of the different elements will play an interconnected role in Ford's success. As they will help to increase the bottom line of the company, while providing added benefits for each of the different areas of the SWOT analysis. When you put these different elements together, this is highlighting how the company is positioned to be able to take a significant amount of market share and increase their earnings (provided they address the obvious weaknesses as well as threats).

Competitive liabilities

Pay attention to KSF weaknesses

The biggest KSF weakness that Ford will have to wrestle with is a sense of complacency, as they are seeing an increase in sales. This is problematic, because it could cause managers to lose focus, with them not paying attention to changes in the market.

Are the prices and costs competitive?

Value chain analysis

Inbound logistics, Operations, Outbound logistics, Marketing & sales and Service

A value chain analysis confirms the underlying strengths in Ford's internal structure, as it the company has outstanding supply chain management and outbound logistics. (Johnson, 2010) at the same time, management has firm control of the operations by maintaining a low cost structure. The various sales, marketing and services are helping the company to redefine its image based upon quality. (Krisher, 2010)

Critical activities and combinations of activities

The most critical activities that the company has undertaken is: to reduce labor costs. Where, these were a major factor that would affect the price of vehicles over the long-term. Once these were reduced, they would help the company be able to become more competitive. The combining of the different operations (such as the closing of key plants) allowed Ford to be able to reduce their cost structure and their underlying amounts of debt. (Krisher, 2010)

What activities are strategically important?

The different activities that are of strategic importance to Ford include: addressing customer demands, quality and helping to maintain a low cost structure. These different elements are significant, because they are all imperative for the company to remain competitive in the future. The below picture illustrates how Ford is using the value chain to improve their reputation and brand recognition.

Ford's Value Chain

Inbound logistics, Operations, Outbound logistics, Marketing & sales and Service

Excellent supply chain, outbound logistics, firm control of operations, effective marketing and outstanding support.

Critical activities and combinations of activities

Reduce labor costs, close plant and pay down outstanding debt

Activities are strategically important

Addressing customer demands, quality and helping to maintain a low cost structure

Ford's Profit Margins

The analysis of the value chain shows how Ford is taking steps to increase their profitability, by dealing with a host of issues that could have an impact upon quality. This is important, because this is helping to improve Ford's ability to compete and increase their profit margins

Is the company stronger or weaker than key rivals?

market share

When you put these two elements together, it is clear that Ford has a unique opportunity to regain market share from the large foreign automakers. However, Hyundai is aggressively targeting their key markets. As result, Ford must be able to continue to adapt to changes in demands from consumers, by offering high quality products. If the company can maintain this level of concentration, they can be able to regain a significant amount of market share and prevent other competitors from gaining a foothold.

What issue or issue(s) merit "front-burner" managerial attention?

The two biggest issues that company is facing are: the large amounts of debt (that it is continuing to reduce) and possible quality control issues. If the company can remain profitable and continue with the strategy of cost cutting, they could be able to reduce their cost structure and increase their earnings (as they will reduce the burden of the large debt load). However, management must remain focused on consistently reducing the overall levels of debt. Otherwise it is only a matter of time, until these levels will begin to consistently increase. The different quality control issues could have an impact on sales, as the negative publicity can create the impression of Ford products being inferior to competitors. Recently, the company did have an issue with the brakes on the 2010 Ford Focus. However, they were able to address this issue quickly by establishing the Customer Satisfaction Program. This offered to fix the problem in these models for free. This is significant, because it shows how the company will continue face quality control issues on a regular basis. The big challenge going forward is: addressing them promptly and preventing the situation from spiraling out of control. ("Ford Issue Prompt Fix," 2010)

How comfortable is the company going into another culture or market?

Ford is well positioned going forward to address the challenges that it will face in other markets around the world. This is because the change in focus of the company, has allowed various executives to address the underlying long-term challenges from its business model (legacy costs and the corporate culture of the organization itself). When you examine legacy costs, it is clear that the cost of labor and benefits for various employees would continue to play a major role in the company's long-term success. This is because the unions would force the Big Three to maintain the traditional labor agreements that were often used since the 1950's and the 1960's. A good example of this can be seen with the average hourly wage that Ford is paying employees. Where, they have reduced these costs down to $52.00 per hour, this is slightly above what Toyota and other Japanese automakers are paying their employees. (Bennett, 2009) This is important, because the lower average hourly wage will mean that the company's products are more competitively priced in overseas markets.

The corporate culture of Ford was changed by their shifting of the business model. As managers would focus on ways to adapt to changes that were taking place in the markets. This would help the company be able to create new vehicles that were in demand. In various overseas markets, this strategy would help Ford be able to quickly adapt to the changes in each country. A good example of this can be seen with the company's One Ford strategy. This is a marketing plan involving the company selling the same basic models around the globe. The idea is that by finding those issues that are important to: all consumers, addressing these concerns and then augmenting them with specific markets can increase sales dramatically. Evidence of this can be seen by with the Ford Fiesta. This car has a European design, yet is being marketed in North America and Europe by emphasizing key aspects of the vehicle that are important to specific markets. ("North America to become New Export Base for Ford," 2009) This is significant, because it show how the change in the business model would create, a shift in the culture at Ford itself. When you put these different elements together, this means that the company is well positioned to aggressively compete in overseas markets.

Clearly, the internal environment at Ford is helping the company to avoid the same fate as General Motors and Chrysler. As the change in culture has allowed managers to focus on delivering high quality cars that consumers are demanding. When you put these elements together, this highlights how management was able to redefine the company by addressing these needs. As a result, this strategy would allow Ford to begin posting consistent profits, with demand increasing for some of their most popular vehicles to include: the Focus hybrid and the Escape crossover.