Market Share and Ford

¶ … strategy came up in my mind: What is strategy? Why is strategy important for an organization? I strongly agree with Rich Horwath in his article "The Strategic Thinking Manifesto" that strategy is all about creating a competitive advantage in the marketplace (Horwath, 2012). It entails knowing what to do in order to be a winner in a stiffly competitive business environment. Strategy can in fact be likened to a sailing race in an athletic competition. Winning the race is dependent on knowing not only the direction of the wind, but also your competitor's moves. It is also influenced by the degree to which members of your team are committed to make the boat remains ahead of the rest. Are they consolidating their efforts to win the race, or are they competing with one another? In essence, strategy is about creating a roadmap to reach a certain desired end, clearly taking advantage of the strengths and capabilities of your team and remaining constantly aware of events in the external environment.

There is no doubt that strategy matters a lot as far as the performance and survival of an organization is concerned. This is particularly true in today's ever evolving business environment. A well-crafted and executed strategy is important for driving revenue and profitability, accelerating market capitalization, and maximizing returns to shareholders. In essence, strategy is the major differentiating factor between high-performing and low-performing organizations.

There are several real world examples that demonstrate the importance of strategy. One such example is General Motors (GM), a well-known American automobile manufacturer. In the 1960s, GM was named as the most admirable company by the Fortune Magazine, particularly due to its dominance of the global automobile market. However, the 1970s marked a turbulent moment in the history of the company. The company was facing increased competition from Japanese manufacturers, notably Toyota and Nissan. With a manufacturing strategy based on total quality management and lean principles, the two Japanese companies managed to surpass GM in several aspects, including production volume, product quality, fuel efficiency, as well as design and physical appearance. By the 1980s, the historical glory of GM, as well as other American manufacturers such as the Ford Motor Company, had significantly diminished. Toyota and Nissan had become the new icons in the global automobile market.

Against the backdrop of increased competitive pressure, it became apparent to American manufacturers that time to change strategy was ripe. On its part, GM decided to create the general purpose robot to compete against the special purpose robot produced by Japanese manufacturers. However, Ford used a different strategy -- the company instead chose to minimize vertical integration and outsource manufacturing. The outcomes were certainly different. Ford's performance improved significantly in the 1980s, even though Japanese manufacturers still retained dominance of the global market. GM, however, did not make significant progress as its performance lagged behind that of Ford. This example clearly demonstrates why getting it right in terms of strategy is crucial for maintaining and/or improving competitive advantage in an increasingly competitive environment.

An important attribute of a good strategy is effectiveness. This essentially means doing the right thing. For you to do the right thing, however, you must first have the right goal(s). This is one area in which most organizations today fail. About eight decades ago, Ford was the best vehicle manufacturer in the U.S. The founder of the company, Henry Ford, held the belief that the primary purpose of a vehicle is to transport. To increase car usage, Ford focused on producing vehicles for under $1,000 per unit. He minimized the cost of production, and focused on a single model, popularly known as Model T. The model came in only one color. By focusing on a single model and a single color, Ford was able to significantly reduce production costs, which led to a rapid gain of market share.

Despite the gains Ford made in the automobile market, the company failed to recognize the danger posed by its strategy. A few years after establishment of Ford, GM was established. The company was keen on addressing the needs Ford had failed to fulfill. Unlike Ford, the CEO of GM insisted that vehicles were not just for transport -- they could as well be used as symbols of status. Accordingly, GM categorized the market into five groups, and created a different model for each group. The five models were Cadillac, Buick, Oldsmobile, Chevrolet and Pontiac; with each model offering different colors. For GM, this was important for appealing to a wider market and, most importantly, individual tastes and preferences. Eventually, GM overtook Ford, becoming the dominant vehicle manufacturer in the U.S. and beyond. Though Ford remained ahead in terms of efficiency, GM knew what to do at the right time -- it understood the importance of strategy effectiveness. In other words, GM's strategy was more responsive to the diverse needs of consumers compared to Ford's. GM understood that vehicles would soon be affordable to a wider market, and would have multiple uses, not just transport.

The case of the automobile market, particularly with respect to American and Japanese companies, clearly illustrates the importance of strategy in becoming a leader in the market. Strategy is what differentiates winners from losers. By providing better functionality, design, fuel efficiency, and affordability, Japanese manufacturers were able to grab market share from American manufacturers. Equally, by being more consumer-centered, GM was able to overtake Ford in the American car market. Given that business organizations operate in a constantly changing environment; they must continuously adjust their strategies in accordance to the changes. Consumer tastes and preferences change, technology advances, regulatory requirements shift; all which compel organizations to adjust their strategies. Those that fail to properly adjust their strategy often bear severe outcomes such as revenue stall, reduced market share, and, eventually, collapse.

It is not just enough to monitor the external environment -- an organization must know the right time to strike. When it was being founded, GM knew that time was ripe to take the market share from Ford. It knew that consumers needed vehicles for not only mobility, but also other uses such as projecting social status. It also knew that not everyone preferred the black color. GM, therefore, hit the market just at the right time. Equally, Japanese car manufacturers knew that the 1970s was the perfect moment to disrupt the dominance of American manufacturers in the global automobile market. They provided cars that were not only more affordable, but also more fuel-efficient, more functional, and more appealing. They quickly spread to markets that had historically been neglected by American car manufacturers, which had predominantly focused on developed markets. Today, Japanese cars are dominant in Asia, Africa and other developing markets.