Ford Motor Company Strategy, Value Chain, and Competitive Analysis

Introduction: Ford's Strategic Challenges

This essay examines Ford Motor Company's efforts to redefine its strategies to address key strategic issues. It reviews Ford's business-level strategy, the company's value chain activities, and identifies Ford's positioning with respect to the five forces of competition.

Ford's current business-level strategy was developed as a result of challenges the company faced in the last decade. Ford saw its market share in the U.S. decline from 23.7 percent in 2000 to 15.5 percent in 2006. Over the same period, Ford's North American division reported billions in losses from the Ford, Lincoln, and Mercury product lines. To return the North American division to profitability, Ford launched an ambitious restructuring plan known as the Way Forward (Kirtane, Shukla, Wang, and Zhan, 2006).

Business-Level Strategy and Cost Competitiveness

Over the last decade, Ford's business-level strategies were ambiguous, with the result that the company was neither a successful differentiator nor a cost leader. Ford failed to innovate on many of its products, including its compact and mid-sized vehicles, choosing instead to focus attention on its truck and SUV divisions, along with expanding its luxury portfolio. Neither the luxury nor the truck strategy could correctly be considered a focus strategy, given that a large percentage of Ford's sales came from its other operations. With the rise in gas prices, Ford's luxury and truck strategy struggled as consumers fled high-gas-consumption vehicles despite substantial price discounts. Many consumers switched to Ford's competitors, in particular to Japanese automakers (Kirtane et al., 2006).

During the same period, Ford's costs grew disproportionately compared with those of its competitors. Analysts estimated that foreign automakers were able to produce cars at a cost of $2,500 less per vehicle than Ford, due to lower overhead costs that included wages, pensions, and benefits. Ford's Way Forward plan initially called for 16 plant closures, with a 35 percent reduction in manufacturing jobs by 2008. According to Kirtane et al. (2006), these reductions would result in savings of $1,522 per car produced in North America. However, with GM's fixed cost per vehicle running $2,354 less than Ford's, Ford would need to achieve further significant reductions just to reach industry parity. Consequently, Ford's business-level strategy did not meet the requirements for cost leadership, given that Ford was not producing at the industry's lowest cost.

Typically, the intense rivalry that a crowded industry produces does not yield significant product differentiation at relatively low costs. However, Ford's efforts at brand repositioning — designed to appeal to different target segments — would allow the company to achieve relatively low-cost product differentiation by creating perceived value.

Value Chain Activities and Competitive Advantage

Ford's operations offer several opportunities for value chain activities to achieve a competitive advantage, particularly in ways that advance the company's differentiation strategy. Ford's corporate website lists the following value chain activities that offer the potential to improve environmental impacts, including greenhouse gas emissions, fuel economy, smog-forming emissions, land use, manufacturing waste, material use and recycling, and resource use:

Environmental and sustainability improvements will enhance the value of Ford's brand, while many value chain process improvements will also cut costs (Ford Motor Company, 2011).