Ford Motor Company Strategic Fit of the PDF

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Assignment 2

Ford Motor Company Strategic Assessment

Strategic Fit of the Firm Assessment

Executive Summary This strategic Fit Assessment will address modifications to the Strategic Frame as a result of an in-depth analysis of Ford Motor Company’s business strategy. It will analyze the following key strategic elements and an evaluation of concerns and opportunities about Ford’s strategic fit and their key strategic elements. 

Goals & Values: to have a global presence having competitively priced vehicles that are innovative and different from competition.

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Resources & Capabilities: Ford’s use of innovation and collaboration to remain different from their competition.

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Organizational Structure & Management Systems: “One Ford” and Aligned Business Framework called (ABF)

This report will act as a preliminary report regarding Ford’s internal environment, issues about how the strategies are applied to products and market segments that were identified in the Strategic Frame report.

Business Strategy Ford uses Cost Leadership and Diversification (a hybrid) as their business strategy. The source of Ford’s strategy comes from their organizational capabilities. Ford is a global automobile manufacturer that has production, R & D, stamping, assembly and distribution facilities in North and South America, Asia Pacific, Europe, Africa and the Middle East. Ford’s internal/external environment, resources and capabilities are all interconnected and used in a program called “One Ford” to give them a global competitive advantage. One advantage from

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Strategic Fit of the Firm Assessment

using “One Ford” was the implementation of product standardization. Product standardization reduces Ford’s manufacturing and material costs below their competitors. Ford also uses an Aligned Business Framework called (ABF). ABF is a strategic purchasing model between Ford and its suppliers. ABF was established in 2005 to increase future collaboration, phased-in upfront payment of development and engineering costs, sourcing and data transparency. Ford’s “One Ford” program was implemented globally to help the company operate more efficiently and obtain economies of scale. An example is, from the internal information gathering from the “One Ford” program it was decided that the Ford Focus would be sold globally without product differentiation. Since the Ford Focus appeals to global markets, the cost savings in standardization gives them a (lower cost) competitive advantage in the automobile market. Another way Ford uses “One Ford” is in their Value Chain system. By examining Ford’s Value chain system, which is made up of Product Planning and Design, Raw Material Extraction, Logistics and Transportation, Supplier Parts Manufacturing, Stamping and Assembly, Sales, Service, and End of Life (vehicle trade-in), it is apparent that this is Ford’s primary competitive advantage. Michael Porter explained that, “by exploring different activities, and most crucially, the linkages between them it is possible to gain a sense of the organization’s main capabilities” (Grant, R. M., & Jordan, J., 2012). Ford has two major categories of business activities within their value chain: primary activities and support activities. Ford’s primary activities are material handling and warehousing, stamping, production and assembly to make the final product, communication and pricing. Support activities are purchasing of raw materials, supplies and corporate assets, technological inputs, human resource management and labor/employee union relations. Ford analyzes and measures their value chain by using internal cost analysis, internal differentiation analysis and vertical linkage analysis. I suspect the preferred measure is the 3

Strategic Fit of the Firm Assessment

vertical linkage analysis (Ford calls it “materiality analysis” which prioritizes the most significant issues in their value chain) because it’s the costs among external suppliers and value evaluated and delivered to customers using surveys and repeat purchasing data. Customers reported that they most valued vehicle safety and human rights affecting communities, investors and consumers where Ford has production, stamping and assembly facilities.(corporate.ford.com, 2014) The “materiality analysis” is used as a guide to understand how they can satisfy customers, cover costs and realize profit. Ford’s business strategy validates the strategic frame because their frame’s geographical strategy is that it competes globally and the vertical scope is products that can be purchased by dealerships, vehicle financing and their vertically integrated supply chain system. It’s obvious that they all interconnect. An example would be that in 2012 – 2013, financial issues had been at the highest level of importance to Ford and external stakeholders per materiality analyses. But due to Ford’s strong and consistent improvements in financial performance and the implementation of programs such as “One Ford”, “ABF” and new technology called ®EcoBoost the financial issues are no longer the highest concerns. (corporate.ford.com, 2014)

The Strategic Fit with the Goals and Values of the Firm Ford’s goals are defined in a four-point business plan. They are as follows: 

“Aggressively restructure to operate profitably at the current demand and changing model mix

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Accelerate development of new products our customers want and value

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Finance our plan and improve our balance sheet

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Work together effectively as one team” (corporate.ford.com, 2014) Ford’s goals, strategy and business plan all establish direction, create unity and empower

members of the organization to achieve its goals. The “One Ford” program is mandatory for

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Strategic Fit of the Firm Assessment

all employees to follow. The success of the program can be seen and felt threw increased sales and profit sharing. “Last year the average hourly employee earned a bonus of $6,900. For the year 2014, Ford reported global earnings of $3.2 billion.” (Priddle, A., 2015). Ford’s values consist of “high-quality, fuel-efficient products that make customers’ lives better” (corporate.ford.com, 2014). I like that Ford values high quality first because if they build high quality products, it should increase sales, and please shareholders and stockholders. By evaluating Ford’s Sustainability Report, I can understand that Corporate Social Responsibility (CSR), is very important to them because it aligns with their business strategies of low cost and differentiation competitive advantages. By having high quality vehicles and rewarding employees for their successes, it balances stakeholder and stockholder needs. Since CSR creates a competitive advantage for firms, which leads to greater market share, CSR can differentiate a company from its competitors by engendering consumers and employee goodwill (McWilliams & Siegel, 2001).

Cost Leadership Value Chain Resources JIT Systems Inbound Logistics Product Planning Raw Material Extraction Supplier Parts Manufacturing Stamping and Assembly Sales

Capabilities Quality, Standardization, Distribution, "One Ford" Operations Management, Scheduling, Order Entry and Stock keeping Research and Development, Engineering, Design Steel, Glass and Plastic contracts

Service End of Life

Collaboration, ABF Quality Control, Production Control, Engineering Marketing, Dealer Support, Ford Credit Warranties, Customization, Lease and Purchase Programs, Service Agreements, Parts Sales Dealer Trade-in, scrap

Diversification Resources Collaboration Technology

Capabilities Update Software such as Azure, Implement New Technology Wi-Fi, Audio-Systems, Navigation Systems, Fuel Efficiency, Eco-Friendly

The Strategic Fit with the Resources and Capabilities of the Firm 5

Strategic Fit of the Firm Assessment

The chart below is from the perspective of the competitive strategy, identifying resources and capabilities that are most aligned with the Cost Leadership and Diversification Strategies. Ford can use the value chain approach to identify sources of profitability and internal costs. An example would be to determine the portion of the total cost of the product attributable to each value creating process. A way to examine using differentiation under the value chain approach would be to identify processes attributed to Ford’s products verses its competition. Emphasizing customer values. (http://www.imanet.org) Ford leverages its resources and capabilities by utilizing programs such as “One Ford” and ABF. By striving for product excellence, constant innovation and engaging employees to convey diverse perspectives, Ford can “Go Further by working together as one team, leveraging skills across the globe, valuing, including and respecting each other and, in doing so, achieving profitable growth for all.” (corporate.ford.com, 2014) Ford can most likely sustain their competitive advantage by continuous improvement, collaboration, their value chain and diversification. Giving coherence to projects to allocate resources and “Go Further” with their strategies. I think there are some issues about the fit of some resources and capabilities in regards to sustaining their competitive advantage. An example is a failed partnership with Japanese auto parts supplier, Fujikura Ltd. (Young, A., 2013) In 2013 Ford sued Fujikura Ltd. for conspiring to fix the price of electrical components. Ford said, “an international cartel” of auto parts suppliers forced the maker of the F-Series pickup truck and the Focus sedan to “pay substantially higher prices for wire harnesses than it would have paid absent the conspiratorial conduct.” (Young, A., 2013) This type of supplier ethics goes against Ford’s ABF (Aligned Business Framework) program which is their strategic purchasing business model that was launched in 2005. It’s a business model between Ford and their suppliers. The agreement was established to increase future

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Strategic Fit of the Firm Assessment

collaboration, phased-in upfront payment of development, engineering costs, sourcing and data transparency. Hopefully the publicity of the lawsuit will prevent future suppliers from this type of unethical practice. But as profits shrink with more competition and new entrants this may happen again. Another issue is how long can existing resources support a larger volume of business? This is an unknown, but I can go from past working experience and say this, “There’s no way to predict how long something will be sustainable because things always change. New competition, natural disasters and depletion of resources happens.” A way Ford may be able to sustain their competitive advantage is with an ongoing value chain analysis. By gathering data, evaluating and communicating information, the analysis can help managers and give direction for future programs and decisions to help maintain competitive advantages.

Organizational Structure & Management Systems Ford used to use a functional strategy called Total Quality Management (TQM) to improve product quality. (TQM) focused on improving the quality of an organization’s products and stressed that all organizational value-chain activities should be directed toward this goal. TQM was good but need to be improved. In 2010, Ford realized that TQM had too much waste and switched to Quality Operating System or (QOS). QOS identifies and corrects problems within the manufacturing facilities and reduces waste. Ford has also implemented Six Sigma and QOS in each plant. All plant management, engineers, production specialists, skilled trades are required to be trained in Six Sigma and QOS. “To make the process work even better, Ford is working with Wayne State University in Detroit to aid all UAW Ford reps in becoming Six Sigma Black Belts.” (Scheid, J., 2011) Since Six Sigma's inception, Ford has saved about $1 billion in waste elimination globally. Year-over-year 7

Strategic Fit of the Firm Assessment

savings worldwide was $359 million last year. Moreover, customer satisfaction has risen five percentage points (Smith, K., 2015) Based on the savings, I think it’s safe to say Six Sigma has been successful. Preliminary Findings and Conclusions Porter suggests that organizations should re-evaluate their value chain and concentrate on the operations that they can do best. Other processes should be ‘out-sourced’ to specialists. I agree with this especially since there are experts and Tier 1 suppliers that need to be involved for the value chain to stay competitive. Six Sigma and “One Ford” appear to be what is driving the success of Ford Motor Company. Some threats would be complacency and lack of effort. From my working experience it seems that everyone is all on-board in the beginning of new processes but without effectively engaging, managing and or rewarding team members for their efforts I can see where this system may become weak and the advantages that were once present faltering. A strength is engaging the Union Leadership at Wayne University to train them in the Six Sigma and have the Union to work jointly with management to make Ford a high-quality automotive manufacturer that makes fuel efficient products and makes customers’ lives better. Hello Kelly, Your assessment of Ford analyzes and synthesizes the fit of the firm and strategic elements and argues issues and explains them. It addresses the current allocation of resources and key capabilities to functions and the value chain and addresses current management systems in support of the capabilities that execute the strategy. Your writing is both scholarly and business professional. Both indicative of your expertise communicating at the executive level. Dr. DeFazio #1 Strategy-Goal Fit - Distinguished #2 Strategy-Resources & Capabilities Fit - Distinguished #3 Structure & Systems Fit with Capabilities - Distinguished #4 Ethical Issues - Distinguished #5 Strategic Issues Firm’s Capabilities, Structures, & Systems – Distinguished 8

Strategic Fit of the Firm Assessment #6 Communications – Distinguished

Reference: Priddle, A., (2015) Ford workers to get $6,900 in profit-sharing checks, Referenced from: http://supplychain.unglobalcompact.org/site/article/50http://www.freep.com/story/money/cars/ford/2 015/01/29/ford-fourth-quarter-earnings-profit-sharing/22513967/ http://corporate.ford.com/microsites/sustainability-report-2013-14/blueprint-value.html http://www.imanet.org/docs/defaultsource/thought_leadership/management_control_systems/value_c hain_analysis_for_assessing_competitive_advantage.pdf?sfvrsn=2 Scheid, J., (2011) TQM and Ford Motor Company, Referenced from: http://www.brighthubpm.com/methods-strategies/72279-tqm-and-ford-motor-company/ Smith, K., (2015) Six Sigma at Ford Revisited, Retrieved from: http://www.qualitydigest.com/june03/articles/02_article.shtml

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