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Group Case Analysis 1 Liberty University BUSI 400-D10: Strategic Management April 13, 2020

FORD MOTOR COMPANY

2 Introduction

Executive Summary Ford Motor Company started with Henry Ford[ CITATION Des19 \l 1033 ]. Since then, it has become one of the largest manufacturers of vehicles in the world. This case analysis is a very thorough report of Ford Motor Company by educated researchers that used purely factual information to piece together vital information to show the position the company is in. Included in this report is a basic breakdown of the company and its values, a SWOT analysis, Porter’s 5 Forces analysis, the current financial standing of the company, and strategies to put the company in a better position along with keeping the values of the company’s founder. Vision Statement A company’s corporate vision statement can be used as a tool to direct strategic goals and to influence internal and external factors that are detrimental to the success of the business. The vision statement could be used as a tool to motivate employees during performance evaluations and to influence external stakeholders. In the article, “A longitudinal study of the relation of vision and vision communication to venture growth in entrepreneurial firms”, Baum and his colleagues chose not to define vision in advance, but to accept the term as each individual leader defines it (Baum, 1998). A vision statement ultimately explains the leadership’s vision and destination of where they see the company in the future. “Ford’s vision statement is “to become the world’s most trusted company, designing smart vehicles for a smart world” (Thompson, 2019). To be the world’s most trusted company in the industry the products have to be dependable. When customers can depend on the brand they trust and reply on being able to go back to the company when purchasing again. The “designing smart vehicles for a smart world”

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may appeal to a particular audience that believes technology advances will bring new ways to prevent environmental hazards of automobiles. Ford ranks in the top five in the automobile industry. Ford’s vision statement declares their objective clearly. However, it fails to provide a vision of what it will look like once they accomplish their goal. A vision statement should be future-oriented and provide a sense of what the company values to those both inside the company and out. It is essential to include a more strategic direction of the industry in the vision statement. Mission Statement “The Ford Motor Company's official published mission statement has changed over the past few years, which is not surprising since the U.S. auto industry has changed dramatically in the past decade” (Farfan, 2019). Ford’s mission is ultimately to accomplish its vision. The mission statement should explain the strategic direction and the competitive advantages that it has over others in the industry. Ford’s corporate mission is “to make people’s lives better by making mobility accessible and affordable”. “The corporate mission statement is descriptive enough to guide strategic management in terms of what Ford’s business does and should do, and aligns with the corporate vision statement” (Thompson, 2019). However, the mission statement could be improved by including the company’s target markets, mobility technologies, and business philosophy and values as one of the leading companies in the automotive industry. Objectives and Strategies The vision and mission of a company will set the tone and influence each and every element down the chain. After these two components are defined, the objectives can be named and the strategies to attain the objectives created. A business who names its objectives without establishing a strategy is doomed from the start. There would be no direction and no clear path,

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leaving the managers out of sync and confused. Objectives provide employees with a vantage point and an end goal to work towards, serving as evaluation points as well. Attempting to implement strategies without any objectives is impossible and will lead toward a never-ending trail of frustration as managers and executives plan towards the unknown. Strategies provide workers a perspective in which to move forward and complete work. They set the course for which the company will go about achieving the objectives. Current Objectives Ford’s first listed objective is to insistently reorganize to function lucratively at the existing demand and fluctuating vehicle assortment. The company is aiming to make drastic changes within its infrastructure to increase profits while keeping pace with consumer desires. The second objective listed is to quicken progress on bringing fresh vehicles to market, vehicle maintenance, and customer service that customers crave and value. Ford has always been among the top motor-vehicle manufactures in the United States since the company was begot. Such success can sometimes cause complacency and can require setting new goals and objectives to kick-start back into gear. Ford’s third objective is to fund the strategy and sustain a sturdy balance sheet. Businesses are in business to make money and cannot operate at expected capacity without a steady and reliable cash flow. The final objective listed by Ford is to “work together as a team” (Dess, McNamara, Eisner, & Seung-Hyun, 2019, Case 17). Ford wants executives, managers, salesmen, assemblers, service technicians, and everyone in between to come together and feel like they are a part of something good.

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Current Strategies Ford defined three strategies centered around fortifying, transforming, and growing business. According to Dess, McNamara, Eisner, and Seung-Hyun (2019), Ford’s strategies were: Fortifying the automotive “profit pillars” of trucks, vans, commercial and utility vehicles… Transforming the underperforming vehicles in developed markets through redesign; focusing on the needs of emerging markets… Growing investments in emerging opportunities, especially in electrification, autonomous vehicles, and mobility services. (Case 17) Ford has reinforced the importance on its large automotive lines as they have been a source of strong profits within its past. Whilst its trucks have performed admirably, the smaller vehicles have struggled to keep up with competition from other companies. The future of Ford will be secured if they can successfully invest in the technology of tomorrow.

FORD MOTOR COMPANY

6 External Analysis

SWOT Analysis Figure 1 shows the internal and external factors influencing the market opportunities for Ford Motor Company. This SWOT analysis highlights some of the main factors that may be affecting the profitability of the company and will be discussed in detail in this section. Figure 1. SWOT Analysis for Ford Motor Company

Strengths  Equity 

Internal

Position 

Weaknesses

Global Brand

  Markets  Strong Market China  Income   Research and Pickup Sales

Product Recalls Dependence on U.S. Declining Sales in Declining Net Poor Reputation Heavy Reliance on

Development 

Global Supply



Operational

Chain

Network  Adaptability Opportunities New Automotive

E t

 Technologies  Digital Marketing Ford’s Strengths - Internal Strategic Factors

  Raw Materials

Threats High Competition Increased Prices of

1. Global Brand Equity – Ford is a well-known brand in the automobile industry and is also recognized in the global markets because of its success in marketing and advertising. Its brand value is $18.5 billion according to a recent annual report on the world's most

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valuable and strongest brands ("Brand Finance Global 500", 2020). Strong brand equity has resulted in consistent performance as well as a strong competitive advantage. 2. Strong Market Position – An established market position enables the company to secure opportunities in the market and meet customer demands. The United States is the biggest market for the Ford Motor Company, and its sales in this region have remained strong. The company generated over $98 billion in revenue in the 2019 fiscal year from conducting business in North America, up from around $96.6 billion in 2018, while revenue declined in markets outside North America, most notably in Asia and the Pacific region (Wagner, 2020). 3. Research and Development – Ford’s research and development is one of its key strengths because the company is committed to developing new products, and trying to improve the performance of their vehicles, including fuel, efficiency, safety, and customer satisfaction. In recent years, Ford’s focus on research and innovation has grown more intense, investing in autonomous driving and electric vehicles. Its research and development costs rose to $8.2 billion in 2018 (Pratap, 2019, April 16). 4. Global Supply Chain – An automotive business depends upon a strong supply of raw materials, and Ford has a strong global network of suppliers that support its operations around the world. Its global supply chain has providers from a large number of countries in regions including the Americas, Asia, Europe, Middle East and Africa. In addition, the company focuses on sustainability and human rights in its supply chain. 5. Operational Network – Ford manages manufacturing and assembly facilities, warehouses, distribution centers, sales or administrative offices, and engineering centers in 62 countries across the world ("Ford SWOT analysis", 2019). These substantial

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operational network and strategic partnerships enable the company to expand its reach and reduce costs. Ford has a network of 9,800 dealers worldwide, giving it true global sales and service capability. 6. Adaptability - Ford has a wide product and services portfolio which gives them strong leverage and less dependency on just one product range. Their products include small, medium, large, premium sedan cars, trucks, buses, vans, full-size pickups, sports utility vehicles (SUV), and vehicles for the medium/heavy segments. Ford’s Weaknesses 1. Product Recalls – Product recalls and other operational issues add costs to the company and affect its reliability and brand image. Ford has faced huge losses from a variety of issues, including recalling 830,000 Ford and Lincoln vehicles in 2016 to replace faulty side door latches, and Takata airbags due to safety failures the following year. In September 2018, Ford recalled approximately 2 million F-150 pickup trucks to fix a seat belt defect that could actuate vehicle fires. “These recalls affect the crown jewel of Ford's lineup and are expected to cost approximately US$140 million for the company” (“Ford Motor Co”, 2018). 2. Dependence on U.S Markets – Ford is highly dependent on the U.S market, accounting for around 60% of the net revenue of Ford motors in 2018. Experts predict that the majority of future car sales will come from emerging markets such as China and India, however, Ford’s position in Asia is not strong enough to reduce its dependence on the US market. 3. Declining sales in China – China has become the leading automotive market of the world, and the weakening position of Ford Motors in China is an important concern for

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the brand. Over the past three years, sales of Ford vehicles in the Chinese market have continued to fall, from 1.3 million units in 2016, to 1.2 million in 2017, and then to 0.8 million in 2018. Continuously falling sales in the leading automotive market of the world presents a grave concern for Ford (Pratap, 2019, April 17). 4. Declining Net Income – Net income of Ford Motors went through a major decline in 2019 versus the previous two years. Ford’s net income declined from $7.73 billion in 2017 to a mere $47 million in 2019 (“annual income statement", 2020), which could be attributed to several reasons including currency headwinds and growing prices of raw materials as well as decline in overall unit sales. “Higher commodity costs, unfavorable exchange rates as well as higher spending due to product recalls also caused this decline in net income” (Pratap, 17 April, 2019). 5. Poor Reputation – Ford has a poor reputation compared to its European and Japanese rivals. “Lincoln, in particular, is considered an inferior brand as compared to English and German luxury car brands” ("Ford SWOT analysis", 2019). 6. Heavy Reliance on Pickup Sales – Pickups have limited appeal outside the North American market ("SWOT Analysis of Ford Motor Company", 2016). Ford’s Opportunities – External Strategic Factors 1. New automotive technologies – such as self-driving or autonomous cars. These could increase demand for new models and sales, and the publicity-generated could also increase interest in car purchases. In 2017, Ford invested $1 billion in artificial intelligence company, Argo AI, to develop its self-driving technology (Biggs, 2017). 2. Digital Marketing – Digital marketing offers great opportunities for the vehicle brands, and Ford can use digital technologies for marketing and branding as well as for customer

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engagement, as well as for supply chain management. This could also be used to increase e-commerce, which could grow the demand for light commercial vehicles that are used for delivery, such as the Transit Connect work van. 3. Expanding Markets – Ford should focus on growing market share in other regions, particularly in expanding economies like India, China, and Mexico. 4. Partnerships – Partnering other brands can also help Ford extend its global presence and its sales and distribution channels throughout the globe. Ford’s Threats 1. High Competition – The company operates in a highly competitive environment, and Ford is already facing cut-throat competition from its rival companies like Toyota, Tesla, General Motors, and Honda. Industry overcapacity has led manufacturers to offer incentives on vehicles to maintain and grow market share, and all the major competitors are investing heavily in research and innovation, as well as marketing. 2. Increased Prices of Raw Materials – The fluctuations in the prices of raw materials could increase the cost of operation at Ford, affecting its financial performance. Ford uses steel, copper, lead, aluminum, resins, and platinum group metals as raw materials. In addition, the company’s manufacturing facilities rely on natural gas, electrical power and other energy sources. 3. Regulations and compliance – The compliance and regulatory threats for automobile brands have increased in the past years because of environmental improvements. The company’s operations are subject to safety, fuel economy, emissions, and other regulations, and Ford can face serious challenges if it fails to comply with the new regulations.

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Porter’s Five Forces The auto industry is an industry in which name and reputation matter. Because of this, the threat of new entrants is weak, due to external factors such as the exorbitant cost and risk associated with entering an established industry of this nature, as well as operating costs and brand development costs (Yin, Ansari, & Akhtar, 2017, p. 138). However, the threat of new entrants is still something to be considered in the pursuit of innovation and competitive advantage. Tesla is an excellent example of a company that entered the automotive industry and has rapidly gained prestige. In fact, David Teece noted in his article that “Tesla has garnered a market capitalization of the same magnitude as that of GM or Ford, suggesting that it's seen by investors as part of a new ‘Big Three’” (Teece, 2018). In addition, as electronic vehicles become increasingly popular, with few large manufacturers, the threat of entry may increase, as entrepreneurs see a gap in the industry. Because of this, it is imperative that Ford Motor Company be innovative and futuristic in the approach to design and technology. The bargaining power of buyers presents a moderate risk to Ford. External factors such as switching costs, availability of substitutes and quantity of purchases are moderate forces that customers are presented with when decisioning a purchase. Although switching costs can be a factor for buyers, intensive marketing campaigns often present motivation for buyers to switch to a competitor. “Bandwagon consumers are concerned more with group affiliation, conforming, and fitting in and less about the price” (Ali, Xiaoling, Ali, Sherwani, & Muneeb, 2019, p. 834). Due to the motivations and influences on buyers, Ford must be intentional in marketing campaigns and focus on a target audience, as well as customer retention. The bargaining power of suppliers presents a moderate risk to Ford. External factors such as the moderate quantity of suppliers, as well as the increased complexity of supplies

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needed, substantiate the moderate risk of bargaining power of the suppliers. “Although automobile manufacturers initially produced most of their components themselves, increasing product complexity and decreasing margins led to a gradual change in strategy” (Lettice, as cited in Vazquez, Sartal, & Lozano-Lozano, 2016, p. 323). The increase in innovation and technology has resulted in a greater need for suppliers, in an effort to protect the profitability of Ford. With this knowledge, suppliers may use this to their advantage and drive a hard bargain when negotiating contracts. The threat of substitute products and services presents a moderate risk to Ford. External factors such as the increase of popularity in ride-share services, fluctuating gas prices, and an increasing concern for the well-being of the environment contribute to this moderate risk of potential substitutes. As consumers find other cost-effective modes of transportation, utilizing services such as Uber and Lift, the risk of a lack of new-vehicle purchases increases. In fact, author Eliot Martin makes the case that “customers who originally want to buy cars may turn to the car-sharing service, which decreases the number of car owners” (Ke, Chai, & Cheng, 2019, p. 12462). This is certainly a growing market that Ford will want to consider when considering manufacturing and marketing environmentally friendly vehicles. A final threat to consider is the intensity of rivalry among competitors in the automotive industry. When considering external factors such as the substantial number of reputable companies in the automotive industry, the tendency to imitate, and the high exit barriers, the intensity of rivalry among competitors poses one of the highest threats on Ford. Ford is in competition against some extremely innovative companies. In addition, due to the high exit barriers, most companies would rather be aggressive in competition than close their businesses. This aggressiveness often results in marketing campaigns in which competitors are called out by

FORD MOTOR COMPANY name or directly attacked. Ford will want to adopt a futuristic approach in innovation, while anticipating customer needs.

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FORD MOTOR COMPANY

14 Internal Analysis Table of Ratios

Annual data Current Ratio Quick ratio Account Receivable Inventory turnover ratio Equity Ratio-debt ratio Net profit margin Return on Assets Earnings per share Times interests earned

2016-12-31 1.20 1.10 2.65 17.06 3.20 3.03% 1.93% $1.16 8.60

2015-12-31 1.25 1.14 2.66 17.98 3.14 4.93% 3.28% $1.84 14.26

2014-12-31 6.73 6.33 1.55 18.31 4.88 0.85% 0.58% $0.31 2.55

Current Ratio Current Ratio is a liquidity ratio which is used to measure the ability of a company to pay its short-term liabilities using its current asset. Current ratio is determined through calculati...