Company Ford: Core Competencies and Strategies

Ford Motor Company Strategy Background

Ford Motor Company is a strategically revolutionary and technologically innovative automobile company founded in the year 1903 and quickly became the first of its kind to use distinctive techniques such as moving assembly lines and conveyor belts in manufacturing and human resource management practices by pricing products that can be bought by its workers with fair and standard wage. Model-T1 is the prime example of this innovation as it set an industry standard globally for manufacturing of cars. From expanding1 its portfolio by adding different price range of cars to shrinking its portfolio by selling most of its luxury brands i.e. Premier Automotive group1, Ford has always changed its strategy because of the highly volatile external environment in over the last century as well as in current times. Following vision and mission statement appropriately describe the company’s competencies and core objective.

The Vision Statement of Ford Motor Company- “People working together as a lean, global enterprise to make people’s lives better through automotive and mobility leadership.”

The Mission Statement of Ford Motor Company- “One team. One plan. One goal.”

Competitive Strategy of Ford Motor Company

Ford’s competitive strategy has significantly changed in the last 115 years. Ford’s core business has seen a shift from just producing vehicles using a cost-leadership strategy to ‘Smart Mobility’ wherein the company is not just limiting itself to its core business but extending its brand to be more like ‘technological’ companies rather than just a manufacturer of a finished product. Ford’s strategy is not only limited to be a cost-leader but has a variety in their portfolio of offerings such as Lincoln brands which are positioned at premium pricing. Their product offerings attract various types of customers on their affordability level. Ford’s modern competitive strategy is based on ‘One Ford Plan’1 which basically has four main components which include reverting Ford back to profitability which was hindered because of Great Recession during 2008-20093, meet customers demands by increasing the speed for development of prospective products, improve the financial position of the company and finally better teamwork . These changes were made to deal with the fast-changing global environment where Ford is not only competing with automobile giants but technology companies, ride-sharing application companies, Mass-transit systems, Metro systems (New rail systems in Indian metropolitan cities ) and local taxi-services.

Ford’s Core and Distinctive Competencies

Ford’s Core competency was their production techniques to achieve economies of scale to better their profits and their core efficiency to react to the influence of changing external environment. Their core competency since then has changed to suit the needs of a growing external environment. The current Core competency of Ford includes strong brand recognition, their relationship with rivals and ‘One Ford Plan’. Their distinctive competency is their intensive strategy of growth by shrinking their portfolio using different cost reduction techniques.

Porter’s Five Forces in Relation to Ford’s International Growth Strategies

These five forces will reflect the level of impact on Ford’s business by external factors in the automobile industry.

Competitive Rivalry: This force is the strongest external factor in case of Ford as automobile industry has strong competition and very low exits (high exit barriers) due to high investments3 and costs of the firms that are already in the automobile industry. Competitors such as GM, Toyota and will continue to innovate and differentiate to achieve market share which is the result of this force being too strong. As the rivalry intensifies, the goal is to achieve enough market share for the firm. Other potential rivals and partners include Uber, Ola, and other mobility services. Dynamic Shuttle in India will incur strong competition from Ola because of its strong presence and affordable fares and aggressive tactics.

Bargaining Power of Buyers: Ford has a strong cost leadership strategy where their product offerings are different for different regions, but the segment of low pricing is full of competitors.1 This gives a strong bargaining power to the consumers as the car is a big investment. This force is strong because switching costs are not high and plenty of substitutes such as Tata and Toyota are available in India. 1 Dynamic Shuttle’s pricing is set premium compared to Mass-transit, it may be a strong force in that matter as there is options available to buyers. To overcome this issue, Ford must conduct aggressive marketing of its offering in India and other potential markets when it launches.

Bargaining Power of Suppliers: Bargaining power of Ford’s supplier seems to be weak as Ford’s strategy is to be a cost leader which requires Ford’s suppliers to be exclusively making their ‘supplies’ or ‘parts’ for Ford. 3 For ‘Smart Mobility’ there will be significant change to suppliers bargaining power, it will be strong in this case as ‘Dynamic Shuttle’ will be truly successful where there is congestion in transportation system.

Threats of Substitutes: This force can be both moderate and strong for Ford as there are many substitutes for Ford cars such as ride-sharing applications, taxi, public transportation, Bicycle, etc. Companies such as General Motors, Toyota, and Tata for their mid-range cars and other luxury competitors for Ford’s luxury Lincoln brand.

The threat of new Entrants: There are several barriers to entry for new companies to enter the automobile industry such as achieving economies of scale requires high investments, acquiring brand recognition requires aggressive marketing and brand development. This force is weak for Ford, but it is still considered as a threat because there is potential of innovation from new automobile start-ups that could just enter the market on the opportunity of creating and offering something new in the market or just imitate it. Ola is imitation of Uber in India, but Uber adopts techniques for Indian markets from Ola’s decision such as acceptance of cash payments which is better suited for Indian population.

PESTEL Analysis of Ford

In this section, a PESTEL Analysis for Ford in relation to India as a potential environment for a test pilot of ‘Dynamic Shuttle’ is done because it is more appropriate to the subject matter in the case. Subject matter specifically in relation to the opportunities and threats in the Indian market and potential of application of success of this model in the markets such as China. Biggest threats in both China and India are the going to be local competitors. In Exhibit of the case Uber’s reach in India seems to be overshadowed by Ola’s penetration of the entire Indian market which is a threat to Ford’s “Dynamic Shuttle”.

Political Factor

Ford’s international strategy to move into Indian mobility is complimented by several favorable conditions such as political stability and increasing ease of doing business under PM Narendra Modi, whose BJP government party has majority seats in the parliament making the government more centralized. ‘One ford Plan’ will require a political environment where the government encourages technological innovation for more flexibility in the urban transportation system. Politics also plays an important part in fuel prices, inflation and access to credit to its population. These factors will influence Ford’s plan in the all markets it expects to enter.

Economic factors

Since the passing of recession in 2008-09, Ford has revamped their product offering by making them technologically updated and launched them in fewer platforms to focus on disposable income available with potential customers to provide them with best-value offer by reducing cost. Recession and global financial crisis has not yet threatened Ford’s future as it has bounced back with changes by either making changes to its products, reducing its pricing, shrinking its portfolio and by continuously adapting. But requires decentralisation in decision-making.

Social Factors

These factors are one of the most important attributes that define customer wants and preferences. As there is shift of requirements towards fuel efficiency, electric vehicles and affordability because fuel prices are rising, environmental concerns are becoming more relevant to customers. Ford must create a strong brand image in such areas by investing more on sustainable practices of both manufacturing and reverse logistics.

Technological Factors

Ford has always been at the forefront of the innovation of new technology or adapting new technology for complete mobility solutions and services. Technological innovations like driverless and electric cars will need more factors. Ford’s Capabilities on acquiring enough financial capabilities can be seen in their cost minimization techniques using economies of scale 7Rising trend in smart-phone use is one of those market directions that Ford needs focus on.

Environmental Factors

Climate Change, low-carbon foot prints and concerns for sustainability are the trends that Ford needs to focus on by offering fuel efficient, environmental friendly product offerings. Issues regarding natural environment are becoming more relevant due to high pollution levels in countries such as India and China. Ford’s “Dynamic Shuttle” should include an action plan for sustainability in India to reduce carbon footprints.

Legal Factors

Changing legal requirements are one of the biggest concerns in Asian countries as the need for environmental protection has risen so are the regulations but this is an opportunity for Ford to brand itself as eco-friendly and as a caring company. Better Intellectual property right laws will result in an opportunity for Ford to patent its new technology or innovation.

Ford’s Net Profit Margin (For Cost Minimization) and Working Capital (To cover Operations)

Ford’s revenues are mostly from automotive section of sales because their cost leadership strategy (generic strategy) which can be seen in the table below where there is an upward trend in net profit margins which means cost minimization has always been an essential component in their strategy even there was a dip in 2014 but they improved in 2015. This can become a problem if they keep focusing on cost minimization, they might be compromising on quality. 1 Ford needs to focus on their working capital which will help them in meeting their operating expenses for the future. Improving the Balance Sheet by strengthening their financial arm either by acquiring assets or reducing liabilities.

Analysis tool 2013 (millions of $) 2014 (millions of $) 2015 (millions of $)

Profit After tax 7,155 3186 7,373

Sales 149,917 144,077 149,558

Net profit margin (in %) 4.87 2.21 5.15

Above table was calculated from the Income Statement of Ford Provided in the Case.

Working Capital 2013 (millions of $) 2014 (millions of $) 2014 (millions of $)

Current Assets – Current Liabilities (in millions of $) (-) 33,122 (-)6,158 16,359

Above table was calculated from the Balance Sheet of Ford Provided in the Case.

Recommendations

Ford’s position in the market has always been cost-leadership but they have adopted broad differentiation cost strategy to be different from their competitors. Following are some of the suggestions that Ford can do for a successful launch of “Dynamic Shuttle” in India,

• Change their portfolio again by reducing possible combinations of ordering options by focusing on upgrades customers usually get for their cars.
• My Analysis shows that Shuttlex seems like a better partner based on scalability.
• For the threat for rivals, Ford should act on their capabilities as they already have their manufacturing facilities in Chennai and Gujarat which are wholly owned subsidiary of the Ford Motor Company.
• Decentralisation in organisation structure by ethnocentric approach to business will help Ford in capturing the Indian market. The Ethnocentric approaches will help in putting techniques that are locally fruitful.
• A joint venture with an Indian start-up whose capabilities match with Ford must be selected as partner for “Dynamic Shuttle”. Capabilities such as research about the Indian market because of Indian firm’s experience will help in reducing costs on research and development. But the different issues will arrive from organisation structure compatibility of two organisations. Ford’s organisation structure seems to be rigid because of a legacy image attached to the company’s management where decision making is centralised.
• Improve Balance Sheet by acquiring more assets.