Internal and external environment of ford motor company

Case Analysis

CASE 17

Ford: No Longer Just an Auto Company?

Pauline Assenza

Helaine Korn Naga Lakshmi Alan B. Eisner

Copyright Anatoli Styf/Shutterstock

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Ford Icebreaker

How many of you own, or have ever had responsibility for the upkeep of a car made by GM, Ford, or Chrysler?

What is your opinion of this vehicle?

How many of you would consider buying a Ford in the future?

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Ford Discussion Questions

1. What are key forces in the general and industry environments that affect Ford’s choice of strategy?

2. What internal resources and assets does Ford have that may give it a competitive advantage?

3. How should Ford compete?

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Ford Intro: Strategy Concept

Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages, and has these key attributes:

Directs the organization toward overall goals and objectives

Includes multiple stakeholders in decision making

Needs to incorporate short-term and long-term perspectives

Recognizes trade-offs between efficiency (cost) and effectiveness (performance)

Primary role of the organizational leader to articulate vision, mission and strategic objectives

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Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. Strategic management has certain key attributes. Leaders face a large number of complex challenges. Leaders must be proactive, anticipate change and continually refine changes to their strategies. This requires a certain level of “ambidextrous behavior,” where leaders are alert to opportunities beyond the confines of their own jobs, and are also cooperative and seek out opportunities to combine their efforts with others. Leaders must make strategic management both a process and a way of thinking throughout the organization. The primary role of the organizational leader is to articulate vision, mission and strategic objectives.

Ford Intro: Hierarchy of Goals

Exhibit 1.6 A Hierarchy of Goals

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The primary role of the organizational leader is to articulate vision, mission, and strategic objectives.

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Ford Intro: Strategic Vision

Company vision

Massively inspiring

Overarching

Long-term

Driven by and evokes passion

Fundamental statement of the organization’s

Values

Aspiration

Goals

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Leaders must communicate their initial vision of the organization’s purpose: What was the original goal that evokes a powerful and compelling mental image of a shared future, one that would be massively inspiring, overarching, and long-term, representing a destination that is driven by and evokes passion?

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Ford Intro: Strategic Mission

Mission statements

Purpose of the company

Scope of operations

Basis of competition and competitive advantages

More specific than vision

Focused on the means by which the firm will compete

Reflects an organization’s enduring, overarching strategic priorities and competitive positioning

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The organizational mission also needs to be considered: A mission encompasses both the purpose of the company as well as the basis for competition and competitive advantages. In writing a mission statement, it is important to understand the definition of the business: 1) Who are its customers? 2) What customer need is the organization trying to fulfill? 3) How does the business create and deliver value to customers and satisfy their needs? Organizations must respond to multiple constituencies if they are to survive and prosper, and the mission provides a means of communicating to diverse organizational stakeholders. Although vision statements tend to be quite enduring and seldom change, a firm’s mission can and should change when competitive conditions dramatically change or the firm is faced with new threats or opportunities.

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Ford Intro: Strategic Objectives

Strategic objectives

Operationalize the mission statement

Provide guidance on how the organization can fulfill or move toward the mission and vision.

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Anticipating that things might change, an organization’s leadership must then establish strategic objectives to operationalize the mission statement. That is, objectives help to operationalize the mission statement with specific yardsticks, and provide guidance on how the organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision.

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Ford Stakeholder Dependencies

Dependencies among all stakeholders:

Parts suppliers, unionized workers, car dealerships dependent on car companies

Local communities dependent on tax income

Local businesses dependent on consumer spending

State & government entities afraid of a burden on social systems if any of this failed

2009 bailout by U.S. Congress

Shareholders needed to be kept happy as Fields continued to experiment and innovate.

A clear, focused message was necessary.

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Although not in the case, the discussion over the fate of the auto industry in early 2009 clearly demonstrated the dependencies among all stakeholders. Parts suppliers, unionized autoworkers and car dealerships were all dependent on the car companies’ ability to produce cars that would sell; local communities were dependent on the tax income from dealerships and parts suppliers; local businesses were dependent on the continued ability of employees to spend money; state and government entities were afraid of the burden on social systems if any of this failed. Stockholders and the overall U.S. financial system were dependent on a somewhat predictable future. This is why the government felt it had to act to bail out General Motors and Chrysler in March 2009 by loaning them enough money to stay afloat. All the U.S. automobile-related industries had an obligation to act in good faith and accept the government’s terms. Although not needing this loan, Ford’s CEO Mulally had to develop a sound strategy and give clear guidance. For an overview of this event, see http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm Going forward, with the threat of competition not only from General Motors, Fiat/Chrysler and the Japanese, Korean and German automakers, but also from Tesla, and even Apple, CEO Fields had to be careful to keep not only customers, suppliers and employees focused on the automotive products, but also keep shareholders happy as he continued to experiment and innovate with his idea to solve transportation and mobility problems in cities across the globe. Could Fields craft a clear, focused message, expressing a cohesive narrative or game plan that made sense to all?

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Ford Intro: Strategic Management

Strategic Management involves

Analysis

Strategic goals (vision, mission, strategic objectives)

Internal and external environment

Decisions - Formulation

What industries should we compete in?

How should we compete in those industries?

Actions - Implementation

Allocate necessary resources

Design the organization to bring intended strategies to reality

How can Ford create a sustainable competitive advantage in the marketplace that is not only unique and valuable but also difficult for competitors to copy or substitute?

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During strategic analysis, the leader does “advance work” to anticipate unforeseen environmental developments, identify unanticipated resource constraints, assess changes in his or her preferences for how to manage. During strategy formulation, the organization addresses the issue of how to compete in a given business to attain competitive advantage. Strategies are formulated at the business, corporate, and international levels. Entrepreneurial initiatives may also play a role. In strategy implementation, depending on the type of organization structure, the leader might include key individuals in a discussion around selecting which strategies might be best to implement at which level within the organization. The leader must ensure proper strategic controls and organizational design, and establish effective means to coordinate and integrate activities within the firm as well as with suppliers, customers and possible alliance partners. Leaders should also be committed to excellence and ethical behavior while promoting learning and continuous improvement. Here’s where innovation is important. The basic question strategic management tries to answer is: How can we create competitive advantages in the marketplace that are not only unique and valuable but also difficult for competitors to copy or substitute?

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Ford External Environment

Q1: What are the forces in the external environment that affect Ford?

External Scanning

Surveillance of a firm’s external environment:

Predict environmental changes to come

Detect changes already under way

Proactive mode

External Monitoring

Track evolution of:

Environmental trends

Sequence of events

Streams of activities

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Organizational leaders must become aware of factors in the overall environment that might affect their ability to create a competitive advantage. So how do managers become environmentally aware? By doing scanning, monitoring, and gathering competitive intelligence, and using these inputs to develop forecasts. This prepares the firm to do more extensive analysis of the forces in the general environment and the industry or competitive environment. Environmental scanning involves surveillance of a firm’s external environment to predict environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint of the industry/competition, looking for key indicators of emerging trends – what catches your eye? Alerts the firm to critical trends before changes have developed a discernible pattern and before competitors recognize them. Environmental monitoring is a firm’s analysis of the external environment that tracks the evolution of environmental trends, sequences of events, or streams of activities. Leaders need to monitor the trends that have the potential to change the competitive landscape – what do you want to track? Firms need to CHOOSE the trends identified via the scanning activity, and regularly monitor or track these specific trends to evaluate the impact of these trends on their strategy process.

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Ford General Environment

The general environment is composed of factors that are both hard to predict and difficult to control.

Technological

Economic

Global

Demographic

Sociocultural

Political/Legal

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What factors or trends might be most important to Ford? To assess how the external environment might affect Ford’s strategy, it’s necessary to take a look at the factors in the general external environment. Ford must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to deliver its products and sustain its business. See which factors in the general environment we might pick that have a significant impact on the automobile business.

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Ford Five Forces Analysis

Segments of the competitive environment include:

Competitors

Customers/Buyers

Suppliers

Sometimes called the task or industry environment

Porter’s five forces model

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It’s also necessary to assess the segments of the external competitive environment that include competitors, customers, and suppliers, substitutes and new entrants. Porter’s five forces model allows strategists to anticipate where the industry might be most vulnerable.

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Ford Internal Analysis

Q2: What internal resources and assets does Ford have?

Value-Chain Analysis:

Sequential process of value-creating activities

Amount that buyers are willing to pay for what a firm provides them

Value measured by total revenue

Firm profitable to the extent the value it receives exceeds the total costs involved in creating its product or service

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When one firm outperforms others by a wide margin over a long period of time, it’s important to figure out how this could be. The answer may lie in how that firm arranges its activities and creates unique bundles of resources that allow it to sustain a competitive advantage. We should assess the relationships between the elements in Ford’s value chain. Remember, value-chain analysis is a strategic analysis of an organization that uses value-creating activities. Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price a firm’s product commands, and the quantity it can sell. A firm is profitable when the value it receives exceeds the total costs involved in creating its product or service. Creating value for buyers that exceeds the costs of production (i.e. margin) is a key concept used in analyzing a firm’s competitive position.

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Ford Value Chain

Exhibit 3.1 The Value Chain:

Primary and Support Activities

Source: Reprinted with permission of The Free Press, a division of Simon & Schuster Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985, 1998 by The Free Press. All rights reserved.

Jump to Appendix 2 for long description.

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Every activity should add value. Take a look at Exhibit 3.1 to see the value chain activities. Based on the relationships between these elements, Ford can make a choice of how to proceed to craft a competitive advantage.

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Ford Resource-Based View

Resource-Based View of the Firm:

Two perspectives

The internal analysis of phenomena within a company

An external analysis of the industry and its competitive environment

Three key types of resources

Tangible resources

Intangible resources

Organizational capabilities

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In addition, see the concept of the resource-based view of the firm, and the three key types of resources: tangible resources, intangible resources, and organizational capabilities. A firm’s strengths and capabilities – no matter how unique or impressive – do NOT necessarily lead to a competitive advantage. The resource-based view of the firm takes the perspective that firms’ competitive advantages are due to their endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute. Without these unique resources, the firm can only attain competitive parity. RBV goes beyond a SWOT analysis to integrate internal and external perspectives in a broader competitive context. RBV can reveal how core competencies embedded in a firm can help it exploit new product and market opportunities.

Ford VRIN

Firm Resources and Sustainable Competitive Advantages (VRIN)

Is the resource or capability… Implications
Valuable? Neutralize threats and exploit opportunities
Rare? Not many firms possess
Difficult to imitate? Physically unique Path dependency (how accumulated over time) Casual ambiguity (difficult to disentangle what is or how it could be re-created) Social complexity (trust, interpersonal relationships, culture, reputation)
Difficult to substitute? No equivalent strategic resources or capabilities
Exhibit 3.6 Four Criteria for Assessing Sustainability of Resources and Capabilities

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Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibit 3.6.

Ford Business-Level Strategy

Q3: How should Ford compete?

Three generic strategies to achieve competitive advantage

1. Overall cost leadership is based on:

Creating a low-cost position relative to a firm’s peers

Managing relationships throughout the entire value chain to lower costs

2. Differentiation implies:

Products and/or services that are unique & valued

Emphasis on non-price attributes for which customers will gladly pay a premium

3. A focus strategy requires:

Narrow product lines, buyer segments, or targeted geographic markets

Advantages obtained either through differentiation or cost leadership

In order to achieve a sustainable competitive advantage, Ford has to assess its ability to contend with other auto companies.

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In order to achieve a sustainable competitive advantage, Ford had to assess its ability to contend with other automobile companies. The question of how to compete in a given business to attain competitive advantage requires an assessment of the types of competitive strategies, including the three generic strategies that are used to overcome the five forces and achieve a competitive advantage. Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The overall cost leadership and differentiation strategies strive to attain advantages industrywide, while focusers have a narrow target market in mind.