Founded in 1903 by Henry Ford and a group of 11 investors, the well-known Ford Motors Company had its modest origins and began its history in a Detroit factory that produced a few daily vehicles.
The company quickly made a difference by putting into practice a variety of actions both at the production and employment levels which would transform the automobile industry and place Ford at the forefront of technological innovation. During the years 1980 and 1990 Ford looked for the international expansion through the acquisition of emblematic marks like Jaguar, Aston Martin, Land Rover and Volvo as well as a participation in Mazda. This was the trend in the industry whereby it was tried to keep production costs low and achieve market diversification.
From 2007 to 2010, due to the Great Recession, the company sold all its luxury brands, closed 13 plants and fired more than 50,000 employees in order to reduce their capacity. From that moment, Ford focused mainly on returning profitability to the company. Under the leadership of CEO Alan Mulally was developed the One Ford Plan began to launch more products in fewer platforms and renewed the families of older vehicles by integrating technological improvements to increase the number of buyers, returning the desired profitability.
At the start of 2016 Ford began its transformation to a solid automotive and Mobility Company, at that time Jhon Casesa was hired as Vice President of Global Strategy of the Group, delivering the mission to defend the new mobility strategy, known as Smart Mobility. So the team came up with the Dynamic Shuttle project, which consists of a bus or van that could be accessed through the user’s mobile phone and sent to the requesting customer’s location. The prices of the service should be located between the services of massive transport and the services of taxi or taxi of higher level (Uber, Ola and Lyft). The Casesa team chose India as the market that met the requirements to implement the first Dynamic Shuttle pilot, since there is often a demand for public transport that exceeds capacity. Casesa’s focus would then be on evaluating the possible five partner candidates with whom Ford could partner in order to carry out the Dynamic Shuttle in India.
In this case study, the characteristics of the automotive industry will be presented from the beginning of the 20th century to the present, comparing and contrasting the differences in their evolution, going through the different strategies used throughout history. As part of this study I will focus specifically on the different strategies that have been raised by the Ford Company as a result of the changes that the industry has had to face. Since its origin applying cost leadership through the wide differentiation which emerged as a result of the success of GM who in 1927 surpassed Ford and became the largest manufacturer of the moment. Then we will see the implementation of the One Ford plan accompanied by a generic strategy of wide differentiation and reaching the present where the expansion with the aim of becoming an automotive and mobility company.
Then we make a comparative table where the different options that Ford has when it comes to partnering in order to carry out the Dynamic Shuttle in India are evaluated. According to the weights of each company, it turns out that Ryderz would be the best commercial partner for the Dynamic Shuttle program.
Secondly, the mobility industry will be analysed, evaluating the main drivers of the industry as well as what are the key success factors for competing rivals. Then a brief analysis of the performance of Allan Mulally as CEO of Ford will be developed and what were the changes of strategy that he applied from his beginnings leading a company with big financial problems until the same one guided by his action resumed the road of success.
Finally, a critical analysis of the horizontal strategy of diversification will be carried out evaluating here plus and minus the different strategic attempts and according to these results the author will recommend to the Ford company as a strategic plan the association with a local company in order to implement the Dynamic Shuttle in India, providing a list of pro and cons that lead to discard the rest of the options.
The automotive industry had its birth formally in the early twentieth century, at that time was when the production of automobiles began in a massive way this happened thanks to the development of the production line of Henry Ford. However we can say that despite relative youth is one of the most complex in the modern economy, the main reason for this is the large number of ways in which companies that participate in the industry compete.
In the beginning the production scheme provided by Ford was through a single model in order to cover the majority of the market, one of its main objectives was to lower production costs to the maximum, it was in this way that the T model arrived to be one of the best selling cars in automotive history (Autofácil n.d.).
During the decade of the seventies a prolonged period culminated where the capitalist economy after the Second World War grew. In this context we can say that one of the central tendencies was the advance of globalization, this led to the fact that in the most advanced and industrialized countries there were radical changes in the industries given that competition increased. The result of these changes was the emergence of a model known as flexible production. This model leaves behind the traditional Fordism model which was characterized by standardized production, use of specialized machinery, low-skilled workers, large corporations based on foreign direct investment and multinational plants with a centralized structure (Medina 2002).
In accordance with (Coriat & Domínguez 2015) the model in which a mass production was carried out, did not achieve the objectives of maximization of profit and optimization of productive models, despite the fact that the levels of productivity reached during the era of Fordism were very high. The principles of this new model are flexibility both in production and in the work force, the decentralization of functions as well as processes that are not a central part of the production process, thus promoting subcontracting, continuous improvement and the company’s relations with the environment (Medina 2002).
The automotive industry should handle more than one trend at the same time. Initially it should continue to evolve according to the current market, this includes rationalization of production, growth in emerging countries, commercialization of hybrid vehicles. But on the other hand it will have to face the revolution and the great change that supposes the great advances that are manifesting in the field of mobility.
The revolution is given by the appearance of electric vehicles, but the real change, although it is already largely arriving through shared cars, will mainly occur as a result of vehicles driving, connectivity and digitalization of vehicles (‘Global Automotive Executive Survey 2016’ 2016).
Ford Motor Company is currently ranked as the sixth largest automaker in the world (meses 2018) backed by a strategy of intensive growth and in addition to this its generic strategy of competitive advantage is aligned. But this has not been the case over time, but Ford’s generic strategy has evolved.
Initially Ford’s generic strategy was cost leadership, this generic strategy supports the commercial competitive advantage based on low prices and cost reduction in order to attract more customers. During the early 1900s Ford had a vision and this was to make cars accessible to all working-class Americans. To achieve this goal, the company developed the assembly line method in order to minimize costs and increase productivity. Ford achieved its goal using this strategy.
However, this did not protect the company from the competition and in 1927 General Motors overtook Ford and thus became the largest US car manufacturer. (GM Historical Timeline n.d.). GM’s generic strategy at that time was broadly differentiated, managing to offer its customers an extensive range of vehicles. At this time the situation had changed, wages were higher and they began to value more style and design instead of just low prices.
By implementing the One Ford plan, Ford moved its generic strategy to highlight differentiation by competitive advantage. The company began to launch more products on fewer platforms, and renewed the families of older vehicles with technological improvements designed to win new buyers (Thompson 2018). While still maintaining its cost leadership strategy, the company migrated towards the generic strategy of broad differentiation to compete against companies such as GM or Toyota.
Finally, we have to see Ford’s long-term vision according to (Customers and Products – Sustainability Report 2016/17: Ford Motor Company n.d.) It is not just about selling more cars, but about improving the quality of life of people by changing the way they move. In 2016, the One Ford Plan was updated in order to better reflect the business needs of the company. The new strategy is based on expansion to become an automotive and Mobility Company that seeks opportunities for merger through Ford Smart Mobility and aim to be a leader in connectivity, mobility, autonomous vehicles, customer experience and data and analysis. Another main objective is to improve and transform the way in which consumers interact with the company (Thompson 2018).
Figure 1 – Competitive Strength Assessment for the Ford’s Prospective Partners in Implementation of the Dynamic Shuttle. Project Rating Scale: 1 = very weak; 10 = very strong
A complete assessment of a company’s competitive situation can help managers make critical decisions about their next strategic moves (Thompson 2018) in this case I can say that the weightings and classifications of each company in each category are subjective. The above table indicates that Ryderz is the strongest potential partner for Ford to implement the Dynamic Shuttle project, which is compatible with the partner criteria presented in the case. Ryderz would be the best commercial partner for the Dynamic Shuttle program as a result of the evaluation of the competitive force. In general, they are the best option in terms of their superior customer strategy, need for invested capital and reputation for flexibility and convenience.
According to the research carried out, some of the main drivers of the mobility industry could be:
From the Social/Demographic point of view, we have that according to the World Health Organization more than 50% of the world population lives in urban areas and it is estimated that by 2050, 70% of the world population will live in towns and cities (WHO | Urbanization and health n.d.). This increase in the world population and the growth of urbanization as well as the increase in levels of quality of life will have a direct impact on the mobility industry.
Analysing the economic factor we can see that according to (Oecd 2014) agricultural production will maintain its tendency to increase especially in emerging economies which could counteract the inherent seasonality of the industry.
With respect to technology, we can observe that one of the most important factors is that the tendency is to increase the dependency on innovation in order to reduce costs, connect with consumers through mobile applications and social networks, increase the returns of the vehicle, increase the security it provides (this is the case of smart and autonomous vehicles), and comply with environmental regulations (example of this is saving fuel and minimizing carbon emissions) (WEF_White_Paper_Technology_Innovation_Future_of_Production_2017.pdf n.d.).
The presence of subsidies for mass transit, the laws governing the collection, use, storage and transfer of data, taxes and revenues, legislation and global regulation are some of the changes or impacts from the Government/Political point of view could have an impact on the development of the mobility industry (DUP Future of Mobility ES WEB (00000002).pdf n.d.)
Competition, vehicle platform standardization activity among higher level companies, driven by pressures to globalize activities throughout the value chain and locate production to reduce transportation costs; potential reprisals from taxi companies, liveries, ferries or buses.
Key success factors for rivals competing in the mobility industry include:
Trusted Brand, take advantage of the use of a reliable brand or other resources that improve differentiation.
Build quality, it is a way to achieve full customer satisfaction.
Value, one of the main causes of success in any market is the value perceived by customers.
Performance, extent in which the entity has achieved its strategic objectives.
Global presence, plan the expansion of the business activities of the company to different regions of the world.
Differentiation via technological innovation, strong technological skills such as advanced algorithms necessary to provide customers with the best driving routes.
At the time that Mulally assumed as CEO of Ford in 2006, the company was in a very difficult situation. At that time the losses had reached 25% of its market, in addition to this the company had a portfolio of brands that included Land Rover, Aston Martin, Jaguar and Volvo of which none of these were doing well.
In the first instance Mulally established a plan called One Ford in order to recover the leadership of the company. This plan had four main points:
– Aggressively restructure Ford to operate profitably to current demand and change the model combination.
– Accelerate the development of new Ford products that customers want and value.
– Fund the plan and improve the balance of Ford.
– Work together effectively as a team.
There are, in my opinion, three major factors that differentiate Mulally’s performance as CEO. First, it generated for Ford a vision as a mobility company, accepting that the future was not only about the production of cars and trucks but about the technology that could be included within them.
Secondly, I believe that Mulally created a sense of responsibility and collaboration within the company, he turned the executive meetings into a safe place for the members, where the data could be revealed without remorse, thus improving the collaboration.
Finally, one of the causes of the success of his management, contrary to what the innovators would recommend, was the fact of developing new products in the lines that the buyers had already appreciated some time ago. It was so that the Fiesta, Focus and Taurus models were redesigned (Can Alan Mulally save Ford? – May. 11, 2009 n.d.).
When we talk about the horizontal scope of a company like Ford we are referring to the range of segments of products and services that it provides within its focal market, and that is very considerable given its presence in the automotive industry. Horizontal mergers and acquisitions usually have five objectives: to reduce costs, expand geographic coverage, add product categories, obtain new technologies or other resources and capabilities and prepare for the convergence of industries.
Increasing the horizontal scope of the company can generate a strengthening of the business and increase its profitability in the following ways: optimize the efficiency of its operations, increase its product differentiation, reduce market rivalry, increase the bargaining power over suppliers and buyers, and improve their flexibility and dynamic capabilities (Thompson 2018).
Ford is apparently strong in each of these areas but I will present table 1 for an adequate evaluation of horizontal diversification anyway.
Table 1 – Appraising Ford’s Horizontal Diversification Strategies – Smart Mobility
For a diversification movement in a business to be successful you must pass the following three tests:
Attractiveness test, for this we will perform the analysis of the five Porter forces which results in:
- The bargaining power with suppliers is low. This is mainly due to the ease with which drivers and vehicles can be replaced.
- The threat of new participants is low. This happens because government regulations limit the number of licenses granted to companies.
- The bargaining power of buyers is low. The existence of regulations that regulate pricing for taxi trips eliminates the option for buyers to force prices.
- Regulated prices also kept the rivalry between the owners low.
After carrying out this analysis, we can conclude that the company successfully passes the attractiveness test.
Secondly, we will analyse the results of the entry cost test, for this we must see how high the cost of entering the target industry exceeds the potential for good profitability. From what we have seen in the case we can conclude that this test is also successful since the option of partnering with a local company has been taken and this is the least expensive option at the investment level.
Finally we have the best proof, here the diversification must offer potential so that both the new business and the existing one work better together. I think that this test is also positive given that there are few risks that Ford has when associating with a local company to implement Dynamic Shuttle.
As we can see in Table 3, a summary of the pros and cons of each specific strategy possible for Ford has been developed, as a result of this study, my personal opinion about the different options focuses on recommending Ford to consider the alliance or association strategic with the local company chosen. The reason for my decision is that I think it would be the best option to implement the Dynamic Shuttle program since it would reduce the scope of the operations carried out by the company (mainly Ford is dedicated to manufacturing vehicles) at the same time I consider capital costs would be reduced given the option to subcontract many of the operations in India.
On the other hand I consider that the ride-hailing industry has experienced in recent years very important technological advances, which is why I believe that a strategic alliance would be essential to take the pressure off the company to keep up with the latest technologies. In this way, share learning, technological knowledge and understand how to adapt sales and marketing approaches to local culture and traditions.
By partnering with a local company Ford can benefit immensely from your familiarity with local government regulations, the knowledge of consumer buying habits and product references, distribution channel relationships, etc.
A joint venture is one more alternative for Dynamic Shuttle, in any case that would indicate giving its partner a bigger share in the Dynamic Shuttle’s benefits. It would risk for the reason that creating a joint venture would imply setting up a new business entity. If the Dynamic Shuttle fails, the new firm could suffer large losses and damage to the parent company, Ford Motors.
Table 2 – Evaluation of Strategic Options for Ford’s Dynamic Shuttle Program
The world automotive industry has always been in a continuous change, however in a few periods of history it has been observed a pace as fast as the current one. It is expected that for the coming years there will be a predominance of autonomous driving trends, the production of electric vehicles will skyrocket and connectivity will expand.
On the other hand the Global Automotive Manufacturers must make difficult and transcendent decisions. The automotive industry is currently struggling against the fundamental economic factors of an intensely competitive business with huge capital requirements and that will have to adapt to new technologies in order to remain in force.
Ford Motors Company has been one of the pioneering companies in innovation in the automotive industry, over the years its mission and vision have been evolving but maintaining the slogan “to offer smart mobility solutions in the right place and at the right time, and transform the way people move, as Henry Ford did when the company started in 1903”.
As for the strategies used by the company, they have also adapted to the different situations faced by the industry, having today ceased to be just a company that manufactures vehicles to adapt to the circumstances and present itself as a mobility company. As of today, Ford’s main objective is to become the most reliable mobility company in the world according to the words of William Ford, Jr., Executive Chairman of Ford to achieve this the focus is on the development not only of new technologies if not to improve the quality of life of people.
On the other hand, technological advances are one of the main drivers of the mobility industry, and this revolution in terms of mobility will transform the way we access work, medical care, education and much more.
The Dynamic Shuttle project arises as a result of evolution in Ford’s strategy, added to the changes in the preferences of citizens who need to be transported daily. The implementation of this project demonstrates how Ford is using its knowledge of the product and added to this the experience of the service of mobility through software, offering customers a unique and innovative experience in terms of travel.
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WEF_White_Paper_Technology_Innovation_Future_of_Production_2017.pdf n.d., viewed 2 June 2018, <http://www3.weforum.org/docs/WEF_White_Paper_Technology_Innovation_Future_of_Production_2017.pdf>.
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