Essay, exam case "FORD"
Organizational Structure (EBP670C05)
Rijksuniversiteit Groningen
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Ford – Driving to succeed
Exam Case
Content
- Introduction.................................................................................
- Strategy
- Structure
- Internal environment
- External environment
- Results
- Strategic recommendations
- Structural recommendations
- Conclusion
organization has made a lot of innovations, such as rear seatbelts, child-proof door locks and optional front. In the late 20th century, Ford also acquired Aston Martins and Jaguar Cars. Later on, in the beginning of the 21st century, Ford faced a lot of challenges due to higher fuel prices, a bad economy and high healthcare costs. In 2005 they created a new plan, The Way Forward, developed by Mark Fields in order to return Ford to profitability. This plan contained giving up inefficient models, closing factories, strengthen production lines and cutting jobs. However, Ford had the largest annual loss in 2006, with an amount of $12. billion. Nonetheless, in the second quarter of 2007 Ford made a profit of $750 million; nevertheless, at the end of the year it reached a loss of $2 billion. In 2008, Ford had a record loss of $14 billion, this was caused by the financial crisis and the insurance of debt of Ford. In 2006 Alan Mullaly became president and CEO of Ford and developed a new strategy to return Ford to profitability: “The One Ford Plan”. Applying the new strategy, Ford reached annual profits and regain increased market shares. Since 2014 Mark Fields is the CEO of Ford.
Ford’s strategy:
The following paragraph presents and analyzes Ford’s strategies and links the company’s actions to the theories mentioned in the book “Organisation Theory” written by P. Robbins and Neil Barnwell. A few years ago, Ford published a new strategy, which consists of four key priorities which build the „One Ford Plan“: - “Aggressively restructure to operate profitably at the current demand and changing models - Accelerate development of new products our customers want and value - Finance our plan and improve our balance sheet, and - Work together effectively as one team, leveraging our global assets” 1
Each of these key points contains important parts of Ford’s strategy including, for instance, manufacturing, product development, etc. By referring this content to different strategies
1 corporate.ford/doc/ar2013-2013_ford_annual_report_mr.pdf, p.
mentioned in the course book “Organisation Theory”, one can apply these to describe and summarize Ford’s actions.
Classifying organizations into strategic types - Miles and Snow
The analysis published by Miles and Snow distinguishes organizations among four different types: - Defenders - Prospectors - Analyzers - Reactors
Although it is very difficult to clearly dedicate Ford’s strategy to one of these types, the model, which fits best, is the prospector. This strategic type implies that an organization emphasizes on product innovation and searches for new market opportunities. Therefore, the company has to be very flexible and decentralized units are required. The second point mentioned in “One Ford Plan” (“Accelerate development of new products our customers want and value” 2 ) states that the organization develops new products continuously. After changing their strategy due to a loss of market share and profitability a few years ago, Ford focused on being more innovative and developing new car models as well as technology. Until now, the company does not stop being creative: for instance, in 2014/2015 they will launch “an all-new Mustang” 3 as well as an “all-new F-150”. 3 These cars will be equipped with advanced technology and special features, e. 360-degree camera view, LED headlights and side view mirror spotlights, etc. Moreover, Ford’s strategy includes an approach to sustainability, which makes the company stand out from its rivals. The development of so-called “EcoBoost engines” is described as the “centerpiece of [...] Ford’s Blueprint for Sustainability.” 4 Apart from these improvements, Ford also searches for new market opportunities worldwide. In doing so, Ford does not only focus on mature markets, but also on newly developed and emerging markets. By adding the Lincoln MKC to the Lincoln line-up, one of Ford’s brands which is part of a small premium segment, the
2 corporate.ford/doc/ar2013-2013_ford_annual_report_mr.pdf, p. 13 3 corporate.ford/doc/ar2013-2013_ford_annual_report_mr.pdf, p. 14 4 corporate.ford/doc/ar2013-2013_ford_annual_report_mr.pdf, p. 15
suppliers, and as a result, reaches a “preferential access to raw materials”. 6 Taking all these factors into account, Ford is an example of following a cost-leadership strategy.
Linking global strategy and structure – Bartlett and Goshal
Bartlett and Goshal developed a theory, which emphasizes on the “interaction of cost pressures found in the market with the pressures for local responsiveness” 7. These two factors are critical to dedicate Ford’s actions abroad to one of the following strategies: - International strategy - Multidomestic strategy - Global strategy - Transnational strategy
Considering the different theories, Ford mostly adopts a global strategy. Ford published an annual report 2013 which highlights its “hub and satellite approach”: There is a product development in the engineering center, the hub, which creates cars with “common design, parts, suppliers, and manufacturing processes” 8 to ensure global scale and efficiency. Additionally, Ford introduced regional engineering centers, which help to distribute these cars by modifying them while retaining the global design. These actions demonstrate that Ford can sell its cars in most markets just with little adaption to customer’s preferences. In general, the company faces a high cost pressure but in contrast, the pressure for local responsiveness is comparably low; therefore, Ford locates its key activities in markets where it brings the highest cost advantage.
Structure
Ford’s new developed One Ford Plan strategy as discussed above includes features that lead to restructuring. Their main goals involved developing new products, ensuring customer satisfaction, improving their finance plan and working more effectively in a team. Therefore Ford rearranged their structure to enable better success.
6 Organisation Theory 5th edition – Stephen P. Robbins, Neil Barnwell, p. 162 7 Organisation Theory 5th edition – Stephen P. Robbins, Neil Barnwell, p. 164 8 corporate.ford/doc/ar2013-2013_ford_annual_report_mr.pdf, p. 13
Horizontal differentiation
First of all, developing new products has the consequence of scanning the environment to develop results for demanded products. Afterwards, specialised teams need to transfer the developed ideas into actual products or, if necessary, improve already existing outputs to fit the demands. This step can evolve many different areas of specialisation and the variety of operating departments is needed. This led to a spread of divisions in order to enable overall specialised knowledge at each department and fast and effective work groups. To facilitate this method, extensive use of rules is necessary. Ford successfully assembled a high number of divisions all responsible for parts of the production. Research revealed that a certain target group commands more luxury car designs. To enable this, Ford concentrates more on their Lincoln division, which is responsible for Fords upscale vehicles. The Ford Automotive Brand and the Lincoln Automotive Brand are the two main brand carriers and offer many additional services for customers. Those divisions mainly consist of additional service provided to customers, such as: - Ford Motor Credit Company - Ford Service - Quick Lane Tire & Auto Center - Ford Parts and Motorcraft - Ford Accessories - Ford Extended Service Plan (ESP) - Lincoln Accessories - Lincoln Extended Service Plan - Lincoln Automotive Financial Services
This variety of division leads to a high horizontal differentiation of the Ford Motor Company. Division of labour guarantees high specialisation and allow conspicuous service and quality.
Vertical differentiation
Improving their finance plan and their working skills among their employees are changes that have an effect on the entire company. These decisions are made by the headquarter, whereas day-to-day decisions are made by lower management levels. Ford exhibits high centralisation to ensure fast reactions to changes and avoid disagreements amongst different departments. The clear flow of control is streaming from the CEO to vice-president
therefore efficiency will decline; however, this violates one of Fords most important strategies, low-cost and efficiency seeking. Another difficulty arises with communication and coordination among units. This often appears to be problematic and can be responsible for economic blockades. If the division for the Ford Extended Service Plan needs to act jointly with the division for Lincoln ́s Extended Service Plan, miscommunication due to different regulations and guidelines can end in breakdowns. The structure of the Ford Motor Company adapts because of the strategy they follow in order to enable maximum success in persuading them; however, some structural characteristics disagree with important strategies.
Internal environment
Organizational culture
The culture of Ford is participative and it has an open communication system. Fords culture is adaptive in nature. The managers of Ford care for their employees, customers and stockholders. To the company, the employees are very important, including their opinions. Beside that, it is important to work together as one team to gain influence on decision- making. Ford focuses on the development of a skilled and motivated work force, while providing a safe and respectful environment. By doing so the invest in their employees to create a friendly and welcoming work environment, while also improving their technical and communication skills. Those innovations help Ford’s management to work more effectively and goal-oriented. They make use of these aids to understand the employees needs and satisfy those if possible. To measure the employees satisfaction within the company, Ford lets its employees participate in an annual survey, the Global Pulse and Engagement (Pulse) survey. The results are included in Fords business plans. One important goal for senior management is to improve those Pulse scores.
It is also important that employees stay enthusiastic about the company, as this will reflect in their performance and will attract new motivated an talented operators. Employees and managers have to communicate in open and clear ways. Ford tries to achieve this communication by setting up 'town hall' meetings, joint labor-management committees, surveys and chats. These are examples of interactive forums. Ford also uses publications such as newsletters and the Ford magazine to create a bond of the company and connect their personnel. Further connection is accommodated through social media.
One Ford
The One Ford strategy is about having One Team, One Plan and One Goal for an active and viable company. It provides logical goals and expectations for employees with a sharp focus on their skills and behaviors.
One Ford concentrates on educating and training their employees to enable adequate qualifications. Furthermore appropriate behaviors and attitudes need to be adapted to add to the company’s success. Four general key goals have been defined in One Ford, which must be observed by all staff members: - Creating a pleasant place to work - Developing a capable and effective work force - Aligning the organizational structure with their global business footprint - And providing “people-related” processes to support their work force.
Power control
The ultimate decision power of Ford resides in the hands of top management, although employees are free to give opinions.
Knowledge management
Knowledge management is creating new products and ideas by capturing, developing, sharing and effectively using organizational knowledge. Ford uses the approach of the Best Practice Replication. This approach arose in the 1980's. One employee from every plant of the Ford Company was chosen and grouped into one team. Visiting all plants, they observed production improvements and created a list of recommendations, which was captured and shared with all excising plants. The ideas and
production suppliers from around the world. Because Ford has a lot of suppliers, it reduces its dependence on one or a couple of suppliers. In improving their information system, Ford is using big data analytics internally to develop and help transform its business results. Ford has collected customer feedback and by means of the internal data, Ford can predict how their cars can be improved by adding new features in their designs. Therefore they are now able to upgrade their processes, quality controls and costumer satisfaction. The geographic dispersion of Ford is mostly in the Asian Pacific African region. This region includes 11 markets for Ford. Fast developing countries are growing markets for cars. In this region, Ford has increased (and is increasing) its dealer networks and manufacturing capacity.
External environment
As every company, Ford has to deal with its external environment, which is, in this case, very
complex as well as versatile. At first, in order to describe Ford’s environment, it is important
to define the meaning of environment: although there is no short and clear definition of
environment, one can consider that an environment of a company is defined as everything
outside an organizations boundaries. To measure Ford’s external environment, the theory of Paul Lawrence and Jay Lorsch are examined. These researchers consider that there are two types of environments, internal and external environments. According to Lawrence and Lorsch, the external environment should be measured by the organizations uncertainty.
While some organizations face relatively stable environments, with no new competitors and
a really stable market, others companies face a very dynamic environment, with rapidly
changing market situations and unpredictable price changes etc.
Markets
Ford Motor Company is a MNE, which stands for a multinational enterprise. Thus, Ford is an organization that is operating worldwide and consequently, it is difficult to judge about Ford’s entire market environment. However, one can say that Ford’s market environment is diverse. For instance, a market like Russia and the Netherlands completely differ because of having different competitors, customer preferences, market stability and containing a
different degree in budget capacities. Each of Ford’s division has to deal with other market environments, where the uncertainty, complexity and the stability of the market contrast. In a certain country, Ford might have to deal with big fluctuations in demand and an instable government policy. Nevertheless, Ford’s home country, the USA, is a relative stable market with a stable government policy and a relative stable demand.
Competitors
The automobile industry contains multiple (international) car manufacturers. However, Ford is the number four of the biggest car manufacturers worldwide and operates in five different continents. In each continent, and of course in each country, Ford faces different competitors. At its home market, Ford’s biggest competitors are General Motors and Toyota. In contrast, a market like China has a complete different competitor situation, where Ford has a comparative small market-share and has to deal with many competitive Asian rivals. Besides the difference in competitors, Ford also has to deal with new competitors who enter the market. Hence, Ford is operating internationally and moreover, the market situation in each country differs. Factors like competitors, stability, uncertainty, demand and customer preferences etc. contrast worldwide. Anyway, Ford’s global market situation could be defined.
Ford`s external environment
Due to the high competition in the automobile industry, firms have to be cost-efficient and
innovative in order to survive on the long-term. Thus, the products have to be inexpensive
and, simultaneously, made of a good quality. Besides that, customers expect a good after-
service and in the end a sufficient trade-in value. All these high requirements lead to a high
degree of competition.
Fords external market is very complex. Because of all the different countries it is operating in, Ford faces a lot of different market situations and circumstances. As a consequence, it is hard to define Fords market situation due to its diversity.
After having considered the market competition and the market complexity, the market
(un)certainty of Ford is important as well. Firstly, Ford has to cope with a lot of factors that
influence its consistence, which makes its market and existence uncertain. The Ford
Corporation faces a very dynamic environment; there are rapidly changing technologies,
organization states that they want to continue establishing in China, Ford should prioritize this course of action to fully exploit its market potential. In order to minimize the risks due to the market’s volatility as well as the risks of a bankruptcy of suppliers, Ford should reduce the number of its production suppliers. In 2013, they have a total number of 1,200 suppliers while seeking to have a global base of 750. The organization aims to have a “stronger and healthier supply base”; hence, Ford should evaluate the suppliers’ reliability, ascertain who are critical for the company’s survival and chose which one they should eliminate. This process should be accelerated to cut the risks faster. All in all, one can say that the strategy improvements of Ford were successful in the past; there are only few recommendations to support their strategy further on.
Structural recommendations
Recommendations to overcome these obstacles require slight changes in the organizational structure. Once again these improvements are connected to the strategies Ford tries to materialise. As mentioned before, Ford operates in 29 different countries spread all over world; however, they neglect local preferences and have more than enough confidence in their already developed products. Considering the major loss they made in 2006, which arose due to lacking satisfaction of costumers, assimilations must be considered. To improve local responsiveness, Ford should recognise, that adjusting their instantaneous structure to a more decentralised one will improve their effectiveness in foreign markets. Ford already possesses multiple divisions, which makes it easy for them to transfer more authority to each of them. Correspondingly, the divisions would not rely on the decision making of the CEO and could adapt to local preferences. This change is linked to the growth of the organisation. When the decision makers realise that dividing their power on the different divisions will be responsible for a more successful international career of their company, they might act figuratively in favour of their own organisation. This structure would open many new possibilities regarding developing new prototypes suitable for the correspondent country. Even though this structure disaccords with the current strategy, Ford should consider improving it. Small adjustments would be necessary in the strategy; however, this is only productive and would upgrade Ford’s entire new concept.
Tightly linked to the decentralisation, Ford needs to take a look at their communication system. Many divisions work parallel; however, will not communicate with others. However this can help as ideas of improvements can be shared. Another very positive side effect is the perception of the employees. With the current structure, staff members might only identify themselves with their division of the company; however, it is important that they are integrated and sympathise with the entire company, as this are the basic requirements for the long-term success.
Conclusion
This report clearly shows, that Ford put a lot of effort in adjusting their current strategies and structure to fulfil global expectations and regain profitability. In general Ford Motor Company is a well functioning organisation, which operates worldwide; however, slight recommendations on their current strategies and structure, such as focusing on the Chinese market and generally adapting to more local preferences, should be applied.
Essay, exam case "FORD"
Vak: Organizational Structure (EBP670C05)
Universiteit: Rijksuniversiteit Groningen
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