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Module 6 In January 2017 Ford Motor Company celebrated a major…
Module 6
In January 2017 Ford Motor Company celebrated a major milestone as the F-Series became the top-selling truck in the U.S. for the 40th consecutive yearall told, 26 million trucks sold since January 1977. The F-Series had also been the best-selling vehicle in the U.S. for 35 years straight.1 In February 2017, the F-Series, which included the Super Duty and the all-new F-150 Raptor, hit an all-time annual sales record of 65,956 vehicles. The F-150 was named 2017’s Autobytel buyer’s choice full-size truck, Edmunds most wanted full-size truck, Cars.com best pickup truck, U.S. News & World Report best truck brand, Kelley BlueBook Best Buy truck, and the Motor Trend Truck of the Year. Commenting on these results, Todd Eckert, Ford truck group marketing manager said, “what’s made the F-Series so successful is the Ford truck team’s ability to anticipate the needs of our customers better than anyone elsehow those needs change, what’s most important, and what they need to do to move forward. Their insights help us design, engineer and build America’s best-selling trucks.” The ability to anticipate customers’ needs is crucial to any company’s long-term success, but especially in the capital-intensive, consumer-driven, globally competitive automobile industry. As the major players from Asia, Europe, and the U.S. jockey for position in the sales of traditional trucks and cars, smaller, more innovative companies such as Tesla, Elio Motors, and start-up Faraday Futures are creating concept cars that address consumers’ interests in alternative fuels, low operational costs, and self-driving autonomous designs that leave the passenger free to use in-transit time for other more productive pursuits. Self-driving cars are reported to be coming as early as 2018 to the global roadways; and in 2017 Ford Motor Company was in this business big-time, testing its fleet of 30 autonomous cars in Arizona, California, and Michigan. understandably concerned investors, Mark Fields had some significant decisions to make in the coming years. Fields had been promoted to CEO in July 2014 on the retirement of Alan Mulally, widely hailed as one of the “five most significant corporate leaders of the last decade,” and architect of Ford’s eight-year turnaround from the brink of bankruptcy in 2006.6 It was Mulally who created the vision that drove Ford’s revitalization: “ONE Ford.” The ONE Ford message was intended to communicate consistency across all departments, all segments of the company, requiring people to work together as one team, with one plan, and one goal: “an exciting viable Ford delivering profitable growth for all.” Mulally worked to a culture of accountability and collaboration across the company. His vision was to leverage Ford’s unique automotive knowledge and assets to build cars and trucks that people wanted and valued, and he managed to arrange the financing necessary to pay for it all. The 2009 economic downturn that caused a financial catastrophe for U.S. automakers trapped General Motors and Chrysler in emergency government loans, but Ford was able to avoid bankruptcy because of Mulally’s actions. Mulally had groomed Mark Fields as his successor since 2012, instilling confidence among the company’s stakeholders that Ford would be able to continue to be profitable once Mulally stepped down. Even with this preparation, CEO Fields was still facing an industry affected by general economic conditions over which he had little control and a changing technological and sociocultural environment where consumer preferences were difficult to predict. And rivals were coming from unexpected directions. Fields would have to anticipate and address numerous challenges as he positioned the company for continued success.
History of the Ford Motor Company In 2017, Ford Motor Company, based in Dearborn, Michigan, had about 201,000 employees and 62 plants worldwide. It manufactured or distributed the automotive brands Ford and Lincoln across six continents, and provided financial services via Ford Motor Credit. In 2017, it was also aggressively pursuing emerging opportunities with investments in electrification, autonomous vehicles, and consumer mobility. It was the only company in the industry where the company name still honored the vision and innovative legacy of its founder, Henry Ford. American engineer and industrial icon Henry Ford had been a true innovator. He didn’t invent the automobile or the assembly line, but through his ability to recognize opportunities, articulate a vision, and inspire others to join him in fulfilling that vision, he was responsible for making significant changes in the trajectory of the automobile industry and even in the history of manufacturing in America. Starting with the invention of the self-propelled Quadricycle in 1896, Ford had developed other vehicles, primarily racing cars, which attracted a series of interested investors. In 1903, twelve investors backed him in the creation of a company to build and sell horseless carriages, and Ford Motor Company was born.
The Automotive Industry and Ford Leadership Changes The automotive industry in the United States has always been a highly competitive, cyclical business. In 2017 there were a wide and growing variety of product offerings from a growing number of manufacturers, including the electric car lineup from Tesla Motors, self-styled as “not just an automaker, but also a technology and design company with a focus on energy innovation.” The total number of cars and trucks sold to retail buyers, or “industry demand,” varied substantially from year to year depending on general economic situations, the cost of purchasing and operating cars and trucks, and the availability of credit and fuel. Because cars and trucks were durable items, consumers could wait to replace them, and, starting in 2016, the average age of light vehicles on U.S. roads was over 11 years. Partly due to this, replacement demand was forecasted to stay fairly flat for 2017 and beyond. Any increase in sales would be aided by an improvement in the general economic situation, reduced gasoline prices, and lower interest rates for car loans. However, sales in U.S. markets had not belonged only to U.S. manufacturers for some time. In the U.S., Ford’s market share had dropped over time from almost 25 percent in 1999 to 15.5 percent in 2011,16 with major blows to market share in the light-vehicle segment. Going into 2017, although still losing ground at 14.9 percent, Ford claimed the second spot in the U.S. market, just behind GM and ahead of Toyota. Originally dominated by the “Big 3” Detroit-based car companies, Ford, General Motors, and Fiat/Chrysler, competition in the United States had intensified since the 1980s, when Japanese carmakers began gaining a foothold in the market. To counter the problem of being viewed as foreign, Japanese companies Nissan, Toyota, and Honda had set up production facilities in the United States and thus gained acceptance from American consumers. Production quality and lean production were judged to be the major weapons that Japanese carmakers used to gain an advantage over American carmakers. Starting in 2003, because of innovative production processes that yielded better quality for American consumers, Toyota vehicles had unquestionably become “a better value proposition” than Detroit’s products.17 Back in 1999, Ford Motor Company had been in good shape, having attained a U.S. market share of 24.8 percent, and had seen profits reach a remarkable $7.2 billion ($5.86 per share) with pre-tax income of $11 billion. At that time people even speculated that Ford would soon overtake General Motors as the world’s number-one automobile manufacturer.18 But soon Toyota, through its innovative technology, management philosophy of continuous improvement, and cost arbitrage due to its presence in multiple geographic locations, was threatening to overtake GM and Ford. corporate acquisition and diversification rather than new vehicle development. By the time Chairman Bill Ford had stepped in and fired Nasser in 2001, Ford was seeing decline in both market share and profitability. By 2005, market share had dropped to 18.6 percent and Ford had skidded out of control, losing $1.6 billion, pre-tax, in North American profits. It was obvious Ford needed a change in order to adapt and survive. Observers believed the Ford family would take action to prevent further losses: “Ford may need a strongman . . . a Ford characteristicthe ‘prime minister’ who actually runs the company under the ‘constitutional monarch,’ a member of the Ford family.” It was speculated that Mark Fields, named head of Ford’s North American operations in 2005, might be tapped to take that job. The Ford empire had been around for over a century, and the company had not gone outside its ranks for a top executive since hiring Ernest Breech away from General Motors Corporation in 1946.20 Since taking the CEO position in 2001, Bill Ford had tried several times to find a qualified successor, “going after such industry luminaries as Renault-Nissan CEO Carlos Ghosn and DaimlerChrysler chairman Dieter Zetsche.” Among large corporations, it had become fairly common to hire a CEO from outside the family or board. According to Joseph Bower from Harvard Business School, around one-third of the time at S&P 500 firms, and around 40 percent of the time at companies that were struggling with problems in operations or financial distress, an outsider was appointed as CEO. The reason might be to get a fresh point of view or to get the support of the board. “Results suggest that forced turnover followed by outsider succession, on average, improves firm performance.” Bill Ford claimed that to undertake major changes in Ford’s dysfunctional culture, an outsider might be more qualified than even the most proficient auto industry insider. In 2006, Alan Mulally was selected as the new CEO and was expected to accomplish “nothing less than undoing a strongly entrenched management system put into place by Henry Ford II almost 40 years ago”a system of regional fiefdoms around the world that had sapped the company’s ability to compete in a global industry, a system that Chairman Bill Ford couldn’t or wouldn’t unwind by himself. Mulally set his own priorities for fixing Ford: Ford needed to pay more attention to cutting costs and transforming the way it did business than to traditional measurements such as market share. The vision was to have a smaller and more profitable Ford. The overall strategy was to use restructuring as a tool to obtain operating profitability at lower volume and mix of products that better appealed to the market. By 2011, Ford had closed or sold a quarter of its plants and cut its global workforce by more than a third. It also slashed labor and health-care costs, plowing the money back into the design of some well-received new products, like the Ford Fusion sedan and Ford Edge crossover. This put Ford in a better position to compete, especially taking into consideration that General Motors and Chrysler had filed for bankruptcy in 2009, and Toyota had recently announced a major recall of its vehicles for “unintended acceleration” problems. Ford’s sales grew at double the rate of the rest of the industry in 2010, but entering 2011 its rivals’ problems seemed to be in the rearview mirror, and General Motors, especially, was on the rebound. Mulally set three priorities: first, to determine the brands Ford would offer, second to be “best in class for all its vehicles,” and third to make sure that those vehicles would be accepted and adapt[able] by consumers around the globe: “if a model was developed for the U.S. market, it needed to be adaptable to car buyers in other countries.” Mulally said that the “real opportunity going forward is to integrate and leverage our Ford assets around the world” and decide on the best mix of brands in the company’s portfolio. The “best mix of brands” appeared to have been established going into 2011, after brands such as Jaguar, Land Rover, Aston Martin, and Volvo were all sold off, and the Mercury brand was discontinued. Ford also had an equity interest in Mazda Motor Corporation, which it reduced substantially in 2010, retaining only a 3.5 percent share of ownership. This left the company with only the Ford and Lincoln brands, but the Lincoln offerings struggled against Cadillac and other rivals for the luxury car market. Mulally acknowledged that this needed fixing, and forecast a date of 2013 for real changes in the Lincoln lineup.29 In 2014, thanks to Mulally’s vision and perseverance, Ford maintained its position. Ford had introduced 24 vehicles around the world, including the new Mondeo in Europe, but although still profitable, net income was down $4 billion from 2013. Even though Ford maintained its number two position in Europe, behind Volkswagen, major losses had occurred in that sector, primarily due to Russian economic instabilities.
Ford and the Automobile Industry Changing Product Mix Going into 2017, the entire automobile industry was facing disruption, but this wasn’t unusual. For instance, the 2009 global economic downturn and financial crisis had a significant impact on global sales volumes in the auto industry. The once-profitable business of manufacturing and selling trucks and SUVs had changed. Especially in the U.S., oil prices had been fluctuating, making it difficult to anticipate consumer demand. In 2010, this had caused a shift in consumers’ car-buying habits, reducing the demand for large vehicles. The core strategy at Ford had centered on a change in products, shifting to smaller and more fuel-efficient cars. Ford had imported European-made small vehicles, the European Focus and Fiesta, into North America. It also converted three truck-manufacturing plants to small-car production.34 The Ford and Lincoln lines were upgraded, emphasizing fuel-economy improvement and the introduction of hybrid cars. In 2012 Ford launched six new Ford hybrid cars in North America and sold more hybrids in the fourth quarter of 2012 than during any quarter in their history. In 2014 Ford began producing its first hybrid electric car in Europe, the Mondeo Hybrid. This car was well-known to those in the U.S., being based on the North American Fusion model hybrid vehicle.
Globalizing the Ford Brand Under the ONE Ford vision, Mulally globalized the Ford brand, meaning that all Ford vehicles competing in global segments would be the same in North America, Europe, and Asia. The company was looking for a reduction of complexity, and thus costs, in the purchasing and manufacturing processes. The idea was to deliver more vehicles worldwide from fewer platforms and to maximize the use of common parts and systems. Mulally felt he had positioned Ford to take advantage of its scale, global products, and brand to respond to the changing marketplace.43 However, each year posed new challenges.
Looking Ahead Although Fields was clear that he would continue Mulally’s ONE Ford legacy, with the support and ongoing vision of chairman Bill Ford, he would by “tailoring aspects of the company to his preferences.” Going into 2017, Ford Motor Company was the seventh largest automobile manufacturer in the world, but like all others who produced a multi-vehicle lineup, Ford was facing considerable uncertainty. Global markets were hard to predict and countries were increasing regulatory requirements for safety and environmental impact. All vehicles were seeing an increase in the amount of onboard technology that required a shift in both engineering and manufacturing priorities. Worldwide manufacturers were making design changes that allowed more lean production and consolidation of suppliers, and consumers were changing how they purchased vehicles and rethinking what they wanted from the transportation experience overall. Several marked shifts in the overall landscape were occurring: the interest, worldwide, in electric or alternative-fuel. vehicles; the development of autonomously controlled cars that were also personally connected to a user who might not be the driver; the reduction in demand for actual automobile ownership in favor of rental or on-demand transportation options. These shifts created opportunities but also challenges for entrenched car manufacturers. Twenty companies were actively pursuing the development of self-driving cars in 2017, and although some of the big auto manufacturers were among them, including BMW, Toyota, Volvo, Nissan, Daimler, Audi, Honda, Hyundai, PSA Groupe, General Motors, and Ford, other technology giants such as Apple, Google, Baidu, Nvidia, and Bosch were entering the race.54 Partnerships were inevitable: GM was partnering with Lyft, Ford with Uber, which was trying out the Ford Fusion autonomous vehicle. Ford had put Amazon’s virtual digital assistant Alexa in its cars. Ford had invested in Velodyne, a company that developed lidar remote-sensing technology for self-driving cars, and in artificial intelligence software firm Argo AI. Ford had acquired an app-based, crowdsourced, ride-sharing service, Chariot. Ford had teamed up with Motivate, the global leader in bike-sharing to include the FordPass mobility network in the Ford GoBike commuting transportation option. Through its innovation and research centers, Ford was also developing strategies in fleet and data management, route and journey planning, and telematics, all in an effort to help solve congestion and help move people more efficiently in urban environments. These fundamental changes in the industry required leadership that could anticipate trends and allocate resources wisely, all while crafting a vision for the future that could inspire all relevant stakeholders to support and promote the company’s success. Alan Mulally’s “ONE Ford” slogan had helped the automaker avoid bankruptcy and return to a position of financial strength in the industry. Mark Fields’s shift seemed to be toward TWO Fords, refocusing the company into both an automaker and a transportation services provider. In October 2016, Fields had said the ONE Ford strategy was “foundational” but that the company had to “evolve.” This evolution included plans to offer 13 new electric vehicles by 2020 and a self-driving car ready for commercial use by 2021, and to experiment with ways to provide innovative solutions to transportation and mobility problems in cities across the globe. Ford had “amped up” innovation efforts inside the company, encouraging its employees to file over 3,200 patents in 2016, more than any other automaker. Unfortunately, investors were not buying this vision: Ford’s stock had fallen by about 30 percent since Mulally’s departure in 2014. Despite record earnings in 2016, investors were not sure how the new strategy would play out. One analyst pointed out what others were saying: “They have a lot of the right initiatives; they’re doing something in every box. The difference from the Mulally days is there isn’t a single message that is more than just public-relations, tying it all together.”58 Mulally’s message had been clear, focusing all efforts around a common goal and returning the company to the “basics of auto making.” Fields appeared to be positioning the company to take on rivals from other industries, and investors wondered what bike-sharing and artificial intelligence had to do with the car business. Even though the new ventures developed as part of the new Ford Smart Mobility LLC were expected to deliver margins of 20 percent or more, this financial result was not projected to occur until 2020 at least. Some thought Fields needed to “take bolder action,” expressing a more “cohesive narrative or game plan.” Could CEO Mark Fields guide Ford to success given these challenges? Henry Ford had the initial vision of disruption in personal transportation. Would the 21st century version of Ford Motor Company be as successful?
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Case Study Template
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You are writing the case from the perspective of which person or organization: ______________
What tools of Analysis would you use in this case: You only need to identify them and explain what information each will give you that you feel is important.
Based upon the above information – provide three alternatives.
Alternative 1 is the Status Quo or to do nothing different that the current situation.
Identify at least three arguments in favor and three against this approach.
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Recommended Alternative
Given the information above select your recommended alternative and explain why you feel it is the best alternative: This should take five to seven paragraphs and be based upon the information presented in your case. The recommendation is made to the decision maker you identified. You need to justify why this is the best alternative. (I have no preselected alternative and what I am looking for is your ability to support a given recommendation.)
