Ford Motor Company - Key Factors That Impact on the Organizations Performance - Case Study Example

Key factors that impact on the organizations Performance – A Case Study on Ford Motor Company (FORD). Introduction Organisation performance, in the light of key factor players, is a concern that has brought forth increasing significance to industrialists. Most companies are investing substantial sum of resources implementing changes that reflect all spheres of their performance. Ever-increasing global competition is redefining the market of most automotive companies today. As trade barriers reduce and the world is increasingly becoming globalised, transactions expenses decline, new entry global automotive competitors are growing and joining the market. With regard to this stiff competitive stress, local businesses are pushed to boost performance by inventing and assuming new processes and products. In return, local industries region dynamics results to advanced productivity, which consecutively can produce sustainable competitive advantages for other business on top of being the most fundamental engineer of opportunity creation and pre-capital revenue growth for the financial system (Ebhardt & Higgin 2010). Ford Motor Company (Ford) is among the major automotive manufacturers internationally. The company engages in production and distribution of vehicles in more than two hundred markets across the globe. Its automotive models range from Aston Martin, Ford Jaguar, Land Rover, Lincoln and Volvo. The chairman and CEO Alan Mulally now leads the company with Bill ford as the Executive Chairman, in conjunction with an executive operating committee. Ford Motor Company is the second leading automaker in the US. It is also the world’s fifth leading automaker based in Dearborn Michigan, a suburb of Detroit. Henry Ford founded the company which was incorporated on 16th June, 1903 (Rubenstein 1992, p. 103). Today, Ford boasts of its wide market worldwide. Alongside its various brands are Ford, Lincoln, Mazda, and Aston Martin. The company enjoys economies of scale due to its large scale manufacture of the wide car brands and large scale administration of an industrial labour force by means of an elaborately engineered industrialized sequences characterized by moving assembly lines (Schneider 2005). The significant evolution of Ford’s vehicle to suit the market was incepted when the company decided not to export the same cars as those sold in the US. In effect, on understanding of the market, the company provided specific models to Europe which is one of the biggest Fords endowed market. However, attempts to globalize the Ford Model line have been in vain with Ford Mondeo (Europe), Ford Contour (Europe), Ford Taurus (US, Japan and Australia) have performed poorly both in left or right hand drive (Kenworthy 2004). Ford manufactures over 5.532 million automobiles and is supported by a large number of workforces, over 213,000 in 90 plants and facilities universally. At the period of the automotive crisis, Ford’s international unit volume dropped greatly. However, the company was able to earn a substantial profit that significantly brought down its debts, with subsequent rate of interest payment reduced. During the same year of 2010, five of Ford’s cars were positioned at the best of their category (BrainMass Inc 2010). Automotive industry has seen ford progress in both times of recession and good business. In the 1990s, Ford Motor Company made large sales of its vehicles, in a booming US market, soaring stock market and less fuel cost (Domansky 2006, p.43). However, the dawn of the new millennium was accompanied by misfortune; rising fuel cost, and an economy heading to recession as marked by the stock market share prices falling. Further, higher legacy healthcare fees, reducing income margins, which in the aggregate, led to declining sales (Schneider 2005). The company has been sustained during recessions in the economy through borrowing of loans. For instance, in the year 2006, the company borrowed over $25 billion. The effect was, about all corporate assets were positioned as collateral for the credit. But, with a high head up, the company has always stood for bankruptcy not being an option. In every looming income from investments, there is a cost associated, the company incurs for large labour costs. In order to reduce the long-term costs associated to the workers, the company set up a company financed and independently administers Voluntary Employee Beneficiary Association (VEBA) fund to transfer the costs of retirees’ health care from the business and in essence improve its financial position (Domansky 2006, p. 46). Economically, Ford and its competitors Chrysler and General Motors, popularly known as the ‘big three’ experienced a financial downturn in the year 2008. They looked for financial support at Congressional hearings in Washington D.C. in the light of plummeting economic conditions, which greatly hit the automotive market. Following denial of requested loan for Ford Company, it plunged into $14.6 billion suffered losses (BrainMass Inc 2010). But this never brought to an end the company’s progress, because a company performance is determined by many players. Therefore, this notwithstanding, the company professed to be well endowed with adequate liquidity to finance its business plans. The automotive industry performance is always affected by many diverse forces, from globalization to environmental factors. Therefore, decision making is a significant aspect for accomplishment of the business in the face of all these factors. The Ford Motor Company, in 2005, decided to restructure the company to go in line with the present market conditions, reducing the loss-making and inefficient models, merging production line, and closing 14 industrial units and retrenching more workers. The external environment is important for all organizations. The external environment has direct and indirect impact on the market. The fuel economy standard was brought forth in the 1990s, and therefore, most imported cars were light and consumed less fuel. This translated in fewer emissions of exhausts thus compliance with emissions standards. Further, a new competitor will have an immediate and firsthand impact over time. Ford for instance take action towards the pressures of regulation by producing lighter cars and using fuel inoculation and computer controlled engines to conserve power and enhance drivability thus conserving the environment, and at the same time meeting regulatory demands. The external environment also has an indirect impact. Moreover, changes in interest rates and legal requirements would have a distant or secondary effect on the business (Rubenstein 1992, p. 86). The growing economies of India and China pose some threats to the business. For example, these new economies will control the total production, and erode the political and military power of rich countries. Their impact will cause an increase in the demand for natural resources. Remuneration may be driven down because of the threat of relocation caused by these growing economies. Their rising investments could lead to a shortage of savings, causing world interest rates to rise (Callon 1998, p. 1-57). There is a widening gap between developed and underdeveloped countries, and this was worsened by the difference in national objectives. For example, Singapore emphasizes its healthcare, India has lots of IT opportunities, UK consists of market led infrastructure, and Germany has government owned IT infrastructure. On the other hand, Africa is left behind by crime, and poverty and political violence or instability (Callon 1998, p. 1-57). Literature Review The automotive industry crisis of 2008-2010 greatly hit the big three American automakers, Ford, General Motors, and Chrysler, which had no fuel-efficient models. It was a widely felt global financial recession. The market was destabilized by substantial escalation of prices of the automotive fuels, which discouraged buying of sport vehicles cars and pick-up trucks that consumed large amounts of fuel. In the year 2008, the situation had worsened to critical degrees, subsequently the credit crunch lead to pressure on the cost of raw materials. Major automakers from Asia, Europe and North America invented marketing strategies to persuade reluctant customers to go for their products (BrainMass Inc 2010). In the same line, Ford, Chrysler, General Motors and Toyota offered generous discounts across their model lines. North American customers went for high quality and more fuel efficient vehicles of Japanese and European automakers. On the other hand, most of the cars apparently foreign were actually modified (transplants) of foreign vehicles assembled in the US, at a lesser cost than true imports. The opportunities presented in the global field may be summarized as follows: in Europe, there is the expanding economic integration through the European Union; North America has a strong economy and a stable government which is market driven; Africa possesses large natural resources, mostly oil, diverse population, but it also has weak governments with high corruption; South America has high inflation and political instability, but there are emerging economies such as Brazil, Argentina and Chile. Asia consists of a strong government in Japan and a technology leader in India, but there is political and economic stability in the quick growing China. Environmental Environmental issues such as deforestation, ozone depletion, global warming, and mercury poisoning are matters of concern on the international agenda. Clearing of forests and trees has increased carbon levels in the atmosphere to cause respiratory dysfunctions, and unbalanced ecosystems (droughts, floods, and hurricanes). Ozone depletion is brought about by the emissions of chlorofluorocarbons (CFCs) to the atmosphere, and this leads to exposure to hazardous ultraviolet light from the sun which can cause cancer, destroys trees and animals, and raises the temperature of the sea (Callon 1998, p. 1-57). Global warming is caused when greenhouse gases, released from burning fossil fuels and land filled waste sites, trap heat within the atmosphere, and this results in drying of rivers and lakes, rise in sea levels, and crops dry up because of lack of rain. Mercury poisoning results from inhalation of mercury vapour into the body, and this damages the kidney, causes insomnia, coma, even death, and affects light bulbs, batteries, and dental fillings (Ranawat 2009, p. 102). Globalization Globalization will positively influence the business development. Today, each part of the world is interconnected through the Internet. It is wide spread that a click is enough to purchase a car. In Ford purchase website page, once one click on a particular vehicle to purchase, order is generated in the background and subsequently sent to the customer’s location branch. Hence, making it more reliable and satisfactory to the customers, such a way illustrate this fact. Poverty is eliminated through free trade. This will enhance prosperity and development. Globalization is significant in promoting the environment through the imposition of standards and trade restrictions. It improves human rights by reducing labour and gender inequalities (Gottschalk & Kalmbach 2007, p. 79). Processes in science and technology, through inputs such as resources, labour and money, always lead to improved technological dimensions in terms of the outputs developed, in terms of the goods and services. The ability to communicate and transfer information will become the cornerstone to a successful economy. This implies that the design and implementation of a National Information Infrastructure will be a high priority for many leading industrialized nations. This is because telecommunications infrastructure will allow public and private industry to share information and learn from one another (Becker 2006, P. 54-57). By use of the Web, suppliers are able to sell products worldwide, with the business open 24-7/ 365 days a year. The site not only includes a catalogue of products and timely order processing, but also secure transaction processing and information storage. An order-processing technology allows customers to accumulate lists of items they wish to buy as they shop by use of the shopping cart, which is supported by the product catalogue, the merchant server, and the database technology (Welch 2011). Besides, the customers can access online shopping malls, which is a collection of online retailers offering products and services on a single site. In this category, consumers can utilize the mall’s shopping-cart know-how to purchase vehicles from several stores in a single operation. They act as shopping portals to direct traffic to the leading shopping retailers for a specific product which offers speed and added convenience to a customer’s shopping experience. There is also the Auction Model where users log-on as bidders or sellers. The sellers post items to sell while buyers wait to bid, and these sites collect a commission on every successful auction. However, globalization also hinders local development, it favours rich countries by heaping power on them, undermines government in human rights. The inequality cause increases poverty. It endangers environmental sustainability, and the market driven policies and restrictions created hinder easy access to medicine. This has also contributed to the sale of light cars in most parts of Africa. Most African countries are developing economies which means they ought to economise hence, the interconnection makes them opt for light cars available rather than heavy guzzlers. This favours markets for Japan India and Korean vehicles and putting Ford at back with a countable number of vehicle sales (BrainMass Inc 2010). Competition Just like in any company, one must have an objective; the biggest market share is one common objective endeavoured by many different companies. In an attempt to accomplish this objective, stiff competition is always the hurdle to go over. Workforce output in the US production of new vehicles increases annually at a rate of 3.3 per cent. Actually, production of new automotive, improvement that invented process efficiency calls for close to 50% of the sum increase in workforce productivity (Kenworthy 2004). The incorporation of new better value added has been the next biggest contributor, accruing to better increase. Shifts relative to customer preferences, tastes and improvement of manufacture’s existing brand and changes in product mix also amplifies the competitive struggle for a market share. Hence, new automotive innovations are significant in determining the level of competitiveness and how flourishing one will be in the business. It encompasses the assembly of new cars and the manufacture of new parts for new cars (Becker 2006, p. 69-70). Technology Thus, new revenue models had evolved over time. Advertising is the most popular form of revenue, which was very popular during the Internet bloom, but is not so lucrative recently. Usage fees are charged for the actual time a user spends on the Internet, but community members limit their usage. Unlike usage fees, subscriptions provide a flat monthly charge that is much easier to collect and there is no limitation to community members’ usage. Fees can also be charged on content downloaded such as newspaper, and micro-payment makes this model easy. Transactions can also be performed by buying and selling of goods such as eBay, where sellers are charged a fee (Welch 2011). Automotive technology is universally incorporated in a variety of kinds of vehicles to increase their efficiency, improve safety and be current in the market. It is important to note that the biggest challenge in the automotive technological advancement is the high-rate obsoleteness. For instance, in the Music industry, there has been great revolution with the use of the Internet, which has eliminated the necessity of Publishers, producers, distributors and retailers, making it easier for the consumer to get to the artist through the Internet. Hence, with the highly developed technology has given way for further and more sophisticated cars, some technologies bring high costs to the companies (Marien 1987, p. 102-103). Political and legal The world economy relies on economical and political integration. These influence issues such as regulatory parameters within the industry. Particular government regulations have different degrees of impacts to the automobile industry. The direct impact through authorizations and indirect regulation by means of their effect on the nature of the innovated or invented product incorporated to the market affect the companies in various ways. Regulations pick up the pace of the diffusion of features and technological advancement. In the late 1990s for instance, vehicles had to be redesigned to adopt features that protect passenger compartment in times of accidents or severe incidences whose contribution led to the successful maintenance of safe occupant’s vehicles. Reflexive restraint systems were allowed which in haste pushed air bag penetration to maximum. OEM added other protection facilities, like the antilock braking system in their own initiative to meet customer preferences and increase their product quality (Ranawat 2009, p. 92-93). Politics will always influence enactment of laws, tax policies, regulations regarding trade and the rules thereof, and legislations on minimum wages, both at national and global levels. Many countries consider TDF as violating their national sovereignty, others as breaching their regulations to defend the local IT business or to protect their local jobs, while many view TDF as a violation of their privacy legislation. Therefore, some impose high government access fees, government monitored access, government filtered access, or no public access allowed at all (Welch 2011). Findings and analysis It is clear in the findings that Ford success laid in the shoulders of the global automotive companies based in Japan, Germany and Korea that have set stiff competitive pressures the company in particular and in the overall the big three Ford included. The competitors have concentrated their efforts in manufacturing light vehicles that highly sold in the US market as opposed to the Big Three producing heavy vehicles that consume large amounts of fuel. This significant shift placed Ford at a threat of losing most of its customers and sales (BrainMass Inc 2010). Worldwide economic conditions, which are determined by the prevailing interest rates, level of the inflation, rate of unemployment and the gross national products will influence the economic dimension of the business (Ranawat 2009). Economically, Ford and its competitors Chrysler and General Motors, popularly known as the ‘big three’ experienced a financial downturn in the year 2008. They looked for financial support at Congressional proceedings in Washington D.C taking into consideration the plummeting economic conditions which greatly hit the automotive market. Following denial of requested loan for Ford Company, it plunged into $14.6 billion suffered losses. But this never brought to an end the company’s progress, because a company performance is determined by many players. Therefore, this notwithstanding, the company professed to be well endowed with adequate liquidity to finance its business plans. The increasing US health care cost for the aging workers, escalating fuel costs, and falling market share had an immense impact to Ford and General Motors at the onset of the year 2005. BrainMass Inc (2010) stated profit margins dropped on the huge vehicles owing to increased incentives offered. The two company sales were boosted by the sale of small utility vehicles which were not selling because of the complimenting high fuel consumption and expensive purchase price. Ford went ahead to introduce a variety of vehicles that favoured the quest for better gasoline efficiency. The company therefore, released the Crossover SUV featured by the unibody without the frame chassis. In light of its competitors, Ford had come up with the hybrid electric power-train inventions for the Ford Escape Hybrid SUV, purposely to compete with Toyota hybrid advancement. With fear of competitor copyright infringement, Ford went ahead and licensed the hybrid electric power-train. Ford went through stiff economic conditions which lead to implementation of its strategies. Ford teamed up with Southern California Edison to undertake efficiency in vehicle energy systems for future plug in hybrids. In essence, it was an assessment of how vehicles might interact with the home and the hybrids utility grid (Hirschhausen & Bitzer 2000, p. 99). The automotive industry crisis of 2008-2010 greatly hit the big three American automakers, Ford, General Motors, and Chrysler, which had no fuel efficient models. It was a widely felt global financial recession. The market was destabilized by substantial escalation of prices of automotive fuels, which discouraged buying of sport vehicles cars and pick-up trucks that consumed large amounts of fuel (BrainMass Inc 2010). In the year 2008, the situation had worsened to critical degrees, subsequently the credit crunch lead to pressure on the cost of raw materials. Major automakers from Asia, Europe and North America invented marketing strategies to persuade reluctant customers to go for their products. In the same line, Ford, Chrysler, General Motors and Toyota offered generous discounts across their model lines. North American customers went for high quality and more fuel efficient vehicles of Japanese and European automakers. On the other hand, most of the cars apparently foreign were actually modified (transplants) of foreign vehicles assembled in the US, at a lesser cost than true imports (BrainMass Inc 2010). Alongside reduced sales, Ford (and the two of the big three) Company experienced financial challenges. The poor performance accrued from Ford’s competing by lowering its prices and giving discounts. At the same time, they had poor levels of effectiveness; three workers comparatively were offered generous wage packages and on the average salary of the manufacturing employees were half above those of in the transplants. Further, as demand escalated for the light vehicles the market share of Ford Company reduced to very low amounts. More entrants got into the market, providing light trucks which posed worse market condition to Ford Motor Company, General Motors and Chrysler. The company has been sustained during recessions in the economy through borrowing of loans. For instance in the year 2006, the company borrowed over $25 billion. The effect was, about all corporate assets were positioned as collateral for the credit. But, with a high head up, the company has always stood for bankruptcy not being an option. In every looming income from investments, there is a cost associated, the company incurs for large labour costs. In order to reduce the long term costs associated to the workers, the company set up a company financed and independently administers Voluntary Employee Beneficiary Association (VEBA) fund to transfer the costs of retirees’ health care from the business and in essence improve its financial position. Conclusion We realised that safety of Ford’s SUV were less severe alongside other light trucks. Government regulations evidenced to cause the cost of manufacture and production to go up which directly translated to higher purchase price. The cost of the vehicles is optional to indicate an increase at the exact time when regulatory features are instituted because the cost fluctuates and the industry situations are in play. However, meaningless of whether new regulation impact can be felt in prices, the determinant of the methodology used by US counts is rather fundamental (IBM Business Consulting Service 2004). The benefits accrued by customers by the regulated terms and conditions, it is difficult to assess the production cost or its subsequent shift. Regulatory changes that force the inclusion of safety features in the trucks has significantly added value for each vehicle. In any way, productivity boost is determined on the influence of assembly time and our analysis revealed that these shifts are rare and in small deviation as of the newly incorporated features as per the regulation demands (Ranawat 2009, p.88). The suspension technology system is made up of springs, and shock absorbers that join the car wheels. The major characteristic of the suspension system is to bring down the jerks and enhance comfort of the passengers in the car. With such a wide stride in technological advancement, the gas filled shock absorbers have effective extra responsiveness than spring absorbers (IBM Business Consulting Service 2004). The significant evolution of Ford’s vehicle to suit the market was incepted when the company decided not to export the same cars as those sold in the US. In effect, on understanding of the market, the company provided specific models to Europe which is one of the biggest Fords endowed market. However, attempts to globalize the Ford Model line has been in vain with Ford Mondeo (Europe), Ford Contour (Europe), Ford Taurus (US, Japan and Australia) have performed poorly both in left or right hand drive (Schneider 2005). Recommendation Most organizations have mixed approaches to their organizational structures depending on the strategy of the organization, its size, the degree of environmental uncertainty, its internal competencies. Most modern structures attempt to be organic and flexible with few boundaries, but the structures are dependent on external and internal environment of organisations The invention of driverless cars has enabled use of a vehicle for driving one through places without a driver. Thus, offering a taxi-like to the owners or passenger, these autonomous vehicles are able to move along the roads on their own. In times when organisations want to cut driver, he auto-driver car is the most appropriate. These autopilot cars are anticipated to be fully functional by the year 2020. Such an autopilot car is based in Netherlands invented on the concept of frog navigation technology. Another wide stride in technology has been the emission standard to ensure observation on the emission of harmful pollutants such as NO 2, carbon monoxide (CO) or volatile hydrocarbons. Eventually, it would be simpler to lower down the toxic fumes level and save the world from global warming (Norcliffe 2006, p.79). Automotive industry drives this world at pace. Increase mobility and thus not only does the market depend on the environmental, technological, legal regulations, but we also depend much more on the market. Hence steering technology in the sector is critical for safety in the automotive industry in a big way that propels it to better heights. It is therefore important to keep track of the industry like never before. References Becker, H 2006, High noon in the automotive industry, Springer, New York, NY. BrainMass Inc 2010, SWOT Analysis of Ford Motor Company, Viewed March 4, 2011 Callon, M 1998, "Introduction: The Embeddedness of Economic Markets in Economics." 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Institute for Sustainability and Technology Policy, Viewed March 4, 2011 Marien, M 1987, Future survey annual, Transaction Publishers, London. Norcliffe, M 2006, The Automotive Industry in Emerging Markets: China The Automotive Industry in Emerging Markets Series Global market briefings, GMB Publishing Ltd, Shanghai. O'Brien, Y & Karmokolias P 1994, Mastering automotive, Discussion Paper/International Finance Corporation Series World Bank e-Library Radical Reform in the Automotive Industry: Policies in Emerging Markets, World Bank, Washington D.C. Ranawat, M 2009, Influence of Government Policies on Industry Development: The Case of India's Automotive Industry, GRIN Verlag, New York, NY. Rubenstein, JM 1992, The changing US auto industry: a geographical analysis, Routledge, California, USA. Schneider, G 2005, ‘GM, Ford Bond Ratings Cut to Junk Status,’ The Washington Post, Viewed March 4, 2011 < http://www.washingtonpost.com/wp-dyn/content/article/2005/05/05/AR2005050501962.html>. Welch, D 2011, ‘Toyota Still Under ‘Clouds,’ Falls Behind Ford as U.S. Auto Sales Increase,’ Bloomberg, Viewed March 4, 2011 < http://www.bloomberg.com/news/2011-01-04/gm-december-total-u-s-sales-up-7-5-est-up-4-3-.html> United States Congress - Office of Technology Assessment 1982, Increased automobile fuel efficiency and synthetic fuels: alternatives for reducing oil imports, Issue 2 Increased Automobile Fuel Efficiency and Synthetic Fuels: Alternatives for Reducing Oil Imports, DIANE Publishing, US. Available at < http://govinfo.library.unt.edu/ota/Ota_4/DATA/1982/8215.PDF> Read More