Role of Leadership in Ford Australias Backshoring Decision - Case Study Example

Leadership Research Paper Name Institution Contents Contents 2 Executive Summary 3 Introduction 4 Background of the Firm 4 Financial Performance of Ford Australia 5 The Australian Automotive Industry 6 Role of Leadership in Ford Australia’s Backshoring Decision 7 Situational Leadership Theory 8 How Situational Leadership was Applied in the Backshore Process 10 Conclusion 13 Executive Summary Organizational leadership is important in influencing and persuading employees of firms to adopt a course of action for the benefit of the firm and shareholders. Ford Australia is one of the multinational subsidiary that clear demonstrates the impact of effective leadership under the leadership of the chief executive officer (CEO) Bob Graziano. Ford Australia implemented the transformation plan in 2013 to reduce the costs associated with separation such as administrative expenses, costs of setting up voluntary separation programs, employee action expenses and liabilities. Organisational leadership was instrumental in designing and implementing the transformation plan for the closure of Ford Australia. Situational leadership focuses on the constraints and opportunities that influence organisational behaviour. In the context of Ford Australia, the CEO had to consider his relationship with employees and other stakeholders as part of assessing the problem situation. Since situational leadership allows leaders to adopt any style suitable for the problem, Graziano’s transformational leadership style had a great influence on reducing resistance to change. The situational leadership theory allowed the management and CEO to adopt different leadership styles (such as transformational or charismatic leadership) to direct subordinate effort towards the goal of the firm’s transformation plan and ensure that the backshore strategy was successful. Introduction Organisational leadership is increasingly becoming important in helping corporations adapt to a dynamic business environment. This leadership is important because it influences the success and functioning of organisations. Organizational leadership is also important in influencing and persuading employees of firms to adopt a course of action for the benefit of the firm and shareholders. One issue that has a direct relevance to the leadership of an organisation is the decision to close operations in a foreign location (Kinkel, 2014). This action is referred to as backshoring. Backshoring is the process of scaling back operations of a multinational company from a foreign market (Holz, 2009). Backshoring is an emerging trend among American multinational companies (MNCs) such as American Express, Apple and Dell. These MNCs that have scaled back some of their operations such as customer service due to a number of factors such as identification of a more effective business location, inability to manage foreign operations, poor economic performance in a foreign market, economic downturn, increasing fuel prices, fluctuating exchange rate and cost-cutting measures (Bailey & Propris, 2014). Ford Australia recently announced that it would close the Broadmeadow and Geelong plants in Australia by 2016 following announcements by Toyota and General Motors Holden to cease motor vehicle production in Australia (Barbaro & Spoehr, 2014). The purpose of the paper is to identify the role of organisational leadership in Ford Australia’s backshoring. Background of the Firm The Ford Motor Company in Australia is a subsidiary of Canada’s Ford Motor Company. The subsidiary was established in Geelong, Victoria in the 1920s to manufacture, distribute and import passenger and commercial vehicles for the domestic market and for export (Ford Motor Company, 2015). The company established a plant in Campbellfield, Melbourne to manufacture Falcon Sedan and Territory SUV models as well as engines for Ford vehicles. Presently, Ford Australia has a diverse portfolio of vehicles that are imported and manufactured from the country. Presently, Ford Australia ranks the top 135 of the top companies in Australia. It is a leading manufacturer of passenger, recreational and commercial vehicles such as Ford Falcon, Ford Escape and Ford Courier and the F-Series. The company also imports different vehicle models from North America, Europe, South America, Asia and South Africa. The firm is a high-revenue earner that generates most of its income from manufacturing motor vehicles in the Australian market. In 2013, the manufacturer generated $2.9 billion of revenues under the leadership of the chief executive officer (CEO) Bob Graziano. Mr. Graziano also serves as the President and the Chairman of the Australian subsidiary (Ford Motor Company, 2015). In addition to high revenue, Ford Australia has a strong manufacturing base and history of corporate social responsibility through outreach initiatives, sustainability and corporate citizenship programs. Financial Performance of Ford Australia The performance of Ford Australia rates quite low compared to other subsidiaries in Canada, South America, Britain, Germany, Russia, Europe, China and India. The group financial reports reveal that Ford Australia had constant sales volumes of 1.1 million units from 2012 to 2014 (Ford Motor Company, 2014). Other subsidiaries had an increase in sales volumes during the same period. For instance, the subsidiary in China sold 19 million units in 2012 and 24 million units in 2014. British and Brazilian subsidiaries sold 2.8 million units and 3.5 million units respectively. Wholesale unit sales volumes in the Australian were significantly lower than other markets. Eighty million wholesale units were sold in Australia in 2014 while Germany and Britain sold 237 million and 425 million wholesale units during the same period. Furthermore, the Australian subsidiary had a lower market share compared to Canada, Mexico, Brazil, Britain and Turkey. Ford Australia had a market share of 7.2 percent in 2014, which was a decrease from 8.1 percent market share in 2012 (Ford Motor Company, 2014). Ford Australia’s declining contribution to regional performance reflects the changes brought about by a transformation plan. The purpose of the plan was to help the Australian subsidiary to close manufacturing operations in the country due to low wholesale volumes and revenue. The transformation plan comprised of a two-phase plan aimed at reducing the speed of line production in June 2014(Ford Motor Company, 2014). This approach would lower manufacturing costs as well as the costs related to the closure of the subsidiary in Australia. Secondly, the transformation plan involved the design of an enterprise bargaining agreement. The local government ratified the agreement and the probable payments for the closure. Ford Australia implemented the transformation plan in 2013 to reduce the costs associated with separation such as administrative expenses, costs of setting up voluntary separation programs, employee action expenses and liabilities. Organisational leadership was instrumental in designing and implementing the transformation plan for the closure of Ford Australia. The Australian Automotive Industry Australia’s automotive industry has experienced growth in FDI over the years. This is because the country’s competitiveness and economic stability make it an attractive market for offshore business. Economic growth has made Australia the second rated world economy and the top 12 largest economies in the world (Escamilla & Pacheco, 2014). The country’s economic competitiveness over the years made it an ideal location for FDI. Consequently, the top three investors to Australia are United States (23.9 percent) followed by the United Kingdom (14.4 percent) and Japan (11.1 percent). The manufacturing industry showed upward growth owing to the country’s economic competitiveness, access to skilled labour, large consumer market, large export market and growth in FDI (Escamilla & Pacheco, 2014). Three major MNCs had significant market share in the Australian automotive industry. These were Ford Motor Company, GM Holden and Toyota Motor Corporation. Ford had an 8 percent market share while GM and Toyota had 20 percent and 11 percent market share respectively (Escamilla & Pacheco, 2014). Presently, the automotive industry depicts an undesirable state. A recent occurrence in the industry is the retreat or relocation of foreign direct investment (FDI) in Australia’s automotive industry. The top three manufacturers made announcements to expatriate their manufacturing operations from Australia by 2017. This is because the manufacturers had been realizing low volume sales and low viability for automotive manufacturing in the country (Escamilla & Pacheco, 2014). Role of Leadership in Ford Australia’s Backshoring Decision Organisational leadership has been influential in making the decision to repatriate Ford Motor manufacturing operations in Australia. The leadership of the CEO, Mr. Graziano, has been instrumental in helping employees, suppliers, customers and others stakeholders understand that the reasons for the backshoring decision are a decline in volume sales and low industry viability. This understanding has been especially important for Australian workers because the backshoring decision would lead to loss of jobs and income. Graziano’s leadership was especially important in helping the workers to accept the backshoring decision and to adopt to the changes brought about by the transformation plan. Situational Leadership Theory The situational leadership theory helps explain the role of organizational leadership in the backshoring decision. The theory does not suggest a particular leadership style since it presumes that the environment is not simple (Vroom & Jago, 2007). Leaders can adopt the theory to make sense of uncertain business conditions. This adaptation allows the leaders to apply different leadership styles such as transformational or transactional styles. Scholars place situational leadership theory within the dyads in the loci of leadership. The dyad category emphasizes leadership from the characteristics of the leader-follower relationship rather than the partners to the relationship (Hernandez, Eberly, Avolio & Johnson, 2011). This leadership theory focuses on the constraints and opportunities that influence organisational behaviour. In the context of Ford Australia, the CEO had to consider his relationship with employees and other stakeholders as part of assessing the problem situation. The situational leadership theory is appropriate for the study because it assumes that the Graziano’s transformation plan was dependent on a number of situational factors. These situational factors could include the capability of the followers, motivation and the relationships (Hernandez, Eberly, Avolio & Johnson, 2011). Firstly, Graziano and the executive leadership had to have determined the capability of the followers in the backshoring decision. This capability refers to their skills and expertise in implementing the transformation plan. Graziano had to have ensured that the workers received the right training to implement the plan effectively. Secondly, Graziano had to ensure that the workers were motivated to adopt the changes brought about by the transformation plan. This is because employee resistance is one of the barriers to implementing effective change in an organization. Graziano would have had to adopt a leadership style that would motivate Australian workers to adopt the transformation plan at the risk of losing their jobs. Since situational leadership allows leaders to adopt any style suitable for the problem, Graziano’s transformational leadership style had a great influence on reducing resistance to change. Transformational leadership is ideal for Graziano because it is concerned with inspiring subordinates to exert effort and achieve higher-order goals (Wu, Tsui & Kinicki, 2010). Transformational style would have helped Graziano to inspire employees and encourage them to exert extra effort in analysing each business activity in the Australian operations and focusing on the activities that would support the firm’s financial goals. Similarly, the situational leadership theory allows Graziano to adopt charismatic leadership style to influence followers throughout the change process. Through charismatic approach, the CEO would have been able to help the organization to implement change using theory-based change models such as the 7-step change acceleration model or the 8-step change model by Kotter. Having examined different change models, the 7-step change model by General Electric would have helped Graziano to adopt charismatic leadership since the model emphasizes the role leadership in change process. The change model would have facilitated the backshoring by teaching the CEO to communicate the need for the change, refine the change vision, to explain the process for and to institutionalise change outcomes (Mento, Jones & Dirndorfer, 2002). Lastly, Graziano had to consider the leader-follower relationship when making the decision to backshore. The situational leadership theory is again suitable because it would have allowed the CEO to assess how his relationship with his followers could affect their behaviour and attitude towards the backshore change. An assessment of the relationship would have helped the CEO to identify opposition to the change since employees’ rejection of the firm’s decision to repatriate manufacturing investments in Australia and exit the host country would have threatened the success of the transformation plan. The assessment would have also revealed suppliers and customers who oppose the backshoring decision due to the effect on their business and access to finished products (Leibl, Morefield & Pfeiffer, 2010). How Situational Leadership was Applied in the Backshore Process Graziano applied the situational leadership theory in a number of areas: subordinate effort, role clarity, work organisation, cooperation and cohesion, resources and external coordination. According to Holz (2009), these areas are critical variables in a change decision process that should be assessed to reduce the risk of failure. i. Subordinate Effort The role of leadership is to determine how subordinates can support the transformation plan and how to coordinate their efforts in repatriating the company business to Canada. Graziano had to coordinate the efforts of his subordinates so that he could exploit opportunities that would arise from the backshore decision. This coordination also minimized the risks of failure for the Australian subsidiary. This coordination was important for Graziano because the transformation plan sought to direct the subordinate efforts towards repatriating Australian manufacturing operations to Canada. ii. Role Clarity Here, Graziano and his leadership needed to identify the mode of exit from the Australian subsidiary. The two modes of exit in backshoring decisions are captive and outsource backshoring (Kinkel, 2014). Captive backshoring refers to the repatriation of foreign manufacturing plants due to flexibility and quality challenges in the host country. Outsource backshoring refers to the backshoring of suppliers in the host country due to the costs of logistics and transportation. Since situational theory was used, Graziano needed to clarify the roles of his followers so that he could determine the best exit mode for the firm. His leadership influenced the adoption of captive backshoring in the implementation of the transformation plan. Further, Graziano clarified the changes that would result from the backshoring plan and communicated these changes to the employees of the firm as well as the media, suppliers, the government and Ford customers. iii. Work Organisation and Cooperation and Cohesion Graziano’s leadership evaluated the work structure and examined the utilisation of resources. In addition, his leadership was influential in achieving cooperation and cohesion. Graziano and executive managers coordinated the firm’s efforts and ensured cohesiveness of the group to achieve a common goal. His leadership also influenced the subordinates to collaborate with other stakeholders that would be affected by the backshore decision. This may have involved regular meetings to explain the need for the change and proposal of a shared judgement of the change (Hernandez, Eberly, Avolio & Johnson, 2011). This shared judgment would have been important for Ford’s leadership because it would have helped group members to transfer leadership in a fluid and flexible manner amongst themselves. Graziano also achieved cohesion by addressing conflict between groups managing the transformation plan. He resolved conflict in the organisation by developing shared judgement and allowing managers to rotate roles or transfer their roles in the backshoring process. This would have enabled the managers to develop a shared understanding of the organisational requirements for backshoring, composition of team members, organisational resources, availability of equipment and the effectiveness of group processes. Graziano could have achieved shared leadership by identifying the affective traits of the team members. For instance, a member that showed he was able to manage the emotions of the group possessed the tools and skills to enact shared leadership in the organisation. Graziano also had to demonstrate affective traits because organisational leaders should possess the ability to manage group emotions. These effective traits include ability to come up with an affective tone for the group, understanding of different emotions and respect for individual interdependence (Hernandez, Eberly, Avolio & Johnson, 2011). iv. Resources and Coordination An important aspect of coordinating resources was setting up mechanisms for shared leadership. This concept involves rotating the leadership role or transferring roles among organisational members so that peers can demonstrate mutual leadership. Graziano implemented shared leadership by developing shared understanding of the skills, knowledge and abilities that were needed to complete tasks and make decisions on the backshore process. His leadership helped the firm to develop a change management team that could interact with employees and encourage deep inquiry to understand stakeholder perceptions. This shared understanding was important because it enabled organisational members to view leadership as shared property (Wu, Tsui & Kinicki, 2010). Graziano’s leadership style in coordinating resources was also instrumental in the backshoring process. His ethical style to leadership was crucial in helping the firm to develop ethical standards and norms to influence moral behaviour of the workers. This ethical leadership behaviour could have helped the CEO to enforce policies and codes of conduct for the firm’s transformation plan, and to establish organisational culture and values for the backshoring process (Schaubroeck et al., 2012). The situational theory was instrumental because it allowed Graziano to adopt a leadership style based on the problem. When seeking to inspire his followers, Graziano adopted transformational leadership while when seeking to maintain moral standards, he adopted an ethical leadership style. Each style was unique to the situation since the dynamics of leadership occur at different levels and can produce bottom-up or top-down outcomes (Dinh et al., 2014; Yammarino & Dansereau, 2011). Conclusion Ford Australia recently implemented the transformation plain aimed at repatriating its manufacturing operations to Canada. The plan incorporated an enterprise bargaining agreement and payments for the closure. The organisational leadership has been instrumental in influencing subordinate effort and directing organisational behaviour towards the goal of the transformation plan. The situational leadership theory is applicable in the case because it describes how the CEO addressed a number of decision variables in the backshoring process. The theory was applied because it recognised that Graziano faces different situations that do not require one specific leadership behaviour or style. The situational leadership theory allowed the management and CEO to adopt different leadership styles (such as transformational or charismatic leadership) to direct subordinate effort towards the goal of the firm’s transformation plan and ensure that the backshore strategy was successful. References Bailey, D., & Propris, L. (2014). Manufacturing reshoring and its limits: The UK automotive case. Cambridge Journal of Regions, Economy and Society, 8(1). Barbaro, B., & Spoehr, J. (2014). 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