I need a 4-6 page paper by tonight. My chosen company is Ford Motor Company.

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timer Asked: Jun 12th, 2017

Question Description

Internal Analysis

Assignment Overview

For this assignment, the vice president of strategy for your selected firm (Ford, Procter and Gamble, or Virgin Group) has asked you to prepare an objective review of the internal strengths and weaknesses of the firm. Your leaders are hoping to use this understanding to plan for the future direction of the organization. Prepare a 4–6 page executive briefing report identifying not only internal strengths and weaknesses, but also a rationale that addresses why your analysis pointed to a particular strength or a weakness. Also be sure to focus on strategic elements (capabilities) of the firm and on how the strategic elements fit into the strategic position of the company.

By successfully completing this assignment, you will demonstrate your proficiency in the following course competencies and assignment criteria:

  • Competency 3 – Analyze the strategic fit of the goals and values of the organization.
    • Explain possible ethical dilemmas and governance issues.
  • Competency 4 – Analyze the strategic fit of organizational resources and capabilities.
    • Evaluate how the selected firm leverages its resources and capabilities to execute the business strategy.
  • Competency 5 – Analyze the strategic fit of an organization's structure and business systems.
    • Evaluate the effectiveness of the organizational structure and management system design.
  • Competency 7 – Communicate in a manner that is professional and consistent with expectations for members of the business professions.
    • Write coherently to support a central idea (in appropriate APA format) with correct grammar, usage, and mechanics as expected of a business professional.

Assignment Preparation

Use the Capella University Library, Internet, your text case studies, or the firm research information in the Assignment Resources to find at least four current, scholarly, or professional resources for this assignment. Note: You are to use the same firm for all coursework so be sure the firm is of interest to you.

Assignment Requirements

For this assignment, an Executive Briefing Report template is available in the Assignment Resources. Use headings and subheadings to help organize the key points of your 4-6 page executive briefing report and include the following:

  • Evaluate how the selected firm leverages its resources and capabilities to execute the business strategy. Are the firm's capabilities found in its functions or the value chain, or both? Does the strategy give coherence to decisions about allocation of resources?
  • Evaluate the effectiveness of the organizational structure and management system design. Include the firm's ability to support the key resources and capabilities that execute the business strategy. Is the organizational structure suited for the particular tasks and particular business environment of the firm?
  • Explain possible ethical dilemmas and governance issues. These issues may include shareholders and stakeholders, distribution of excess profits, and top management's pay.

Write coherently to support a central idea (in appropriate APA format) with correct grammar, usage, and mechanics as expected of a business professional.

Submission Requirements

  • References: Support your executive briefing report with at least four academic resources from the Capella University Library. You must use proper APA style and format for citations and references.
  • Length: The body of the report must be 4–6 double-spaced, typed pages, not including the references list.
  • Written communication: Demonstrate graduate-level writing skills through accurate communication of thoughts that convey the overall goals of the analysis and do not detract from the message.
  • Font: Times New Roman, 12 point.

Refer to the Internal Analysis Scoring Guide to ensure that you meet the grading criteria for this assignment.

Note: Your instructor may also use the Writing Feedback Tool to provide feedback on your writing. In the tool, click the linked resources for helpful writing information.

Unformatted Attachment Preview

Executive Briefing Report (Create a Title Here) Summary/Introduction Clearly explain your analysis using understandable terms for your selected firm; focus on strategic elements (capabilities) of the firm and on how the strategic elements fit into the strategic position of the company. Internal Strengths and Weaknesses Analysis Present your analysis so that it effectively addresses the problem; Write clearly; you may use graphics, bullets and headings to deliver the analysis in an organized easily read format; you may have several sub-headings to address the assessment’s scoring criteria: • Evaluate how the selected firm leverages its resources and capabilities to execute the business strategy. • Evaluate the effectiveness of the organizational structure and management system design. • Explain possible ethical dilemmas and governance issues. Provide supporting evidence Use at least four current, scholarly, or professional resources to support your analysis. Conclusion Succinctly summarize the key findings of your internal analysis for your selected firm. 1 Research Information Review the following resources to further your understanding of a selected firm to use in your coursework. Use additional resources from the Capella University Library, Internet, your text case studies, or your own research, as needed, for completing the course assessments. Ford Ford is a complex multinational organization that has recently focused on strategic initiatives to address production capacity, supply chain reliability, sustainability, and technological innovation in order to remain competitive in the rapidly changing automotive industry. • Grant, R. M., and Jordan, J. (2012). Ford and the world automobile industry in 2012. Hoboken,NJ: Wiley and Sons. • Currie, Antony., Larsen, Peter. (2011). Ambitious goals for ford. The New York Times. Retrieved from: http://www.nytimes.com/2011/06/08/business/08views.html?_r=0 • Daniels Fund Ethics Initiative. (n.d). Ford Motor Company Manages Ethics and SocialResponsibility. Retrieved from: https://danielsethics.mgt.unm.edu/pdf/ford-motorcase.pdf • Henry, J. (2015). One Ford, Part Two; Tweaking The Master Plan. Retrieved from Forbes. Retrieved from: http://www.forbes.com/sites/jimhenry/2015/08/30/one-ford-parttwo-tweaking-the-master-plan/#3d15b7147333 • Miller, D. (2016, April 9). Dispelling 3 Ford Motor Company Shareholder Concerns. The Motley Fool. Retrieved from: http://www.fool.com/investing/general/2016/04/09/dispelling-3-ford-motorcompany-concerns.aspx • Currie, Antony., Larsen, Peter. (2011). Ambitious goals for ford. The New York Times. Retrieved from: http://www.nytimes.com/2011/06/08/business/08views.html?_r=0 Procter and Gamble This is a huge multinational firm with products you probably buy every day. This business is interesting because the company is focusing on science and technology to help it revise many of its business strategies and contribute to overall company goals for sustainability and corporate social responsibility. • Brown, B., & Anthony, S. D. (2011). How P&G tripled its innovation success rate. Harvard Business Review, 89(6), 64-72. 1 • Dillon, K. (2011). I think of my failures as a gift. Harvard Business Review, 89(4), 86-89. • Lafley, A. G., Martin, R. L., Rivkin, J. W., & Siggelkow, N. (2012). Bringing science to the art of strategy. Harvard Business Review, 90(9), 56-66. • Lafley, A. G., & Tichy, N. M. (2011). The art and science of finding the right CEO. Harvard Business Review, 89(10), 66-74. Virgin Group A multinational conglomerate with more than two dozen Virgin-branded companies, Virgin operates in at least 13 regions around the globe, in seven industries (Virgin, n.d.). It becomes apparent that Virgin’s corporate strategies include diversification and globalization, and some argue there are opportunities for Virgin to vertically integrate companies within certain market segments-travel and lifestyle markets, for example. Yet, however Virgin’s corporate strategies are labeled, the brand is the dominant resource that Richard Branson leverages to acquire and develop new business that differentiates Virgin from the competition (Ankeny, 2012). Branson’s philosophy toward management of Virgin companies includes keeping intact the entrepreneurial spirit of firms acquired or merged. He defends his approach to keeping a multitude of individual entrepreneurial companies with the Virgin brand as follows: “Often, owning a number of individual stand-alone companies run by different people can be more effective than having one giant company with lots of people working together” (Maxwell, 2014, And what about making the difficult decisions concerning people heading, para. 2). A strategic assessment of Virgin is an assessment of how well an individual Virgin company fits the Virgin business model. Prahalad and Bettis (1986) might define the business model of Virgin as the dominant logic that describes the rationale for Virgin’s diversification strategy. Choose one of the following Virgin companies to conduct a comprehensive organizational strategic assessment: • Virgin Atlantic. • Virgin Galactic. • Virgin Media. • Virgin Records. References Ankeny, J. (2012, June). The good sir Richard. Entrepreneur, 40(6), 30–38. Maxwell, C. (2014). Sir Richard Branson. Retrieved from http://www.director.co.uk/sir-richardbranson/ Prahalad, C. K., & Bettis, A. (1986). The dominant logic: A new linkage between diversity and performance. Strategic Management Journal, 7(6), 485–501. Virgin.com. (n.d.). Retrieved from http://www.virgin.com/company Additional Resources 2 • Hunter, M. (2013). Typologies and sources of entrepreneurial opportunity (II). Economics, Management &Financial Markets, 8(4), 69–141. • Altman, W. (2009). Branson: The global brand builder. Engineering & Technology, 4(2), 80–81. • Rubin, E. N. (2013). Assessing your leadership style to achieve organizational objectives. Global Business & Organizational Excellence, 32(6), 55–66. 3 Ford and the world automobile industry in 2012 At the beginning of 2012, the Chief Financial Officer of Ford Motor Company, Lewis Booth, was reviewing his financial forecasts for 2012-16. Ford’s turnaround since the crisis of 2007-8 had been remarkable. After a loss of $14.7 billion in 2008, Ford earned net profits of $6.6 billion in 2010, and it looked as though Ford’s profit for 2011 would exceed this. The recovery had been much more rapid than Booth had expected. Ford’s business plan of December 2008 projected that it would not break even until 2011.1 Booth attributed the speed of the turnaround to three factors: first government measures in North America and Europe to stimulate demand through incentives for scrapping old cars and subsidies for purchasing new, fuel-efficient models; second, the recovery of demand in several major markets including China, India, Brazil and the US; third, Ford’s own restructuring. The “One Ford” transformation plan introduced in 2006 had closed plants, cut Ford’s workforce from 295 000 at the beginning of 2006 to 148 000 at the end of 2011, sold Jaguar, Land Rover and Volvo and a large chunk of Mazda; integrated Ford’s global activities; and accelerated product development including an increasing emphasis on smaller cars. Despite these successes, Booth looked to the future with much trepidation. Ford’s performance over the next five years would depend on three main factors: Ford’s ability to continuing success with its One Ford strategy, the state of the world economy, and developments in the global automobile industry. On the first of these, Booth had few doubts. On the second, he realized that, for all the uncertainty, there was little that Ford could do other than closely monitor the unfolding economic situation and be prepared to adapt to unforeseeable events. On developments in the global automobile industry, Booth was perplexed. The collapse in industry profitability in 2007-9 and descent into bankruptcy of General Motors and Chrysler was not simply a consequence of the financial crisis. It also reflected www.foundationsofstrategy.com CASE02.indd 1 29/02/12 4:27 PM 2 F O U N DAT I O N S O F S T R AT E G Y the massive structural problems of the industry—most notably, too many firms with too much capacity chasing too little demand. The catastrophic declines in industry revenues and profits in 2008 promised a major industry restructuring. Daimler’s CEO had predicted that 2009 would be a “Darwinian year” for the auto industry. Yet, the industry’s pre-crisis structure survived almost intact. The Financial Times commented: [I]nstead of natural selection, something else happened: governments around the world, from Canada and Brazil to Russia and South Korea, stepped in with prodigious amounts of cash to keep car plants open and assembly lines running. All told, automakers have benefited from well in excess of $100 billion of direct bail-out funds or indirect state aid . . . the biggest ever short-term intervention in manufacturing . . . (T)he money has prevented a necessary shake-out in an industry that has long had too many producers. Consultants at PwC estimate the industry has the capacity to build 86 million units this year, almost a record—and 31 million more than the 55 million vehicles that it will sell.2 Even before financial crisis hit, the financial performance of the industry was dire: between 1990 and 2008 the world’s five biggest auto makers (GM, Toyota, Ford, DaimlerChrysler and Volkswagen) had earned on average a net margin of 1.1%; their return on invested capital and together they had destroyed billions in shareholder value. However, despite the lack of exit or consolidation by the leading auto makers, it was clear that the structure of the industry was far from remaining static. The shifting of demand from the mature industrial nations to the growing markets of Asia, Eastern Europe and Latin America was accompanied by the emergence of new competitors from these same regions. Meanwhile, new technologies and environmental concerns—including the growing use of all-electric vehicles—wereredirecting the industry’s development path. Understanding how these different forces would impact the overall profit potential of the world automobile industry would be a key determinant of Ford’s financial performance in the coming years. Development of the world automobile industry3,4 The growth of demand and production Vehicles powered by internal-combustion appeared in Europe during the 1880s—Gottlieb Daimler and Karl Benz were among the first. By the end of the 19th century, hundreds of small companies were producing automobiles both in Europe and in America. www.foundationsofstrategy.com CASE02.indd 2 29/02/12 4:27 PM Figure 1 U.S. motor vehicle production, 1900–2008 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 3 F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 During the 20th century the industry followed different development paths in different parts of the world. The U.S. auto industry grew rapidly during 1910–28 and 1946–65 before reaching market saturation (see Figure 1).The automobile industries of Western Europe and Japan also experienced maturing of their markets with production peaking in 1989–90. In all the advanced industrial countries the increased longevity of cars dampened market demand (see Figure 2). Despite declining output in the advanced industrialized countries, the world automobile industry has continued to grow (see Figure 3). This growth has been the 2,000,000 0 Trucks and Buses 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1967 1970 1975 1980 1985 1990 1995 2000 2005 2008 0 750 6,000 74,00 321,7 530,6 575,3 697,3 754,9 655,6 1,337 1,249 1,194 1,751 1,539 1,692 2,272 1,667 3,464 3,718 5,634 7,228 7,656 6,733 Passenger Vehicles 4,192 24,25 181,0 895,9 1,905 3,735 2,787 3,273 3,717 69,53 6,665 7,920 6,674 9,305 7,436 6,546 6,712 6,400 8,002 6,049 6,350 5,542 4,321 3,777 Passenger Vehicles Trucks and Buses Figure 2 Median age of passenger cars in the U.S. Source: R. L. Polk & Co. www.foundationsofstrategy.com CASE02.indd 3 29/02/12 4:27 PM Figure 3 World motor vehicle production, 1965–2008 60.0% 80 F O U N DAT I O N S O F S T R AT E G Y 70 Total (millions of units) 50.0% 60 40.0% 50 30.0% 40 30 20.0% 20 US and Canada as % of total 4 10.0% 10 0 19 6 19 5 7 19 0 7 19 5 8 19 0 8 19 5 8 19 6 8 19 7 8 19 8 8 19 9 9 19 0 9 19 1 9 19 2 9 19 3 9 19 4 95 19 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 03 20 0 20 4 05 20 0 20 6 0 20 7 08 0.0% World Total US & Canada as % of Total result of growing output from the newly industrializing countries—notably Korea, China, Brazil, and India. (see Table 1). As a result, the proportion of world output contributed by the traditional production centers—the US, Western Europe, and Japan—fell from 77% in 1994 to 40% in 2010 (see Table 2). Table 1 World motor vehicle production by countries and regions (% of world total)1 1960 1989 1994 2000 2005 2008 2010 U.S. 52.0 23.8 24.5 22.2 20.0 18.6 12.9 Western Europe 38.0 31.7 31.2 29.9 28.4 20.7 14.6 Central and E. Europe 2.0 4.8 4.3 4.6 5.4 9.5 7.7 Japan 1.0 18.2 21.2 17.7 17.0 16.7 12.6 Korea n.a. 1.8 4.6 5.0 5.3 5.5 5.6 China n.a. n.a. 2.7 3.5 5.7 13.3 24.0 12.8 49.5 50.0 57.4 66.8 69.4 76.1 World total (millions) AU: We have deleted repetition of Table 1. Plz check. Note: 1 Motor vehicles include automobiles, trucks and buses. Source: A. K. Binder (ed.), Ward’s Automotive Yearbook, 2011, Wards Communications, Southfield MI, 2011. www.foundationsofstrategy.com CASE02.indd 4 29/02/12 4:27 PM Table 2 Leading automobile-producing countries (thousands of cars; excludes trucks) 5 1990 1995 2000 2005 2008 2010 China n.a. n.a. 356 620 3118 6341 9494 Japan 7891 9948 7664 8363 9017 9916 8307 Germany 4604 4805 4360 5132 5350 5532 5552 Brazil 789 663 1312 1348 2009 2561 2828 Korea 793 987 1893 1881 2195 2436 2793 U.S. 7099 6077 6338 5542 4321 3777 27311 India n.a. n.a. 394 541 999 1507 2317 Spain 1403 1679 1959 2445 2098 2014 1951 France 3052 3295 3051 2883 3113 2144 1914 Mexico 266 346 710 1130 846 1217 1386 Russia2 1329 1260 834 967 1288 1469 1208 U.K. 1143 1296 1532 1641 1596 1448 1274 Czech Rep. n.a. n.a. 193 428 599 933 1070 Canada 810 1072 1339 1551 1356 1195 967 Poland 301 256 260 533 527 840 799 1701 1874 1422 1442 726 659 573 Italy F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 1987 Notes: 1 The production data for the US do not include the large volumes of pick-up trucks and SUVs produced by the automobile companies but classed as trucks. e 2 U.S.S.R. in 1987 and 1990. f Sources: Japan Automobile Manufacturers Association; Korean Automobile Manufacturers Association; A. K. Binder (Ed.), Ward’s Automotive Yearbook, 2011, Wards Communications, Southfield MI, 2011. The evolution of the automobile The early years of the industry were characterized by considerable uncertainty over the design and technology of the motorcar. The first “horseless carriages” were precisely that—they followed design features of existing horse-drawn carriages and buggies. Soon a bewildering variety of technologies were competing. The internalcombustion engine vied with the steam propulsion and electric motors. Transmission systems, steering systems and brakes all displayed a remarkable range of technologies and designs. Over the years, technologies and designs converged. The Ford Model T with its frontmounted, water-cooled, four-cylinder engine represented the first “dominant design” in automobiles. Convergence continued throughout the twentieth century with the www.foundationsofstrategy.com CASE02.indd 5 29/02/12 4:27 PM 6 F O U N DAT I O N S O F S T R AT E G Y elimination of most distinctively different technologies and designs. Air-cooled engines, such as those of the VW Beetle disappeared along with Citroen’s distinctive suspension systems. Power trains standardized around four cylinders, in-line engines, with V-6 and V-8 configurations for larger cars. Front-wheel drive became standard on smaller cars; suspension, steering, braking systems and body shapes became more similar. Technological progress was incremental: new materials, new safety features, multi-valve cylinders, and applications of electronics such as traction control systems, electronic fuel injection, variable suspension, satellite navigation systems, and intelligent monitoring systems. Convergence also occurred across countries. The distinctive differences that once distinguished American, French and Japanese cars largely disappeared—partly due to the manufacturers’ promotion of global models. The same market segments are present in different countries, though the sizes of these segments vary greatly across countries.In the U.S., “mid-size” family sedans, SUVs, and pickup trucks are the largest segments; in Europe and Asia, small family cars (“subcompacts”) formed the largest market segment. This trend toward design convergence and piecemeal innovation was interrupted by the introduction of electric powered cars. This was hardly a disruptive technology: the first electrically-powered cars and buses were in use at the beginning of the 20th century—in 1900, 28% of all automobiles produced in the U.S. were all electric. Their reintroduction was incremental: in 1997 both Toyota and Audi introduced massproduced hybrid cars—100 years after Ferdinand Porsche had developed the first hybrid car in which an internal combustion engine powered an electric motor. The launch of highway-capable, mass-produced, all-electric cars was much anticipated but long delayed—despite the well established markets for neighborhood electric vehicles (NEVs)—golf carts, maintenance vehicles, and site-transport vehicles. At the beginning of 2012, all the leading vehicle manufacturers had all-electric models in development, but the only mass-marketed all-electric, plug-in cars were the Nissan Leaf and the Mitsubishi iMiEVs. Changes in manufacturing technology At the beginning of the twentieth century, car manufacture, like carriage-making, was a craft industry. Few companies produced more than a 1000 automobiles annually. When Henry Ford began production in 1903, he used a similar approach. His vision of an affordable, mass-produced automobile required the development of more precise machine tools that would permit interchangeable parts. In 1913, he instituted his new system of production. Components were produced either in batches or continuously and were then assembled on moving assembly lines by semi-skilled workers. The productivity www.foundationsofstrategy.com CASE02.indd 6 29/02/12 4:27 PM New product development The increasing complexity of new cars in terms of electronics, and new safety and environmental standards caused the cost of developing new models to rise steeply. Taking an entirely new, mass-production model from drawing board to production line typically cost more than $2 billion. Ford’s Mondeo/Contour—its first global model—launched in 1994 cost a total of $6 billion (including tooling). The need to amortize huge development costs over large numbers of vehicles was the primary driver of consolidation in the industry. Small automakers had the choice of merging with bigger rivals or seeking niche positions. Geographically-focused manufacturers such as Tofas of Turkey and Proton of Malaysia licensed designs from the global auto makers. The tiny Morgan company survived by making the same hand-crafted sports car that it had designed in the late 1930s. The quest to economize on new product development costs also encouraged a variety of strategic alliances and joint ventures among the auto makers. To economize on new product development costs, a major trend in the industry was to use a single platform for multiple models. A “platform” comprised a vehicle’s architecture including its floorpan, suspension system and layout of powertrain and major components. While the major car makers widened their model ranges, they increasingly based these around a few platforms—typically between four and six. Similarly with major components: in engines, Ford moved to three engine families: V-8/V-10, V-6 and I-4 (four in-line cylinders). The I-4 engine had over 100 variations, an annual volume of 1.5 million,and was built at three different plants—one in North America, one in Europe and one in Japan. 7 F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 gains were enormous. In 1912 it took 23 man-hours to assemble a Model T; just 14 months later it took just 4 hours. Toyota’s “lean production” was the second major revolution in process technology. Toyota developed its system in postwar Japan where shortages of key materials encouraged extreme parsimony and avoidance of inventories and waste. Lean production combined statistical process control, just-in-time scheduling, quality circles, teamwork and flexible production (multiple models were manufactured on a single production line). During the 1980s and 1990s all the world’s car manufacturers redesigned their manufacturing processes to incorporate aspects of Toyota’s lean production. Flexible, lean plants reduced the importance of scale economies in assembly. Minimum efficient scale once required plants producing over 400 000 units a year. After 1990, most new assembly plants had capacities of between 150 000 and 300 000 units per annum. However, scale economies remained important in components and subassemblies: the minimum efficient scale for an engine plant was around 1 million units annually. www.foundationsofstrategy.com CASE02.indd 7 29/02/12 4:27 PM 8 The world auto industry in 2012 F O U N DAT I O N S O F S T R AT E G Y The manufacturers The ranks of the leading producers were dominated by U.S., Japanese, andWestern European companies—plus Hyundai of Korea (see Table 3). All were multinational: Toyota, GM and Ford each produced more vehicles outside their home countries than within. Compared with comparable industries—aircraft, motorcycles, or construction equipment—the auto industry remained fragmented—in 2010 there were 18 manufacturers with annual output exceeding 1 million vehicles and the 3-firm concentration ratio (measured by units of production) was 31.5%. Despite the many mergers and acquisitions (see Table 4), the industry’s consolidation was limited to the emergence of new competitors (from China and India especially). The crisis of 2008–9 resulted in several divestments, but only one major merger: between Fiat and Chrysler. Table 3 The world’s leading auto manufacturers 1992 1996 2002 2005 2007 2010 GM U.S. 6764 8176 8326 9200* 9350 8476 Toyota Japan 4249 4794 6626 7974* 8534 8557 Volkswagen Germany 3286 3977 5017 5243* 6268 7341 Ford U.S. 5742 6611 6729 6818* 6248 4988 Daimler Germany 605 993 4456 4829* 4635 Chrysler U.S. a 1940 2476 2958 1578 874 1402 2642 2534* 3987 5765 Hyundai S. Korea Honda Japan 1762 2021 2988 3391* 3912 3643 Peugeot France 2437 1975 3262 3375 3457 2605 Nissan Japan 2963 2712 2719 3569* 3431 3982 Italy 1800 2545 2191 1708* 2679 2410 France 1929 1755 2329 2533* 2669 2716 Suzuki Japan 888 1387 1704 2630 2596 2893 BMW Germany 598 641 1091 1328* 1542 1481 Mitsubishi Japan 1599 1452 1821 1381 1412 1174 Mazda Japan 1248 984 1044 1149* 1287 1308 Daihatsu Japan 610 691 n.a. 909 856 —c Chang’an Automobile China n.a. n.a. n.a. n.a. n.a. 1103 Fiat Renault b www.foundationsofstrategy.com CASE02.indd 8 29/02/12 4:27 PM India n.a. n.a. n.a. n.a. 588 1011 FAW China n.a. n.a. n.a. n.a. 691 896 Geely China n.a n.a n.a n.a n.a 802 Fuji Japan 648 525 542 571 585 650 Dongfen Motor China n.a n.a n.a n.a n.a 650 Notes: n.a. = not available. *Sales data. a Including Kia. b Including Dacia and Samsung. c Included in Toyota Source: Ward’s Automotive Yearbook; Wikipedia Table 4 Mergers and acquisitions among automobile manufacturers, 1986–2011 Year Acquirer Target Notes 2010 Geely (China) Volvo (Sweden) Sold by Ford for $1.3 bn. Spyker Cars (Neth.) Saab Auto (Sweden) Sold by GM for $1bn. Volkswagen (Germany) Suzuki (Japan) Acquires 20% stake Fiat (Italy) Chrysler (U.S.) Acquires 35% stake, later increased to 58% Volkswagen Porsche (Germany) Acquires 49% Beijing Auto (China) Fujian Motor; Changfeng Motor (China) Tata (India) Jaguar Cars, Land Rover (U.K.) Sold by Ford SAIC Motor Group (China) Nanjing Automobile (China) 2009 2008 2005 2002 2000 1999 9 F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 Tata SAIC combines MG and Rover brands Nanjing Automobile Rover (U.K.) Toyota (Japan) Fuji Heavy Industries (Japan) Acquired 8.7% stake from GM GM (U.S.) Daewoo (S. Korea) 42% of equity acquired Renault (France) Samsung Motors (S. Korea) 70% of equity acquired GM Fiat 20% of equity acquired DaimlerChrysler (Germany) Hyundai (S. Korea) 10% of equity acquired DaimlerChrysler Mitsubishi Motors (Japan) 34% of equity acquired Renault (France) Nissan (Japan) 38.6% of equity acquired Ford (U.S.) Volvo Acquires car business only Ford Land Rover Acquired from BMW Toyota Daihatsu 51% stake acquired www.foundationsofstrategy.com CASE02.indd 9 29/02/12 4:27 PM 10 1998 F O U N DAT I O N S O F S T R AT E G Y 1997 1996 Daimler Benz (Germany) Chrysler Biggest auto merger ever VW (Germany) Rolls Royce Motors (U.K.) Acquired from Vickers plc Hyundai (South Korea) Kia (S. Korea) Daewoo (South Korea) Ssangyong Motor (South Korea) Daewoo (South Korea) Samsung Motor (South Korea) Proton (Malaysia) Lotus (U.K.) BMW (Germany) Rover (U.K.) Daewoo (South Korea) FSO (Poland) Daewoo (South Korea) FS Lublin (Poland) Ford (U.S.) Mazda (Japan) 1995 Fiat (Italy) FSM (Poland) 1994 Daewoo (S. Korea) Oltcit/Rodae (Romania) 1991 Volkswagen Skoda (Czech Rep.) 31% stake later increased to 100% 50% of equity acquired 1990 1987 1986 GM Saab-Scandia (Sweden) Ford Jaguar Ford Aston Martin (U.K.) Chrysler Lamborghini (Italy) Volkswagen Seat (Spain) Increases stake from 25% to 33% Source: Newspaper reports (various). Outsourcing and the role of suppliers Henry Ford’s system of mass production was supported by intensive backward integration. At Ford’s giant River Rouge plant, iron ore entered at one end, Model Ts emerged at the other. Ford even owned rubber plantations in the Amazon basin. Since 1980, the quest for lower costs and increased flexibility has resulted in massive outsourcing of materials, components, and services. At the end of the 1990s GM and Ford both spun off their component businesses as separate companies: Delphi and Visteon, respectively. Relationships with suppliers also changed. The Japanese model of close, collaborative long-term relationships with their “first-tier” suppliers has displaced the U.S. model of contract-based, arm’s-length relationships. The new system has resulted in the component companies gaining increased responsibility for technological development— especially for sophisticated subassemblies such as transmissions, braking systems, and electrical and electronic equipment. The component producers have also grown in size and global reach. Bosch, Denso, Johnson Controls and Delphi are as big as some of the larger automobile companies (see Table 5). www.foundationsofstrategy.com CASE02.indd 10 29/02/12 4:27 PM Table 5 Revenues and profitability of the biggest automotive component suppliers ROA (%) ROE (%) 2010 2010 1994 2000 2008 2010 Robert Bosch (Germany) 19.6 29.1 58.5 62.6 5.0 8.6 Denso Corp. (Japan) 11 18.2 40.3 36.6 4.6 5.2 Johnson Controls (U.S.) 7.1 17.2 35.9 34.3 4.3 14.8 Aisin Seiki (Japan) 7.3 8.9 27.1 26.4 3.1 7.1 Magna International (Canada) n.a. 10.5 23.7 24.1 4.0 12.9 TRW Automotive Holdings (U.S.) n.a. n.a. n.a. 14.1 9.0 40.4 Delphi Automotive (U.S.) n.a. 29.1 18.1 13.8 5.7 n.a. Eaton (U.S.) 4.4 8.3 15.4 13.7 6.6 12.6 Valeo SA (France) 3.8 8.9 11.4 13.2 4.9 25.5 Lear Corp (U.S.) 3.1 14.1 13.6 12.0 6.6 17.8 Note: n.a. = not available. Sources: Financial Times, Fortune. F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 Revenues ($ billion) 11 The quest for cost reduction Strong competition pressured companies to seek cost reduction through several sources:  Economies of scale were critically important in research, component production, and product development. According to Sergio Marchionne, the CEO of Fiat and Chrysler, efficiency for a global auto producer required producing at least five million cars a year: companies producing less would struggle to survive.4  Economies of scope. Many cost economies could be exploited across different models. Investments in technology, dealerships, and marketing could be applied across all models—indeed, the use of common components and platforms meant that economies of scope were often converted into economies of scale. By 2012, all the leading auto makers had models ranges that covered almost every product segment from luxury cars to mini-cars—including SUVs. However, Ford had narrowed its product range by selling its Jaguar, Land Rover, and Volvo subsidiaries.  Worldwide outsourcing. Outsourcing has grown from individual components to major subassemblies (such as engines and steering systems)—even to complete www.foundationsofstrategy.com CASE02.indd 11 29/02/12 4:27 PM cars (including design and engineering). An important source of cost savings from outsourcing derives from component suppliers’ lower wages and benefits compared to the auto assemblers. 12 F O U N DAT I O N S O F S T R AT E G Y  Just-in-time scheduling, a key element of lean production, permitting radical reductions in inventories and work-in-progress.  Off-shoring. Geographical shifts in production were partly the result of automakers seeking lower cost manufacturing locations; Toyota moved production from Japan to lower cost locations in Southeast Asia; Volkswagen from Germany to central and eastern Europe.  Collaboration. Collaborative arrangements included joint-venture plants, technology alliances, component supply agreements and joint marketing agreements. In emerging market countries, most new auto plants were joint ventures between local and overseas companies. These arrangements economized on the costs of developing new technologies and new products, and accessing overseas markets. Ford’s network of alliances (see Figure 4) are typical of linkages among the automobile companies. Figure 4 Ford’s alliances with other automakers CHONGQING CHANGAN BMW Supplies of parts to one another. Ford Malaysia assembles BMW cars. Collaboration on Hydrogen research Joint venture to assemble Ford v Vehicles in China CHRYSLER Joint research into Emissions and electric vehicle technology FIAT Iveco Ford Truck Ltd is a UK truck making Joint venture TOYOTA Patent cross-licensing FORD TATA FIRST AUTO WORKS Purchase of Jaguar & Land Rover linked to cooperation on technology and components A joint venture with Volvo to produce engines in China GENERAL MOTORS Joint venture to produce transmissions PEUGEOT Partnering in diesel engines DAIMLER Joint research into fuel cells MAZDA Equity stake cut to 13%. Shared technology, designs & components. Several JVs. MARUTI Joint venture to produce components in India www.foundationsofstrategy.com CASE02.indd 12 29/02/12 4:27 PM Excess capacity The greatest structural problem of the industry was excess capacity. Ever since the early 1980s, the growth of production capacity had outstripped the growth in the demand for cars. Import restrictions had exacerbated the problem. During the 1980s and early 1990s, North American production capacity grew substantially as a result of Japanese companies building greenfield “transplants.” Further big additions to world production capacity resulted from the expansion of the Korean car industry during 1992–7. Since 2000, the main additions to capacity were in Eastern Europe, Asia and Latin America where all the world’s leading automakers rushed to build new plants to serve growing demand. The biggest overhangs of excess capacity were in North America and Europe (see Table 6), but even in China, where demand grew by almost 50% annually between 2002 and 2011, growth of capacity outstripped growth in demand. Looking ahead, the prospects of reducing excess capacity were limited by, first, the resistance by national governments to plant closures; second, continuing investment in new plants in emerging market countries—in China capacity utilization was forecast to fall to 66% by 2016. 13 F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 Despite constant cost-cutting, the major automakers were unable to rival low cost producers in China, India, and elsewhere. Tata Motors’ 2009 launch of its Nano model— four-seater, 623cc city car, with fuel cosumption of 70 miles per gallon and priced at a mere $2200—was a major shock to the multinational automakers. However, the subsequent difficulties that the Nano encountered in terms of production, safety and market acceptance point to the sheer complexity of the bringing an innovative new model to market and the challenges facing emerging market automakers in rivaling the experience and expertise of the established giants.5 Table 6 Automobile production capacity utilization 2008 2009 2010 North America 79% 44% 65% South America 82% 62% 75% Europe 84% 65% 68% Japan and Korea 86% 72% 78% South Asia 89% 83% 81% Source: Various press and consulting firm reports. www.foundationsofstrategy.com CASE02.indd 13 29/02/12 4:27 PM 14 Internationalization F O U N DAT I O N S O F S T R AT E G Y International expansion was driven primarily by the auto makers’ desire to access growing markets; to exploit scale economies in purchasing, technology, and new product development; and to seek low-cost manufacturing locations (see Table 6). Although Ford and General Motors began their international expansion back in the 1920s, until the 1970s the world auto industry was made up of separate national markets where each national market was dominated by indigenous producers. The global strategies of the Japanese automakers changed all that. After 1980, the main strategic priority of all the world’s major auto companies was to build aglobal presence through acquisition, alliance and joint venture. As a result of internationalization, the dominance of national champions was undermined (see Table 7). Table 7 Hourly compensation for motor vehicle workers (U.S.$ per hour, including benefits) 1975 1984 1994 2004 2006 2009* Germany 7.9 11.9 34.7 44.0 45.9 46.5 U.S. 9.6 19.0 27.0 33.9 35.1 33.5 U.K. 4.1 7.4 16.0 29.4 30.0 30.8 France 5.1 8.2 18.8 26.3 29.4 40.1 Japan 3.6 7.9 25.9 27.4 27.8 30.4 Spain 3.7 5.3 15.4 21.5 24.2 27.7 Korea 0.5 1.7 7.8 15.8 19.0 14.2 Italy 5.2 8.0 16.3 21.7 18.6 35.0 Mexico 2.9 2.6 3.0 3.5 3.7 5.4 Note: The 2009 data relates to all manufacturing industry; the data for earlier years refers to motor vehicle manufacture only. Source: U.S. Department of Labor, Bureau of Labor Statistics. Table 8 Automobile market shares in individual countries (%) 1988 2006 2010 U.S.* 1988 2006 2010 U.K. GM 36.3 23.5 19.1 Ford 26.3 18.5 15.8 Ford 21.7 16.7 16.5 GM (Vauxhall) 13.7 12.7 12.8 Chrysler 11.3 8.8 9.3 Peugeot 8.7 10.0 8.8 Toyota 6.9 13.9 15.3 VW/Audi 5.9 12.9 16.0 Honda 6.2 8.8 10.7 BMW (& Rover) 15.0 4.6 6.9 www.foundationsofstrategy.com CASE02.indd 14 29/02/12 4:27 PM FRANCE JAPAN 15 29.1 24.8 22.1 Toyota 43.9 40.4 34.4 Peugeot 34.2 28.2 32.4 Nissan 23.2 14.0 12.8 VW 9.2 11.6 11.0 Honda 10.8 12.2 14.2 Ford 7.1 6.0 5.1 Suzuki 12.1 11.4 ITALY n.a. KOREA Fiat 59.9 28.5 30.1 Hyundai 55.9 50.0 37.6 VW/Audi 11.7 10.8 11.6 Kia 25.0 23.3 28.2 Ford 3.7 7.8 9.1 Daewoo 19.1 10.0 22.7 Peugeot n.a. 9.6 10.3 CHINA Renault 7.1 6.4 GERMANY Shanghai GM 10.4 Shanghai VW 9.7 VW/Audi 28.3 27.8 35.1 FAW Volkswagen 8.9 GM (Opel) 16.1 9.7 8.9 Beijing Hyundai 6.1 Ford 10.1 8.0 6.8 Dongfeng PSA 6.0 9.2 11.3 10.6 BYD 5.5 Chery 5.1 Daimler F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 Renault Notes: * The market share data is for passenger cars only with the exception of the U.S. which is for cars and light trucks. n.a. = not available. Sources: Japan Automobile Manufacturers Association; Korean Automobile Manufacturers Association; A. K. Binder (Ed.), Ward’s Automotive Yearbook, 2009, Wards Communications, Southfield MI, 2009. Outlook for the future As he reviewed the forces likely to impact the world automobile industry during the next five years, he found it difficult to assess their combined impact of these forces on the overall intensity of competition in the industry. While Ford had forecasts for demand growth in all the major markets of the world, even if the more optimistic boundaries of these forecasts were achieved, market growth would not translate into adequate profit margins if the chronic overhang of excess capacity remained. In the mature industrialized countries there seemed little prospect that either market growth or that plant closures would eliminate the overhang of excess capacity. Indeed, the growth in alternative transport modes—included shared car ownership—pointed to the possibility of decline in private automobile use. In the newly industrializing countries—especially Asia and Latin America where Ford had pinned most of its hopes—the indications were that capacity expansion would outstrip sales growth. www.foundationsofstrategy.com CASE02.indd 15 29/02/12 4:27 PM 16 F O U N DAT I O N S O F S T R AT E G Y The international aspirations of leading emerging markets producers suggested that the established auto makers would be facing more intense competition. Tata Motor’s acquisitions of Jaguar and Land Rover, Geely’s of Volvo and SAIC’s of the MG and Rover brands provides these firms with international platforms from which to compete. The introduction of all-electric cars, while offering the prospects for new demand, might also be an opportunity for newcomers to muscle-in on the market domains of the major auto makers. Despite the tiny market share of hybrid and all-electric vehicles, environmental concerns, environmental regulation, and depleting oil reserves pointed to their potential to increasingly displace conventional automobiles. Despite heavy investments by most of the leading car makers in both hybrid and all-electric autos, leaders in electrical vehicles included Magna International, the Canadian auto parts producer, Tesla, a Californian start-up producers of luxury electrical cars, Smiths Electrical vehicles in electrically-powered trucks, BYD Auto the leading Chinese producer of hybrid and electric cars, and Think Global the Norwegian producer of electric cars owned by the Russian firm, Electric Mobility Solutions. Despite the gloom that pervaded many experts’ outlook on the auto sector, Booth saw several rays of light. He had noted the success—in terms of both sales and profit margins—of several small cars, notably the BMW Mini and Fiat Cinquecento. It appeared that customer preferences—even in the US—were shifting with a greater interest in fuel economy, safety, and aesthetics. After a long period when different manufacturers’ mass market models had been becoming increasingly similar, the future might offer greater potential for differentiation, including mass-customization that the car makers had hardly begun to exploit;cars ºhad been e auto form’s belief in the superiority of the internal combustion engine. Underlying these opportunities were new approaches to product development— including virtual prototyping, modular design and collaborative design and development—which had the potential to overturn conventional relationships between scale and cost competitiveness within the industry. Appendix Table 9 Company sales ($ billion) 1980–4a 1985–9a 1990–4a 1995–9a 2000-4a 2005-9 a 2010 Toyota 18 42 82 107 125 205 222 VW 16 28 48 64 96 143 168 GM 68 110 128 169 186 167 135 Ford 42 77 96 149 166 155 129 www.foundationsofstrategy.com CASE02.indd 16 29/02/12 4:27 PM 12 34 59 71 166 153 129 Honda 8 18 35 50 62 94 104 Nissan 16 26 51 57 58 90 102 n.a. n.a. n.a. 18 38 70 97 5 10 21 34 45 70 80 Peugeot 13 19 28 35 58 73 74 Mitsubishi 12 14 25 32 27 43 61 Renault 15 31 31 37 44 52 52 Fiat 18 27 42 50 59 72 47 n.a. 12 21 18 19 27 27 Hyundai Motor BMW Mazda a Annual average. b Daimler Chrysler 2000–6. n.a. = not available. Source: Company Financial Statements; Hoovers. Table 10 Company profitability (return on equity, %) 1980–4a 1985–9a 1990–4a 1995–9a 2000–4 2005–9 12.6 10.6 6.1 6.8 10.1 7.0 2.1 5.5 25.0 17.1 Toyota VW 2010 1.6 6.3 (0.4) 11.1 6.8 b GM 11.4 11.8 3.2 27.5 11.7 (10.5) Ford 0.4 21.8 5.9 35.4 (7.7) (10.4) Daimler 24.3 18.3 6.9 22.1 7.7 4.8 Honda 18.1 11.8 5.3 15.1 13.2 8.0 6.6 Nissan 10.3 4.7 3.6 (0.1) 29.3 7.4 10.3 n.a. n.a. n.a. 4.4 10.6 12.0 20.0 BMW 14.8 10.4 9.7 (4.0) 15.4 10.8 22.1 Peugeot (15.2) 36.7 12.5 3.0 13.4 (1.4) 9.1 Mitsubishi 10.0 7.9 4.8 (5.3) (113.3) (12.7) 6.5 (152.4) 51.1 9.1 11.0 14.7 14.4 18.3 10.9 18.7 6.8 7.6 (24.2) 9.9 15.2 n.a. 4.8 5.0 6.3 (34.2) 9.6 (18.4) Hyundai Motor Renault Fiat Mazda 17 F O R D A N D T H E W O R L D AU TO M O B I L E I N D U S T RY I N 2012 Daimlerb 14.9 a Annual average. b GM made a net loss of $2billion in 2006, $39 billion in 2007 and $31 bn. in 2008. n.a. = not available. n.c. = not calculable (shareholders’ equity negative). Source: Company financial statements; Hoovers. www.foundationsofstrategy.com CASE02.indd 17 29/02/12 4:27 PM 18 Notes F O U N DAT I O N S O F S T R AT E G Y 1 Ford Motor Company, Business Plan Submitted to the Senate Banking Committee, December 2, 2008. 2 “U.S. Car Industry: Back on the Road, “ Financial Times, June 17, 2009. 3 Automobiles (passenger motor cars) used to transport people are normally distinguished from commercial vehicles (trucks) used to transport goods. However, in the US, sport-utility vehicles and pick-up trucks (classed as light trucks) are used primarily for personal transportation. Ideally we would like to define the automobile industry as comprising automobiles and light trucks (small vans, pick-up trucks, SUVs, passenger vans), but excluding heavy trucks and large buses. However, most of the statistics we use, “automobiles” exclude light trucks, while “motor vehicles comprise automobiles and and all trucks and buses. 4 “Fiat’s Marchionne sees auto-industry consolidation” MarketWatch, Sept. 9, 2011. http://www.marketwatch.com/story/fiats-marchionne-sees-auto-industryconsolidation-2011-09-09 5 “Tata’s Nano: Stuck in low gear,” The Economist, August 20, 2011. www.foundationsofstrategy.com CASE02.indd 18 29/02/12 4:27 PM
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