Company Profile Ford Motor Company was founded in 1903 by automotive and industrial pioneer Henry Ford in Dearborn, Michigan. Being first to implement a moving assembly line for automotive manufacturing, Ford was able to more efficiently mass produce their products than their competitors. In 1908 the Model T was introduced and went on to sell over 15 million vehicles, firmly establishing Ford as the major player in the early automotive industry with 50% market share by the 1920s. The company went public 1956 and since then has grown to be a significant presence in the global automotive market.
Financial ratios are useful indicators of a firm’s performance and financial situation (Friedlob & Schleifer, 2003). Ratios can be used to analyze trends and to compare a firm’s financials to other firms. Although there is an abundant amount of ratios, we will only be looking at the ones that are most important when analyzing Ford Motors activities and results for the last 3years. Profitability Ratios Based on the results(See Appendix 1), the recession has really taken its toll on Ford motors.
The general decline in nits profitability ratios suggest that the company has not been performing well in recent times. In actual fact, the company’s financial conditions began to decline since 2005 which was even before the recession. The negative earnings per share (EPS), profit margin, return on assets raises an alarm. The low profitability is also responsible for the low fixed and total assets turnover ratios. Return on equity however shows a slight improvement which can also be a result of the recent re-engineering process by the company. Liquidity Ratios
The company’s Current ratio is low but not alarming (see financial statement in Appendix 1), the general expectation is for current assets to cover current liabilities at company’s quick ratio of 1. 26 is quite good as it suggests that the company will be able to meet its urgent current liabilities as they fall due even without having to dispose of inventories. Inventory turnover appears to have been steady within the same range over the last 5 years and receivables turnover poses no problem. The company is relatively liquid despite its low profitability Solvency Ratios
The company’s low profitability(See Apendix 1) also poses a problem in the Times interest earned as there is a possibility that the company might not be able to generate enough profits to meet up with repayment of interests on loans. This could be an issue as failure to repay interest and/or capital leaves the company vulnerable to bankruptcy procedure by its creditors. The trend over the last 3 years also shows a serious decline in some years. The company also appears to be highly geared from the other solvency ratios and this goes further to confirm initial worries.
The company needs to address its profitability problems urgently so as to remain competitive and achieve meaningful growth in the immediate future. This will require a lot and some of the ways I have identified are explained below: Operating expenses and other expenses are on the high side and there is need to try and achieve a reduction to improve profitability. The company should conduct an intensive process audit to identify and eradicate unnecessary processes. This will help to reduce labour hour and eliminate wastage during production.
Managing Operational Management in the Global Market Business today operates in a global environment (Agarwal, 2004). This environment forces companies, regardless of location or primary market base, are now expected to consider the rest of the world in their competitive strategy analysis. Porter (1986) also asserted that firms cannot isolate themselves from or ignore external factors such as economic trends, competitive situations or technology innovation in other countries, especially if some of their competitors are competing or are located in those countries.
Global organizations face a complex set of challenges characterized by diversity both inside and outside the organization (Maznevski et al, 2007; p2). Prior to the economic crisis of 2007, Ford has become one of the most globalized of the automakers with research and design facilities as well as manufacturers and marketing operations around the world (Albaum et al, 2004;p). With its advantages in low costing, high volume, and availability of parts for service, it was able to rapidly expand its market (Leontiades 2000; p22-23). External Environment Challenges
Economic Environment Doole and Lowe (2008) emphasizes how important it is for Global managers to understand the economic development in countries where it wants to expand to and how they impact on the overall strategy of the Firm (Doole &Lowe, 2008;pp 12-13). This knowledge is important at a world level in terms of the world trading infrastructure such as world institutions and trade agreements developed to foster international trade, at a regional level in terms of regional trade integration and at a country/market level (Doole &Lowe, 2008; pp 12-13). ) Technological Challenges A peculiar trend which was prevalent in the last decade, besides globalization, was a limited number of producers which emerged due to diversity among products and uniformity across national markets (Agarwal, 2004). Amid global conditions that amount to an economic and industry crisis, the world’s auto-makers still consider innovation and technology to be the most important trend over the next five years.
Fuel efficiency improvements, alternative fuel technologies and environmental pressures are considered the three most influential trends that managers needs to focus on to combat operational challenges (Kpmg Global Auto Executive Survey, 2009; p27-28) d) Political and Macroeconomics Challenges According to Stuger-Noguez (2002), political uncertainties include all possible changes in economic policies in either side of the border. Agarwal (2004) explains how getting hit with unexpected or unreasonable currency devaluations in the foreign countries in which they operate is a nightmare for global operations managers.
Managing exposure to changes in nominal and real exchange rates is a task which the global operations manager must master. Doole & Lowe (2008) affirmed that politics is intrinsically linked to a government’s attitude to business and the freedom within which it allows firms to operate. Doole & Lowe noted that unstable political regimes exposes foreign businesses to a variety of risks that they would generally not face in the home market therefore posing sometimes difficult challenges. Going Global In a recent paper (Alexander & Korine, 2008) asserts that economic lobalization has come to be viewed by some as the best hope for world stability, and others as the greatest threat. Columbus (2003) also maintained that “economic globalization has become an unavoidable reality which all companies must accept”. Alexander & Korine(2008) found that going global is a trend that almost everyone acknowledges that businesses of all types must embrace yet, even as companies are being told that the future lies in globalization, some are still severely punished for their international moves.
Gluckler (2005) also contended that globalization has gone from the purview of the largest multinationals to an imperative for mid-size and even small companies. For many, going global is not a future growth strategy, but rather a near-term survival mechanism . Companies today operate in a very competitive global marketplace. Relentless cost pressure combined with a flood of new market entrants, lowered trade barriers, and stagnant or overcrowded home markets have forced companies of all sizes to push the global envelope (Gluckler, 2005).
But as Spulber (2007) stated the question for companies is not whether to tap the global market but when? Spulber claims that the global market is not just about a matter of challenging competition, but global markets representing a wide array of opportunities (2007:4). Whilst another researcher Giddens (2000) cited in Blossfeld(2007) found that for companies enjoying local successes, going global is a tough call with tremendous pressure to join the first-to-market frenzy and dive into all the interesting technical infrastructure that goes with a full globalization initiative.
A report by Deloitte (2005), also agrees that it is sometimes the smaller companies and suppliers that often face the daunting prospect of “go global or go away. ” The review claimed that the extended global enterprise requires new ways of structuring and managing operations. Successful global deployment can lead to significant rewards, but achieving them also involves grappling with unfamiliar risks (Deloitte, 2005). Ford’s decision to open foreign operations was driven by several factors.
Ford’s marketing-seeking strategy in foreign locations was as a result of the company’s goal to expand sales, which it derived from the mass production rationale ( Studer-Noguez,2002, p50). Ford also preferred exporting cars and parts from the parent company to foreign markets to manufacturing abroad, so as to avoid such investment risks as political changes, different work cultures, and currency adjustments. Ford was also willing to open small assembly plants, as they did not have major cost disadvantages owing to the labour-intensive character of assembly (Doz ,1980:75).
Wilkins & Hill (1964:361) cited in Studer-Noguez(2002) explained that Ford’s risk minimizing strategy provided access to markets without having to incur and huge financial costs and risks from establishing manufacturing operations unless a significant demand for their vehicles was guaranteed. After establishing operations in different countries, Ford uses first-mover, location, internalization, and knowledge advantages there to compete with its rival automakers (Wilkins&Hill: 1964).
STAKEHOLDER OR SHAREHOLDERS? Due to the effects of Globalization, there has been an increased need for firms to incorporate the concerns and needs of stakeholder groups within the organization’s strategic outlook or otherwise risk losing societal legitimacy (Werther&Chandler, 2006; pp25-54). Although recognizing that profits are necessary for any business to survive, it is also important to note that for profit organizations are only able to obtain those profits because of the society(Kotler &Lee,2005,p).
According to the KPMG International Survey of Corporate Responsibility Reporting 2005, there has been a dramatic change in the type of Corporate responsibility (CR) reporting, which has changed from purely environmental reporting up until 1999, to sustainability reporting(social, environmental & economic), and which has now become mainstream among large companies. Werther & Chandler (2006) defines Corporate Social Responsibility as the “activities undertaken by businesses that enhance their value in the community and society and thus benefit their reputation and brand”.
While, Hopkins (2001) views CSR as “concern with treating the stakeholders of the firm ethically or in a responsible manner ‘Ethically or responsible’ means treating stakeholders in a manner deemed acceptable” (p. 17). A commonly invoked justification of CSR is in the idea of multiple stakeholders: employees, suppliers, creditors, consumers, and regulatory authorities in corporations of which shareholders form only one group (Werther & Chandler, 2006,p26). Such opinions, however, contradict the traditional view of the orporation as a vehicle to create value for shareholders (Friedman, 1970). This view implies that corporate managers’ fiduciary duty is solely to further the interests of shareholders – under the assumption that other stakeholders’ interests are taken care of and protected by laws and regulations with which companies have to comply in their pursuit of profit(Vogel,2005; p13). Burdening companies with other objectives beyond profit maximization within confines of the law would adversely affect their efficiency and thus diminish social welfare – hence the famous dictum of Polishchuk 2009) L.
Corporate Social Responsibility vs. Government Regulation: Institutional Analysis with an Application to Russia. 2009. LIA Working Paper Series, WP10/2009/01, 24 p. Milton Friedman (1970) that “the social responsibility of business is to increase its profits”. Modern interpretations of CSR reconciles these seemingly contradictory positions by concluding that socially responsible behaviour is in companies’ ultimate self-interest – it allows corporations “to do well by doing good”(Kotler & Lee, 2005;p 1-2). This could be of two types.
The first, known as “free lunch” is a direct “coincidence of wants”, when actions that companies take in pursuit of their immediate business objectives cause positive externalities and thus just happen to be in other stakeholders’ interests as well (Polishchuk, 2009). However, Consumers are more knowledgeable today about climate change, in due time that the concept of sustainability will unite concepts such as social good and environmental stewardship with the goal of financial gain (Estes,2009 ;p15) Reconciling the Stakeholder and Shareholder Needs The recent past has reinforced two fundamental beliefs.
The first is that the business of business is precisely to maximize its shareholder value by increasing its intrinsic value. The second is that maximizing value involves managing both performance in the short term and the company’s long-term health (Dobbs, 2005). The more shareholder value a company creates in an effectively regulated market, the better the company serves all its stakeholders (Dobbs 2005). He further argued that the wider stakeholder benefits of managing for long-term-value creation: the companies that created the most shareholder value over the past 15 years also created the ost employment and invested the most in R (Dobbs 2005). Ford Motor has long held the view that to be successful it also needs to be environmentally and socially responsible (Sustainability Report, 2009). This vision of sustainability was further emphasised by Bill Ford in 2005. Mr Ford identified that sustainability was going to be a long term strategic priority and there was a clear business case for reducing resource use and developing innovative “green” and safer products and technologies. Ford’s approach to corporate social responsibility (CSR) was first communicated in its inaugural corporate citizenship report in 1999 .
In the report, Ford started to explore the issue of transparency, accountability and sustainable development. Since then Ford has recognised that corporate citizenship was becoming more associated with the narrower focus of philanthropy and not the business issue of sustainability. Ford now has adopted a more integrated approach to CSR and renamed its CSR 2004/05 report “Our Route to Sustainability”. As William Ford (2009) stated in Ford’s Corporate Sustainability Report “Our economic and environmental goals are aligned. In fact, we believe that the best way for us to be more profitable is to make our business and products more sustainable. Recommended Strategic Priorities Positioning Ford as a market leader in both product and service quality. In my opinion, the focus should be placed on upgrading its supply chain management. As a market leader, Ford’s supply chain ought not to stop at being fast or cost-effective but should be responsive enough to respond to any change in the markets, be it change in supply or demand or unexpected market change. Ford Motor’s SCM should also be able to advance as political changes occur, economic progress, technological advances and globalization trends restructure markets.
Also putting into consideration, different supply chain designs for its different product lines. In the wake of the financial crisis, low-cost or high speed supply chains are not flexible enough to respond to the different and unknown effects of globalization. The automobile industry is survival of the fittest and most innovative. Ford also needs to optimize its supply chain to align the interests of all the firms in its supply chain with its own. Because each player make the most out of its own interests, and therefore optimizes the supply chain’s performance. The second priority concerns product innovation.
The product plan should be broadened even beyond the Electric/Hybrid cars. The simple fact is that Ford, with its high-cost infrastructure, burdensome union contracts, and short-sighted focus on pushing gas-guzzling SUVs, is on the verge of losing its fresh ideas which Henry Ford was known for. More nimble competitors from China, Japan—even South Korea—are eating Ford’s lunch in emerging markets and in the United States. The bottom line is that car buyers, wherever they live, now want a reliable, low-cost, fuel-efficient vehicle and they don’t care where it’s made.
That’s why the Japanese companies sales in the United States keeps rising while Ford—the home team—saw U. S. sales decline. Ford’s turnaround must also include pushing more of its IT, manufacturing, and support operations into other markets that promise big growth. Beyond India, there is Eastern Europe, Africa and China. Also centralizing help-desk operations in countries where they want to set up production wouldn’t just make economic sense; it would be a smart marketing move. Consumers are more likely to buy a car the company is indigenous.
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