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Question: When Ford CEO Alan Mulally arrived at the company …
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When Ford CEO Alan Mulally arrived at the company in 2006 after a long career at Boeing, he was shocked to learn that the company produced one Ford Focus for Europe and a totally different one for the United States. “Can you imagine having one Boeing 737 for Europe and one 737 for the United States?” he said at the time. Due to this product strategy, Ford was unable to buy common parts for the vehicles, could not share development costs, and couldn’t use its European Focus plants to make cars for the United States, or vice versa. In a business where economies of scale are important, the result was high costs. Nor were these problems limited to the Ford Focus. The strategy of designing and building different cars for different regions was the standard approach at Ford. Ford’s long-standing strategy of regional models was based upon the assumption that consumers in different regions had different tastes and preferences, which required considerable local customization. Americans, it was argued, loved their trucks and SUVs, while Europeans preferred smaller, fuel-efficient cars. Notwithstanding such differences, Mulally still could not understand why small car models like the Focus, or the Escape SUV, which were sold in different regions, were not built on the same platform and did not share common parts. In truth, the strategy probably had more to do with the autonomy of different regions within Ford’s organization—a fact that was deeply embedded in Ford’s history as one of the oldest multinational corporations. When the global financial crisis rocked the world’s automobile industry in 2008–2009 and precipitated the steepest drop in sales since the Great Depression, Mulally decided that Ford had to change its long-standing practices in order to get its costs under control. Moreover, he felt that there was no way that Ford would be able to compete effectively in the large developing markets of China and India unless Ford leveraged its global scale to produce low-cost cars. The result was Mulally’s One Ford strategy, which aims to create a handful of car platforms that Ford can use everywhere in the world. Page 368 Under this strategy, new models—such as the 2013 Fiesta, Focus, and Escape—share a common design, are built on a common platform, use the same parts, and will be built in identical factories around the world. Ultimately, Ford hopes to have only five platforms to deliver sales of more than 6 million vehicles by 2016. In 2006, Ford had 15 platforms that accounted for sales of 6.6 million vehicles. By pursuing this strategy, Ford can share the costs of design and tooling, and it can attain much greater scale economies in the production of component parts. Ford has stated that it will take about one-third out of the $1 billion cost of developing a new car model and should significantly reduce its $50 billion annual budget for component parts. Moreover, because the different factories producing these cars are identical in all respects, useful knowledge acquired through experience in one factory can quickly be transferred to other factories, resulting in systemwide cost savings. What Ford hopes is that this strategy will bring down costs sufficiently to enable Ford to make greater profit margins in developed markets and be able to achieve good profit margins at lower price points in hypercompetitive developing nations, such as China (now the world’s largest car market), where Ford currently trails its global rivals such as General Motors and Volkswagen. Indeed, the strategy is central to Mulally’s goal for growing Ford’s sales from 5.5 million in 2010 to 8 million by mid-decade. Sources: M. Ramsey, “For SUV Marks New World Car Strategy,” The Wall Street Journal, November 16, 2011; B. Vlasic, “Ford Strategy Will Call for Stepping Up Expansion, Especially in Asia,” The New York Times, June 7, 2011; and “Global Manufacturing Strategy Gives Ford Competitive Advantage,” Ford Motor Company website, http://media.ford.com/article_display.cfm?article_id=13633.

CASE DISCUSSION QUESTIONS:

1. How would you characterize the strategy for competing internationally that Ford was pursuing prior to the arrival of Alan Mulally in 2006? What were the benefits of this strategy? What were the costs? Why was Ford pursuing this strategy?

2. What strategy is Mulally trying to get Ford to pursue with his One Ford initiative? What are the benefits of this strategy? Can you see any drawbacks?

3. Does the One Ford initiative imply that Ford will now ignore national and regional differences in demand?

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1. How would you characterize the strategy for competing internationally that Ford was pursuing prior to the arrival of Alan Mulally in 2006? What were the benefits of this strategy? What were the costs? Why was Ford pursuing this strategy?

Prior to 2006, Ford Motors Manufacturing strategy was country specific localization which means making products in this case car as per the needs, requirements and taste specific to each country. They were primarily focused in American and European Markets and hence this thing also reflected in the kind of product they were manufacturing.

In such a Manufacturing strategy each line of product was a kind of different line of Business or Entity within the Ford itself. They did not shared components, processes and design among themselves mainly because requirement itself was different. Since each line of product was specific to a country or group of people so they did not had to invest much in research and development once the initial design was approved. They simply had to focus on the pre-approved country specific design of the cars and try to maximize profit by using Economies of Scale which they were easily doing till 2006. There markets were specific and so were there products. Using this strategy helped them focus on a specific market need which lowered their cost of Research and Development and also on Marketing since their products were customized enough for a specific market.

However using this strategy they were missing many things and one of them was the wide bigger market outside Europe and America and secondly soon they were going to hit because of the globalization impact which the strategy they followed till 2006 was not sufficient. Secondly due to customized products for each market and country they were missing the opportunity of Mass Customization and benefits of common components and assemble to order. Since each line of product had different requirements so they were using entirely different set of components and sub-assemblies due to which there make up cost was very high i.e. they were incurring very huge cost in the making of the product itself which was increasing the bottom line and decreasing their revenues. They were also missing other emerging markets because they had products specific to country which was not sellable in other countries and this in turn also required huge investment in research and development to make country and region specific products.

However till 2006 they were pursing this strategy since it worked for them and they were able to get revenues. Prior to 2006 Ford was focusing only in the Western Markets but later globalization and recession in the western markets had a big impact on the sales and revenues of the company and hence they were forced to move out of this strategy.

2. What strategy is Mulally trying to get Ford to pursue with his One Ford initiative? What are the benefits of this strategy? Can you see any drawbacks?

Mulally is trying to use the Assemble to Order/Configure to Order products and take the benefit of Mass Customization. Under this strategy they are targeting to have common components and sub-assemblies which can then be assembled to make the final car based on the actual customer or market requirement. This way they will specialize and benefit from the economies of scale for the component for the entire range of products and at the same time they can cater the needs and demands for different regions even if they have different specifications because they share common components and sub-assemblies. This way they can produce similar components and sub-assemblies across the globe with highest efficiency and lowest cost without fearing about the variation in pattern of end demand. This way they can also meet the demand across the Globe and compete with the emerging Eastern Markets successfully.

This is one of the best strategy followed world-wide across the globe to compete themselves globally and reduce their manufacturing cost and promote products at competitively lower price to gain market share. Only drawback we can see with this strategy is that there may be some increased inventory of the components and sub-assemblies across the supply chain but this can be compensated by having less number of components and sub-assemblies across the organization instead of maintaining wide range of components and sub-assemblies.

3. Does the One Ford initiative imply that Ford will now ignore national and regional differences in demand?

Mulally’s One Ford strategy will definitely be competitive across the globe. They are not at all going to ignore the national and regional differences but now the benefit will be that these wide range of products will share the same components and sub-assemblies which can be customized and assembled to make products specific to nation and region. In current globalized world companies have to make products which meets the specific customer needs and Assemble to Order/Configure to Order is the best strategy which can lower cost as well as help in making wide range of products. So the current One Ford strategy is best suited to reduce cost without ignoring the national and regional differences.