Case Study

Ford – Global Mindset and Risk Assessment

This case study analyzes the global mindset at Ford Motor Company, a leading multinational manufacturer of cars and
trucks. The case also discusses a number of potential risks and challenges that Ford faces or may face in future and how it is
responding to it. Ford’s global strategic management and strategies like ONE Ford, Aligned Business Framework (ABF), and
matched-pairs are also briefly discussed.

Case Author: Manish Kumar Jain, Casestudyinc.com Published in June, 2010

Please note: This case study was compiled from published sources, and is intended for use as a basis for class discussion
and for information purposes only. While care is taken to ensure correctness of the facts, accuracy of information cannot
be guaranteed and the content should not be taken as a substitute for professional advice.
Unauthorized distribution of this document electronically or otherwise is prohibited.
Please contact info@casestudyinc.com for any queries.
 Table of Contents

1. Introduction - Ford’s Global Mindset .........................................................................................................3

2. Ford – Quick Facts ...............................................................................................................................................4
3. Risk Factors in the Automobile Industry .................................................................................................5
3.1. Financial Crisis and recession ..............................................................................................................5
3.2. Oil Crisis, Changing consumer habits and Environment standards ...................................5
3.3. Investing in R&D and New Technology ...........................................................................................5
4. Assessing Risks in a global environment .................................................................................................6
4.1. Early Years – From a market-seeking to a resource-seeking strategy .............................6
4.2. Expanding capacity in markets where it is lagging behind ....................................................6
4.3. Using new technology ..............................................................................................................................7
4.4. Local Sourcing ..............................................................................................................................................7
4.5. Other Risk factors .......................................................................................................................................7
5. ONE Ford Strategy...............................................................................................................................................8
5.1. “Matched-pairs” system ..........................................................................................................................9
6. Aligned Business Framework ........................................................................................................................9
7. Ford’s Global Manufacturing Strategy .................................................................................................... 10
7.1. Standardization and Sharing Best Practices ............................................................................... 10
8. Ford’s Global product strategy................................................................................................................... 11
Bibliography ................................................................................................................................................................. 12

Exhibit 1 - Ford's five key priorities in operating as a globally integrated team ...........................3
Exhibit 2 - Ford's Facilities around the World................................................................................................4
Exhibit 3 – Ford’s Business Segments based upon its organizational structure............................4
Exhibit 4 - Industry sales volume - 2005 to 2009 .........................................................................................5
Exhibit 5 - Factors affecting Ford’s profitability ............................................................................................6
Exhibit 6 - ONE Ford plan that Ford Motor Company is using to transform its business .........8
Exhibit 7 - Key elements of Ford’s Aligned Business Framework (ABF) agreements .................9
Exhibit 8- Main elements of Ford’s Flexible Manufacturing Strategy .............................................. 10

2 Ford – Global Mindset and Risk Assessment

1. Introduction - Ford’s Global Mindset

“Ford can‟t build the company if it holds on to a mindset that doesn‟t respond swiftly to consumers‟ needs or pay
attention to the capital markets. So that‟s why we are in the process of reinventing Ford as a global organization
with a single strategic focus on consumers and shareholder value. That‟s not to say you wipe out national cultures
or eliminate the idea that it makes sense to have people with expertise in one function or another, but it does mean
you strive for some sort of Ford-wide corporate DNA that drives how we do things everywhere. That DNA has a
couple of key components: a global mindset, as I‟ve said, an intuitive knowledge of Ford‟s customers, a relentless
focus on growth, and the strong belief that leaders are teachers.”

- Jacques Nasser, CEO of Ford Motor Company in 2000.

In the past, Ford was known as one of the best managed companies in the industry. But of late,
Ford had been known as a company in trouble. Ford was facing a tough situation with declining
sales and deteriorating market share. In 2002, Ford faced plant closures, employee downsizing
and other drastic cost cutting measures aimed at trimming excess production and streamlining
operations. Ford was competing in a highly competitive automotive market and where major
players competed on the basis of product quality, advertising, promotion and price.

Recently, Ford increased its share in the U.S. market with U.S. auto sales on a recovery path. But
it was clear that the company was just winning slightly larger pieces of a fairly static pie and its
ability to sustain huge annual growth rates was doubtful. For sustaining high annual growth
levels, Ford had to take a global approach.
Exhibit 1 - Ford's five key priorities in operating as a globally integrated team

Ford Motor Company operates as a globally integrated worldwide team, with five key priorities:

 Achieve maximum profitability in any environment

 Constantly innovate new products that customers want and value
 Develop environmentally friendly products and processes wherever possible
 Finance our plans and improve balance sheet
 Work together as a global team
Source: http://www.ford.co.uk/AboutFord/CompanyInformation/TheFordGlobalCompany

In recent years, Ford's attention and resources have been focused on survival - on rebuilding its
core businesses in the U.S. and Europe - and previous management teams did little to build
Ford's presence in Asia.1 In March 2010, Ford announced it would launch more global products
in the Indian market. For almost a decade, Ford remained a marginal player in India. The
introduction of global cars in the Asian market meant a serious pitch for a larger share. The
company also announced the revealing of a global concept car at the Beijing Motor Show.

In 2010, the company also recognized that oil as the only alternative for its vehicles was not a
good business strategy and it announced that globally by 2020, it would electrify the Ford fleet

1 (John Rosevear, 2010)

3 Ford – Global Mindset and Risk Assessment

by 10 to 25 percent. In Germany, Ford recently announced its participation in the colognE-mobil
project where it will research the impact of electric vehicles on urban air quality etc. and
ultimately the true benefits an electric car could deliver. Ford was also participating in prototype
trials in Europe where it is looking to expand its presence with next-generation hybrid cars.

2. Ford – Quick Facts

Company Ford Motor Company

Headquarters Dearborn, Mich.,
Founded 1903
Activity Designs, develops, manufactures, and services cars and trucks
worldwide.
Employees approximately 176,000
Total Plants 80 plants worldwide
Business Sectors Automotive, Financial Services
Automotive brands Ford, Lincoln, Mercury and Volvo
Major Competitors GM, Honda, Toyota
Revenue(ttm) US$ 125.48B
CEO Mr. Alan R. Mulally
Exec. Chairman and COO Mr. William Clay Ford Jr
Exec. VP of Global Manufacturing Mr. John Fleming
Website www.ford.com

Exhibit 2 - Ford's Facilities around the World

Distribution
Engineering,
Segment Plants Centers/
R&D
Sales Offices
Warehouses

Ford North America 40 31 53 58

Ford South America 7 7 3 9
Ford Europe 20 8 5 19
Volvo 8 11 2 37
Ford Asia Pacific Africa 12 2 2 13
Total 87 59 65 136
(As of December 31, 2009) (Source: Ford Annual Report - 10-K filed February 25, 2010)

Exhibit 3 – Ford’s Business Segments based upon its organizational structure

Business Segments Sales of * Region

Ford, Lincoln and Mercury brand vehicles and North America
Ford North America
related service parts (the United States, Canada and Mexico)
Ford South America Ford-brand vehicles and related service parts South America
Ford Europe Ford-brand vehicles and related service parts Europe, Turkey and Russia,
Ford Asia Pacific Africa Ford-brand vehicles and related service parts Asia Pacific region and South Africa,
Global (incl Europe, North and South
Volvo Volvo-brand vehicles and related service parts
America, and Asia Pacific Africa)
* Together with the associated costs to design, develop, manufacture and service these vehicles and parts (Source: Adapted from Ford Annual Report - 10-K filed February 25, 2010)

4 Ford – Global Mindset and Risk Assessment

3. Risk Factors in the Automobile Industry

3.1. Financial Crisis and recession

In 2008, the global economy was in a financial crisis and severe recession, laying major pressure
on Ford and the automotive industry in general. A year later, in 2009, the global automotive
industry shrunk by 4 million units (year-over-year) to 64.3 million units. Industry sales volume
declined particularly in the United States and Europe and in other markets around the world.
Since 1995, Ford’s market share in the U.S. was declining each year – from 18% in 2004 to
14.2% in 2008. (See Exhibit 3)

Exhibit 4 - Industry sales volume - 2005 to 2009

Industry Sales Vol. 2009 2008 2007 2006 2005

United States 10.6 13.5 16.5 17.1 17.5
Europe 15.8 16.6 18.0 17.8 17.6
South America 4.2 4.3 4.1 3.2 2.7
Asia Pacific Africa 24.5 20.9 20.4 18.6 17.3
All figures in millions of units (Source: Adapted from Ford Annual Report - 10-K filed February 25, 2010)

Year 2009 also saw the bankruptcy of General Motors (GM, the world’s biggest automaker) and
Toyota’s problems with quality and product recall. All major automakers made attempts to lower
their fixed costs to achieve the break-even point and profitability as soon as possible. E.g. GM
reduced its dealers from 6100 to 3600, cropping the US assembly capacity from 2.8 million to 2
million vehicles and also hiring only a few. Likewise, Toyota also cut employee benefits,
executive pay and production. However, a lower operating leverage also meant lower profits.
Banking on lean manufacturing techniques and eliminating waste was the standard and
trustworthy option.

3.2. Oil Crisis, Changing consumer habits and Environment standards

The oil crisis of 2008 and environmental concerns meant that the consumer taste was shifting
pattern. A customer who previously chose from popular gas-guzzlers such as pickups and sport
utility vehicles was opting for the smaller, more fuel-efficient cars. Automakers also had to keep
in mind impending changes to CO2 emission norms and increasing fuel efficiency standards.

3.3. Investing in R&D and New Technology

Automakers have to explore alternative cleaner engine energy, like electricity, advanced biofuel and solar
energy. This requires additional fixed costs with large amount of R&D investment in new technology
with additional expenditures on retooling, new facilities and materials, etc.

5 Ford – Global Mindset and Risk Assessment

 Exhibit 5 - Factors affecting Ford’s profitability

 Wholesale unit volumes

 Margin of profit on each vehicle sold which is again affected by:

Product mix and options sold
Raw Materials and Component Costs
Discounts and Marketing costs
Costs associated with warranty claims, additional service, safety, emissions and fuel
economy
Fixed costs on structure and labor
(Source: Adapted from Ford Annual Report - 10-K filed February 25, 2010)

4. Assessing Risks in a global environment

Ford faces many risks like price wars due to competition, market risks with the stagnant
economic conditions in America, relationship with workers union, and litigation against the
company.

4.1. Early Years – From a market-seeking to a resource-seeking strategy

In 1904, Ford was one of the first automotive corporations to go International with the opening
of Ford Motor Co. of Canada2. Ford then followed a low-risk strategy in international markets
owing to tariff barriers, regulations, high costs of automotive production etc. in foreign markets.
Instead, Ford preferred to export cars and parts from the parent company. Ford also opened sales
branches and assembly plants. This helped it avoid any investment risks such as political
changes, currency fluctuations and unknown/unfamiliar work culture. Later, as the economy
changed, Ford became the second largest producer in the world in the 1960s particularly so with
investment in foreign markets. It also began to source parts from foreign independent suppliers.
Ford followed a multi-domestic strategy where its foreign subsidiaries complied with local
production practices, customer taste and culture. However, Ford’s subsidiaries were still part of a
centralized organization, which dictated the overall policies. This was essentially a hub-and-
spoke model. But in an increasingly competitive environment Ford’s market-seeking strategy
was not working. It had to move towards a resource-seeking strategy and switch to a network
model.

4.2. Expanding capacity in markets where it is lagging behind

Ford’s recent return to profitability has led to a return to investment in growth. The company
sees significant opportunities for gains in China, along with India and Latin America. Ford has

2
(Studer-Noguez, 2002)

6 Ford – Global Mindset and Risk Assessment

been trailing in the Asian markets for long behind Volkswagen, GM, Honda and Nissan
particularly in the Chinese market.

But Ford's Asian production capacity is limited because of the lack of attention in the past. Ford
now has plans to add shifts at existing plants and is constructing a third Chinese factory in
Chongqing. This would help the company to balance capacity expansion and sales growth.

4.3. Using new technology

Ford is increasingly emphasizing on high-quality small cars that can be adapted to markets
around the globe. This will help in terms of market fit for emerging markets and economies of
scale.

4.4. Local Sourcing

Ford had already begun and increased local sourcing in the 1960s. Even Henry Ford II had
opined that in order to further the growth of its worldwide operations, any purchasing activity
should be done after considering the selection of sources of supply not only in its own company
but also sources located in other countries. When Ford had set up its first plant outside U.S., in
Canada, it gained considerably from the geographic and cultural proximity. Today, in a global
arena and in an increasingly flat world aided by the use of Internet technologies this should be
much easier now.

4.5. Other Risk factors

 Drop in Industry sales volume and overcapacity

 Drop in market share
 Market acceptance of products
 Volatile gasoline prices and its availability
 Currency fluctuations
 Alliances entered into by a major competitors
 Production disruptions due to economic distress of suppliers and increased costs
incurred to support them
 Single-source supply of components or materials
 Labor constraints
 Discovery of defects in vehicles and subsequent costs related to product recall
 Increased safety, emissions, fuel economy, or other regulation
 Litigation arising out of environmental concerns or other reasons
 Certain geo-political or other events
 Inability to implement One Ford plan

7 Ford – Global Mindset and Risk Assessment

5. ONE Ford Strategy

“Designing „world cars‟ that can achieve global economies of scale is the auto industry's Holy Grail.”

- (One Ford for the Whole World, 2009)

“No matter where you are in the world, Ford wants you to be able to recognize a Blue Oval product from
50 yards out”

– Damon Lavrinc, Automotive News, Jan 23rd 2007.

“The critical thing is to not design a car that would only sell in the middle of the Atlantic Ocean.”

- Peter Horbury, Ford’s North American design Chief in 2007.

In 2006, Alan Mulally, CEO of Ford Motor Co. implemented the “One Ford” strategy to better
align the auto maker's global resources. One of the ideas behind this vision was to create cars
that would appeal to both American and European consumers by utilizing a common design
theme and some regional tuning i.e. to build cars that can be engineered once and sold around the
world in more or less the same form. The strategy also made an impact on the company's
purchasing operations and its suppliers. In the past, Japanese and European auto makers used this
strategy very successfully.

Exhibit 6 - ONE Ford plan that Ford Motor Company is using to transform its business

(Source: http://www.ford.com/about-ford/company-information/one-ford)

8 Ford – Global Mindset and Risk Assessment

 5.1. “Matched-pairs” system

A key component of the ONE Ford strategy is the “matched-pairs” system. The system teams
product-development employees with those from purchasing. E.g. a Director from the vehicle
body interior engineering division was teamed up with a Director - global interior purchasing.
This was done to bring into line Ford's interior development and purchasing strategies
worldwide. Thus, the strategies of two departments are aligned and decisions are made as a team
from the start. With common cost objectives negotiations with suppliers also is much easier.

6. Aligned Business Framework

In September 2005, Ford announced the Aligned Business Framework (ABF), an innovative
bilateral agreement between Ford and its family of selected suppliers. In the initial phase, Ford’s
ABF program was designed to reduce its supplier base by half while ensuring business growth
and strengthening supplier relationships. The program required a commitment from the suppliers
to bring leading-edge technological innovations to Ford. The idea was to establish long-term
agreements with chosen suppliers of vital components worldwide to form a robust and at the
same time a viable business model.

Exhibit 7 - Key elements of Ford’s Aligned Business Framework (ABF) agreements

Key elements of the Aligned Business Framework agreements include:

 A Ford commitment to phase in up-front payment of engineering and

development costs, extended sourcing for the life of a program or platform,
including derivatives, improved commonality and re-use of parts, early supplier
involvement in the product development process, broader supplier involvement
in product tear-downs and product benchmarking, and extended sharing of
forecast volumes and product plans.
 A bilateral commitment to competitive costs based on data transparency and
cost models related to product attributes.
 A supplier commitment to bring leading-edge technological innovations to Ford.
 A supplier commitment to an accelerated achievement of competitive cost
structures that will be maintained over the life cycle of products evolving to less
Ford emphasis on year-over-year price reductions.
 Continued sourcing emphasis to minority- and women-owned suppliers.
 Continued emphasis on cooperatively pursuing low-cost supply alternatives.

(Source: http://media.ford.com/article_display.cfm?article_id=21677)

9 Ford – Global Mindset and Risk Assessment

7. Ford’s Global Manufacturing Strategy

“Ford Motor Company is the only automotive manufacturer executing a truly global powertrain strategy. Beginning
with the launch of the new Ford F-150, we are building a network of flexible engine and transmission plants that
can respond quickly to changing market needs, while improving quality and manufacturing efficiency. This is the
most dramatic change in powertrain manufacturing since the introduction of the assembly line.”

“When we are finished, someone walking onto the plant floor will not be able to tell whether they are looking at an
assembly line in Europe, Mexico or the United States.”

— Kevin Bennett, Director, Manufacturing Engineering, Powertrain Operations in 20023

In 2002, Ford announced that it would be building a network of flexible engine and transmission
plants that could respond quickly to changing market needs, while improving quality and
manufacturing efficiency. Its manufacturing equipment and plant-floor layouts would be similar
around the world and would utilize cross shipping of components. Plants would use flexible
techniques and install modern, flexible, numerically controlled machine tools (CNC machines).
This was part of its global powertrain strategy (see Exhibit 8- Main elements of Ford’s Flexible
Manufacturing Strategy) to reduce capital-investment costs, ease launch startups and help speed
products to market. The company had 60 cross-functional teams carrying out these
improvements.

7.1. Standardization and Sharing Best Practices

An example of Ford’s global manufacturing capability was its new global I-4 engine. It was
being developed at four plants globally and on three continents. The idea was to cater to
successive manufacturing programs. The engineers at Ford could apply best practices from
previous installations to each new engine plant. In addition commonality or standardization
would also bring quicker full production plant launches.

Exhibit 8- Main elements of Ford’s Flexible Manufacturing Strategy

Three main elements of Ford’s flexible manufacturing strategy for powertrains:

 Common engine architectures

 Commonized manufacturing facilities and
 Modern, flexible, numerically controlled machine tools (CNC machines) that can be easily
retooled and reprogrammed to perform new tasks with minimal disruption to production.

Source: (Global Manufacturing Strategy Gives Ford Competitive Advantage, 2002)

3
(Global Manufacturing Strategy Gives Ford Competitive Advantage, 2002)

10 Ford – Global Mindset and Risk Assessment

With identical machines, Ford maintained one set of shared common spares for each
system, rather than each machine. This lead to huge inventory cost savings and radically
reduced the number of spare parts to be maintained. An additional benefit of such
standardization was that each operator knew how to run all of the machines. One operator
could take another’s role and at the same time share best practices with colleagues.

Earlier, removing old-style dedicated milling or boring machines and installing new ones
would lead to production interruptions for months. But with the latest flexible CNC
machines, which could be retooled and reprogrammed internally within weeks, there was
minimal production interruption.

8. Ford’s Global product strategy

Ford’s global product strategy is to cater to all important markets globally with a comprehensive
family of products that have best-in-class design, quality, green, safety and smart features.

Ford wants to manufacture vehicles that:

1. Have bold, emotive exterior designs

2. Are great to drive
3. Are great to sit in (with the comfort and convenience of a second home on wheels and
exceptional quietness)
4. Provide best-in-class fuel economy as a reason to buy, are unmistakably a Ford or Lincoln in
look, sound and feel, and provide an exceptional value.

(Source: Adapted from Ford Annual Report - 10-K filed February 25, 2010)

11 Ford – Global Mindset and Risk Assessment

Bibliography
Global Manufacturing Strategy Gives Ford Competitive Advantage. (2002, November 05). Retrieved June 11,
2010, from Media.Ford.com: http://media.ford.com/article_display.cfm?article_id=13633

Ford, Key Suppliers Roll Out Innovative Business Model. (2005, September 29). Retrieved June 10, 2010, from
Media.Ford.com: http://media.ford.com/article_display.cfm?article_id=21677

One Ford for the Whole World. (2009, March 17). Retrieved June 10, 2010, from The Wall Street Journal:
http://online.wsj.com/article/SB123724332577548061.html

Ford Extends Global Electric Vehicles Plan to Europe; Five Models to Launch by 2013. (2010, March 2).
Retrieved May 2010, from Green Car Congress: http://www.greencarcongress.com/2010/03/ford-
20100302.html

John Rosevear. (2010, April 13). Ford's Plan for Global Domination. Retrieved May 20, 2010, from Motley Fool:
http://www.fool.com/investing/general/2010/04/13/fords-plan-for-global-domination.aspx

Studer-Noguez, I. (2002). Ford and the global strategies of multinationals: the North American...

12 Ford – Global Mindset and Risk Assessment