Chapter 5 Case – “Ford Motor Company”

Instructor: Professor Pamela McLaughlin

Course: Management of Concepts – BUS 302

Date: July 17, 2011

* This case outlines 4 strategic options Ford is pursuing to increase its profitability. Describe each of the 4 options. For each option list 2 criteria you would use to evaluate the option.
The four strategic option that Ford Motor Company might pursue to increase its profitability is to (1) close down older plants in an effort to realign production and sales, (2) move the company to produce only smaller cars, eliminating or sharply reducing the SUV and truck lines, (3) take a dramatic step of dramatically reducing their North American presence and focus their efforts on international markets where they have been very successful, and (4) sell the entire PAG group, letting someone else figure out how to make money selling so few vehicles a year (Case Study, para. 3). When looking at any strategic plan, one needs to identify the decision criteria. Decision criteria are the standards used to guide judgment and decisions, states Chick Williams in Management. Naturally, the more criteria a possible solution meets, the better that solution will be.
Two of the criteria that Ford would need to consider if taking the option to close down older plants would be, buying out workers (severance agreement) and dealing with the political implications of a closure. A buy-out agreement results from the collective bargaining process between Ford and its workers union. Employees who accepted the agreement receive a severance payment as well as an additional payment for the cost of financial planning, job retraining, relocation or career counseling. In exchange for the severance payment, participants agree to separate from the payroll and to relinquish all recall and future employment rights with Ford. These agreements are generally required in all buy out situations states Miller Cohen, P.L.C. in his paper on The Effect of Buyouts/Severance Packages on Worker’s Compensation Benefits. Ford would also have to deal with the political implications of a closure or any kind, no matter the number of factories. Other companies could portray Ford as a weak company that is hardly staying afloat and consumers could loss trust in the company and move to competitor’s products. If there is no other option but to close the business, Ford should do this as soon as possible to stop the financial bleeding. Then Ford can look at the whole picture. Can they reduce and/or renegotiate their current debt? Can they financially afford to pay it down and pay it off? If a pay schedule can be agreed to, they are in position to work it through and come out free and clear.
If Ford took option two, which is to move the company to produce only smaller cars, eliminating or sharply reducing the SUV and truck lines, then Ford has the advantage of getting back to Henry Ford’s vision for the company as well as dealing with products that are simply not selling in today’s expensive gas environment. Henry Ford’s vision was to “build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be low in price that no man making a good salary will be unable to own one — and enjoy with his family the blessing of hours of pleasure in God's great open spaces” (Great Minds, para. 1). SUV and trucks are not small enough for an individual to run and care for; nor are they low in prices that no man making a good salary can afford one. Also, as high as the gas prices are today, consumers are looking for better gas mileage vehicles to drive. SUVs and Trucks do not get good gas mileage even though they have a gigantic tank for gas. Yes the tank of gas in a SUV and Trucks are bigger than the smaller compact cars but SUVs and Trucks get around 16 miles per gallon, where smaller compact cars get around 28 miles per gallon.
Now looking at option three, Ford could take the dramatic step of dramatically reducing their North American presence and focus their efforts on international markets where they have been very successful. Europe, South America, and China have been very receptive to Fords vehicles and the company is doing well in these markets. While Ford's domestic sales have been generally quiet, Ford's European operations have increased share by producing many critically acclaimed vehicles well known for quality. The difference between Ford's domestic and international operations is a result of costly US manufacturing facilities caused by high wages, expensive healthcare and retirement obligations for union labor. By focusing Ford’s efforts internationally, domestic consumers will lose interest with Ford and buy competitor’s products.
Finally the last option that Ford has is to sell the entire PAG group, letting someone else figure out how to make money selling so few vehicles a year. PAG, Premium Automotive Group, which makes the company’s Aston-Martin, Jaguar, Land Rover, and Volvo brands, was originally intend as the platform for the company to enter the luxury car market; unfortunately these groups of vehicles have lost billions year after year. The hand-built PAG automobiles do not fit the Ford’s vision of doing things that Henry Ford put into place with his vision of the Model T. But on the other hand, it’s a logical idea, whereby Ford co-owns all the brands in the spectrum, and uses their technological strengths to create useable technology for all Ford Brands to utilize in product development. * In light of the possibility that market conditions can and do change, discuss at least 3 examples of how the company should build-in flexibility to back-up its decision-making process
Maintaining flexibility in the decision making process is apparent because “actions are sometimes poorly conceived and goals sometimes turn out not to be achievable” (Williams, 2010, p. 81). One of the best ways to achieve flexibility is by option-based planning, which is a process where one keeps options open by making small, simultaneous investments in many alternative plans. So let’s say the Ford decides to sell the entire PAG group. Instead of putting all their eggs in one basket, Ford could sell some of the PAG group, Aston-Martin & Land Rover, and they can start slowing down the production of SUVs and Trucks. By doing this, Ford will keep their name in the luxury car and SUV and Truck market, but will be able to move resources over to developing smart cars, which are better for the environment. Another option that Ford could do is to research on how to make their plants more environmentally safe or “green.” By doing this then Ford could shut down older plants, but instead of buy-out employees and dealing with political implications, they will be opening a “Green Plant.” One more option that Ford has is to cut back on the PAG group, while keeping their name still in the luxury car market, and increase the presence and force in international markets. If it cost Ford less to sell and produce vehicles international, then I don’t see why they should not pursue that market. * Discuss how an effective action plan can be created and how progress can be monitored.
An action plan can help a company come up with a clear time line, identify responsibilities and establish the resources required to achieve their goals. Action planning also allows companies to identify the factors or conditions that will help or hinder them from goal accomplishment, as well as the ways they can increase reinforcing factors and decrease hindering factors. There are five steps to creating an effective action plan, (1) define what the company hopes to accomplish, (2) make a list, (3) prioritize, (4) determine costs and sacrifices, and (5) establish deadlines. Start by defining what exactly the company’s mission and goal is. What would they like there end result to be? What is the purpose to achieving this goal? What is the value in achieving this goal? Next, take the time to list every step, every resource, and every employee the company has who can help them reach their goals. Third, rewrite the list to help prioritize according to what resource, employee or step will help the company most in reaching their goals. Having employee’s involvement in setting their own goals increases their commitment to the goals. For example; sitting down with employees and brainstorming will get the employees involved in the overall goal of the company. Once the company has prioritized their list, they need to determine the financial costs and company sacrifices required to achieve their goal. If they are opening a new branch, determine how much money the company will be required to invest and how much employee time will be taken away as a result. An action plan is all about looking at the goal from a realistic viewpoint. Every action plan requires a deadline. Once the company has determined how to get there, next they need to determine how long it will take them to get there. The company needs to look back at their list and determine how long each task should take.
Evaluating an individual’s progress in achieving goals is critical to the success of the goal setting process. Progress can be monitored and assessed individually, externally, or both. Evaluating goal progress serves many functions: rewarding success, problem solving, identifying helpful resources or skill building activities, and adjusting goals if necessary. Once employees and or the company achieves their goals, the focus now shifts to goal maintenance. Emphasizing ownership of goals and making sure goals are realistic in the long-term can be crucial elements for ensuring sustainability of reaching the goals. * List at least 3 steps that make-up a workable plan and explain why each is important.
The success of planning depends upon five steps, (1) setting goals, (2) developing commitment to goals, (3) developing effective action plans, (4) tracking progress, and (5) maintaining flexibility. The first step is setting goals and with setting goals, goals need to be specific and challenging. The use of S.M.A.R.T. goal guidelines is an effective way to setting detailed and challenging goals by making goals “specific, measurable, attainable, realistic, and timely” (Williams, 2010, p.79). Second step in planning is developing goal commitment, which is the “determination to achieve a goal” (Williams, 2010, p. 80), unfortunately with employees, this is not automatic. All the members concerned with the organization must be involved in the task of preparing the goals. The viewpoints of the employees, who are actually going to perform the tasks, must be secured and their ideas may be incorporated in the goal setting process. And by involving employees into the goal setting process, companies will receive goal commitment from them because they are setting their own goals. Developing an effective action plan is the third step and it list the specific steps involved, employees how are responsible for what tasks, resources needed to reach the goals, effectiveness with which the forecast has been made. If the forecast is accurate, there is every possibility that the plan will be success. The plan should not be prepared to focus on the financial goals of the business alone. It must have something for the employees. There must be some provision in the plan to reward efficient workers. Some encouragement is necessary in the plan to motivate the employees to work harder. The plan must also be realistic. It should take into account the capabilities of both the managers and the employees. Both should not be required to work beyond their capacity. In other words, the plan must not expect too much out of every person. Tracking progress to goal achievement is the fourth step in a workable plan. There are two was to track progress, proximal goals and distal goals. Proximal goals are “short-term goals or subgoals” (Williams, 2010, p.80), and because they are short-term goals, they are more motivating and rewarding than waiting to reach distal goals. Distal goals are “long-term goals or primary goals” (Williams, 2010, p.80). Distal goals are the final goals to reach to finish the task. The last step in a workable plan is flexibility. Flexibility must be introduced in the plan whenever necessary so that the employees can work with sustained interest and effort. One method of maintaining flexibility is to adopt an options-based plan, which is the process of “keeping options open by making mall, simultaneous investments in many alternative plans” (Williams, 2010, p. 81). The management should not use pressure tactics and force employees to work for the sake of attaining the daily or weekly targets. * Discuss the option or combination of options you selected as the best course of action for Ford Motor Company and detail your reasons for selecting that option or combination of options.
The combination of options that I would select as the best course of action for Ford Motor Company would be selling part of the PAG group, decreasing productivity in SUVs and trucks, and increasing presence in international markets. PAG groups are far from the original vision of Henry Ford who wanted to produce vehicles that were affordable to everyone. I would suggest keeping some of the PAG group, for example, Volvo and Jaguar, but sell the rest. By doing this Ford is still a presence in the luxury car market but at a smaller expense to the company. Secondly, by decreasing productivity in SUVs and trucks, Ford can use the extra resources and cash to develop more environmentally safe vehicles with better gas mileage. By taking this option, Ford keeps there face in the SUV and truck market, but can know start to develop “smart cars” that consumers are very interested in. And lastly, by increasing Ford’s presence in international markets will increase productivity volume. The company is already doing well international and the cost of producing vehicles is less, then I see no reason not to increase.

Reference
Williams, Chuck. (2010). Management
Case Study, Ford Motor Company
Cohen, Miller, P.L.C. (2006), The Effect of Buy-outs/Severance Packages on Worker’s Compensation Benefits, http://www.millercohen.com/CM/ArticlesAndCases/Effect-of-Buy-Outs.asp Great Minds think differently, Henry Ford’s Vision A-Z,
http://www.greatminds.ie/Henry_Fords_Vision_AZ/Default.339.html