Term Paper: Organizational Analysis Ford Motor Company of Canada

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Organizational Analysis

Ford Motor Company of Canada Organizational Analysis

In assessing the competitive environment of the Ford Motor Company of Canada, its strategic roles as part of Ford Motor Company must also be taken into account, in addition to its critical roles as supplier, importer, exporter and employer. Ford Motor Company of Canada is often used as a case study to illustrate how a foreign subsidiary can emerge from being a production center to contributing intellectual property in the form of advanced business process improvements that lead to increased profitability long-term for the firm (Anastakis, 2004). Comprised of Volvo Cars of Canada, LR Capital a finance division dedicated to used car loans, Stevens Lincoln Mercury Sales, and Deslauriers Ford Lincoln, the company is organized into product divisions for purposes of executing marketing, selling and service strategies. What makes Ford Motor Company of Canada unique however is its role in ensuring Ford Motor Company would be able to overcome tariffs assigned by the United Kingdom on non-British Empire countries and therefore be more profitable on a global scale. From this unique competitive position within Ford's global operations, Ford Motor Company of Canada has sustainable competitive advantages not easily countered or copied by local and global competitors. The intent of this paper is to analyze their competitive position relative to industry trends, risks and opportunities that are occurring globally, and having implications on the Canadian automotive market as well. Despite the global economic downturn that is having a devastating effect on this industry globally, imports from Canada are expected to rise .5% in 2009, and Canadian auto manufacturing is forecasted to be 26.7% of total American imports in 2009, with Ford Motor Company of Canada being the majority (Leggett, 2008). As Ford Motor Company of Canada has created a unique role for itself in the Ford Motor Company global operations and throughout the industry's value chain, the company has been able to be more financially and operationally resilient relative to competitors. This paper analyzes why, from a competitive standpoint that is the case, while also assessing risks to the company today.

Competitive Environment of Ford Motor Company of Canada

The reduction in credit available for financing production, the rising costs of raw materials, consistently high costs of labor and concessions for unions all are continuing to drive the cost structure of the global auto industry, yet these factors are particularly acute in Canada given the strength of unions and supply chain costs that often are adversely affected by exchange rates and tariffs. Figure 1 shows the cost structure of the Canadian auto industry, with .5% profit being the industry average. With 78% of costs from purchases through the supply chain, this is high by global averages, where the purchases are typically at 70% of the total cost structure for a given auto manufacturer (Leggett, 2008). This is one of the greatest risks to the Canadian auto industry and one that is not easily managed given how complex, and unsynchronized much of the supply chain is today throughout the entire industry. Also, R&D at 3.5% of total budget for Canadian auto manufacturers is higher than comparable subsidiary locations throughout the automotive industry when compared across comparable manufacturers, and further supports Dr. Kasra Fedrows' theories of how manufacturing operations can become Leader factories in creating greater levels of innovation that the corporate manufacturing centers (Maritan, Brush, Karnani, 2004). Examples of this type of innovation at the process level that the 3.5% investment equates to from a Ford Motor Company of Canada standpoint include process efficiencies in supply chain quality based on the Deming philosophy of continuing improvement (Baker, Artinian, 1985) and programs designed to alleviate employee attrition while attaining cost objectives (Bart, Baetz, Pancer, 2009). The joint development of hybrid technologies by Ford Motor Company of Canada with Edison also provide evidence of the Return on Investment (ROI) that the company has been able to attain based on its level of R&D spending (Haldis, Franco, 2007). Despite these innovations the most problematic area is the high relative cost of the supply chain compared to other nations of the world, in addition to the relatively high wage levels driven by unionization.

Figure 1: Cost Structure of the Canadian Auto Manufacturing Industry

Item

Cost %

Purchases

78.4%

Wages

5.5%

Depreciation

4.0%

Research and Development

3.5%

Advertising

2.0%

Rent

1.5%

Utilities

0.4%

Other

4.2%

Profit

0.5%*

Source: (Leggett, 2008)

Analyzing the underlying drivers that are fueling the high level of supply chain risk that is impacting the global automotive supply chain in general yet has an even greater impact on the Canadian supply chain specifically, Table 1, Key Industry Drivers and Predicted Rates of Change has been developed. The price of steel has plummeted yet so have the supply of the best quality materials, forcing trade-offs in quality of manufacturing. This has presented a unique risk to the stakeholders, from shareholders to employees and senior management of Ford Motor Company of Canada of producing inferior quality cars with steel at lower quality grade just because it is available. The rapidly dropping price of steel has in fact forced auto manufacturers to re-align their entire new product development process as a result (Birchall, Green, 2006). Another key industry driver is the consolidation of distribution channels in this industry. The 6.3% reduction in the number of dealers and the continued sluggish growth through 2013 further illustrates this risk to the industry in general and Ford Motor of Canada specifically. The reduction in consumer confidence is even more acute than the table suggests, with many consumers choosing to delay the purchase of any durable good item.

Table 1: Key Industry Drivers and Predicted Relative Rates of Change

Percentage

2009

Percentage

2010

Percentage

2011

Percentage

2012

Percentage

2013

Percentage

5-Year Annual Growth

Consumer Sentiment

-1.2

18.5

9.3

7.3

0.6

6.7

Price of Gas

5.8

3.2

1.4

-3.1

-2.2

1.0

Price of Steel

-24.5

-5.9

1.6

7.7

8.6

-3.3

Car Dealers

-6.3

-0.6

0.3

1.8

1.6

-0.7

Exchange Rates

5.8

3.2

1.4

-3.1

-2.2

1.0

Sources: Analysis of (Birchall, Green, 2006) (Leggett, 2008) Ford Motor Company Securities and Exchange Commission filings including 1OQ forms;

Competitive Response to Risk and Uncertainty

Ford Motor Company of Canada competes with Chrysler, General Motors, Honda, Toyota and the joint partnership of Suzuki and General Motors (CAMI. Table 2 is based on an analysis of Industry Canada data for the most recent year available, which is 2006, showing Canadian market shares by competitor, share of NAFTA production and total NAFTA production. Ford has 8% market share relative to General Motors at 32% and Chrysler at 24%. When the joint venture of GM and Suzuki is taken into account, GM has 40% market share in the light vehicle production market in Canada.

Table 2: Canadian Light Vehicle Production, 2006

Manufacturer

Canada

Canadian Market Share

Share of NAFTA Production

NAFTA

CAMI (GM-Suzuki)

196,328

8%

196,328

Chrysler

605,733

24%

24.63%

2,459,040

Ford

196,374

8%

7.09%

2,769,341

General Motors

794,421

32%

18.28%

4,346,738

Honda

387,078

15%

27.93%

1,385,693

Toyota

317,433

13%

26.82%

1,183,491

Totals

2,497,367

20.24%

12,340,631

Source: http://www.ic.gc.ca/eic/site/auto-auto.nsf/vwapj/2007_AutoStatisticsFlyer-ENG.pdf/$FILE/2007_AutoStatisticsFlyer-ENG.pdf

The recent decision by the Obama Administration in the United States to provide additional time for General Motors, Chrysler and Ford to get their bail-out plans together and the recent firing of GM Rick Waggoner are all potentially competitive advantages for Ford Motor Company globally and also for Ford Motor Company of Canada specifically. Fords' CEO has publicly stated he is turning down the bail-out funds his competitors at GM and Chrysler have asked for, citing improving sales and a profitably consolidating dealer channel. The risks that are impacting the industry at a global scale have become much more immediate and visible in the Canadian auto industry as a result.

In terms of Ford Motor Company of Canada's organizational structure and design, the company's development of brand-based divisions as is the case in Ford Motor Company's U.S. operations, has worked effectively for its marketing, selling, dealer management and service strategies (Anastakis, 2004), all key aspects of their integrative contributions to the Ford global value chain. The decision to create enterprise-wide compliance and quality management strategies that span across production divisions (Baker, Artinian, 1985) continues to be a competitive advantage. This is partially due to the fact that organizational effectiveness is now much more quantitatively measured in terms of performance through the use of dashboards and business intelligence. The interorganizational structure and relationships the company relies on are cross-functional and focused more on attaining quality levels of production and design (Baker, Artinian, 1985) to specifically overcome siloed and isolated decision making. As Ford Motor Company of Canada plays the role of supplier in addition to retailer, its reliance on creating cross-functional relationships with suppliers and stakeholders is critical to their role as an integrator throughout the corporate structure globally (Anastakis, 2004). Ford Motor Company of Canada is beset with the same challenges and risks as many auto manufacturing subsidiaries, yet their unique position in the value chain of the nation and in the… [END OF PREVIEW]

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