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This paper compares and contrasts two top ten Fortune 500 automotive companies: Ford Motor Company (Ford) and General Motors Corporation (GM). Through a series of strategic decisions and initiatives, Ford was able to survive the 2008-2009 global economic crisis. General Motors had similar opportunities to make strategic changes but remained entrenched in their approaches and strategy. The result was General Motors filed for bankruptcy, and had to ask the US and Canadian governments for loans in order to restart business.
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IST 614 – Ford and GM Final Project Leo de Sousa
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Comparison Study of Two Fortune 500 Companies
Ford Motor Company and General Motors Corporation
Leo de Sousa – IST 614
December 9, 2011
IST 614 – Ford and GM Final Project Leo de Sousa
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Abstract
This paper compares and contrasts two top ten Fortune 500 automotive companies: Ford
Motor Company (Ford) and General Motors Corporation (GM). Through a series of strategic
decisions and initiatives, Ford was able to survive the 2008-2009 global economic crisis.
General Motors had similar opportunities to make strategic changes but remained entrenched
in their approaches and strategy. The result was General Motors filed for bankruptcy, and had
to ask the US and Canadian governments for loans in order to restart business. The “new” GM
is now owned mostly by the governments of the United States and Canada and the United Auto
Workers Pension Trust; essentially GM is a division of the US Department of the Treasury and
being run by a government appointee. Ford remained independent, survived the crisis and is in
control of its own destiny with profitable plan for the future. Ford is led by a forward thinking
leaders in Bill Ford Jr and Alan Mulally. This paper explores the differences between the
companies and draws some conclusions about why Ford survived and why GM failed.
The paper begins by introducing each company, providing basic corporate information, some
details about the industry they operate in, their customers and what resources they rely and
compete for. The subsequent chapters describe each company’s approach to Strategic
Planning, Organizational Design, Finance, Social Responsibility and Innovation.
The conclusion summarizes the key points in each chapter and presents some differences that
may have contributed to the very different outcomes as each company worked through the
global economic crisis of 2008-2009 and looks towards the future.
IST 614 – Ford and GM Final Project Leo de Sousa
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Chapter 1 – An Introduction to Ford and General Motors
Ford was founded by Henry Ford in 1903 and became the number one US automaker with the
production of the Ford Model T car in 1908. General Motors was founded by William “Billy”
Durant in 1908. GM added many other auto brands over time and became the largest
automotive company in the world. Ford began public trading in 1956 on the New York Stock
Exchange and ranked third on the Fortune 500 in the same year. In 1956, General Motors was
the number one ranked company on the Fortune 500 and traded on the New York Stock
Exchange. (CNN Money, 2011) In the most recent publication of the Fortune 500 for 2011, Ford
ranked tenth and General Motors ranked eighth.
Below are descriptions of each company from their respective 2010 Annual Reports. “Ford
Motor Company, a global automotive industry leader bases in Dearborn, Michigan,
manufactures or distributes automobiles across six continents. With about 164,000 employees
and about 70 plants worldwide, the company’s automotive brands include Ford and Lincoln.
The company provides financial services through Ford Motor Credit Company.” (Ford Motor
Corporation, 2010, p. 1)
“The new General Motors has one clear vision: to design, build and sell the world’s best
vehicles. Our new business model revolves around this vision, focusing on fewer brands,
compelling vehicle design, innovative technology, improved manufacturing productivity and
streamlined, more efficient inventory processes. The end result is products that delight
customers and generate higher volumes and margins – and ultimately deliver more cash to
invest in our future vehicles.” (General Motors Corporation, 2010, p. 6)
IST 614 – Ford and GM Final Project Leo de Sousa
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Comparison Table: Ford Motor Company and General Motors Corporation
Corporate Information Ford Motor Company General Motors Corporation
Founder Henry Ford William “Billy” Durant Year Founded June 16, 1903 Sept 16, 1908 Headquarters Dearborn, Michigan, USA Detroit, Michigan, USA CEO Allan Mulally Daniel F. Akerson Divisions Automotive and Financial
Services Automotive and Financial Services
Global Reach North America, South America, Europe, Asia Pacific, Africa
North America, South America, Europe, Asia Pacific, Africa
Brands Ford and Lincoln (minor ownership in Mazda)
Cadillac, Chevrolet, Buick and GMC, Opel, Vauxhall, Daewoo, Izuzu, Holden, FAW, GMC, Jiefang, Wuling, Baojun
Number of Employees 164,000 202,000 Worldwide Wholesale Unit Volume (thousands)
5,524 8,390
Sales and Revenues (millions) $128,954 $135,592 Net Income/(Loss) (millions) $6,561 $4,668 Diluted Net Income/Share $1.66 $2.89 Debt (millions) $19,100 $17,018 Publicly Traded On New York Stock Exchange: F New York Stock Exchange: GM
Toronto Stock Exchange: GMM
Publicly Traded Date June 1, 1955 June 10, 2009* Outstanding Shares (millions) 3,707 1,600 Fortune 500 Rank 10 8 * General Motors Corporation declared bankruptcy and was reformed as a division of the US Department of the Treasury
Both Ford’s and General Motors’ main business is building automobiles for a global
marketplace. Both companies forecast over 70% of sales coming from global markets versus
North America. Their product mix includes electric cars, hybrid vehicles, automobiles, light and
IST 614 – Ford and GM Final Project Leo de Sousa
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heavy duty trucks. Both companies also have financial services that provide loans for
purchasing automobiles as well as extensive lease services for corporate automobile fleets.
On June 1, 2009, General Motors Corporation filed for bankruptcy. A “new” General Motors
Corporation was formed with the US Treasury, the Canadian Federal Government and the UAW
Retiree Medical Benefit Trust as the major shareholders. The “new” GM founding date was
June 10, 2009. Ford Motor Company was able to weather the economic crisis and did not have
to ask for government bailouts to continue their over 100 years of business.
The contrasting outcomes are a result of how each company positioned themselves in the years
leading up to the significant environmental change caused by the 2008-2009 global economic
crisis. Both companies compete for customers, employees, suppliers, financing and resources
for manufacturing. Ford specifically cites the following competition factors: excess capacity,
pricing pressure, commodity and energy price increases, consumer spending and credit,
increasing sales of smaller vehicles, currency exchange rate volatility and other factors like
government debt and interest rates. (Ford Motor Corporation, 2010, p. 24) Similarly, the “new”
GM notes the following competition factors: instability in the global economic environment,
automotive price competition, relatively high cost structure, unfavorable commodity prices,
unfavorable regulatory and tax environments and a challenging foreign currency exchange
environment. (General Motors Corporation, 2010, p. 241)
Ford made four key strategic decisions leading up to the 2008-2009 economic crisis. Former
CEO and Chairman Bill Ford Jr. brought in an outsider to lead the company with no experience
in the automotive industry. Ford mortgaged all its assets to secure a large cash cushion to fund
IST 614 – Ford and GM Final Project Leo de Sousa
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the redesign of the company while interest rates were low. Ford renegotiated its contracts
with its union workers reducing labor costs significantly. Finally, Ford took a consolidation
approach by selling off non-core brands. “In recent years, we have eliminated a number of
brands from our portfolio in order to devote fully our financial, product development,
production and marketing, and sales and services resources toward further growing our core
Ford brand and enhancing Lincoln. We have sold Aston Martin, Jaguar and Land Rover and
most recently Volvo.” (Ford Motor Corporation, 2010, p. 25)
General Motors had similar opportunities to get advice from outside of their entrenched
automotive industry, executive culture. GM chose not to accept or follow the advice. GM
insisted that their large number of automotive brands was the correct mix for the company
while every other automotive maker was consolidating brands. Finally, GM relied on zero
percent financing and cash incentives to boost sales levels due to stagnant wages since 2001.
The result for automakers is to “sell vehicles only by luring individuals into their showrooms
with near suicidal incentives.” (Bloomberg, 2009) All the above practices were done away with
when GM moved into bankruptcy. General Motors was forced to make the changes that Ford
did in order to gain government loans to restructure and restart their business.
Ford continues to capitalize on its success by incorporating their ability to survive with no
government help into their marketing campaigns. They appeal to American patriotism.
General Motors will continue to have the stigma of failing as a corporation and causing
significant damage to the US economy, people’s lives and requiring tax payers to bail them out.
IST 614 – Ford and GM Final Project Leo de Sousa
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Chapter 2 – Strategic Planning
Strategic Plans are “overall company plans that clarify how the company will serve customers
and position itself against competitors over the next two to five years.” (Williams, 2011, p. 86)
Both Ford and GM have strategic plans that arose from the challenges of the 2008-2009
economic crisis. Strategic plans incorporate vision, mission, tactical plans, and management by
objectives, operational plans, standing plans and single use plans. (Williams, 2011, p. 86)
Ford’s strategic plan is branded “One Ford – One Team, One Plan, One Goal. One Ford expands
on the company’s four-point business plan for achieving success globally. It encourages focus,
teamwork and a single global approach, aligning employee efforts toward a common definition
of success and optimizing their collective strengths worldwide.” (Ford Motor Corporation, 2010)
“One Team – people working together as a lean, global enterprise for automotive leadership, as
measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council and Community
Satisfaction. One Plan – aggressively restructure to operate profitably at the current demand
and changing model mix, accelerate development of new products our customers want and
value, finance our plan and improve our balance sheet, work together effectively as one team.
One Goal – an exciting viable Ford delivering profitable growth for all.” (Ford Motor Company,
2011) The key observation is that Ford is the maker of their own destiny and that they continue
to focus on people first in their strategic thinking. Ford’s approach matches Drucker’s concept
of Management by Objectives guidance of “each manager, from the “big boss” down to the
production foreman or the chief clerk, needs clearly spelled-out objectives.” (Drucker, 2001, p.
115) Ford’s message is clear that there is one team that will execute one plan to achieve one
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overall company goal. Ford’s ability to fund their way through the economic crisis places it in a
strong strategic position in the market place.
General Motors articulates its strategic plan as “the strength of the new GM: a new business
model centered on our vision of designing, building and selling the world’s best vehicles; a
leader’s leverage to economic growth in key mature and emerging markets worldwide; and a
new balance sheet with a significantly improved risk profile.” (General Motors Corporation,
2010, p. 3) One other key document from the “new” GM is the General Motors Corporation
2009-2014 Restructuring Plan from Feb 17, 2009. The plan articulates how GM will manage its
path out of bankruptcy. Some of the key requirements are: “product mix and cost structure
competitiveness, competitive labor cost agreement, compliance with federal fuel efficiency and
emission regulations, domestic manufacture of Advanced Technology Vehicles, rationalization
of cost, capitalization and capacity, financial viability (positive NPV) and repayment of federal
loans.” (General Motors Corporation, 2009, p. 6) In comparison to Ford, GM’s strategic plan
approach resembles what Drucker calls “Management by Drives”. GM is mandated to focus on
improving its bottom-line as a condition of being able to restructure with federal loans.
General Motors was forced to adopt the strategies outlined above due to its failure to remain
profitable. Until all conditions of the restructuring agreement are complete in 2014, GM will be
forced to struggle with “all emphasis on one phase of the job to the inevitable detriment of
everything else.” (Drucker, 2001, p. 117)
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Overall the automotive industry continues to face significant threats and risks to profitability.
The table below contains both threats and opportunities from both company’s 2010 Annual
Reports. (Ford Motor Corporation, 2010, p. 24) (General Motors Corporation, 2010, p. 241)
Threats Opportunities Commentary Excess Capacity Increasing Sales of Smaller Cars Both Ford and GM were caught
over producing trucks Automotive Pricing Pressure Concentrate on Fewer Brands Ford did this sooner and GM was
forced to do this Commodity and Energy Prices Energy Diversity and Efficiency GM killed its electric car program
in mid 2000’s and is playing catch up
Consumer Spending and Credit Manufacture and Sell Vehicles Globally
Both companies recognize growth of 70% in global sales
Currency Exchange Rates Review of business practices Ford is focusing on this for business planning
Global Economic Instability – Debt and Interest Rates
Use of facts and data to make decisions
Ford explicitly references this capability
High Cost Structures Partnership and People Focus Ford specifically mentions engagement with customers
Unfavorable Regulatory/Tax Environments
Bottom-line focus GM is specifically tasked to accomplish this
Introduction of Cheap Cars from China
Both companies are watching this closely for impacts
While both automotive manufacturer’s describe optimism for the coming few years, there are
significant challenges. Based on a Bloomberg Businessweek report, the automotive industry is
facing two opposing factors. There are approximately 250 million cars on the road in North
America today and they will need replacing at some point. This suggests that there will be an
upturn in new automobile purchases. High unemployment, stagnant and falling wages and
poor consumer credit continue to plague the economy and automobile sales. “When income
disappears as quickly as it has in the last eight years, one of the first purchases to be deferred is
a new automobile.” (Bloomberg, 2009)
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Chapter 3 – Organizational Design
Organizational Structure defined as “the vertical and horizontal configuration of departments,
authority and jobs within a company”. (Williams, 2011, p. 159) Geographic
departmentalization structures a company into separate work units who do business in
particular geographic areas. (Williams, 2011, p. 163) Functional departmentalization organizes
work into units that are responsible of business functions. (Williams, 2011, p. 161) Product
departmentalization organizes work into units responsible for producing a particular product or
service. (Williams, 2011, p. 162)
Ford Motor Company is organized in a combination of geographic, functional and product
departmentalization. Ford’s two operating sectors are Automotive and Financial Services. The
Automotive sector is divided into the following segments: Ford North America, Ford South
America, Ford Europe and Ford Asia Pacific Africa. Each segment contains all functions of
development, manufacturing, distribution, service and parts. Until recently (when Ford
divested these segments), Ford also had product departments for Mazda, Volvo and Jaguar
Land Rover. The Financial Services sector has two segments: Ford Credit and Other Financial
Services. These two segments demonstrate functional departmentalization. William Ford Jr is
the Chairman of the Board and Alan Mulally is the President, CEO and Director. Each segment
(geographic, functional and product) has a Vice President who reports up to the President and
CEO. There are 19 people in the Ford Executive Officer Group. (Ford Motor Corporation, 2010,
p. 5)
IST 614 – Ford and GM Final Project Leo de Sousa
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General Motors has a very similar organizational structure as Ford. GM is also organized in a
combination of geographic, functional and product departmentalization. Unlike Ford, GM
reports all 5 of its segments together, mixing automotive and financial segments of the
company. The four automotive segments are: GM North America, GM Europe, GM
International Operations, and GM South Americas. Each automotive segment is responsible for
all operations in their geography. General Motors Financial Company handles the financial
business for GM. GM has one product segment focusing on GM Daewoo. This segment
reports up through GM International Operations. GM is led by Daniel Akerson who holds the
joint roles of Chairman and CEO. This differs from the split leadership at Ford between Bill Ford
and Alan Mulally. There are 18 people on General Motors’ Management team.
With each company having very similar organizational structures, we can infer that this was not
a contributing factor to explain why GM went bankrupt and Ford did not. One significant
difference between the companies is at the senior leadership level. In 2006, Bill Ford decided
to break from conventional automotive industry practice and hired Alan Mulally from Boeing.
Mulally is an engineer by training and had a long and successful career at Boeing. (US News,
2010) He left Boeing as the Executive Vice President of The Boeing Company and the President
and CEO of Boeing Commercial Airplanes where he is credited for BCA’s turnaround. (Ford
Motor Company, 2011) Bill Ford commented on the collaborative relationship he has with
Mulally. “I talk to Alan many times a day, every day. The way we like to work, our styles are
very similar, we don’t have formal meetings, we bounce back and forth between each other’s’
offices … The other thing is that it gives each of us someone to talk to.“ (The Urban WallStreet,
2011) In November, 2006 Mulally is credited with the bold move of mortgaging all of the
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company’s assets to give Ford “a cushion to protect for a recession or other unexpected event.”
(Vlasic, 2009) This cushion proved to be the saving grace for Ford when GM had to declare
bankruptcy. This action fits with Collins and Porras’ view of Ford as a “visionary” company and
their definition of a “Big Hairy Audacious Goal – BHAG” (Collins & Porras, 2002, p. 94)
Meanwhile, GM needed the Federal government to fire the “old guard” GM Executives
including then CEO Rick Wagoner. (US News, 2010) At the time of the GM restructure, Daniel
Akerson was appointed to the board of directors representing the US Treasury department. In
September 2009, Akerson was named CEO and became Chairman of the Board in January 2011.
Akerson has an expertise in finance with a diverse background in telecommunications,
government and consulting but no experience in the automotive industry. Interestingly, GM
had a similar opportunity to take advantage of an outsider’s view in 2005, when Jerry York was
appointed to the GM Board. In 2006, York detailed a list of fixes that he felt were necessary for
GM to remain competitive. He called it a “clean sheet approach to the business”. (Carty, 2009)
York was ignored and ironically, the bankruptcy proceedings implemented the changes he
recommended three years earlier. Perhaps this would have saved GM from bankruptcy.
Peter Drucker provides some insight into GM’s failure to heed Jerry York’s advice. “Basic
assumptions about reality are the paradigms of social science, such as management.” and “The
discipline’s basic assumptions about reality determine what it focuses on.” (Drucker, 2001, p.
69) These quotes describe the mindset of GM executives who stuck to their assumptions
about their industry and in the economy they worked, in spite of evidence that their business
IST 614 – Ford and GM Final Project Leo de Sousa
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models were not sustainable. “The assumptions also largely determine what is being
disregarded or is being pushed aside as an “annoying exception”.” (Drucker, 2001, p. 69)
In GM’s case, they focused on sales volumes without realizing that each sale was at a loss due
to the zero percent financing and cash incentive schemes used. They insisted their large
number of brands was appropriate. This quote is an example of GM’s entrenched mindset “The
symbol of GM's swing too far toward trucks is the high-end Hummer. GM launched the big SUV
in 2003, the compact H3 in 2005. As buyers edged away from trucks, then fled as fuel prices hit
records in 2008, GM wound up with pricey models that not only didn't sell, but also gave it an
environmental black eye. Some of the heftiest Hummer H2s barely managed 10 miles per
gallon.” (Carty, 2009)
IST 614 – Ford and GM Final Project Leo de Sousa
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Chapter 4 – Finance
This section analyzes Ford and General Motors’ 2010 consolidated balance sheets based on four
types of key ratios: liquidity, debt, profitability and investment. This report does not make any
recommendations about whether Ford or General Motors is a better investment. Investing in
companies is a personal decision based on the investor’s personal risk and investment profile.
The financial ratios listed in the table have commentaries that explain the differences between
Ford and General Motors.
Table of Values from Ford and GM 2010 Financial Statements (Ford Motor Company, 2010)
(General Motors Corporation, 2010)
Ford General Motors Commentary
Current Assets 135,555 63,985 Ford Financial = 76%, GM Financial = 17%
Current Liabilities 40,935 54,516 GM has higher current liabilities than Ford
Cash + Receivables 113,028 45,842 Ford Financial = 78%, GM Financial = 20%
Cash 35,771 26,616 Ford has more cash than GM
Total Debt 102,140 4,630 Ford Financial = 83%, GM Financial = 65% *GM's debt was forgiven in bankruptcy
Total Assets 165,793 138,898 Ford has more assets than GM Total Liabilities 166,435 101,739 Ford has more liabilities than GM
Shareholder Equity (642) 36,180 Ford Liab>Assets, GM Assets>Liab
Net Income 6,561 4,668 Ford more profitable Number of Shares 3,449 1,500 Ford has 2x as many shares
Earnings per Share 1.90 3.11 GM has fewer shared = higher EPS
Book Value per Share 1.57 21.96 GM has less debt than Ford
200 Day Moving Average Price 11.74 25.39 GM has higher share price
Market Cap 40,491 38,085 Ford has larger Market Capitalization
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Table of Financial Ratios Calculated from Ford and GM 2010 Financial Statements (Ford
Motor Company, 2010) (General Motors Corporation, 2010)
Ford General Motors CommentaryLiquidity
Current Ratio = Current Assets/ Current Liabilities
3.311 1.174 Ford has more cash to pay down debt
Quick Ratio = Cash + Receivables / Current Liabilities
2.761 0.841 Ford has more cash to pay down debt
Cash Ratio = Cash / Current Liabilities
0.874 0.488 Ford has more cash to pay down debt
Debt RatiosDebt Ratio = Total Liabilities / Total
Assets1.004 0.732 Ford is more financially leveraged
than GM
Long Term Debt Ratio = Total Debt / Total Assets
0.616 0.033 Ford is more financially leveraged than GM
Debt to Equity Ratio = Total Liabilities / Shareholder Equity
-259.245 2.812 Ford is more financially leveraged than GM
ProfitabilityReturn on Assets = Net Income / Total Assets
0.040 0.034 Ford earned more income per asset
Return on Equity = Net Income / Shareholder Equity
-10.220 0.129GM has a positive ROE, Ford had negative Shareholder Equity
Investment
Price Earnings Ratio = Market
Value Per Share / Earnings per Share
6.172 8.159Investors are willing to pay more for $1 of GM earnings than they are of $1 of Ford earnings
Dividend Yield = Dividends /
Earnings per Share0 0
Ford and GM do not offer dividends
Price to Book Ratio = Market Value Per
Share / Balance Sheet Value Per
Share
7.478 1.156Indicates that the market considers Ford overpriced compared to its book value compared to GM
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In the liquidity category, Ford has more debt than GM because Ford chose to mortgage their
assets to create a cash cushion which helped them survive the 2008-2009 economic crisis. The
financial ratios show that Ford has more liquidity than GM and is better able to pay down its
debt. In the debt category, General Motors has very little debt as they were forgiven their debt
when during the bankruptcy. There will be tight restrictions on GM in the next few years as
they must meet their restructuring plan with the federal governments of the United States and
Canada. In the profitability category, Ford has more income than GM but GM had a higher
positive return on equity. Ford’s return on equity is negative as they have more liabilities than
assets. This fits with Ford working to pay down its “mortgage the company” strategic plan. In
the Investment category, investors are willing to pay more per dollar of GM earnings over Ford.
Neither company currently offers dividends to investors. The price to book ratio indicates that
the market believes Ford to be over priced per share compared to GM. Conservative investors
may see General Motors as the safer investment (lack of debt) and perhaps that is why they are
willing to pay more for their shares. Value investors may choose Ford as they have a strong
cash flow, have significantly reduced costs and are actively paying down their debt which will
free up more capital to invest in the company.
Finally, if the analysis done by Jim Collins and Jerry Porras holds true then visionary companies
like Ford Motor Company will continue to outperform comparison companies like General
Motors over the long term by six times. (Collins & Porras, 2002, pp. 5-6)
IST 614 – Ford and GM Final Project Leo de Sousa
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Chapter 5 – Social Responsibility
Social responsibility is “a business’s obligation to pursue policies, make decisions, and take
actions that benefit society”. (Williams, 2011, p. 72) Social responsibility may arise from social
impacts of the institution and “deals with what an institution does to society”. (Drucker, 2001,
p. 51) Or they may arise from existing societal problems and “is concerned with what an
institution can do for society”. (Drucker, 2001, p. 51) Another way to look at this involves two
perspectives of social responsibility. The first is the Shareholder model where “the
organization’s overriding goal should be to maximize profit for the benefit of shareholders”.
(Williams, 2011, p. 73) The second model is the Stakeholder model where “management’s
most important responsibility, long-term survival, is achieved by satisfying the interests of
multiple corporate stakeholders.” (Williams, 2011, p. 74) Most successful companies blend
these two approaches as they conduct business.
Ford creates an annual Sustainability report and has Susan M. Chischke, Ford’s Group Vice
President, Sustainability, Environment and Safety Engineering appointed to oversee these
functions. Ford focuses on three areas: Economy, Environment and Society. (Ford Motor
Company, 2011) Bill Ford Jr. states “Creating a strong business and building a better world are
not conflicting goals – they are both essential ingredients for long-term success.” (Ford Motor
Corporation, 2010, p. 19) Ford Volunteer Corps is a permanent part of the Ford Fund and
Community Services. The Corps is made up of employees and retirees and in 2010, they
volunteers over 112,000 hours. Ford has been a national sponsor for breast cancer prevention
and research for 16 years and raised over $100M of the cause. Ford tried to live up to its
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Stakeholder Model in the late 1940’s and early 1950’s by introducing seatbelts in their cars.
Unfortunately, sales dropped and they reverted to the Shareholder Model and pulled the cars
from production. (Drucker, 2001, p. 52) Another Ford example, demonstrates that focusing on
the Stakeholder Model actually provided Stakeholder benefits. In 1913, Ford announced that
they would pay $5 per day wage for skilled workers. This tripled their salary costs overnight.
After implementing this program, Ford actually saw labor costs go down as they were able to
retain skilled workers (they used to have to hire 6 workers for every 1 job annually due to
turnover). This established Ford as the dominant automaker and allowed them to deliver more
profit per car sold. (Drucker, 2001, pp. 56-57)
General Motors created the GM Foundation as the source of their social responsibility work.
GM focuses on Education, Health and Human Services, Environmental and Energy and
Community Development. (General Motors Corporation, 2011) The GM Foundation has
donated more than $350M to their programs. Unlike Ford, GM does not appear to put as much
focus on social responsibility. There is no Vice President position and unlike Ford they do not
link the economy into their plan for corporate responsibility. (General Motors Corporation,
2011) With the new restructuring of General Motors, it will be interesting to observe if there is
more emphasis on the Shareholder model (short term) over the Stakeholder model (long term).
The company is being run by a political appointee and is essentially a division of the US
Department of the Treasury. This puts significant oversight and focus on repaying the
government loans given to General Motors over planning the company’s future.
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Drucker wrote that management’s social responsibility was to “not knowingly to do harm.”
(Drucker, 2001, p. 65) In the years leading up to the 2008-2009 economic crisis, Ford and GM
behaved in two very different ways in responding to the expectations of their stakeholders.
Social responsiveness strategies can be placed on a continuum from doing nothing to doing
much. There are four main strategies – reactive, defensive, accommodative and proactive.
(Williams, 2011, pp. 77-78)
Ford, under Mulally’s leadership, put itself in a position to weather the economic crisis by
ensuring it had secured funds in advance. They took a proactive strategy by looking at their
business, identifying which areas were harming long-term success and came up with proactive
approaches like reducing the number of automotive brands, selling off ownership in non-core
assets and making good deals with their unions. (Bloomberg, 2007) Ford is a clear example of
taking a proactive social responsiveness strategy and succeeding.
General Motors, on the other hand, continued to insist its business model was sound including
keeping all its automobile brands while other manufacturers were rapidly downsizing. (Vlasic,
2009) GM killed its electric car program and sold off its financial unit GMAC (which brought in
more profit than the automotive segment). (Carty, 2009) These actions cause significant harm
to GM stockholders, employees and the US and Canadian taxpayers. The actions of the GM
executive team demonstrate a reactive social responsiveness strategy which ultimately ended
in bankruptcy.
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Chapter 6 – Innovation
Organizational innovation is defined as “the successful implementation of creative ideas in
organizations.” (Williams, 2011, p. 119) Both Ford and General Motors have a history of
innovation. Henry Ford’s integration of the assembly line, interchangeable parts to create a low
cost automobile, the Model T was the first in a long history of innovations. Unfortunately for
Ford, the success of the Model T led to complacency within the company and by Henry Ford.
General Motors was able to capitalize on Ford resting on their success. GM introduced
installment selling, used car trade-ins, closed car models and annual model changes – and
colors other than black! (Harvard Business Review, 2011) Throughout their shared histories,
each company followed S-curve patterns of innovation. The S-curve pattern of innovation is a
pattern of technological innovation characterized by slow initial progress, then rapid progress
and then slow progress again as a technology matures and reaches its limits.” (Williams, 2011,
p. 120)
Research and Development Spending (millions of USD)
Company 2008 2009 2010
Ford $7,100 $4,700 $5,000
General Motors $8,012 $6,051 $6,962
Both companies also struggled with introducing innovation into their products. Ford tried, in
the late 1940’s and early 1950’s, to introduce seatbelts in their cars. Unfortunately, sales
dropped and they pulled the cars with seatbelts from production. (Drucker, 2001, p. 52)
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General Motors started a small electric car program in the late 1990’s called the EV1. “It was a
public relations debacle when the test cars had to be reclaimed and GM then scrapped them.”
(Carty, 2009) GM CEO Wagoner killed the program and set GM back almost 10 years. Finally in
December 2010, GM launched the Chevy Volt electric car. “Al Benchich, a retired union
president, says with the failure of the EV1, GM squandered the opportunity to keep the U.S. a
dominant manufacturing force in a green era.” (Carty, 2009)
Ford specifically mentions innovation as part of their “improved safety and quality” focus. Ford
introduced inflatable seat belts and curve control as new innovations in the Explorer. Ford also
uses simulation technology to simulate employees on the assembly line to provide data to
predict and eliminate issues. (Ford Motor Corporation, 2010, p. 11)
General Motors mentions innovation in their description of “The Road Ahead”. They
specifically mention the Volt, electric car, and the innovations in the automotive battery,
electric power control as well as in “processes to accelerate the pace of innovation across the
company.” (General Motors Corporation, 2010, p. 4)
Drucker details four entrepreneurial strategies. The first “Being fustest with the mostest”
describes how GM took the lead in introducing information technology into their vehicles over
15 years ago. (Drucker, 2001, p. 161) This strategy is also known as “first to the market”.
OnStar provides “in-vehicle safety, security, communication and convenience services … to over
six million subscribers” globally. OnStar is an added cost, bolt-on feature available for GM
vehicles. (General Motors Corporation, 2011) GM pioneered this technology and is the industry
leader.
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Ford used a different strategy that Drucker calls “Hit them where they ain’t”. (Drucker, 2001, p.
165) Ford is demonstrating being a “conservative innovator” and a “creative imitator” with its
partnership with Microsoft Corporation to create “Sync” and MyFord Touch Smart
Technologies. A “conservative innovator” is conservative and “they are not risk-focused; they
are opportunity-focused”. (Drucker, 2001, p. 279) Creative imitation “describes a strategy that
is “imitation” in substance. What the entrepreneur does is something somebody else has
already done. But it is “creative” because the entrepreneur applying the strategy …
understands what the innovation represents better than the people who made it and who
innovated”. (Drucker, 2001, pp. 165-166) Ford took the features of OnStar, enhanced them
with newer technology from Microsoft and made changes to their vehicle design to make the
technology a “part of the car” instead of a bolt-on. (Ford Motor Company, 2010, p. 12) Ford
has been successful in imitating and improving on GM OnStar’s leadership position.
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Conclusion
Ford Motor Company and the “new” General Motors Corporation will continue to be large
drivers of the economy especially in North America. Both companies employ large numbers of
people, conduct business globally and are looking at alternative sources of fuel to power the
cars of the future. Ford made four key decisions that contributed to helping them survive the
economic crisis in 2008-2009. They first brought in an outsider to lead the company as CEO.
Alan Mulally came from Boeing and was able to make changes that Chairman Bill Ford Jr could
not. Mulally implemented a BHAG by mortgaging the assets of the company to build a $23B
cash cushion to restructure and help the company survive the downturn. This proved to be a
stroke of genius even when industry analysts saw it as a sign of desperation. Mulally also
renegotiated the union labor agreements and was able to significantly reduce labor costs.
Finally, Ford implemented a consolidation program of their brands by selling non-core brands
so that they could focus on the Ford and Lincoln brands leading to cost savings and positioning
the company to more agilely respond to changing markets and economies. Ford’s Stakeholder,
long term approach makes them a visionary company that determines its own future.
General Motors was not nearly as foresighted in their approach. They chose to ignore advice
from a member of their board, who was not part of the automotive industry, to consolidate
their brands. GM stayed entrenched in their belief that keeping many brands would be the way
to succeed. They failed to consider the high cost of labor in their factories and did not work to
renegotiate labor contracts. Finally, the implemented zero percent loans and huge cash
incentives that resulted in selling vehicles for a loss. These failures led to GM declaring
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bankruptcy in June 2009. The “new” GM is a division of the US Department of Treasury and
also answers to the Government of Canada and a UAW Pension trust. GM’s new CEO is a
political appointee from the Department of the Treasury. General Motors was forced to
significantly downsize and to implement the changes Ford had started over 3 years earlier. It
will be difficult for GM to take full control of their strategy and future direction as long as they
are beholden to the parties that rescued the company from bankruptcy. General Motors will
continue to take a Shareholder, short term approach for the future as they pay down their
debt. Ford on the other hand, actively manages its debt burden with a strong cash flow and
does not have the constraints of being a pseudo-government company.
Ford has the edge from a customer perspective particularly in the United States. They can
rightly point to their ability to survive and now thrive as a company without taking one cent
from the tax paying public. Ford’s focus on quality and innovation is showing in the new
vehicles and features they bring to the market. The leadership of Ford blends a long history of
automotive industry experience in Bill Ford Jr with the innovative leadership of Alan Mulally.
Looking over the long history of the company should give customers and investors confidence
that Ford will continue to be a visionary company. The “new” General Motors is not the same
company that went bankrupt. Going through bankruptcy, badly damaged GM’s reputation and
created internal turmoil that will take years to recover from. Daniel Akerson, GM’s CEO is a
political appointee from the Department of the Treasury. He has a mandate to lead the
company out of bankruptcy and ensure the government loans are paid back. This focus puts
GM years behind Ford. The focus on consolidating brands and cutting costs will hamper their
ability to innovate.
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From a CEO perspective, Ford seems to be doing all the right things. They proactively
recognized the problems with their business model and secured funding in a low interest
environment to allow them to restructure early and more importantly survive. The company’s
focus on people comes through in their strategy and their product delivery. Ford leadership
must continue to focus on paying down its debt especially as they continue to benefit from
being profitable. Building strategic partnerships with industry leaders like Microsoft will allow
Ford to share the costs of innovation and continue to deliver features customers demand for
many years to come. Ford cannot rest on their success and they need to keep a Shareholder
model focus to remain a visionary company.
General Motors needs to find a way to look past their restructuring plan that ends in 2014.
Some key areas to focus on are managing the organizational impacts of consolidating their
brands. It is not clear today what damage was done to the culture of the organization from the
bankruptcy and forced restructuring process. GM needs to look at their strategy and find a way
to focus on people. The current strategy is very much focused on loan repayment and
restructuring. A serious marketing effort should be implemented to communicate to the public
(particularly in the US and Canada) that their ability to pay back all the government loans is on
track. Now that GM has launched their Chevy Volt electric car, they need to invest more in
research to gain back a leadership position in that area of sustainability. Current CEO Akerson
should begin to look for a successor with the right blend of automotive experience and
innovative leadership style. This is not a simple task and may require several years to cultivate.
If a group of leaders can be cultivated then GM will be in a position to move the company
forward after the restructuring period is over.
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