Transforming Ford Into a Profitable Business

By: Murad Ali

Ford Motor Company was one of the first automotive manufacturing companies. Since this time many competitors have moved into the market. With the current shift in the economy Ford Motor Company is having a difficult time maintaining profitability and has begun to reform its Company for a healthier existence (Sedgwick, Kurylko, LaReau & Kranz, 2008). The following Chapter discusses an introduction to the history of Ford Motor Company and some of the problems the Company faces.

Background of the Study

Ford Motor Company had its beginnings with Henry Ford who began to build cars from his Farm in Dearborn Michigan in 1908 (Kovalainen, 1997). At this time Ford Motor Company had a competitive advantage due to their strong early beginnings and lack of competitors. Ford had a nine-year head start before Chevrolet began full production around 1912 (Teahen, 2005). Once Ford was required to compete they adjusted their Model T with additional features but Chevrolet still gained loyal followers.

The American automotive manufacturers were supreme in the world of cars until once small Japanese manufacturers like Toyota began to produce small cars in 1955 (Kovalainen, 1997). The development and history of Ford are very similar in the manner that both Ford and Toyota has some of their earliest work associated with the World War Two effort and planes. In today’s world the two companies are competing for the top automotive manufacturing positions in the world.

Borrowing from the guitar industry where American guitar manufacturers began producing guitars in Japan and importing them back to the U.S., some automotive companies like Saturn, Dodge and Ford began to follow the same model (Galvan, 2006). The companies would produce the cars overseas for a cheaper cost and then ship them back to the U.S. for higher profit margins. In the past the high value of the dollar has made offshore production and importing of cars into the U.S. possible. The low dollar may reduce that trend.

When Chevrolet first passed up Ford Motor Company the president of Ford stated that Ford has been in the lead for 18 years and isn’t going to do anything special to retain its title because most years have been a windfall (Teahen, 2005). Ford Motor Company’s lack of desire to compete may contribute to its current financial crisis beginning in 2007.

With the change in the economy companies like Ford are having a difficult time maintaining profitability by producing cars overseas (Sedgwick, Kurylko, LaReau & Kranz, 2008). The dollar value has dropped significantly and the cost of manufacturing overseas and shipping the cars back to the U.S. has increased. Companies like Ford are considering building cars in the U.S. for not only the American market but for overseas markets as well (Sedgwick, Kurylko, LaReau & Kranz, 2008).

The future of Ford Motor Company as a separate automotive manufacturer is at stake. If the company doesn’t begin to be innovative and produce brands and products that are appealing to the American public the Company will be in serious financial straits (Kiley & Welch, 2006). Accordingly, the company’s debt load, high cost production and inability to be creative will catch up to their ability to continue to borrow money. This may lead to the inability to pay for production and the interest on the debt.

Statement of the Problem

Ford Motor Company has been losing money and the company has been attempting to regain profitability but may have not made the cultural changes necessary to achieve that goal. Even though Ford Motor Company has improved its financial numbers in 2007, when compared against 2006, it still has a long way to go before meeting 2009 objectives (Kiley, 2008). Therefore, delving into Ford Motor Company’s organizational culture may have a significant influence on its ability to maintain profitability.

This qualitative study will explore the concept of organizational culture within Ford Motor Company. It will delve into a deeper understanding of how this organizational behavior helps or hinders Ford Motor Company’s overall performance and the meeting of future financial objectives. This information should be useful not only to decision makers at Ford Motor Company but also to other business leaders that desire the organizational culture in their own companies.

Purpose of the Study

The purpose of this study is to explore the relationship between organizational culture and profitability of Ford Motor Company. The literature research based theoretical study is designed to review the available literature and draw conclusions based upon the findings. In a theoretical study the researcher utilizes available knowledge of different theories and applies them to a unique situation a company or person is having. This study is designed to explore organizational culture and its potential ability to enhance Ford Motor Companies profitability.

Significance of the Problem

The automotive industry has been declining and cars cannot be sold at competitive prices within the continental U.S. (Sedgwick, Kurylko, LaReau and Kranz, 2008). Some of the reasons lie in the lower dollar value, decline of manufacturing within the country, foreign competitiveness and organizational behavior. Improving the organizational culture may have an effect on the overall success of not only Ford Motor Company but also the automotive industry within the U.S.
Over 30 General Motors, Chrysler and Ford plants closed in 2007 costing nearly 100,000 people to be out of work (Machine Design, 2007). In addition, current ongoing strikes over lower wages at American Axel and Steel in Hamtramck Michigan have shown that labor unions are willing to fight wage decreases. Industry leaders and state politicians would be benefited in understanding how organizational culture contributes to declining profitability which leads to job loss and declining tax bases.

Nature of the Study

The study will take the form of literature search and be theoretical applied in nature. The study was designed to review Ford Motor Companies current financial position current organizational culture at Ford Motor Company and explore the possibility of adjusting this organizational behavior to more appropriate reflect current market realities.

Significance of the Problem

The value of the dollar has been declining due to the slowing of the economy (Ewing, Capell, & Matlack, 2008). The American automobile industry has been competing against foreign companies and due to the high price of the dollar has moved operations overseas. As the dollar declines American companies are considering moving manufacturing back into the U.S. in order to regain lost profits (Ewing, Capell, & Matlack, 2008). The change in economic conditions and declining profit affects major corporations and new strategies must be developed.

The American automotive industry has been accused of not maintaining a competitive advantage because they cannot connect with consumers (Sawyer, 2008). The designs have become outdated and the ability to develop new products hampered. The inability of some organizations to develop cultures that can be innovative and still focus on customers needs may seriously hamper industries.

Significance of the Study to Leadership

Leaders have a responsibility to overcome obstacles and improve shareholder wealth at the organizations under their control. As leaders face questions of unpredictability within their own organization this study can be used as one source to help these leaders understand how organizational behavior impacts their own companies. In particular, Ford leaders could utilize this report to better understand the organizational culture within Ford Motor Company and improve upon the organizations profitability.

Research Questions

RQ1: What are the leading cultural influences within Ford Motor Company?
RQ2: What is the impact of Ford’s corporate culture on their profitability?
Theoretical Framework

A case study is often used when a holistic, depth filled investigation is needed to understand the problem (Feagin, Orum & Sjoberg, 1991). The case study allows investigators to understand complex problems through either an exploratory, explanatory, or descriptive method (Yin, 1993). The explanatory method is ideal when describing complex problems like those seen at Ford Motor Company.

In order for the case study to be successful and ensure accuracy a method of triangulation is used (Stake, 1995). Triangulation can use the form of data source, when researchers look at multiple data, investigator triangulation, when multiple researchers are used to examine the study, theory triangulation, when multiple points of view are used to interpret a similar result and methodological triangulation, when one approach is followed by another to increase confidence. (Denzin, 1984). Drawing from multiple sources of information can help a study be more sure of findings.

Assumptions

The first assumption is that the data and information found in the literature is accurate. Inaccurate data can impact the overall results and recommendations of the study by tainting the overall understanding of the situation. The more accurate the data the higher the likelihood the researcher will be able to interpret the information.

The second assumption is that the researcher is not attempting to bias the results of the study. That he or she doesn’t receive a monetary gain from reporting inaccurate results or take any personal satisfaction from coming to a particular conclusion. The researcher is assumed to be a non-biased evaluator of the subject of the study.

Limitations

The study will be limited to available and published materials about Ford Motor Company. Important research about the inner workings of the company may not be available and the researcher may have no access to direct information related to Ford Motor Company’s expected turn-around. The research will need to rely on second hand information reported in journals, articles and other literary publications.

Summary

Chapter 1 introduces the topic that the companies of Ford, GM and Chrysler have terminated the employment of over 100,000 workers in the past few years (Machine Design, 2007). The American automotive industry is losing customers because they are having a difficult time coming up with designs that appeal to the customers (Sawyer, 2008). Ford Motor Company is attempting to rejuvenate its sales and return to profitability by 2009 (Kiley, 2008). This transformation will require considering the organizational behavior inside the company and determining whether or not that behavior contributes or hinders the restructuring process.
The study will be conducted as a qualitative that will explore the organizational culture at Ford Motor Company and be conduced as case study that applies theory to explain the results. A case study is used when a holistic, depth filled investigation is needed to understand the problem (Feagin, Orum & Sjoberg, 1991). The study will scan available material about Ford Motor Company, determine major components of the Company’s organizational behavior and make recommendations based on current organizational theory.

CHAPTER 2: REVIEW OF THE LITERATURE

Documentation

Title searches included Ford, Ford Motor Company, corporate culture, organizational culture, organizational behavior, and workplace culture. The search led to approximately 1,015 scholarly research articles. Using the same word cluster a search on all databases with Proquest came up with 11 news articles, journals and newspaper articles. Of these 11 articles, journals and newspaper articles 5 articles contained information about Ford Motor Company and organizational culture.

Organizational Culture at Ford

The organizational culture at Ford can be described by some as dictatorial (Shahmanesh, 2002). The traditional style of leadership and paternalistic approach may be rooted in Ford’s earliest concepts of a job for life. However, at Ford Motor Company strict hierarchical organizational charts and rules determine the path of knowledge and innovation within the organization. Workers often are afraid to voice their opinion in meetings (Wilson, 2007).

Family has been part of Ford’s management since the earliest founder Henry Ford rolled out the Model T. This mindset of cronyism has led to a number of family based position appointments. For example, Steve Hamp was appointed to chief of staff report to his brother in law Bill Ford (Wernle, 2005). Prior to his appointment Steve Hamp ran Ford’s Museum and Greenfield Village and moved quickly, due to family connections, to chief of staff with significant responsibility to instill innovation within the organization (Wernle, 2005). In classic Ford style family connections and family politics abound (Taylor, 2006).

An analysis of Ford Motor Company indicates that instilling more systems thinking into the culture at Ford would benefit the company greatly (Seligman, 2005). Up until this time Ford Motor Company had difficulty maximizing productivity, lessening costs and thinking about the long-term implications of their systems designs. With a more systematic approach the Company could expect to realize higher returns on their products due to efficiencies.

Ford Motor Company has also recently become more diversified by weaving diversity into their departments and allowing women an expanded roll within their corporation (Dempsey, 2006). Some departments have made an expanded effort to increase their overall diversity within the organization that allows for more innovative thinking.

In order for Ford to be innovative they must be honest with where their products currently are and the hard work they will need put into improve their products (Bill Ford, 2006). Honesty would help Ford members understand that their products are not always the best on the market and continuous improvement is necessary. An inability to see the flaws within their products hinders this improvement process.

The culture at Ford is seen as stale and in need of change (Connelly, Wilson & Rechtin, 2007). The culture may end up hindering the ability to improve the company’s products and services. Without this improvement it is possible that Ford Motor Company will continue to decline in terms of market share and profitability.

Organizational Behavior Theory
Theory X and Theory Y are commonly cited among college students. Theory X is the command and control type of management while Theory Y is more facilitate and supportive in orientation (Thomas & Bostrom, 2008). Theory Y assumes that employees are self-motivated and need management support in order to achieve full potential while Theory X indicates that workers are not internally motivated and must be pushed to complete tasks.

Theory X and Y are not mutual exclusive. Theory X and Y are gradations between outside motivation (managerial enforcement) and internal motivation (worker self-motivation) and are not typically defined in the extremes (Hofstede, 1994). Within organizations individual workers may range from self-motivated to externally motivated. In addition, management philosophies and approaches will also range on a spectrum between the X and Y extreme.

Theory Y is often associated with employee empowerment management style while Theory X is associated with bureaucracy (Wilkinson, 1998). Organizations that are highly bureaucratic often stifle worker innovation and productivity while reducing worker content (Wilkinson, 1998). Therefore, workplaces that empower their employees may find that employees take more responsibility over their actions, work more diligently and be more innovative.

Vroom’s Expectancy Theory indicates that indicates that the emotional orientations people hold toward extrinsic or intrinsic rewards plus their personal self-confidence in achieving these goals as well as the belief that their managers will actually reward behaviors that lead to these goals helps determine the amount of energy employees will put towards those goals (Vroom, 1964). When managers encourage certain behaviors and then reward those behaviors if exhibited they will continue to see those behaviors exhibited over and over.

A study conducted with 296 participants correlated higher test performance with higher expectancy on test results both before and after taking the test (Sanchez, Truxillo & Bauer, 2000). People who believe they will do well with tasks appear to actually do perform well on these tasks. In situations where the results are not expected to be high then it is possible that performance will be muted.

Expectancy Theory indicates that motivation is based on the desirability of outcomes (valences) for expending energy and the probability (expectancies) that those outcomes will follow the effort (Behling & Starke, 1973). Therefore, a worker’s motivation comes from a rational thought about the desirability of getting a promotion, raise, or any other reward for working hard. The workers then weigh the likelihood of actually being rewarded after expending this energy. If the effort doesn’t result in the expected outcome workers motivation will go down.

Rational Choice Theory believes that employees are rational human beings who make decisions based upon rational choices (Weber, 1920). These rational choices could be cost, benefits, expenditure of resource, or anything else that affects the employee. The employee may perceive the realities around them based upon the inputs from their environment.

People who make decisions do so because of the reinforcements (rewards) they hope to earn but people don’t always make decisions based simply on tangible reinforcements (Herrnstein, 1990). In other words, reinforcements aren’t the only reasons why people make decisions. Other factors might also include self-perception, self-esteem, lack of confidence, confusion about the choices, and much more.

When people face environmental restrictions on the reinforcements that would normally be earned through rational choices they may adjust those rational choices for different courses (Heckter, 1994). For example, if normal rational choices within organizations do not produce positive reinforcements some members may choose to make decisions that don’t appear rational. In such situations people cannot be expected to act in pre-defined ways due to a lack of reinforcement.

Summary

Workers often are afraid to voice their opinion in meetings (Wilson, 2007). This fear of not following the status quo may result from the paternalistic approach that is followed at Ford Motor Company through the appointment of family members to key positions (Taylor, 2006). The company has a difficult time being innovative in their approaches to designing and building consumer appealing cars (Connelly, Wilson & Rechtin, 2007). The culture is considered to be stale (Connelly, Wilson & Rechtin, 2007) and in need of creativity throughout the organization combined with a strong leaning towards systems thinking (Seligman, 2005). Theories that relate to organizational behavior within Ford may be Theory X (Thomas & Bostrom, 2008), Expectency Theory (Vroom, 1964) and Rational Choice Theory (Weber, 1920).

Final Case Analysis

Ford Company began with the efforts of Henry Ford who began to crank out some of the earliest mass production cars around 1908 (Kovalainen, 1997). At this time Ford workers were seen as some of the highest paid workers in any field. Ford paid his workers well and required higher skills then that which was commonly found in an agrarian society. Since this time the Ford Motor Company’s organizational culture has been developing.

One of the difficulties that Ford Motor Company faces is the fear of workers voicing their opinions that are contrary to established rules (Wilson, 2007). From the products to the way the products are produced there is a general arrogance within Ford Motor Company about the way business is done and has been done. Workers may feel as though voicing opinions contrary to executive management may hurt their chances of future promotion or reward. According to Rational-Choice Theory people make decisions based upon the available data and make decisions that are logical (Weber, 1920). To some employees it may not be logical to contradict a superior and risk future promotion.

More systems thinking and innovation are needed at Ford Motor Company (Seligman, 2005). However, workers may not be willing to put forward as much energy if they do not feel as though they will be rewarded in the end for their efforts. Expectancy Theory indicates that workers will expect rewards for their efforts or else they will not willing put forward the energy (Vroom, 1964). In other words, what’s in it for the workers?

The management style within Ford Motor Company may be leaning toward the Theory X side of the spectrum (Thomas & Bostrom, 2008). This may be due to the heavily unionized environment at Ford, the need for strict rules to manage the work force, and the inability of union leadership to encourage more accountability and responsibilities at Ford. In order for Ford to encourage innovation employee innovation and responsibility may need to come to the surface.

Recommendations

The following list constitutes recommendations for improvement of Ford Motor Companies overall culture. Such recommendations are based on the need for additional productivity, innovation and employee accountability.

Recommendation 1: Reward systems should be designed to encourage innovation in the work force. When workers invent a new way of doing business, come up with better ideas, bring forward these ideas to management the workers should be rewarded for valid ideas that contribute to the company.

Recommendation 2: Union negotiations should focus on additional perks for employees and on more accountability. The “status quo” and nature of labor relations must change within Ford. Both the union and the company must learn to come to an understanding that the company must survive in order to continue paying high wages.

Recommendation 3: Management should be adjusted to better reflect the needs of the organization according to the current needs of the industry environment. This change should include shuffling executive staff, hiring new talent and focusing on stronger recruitment practices.

Recommendation 4: Policies and procedures should be adjusted to ensure that there are forums for the discussion of products across multiple levels of the organization. From workers up to vice presidents employees should have the opportunity to elicit thoughtful discussion on how the product is being built and any improvements warranted.

References:

Alex, T. (2006). Ford’s new model. Fortune, 154 (7).

Behling, O. & Starke, F. (1973). The postulates of Expectancy Theory. The Academy of Management Journal, 16 (3).

Bill Ford: Honesty is marks Field’ best policy. (2006). Automotive News, 80 (6197). Retrieved May 7th, 2008 from Ebscohost Database.

Connelly, M., Wilson, A., & Rechtin, M. (2007). Farley’s job: revamp Ford marketing. Automotive News, 82 (6277).

Dempsey, K. (2006). New diversity trends could have far-reaching effects. Personnel Today. Retrieved May 7th, 2008 from Ebscohost Database.

Denzin, N. (1984). The research act. Englewood Cliffs, NJ: Prentice Hall.

Ewing, E., Capell, K. & Matlack, C. (2008). The power of the falling dollar. Business Week. Retrieved May 09, 2008 from Ebscohost Database.

Feagin, J., Orum, A., & Sjoberg, G. (Eds.). (1991). A case for case study. Chapel Hill, NC: University of North Carolina Press.

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Heckter, M. (1994). The role of values in rational choice theory. Rationality and Society, 6 (3).

Herrnstein, R. (1990). Rational choice theory: necessary but not sufficient. American Psychologist, 45 (3).

Hofstede, G. (1994). Management scientists are human. Management Science, 40 (1).

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Kiley, D. & Welch, D. (2006). How to fix Ford. Business week online. Retrieved May 7th 2008 from Ebscohost database.

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Sanchez, R, Truxillo, D. & Bauer, T. (2000). Development and examination of an expectancy-based measure of test-taking motivation. Journal of Applied Psychology, 85 (5).

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Selignman, J. (2005). Building a systems thinking culture at Ford Motor Company. Reflections, 6 (4/5).

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Thomas, D. & Bostrom, R. (2008). Building trust and cooperation through technology adaptation in virtual teams: empirical field evidence. Information Systems Management, 25 (1).

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Weber, M. 1920. 'Conceptual Exposition'. In Economy and Society. Edited by G. Roth and C.
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Article Source: Loan Info Center

Murad Ali is a three time book author, a business professor and a human resource manager. He runs the following sites: (Business Articles) www.themodernbusinessworld.com (Dating Articles) www.datingdesires.blogspot.com (Website Marketing) www.article-agent.org (Free article directory) www.article-agent.net

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