Competitive Advantage Between Ford And Toyoyta

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In business, competitive advantage refers to possessing advantage over competitors (Porter, 1986). This advantage is that which comes as a result of smart and conscious strategic plans as compared to other factors. Success and failure of a company is highly dependent on competition and this implies that he way competition is handled is very crucial to the business process. When an organization creates and sustains profits that exceed the average among competitors, it is said to possess competitive advantage (Alan, 2009). The architect of this term is seen to be Michael Porter (1980) who described a scheme consisting of three strategies that business firms use to create and maintain competitive advantage. According to him, two types of advantages exist namely, cost and differentiation advantage (Kearney, 1992). Business firms today are keen on developing strategic plans that will efficiently give them advantage to their competitors. In this study, three companies that are the leading automobile companies in North America are assessed with an aim of analyzing the strategies they use in their competitive business area. The three leading automobile associations are Ford Motor Company, General Motors and Harley-Davidson, Inc.

Ford Motor Company

The company is a US based automobile multinational company with its headquarters in Dearborn, Michigan. Ford Motor Company is regarded among the top three automobile associations in the world, together with Chrysler and General Motors. Its headquarters are in the US and its operations are major in 4 countries; US, Canada, Brazil and Mexico (Ford, 2009). In 2000, after almost a century in operations, the company launched its strategic plan to focus on the 21st century. It’s vision which led to the development of the strategy was aimed at increasing its global market share, increasing profits, production of better and more vehicles and establishing itself as the world’s largest vehicle manufacturer. Its strategies can be summarized as;

  • Centralized strategic leadership (Ford, 2009)
  • Decentralized policy implementation

In centralized leadership, the company’s decision making is done by the top management (Kearney, 1992). This strategy was basically adopted to give the company the ability to consider broad range of market opportunities locally and internationally. This strategy would also allow the top management to engage more on product development in order to satisfy their customer’s expectations in multiple markets (Porter, 1986). By adopting a decentralized implementation approach, the company’s aim is to take advantage of centralized decisions being flexibly and rapidly implemented by their smaller companies (Liebeskind, 1996). The company adoption of this strategy was to eliminate layers of management in order to improve communication (Ford, 2009). In the company, the aim for management is to empower rather than control those under them.

Strategies Employed by the company

Beginning 2000, the company adopted a low cost strategy aimed at reducing cost of production by cutting all excess costs in all segments of its operations. The strategy dubbed FORD 2000 Total Cost Management aims at eliminating all excessive costs. As a step to realize this strategy, personnel in the engineering department have been reduced by 30%and massive expenditure has been cut from raw material costs. The company under this strategy adopted a one line manufacturing process where cars are developed entirely in one process rather than having different engineering sections concentrating on different segments of the production process. The management sees such efforts as helping reduce costs by helping the company become leaner yet maintaining quality. According to Porter (1983), this strategy aim at establishing cost advantage where the company produces at relatively lower cost hence giving it some market advantage over the competitors. Hence the plan adopted by this company can be summarized as; reduction of production costs focus on products and right sizing the business.  In rightsizing the business, the plan hoped to reduce production to manageable units, from 5.7 million to 4.8 million. It also included closure of five plants and elimination of low margin cars by 2005. At the same time, they would focus on producing stronger products including 10 freshened and 10 new models in Canada and North America. With the same breath, the company aimed at introducing 10 high quality new models in Europe.  Ford focuses on the strength of its name and product improvement as the strategy for winning the market. This strategy has been faulted as not being future focused since their strategy didn’t target production of vehicles using, alternate, greener energy (Kearney, 1992). An opportunity that the company can utilize is to differentiate their product so that they produce more environmental friendly cars that would endear them to the customers. This can be done by liaising and supporting other companies that are seen to be eco friendly and advertising their support for environmental protection.

General Motors Company

The company usually referred as GM has its headquarters in Detroit, Michigan and was ranked the third largest automaker in 2008 and the 18th largest corporate body ion the world in the fortune Global 500 (General Motors, 2009). It manufactures trucks and cars in 34 countries and employs 244, 500 people around the world. It offers vehicle servicing in 140 countries around the globe (General Motors, 2009). It’s owned partially by the Canadian government with the US treasury owning the majority of shares of approximately $57.6 billion. There has been a plan by the company to issue IPO (Initial Public Offering) by 2010. The company has been a leader in the automakers industry which has faced monumental challenges in the recent past especially in the face of the global crisis. One challenge that has been cited as a major challenge is the rising fuel prices and pressures emanating from global warming agitation. The challenges faced by the company can be used as a platform which the company can build strategies and emerge as winners through well strategized innovations. Some of the factors that GM ought to address in these recent times include the innovation of more user friendly vehicles that will be appealing to customers, legacy costs and unions.

Strategies used by the company

According to CEO, Sloan, the company’s hopes fro remaining afloat in a competitive industry can be achieved through three strategies namely;

  • Decentralized control
  • Proper market concept
  • Expedient finance controls
  • Quick technological innovation (General Motors, 2009)

Decentralized control for GM gives it the advantage of quick decision making across its branches which are distributed al over the globe. The managers who run branches in the global branches are empowered to evaluate and make critical decisions on behalf of the company (Alan, 2009). This ensures that GM has global profit centers which derive motivation from the head office. For GM to achieve its global goals, it has embraced up to date marketing analysis that keeps it informed about customer wishes. The company is currently engaged in high profile efforts of producing environmentally friendly autos in line with keeping balance in global warming.  In this effort, GM is in the process of producing alternate vehicles (electric, fuel celled hybrid and ethanol). The company major strategy is to be the world leader in innovation thereby giving it advantage. It was the first company to develop an electr4ic vehicle in 1992 and since it has the financial capability, analysts argue that GM competitive advantage lies in its ability to produce innovative alternative cars.

Toyota Company

The company, founded in 1937, is headquartered in Toyota City, Aichi and Nagoya, Tokyo. The company is rated as the world’s largest automaker. It employs approximately 320,808 people worldwide (Toyota Motors, 2009). To emerge as dominant leader in the world automobile industry, the company developed 14 strategies referred to the Toyota way which are seen as the fuel behind the company’s successes (Toyota Motors, 2009). The 14 principles includes using long term philosophies to make decisions, bringing problems to the surface, using pull systems to avoid over production, leveling out the work load, quality the first time, standardize tasks and using visual control to ensure that no problems are hidden. The company also embraces use of acknowledged and sure technology, invests in its workforce, and helps improve its partners, make decisions through consensus and relentless self examination (Alan, 2009). The overall production process is maintained at its highest quality level to ensure that no problem comes out of the product. In Toyota, one employee can stop a production process in case of noticing a mistake. The innovators in Toyota are encouraged to learn by seeing and this assists them to stay in touch within manufacturing and design concepts necessary for propelling the company forward. The company has a broad and open system where employees are motivated to think outside the box to help in improving the production. More time is spent in developing the correct process rather than the product and this enables the company to ensure a continuous production of quality vehicles. In the US market where the company enjoys a great market share the company’s strategy has been two fold;

  • Efficient marketing strategy
  • Product differentiation

During its entry into the US market in 1970’s the company introduced low cost automobiles which competed favorably with the major companies General Motors and Ford. After establishing itself in the market, the company started producing different cars that would adequately serve different market segments, in 1989, manufactured the Lexus cars to compete in the luxury market with Mercedes and BMW (Toyota Motors, 2009). The company is rated number one in producing and introducing new models in the market. Their cars are also seen as efficient as compared to other American models in terms of gas consumption and therefore are able to reach a considerably high market segment. Apart from making autos, the company also manufactures robots and provides financial services under its subsidiary, Toyota Financial services. This differentiation gives it a n advantage since the different lines of businesses supports each other. The company was however greatly affected by the global Crisis, with a reported record loss of US $ 4.4 billion reported on May, 2009 (Toyota Motors, 2009).

A Comparison

The global automobile industry is highly competitive and this requires companies to adopt rigorous strategies to keep p in business. The rigor involved can cost the companies massive resources like in the case of Toyota which recorded $4.4 billion loss in its financial year 2009. To keep ahead of the competition, the three companies have adopted almost similar strategies aimed at giving them advantage (Liebeskind, 1996).  Toyota’s main advantage is in product differentiation (Alan, 2009).   Toyota has invested in technology and is able to roll out new products in the market faster than its competitors. It’s investment in robots and financial services also shields it from risks associated with failure in the automobile industry. According to analysts, GM’s major strategy must remain innovation of great quality products that will match its business image globally. Analysts argue that customers expect the company to release products that can go beyond others in addressing major challenges such as global warming and skyrocketing gas prices. Ford’s strategy is on product development and this it dos through incorporating efficient leadership and technological innovations.

Conclusion

According to Porter (1980) a firm should seek to gain competitive advantage either through cost leadership, differentiation of products and focus. The automobile industry is currently faced by momentous challenges including fuel prices and global warming. This calls for the stake holders to invest in innovations that will lead to customer satisfaction and maintain competitive advantage (Liebeskind, 1996). The companies analyzed above have significantly adopted ingenious ways of being competitive with Toyota premiering in product differentiation. Ford is consistent with product improvement while General Motors is faced with the challenge of revolutionizing the industry by stepping up smart innovations.

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