Ford's e-Business Strategy

Abstract:
The case looks at the issues relating to Ford's e-business strategy. It talks about how Ford sought to
transform itself from an 'old economy' firm to a 'new economy' firm using the Internet to further its
objectives. During 1999, Ford discovered the potential of web technologies and sought to leverage
its competencies using the Internet. As a part of the strategy, it partnered with few other automakers
to form 'Covisint' - an online market place that linked its members to more than 30000 suppliers of
components. In addition to this it also took special initiatives to build excellent relationships with
customers, dealers and suppliers as this held the key to survival. It floated an e-CRM company, and
gave its employees a PC and other hardware for a nominal cost, which were all part of its e-business
initiatives.
Issues:

» The rationale and benefits associated with e-commerce initiatives for a large MNC and their long-
term implications.

Ford's e-Business Strategy

"Henry Ford put wheels on the road, and now we are putting wheels on the Internet."

- Phil Spender, Managing Director, Ford India Ltd.

Introduction
In early 1999, Ford Motor Company (Ford), the leading automobile manufacturer in the
world, announced its e-business strategy, through which it sought to transform itself from an
'old economy' to a 'new economy' company. Almost 90 years after Ford introduced the world
to the concept of mass production, the company was all set to revolutionalize the auto
industry, by using the Internet to introduce radically new ways of planning, manufacturing
and selling cars.

Towards the end of 2000, Ford announced its 'Build to order' model for manufacturing cars.
The model, similar to Dell Computer's model was expected to help Ford's customers to
customize car features with just a click of the mouse.

The model once implemented would enable customers to get what they ordered, delivered at their
doorsteps. Initially, customers were allowed to send personalized information through Ford's website
(Forddirect.com) which enabled them to configure, select, price, finance and schedule delivery of
any Ford car or truck. Ford expected major improvements in supply chain management as well as
rise in demand for its vehicles after the implementation of its e-business initiatives (Refer Exhibit I).

Above all, Ford hoped to increase customer satisfaction levels by providing speed,
convenience and value-added information to them (Refer Exhibit II). This led some analysts
to remark that none of the other automobile companies were pursuing their e-biz initiatives
as boldly and broadly as Ford. However, critics felt that it was not necessary for Ford to
rush with its e-business initiatives on such a large scale. They criticized Ford for
announcing several grand plans but implementing few. Moreover, return on investment was
one of the key issues for e-business ventures. Jurgen Hubbert, a member of
DaimlerChrysler's management board, said, "Why jump into this sort of business when
nobody makes money?"
Background Note
Ford was established in June 1903 by Henry Ford. The company's first car Model A. It was
introduced in July 1903. Several manufacturers launched expensive car models to compete with
Model A, but failed. A few years later, Ford launched Model T, which became very successful
because of its durability and easy reparability. In the early 1920s, Ford entered the luxury car
segment by acquiring Lincoln Motor Company. However, in the 1920s, General Motors (GM)
launched a variety of styles, an assortment of colours and became Ford's biggest competitor.

In the 1930s, Ford faced major problems during the Great Depression. Henry tried to deal with the
depression by increasing wages and reducing prices.

Ford also obtained an order to supply to the US Military 500 liberator bombers 1 per month to support
the World War II, as a result of which the company survived. In the 1940s, Henry Ford II (Henry Ford's
grandson) took over as the CEO of Ford. He made several changes in the company including
establishing of 'Profit Centers', to identify areas that were not making money. He also closed obsolete
plants and initiated moves to retrain workers. In January 1956, Ford made an initial public offering of
10,200,000 shares. In the 1960s, Ford expanded its operations to Europe.

The oil crisis of 1974 had a major impact on the automobile industry. While the US market shifted
towards small and fuel-efficient cars, Ford had excess capacity in large cars. Ford responded by
diverting a part of its production capacity to Pinto, its small car. By the mid 1980s, Ford's profitability
had improved and for the first time in 60 years, Ford generated more profits than GM worldwide. In
1988, Ford reported the highest level of profits ever for a US car company. In 1993, Ford's Board of
Directors appointed Alex Trotman as the new CEO. According to Fortune, Trotman's entrepreneurial
instincts and his remarkable self-confidence helped him get the coveted post. In 1998, Ford acquired
the Audi's racing engines unit.
Improving Supply Chain Efficiency
Ford believed that using the Internet improved the efficiency of its supply chain. In mid 1999, the
company created AutoXchange, a joint venture with Oracle that allowed online business-to-business
(B2B) transactions with its suppliers. AutoXchange helped Ford and its suppliers swap information
and bids on an estimated $300 billion worth of goods and services. Ford was able to reduce
suppliers' inventories and eliminate billions of dollars in excess stock by getting accurate information
to suppliers about short-term demand, with the help of the real-time orders entering its system.
According to Kelley2, Ford expected to reduce its $80 billion purchasing bill by 10% within the next
few years, through AutoXchange. However, cost savings on purchases was just one of the benefits...
Focussing on the Demand Chain

In 1999, Ford started its online initiatives for managing the demand chain by entering into a
partnership with Microsoft for developing CarPoint, an auto buying website. Retail customers could
order Ford cars through CarPoint...

The Future

According to Kelley, the major objectives of Ford's e-business strategy were to bring speed,
convenience, and information to customers rather than just focusing on cost cutting. The Internet
played a crucial role in helping Ford boost the satisfaction levels of its consumers. Kelley said: "The
consumer is king.

And the Internet is accelerating the speed at which they get what they want. Using the Net to zap
customer orders directly to factories and parts suppliers will eventually allow Ford to deliver cars to
consumers within days of ordering"...